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Distribution Networks

Distribution Networks. AG BM 460. Introduction. Transportation costs money Inventory costs money Buildings cost money Management and personnel cost money This means that distribution network decisions affect profitability – perhaps by a lot. Organic Food.

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Distribution Networks

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  1. Distribution Networks AG BM 460

  2. Introduction • Transportation costs money • Inventory costs money • Buildings cost money • Management and personnel cost money • This means that distribution network decisions affect profitability – perhaps by a lot

  3. Organic Food • How do you get it to the customer? • With small volumes are your distribution costs competitive? • Do you use the existing network or something else?

  4. It was all so simple once! market farmers consumers Parallel Markets

  5. Perfect Simplicity PRICE Farmer Consumer Wholesaler Consumer Farmer Consumer Consumer Farmer Consumer REGULATION

  6. Complexity in the Supply Chain Independent retailers Auctions Co-operatives Local production Wholesalers Abattoirs Processors Packers Caterers Wholesale markets Consumers Distributors Imports Supermarkets Manufacturers

  7. Distribution Network • How will you get your product to the customer? • Answer depends on the product • It is a classic system problem • McDonalds – stores, warehouses, materials flow • John Deere – dealers, parts inventories

  8. Basic questions • How many? • Where? • Who holds inventory? • How is ownership handled? • How about management?

  9. Trade-offs • Almost all of these decisions are about trade-offs • Inventory cost versus stock-out costs • Inventory costs vs. delivery times • Transport costs vs. warehouse costs • In-plant savings vs. transport costs • Wegman’s – dominate a market w/ one store

  10. Incremental Decision Making • One warehouse or two? • Do you expand into a new area? • How many McDonald’s are too many in State College? • Should you own your own warehouse or have someone else do it?

  11. Ricky’s Quicky Chicky • You have started a chain. When do you get your own warehouse or distribution center? • What criteria do you use?

  12. Milk Plant problem A milk processor in York is thinking of expanding into Reading. How do you decide what to do?

  13. Buffalo • Tupper Sverduk • Farm in NE Pennsylvania • How do you slaughter the product? • How do you sell the product? • Will these costs make your product uncompetitive?

  14. Concluding Comments • These problems are more complex than they seem • The payoffs from doing them right are substantial • Always involve a bunch of incremental decisions • Replace one warehouse with two – add a new subterminal

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