Chapter 7: Network planning and
distribution strategies
1. Introduction
− Various possible distribution strategies, and the opportunities and challenges associated
with these strategies
− Two fundamental distribution strategies:
1. Direct shipment: Items can be directly shipped from the supplier or manufacturer to the
retail stores or end customer
2. Intermediate inventory storage points: Use intermediate inventory storage points
(typically warehouses and/or distribution centers)
2. Direct Shipment Distribution Strategies
− Direct shipment strategies exist to bypass warehouses and distribution centers
− Advantages:
• The retailer avoids the expenses of operating a distribution center
• Lead times are reduced.
− Disadvantages:
• Risk-pooling effects are negated because there is no central warehouse
• Manufacturer and distributor transportation costs increase because it must send smaller
trucks to more locations
3. Intermediate Inventory Storage Point Strategies
− Variety of characteristics distinguish different strategies
− One of the most fundamental involves the length of time that inventory is stored at
warehouses and distribution centers
− Traditional warehousing strategy: the distribution centers and warehouses hold stock
inventory and provide their downstream with inventory as needed
− Cross-docking strategy, warehouses and distribution centers serve as transfer points for
inventory, but no inventory is held at these transfer points
− Centralized pooling and transshipment strategies may be useful when there is a large
variety of different products, so that demand for specific end products is relatively small,
and difficult to predict
, 4. Traditional warehousing
4.1 Centralized versus Decentralized Management
4.2 Central versus Local Facilities
distribution strategies
1. Introduction
− Various possible distribution strategies, and the opportunities and challenges associated
with these strategies
− Two fundamental distribution strategies:
1. Direct shipment: Items can be directly shipped from the supplier or manufacturer to the
retail stores or end customer
2. Intermediate inventory storage points: Use intermediate inventory storage points
(typically warehouses and/or distribution centers)
2. Direct Shipment Distribution Strategies
− Direct shipment strategies exist to bypass warehouses and distribution centers
− Advantages:
• The retailer avoids the expenses of operating a distribution center
• Lead times are reduced.
− Disadvantages:
• Risk-pooling effects are negated because there is no central warehouse
• Manufacturer and distributor transportation costs increase because it must send smaller
trucks to more locations
3. Intermediate Inventory Storage Point Strategies
− Variety of characteristics distinguish different strategies
− One of the most fundamental involves the length of time that inventory is stored at
warehouses and distribution centers
− Traditional warehousing strategy: the distribution centers and warehouses hold stock
inventory and provide their downstream with inventory as needed
− Cross-docking strategy, warehouses and distribution centers serve as transfer points for
inventory, but no inventory is held at these transfer points
− Centralized pooling and transshipment strategies may be useful when there is a large
variety of different products, so that demand for specific end products is relatively small,
and difficult to predict
, 4. Traditional warehousing
4.1 Centralized versus Decentralized Management
4.2 Central versus Local Facilities
