Chapter 5 Guide to Deliver in Supply Chain Management
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. In fact, one could say that deliver glues the different parts of the supply
chain together.
Distribution network includes a web of suppliers delivering into factories into warehouses to
customers.
Companies constantly try to optimize their distribution network. This creates a key trade-off in our
deliver set-up: balancing cost and service aspects.
Distribution Network:
The deliver function is influenced by a number of factors, such as:
● Global economy. As manufacturing moves to different locations around the globe, this
results in more product movements and increased transportation requirements.
● Political decisions, The planning and construction of new roads, airports, rail links and
seaports are often undertaken by national governments.
● Technology and digital influences, Radio frequency identification, global positioning systems,
mobile telecommunication and satellites are but a few technologies that have already
revolutionised transportation and warehousing. In the future, one can expect technology
playing an even greater role in the digital era.
● Environmental considerations, This has led to a number of environmentally friendly
innovations in the transport industry. Smooth paint, for example, reduces the water
resistance of container vessels, which in turn reduces CO2 emission in sea
1
, transport.Conscious consumers 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.
5.1.1 Network Trade-Offs
Imagine a distribution network where every customer has its supplier warehouse next door.
Lead-times from supplier to customer would be minimal and customer service would be excellent.
→ As the number of warehouses increases, the associated deliver cost also increases
This is because of three components:
1. Facility costs, also called the warehouse running cost, such as insurance, labour and electricity, for
each of the facilities.
2. Inventory costs, increase with every warehouse carrying additional amounts of safety stock.
3. Primary transport costs, As we add warehouses to the network, primary transport costs initially
decrease because the transport distance gets shorter.
Network Distribution and Cost Components:
5.1.2 Facility Location Decisions
With the Centre of Gravity (COG) method, you can locate facilities by using a weighting of customer
demand data on a grid map. Mathematically, this method gives you the optimum location of your
warehouse or distribution center.
However, before the final network optimization decision is made, other non-mathematical factors
need to be considered, such as:
● Cost of commercial property in that location
● Availability of skilled labour
● 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
2
, When making facility location decisions, it is therefore best practice to start with a modelling tool
to narrow down the number of options and then overlay the other factors.
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.
The rest of the chapter will focus on the first two components: transport and warehouse
management.
5.2 Transport Management
In global supply chains transport management needs to be:
● Innovative
● Fast evolving part of business
● 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:
1. Speed
2. Reliability
3. Security
4. Quality
5. Environment
6. Cost
Five transport modes that companies can choose from:
1. rail transport; this is a particularly low cost transport
mode.
2. pipeline is an often-overlooked mode. This is used
extensively for moving liquids around sites and across
land
3. air transport mode using airfreight may be preferred, as
the product demands high security standards and a
short lead-time.
3
, 4. Road transportation would be used for the final few kilometers of the journey to the secure
storage ages or point of sale.
5. water transport mode using sea freight might be preferred. This transport option has a very
low per unit cost and the shipments are not time critical.
The choice of transport mode depends on the nature of the product and the specific requirements of
the customer order. An important factor to consider is that transport modes can compete with each
other. As air transport networks expand and the airfreight unit cost falls, both road and water lose
volume.
5.2.1 Air
There are three main options for transporting goods by air:
● Cargo operators, The bulk of global airfreight takes place using.
● Courier operators, carry goods in parcel format. Global providers of these air express services
include UPS, Federal Express and DHL. Operating their own fleets of aircraft, these courier
companies typically fly all parcels out of national or regional airport hubs.
● Niche operators, engage in air transport services that are neither offered by cargo nor courier
operators. Niche operators are often run by military-related agencies; they transport large
goods and vehicles, such as heavy equipment and tanks,
5.2.2 Road
Road transport can be split into two categories:
● Primary transport,Primary transport vehicles are large and generally used in upstream supply
chains. Primary transport takes raw materials or finished products from ports, airports, rail
terminals, factories or warehouses to a distribution centre.
● Secondary transport, in comparison, picks up customer orders from the distribution centre
and delivers them to the customer. Secondary transport vehicles will generally be smaller
trucks, vans or even motorcycles in order to deliver customer orders effectively in urban
areas.
