Distribution systems in

Logistics

Lecture Notes
Distribution in the Supply Chain
Distribution : the steps taken to move and store a
product from the supplier stage to the customer
stage in a supply chain
Distribution directly affects cost and the customer
experience and therefore drives profitability
Choice of distribution network can achieve supply
chain objectives from low cost to high
responsiveness
Examples: Wal-Mart, Dell, FedEx, DHL, Shoprite,
Pick n Pay etc.
Supply Chains
Push and Pull Logistics strategies

Push and Pull strategies in supply chain

logistics helps companies map out their
supplies based on various factors based
on their exact needs.
 “Push based” logistics
system
• Push-based system means supplies are controlled by a
central organisation and sent wherever the
organization deems necessary. This means some
customers get priority over others.
• A push-model supply chain is one where projected
demand determines what enters the process. Under a
push system, companies have predictability in their
supply chains since they know what will come when –
long before it actually arrives.
• This also allows them to plan production to meet their
needs and gives them time to prepare a place to store
the stock they receive.
 “Push based” logistics
system
• Under the push supply chain, the logistics are driven by
long-term projections of customer demand. For example, at
the end of the summer season, clothing brands start to
manufacture more warm clothes.
• This type of planning becomes valuable to companies as it
helps plan them for events in the future and be prepared
when winter comes. This gives the companies time to meet
their needs in time and also gives them time to figure out
other logistics like where to store the inventory.
• But instead of responding to actual demand, a push
strategy relies on predictions that are often wrong. High
variable expenses, missed sales, stock shortages, high levels
of debt, and rescheduled production cycles are other
drawbacks of this approach.
 “Pull-based” system
• Under the pull supply chain, the process of manufacturing and supplying is
driven by actual customer demand. Pull based means that customers
request resupply and those supplies are sent out, meaning supplies are
sent to where they are being used
• In this type of supply chain logistics, inventory is acquired on a need-basis
(JIT). The benefits of this type of planning include less wastage in the case
of lower demand.
• The problem, however, is that the company might not have enough
inventory to meet rising demands due to unforeseen factors. For example,
an auto repair shop that only orders parts that it needs. In this case, the
business waits until it gets an order to procure the parts required for the
repair. A computer seller that waits until it receives an order to actually
build a custom-built computer for the consumer.
• With a pull strategy, companies avoid the cost of carrying inventory that
may not sell. The risk is that they might not have enough inventory to
meet demand if they cannot ramp up production quickly enough.
 Design types for Distribution Network
1) Manufacturer storage with direct shipping
2) Distributor storage with carrier delivery
3) Distributor storage with last mile delivery
– DHL, EMS, FedEx etc.
4) Manufacturer or Distributor Storage with Consumer
Pickup
5) Retail storage with consumer pickup
– Customers walking into store or ordering online
6) One‐to‐many shipping (TSP)
 Manufacturer storage with Direct
shipping (One‐to‐one shipping)
• This strategy involves shipping products from a
location A to a location B, by letting a vehicle
(truck, taxi, train, ship, airplane) taking a feasible
and optimal route, typically the cheapest or
fastest
• Let us assume that the vehicle is dedicated to the
transaction, i.e. during its trip it will not make
detours or perform other transportation duties.
• It is then also called Direct Shipping (DS) or
line-haul shipping or Full-Truck-Load (FTL) shipping
• An example of a direct shipment is given below:
• Network Representation for Line-haul shipping

