1. Managing Fulfillment Operations
DISTRIBUTION:
Managing Fulfillment Operations

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

3. Describe how information technology supports distribution operations.
Learning Objectives, continued
Describe the primary fulfillment processes and support functions in distribution center (DC) operations.
Use productivity and quality metrics to analyze fulfillment performance.
Describe how information technology supports distribution operations.
Discuss materials-handling objectives, principles, and equipment uses.

4. The Role of Distribution Operations in SCM
Balancing supply and demand.
Protecting against uncertainty.
Allowing quantity purchase discounts.
Supporting production requirements.
Promoting transportation economies.

5. Distribution Facility Functionality
The Role of Distribution Operations in SCM, continued
Distribution Facility Functionality
Accumulation
Sortation
Allocation
Assortment
Distribution Tradeoffs
Cost of distribution centers and inventory vs. cost of transportation
Cost of additional facilities vs. level of customer service
Space vs. equipment
Equipment vs. people
People vs. space

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

7. Figure 11.2 The DC’s Mixing 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 Challenges
The Role of Distribution Operations in SCM, continued
Distribution Challenges
Labor availability
Demand variation
Increasing customer requirements

12. 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.

13. Distribution Challenges
Distribution Planning and Strategy, continued
Distribution Challenges
Labor availability
Demand variation
Increasing customer requirements
Network Design Issues
Inventory positioning focuses on the issue of where inventory is located within the supply chain
Single location
Multiple customer-facing positions
Second and third network design issues focus on the number and locations of distribution facilities within the supply chain.

14. Network Design Issues, continued
Distribution Planning and Strategy, continued
Network Design Issues, continued
Number of facilities needed for a supply chain involves the evaluation of cost tradeoffs with other functional areas:
Transportation costs
Cost of lost sales
Warehousing costs
Inventory costs
Own or contract?
Private DCs are internal facilities owned by the organization
Public warehousing is the traditional external distribution option
Contract warehousing is a customized version of public warehousing in which an external company provides a combination of distribution

15. Facility Considerations
Distribution Planning and Strategy, continued
Facility Considerations
First facility consideration is to determine the size of each operation within the network.
An area may be needed for processing rework and returns
Office space is needed for administrative and clerical activities
Space must be planned for miscellaneous requirements

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

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

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

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

20. 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

21. Support Functions, continued
Distribution Execution, continued
Support Functions, continued
Security
Performance analysis
Information technology

22. Figure 11.8 Primary Distribution Center Processes
Source: Brian J. Gibson, Ph.D.

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

24. Distribution Metrics Customer Facing Measures
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

25. 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

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

27. 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

28. Automatic Identification Tools
Distribution Technology, continued
Automatic Identification Tools
Technologies helping machines identify objects.
Barcode scanners
Mobile computers
Wireless local area networks (LAN)
RFID

29. 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 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.

30. 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.

31. 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.

32. 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.