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Chapter 4

BU435 Chapter 4: BU435 Chapter 4

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Hamidreza Faramarzi

Chapter 4: Designing Distribution Network and Application to Online Sales 4.1 The Role of Distribution in the Supply Chain Distribution the steps taken to move and store a product from the supplier stage to a customer stage Key driver of the overall profitability of a firm bc it affects both the SC cost and the customer value directly Process of designing a distribution network has 2 broad phases: 1. Broad structure of the SC network is visualized. Decides the of stages in the SC and the role of each stage. 2. Takes the broad structure and concerts it into specific locations and their capability, capacity, and demand allocation 4.2 Factors Influencing Distribution Network Design At the highest level, performance of a distribution network should be evaluated along 2 dimensions: 1. Value provided to the customer 2. Cost of meeting customer needs Customer value is affected by many factors; we focus on measures that are influenced by the structure of the distribution network: Response time amount of time it takes for a customer to receive an order Product variety of different products or configuration that are offered by the distribution network Product availability probability pf having a product in stock when a customer order arrives Customer experience includes the ease with which customers can place and receive orders and the extent to which this experience is customized Time to market time it takes to bring new products to the market Order visibility ability of customers to track their orders from placement to delivery Returnability ease with which a customer can return unsatisfactory merchandise and the ability of the network to handle such returns Firms that target customer who can tolerate a long response time require only a few locations that may be far from the customer o These companies can focus on increasing the capacity of each location Firms that target customers who value short response lead times need to locate facilities close to customers o Firms must have many facilities, each with a low capacity Changing the distribution network design affects the following SC costs: o Inventories o Transportation o Facilities and handling o Information
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