1 d1
c11
s1 1 c12
c13
2 d2
c21 c
22

s2 2
c23
3 d3

SOURCES DESTINATIONS
 Manufacturer Storage with Direct Shipping
Desirable when:
• You prefer to shorten the transit time: The transit time is
the time the goods are underway from the source to
the destination
• Direct (most high value industrial products)
• Manufacturer – industrial distributor – business customer
(smaller industrial products, e.g. values, pumps, generators,
compressors etc.)
• there is a great need for highly specialized technical
service;
• Goods needs to arrive fast (emergency shipment).
• the products are highly specialized or are made to
specifications of the buyer so that there is need for direct
contact between maker and buyer;
• It is not unusual, for example, to dispatch a private jet or
helicopter for the transfer of human transplant organs in order to
save a life, or to deliver a single spare part by taxi in order to
prevent excessive delays for a passenger air flight
• it is economically feasible, either because
– the volume of sales is large enough to support the cost of the system;
– the market is geographically concentrated
– delivery can be made in carload lots or in small express shipments lots
– the manufacturer is well enough financed to be able to establish and
maintain a direct sales force or branch warehouse system;
• the product is a piece of equipment that the maker must install or
help to install;
• Adjustments must be made in quality to meet the needs of an
individual buyer
Examples of products which are directly distributed
Submersible pumps
• Ammonia Compressors (for cooling)
 One-to-one shipping problem
The Food Reserve Agency has maize stocks in
their depots for distribution to various
destinations. The available maize stock is as
follows: Chambeshi depot has 500mt,
Kapirimposhi 400mt and Mkushi depot has
1000mt. The maize requirements from the
millers are as follows: National Milling 400mt,
Antelope 200mt, Jamas 200mt, and Mpongwe
milling 1100mt. The transportation costs (per
metric tonne) per route are summarized on the
table below:
One-to-one shipping problem cont’d

National Antelope Jamas Milling Mpongwe

Milling Milling Milling
Chambeshi depot K10 K15 K9 K20
Kapirimposhi depot K4 K20 K15 K10
Mkushi depot K20 K10 K10 K10

1) Draw the network representation for this problem

2) Determine the initial basic solution using the North-west Corner ,
Least cost and VAM method
Manufacturer or Distributor Storage with
Customer Pickup
• Customers come to pickup sites (warehouse,
retailer) to get the products
– If consumers are willing to pick up the products, let them
do so. Otherwise, they would be charged for the delivery
costs
• Order tracking is crucial. Consumers must be
alerted when their order is ready for pick up. Once a
consumer arrives at the pick up site, the products
must be quickly located
• Significant amount of information is required
• Increased handling costs
Distributor Storage with last mile delivery
Channels of Distribution
 Channels of Distribution
• Physical distribution channel is the term used to
describe the method and means by which a product or
a group of products are physically transferred, or
distributed, from their point of production to the point
at which they are made available to the final customer

• Trading channel is concerned with the non-physical

aspects of this transfer. These aspects concern the
sequence of negotiation, the buying and selling of the
product, and the ownership of the goods as they are
transferred through the various distribution systems
Physical distribution channel types
and structures
 Channels of Distribution
a) Manufacturer direct to retail store
• The manufacturer or supplier delivers direct from the production
point to the retail store, using its own vehicles this channel is only
used when full vehicle loads are being delivered

