Description
the design options for distribution network in supply chain. It also explains crossdocking with the help of example of walmart.
Distribution Networks
1
GLOBAL
DESIGN OPTIONS FOR A DISTRIBUTION NETWORK
• Direct Shipping Network • Direct Shipping with Milk Runs • All Shipments via Central DC (including Cross-Docking) • Shipment via DC using Milk Runs • Tailored Network
2 2
GLOBAL
DIRECT SHIPPING NETWORK Suppliers Retail Stores
3 3
GLOBAL
DIRECT SHIPPING NETWORK
• In this option, the company structures its transportation network to have all shipments come directly from suppliers to retail stores. • Major advantage of a direct shipment is the elimination of intermediate warehouses and the decision made for one shipment does not influence others. • A direct shipment network may be suitable if retail stores are large enough such that optimal replenishment lot sizes are close to a TL from each supplier to each stores. • Disadvantages of direct shipment could be:
? Higher Transportation costs (loads would be transported primarily through LTLs)
? High receiving costs ? Complete coupling of company’s sales to vendor’s adherence to lead time.
4
GLOBAL
DIRECT SHIPPING WITH MILK RUNS
Suppliers
Loaded Truck
Retail Stores
Suppliers
Retail Stores
Milk Run from a Single Supplier to Multiple Stores 5 5
Milk Run from a Multiple Suppliers to Single Stores
GLOBAL
DIRECT SHIPPING WITH MILK RUNS
• A milk run is a route in which a truck either delivers product from a single supplier to multiple retailers or goes from multiple suppliers to a single retailer. • When using this option, a supply chain manager has to decide on the routing of each milk run. • Milk runs lower transportation cost by consolidating shipments to multiple stores on a single truck (it will convert many LTLs into TLs). • If very frequent, small deliveries are needed on a regular basis and either a set of suppliers
or a set of retailers is in geographical proximity, the use of milk runs can significantly
reduce transportation costs. •Toyota uses milk runs from suppliers to support its JIT manufacturing system in both Japan and United States.
6
GLOBAL
SHIPMENTS VIA CENTRAL DC
• In this option, suppliers do not send shipments directly to retail stores. • Retail chain divides stores by geographical region and a DC is built for each region. • Suppliers send their shipments to the DC and the DC then forwards appropriate shipments to each retail store.
Suppliers
Retail Stores
DC
7
GLOBAL
SHIPMENTS VIA CENTRAL DC
• The DC is an extra layer and can play two different roles – either to store inventory or to serve as a transfer location. • The presence of DC can help in greatly reducing the transportation costs if the suppliers are located far from the store location. (especially inbound transportation costs) as it can convert many of the shipments to LTLs). Because DCs serve stores located nearby, the outbound transportation cost is not very large. • DCs also give the buffer to the company as the inventory stored in the DCs can protect the
company to some extent over wrong Demand Forecasting, unreliable suppliers,
emergencies etc. • In cross-docking, DCs serve as the inventory coordination points where the material stays for only about 12 hours.
8
GLOBAL
SHIPMENTS VIA DC USING MILK RUNS
• In this option, both milk-run and DCs are used. Here Milk-runs are uses mainly used in Outbound Transportation
Suppliers
Retail Stores
DC
9
Cross Docking
10
GLOBAL
CROSS-DOCKING
• Cross-docking is a strategy that Wal-Mart made famous. • In this system, warehouses function an inventory coordination points rather than as inventory storage points. • In typical cross-docking systems, goods arrive at warehouses from the manufacturer,
are transferred to vehicles serving the retailers, and are delivered to retailers as
rapidly as possible. • Goods spend very little time in storage at the warehouse – often less than 12 hours. • This system limits inventory costs and decreases lead times by decreasing storage time.
11 11
GLOBAL
CROSS-DOCKING: WAL-MART STORY
• The tremendous market growth of Wal-Mart over the past 20 to 25 years highlights the importance of an effective strategy that coordinates inventory replenishment and transportation policies. • Over this time Wal-Mart developed into the largest and highest-profit retailer in the
world.
