🚢Global Supply Operations Unit 6 – Global Markets: Distribution Network Design

Key Concepts in Global Markets

• Globalization involves the increasing interconnectedness of economies, cultures, and societies around the world
• International trade enables countries to exchange goods, services, and capital across borders
  • Includes exports (goods sold to other countries) and imports (goods bought from other countries)
• Market segmentation divides a market into distinct groups of customers with different needs, characteristics, or behaviors
• Supply and demand dynamics determine the prices and quantities of goods in a market
  • High demand and low supply lead to higher prices, while low demand and high supply result in lower prices
• Comparative advantage refers to a country's ability to produce a particular good or service at a lower opportunity cost than another country
• Tariffs are taxes imposed on imported goods to protect domestic industries and generate revenue for governments
• Free trade agreements (FTAs) reduce or eliminate trade barriers between participating countries (NAFTA, EU)

Distribution Network Fundamentals

• Distribution networks encompass the facilities, transportation, and processes involved in moving products from suppliers to customers
• Nodes are the physical locations in a distribution network, such as factories, warehouses, and retail stores
• Links are the transportation routes and methods that connect the nodes in a network
• Centralized distribution networks have a single main facility that serves all customers, while decentralized networks have multiple facilities closer to customers
• Push systems rely on forecasts to determine production and distribution, while pull systems respond to actual customer demand
• Inventory management involves balancing the costs of holding inventory with the need to meet customer demand
  • Includes determining optimal order quantities, reorder points, and safety stock levels
• Transportation modes (air, sea, rail, road) are selected based on factors such as speed, cost, reliability, and environmental impact

Factors Influencing Network Design

• Customer service requirements, such as delivery speed and reliability, influence the design and location of distribution facilities
• Product characteristics, including size, weight, perishability, and value, affect storage and transportation requirements
• Demand patterns and variability impact the placement and capacity of distribution centers
  • Seasonal demand fluctuations may require flexible capacity or additional inventory
• Geographical factors, such as the location of suppliers, customers, and transportation infrastructure, shape network design decisions
• Political and regulatory factors, including tariffs, trade agreements, and local content requirements, can constrain or enable certain network configurations
• Technology advancements, such as automation and real-time tracking, enable more efficient and responsive distribution networks
• Cost considerations, including facility, transportation, and inventory costs, must be balanced with service level requirements

Network Design Strategies

• Centralization involves consolidating distribution operations into fewer, larger facilities to achieve economies of scale
  • Enables inventory pooling and reduces facility costs but may increase transportation costs and delivery times
• Decentralization disperses distribution facilities closer to customers to improve responsiveness and reduce transportation costs
  • Increases facility costs and inventory requirements but enables faster delivery and local market adaptability
• Postponement delays final product configuration until closer to the time of customer demand to reduce inventory risk and improve customization
  • Requires modular product design and flexible manufacturing and distribution processes
• Cross-docking eliminates the need for storage by transferring incoming shipments directly to outgoing vehicles
  • Reduces inventory and facility costs but requires precise coordination and reliable suppliers
• Vertical integration involves a company owning and controlling multiple stages of the supply chain, from raw materials to finished products
  • Enables greater control and coordination but reduces flexibility and increases capital requirements
• Outsourcing transfers distribution operations to third-party logistics providers (3PLs) to access specialized expertise and reduce fixed costs
  • Requires effective communication and performance management to ensure service quality

