Change in Distribution – Network designs – Handling
May 14, 2010, 3:16 pm
Filed under: Additional Information

Find out how Distribution and Sales have changed and what types of Network designs exist as well as types of how logistics are handled

Distribution and Sales have changed

Formally the information flow was following the reverse path of the distribution.

Suddenly the internet changed it. Because of managing stock on different places simultaneously – regarding of the own warehouse or outsourced warehousing.

Now the Client can contact the company directly and the information flow and the distribution bath are not the same any more therefore the whole system has changed since the upcoming of the internet.

Dell – Buying through the internet – they never see the product – the keyboard is manufactured in China the Computer in for ex. India the warehousing can be in Germany and the website in the USA.

Picture: Delivery times from dell

Many things can be managed simultaneously.

Almost the only objective is for a logistics Managers is to reduces cost

Characteristics that affect service levels and costs

Service Level

  • Response time
  • Product Veriety
  • Product Availability
  • Customer Experience
  • Time to Market
  • Order Visibility
  • Return ability – the ability to receive back what ever you buy.

How to manage the service level factors.

We can work in Logistics to achieve the Service Levels

  • Inventory
  • Transportation
  • Facility and Handling
  • Information

Network Distribution functions

  • Transport
  • Service
    • Sales Related adapting the Product getting the TV to the House and do the installing

– Non Sales Related  maintenance of the Car

  • Risk assumption
  • Financial function
  • Storage and Handling
  • Unit Load Transfer – Usually not big boxes are bought by the end consumer but mostly smaller quantities so the Unit Load has to transferred to smaller portions

Value to weight

  • Reductions to volume to weight ration, lead to cost reduction
  • As the value-to-weight ratio grows the transportation costs are less relevant
  • If 10% of the unit load is empty, costs are 10% higher

If someone wants sand one buys a whole truck because it is terrible expensive to transport but not expensive to store.

If a product has a lot of value compared to weight so it is „cheap“ to transport but the warehousing is higher.

IKEA changed with its packaging and not  assembled furniture the paradigm. So instead having to transport assembled furnitures that is terrible expensive they were able to bring down the costs of transportation and while doing so having a huge impact on local furniture producers.


  • As relevant as to know the product to be sold is to know its demand
    • Seasonal Demand
  • The Distribution network has to have the ability to expand or shrink
    • Life Cycle Phase (DemandTrend)
    • At introduction and growth phases, availability is more relevant. Cost optimization is interesting when passed those phases.

For example with the new product launch for ex. a new cars first all dealers have to be provided with the new model even without having any demand.

  • Life limited products.
    • Products with a limited life should be treated more carefully, and usually from a centralized live.
  • Predictability Level of Demand
    • Each demand might be splitted into base and surge demand

Like Producing a base demand in China and having some surge demand producing in a local factory that can be used for a short time

Distribution Channels

Path or pipeline through which goods and services flow in one direction (from vendor to the consumer), and the payments generated by them flow in the opposite direction (from consumer to the vendor). A distribution channel can be as short as… (wikipedia)

Chain of intermediaries, each passing the product down the chain to the next organization, before it finally reaches the consumer or end-user…. This process is known as the ‘distribution chain’ or the ‘channel.’ Each of the elements in these chains will have their own specific needs, which the producer must take into account, along with those of the all-important end-user.

By – Piyush rAJ Parihar (Wikipedia)

The faster the Response the more distribution Centers are necessary.

Each client and product might need a different response time therefore the distribution has to be designed around it.

Total Cost vs. Number of Facilities

The total Costs with the Number of Facilities is increases (Carrefour)- once they reach insight dens areas like a city the costs for the Facilities is increasing even more (Mercadonna)

Material Flow


  • Number of warehouses
  • Warehouse type: Cross Dock (UPS -> they don‘t want to store they want to link), CW, RW
  • Direct Delivery or Route Delivery

6 basic network Designs

  • Retail storage with Customer Pickup
  • Manufacturer Storage with Direct Shipping
  • Manufacturer Storage with In- Transit Merger
  • Distributor Storage with Packages Carrier Delivery
  • Distributor Storage with Least mile delivery
  • Manufacturer Storage with pickup (mostly not very pleasant)

Storage with Direct Shipping Network

The basic Idea about the analysis it to analice the material flow and the information flow.

Fora excample with an information hub and cerveral factories

In-transit merge network

Like Dell Information goes to one Retailer – The parts from different Factories delivering to one hub the parts are put together for one customer then shipped from one hub to the customers

Distributor Storage with Carrier Delivery

normal way of buying One distributor buys from Factories and the Information flow an product flow is going through one point.

Third (and Fourth) Party Logistics Providers (3PL-4PL)

Third and Fourth Party Logistics (3PL/4PL)

They are possible since material and information flows are disconnected

Most of the facilities and equipment are out-of-view and tend to be out of control

Better knowledge of the logistics market. Larger Purchase Power

Synergies between different companies: freight consolidation, seasonality

More thoughts
It is Interesting to know that most of the networks are created with a evolutionary process mostly not by thinking it through. So most of the networks are redesigned.

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