b) Manufacturer via manufacturer’s distribution operation to retail

store
• Here the manufacturer or supplier holds its products in a finished
goods warehouse, a central distribution centre. The products are
trunked (line-hauled) in large vehicles to the sites, where they are
stored and then broken down into individual orders that are
delivered to retail stores on the supplier’s retail delivery vehicles.
All of the logistics resources are owned by the manufacture
 Channels of Distribution
c) Manufacturer via retailer distribution centre to
retail store
• This channel consists of manufacturers either
supplying their products to depots for final
delivery to stores, or supplying them to
consolidation Centres, where goods from the
various manufacturers and suppliers are
consolidated and then transported for final
delivery. The retailers use their own or third party
delivery vehicles to deliver full vehicle loads to
their stores
 Channels of Distribution
d) Manufacturer to wholesaler to retail shop
• Wholesalers act as intermediaries in distribution chains
providing the link between the manufacturer and the small
retailers’ shops. They buy in bulk from manufacturers or
suppliers taking advantage of discounts. Wholesalers use
their own distribution centres and vehicle fleets.
e) Manufacturer to cash-and-carry wholesaler to retail shop
• In here wholesalers conduct cash-and-carry businesses
These are usually built around a wholesale organization and
consist of small independent shops collecting their orders
from regional wholesalers, rather than having them
delivered. This type is usually suitable where order
quantities are very small
 Channels of Distribution
f) Manufacturer via third-party distribution service to retail
store
• These companies consist of those offering general
distribution services as well as those that concentrate on
providing a ‘specialist’ service for one type of product. They
have own fleet and independent from manufacturers
g) Manufacturer via small parcels carrier to retail shop
• these companies provide a ‘specialist’ distribution service
where the ‘product’ is any small parcel and specializing
particularly in next-day delivery
• Small parcels carriers also undertake many home deliveries
 Channels of Distribution
h) Manufacturer via broker to retail store
• This is a relatively rare type of channel, and may
sometimes be a trading channel
• A broker is similar to a wholesaler in that it acts as
intermediary between manufacturer and retailer. Its
role is different, however, because it is often more
concerned with the marketing of a series of products,
and not really with their physical distribution.
• Thus, a broker may use third-party distributors, or it
may have its own warehouse and delivery system. The
broker can provide an alternative physical distribution
channel
 Channels of Distribution
• Therefore, irrespective on the choice of the
distribution system one must bear in mind of
meeting the following objectives:
– To make the product readily available to the market
consumers at which it is aimed
– To enhance the prospect of sales being made.
– To achieve co-operation with regard to any relevant
distribution factors
– To achieve a given level of service
– To minimize logistics and total costs
– To receive fast and accurate feedback of information
Route Planning
 2. Route Planning
• Route Planning serves to
arrange different transport
orders to tours of a vehicle
fleet.

• The most known Route Planning problems are:

– The Travelling Salesman Problem (TSP)
(only one vehicle!)
– the Vehicle Routing Problem (VRP)
– the Pickup and Delivery Problem (PDP)
TSP Construction Heuristics

• Nearest neighbor.
– Add nearest customer to end of the route.

• Nearest insertion.
– Go to nearest customer and return.
– Insert customer closest to the route in the best
sequence.
 Nearest Neighbor

• Add nearest customer to end of the route.

1 2 3

depot depot depot

 Nearest Neighbor

• Add nearest customer to end of the route.

4 5 6

depot depot depot

 Nearest Insertion

• Insert customer closest to the route in the best

sequence.

1 2 3

depot depot depot

 Nearest Insertion

• Insert customer closest to the route in the best

sequence.

4 5 6

depot depot depot

One-to-many shipping (TSP)
 One-to-many shipping (TSP)
The traveling salesman problem
• A salesman, starting from his home (which corresponds to
the depot), has to visit each customer on a given list exactly
once, and then return home; the order in which he visits the
customers should be such that the total distance he travels
is as small as possible
• Suppose we are interested in that tour of which the total
distance travelled is minimal.
• If n grows large, the number of possible tours becomes
excessively large and we can’t just find the best tour by
trying all possible tours and retain the best one
• The TSP is one of the classic problems in Operational
Research
 The Traveling Salesman Problem
•
 The Traveling Salesman Problem
Example:
• In his small van, an express courier has small
packages destined for 250 customers located
across Kitwe. Assume that Kitwe covers 22500
km2 and customers are uniformly distributed.
a) Estimate the distance to be travelled to deliver all
mail
b) Give a reasonable estimate of how long it is
going to take the courier to deliver the mail,
given that the courier travels 50km/hr.
c) What will be the result of dividing the work up in
five vans, each covering an equal part of Kitwe?
 Vehicle routing problem
• A central problem in distribution management
• The Vehicle Routing Problem (VRP) is a
generalization of the Traveling Salesman
Problem, whose goal is to find the optimal set
of routes for a fleet of vehicles delivering
goods or services to various locations.
• Like the TSP, the Vehicle Routing Problem can
be represented by a graph with distances
assigned to the edges.
 Vehicle routing problem
• N customers have to be served from one central
depot
• The customers are served by a fleet of vehicles of
capacity
• The goal is to find a set of routes that minimises
the total travel time such that:
• Each customer is served once by exactly one
vehicle
• The route of each vehicle starts and ends at the
depot
• The total demand covered by each vehicle does
not exceed its capacity
 Vehicle routing problem
Vehicle routing problems can also have other
constraints, including the following:
• Capacity constraints: the total demand of the
locations on a vehicle's route cannot exceed
its capacity.
• For example, the demands might be the sizes of
packages the vehicle has to deliver to each
location, where the total size of all the packages
can't exceed the vehicle's carrying capacity
• Maximum number of locations that each
vehicle can visit
 Vehicle routing problem
Vehicle routing problems can also have other
constraints, including the following:
• Time (or distance) constraints: the duration (or
length) of each route cannot exceed a fixed
bound.
• Time windows: each location must be serviced
within a time window and waiting times are
allowed.
• Precedence relations between pairs of
locations: for example, location j cannot be
visited before location i.
Vehicle routing problem
Vehicle routing problem
 Vehicle routing problem

