PART 1: NOTES

Chapter 4: Designing Distribution Networks and Applications to

Online Sales
Distribution: Refers to the steps taken to move and store a product from the
supplier state to a customer stage in the supply chain. This occurs between very par of
stages in the supply chain.
Distribution is so critical that two of the world’s most profitable companies have
built their success around outstanding distribution design and operation. Though their
goals range from low cost to high responsiveness.
4.2 Factors influencing distribution network design
There are two:
1. Value provided to the customer
2. Cost of meeting customer needs
Customer value can be further understood through response time, product
variety, product availability, customer experience, time to market, order visibility,
returnability. In practice, customer do not value these through the same lens.
Changing distribution network will affect these supply chain costs: inventories,
transportation, facilities and handling, and information. Generally, as we desire a lower
response time we are required to have a larger number of facilities. However, as the
number of facilities increases we may be able to take advantage of economies of scale
and decrease our total transportation costs.
Total Logistics Costs: are the sum of inventory, transportation and facility costs
for a supply chain network. At first costs decrease to then increase again, so each
company should find the point at which this relation is maximized.
Since a company cannot compete along all dimensions of the distribution network it
should design its own with business strategic objectives in mind.
4.3 Design options for a distribution network
 There are six distribution network channels: 1. Manufacturer storage with direct
shipping, passing through a retailer, it may reduce costs if the manufacturer can ship
directly from the production line but requires significant investments in information
infrastructure; 2. Manufacturer storage with direct shipping and in-transit merge, in
which pieces of an order are combined form different locations so that the customer
receives a single delivery; 3. Distributor storage with carrier delivery where products are
kept at the warehouses of an intermediary before being shipped to the customer; 4.
Distributor storage with last-mile delivery, where a distributor or retailer delivers the
product to the customer’s home instead of using a package carrier, it often carries the
highest transportation costs; 5. Manufacturer/distributor storage with customer pickup,
where manufacturers ship their products to designated locations where customers can
pick them up; and finally, 6. Retail storage with customer pickup, the most traditional
type of supply chain, inventory is stored locally at retail stores.
In order to select a distribution network we must consider product characteristics
as well as network requirements. In reality, only niche companies end up using a single
distribution network. Most firms are best served with a combination of different but
complimentary distribution networks.
4.4 Online Sales and the Distribution Network
Impact of the internet:
1. Response time to customers: it may take longer to fulfill physical goods through
online sales though information goods can be transferred immediately.
2. Product variety: it is easier and cheaper to offer a large variety of products online.
3. Product availability: aggregating inventory improves availability.
4. Customer experience: this largely depends on the experience that the user has
when utilizing online sales points.
5. Faster time to market: products can be introduced almost directly form the
assembly line.
6. Order visibility: makes tracking of order easier, adding value for the customer
experience.
7. Direct sales to customers: allows manufacturers to reach customers directly.
 8. Flexible pricing, product portfolio, and promotions: sellers can react to demand
and have more flexibility with pricing and availability to the customer.
9. Efficient funds transfer: money can be debited from one bank account to another
instantly.
Cost consequences
Inventory: Inventory costs are lowered as inventories are aggregated rather than
distributed across facilities.
Facilities: While the costs for the number and location of facilities will decrease,
the complexity of operations within the remaining facilities will increase with the
complexity of the processes within.
Transportation: Information transportation costs have been lowered significantly.
Information: The internet can be used for planning and forecasting, sharing
information along the supply chain.
4.5 Distribution networks in practice
1. The ownership of the distribution network can have as big an impact as the
type of distribution network. Equal distribution networks with different ownership may
have different performances. An independent owner will optimize its own enterprise, not
necessarily the whole of the supply chain.
2. It is important to have adaptable distribution networks. They should be able to
adapt to changing technologies and environments. The COVID-19 pandemic and the
internet are prime examples.
3. Product price and commodification critically affect the type of distribution
system preferred by customers. While customer are willing to have relations around a
highly specialized product, a retailer that sells many different generic products will
struggle to only sell a single one.
4. Integrate the Internet with the Existing Physical Network. Whenever it may be
viable, where the costs don’t outweigh the benefits, it is highly advisable to integrate the
internet into the operations of an enterprise.

Chapter 5: Network Design in the Supply Chain

When designing a network in the supply chain one must account for four factors:
 1. Facility Role: what role each location will have along the supply chain.
2. Facility Location: simply put, where to establish operations.
3. Capacity Allocation: how much volume a location will handle.
4. Market and Supply Allocation: costs for supply and market side will vary
depending on location and should be considered.
5.2 Factors influencing network design decisions
Strategic Factors: Simply, what the strategic goals and operational objectives of
the brand are.
Technological Factors: What technologies are available for implementation
along the supply chain network.
Macroeconomic factors: facts present at a national or international level and
may e influenced by political, economic, and social relations. These include tariffs and
tax incentives (duties for import-export, fiscal incentives), exchange-rates and demand
risk (between currencies, especially during import/export), and freight and fuel cost (as it
happened with the COVID-19 pandemic and the war in Ukraine.
Political factors: depending on the stability of a government.
Infrastructure factors: as bad infrastructure will lead to more elevated costs.
Logistics and facility costs: Inventory and facility costs increase with a n
increase number of stops along the supply chain.
5.3 Framework for network design decisions
Phase 1 Define a SC Strategy/Design: This phase starts with the firms competitive
strategy as a set of customer needs seeking to satisfy.
Phase 2 Define the Regional Facility Configuration: This includes identifying the
regions where facilities will be located, their potential roles, and approximate capacity,
as well as forecasting demand by country or region.
Phase 3 Select a Set of Potential Sites: Things to consider may be hard and soft
infrastructure.
Phase 4 Location Choices: Decide where to put the facility.

