Chapter 11
DISTRIBUTION:
Managing Fulfillment
Operations

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part.
After reading this chapter, you should be able to do the following:
Learning Objectives
● Study the strategic value-adding role
distribution plays in the supply chain.
● Appreciate the tradeoffs between
distribution and other supply chain
functions.
● Understand the analytical framework for
distribution planning decisions.
● Evaluate fulfillment strategies and
distribution methods.
2

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
● Study the primary fulfillment processes
and support functions in distribution center
(DC) operations.
● Apply productivity and quality metrics to
fulfillment performance analysis.
● Appreciate how information technology
supports distribution operations.
● Study the objectives, principles, and
equipment for materials-handling
3
Learning Objectives, continued

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part.
● Balance supply and demand.
● Protect against uncertainty.
● Allow quantity purchase discounts.
● Support production requirements.
● Promote transportation economies.
The Role of Distribution Operations in
SCM

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part.
● Distribution Facility Functionality
• Acquisition
• Storage (accumulation)
• Assortment
• Allocation
• Disbursement
● Distribution Tradeoff decisions
• Inventory cost at DC vs. transportation cost
• Inventory level vs. customer service level
• Space vs. equipment vs. people
5
The Role of Distribution Operations in SCM, continued

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

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part.
Figure 11.2
DC’s Mixing (Assortation) Capability
7
Source: Brian J. Gibson, Ph.D.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
Table 11.1
Value Adding Role of Distribution Operations
8
Source: Brian J. Gibson, Ph.D.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
Figure 11.3
Functional Tradeoffs
9
Source: Brian J. Gibson, Ph.D.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
Figure 11.4
Strategic Distribution Decisions
10
Source: Brian J. Gibson, Ph.D.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
● 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.
Distribution Planning and Strategy

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part.
● Network Design Issues
• Inventory positioning
○ Inventory is in a single location
○ Inventory is in multiple locations
• The number and locations of distribution facilities
within the supply chain, based on factors below:
○ Transportation costs
○ Cost of lost sales
○ Warehousing costs
○ Inventory costs
• DC ownership (owned or contract?)
○ Internal facilities owned by the organization
○ External warehousing (owned by a third party; a traditional
approach)
○ Contract warehousing (a customized version of external
warehousing) 12
Distribution Planning and Strategy, continued

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part.
● Facility Considerations
• the size of warehouse operation
• Products to be warehoused in the facility
• Warehouse layout.
○ Space for load and unload
○ An area for rework and returns
○ Space for other and miscellaneous requirements (such as
sortation and packaging)
○ Office space for administrative and clerical activities
13
Distribution Planning and Strategy, continued

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part.
Figure 11.6
Distribution Cost Tradeoffs
14
Source: Edward J. Bardi, Ph.D.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
Figure 11.7
Distribution Cost Comparison
15
Source: Edward J. Bardi, Ph.D.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
Table 11.2
Factors Affecting Distribution Facility Ownership
16
Source: Brian J. Gibson, Ph.D.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
Table 11.3
Facility Layout Principles
17
Source: Brian J. Gibson, Ph.D.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
● 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
• Security
• Performance analysis
• Information technology
Distribution Execution

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part.
Figure 11.8
Primary DC Processes
19
Source: Brian J. Gibson, Ph.D.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
Table 11.4
Best Practices in Order Picking
20
Source: Adapted from The Journey to Warehousing Excellence, (Tompkins Associates) Section 2

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part.
● Measures of Customer Service
• 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
Distribution Metrics

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part.
● 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
22
Distribution Metrics, continued

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part.
Table 11.5
DC Metrics and Benchmarks
23
Source: Manrodt, Tillman, and Vitasek, “A Bright Side to Dark Times”, DC Velocity (April 2010) 42-44

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
● 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
Distribution Technology

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part.
● Automatic Identification Tools
• Technologies helping machines identify
objects.
○ Magnetic strips and readers
○ Barcodes and scanners
○ Mobile computers & wireless local area networks
(LAN)
○ RFID and transponders
25
Distribution Technology, continued

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part.
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 that 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. 26

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
● 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.
27
Summary, continued

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
● 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.
28
Summary, continued

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
● 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.
29
Summary, continued