Examples of vehicle routing problems

• Multi – depot vehicle routing problem
(MDVRP)
• Period vehicle routing problem (PVRP)
• Split delivery vehicle routing problem (SDVRP)
• Stochastic vehicle routing problem (SVRP)
• Vehicle routing problem with time windows
(VRPTW)
 Vehicle routing problem

Examples of vehicle routing problems

• In physical distribution, goods need to be delivered
using vehicles of limited capacity.
• a vehicle will deliver to more than one customer
during one trip all vehicles have the same capacity
• The VRP consists of finding a set of vehicle routes of
minimum cost such that: every customer is serviced
exactly by one vehicle, each route starts and ends at
the depot and the total demand serviced by a route
does not exceed vehicle capacity
• A good approximation for the distance travelled by a
vehicle serving a district i is (Daganzo, 1984):
 Vehicle routing problem
•
 Vehicle routing problem
•
Vehicle routing problem
TSP versus VRP
 TSP & VRP

• TSP: Travelling Salesman Problem

– One route can serve all orders.

• VRP: Vehicle Routing Problem

– More than one route is required to serve all orders.

VRP
TSP

depot
depot
Vehicle Routing & Scheduling
• Setup and Model.

• Problem Variety.
– Pure Pickup or Delivery Problems.
– Mixed Pickups and Deliveries.
– Pickup-Delivery Problems.
– Backhauls.
– Complications.
 Vehicle Routing

• Find best vehicle route(s) to serve a set of orders

from customers.

• Best route may be

– minimum cost,
– minimum distance, or
– minimum travel time.

• Orders may be
– Delivery from depot to customer.
– Pickup at customer and return to depot.
– Pickup at one place and deliver to another place.
General Setup

• Assign customer orders to vehicle routes (designing

routes).

• Assign vehicles to routes.

– Assigned vehicle must be compatible with customers and
orders on a route.
• Assign drivers to vehicles.
– Assigned driver must be compatible with vehicle.
• Assign tractors to trailers.
– Tractors must be compatible with trailers.
Model

• Nodes: physical locations

– Depot.
– Customers. 4
5
1
• Arcs or Links 6 4
– Transportation links. depot 3
8
• Number on each arc 6 8 4
represents cost, distance,
or travel time.
 Pure Pickup or Delivery

• Delivery: Load vehicle at depot. Design route to

deliver to many customers (destinations).

• Pickup: Design route to pickup orders from

many customers and deliver to depot.

