International Supply Chain Management Summary
Chapter 5: Guide to Deliver in Supply Chain
Management
5.1.1 Network Trade-Offs
As the number of warehouses increases, the associated deliver cost also increases because of three
components:
Facility Costs.
Inventory Costs,
Primary Transport Costs.
Facility Costs = The company would need to pay the warehouse running cost, such as insurance,
labor, and electricity, for each facility. This is summarized in the facility cost curve.
Inventory Costs = Increase with every warehouse carrying additional amounts of safety stock.
Primary Transport = As we add warehouses to the network primary transport costs initially decrease
because the transport distance gets shorter. If we keep adding distribution facilities to the network, the
delivery quantity per warehouse becomes smaller and smaller, until trucks travel half empty. This is
where the primary costs curve goes up, transport costs increase again.
,International Supply Chain Management Summary
5.1 Introduction to Deliver
The Deliver Function = Sometimes also described as distribution management, is an integrated part
of the end-to-end supply chain. The deliver function glues the different parts of the supply chain
together.
The deliver function is influenced by a number of factors, such as:
Global Economy.
Political Decisions.
Technology and Digital Influences.
Environmental Considerations.
Global Economy = Transport and the global economy are closely linked. As manufacturing moves to
different locations around the globe, this results in more product movements and increased
transportation requirements. The challenge for the deliver function is to find solutions that follow the
needs of a global economy with companies shifting from national to multi-country delivery and
sourcing strategies.
Political Decisions = Influence the deliver function on an equally large scale. Extending transport
infrastructure demands large investments that usually requires long lead-times and complex
negotiations.
Technology and Digital Influences = Radio frequency identification, global positioning systems,
mobile telecommunication and satellites are but a few technologies that have already revolutionized
transportation and warehousing. In the future, one can expect technology playing an even greater role
in the digital era.
Environmental Considerations = Conscious customers strive to buy low cost products, but at the
same time they don't want new ports and more airplanes spoiling the environment. This makes the
deliver function a particularly interesting and challenging one.
, International Supply Chain Management Summary
5.1.2 Facility Location Decisions
Centre of Gravity (COG) = In order to work out the optimum number of facilities, companies use
one of a number of the major network modelling programmes. These complex software optimization
tools work with the Centre of Gravity (COG) Matrix. With the COG method, you can locate facilities
by using a weighting of customer demand data on a grip map. Mathematically, this method gives you
the optimum location of your warehouse or distribution center.
Before the final network optimization decision is made, other non-mathematical factors need to be
considered:
Cost of commercial property in that location.
Availability of skilled labor.
Time to build or occupy the site.
Accessibility of government grant or subsidy.
Proximity of road, rail, water, and air networks.
Customer service implications.
Environmental considerations.
5.2 Transport Management
Often its role is to make sure that products made in one part of the world arrive in the correct quantity
and on time in another part of the world, without sacrificing quality or exaggerating cost.
Variables in transport management include:
Speed.
Reliability.
Security.
Quality.
Environment.
Cost.
5.1.3 Deliver Components
There are three main components of deliver within supply chain management:
Transport Management: Moving products in trucks, ships, planes, pipes, and trains.
Warehouse Management: Keeping and moving stock within depots, warehouses, and
distribution centers.
Order Management: Capturing the customer order all the way through to bringing back a
proof of delivery in order to raise a customer invoice.
Chapter 5: Guide to Deliver in Supply Chain
Management
5.1.1 Network Trade-Offs
As the number of warehouses increases, the associated deliver cost also increases because of three
components:
Facility Costs.
Inventory Costs,
Primary Transport Costs.
Facility Costs = The company would need to pay the warehouse running cost, such as insurance,
labor, and electricity, for each facility. This is summarized in the facility cost curve.
Inventory Costs = Increase with every warehouse carrying additional amounts of safety stock.
Primary Transport = As we add warehouses to the network primary transport costs initially decrease
because the transport distance gets shorter. If we keep adding distribution facilities to the network, the
delivery quantity per warehouse becomes smaller and smaller, until trucks travel half empty. This is
where the primary costs curve goes up, transport costs increase again.
,International Supply Chain Management Summary
5.1 Introduction to Deliver
The Deliver Function = Sometimes also described as distribution management, is an integrated part
of the end-to-end supply chain. The deliver function glues the different parts of the supply chain
together.
The deliver function is influenced by a number of factors, such as:
Global Economy.
Political Decisions.
Technology and Digital Influences.
Environmental Considerations.
Global Economy = Transport and the global economy are closely linked. As manufacturing moves to
different locations around the globe, this results in more product movements and increased
transportation requirements. The challenge for the deliver function is to find solutions that follow the
needs of a global economy with companies shifting from national to multi-country delivery and
sourcing strategies.
Political Decisions = Influence the deliver function on an equally large scale. Extending transport
infrastructure demands large investments that usually requires long lead-times and complex
negotiations.
Technology and Digital Influences = Radio frequency identification, global positioning systems,
mobile telecommunication and satellites are but a few technologies that have already revolutionized
transportation and warehousing. In the future, one can expect technology playing an even greater role
in the digital era.
Environmental Considerations = Conscious customers strive to buy low cost products, but at the
same time they don't want new ports and more airplanes spoiling the environment. This makes the
deliver function a particularly interesting and challenging one.
, International Supply Chain Management Summary
5.1.2 Facility Location Decisions
Centre of Gravity (COG) = In order to work out the optimum number of facilities, companies use
one of a number of the major network modelling programmes. These complex software optimization
tools work with the Centre of Gravity (COG) Matrix. With the COG method, you can locate facilities
by using a weighting of customer demand data on a grip map. Mathematically, this method gives you
the optimum location of your warehouse or distribution center.
Before the final network optimization decision is made, other non-mathematical factors need to be
considered:
Cost of commercial property in that location.
Availability of skilled labor.
Time to build or occupy the site.
Accessibility of government grant or subsidy.
Proximity of road, rail, water, and air networks.
Customer service implications.
Environmental considerations.
5.2 Transport Management
Often its role is to make sure that products made in one part of the world arrive in the correct quantity
and on time in another part of the world, without sacrificing quality or exaggerating cost.
Variables in transport management include:
Speed.
Reliability.
Security.
Quality.
Environment.
Cost.
5.1.3 Deliver Components
There are three main components of deliver within supply chain management:
Transport Management: Moving products in trucks, ships, planes, pipes, and trains.
Warehouse Management: Keeping and moving stock within depots, warehouses, and
distribution centers.
Order Management: Capturing the customer order all the way through to bringing back a
proof of delivery in order to raise a customer invoice.
