Chapter 11 Distribution—Managing
Fulfillment Operations
Learning Objectives
 After reading this chapter, you should be able to do the
following:
 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.
Learning Objectives (cont.)
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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.
The Role of Distribution in SCM:
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1. Balancing supply and demand. Whether seasonal production must
service year-round demand (e.g., corn) or year-round production is needed
to meet seasonal demand (e.g., holiday wrapping paper), distribution
facilities can stockpile inventory to buffer supply and demand.
2. Protecting against uncertainty. Distribution facilities can hold inventory for
protection against forecast errors, supply disruptions, and demand spikes.
3. Allowing quantity purchase discounts. Suppliers often provide incentives
to purchase product in larger quantities. Distribution facilities can handle the
quantities, reducing the purchase cost per unit.
4. Supporting production requirements. If a manufacturing operation can
reduce costs via long production runs or if outputs need to age or ripen
(e.g., wine, cheese, fruit), the output can be warehoused prior to
distribution.
5. Promoting transportation economies. Fully utilizing container capacity
and moving product in larger quantities is less expensive per unit than
shipping “air” and moving small quantities at a time. Distribution facilities
can be used to receive and hold the larger deliveries of inventory for future
requirements.
Distribution Facility Functionality
Four primary functions are:
 accumulation
 sortation
 allocation
 assortment
Tradeoffs
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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
Capability Requirements
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Product characteristics must drive the design of the distribution process such as
product value, durability, temperature sensitivity, obsolescence, volume, and
other factors
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Two options for product flow:
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direct shipment of goods
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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
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Advantages of each
Disadvantages of each
Network Design Issues
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Inventory positioning focuses on the issue of where inventory is
located within the supply chain
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single location
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hold product in multiple customer-facing positions
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Advantages
Disadvantages
Advantages
Disadvantages
Second and third network design issues focus on the number and
locations of distribution facilities within the supply chain.
Number of facilities needed for a supply chain involves the
evaluation of cost tradeoffs with other functional areas:
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Transportation costs
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Cost of lost sales
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Warehousing costs
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Inventory costs
Facility ownership question
 Own or contract?
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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
Choosing between private and 3PL distribution options requires
significant planning and analysis
Facility Considerations:
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first facility consideration is to determine the size of each
operation within the network
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an area may be needed for processing rework and returns
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office space is needed for administrative and clerical activities
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space must be planned for miscellaneous requirements
Proper product slotting
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improve labor productivity and generate other advantages
including:
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Reduce order-picking labor requirements by locating product in the
optimal pick sequence
Reduce replenishment labor requirements by matching product unit
loads with the appropriate size storage slot
Reduce response time and improve flow by balancing workload
between operators
Increase picking accuracy by separating similar products to avoid
proximity picking errors
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Reduce product damage by organizing heavier product first in the pick
path, ahead of crushable product
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Increase palletizing productivity by arranging product by case height,
allowing the building of tighter pallets for better trailer utilization
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Defer capital expansion by maintaining the optimum warehouse layout
and cube utilization, reducing the need for building expansion
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Increase store-level productivity by organizing product in family groups
eliminating or reducing sorting of product for restocking at the store level
Support Functions:
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Inventory control
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Safety, maintenance, and sanitation
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Security
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Performance analysis
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Information technology
Distribution Metrics
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Distribution KPIs are objective measures of fulfillment
performance that are critical to the success of the
organization
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Important issues:
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cost efficiency
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inventory accuracy
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order fill rates
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capacity utilization
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)
 Perfect order index (POI)
 delivered to the right place
 at the right time
 in defect-free condition
 with the correct documentation, pricing, and invoicing
Internal Measures
 Distribution
 Aggregate
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cost efficiency
total distribution spending versus goal or budget
 Asset
utilization
 Resource
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cost efficiency
productivity
distribution costs averaging nearly 10 percent of a sales
dollar
 Resource
efficiency
Distribution Technology
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Warehouse Management Systems
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software control system that improves product movement and
storage operations
value-added capabilities
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generate performance reports
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support paperless processes
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enable integration of materials handling equipment
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picking systems
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sorting systems
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leverage wireless communication
Distribution Technology
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Warehouse Management Systems
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Other value-added capabilities:
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Labor management
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Task interleaving
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Systems integration
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Activity-based costing/billing
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Multifunction distribution
Automatic Identification Tools
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WMS utilizes Auto-ID data capture technologies:
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barcode scanners
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mobile computers
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wireless local area networks (LAN)
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RFID
Summary
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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: accumulation, sortation, allocation, and 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.
Tradeoffs must be made between space, equipment, and
people—the primary resources available to distribution
managers.
Summary (cont.)
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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.
Distribution execution involves five primary processes related to the
handling and storage.
Summary (cont.)
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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.
 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.