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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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