Page 249 - DMGT551_RETAIL_BUSINESS_ENVIRONMENT

Retail Business Environment

Notes equipment, workforce, and other critical cost variables. DC’s also facilitate time utility by
storing product until it is demanded.
Product type often determines the need for and specific role of DC’s in the supply chain.
Characteristics to be considered include:
 Seasonality in either production or consumption

 Demand variability
 Manufacturing economics
 Marketing and promotional initiatives
 Transportation economics

 Service requirements
 Customizability and variants of product
Products that have extremely high service requirements from a time perspective present unique
challenges since they often affect the efficiency, performance, and cost of customers’ operations.
As an example companies that distribute parts for technology products (e.g. computers) and
capital goods (e.g. airplanes, construction machinery) must be capable of distributing those
parts within hours. Similarly many automotive manufacturers have “inbound” DC’s located in
close proximity to manufacturing plants so that subassemblies and other components can be
assembled and “profiled to line” for the production process.
Postponement is also becoming a critical issue and value added service for DC’s. When demand
is unpredictable it often makes sense to “assemble and ship to order”. Inventories remain
“generic” providing more flexibility and reducing costs (e.g. inventory, transportation, surplus,
obsolescence). Postponement is particularly effective in supporting customer product
configuration and branding requirements.
Company capabilities to determine DC requirements are essential for achieving successful
networks and operations. DC requirements include location, design and operations, determining
the information and technology requirements, and measuring performance.

Location

In addition to transportation costs DC location is determined based on the location of major
markets and customers, the location of supply points, the volume of product moving to or from
supply points and customers, transportation rates, the level of service required, and the product
characteristics. Local conditions including access to and cost of labor, land and buildings, IT/
communications infrastructure, transportation infrastructure, and government policies (e.g.
environment, incentives, taxes) also play a significant role in determining location.

Design and Operations

The product, how it is received, the nature of customer orders, service levels, and transportation
mode are the primary determinants of distribution center design and operations. Product
characteristics include weight and dimensions, packaging, shelf life, temperature and lot control
requirements, and hazardous material requirements. How the product is received is critical to
both inbound operations efficiency (dock to stock cycle time) and space utilization/storage
efficiency.

To optimize efficiency in inbound operations it is ideal to receive material in an immediately
storable conveyance (e.g. pallet, case, box). The types and volumes of orders that are processed

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