• A number of major components in Wal-Mart’s competitive strategy were critical to its success, but the most important has been its use of cross-docking. • Wal-Mart delivers about 85% of its goods utilizing cross-docking techniques, as opposed to 50 percent for Kmart (major competitor) • To facilitate cross-docking, Wal-Mart operates a private satellite communications system that sends POS (Point-of-Sale) data to all of its vendors.
12 12
GLOBAL
CROSS-DOCKING: WAL-MART STORY
• POS data allows vendors to have a clear picture of sales at all of its stores • In addition, Wal-Mart has a dedicated fleet of 2,000 trucks and on average, stores are replenished twice a week. • Cross-docking enables Wal-Mart of achieve economies of scale by purchasing full
truckloads.
• It reduces the need for safety stocks and has cut the cost of sales by 3% compared to the industry average, a major factor explaining Wal-Mart’s large profit margins.
13 13
GLOBAL
Pre-requisite to Implement Cross-Docking
• Cross-docking systems require a significant start-up investment and are very difficult to manage. • Distribution centers, retailers, and suppliers must be linked with advanced information systems to ensure that all pickups and deliveries are made within the
required time windows.
• A fast and responsive transportation system is necessary for a cross-docking system to work. • Forecasts are critical, necessitating the sharing of information. • Cross-docking strategies are effective only for large distribution systems in which a large number of vehicles are delivering and picking up goods at the cross-dock facilities at any one time.
14 14
GLOBAL
Pre-requisite to Implement Cross-Docking
• There should be large volumes every day to allow shipments of fully loaded trucks from the suppliers to the warehouses. Since these systems typically include many retailers, demand is sufficient so items that arrive at the cross-docking facilities can be delivered immediately to the retail outlets in full truckload quantities
15 15
GLOBAL
TAILORED NETWORK
• In this option, a suitable combination of previous options are used to reduce the cost and improve responsiveness of the supply chain. • Here transportation uses a combination of cross-docking, milk-runs, TL, LTL, package carriers etc.
• The goal is to use the appropriate option in each situation. High-demand products to
high-demand retail outlets may be shipped directly while low-demand products or shipments to low-demand retail outlets are consolidated to and from the DC. • Operating a tailored network requires significant investment in information infrastructure
to facilitate the coordination.
16
doc_732189884.pptx
the design options for distribution network in supply chain. It also explains crossdocking with the help of example of walmart.
Distribution Networks
1
GLOBAL
DESIGN OPTIONS FOR A DISTRIBUTION NETWORK
• Direct Shipping Network • Direct Shipping with Milk Runs • All Shipments via Central DC (including Cross-Docking) • Shipment via DC using Milk Runs • Tailored Network
2 2
GLOBAL
DIRECT SHIPPING NETWORK Suppliers Retail Stores
3 3
GLOBAL
DIRECT SHIPPING NETWORK
• In this option, the company structures its transportation network to have all shipments come directly from suppliers to retail stores. • Major advantage of a direct shipment is the elimination of intermediate warehouses and the decision made for one shipment does not influence others. • A direct shipment network may be suitable if retail stores are large enough such that optimal replenishment lot sizes are close to a TL from each supplier to each stores. • Disadvantages of direct shipment could be:
? Higher Transportation costs (loads would be transported primarily through LTLs)
? High receiving costs ? Complete coupling of company’s sales to vendor’s adherence to lead time.
4
GLOBAL
DIRECT SHIPPING WITH MILK RUNS
Suppliers
Loaded Truck
Retail Stores
Suppliers
Retail Stores
Milk Run from a Single Supplier to Multiple Stores 5 5
Milk Run from a Multiple Suppliers to Single Stores
GLOBAL
DIRECT SHIPPING WITH MILK RUNS
• A milk run is a route in which a truck either delivers product from a single supplier to multiple retailers or goes from multiple suppliers to a single retailer. • When using this option, a supply chain manager has to decide on the routing of each milk run. • Milk runs lower transportation cost by consolidating shipments to multiple stores on a single truck (it will convert many LTLs into TLs). • If very frequent, small deliveries are needed on a regular basis and either a set of suppliers
or a set of retailers is in geographical proximity, the use of milk runs can significantly
reduce transportation costs. •Toyota uses milk runs from suppliers to support its JIT manufacturing system in both Japan and United States.
