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ISCM YEAR 1 BLOCK 2 SUMMARY CHAPTERS 5, 6, 10
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DELIVER, RETURN AND CUSTOMER SERVICE IN DEPTH
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Chapter 5 – Deliver5.1 Introduction to deliver
The deliver function, also known as distribution management or logistics, is a critical
component of the supply chain, linking suppliers, factories, warehouses, and customers. It
involves managing a distribution network that companies continually optimize, often by
reducing the number of warehouses. However, fewer warehouses can increase distances and
reduce responsiveness, creating a trade-off between cost and service.
Terminology varies, with "deliver" and "distribution management" used interchangeably, and
storage facilities referred to as warehouses, depots, or Distribution Centers (DCs).
Several factors influence the deliver function:
1. Global Economy: As manufacturing locations shift globally, transportation needs
increase.
2. Political Decisions: National governments play a significant role in developing
transport infrastructure, which involves substantial investment and planning.
3. Technology and Digital Influences: Innovations like RFID, GPS, and mobile
telecommunications have revolutionized transportation and warehousing, with future
advancements expected to further impact the field.
4. Environmental Considerations: There is a growing focus on eco-friendly
innovations in transport, such as smoother paint for vessels, aerodynamic trucks, and
hybrid vehicles, reflecting consumer demand for low-cost yet environmentally
sustainable products.
In a distribution network where each customer has a supplier warehouse nearby, lead times
would be minimal, and customer service would be excellent. However, increasing the number
of warehouses raises delivery costs due to three main components:
1. Facility Costs: Includes running costs like insurance,
labor, and electricity for each warehouse.
2. Inventory Costs: Increase as each additional
warehouse requires more safety stock.
3. Primary Transport Costs: Initially decrease with
more warehouses due to shorter transport distances,
but eventually increase when delivery quantities per
warehouse shrink, leading to inefficient, half-empty
truckloads.
This results in a trade-off where companies must balance facility, inventory, and transport
costs. Additional considerations include customer service and environmental impacts.
,Facility Location Decisions
Supply chain companies often reconsider their distribution network setups, involving
significant investments and risks. To determine the optimal number of facilities, companies
use network modeling programs that employ Centre of Gravity (COG) principles. The COG
method locates facilities by weighting customer demand data on a grid map to find the
optimal location.
Before finalizing decisions, companies must consider non-mathematical factors:
• Cost of commercial property
• Availability of skilled labor
• Time required to build or occupy the site
• Accessibility of government grants or subsidies
• Proximity to road, rail, water, and air networks
• Customer service implications
• Environmental considerations
While rural locations may offer lower property costs, they might lack skilled labor.
Therefore, it is best to use modeling tools to narrow down options and then consider these
additional factors.
Deliver Components
The deliver function in supply chain management consists of three main components:
1. Transport Management: Involves moving products using trucks, ships, planes,
pipes, and trains.
2. Warehouse Management: Entails storing and moving stock within depots,
warehouses, and distribution centers.
3. Order Management: Covers capturing customer orders and managing them through
to proof of delivery and invoicing.
The chapter focuses on transport and warehouse management, while order management,
linked to customer service and inventory management, is covered in other chapters.
5.2 Transport management
Transport management in global supply chains must be innovative and rapidly evolving to
ensure products are delivered in the correct quantity, on time, without sacrificing quality or
increasing costs. Key variables include speed, reliability, security, quality, environmental
impact, and cost.
Different transport modes—air, road, rail, water, and pipeline—are selected based on the
nature of the product and customer requirements.
• Air: Preferred for high-security, short lead-time needs (e.g., diamonds).
• Road: Used for flexible "door-to-door" delivery.
• Rail: Cost-effective for long-distance, low-cost transport.
• Water: Suitable for high-volume, non-time-sensitive goods (e.g., jeans).
, • Pipeline: Ideal for transporting liquids and gases over long distances.
Transport modes compete with each other, and innovations like refrigerated containers have
shifted volumes among modes. For example, fresh produce can now be shipped by sea,
maintaining quality, and reducing costs.
Air transport
Air transport for goods includes three main options: cargo operators, courier operators, and
niche operators.
• Cargo Operators: Specialize in carrying large volumes of cargo using dedicated
aircraft. Example: Cargolux, operating globally with a fleet of over 25 aircraft. Cargo
is often transported in standardized Unit Load Devices (ULDs), which can include
refrigeration.
• Courier Operators: Handle parcel deliveries, operating their own fleets and using
airport hubs. Major players include UPS, Federal Express, and DHL.
• Niche Operators: Provide specialized air transport services for large or unique items,
often run by military or for specific industrial needs. Examples include transporting
heavy equipment or large aircraft parts.
Innovations: Delivery drones are emerging as a faster, potentially cheaper delivery method.
Companies like Amazon are exploring this technology.
Road transport
Road transport offers flexible "door-to-door" delivery options through Full Truck Loads
(FTL) and Less than Truck Load (LTL) services. The volume of goods transported by road is
increasing globally, particularly in rapidly growing economies like India and China. Road
transport is divided into:
• Primary Transport: Uses large vehicles to move raw materials or finished products
from ports, airports, rail terminals, factories, or warehouses to distribution centers.
Typical load size is 40 feet.
• Secondary Transport: Involves smaller vehicles like trucks, vans, or motorcycles to
deliver customer orders from distribution centers to customers, especially in urban
areas. Hybrid vehicles are sometimes used to reduce congestion.
Technological Innovations: GPS for route optimization and emerging technologies like
driverless vehicles are expected to significantly impact the road transport industry by
reducing costs and allowing continuous operation.
Rail transport
Rail transport is ideal for moving high-density, low-value, and non-time-sensitive products
over long distances. However, it is limited by fixed tracks and terminal facilities, which can
vary in gauge size internationally. Rail is a key player in intermodal transport, offering
services like:
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