Optimization Models and Tools

• Facility location models help determine the optimal number, size, and location of distribution facilities based on factors such as customer demand, transportation costs, and service level requirements
  • Center of gravity method considers the geographic coordinates and shipping volumes of customers to find the optimal facility location
  • P-median model minimizes the total weighted distance between facilities and customers
• Inventory optimization models determine the optimal inventory levels and replenishment policies to minimize costs while meeting service level targets
  • Economic order quantity (EOQ) model balances the fixed costs of placing an order with the holding costs of inventory
  • Reorder point (ROP) model triggers a replenishment order when inventory falls below a predetermined level
• Transportation optimization models help select the most cost-effective and efficient routes and modes for moving products through the distribution network
  • Vehicle routing problem (VRP) determines the optimal sequence of deliveries for a fleet of vehicles
  • Network flow models optimize the flow of products through a network of nodes and links
• Simulation tools enable the modeling and analysis of complex distribution networks under various scenarios and uncertainties
  • Monte Carlo simulation generates random variables to assess the impact of uncertainty on network performance
• Geographic information systems (GIS) integrate spatial data with network optimization models to visualize and analyze distribution networks in a geographic context

Global Logistics Challenges

• Longer lead times and transit times due to increased distances and border crossings
  • Requires careful planning and inventory management to ensure timely delivery
• Customs regulations and documentation requirements vary by country and can cause delays and additional costs
  • Includes tariffs, duties, and compliance with local content requirements
• Infrastructure limitations, such as inadequate ports, roads, and warehouses, can hinder the efficient movement of goods
  • May require investments in infrastructure development or alternative transportation modes
• Cultural and language differences can lead to communication challenges and misunderstandings with suppliers, customers, and logistics partners
  • Requires cultural sensitivity and effective translation and interpretation services
• Currency fluctuations and exchange rate risks can impact the cost and profitability of global distribution operations
  • Hedging strategies and local currency pricing can mitigate these risks
• Environmental and sustainability concerns, such as carbon emissions and packaging waste, are driving changes in global logistics practices
  • Includes the adoption of cleaner transportation modes, sustainable packaging, and circular economy principles

Case Studies and Real-World Applications

• Zara's agile distribution network enables fast fashion by rapidly responding to changing customer demands and trends
  • Combines centralized design and manufacturing with decentralized distribution to stores worldwide
• Amazon's global fulfillment network utilizes advanced automation, data analytics, and multi-tier inventory placement to provide fast and reliable delivery to customers
  • Includes the use of regional fulfillment centers, local delivery stations, and innovative last-mile delivery solutions (Amazon Flex, drone delivery)
• Toyota's just-in-time (JIT) production system minimizes inventory and waste by synchronizing supplier deliveries with production schedules
  • Relies on a close-knit network of suppliers, logistics providers, and assembly plants to enable continuous flow and quick response to changes
• Coca-Cola's global distribution network adapts to local market conditions and customer preferences
  • Combines centralized syrup production with localized bottling and distribution through a network of franchised partners
• UPS's global logistics network provides end-to-end supply chain solutions for businesses worldwide
  • Offers a range of services, including transportation, warehousing, customs brokerage, and supply chain consulting
  • Leverages advanced technology, such as real-time tracking and route optimization, to improve efficiency and customer service

Future Trends in Distribution Networks

• Digitalization and Industry 4.0 technologies, such as the Internet of Things (IoT), artificial intelligence (AI), and robotics, are transforming distribution networks
  • Enables real-time visibility, predictive analytics, and autonomous operations
• Omnichannel distribution strategies blend online and offline channels to provide a seamless customer experience
  • Requires integration of inventory, fulfillment, and returns processes across channels
• Collaborative logistics models, such as shared warehousing and transportation, enable companies to pool resources and reduce costs
  • Requires trust, data sharing, and fair allocation of benefits among partners
• Sustainable and circular distribution practices are gaining traction as companies seek to reduce their environmental footprint and meet customer expectations
  • Includes the use of electric vehicles, reusable packaging, and closed-loop supply chains
• Resilient and agile distribution networks are becoming more important in the face of increasing supply chain disruptions and uncertainties
  • Requires flexibility, redundancy, and the ability to quickly adapt to changing conditions
• Localization and nearshoring strategies are emerging as companies seek to reduce supply chain risks and improve responsiveness to local market needs
  • Involves the establishment of regional production and distribution hubs closer to end markets