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Logistics in Channel Design

Logistics in Channel Design. Distribution Channel Strategy Issues from “Tailored Logistics” E266-2000:2 L. P. Bucklin. Key Insights and Principle VII. End user volume is a key determinant for the potential for a independent channel versus a pooled-channel design

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Logistics in Channel Design

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  1. Logistics in Channel Design Distribution Channel Strategy Issues from “Tailored Logistics” E266-2000:2 L. P. Bucklin

  2. Key Insights and Principle VII • End user volume is a key determinant for the potential for a independent channel versus a pooled-channel design • Every firm's end users have heterogeneous needs for logistic service • A single logistic channel for all customers will provide an average service and average price for all • Designing a separate channel for each EU optimizes VA • But, low volume channel segments will result independent channel diseconomies and lead to the pooling of some channels across different segments

  3. Logistic Channel Process • Identify EU key logistical and product needs • Cluster EU logistical needs across products to identify potential for pooling products to form product mix-logistical needs segments • Design ideal prototype supply chains for each segment • Balance diseconomies of scale cost to serve a segment against service losses from further channel pooling of full or partial channels • Consider sharing systems, or partnering, with other firms or outsourcing all or part of the supply chain

  4. Distinguish Inventory Types • Speculative Inventory (Risk Holding Point) • Inventories comprised of fungible products on first come/first basis • Efficient when customer identities or future purchase requirements cannot be accurately forecast • Transit Point (Ship-Through-Inventory Point) • Inventories comprised of products marked for specific destinations /customers • Facilitate rapid ingress, egress with little time at the inventory point

  5. Independent vs. Pooled Channels Supplier Speculative Inventory Off-the shelf orders Transit Inventory Pre-production orders End User End User End User

  6. Characteristic Affecting Channel Pooling • Product unit value—a printing press or a hex nut • EU order volume, individual order or shipment size • Degree of order coordination and accuracy of delivery timing, product preparation • Merchandising complexities, order taking requirements • Order response times • Delivery characteristics; fragility, assembly, kits • Product handling characteristics • Substitutability of different product types of EU needs

  7. Logistic Channel Options • System Orders--coordinated staging with warehouse with speculative inventories\build assortments • Inventory Replenishment--stocking points near or at largest customers • Rapid Response--shipment of individual orders, high speed transport system • Nuts & Bolts--Sold in bulk from warehouse • Slow Movers--Shift orders to suppliers, direct • Bulk Cable--Specialized truckers, regional warehouses

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