Technology innovation:
Global Positioning Systems (GPS) currently helps optimize planning and route optimization,
developing concepts such as driverless vehicles that can potentially reduce costs and operate at all
times without time restrictions will become available and shake up the transport industry.
4
, 5.2.3 Rail
ail is a major player in intermodal transport and can provide “piggyback” services, such as:
● Trailer on Flat Car (TOFC). In TOFC, a truck driver drops a loaded trailer after driving it by road
to the rail dock. The loaded trailer is placed on a flat rail car and then transported over long
distances to its destination. The trailer will be unloaded, and a second truck driver will pick
up the trailer and deliver it to the customer.
● Container on Flat Car (COFC). COFC is similar to TOFC, but instead of a trailer it involves a
container.
● Rolling Road Train (RRT), the entire driver, truck and trailer drives onto a flatbed rail car. RRT
is often used in the automotive industry to transport new cars from the factory to car
dealers. With RRT, the load keeps moving while the driver takes the rest breaks required by
law.
5.2.4 Water
Water transport encompasses the following main activities:
● Tankers: carrying products like oil and Liquid Natural Gas (LNG). Carry different liquid
products, the main ones being crude oil, chemicals and LNG.
● Container vessels: carrying standard and refrigerated containers. These large ships can be up
to 400 m long and hold as many as 15,000 containers.
● Inland waterways: boats and barges using canals and river networks. Have always been used
as a long-distance transportation method.
5.2.5 Pipeline
Pipeline is the last mode of transport and despite it being an important one, pipeline is often
forgotten when it comes to transport choices. Hundreds of thousands of kilometers of pipeline carry
oil and gas “invisibly” every day for our world’s energy consumption. Pipeline is ideal for water
transportation, directly to individual customers’ homes.
5.2.6 Intermodal Operations
Intermodal operation describes the transport of goods using two or more different transport modes.
When these goods cross international boundaries on their journey to customers, six factors become
important.
1. To keep cost and service at an optimum during this long product journey, the shipping
company needs to possess extensive SCM knowledge
2. As the washing machines move from India to the US, many different transportation modes
and vehicles will be used. These physical assets need to be owned by the shipping company
or a contracted supplier in order to make this journey happen.
5
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. In fact, one could say that deliver glues the different parts of the supply
chain together.
Distribution network includes a web of suppliers delivering into factories into warehouses to
customers.
Companies constantly try to optimize their distribution network. This creates a key trade-off in our
deliver set-up: balancing cost and service aspects.
Distribution Network:
The deliver function is influenced by a number of factors, such as:
● Global economy. As manufacturing moves to different locations around the globe, this
results in more product movements and increased transportation requirements.
● Political decisions, The planning and construction of new roads, airports, rail links and
seaports are often undertaken by national governments.
● Technology and digital influences, Radio frequency identification, global positioning systems,
mobile telecommunication and satellites are but a few technologies that have already
revolutionised transportation and warehousing. In the future, one can expect technology
playing an even greater role in the digital era.
● Environmental considerations, This has led to a number of environmentally friendly
innovations in the transport industry. Smooth paint, for example, reduces the water
resistance of container vessels, which in turn reduces CO2 emission in sea
1
, transport.Conscious consumers 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.
5.1.1 Network Trade-Offs
Imagine a distribution network where every customer has its supplier warehouse next door.
Lead-times from supplier to customer would be minimal and customer service would be excellent.
→ As the number of warehouses increases, the associated deliver cost also increases
This is because of three components:
1. Facility costs, also called the warehouse running cost, such as insurance, labour and electricity, for
each of the facilities.
2. Inventory costs, increase with every warehouse carrying additional amounts of safety stock.
3. Primary transport costs, As we add warehouses to the network, primary transport costs initially
decrease because the transport distance gets shorter.
Network Distribution and Cost Components:
5.1.2 Facility Location Decisions
With the Centre of Gravity (COG) method, you can locate facilities by using a weighting of customer
demand data on a grid map. Mathematically, this method gives you the optimum location of your
warehouse or distribution center.
However, before the final network optimization decision is made, other non-mathematical factors
need to be considered, such as:
● Cost of commercial property in that location
● Availability of skilled labour
● 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
2
, When making facility location decisions, it is therefore best practice to start with a modelling tool
to narrow down the number of options and then overlay the other factors.
