International supply chain management – Endterm theory
Chapter 5 – Guide to Deliver in Supply Chain Management
5.1 Introduction to Deliver
The deliver function 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.
The deliver function is sometimes also described as distribution management.
Warehouses: Storage facilities
The deliver function is influenced by a number of factors, such as:
Global economy
Political decisions
Technology and digital influences
Environmental consideration
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
deliver and sourcing strategies.
,Political decisions influence the deliver function on an equally large scale. The planning and
construction of new roads, airports, rail links and seaports are often undertaken by national
governments. Extending transport infrastructure demands large investments that usually
require long lead-times and complex negotiations.
Another driving force for change in deliver is 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 have grown in momentum. 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
transport.
5.1.1 Network Trade-Offs
As the number of warehouses increases, the associated deliver cost also increases because
of three cost components:
1. Facility costs
2. Inventory costs
3. Primary transport costs
First of all, the company would need to pay the warehouse running cost, such as insurance,
labour and electricity, for each of the facilities. This is summarised in the facility cost curve.
Secondly, inventory costs increase with every warehouse carrying additional amounts of
safety stock.
Finally, primary transport costs are depicted in the third curve. 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 the point
where the primary transport costs curve goes up in the hockey blade; transport costs
increase again.
, 5.1.2 Facility Location Decisions
Many supply chain companies consider changing their distribution network set up. Decisions
to move, build or outsource new facilities in organisation involve significant investment and
risk.
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 centre.
However, before the final network optimisation 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
It is tempting for on organisation to place a facility in a rural location, as commercial
property prices are generally lower compared to the urban equivalent. However, this
location may have very little availability of skilled labour.
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 centres
Order management:
Capturing the customer order all the way through to bringing back a proof of delivery
in order to raise a customer invoice.
