Page 283 - DMGT501_OPERATIONS_MANAGEMENT

Unit 13: Supply Chain Management and JIT

The Distribution System Notes

The distribution system is the physical link between suppliers and customers. In a complex
production environment, which is typical of most developed countries, distribution systems
link a series of suppliers and customers into a production chain. It ties the various stages of
production into the production chain. Very few companies are completely vertically integrated;
generally, several companies participate in building a complex product before it is delivered to
the customer.
The distribution system is the interface between marketing and operations. It controls the actual
fulfillment of sales orders and purchase orders as well as stock transport orders. In consumer
product markets, a volatile consumer demand situation and increasing pressures on order cycle
times and higher service levels are becoming important.
Demand and supply planning capabilities enable companies to maximize return on assets, and
to ensure a profitable match of supply and demand. Responsiveness to demand changes and
flexibility in planning are a must. Many companies obtain customer data from the retailer and
immediately incorporate it into the planning data, thus providing up-to-date demand and supply
situations.
Distribution systems have also been used to store large amounts of materials for rapid delivery
to a customer to buffer inflexible production systems that were incapable of making the swift
adjustments required to keep pace with rapidly changing customer needs.

The distribution system can have several distinct levels. Inventory may be maintained for
distribution to customers in any of the levels:
1. The supplier's facility

2. In transit
3. A regional warehouse
4. A distribution center
5. The customer's facility

A distribution center serves a large number of customers and is planned on a regional basis or
on the basis of customers. Regional warehouses often hold the bulk of the inventory in the
distribution system because small inventories in several distribution centers would be more
difficult to control and replenish. Often, distribution centers also act as order-taking and order-
processing centers.
Each center maintains a limited inventory of high-demand items, which are frequently
replenished from larger stocks at the regional warehouse. Small orders may be shipped to the
distribution center, along with items ordered by other customers. These shipments will be
broken down at the distribution center and shipped with orders for other customers.

Large orders received by a distribution center may be shipped directly from the regional
warehouse or the supplier's facility to the customer's facility. Very often, in the case of large
industrial purchases, stocks are held by second tier suppliers in local warehouses and are shipped
on the basis of demand.

Shipping

Shipping is the beginning of the delivery system that sends the product ordered to the customer.
It is a link to the outbound logistics and is a part of the distribution system which links suppliers
and customers. The execution of logistics tasks begins with delivery processing; the goods are

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