1. Managing Fulfillment Operations
DISTRIBUTION:
Managing Fulfillment Operations

2. Learning Objectives
Study the strategic value-adding role distribution plays in the supply chain.
Appreciate the tradeoffs between distribution and other supply chain functions.
Understand the analytical framework for distribution planning decisions.
Evaluate fulfillment strategies and distribution methods.

3. Study the objectives, principles, and equipment for materials-handling
Learning Objectives, continued
Study the primary fulfillment processes and support functions in distribution center (DC) operations.
Apply productivity and quality metrics to fulfillment performance analysis.
Appreciate how information technology supports distribution operations.
Study the objectives, principles, and equipment for materials-handling

4. The Role of Distribution Operations in SCM
Balance supply and demand.
Protect against uncertainty.
Allow quantity purchase discounts.
Support production requirements.
Promote transportation economies.

5. Distribution Facility Functionality
The Role of Distribution Operations in SCM, continued
Distribution Facility Functionality
Acquisition
Storage (accumulation)
Assortment
Allocation
Disbursement
Distribution Tradeoff decisions
Inventory cost at DC vs. transportation cost
Inventory level vs. customer service level
Space vs. equipment vs. people

6. Figure 11.1 The DC’s Accumulation Role
Source: Brian J. Gibson, Ph.D.

7. Figure 11.2 DC’s Mixing (Assortation) Capability
Source: Brian J. Gibson, Ph.D.

8. Table 11.1 Value Adding Role of Distribution Operations
Source: Brian J. Gibson, Ph.D.

9. Figure 11.3 Functional Tradeoffs
Source: Brian J. Gibson, Ph.D.

10. Figure 11.4 Strategic Distribution Decisions
Source: Brian J. Gibson, Ph.D.

11. Distribution Planning and Strategy
Capability requirements
Product characteristics e.g., product value, durability, temperature sensitivity, obsolescence, and volume must drive the design of the distribution process.
Two options for product flow:
Direct shipment of goods
from the manufacturer to retailer
from the retailer to consumer
Movement of goods through distribution facilities to customers
Must analyze the inventory, transportation, and service trade offs before choosing between direct shipping and the use of distribution facilities.

12. Network Design Issues Inventory positioning
Distribution Planning and Strategy, continued
Network Design Issues
Inventory positioning
Inventory is in a single location
Inventory is in multiple locations
The number and locations of distribution facilities within the supply chain, based on factors below:
Transportation costs
Cost of lost sales
Warehousing costs
Inventory costs
DC ownership (owned or contract?)
Internal facilities owned by the organization
External warehousing (owned by a third party; a traditional approach)
Contract warehousing (a customized version of external warehousing)

13. Facility Considerations
Distribution Planning and Strategy, continued
Facility Considerations
the size of warehouse operation
Products to be warehoused in the facility
Warehouse layout.
Space for load and unload
An area for rework and returns
Space for other and miscellaneous requirements (such as sortation and packaging)
Office space for administrative and clerical activities

14. Figure 11.6 Distribution Cost Tradeoffs
Source: Edward J. Bardi, Ph.D.

15. Figure 11.7 Distribution Cost Comparison
Source: Edward J. Bardi, Ph.D.

16. Table 11.2 Factors Affecting Distribution Facility Ownership
Source: Brian J. Gibson, Ph.D.

17. Table 11.3 Facility Layout Principles
Source: Brian J. Gibson, Ph.D.

18. Distribution Execution
Product-Handling Functions
Receiving – transferring goods into facility
Put away – moving goods into storage locations
Order picking – selecting goods for customers
Replenishment – moving product from storage locations to picking slots
Shipping – loading goods for delivery
Support Functions
Inventory control
Safety, maintenance, and sanitation
Security
Performance analysis
Information technology

19. Figure 11.8 Primary DC Processes
Source: Brian J. Gibson, Ph.D.

20. Table 11.4 Best Practices in Order Picking
Source: Adapted from The Journey to Warehousing Excellence, (Tompkins Associates) Section 2

21. Distribution Metrics Measures of Customer Service
Order accuracy and order completeness
Customers want to receive the exact products and quantities that they ordered, not substitute items, incorrectly shipped items, or wrong quantities
Timeliness is a critical component of customer service
Perfect order index (POI)
Delivered to the right place
at the right time
in defect-free condition
with the correct documentation, pricing, and invoicing

22. Internal Measures Distribution cost efficiency
Distribution Metrics, continued
Internal Measures
Distribution cost efficiency
Aggregate cost efficiency
Total distribution spending versus goal or budget
Asset utilization
Resource productivity
Distribution costs averaging nearly 10 percent of a sales dollar
Resource efficiency

23. Table 11.5 DC Metrics and Benchmarks
Source: Manrodt, Tillman, and Vitasek, “A Bright Side to Dark Times”, DC Velocity (April 2010) 42-44

24. Distribution Technology
Warehouse Management Systems
Software control system that improves product movement and storage operations
Value-added capabilities
Generate performance reports
Support paperless processes
Enable integration of materials handling equipment
Picking systems
Sorting systems
Leverage wireless communication

25. Automatic Identification Tools
Distribution Technology, continued
Automatic Identification Tools
Technologies helping machines identify objects.
Magnetic strips and readers
Barcodes and scanners
Mobile computers & wireless local area networks (LAN)
RFID and transponders

26. Summary
Distribution operations perform inventory handling, storage, and processing activities to create time and place utility for the supply chain.
A variety of supply chain challenges—balancing supply and demand, protecting against uncertainty, and promoting transportation economies, among others—can be addressed by distribution facilities.
Four primary functions that are carried out by traditional distribution facilities: (1) accumulation, (2) sortation, (3) allocation, and (4) assortment.
Distribution operations are taking on value-adding roles—assembly, kitting, product postponement, sequencing, etc.—to complement their basic functionality and to support evolving supply chain needs.

27. Summary, continued
Tradeoffs must be made between space, equipment, and people—the primary resources available to distribution managers.
It is critical to match distribution processes to the items being handled to protect product integrity, promote customer service and satisfaction, and provide greater control of the inventory.
Distribution network design issues involve centralization/decentralization of inventory, the number and location of facilities, and facility ownership.
Effective facility planning—operational size, layout, and product placement—positively impacts labor productivity and response time.

28. Summary, continued
Distribution execution involves five primary processes related to the handling and storage of product: (1) receiving, (2) put-away, (3) order picking, (4) replenishment, and (5) shipping.
Fulfillment support functions provide coordination between key processes and across the supply chain, protect the organization’s inventory investment, and improve working conditions within the facility.
Distribution KPIs address asset utilization, labor productivity, and cost efficiency of the operation, as well as customer service quality issues and the ultimate goal of perfect order fulfillment.

29. Summary, continued
Warehouse management systems software solutions improve product movement and storage operations through efficient management of information and completion of distribution tasks.
Barcodes and RFID are the automatic identification tools of choice in distribution to help track, locate, and move product quickly—with near-perfect accuracy rates to their consumers.