Chapter 6: Designing Global Supply Chain Networks

6.1 The impact of globalization on supply chain networks
 Globalization offers companies opportunities to simultaneously increase
revenues and decrease costs. However, opportunities from globalization are
accompanied by significant risks. Natural disasters, shortage of skilled workers,
performance of supply chains, logistics capacity/complexity, forecasting/planning
accuracy, volatility of fuel prices, and currency fluctuations are only a few of the risks
that firms must face when relocating abroad.
6.2 The offshoring decision: total cost
Companies should evaluate the impact of offshoring in the following key elements:
1. Supplier price, in all its iterations.
2. Terms, of payments and volume discounts.
3. Delivery costs, of logistics and packaging.
4. Inventory and warehousing costs, in all its iterations.
5. Cost of quality, through validation, opportunity of lower quality and cost of
remedies to drops in quality.
6. Customs duties costs, taxes and incentives.
7. Cost of risks, procurement, brokerage, IT, tooling and molding.
8. Exchange rate costs.
6.3 Risk management in global supply chains
Global supply networks are more susceptible to risks than regional supply chains.
For this reason it is critical to be aware of the relevant risk factors and build in suitable
mitigation strategies. Of course, good network design serves s the primary mitigation
strategy for any risk faced by the supply chain. That said, mitigation strategies come at
a cost, so a firm must decide which are more pressing than others. Some common
strategies include:
1. Increase capacity.
2. Getting redundant suppliers.
3. Increasing responsiveness.
4. Increasing inventory.
5. Increasing flexibility.
6. Pooling demand.
7. Increasing source capability.
 When deciding if and where to offshore company management should take careful
consideration of the risks intrinsic in making that decision. To do so, they should follow
this structure:
1. Combine strategic and financial planning during global network design.
2. Use multiple metrics to evaluate global supply chain networks.
3. Use financial analysis as an input to decision making, not as the decision-making
process.
4. Use estimates along with sensitivity analysis.

PART 2: RESPONSE
Chapters 4-6 of Supply Chain Management take a deeper look (after the
introductory nature of chapters 1-3) at the actual design and functioning of supply chain
networks. Rather than simply revising the components of a supply chain we now delve
deeper into the role that the internet has in sales, the components of good supply chain
design, and the challenges a supply chain faces along with the mitigation strategies
designed to serve as a buffer for any problems that may arise.
Chapter four opens with the possibilities that the internet allows that any modern
enterprise needs to consider when setting up a supply network. The internet has
allowed new forms of distribution since consumers are now much closer to suppliers
and may be able to order almost directly from the assembly line. This has created
opportunities for different forms of supply chain design that were not possible before.
Chapter five is quite critical for understanding both chapter four and chapter six.
In essence the chapter boils down to the considerations that management must take
into account when deciding where to place a facility. This may depend on factors
intrinsic to the supply network such as role of the facility, facility location, facility capacity
and market and supply location. However, in making these considerations decision
makers must also evaluate macroeconomic and geopolitical factors that may bolster,
but importantly also hamper, the performance of the facility. This analysis allows us to
look at the potential site of a facility from a global to a national to a regional to a local to
a location specific perspective.
 Chapter six complements chapter five since it establishes not the opportunities
that one must consider when establishing a supply network, but the risks and
challenges that existing and future supply networks can and could face. Globalization
and the liberalization of trade has allowed firms to take advantage of performance
differentials across countries. This has resulted in the migration of productive processes
from one country to another. These migrations, however, carry risk, and supply network
architects must take them into consideration when establishing relations and operations
around the globe. Risk is unavoidable, but this does not mean that firms are simply at
the mercy of forces they cannot control. They have the capacity (and one could say the
duty) of creating mitigation and contingency plans for the risks and eventualities they
may face. Of course, good supply network design is the first line of defense against any
problems. But companies must go an extra mile designing risk and mitigation and
contingency plans because, when problems do arise, firms can simply spark into action
their protocols to face the crisis.
The discussions along the chapter are clear until they reach financial and
mathematical analysis, which can be difficult to understand without a fairly sophisticated
understanding of mathematics. I find them particularly hard to follow without a professor
to guide me through what the book is trying to do.
That said, this part of the book has been very interesting. Chapter six was very
revealing regarding the kinds of analyses that companies must perform to crease
resilient, adaptable networks. I find it especially engaging because one must act as a
strategist to find the most suitable place for operations considering both known and
unknown (sometimes unknowable) variables.
I imagine these are the kinds of assessments that companies make when they
analyze if Tijuana or the rest of Mexico. All and all a very enjoyable read.
 References
Chopra, S., and Meindl, P. (2016). Supply Chain Management. [PDF Archive].
Retrieved from:
https://base-logistique-services.com/storage/app/media/Chopra_Meindl_SCM.pdf