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Distribution System

By Anonymous - Posted on 05 February 2012

The overall goal of a distribution system is to provide products & services in an efficient, timely &
cost-effective manner to multiple customers.

Distribution of products often creates a hierarchy of stocking locations. These include manufacturing
centers, distribution centers, wholesalers & retailers. These locations constitute the supply chain from
original producer to ultimate consumer.

The distribution of goods is also often referred to as logistics a term used in military to denote the planning & delivery of inbound & outbound materials.

Logistics 1) In an industrial context, the art and science of obtaining, producing, and distributing material and product in the proper place and in proper quantities.
2) In a military sense (where it has greater usage), its meaning can also include the movement of personnel”.

Factors Influencing Distribution Network Design
At the highest level, performance of a distribution network should be evaluated along two dimensions:
1. Customer needs that are met
2. Cost of meeting customer needs
The customer needs that are met influence the company's revenues, which along with cost decide the
profitability of the delivery network.

While customer service consists of many components, we will focus on those measures that are
influenced by the structure of the distribution network. These include:
• Response time
• Product variety
• Product availability
• Customer experience
• Order visibility
• Returnability
Response time is the time between when a customer places an order and receives delivery. Product
variety is the number of different products / configurations that a customer desires from the
distribution network. Availability is the probability of having a product in stock when a customer
order arrives. Customer experience includes the ease with which the customer can place and receive
their order. Order visibility is the ability of the customer to track their order from placement to
delivery. Returnability is the ease with which a customer can return unsatisfactory merchandise and
the ability of the network to handle such returns.

It may seem at first that a customer always wants the highest level of performance along all these
dimensions. In practice, however, this is not always the case. Customers ordering a book at
Amazon.com are willing to wait longer than those that drive to a nearby Borders store to get the same
book. On the other hand, customers can find a far larger variety of books at Amazon compared to the
Borders store. Firms that target customers who can tolerate a large response time require few locations that may be far from the customer and can focus on increasing the capacity of each location. On the other hand, firms that target customers who value short response times need to locate close to them. These firms must have many facilities, with each location having a low capacity. Thus, a decrease in the response time customers desire increases the number of facilities required in the network.

Distribution System Objectives:
The overall goal of a distribution system is to provide products & services in an efficient, timely &
cost-effective manner to multiple customers. This goal can be linked to the following objectives:

High Levels of customer service:
· Timely delivery lead times in accordance with customer expectations.
· Buffering against uncertainties in customer demand.
· Providing the necessary variety of goods, including display & sample products.

High Levels of Distribution Efficiency:
· Minimum transportation & storage costs for optimum distribution efficiency.
· Level production of replenishment orders to minimize disruption at the suppliers.
· Size & location of storage.
· Provision of timely & accurate inventory data.

Minimum Inventory Investment:
· Minimum necessary safety stock.
· Optimum order quantities to control excessive cycle stock.

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