• Examples:
– UPS, FedEx, etc.
– Manufacturers & carriers.
– Carpools, school buses, etc.

depot
Pure Pickup or Delivery

depot

depot
Which route is best????

depot
 Mixed Pickup & Delivery

Pickup
Delivery

depot

• Can pickups and deliveries be made on same

trip?
• Can they be spread?
Mixed Pickup & Delivery
Separate routes
Pickup
Delivery

One Route
Not Interspersed

depot

Spread

depot

depot
 Interspersed Routes Pickup
Delivery

F
• For clockwise trip: I
E H
D K
• Load at depot ACDFIJK A G
J
• Stop 1: Deliver A CDFIJK C
depot L

• Stop 2: Pickup B B
BCDFIJK

• Stop 3: Deliver C BDFIJK Delivering C requires moving B

• Stop 4: Deliver D BFIJK Delivering D requires moving B

• etc.
 Pickup-Delivery Problems

• Pickup at one or more origin and delivery to one

or more destinations.
• Often long haul trips.
• e.g Post Couriers

C
Pickup
Delivery B
A B
depot A
C
Intersperse Pickups and Deliveries?

• Can pickups and deliveries be interspersed?

C

Interspersed B
A B
depot A
C
Pickup
Delivery
C
Not Interspersed B
A B
depot A
C
 Backhauls

• If vehicle does not end at depot, should it return

empty (deadhead) or find a backhaul?
– How far out of the way should it look for a backhaul?

C
Pickup
B
Delivery A B
depot A
C

D D
 Backhauls

• Compare profit from deadheading and carrying

backhaul.

Pickup
Delivery
C

B
A B
depot A
C
Empty Return

D D
Backhaul
 Complications
• Multiple vehicle types.

• Multiple vehicle capacities.

– Weight, Cubic feet, Floor space, Value.

• Many Costs:
– Fixed charge.
– Variable costs per loaded mile & per empty mile.
– Waiting time; Layover time.
– Cost per stop (handling).
– Loading and unloading cost.

• Priorities for customers or orders.

 More Complications
• Time windows for pickup and delivery.
– Hard vs. soft

• Compatibility
– Vehicles and customers.
– Vehicles and orders.
– Order types.
– Drivers and vehicles.

• Driver rules (DOT)

– Max drive duration = 10 hrs. before 8 hr. break.
– Max work duration = 15 hrs. before 8 hr break.
– Max trip duration = 144 hrs.
Mode/types of Transport used in
distribution
Mode/types of Transport used in distribution of
Industrial Products
Road, Rail, Airfreight , Sea, Pipelines
Pipelines
Airfreight
• In Zambia???
• Sea
Road
Rail
And of course Journey to Dundumwenzi
• Brilliant ideas politicized
What's the difference between logistics and
distribution?
Refer to the graphic below:
Factors influencing Distribution Network
Design
1) Customer needs that are met (Customer Service)
– Response time (time it takes for a customer to receive
an order)
– Product variety (Number of different products that are
offered)
– Product availability (probability of having a product in
stock)
– Customer experience (ease of placing and receiving
orders)
 – Order visibility (ability of customers to track their orders)

– Returnability (ease of returning unsatisfactory goods)

3) Cost of meeting customer needs (supply chain cost)

– Inventory (all raw materials, WIP and finished goods)

– Transportation (moving inventory from point to point)

– Facility & handling (locations where products is stored,

assembled or fabricated), facility costs, operating costs

– Information (data and analysis of all drivers in a supply

chain) i.e. increased demand and supplier visibility
Two key decisions are important when designing a
distribution network

2. Will product flow

intermediary (or
intermediate
1. Will the product be

through an

location)?
delivered to the customer
location or picked up from a
preordained site?
Distribution network performance evaluated along two
dimensions
– Customer needs that are met
– Cost of meeting customer needs

Distribution network design options must therefore be

compared according to their impact on customer
service and the cost to provide this level of service
Performance of a Distribution network design can be
measured for different product/customer characteristics
Overall a distribution network aim is to satisfy the
customer as depicted on the process below
Important points to note!!!!
The ownership structure of the distribution network can have
a big impact on the performance
The choice of a distribution network has very long-term
consequences
Consider whether an exclusive distribution strategy is
advantageous
Product, price, commoditization, and criticality have an
impact on the type of distribution system preferred by
customers