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Supply Chain Operation

DELIVER

© 2007 Pearson Education 14-1


Distribution Strategies
 Exclusive Distribution
– Limiting the distribution to only one
intermediary in the territory
 Intensive distribution
– Distribute from as many outlets as
possible to provide location convenience
 Selective distribution
– Appoint several but not all retailers

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Example of Exclusive Distribution

 Products such as specially automobiles, some


major appliances, certain brands of furniture eg
IKEA,

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Exclusive Distribution:
Advantages
 Maximize control over service level/output
 Enhance product’s image & allow higher
markups
 Promotes dealers loyalty, better forecasting,
better inventory and merchandising control
 Restricts resellers from carrying competing
brands

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Exclusive Distribution:
Disadvantages

 Betting on one dealer in each market


 Only suitable for high price, high margin, and
low volume products

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Example of Intensive Distribution

 Intensive distribution is appropriate for products


such as chewing gum, candy bars, soft drinks,
bread, film, and cigarettes where the primary
factor influencing the purchase decision is
convenience

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Intensive Distribution
 Advantages:
– Increased sales, wider customer recognition, and
impulse buying
 Disadvantages:
– Characteristically low price and low-margin products
that require a fast turnover
– Difficult to control large number of retailers

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Example of Selective Distribution

 Selective distribution may be used for product


categories such as clothing, appliances,
televisions, stereo equipment, home furnishings,
and sports equipment.

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Selective Distribution
 Advantages:
– Better market coverage than exclusive distribution
– More control and less cost than intensive distribution
– Concentrate effort on few productive outlets
– Selected firms capable of carrying full product line and
provide the required service

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Selective Distribution
(cont’d)
 Disadvantages:
– May not cover the market adequately
– Difficult to select dealers (retailers) that can match your
requirement and goals

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Factors Affecting Transportation
Decisions
 Carrier  Shipper
(party that performs the move) (party requiring movement of goods)
– investment decisions – supply chain design
– operating policies – transportation mode choice
– Costs considerations: – assignment of shipment to
» Vehicle-related: Type? Number? transportation mode
» Fixed operating: e.g. Terminal – Cost considerations:
facilities » Transportation: paid to carriers
» Trip-related: labour and fuel » Inventory: at intermediate
» Quantity-related: warehouses, retailers, etc.
loading/unloading » Facility: e.g. warehouse operating
costs
» Overhead: planning/scheduling,
» Processing: loading/unloading,
information technologies invoicing, etc.
– Capacity utilisation » Service level: expediting, safety
– Responsiveness/Service level offered stock, etc.
– Responsiveness; Delivery guarantees

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Transportation Modes
 Trucks
– TL
– LTL
 Rail
 Air
 Package Carriers
 Water
 Pipeline

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Transportation Network Design
 Direct Shipment Network
– Delivery direct from a supplier to a retailer
 Direct Shipment with Milk Runs
– Delivery from single supplier to several retailers
 Central Distribution Centre (DC)
– Suppliers ship only to DC
– DC ship direct to retailers
 Central Distribution Centre with Milk Runs

Tradeoffs? Number and location of DC’s?


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Transportation Network Designs

Suppliers Retailer Stores Suppliers Retailer Stores

Direct Supplier Network Direct Shipping with Milk Runs


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Transportation Network Designs

Suppliers Retailer Stores Suppliers Retailer Stores

DC DC

All Shipment via DC Milk Runs From DC


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Trade-offs in Transportation Design
 Transportation and inventory cost trade-off
– Choice of transportation mode
– Inventory aggregation
 Transportation cost and responsiveness trade-off

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Choice of Transportation Mode
 A manager must account for inventory costs when
selecting a mode of transportation
 A mode with higher transportation costs can be
justified if it results in significantly lower inventories

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Tailored Transportation
 The use of different transportation networks and modes
based on customer and product characteristics
 Factors affecting tailoring:
– Customer distance and density
– Customer size
– Product demand and value

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Role of IT in Transportation
 The complexity of transportation decisions demands to
use of IT systems
 IT software can assist in:
– Identification of optimal routes by minimizing costs subject
to delivery constraints
– Optimal fleet utilization
– GPS applications

© 2007 Pearson Education 14-19


Risk Management in Transportation
 Three main risks to be considered in transportation are:
– Risk that the shipment is delayed
– Risk of disruptions
– Risk of hazardous material
 Risk mitigation strategies:
– Decrease the probability of disruptions
– Alternative routings
– In case of hazardous materials the use of modified
containers, low-risk transportation models, modification of
physical and chemical properties can prove to be effective

© 2007 Pearson Education 14-20


Making Transportation
Decisions in Practice
 Align transportation strategy with competitive
strategy
 Consider both in-house and outsourced transportation
 Design a transportation network that can handle
e-commerce
 Use technology to improve transportation
performance
 Design flexibility into the transportation network

© 2007 Pearson Education 14-21

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