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.
The rest of the chapter will focus on the first two components: transport and warehouse
management.
5.2 Transport Management
In global supply chains transport management needs to be:
● Innovative
● Fast evolving part of business
● 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:
1. Speed
2. Reliability
3. Security
4. Quality
5. Environment
6. Cost
Five transport modes that companies can choose from:
1. rail transport; this is a particularly low cost transport
mode.
2. pipeline is an often-overlooked mode. This is used
extensively for moving liquids around sites and across
land
3. air transport mode using airfreight may be preferred, as
the product demands high security standards and a
short lead-time.
3
, 4. Road transportation would be used for the final few kilometers of the journey to the secure
storage ages or point of sale.
5. water transport mode using sea freight might be preferred. This transport option has a very
low per unit cost and the shipments are not time critical.
The choice of transport mode depends on the nature of the product and the specific requirements of
the customer order. An important factor to consider is that transport modes can compete with each
other. As air transport networks expand and the airfreight unit cost falls, both road and water lose
volume.
5.2.1 Air
There are three main options for transporting goods by air:
● Cargo operators, The bulk of global airfreight takes place using.
● Courier operators, carry goods in parcel format. Global providers of these air express services
include UPS, Federal Express and DHL. Operating their own fleets of aircraft, these courier
companies typically fly all parcels out of national or regional airport hubs.
● Niche operators, engage in air transport services that are neither offered by cargo nor courier
operators. Niche operators are often run by military-related agencies; they transport large
goods and vehicles, such as heavy equipment and tanks,
5.2.2 Road
Road transport can be split into two categories:
● Primary transport,Primary transport vehicles are large and generally used in upstream supply
chains. Primary transport takes raw materials or finished products from ports, airports, rail
terminals, factories or warehouses to a distribution centre.
● Secondary transport, in comparison, picks up customer orders from the distribution centre
and delivers them to the customer. Secondary transport vehicles will generally be smaller
trucks, vans or even motorcycles in order to deliver customer orders effectively in urban
areas.
Technology innovation:
Global Positioning Systems (GPS) currently helps optimize planning and route optimization,
developing concepts such as driverless vehicles that can potentially reduce costs and operate at all
times without time restrictions will become available and shake up the transport industry.
4
, 5.2.3 Rail
ail is a major player in intermodal transport and can provide “piggyback” services, such as:
● Trailer on Flat Car (TOFC). In TOFC, a truck driver drops a loaded trailer after driving it by road
to the rail dock. The loaded trailer is placed on a flat rail car and then transported over long
distances to its destination. The trailer will be unloaded, and a second truck driver will pick
up the trailer and deliver it to the customer.
● Container on Flat Car (COFC). COFC is similar to TOFC, but instead of a trailer it involves a
container.
● Rolling Road Train (RRT), the entire driver, truck and trailer drives onto a flatbed rail car. RRT
is often used in the automotive industry to transport new cars from the factory to car
dealers. With RRT, the load keeps moving while the driver takes the rest breaks required by
law.
5.2.4 Water
Water transport encompasses the following main activities:
● Tankers: carrying products like oil and Liquid Natural Gas (LNG). Carry different liquid
products, the main ones being crude oil, chemicals and LNG.
● Container vessels: carrying standard and refrigerated containers. These large ships can be up
to 400 m long and hold as many as 15,000 containers.
● Inland waterways: boats and barges using canals and river networks. Have always been used
as a long-distance transportation method.
5.2.5 Pipeline
Pipeline is the last mode of transport and despite it being an important one, pipeline is often
forgotten when it comes to transport choices. Hundreds of thousands of kilometers of pipeline carry
oil and gas “invisibly” every day for our world’s energy consumption. Pipeline is ideal for water
transportation, directly to individual customers’ homes.
5.2.6 Intermodal Operations
Intermodal operation describes the transport of goods using two or more different transport modes.
When these goods cross international boundaries on their journey to customers, six factors become
important.
1. To keep cost and service at an optimum during this long product journey, the shipping
company needs to possess extensive SCM knowledge
2. As the washing machines move from India to the US, many different transportation modes
and vehicles will be used. These physical assets need to be owned by the shipping company
or a contracted supplier in order to make this journey happen.
5
