Asked by Karan Kahlon on Jun 24, 2024
Verified
Explain how the design of the distribution network affects the cost of the four supply chain drivers.
Distribution Network
The systematic arrangement of distribution centers, transportation routes, and hubs used to distribute products to customers.
Supply Chain Drivers
The key factors that directly impact the performance and efficiency of the supply chain, including facilities, inventory, transportation, information, sourcing, and pricing.
Cost
The amount of money or resources expended to acquire an asset, produce a product, or deliver a service.
- Identify how distribution network designs influence the costs related to transportation, inventory, data management, and facilities and materials handling.
Verified Answer
Outbound transportation costs per unit tend to be higher than inbound costs because inbound lot sizes are typically larger.Increasing the number of warehouse locations decreases the average outbound distance to a customer and makes outbound transportation distance a smaller fraction of total distance traveled by the product.Thus,as long as inbound transportation economies of scale are maintained,increasing the number of facilities decreases total transportation cost.Facility costs decrease as the number of facilities is reduced,because a consolidation of facilities allows a firm to exploit economies of scale.As the number of facilities increases,total logistics costs first decrease and then increase.Each firm should have at least the number of facilities that minimize total logistics costs.
As a firm wants to further reduce the response time to its customers,it may have to increase the number of facilities beyond the point that minimizes logistics costs.A firm should add facilities beyond the cost-minimizing point only if managers are confident that the increase in revenues because of better responsiveness is greater than the increase in costs because of the additional facilities.In general,no distribution network will outperform others along all dimensions.Thus,it is important to ensure that the strengths of the distribution network fit with the strategic position of the firm.
Learning Objectives
- Identify how distribution network designs influence the costs related to transportation, inventory, data management, and facilities and materials handling.
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