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10 Cards in this Set

  • Front
  • Back

Distribution strategy

lower or higher in what system (centralized or decentralized)

- Safety stock

- Service level

- Overhead costs

- Customer lead time

- Transportation costs

- Economies of scale

- Safety stock: lower with centralization

- Servicelevel: higher service level for the same inventory investment with centralization

- Overhead costs: higher in decentralized system

- Customer lead time: response times lower in the decentralized system

- Transportation costs: not clear, in most cases higher. Consider outbound and inbound costs.

- Economies of scale:Through consolidation

Distribution strategy definition

A distribution strategy defines how you are going to move products from point of creation to points of consumption,in a cost-effective manner: transportation

Two (3) basic distribution strategies

- Direct shipment distribution strategies

directly from manufacturer to retailer

- Intermediate inventory storage point strategies

- Traditional warehousing

- Cross Dock

- Inventory Pooling

- Transshipment

(Another way to implement inventory pooling strategies)

Decision for Traditional Warehousing (5)

- Key factors:

- Inventory management

- Risk pooling

- Other factors:

- Centralized vs Decentralized Management

- Inventory decision: where which inventory is held (VMI)?

- Central vs Local Facilities: Central or local stock

Pro’s (2) & Con’s (1) Direct Shipment


- Avoid the expenses of operating a distribution center

- Lead times are reduced.


- Transportation costs increase

Direct shipment used when (2)

- Retail store requires fully loaded trucks

- Lead time is critical:perishable goods

- Warehouses function:Inventory coordination point Not inventory storage point

- Goods remain in the dock(move from inbound to outbound dock)

- Often at outsourced transportation by transportation company (HUB System)

- Reduces transportation costs Increase system cost (invest in HUB SYSTEM)Difficult to coordinate

Cross-docking, great but... (6)

- Significant start-up investment

- Very difficult to manage

- Distribution centers, retailers and suppliers must be linked with advanced information system

- Fast and responsive transportation system

- Forecasts are critical

- Effective only for large distribution systems, in which a large number of vehicles are delivery and picking up goods at any one time


- Shipment of items between different facilities at the same level in the supply chain to meet some immediate need

- Occurs mostly at the retail level

- Can be achieved:

- With advanced information systems

- Shipping costs are reasonable

- Retailers have same owner

What strategy to adopt (picture)