6
GLOBAL
SHIPMENTS VIA CENTRAL DC
• In this option, suppliers do not send shipments directly to retail stores. • Retail chain divides stores by geographical region and a DC is built for each region. • Suppliers send their shipments to the DC and the DC then forwards appropriate shipments to each retail store.
Suppliers
Retail Stores
DC
7
GLOBAL
SHIPMENTS VIA CENTRAL DC
• The DC is an extra layer and can play two different roles – either to store inventory or to serve as a transfer location. • The presence of DC can help in greatly reducing the transportation costs if the suppliers are located far from the store location. (especially inbound transportation costs) as it can convert many of the shipments to LTLs). Because DCs serve stores located nearby, the outbound transportation cost is not very large. • DCs also give the buffer to the company as the inventory stored in the DCs can protect the
company to some extent over wrong Demand Forecasting, unreliable suppliers,
emergencies etc. • In cross-docking, DCs serve as the inventory coordination points where the material stays for only about 12 hours.
8
GLOBAL
SHIPMENTS VIA DC USING MILK RUNS
• In this option, both milk-run and DCs are used. Here Milk-runs are uses mainly used in Outbound Transportation
Suppliers
Retail Stores
DC
9
Cross Docking
10
GLOBAL
CROSS-DOCKING
• Cross-docking is a strategy that Wal-Mart made famous. • In this system, warehouses function an inventory coordination points rather than as inventory storage points. • In typical cross-docking systems, goods arrive at warehouses from the manufacturer,
are transferred to vehicles serving the retailers, and are delivered to retailers as
rapidly as possible. • Goods spend very little time in storage at the warehouse – often less than 12 hours. • This system limits inventory costs and decreases lead times by decreasing storage time.
11 11
GLOBAL
CROSS-DOCKING: WAL-MART STORY
• The tremendous market growth of Wal-Mart over the past 20 to 25 years highlights the importance of an effective strategy that coordinates inventory replenishment and transportation policies. • Over this time Wal-Mart developed into the largest and highest-profit retailer in the
world.
• A number of major components in Wal-Mart’s competitive strategy were critical to its success, but the most important has been its use of cross-docking. • Wal-Mart delivers about 85% of its goods utilizing cross-docking techniques, as opposed to 50 percent for Kmart (major competitor) • To facilitate cross-docking, Wal-Mart operates a private satellite communications system that sends POS (Point-of-Sale) data to all of its vendors.
12 12
GLOBAL
CROSS-DOCKING: WAL-MART STORY
• POS data allows vendors to have a clear picture of sales at all of its stores • In addition, Wal-Mart has a dedicated fleet of 2,000 trucks and on average, stores are replenished twice a week. • Cross-docking enables Wal-Mart of achieve economies of scale by purchasing full
truckloads.
• It reduces the need for safety stocks and has cut the cost of sales by 3% compared to the industry average, a major factor explaining Wal-Mart’s large profit margins.
13 13
GLOBAL
Pre-requisite to Implement Cross-Docking
• Cross-docking systems require a significant start-up investment and are very difficult to manage. • Distribution centers, retailers, and suppliers must be linked with advanced information systems to ensure that all pickups and deliveries are made within the
required time windows.
• A fast and responsive transportation system is necessary for a cross-docking system to work. • Forecasts are critical, necessitating the sharing of information. • Cross-docking strategies are effective only for large distribution systems in which a large number of vehicles are delivering and picking up goods at the cross-dock facilities at any one time.
14 14
GLOBAL
Pre-requisite to Implement Cross-Docking
• There should be large volumes every day to allow shipments of fully loaded trucks from the suppliers to the warehouses. Since these systems typically include many retailers, demand is sufficient so items that arrive at the cross-docking facilities can be delivered immediately to the retail outlets in full truckload quantities
15 15
GLOBAL
TAILORED NETWORK
• In this option, a suitable combination of previous options are used to reduce the cost and improve responsiveness of the supply chain. • Here transportation uses a combination of cross-docking, milk-runs, TL, LTL, package carriers etc.
• The goal is to use the appropriate option in each situation. High-demand products to
high-demand retail outlets may be shipped directly while low-demand products or shipments to low-demand retail outlets are consolidated to and from the DC. • Operating a tailored network requires significant investment in information infrastructure
to facilitate the coordination.
16
doc_732189884.pptx