What are the different Network Designs?

Network Designs

1)      Direct Shipment Network

Suppose that a Retail store chain opts for the direct shipment network. Then the network structure of the retail store chain is designed in a manner such that all the shipment good and material come directly from the supplier to the retail store. In the direct shipment network the path or the route, which each shipment has to the take, is specified. The duty of the Apply chain manager in this case is only to decide on the quality of the goods that has to be sent to the retail store and then depending on the type and quality of goods, he has to decide on the mode transport. Here the supply chain manager has to strike a balance between the cost of transport in the inventory levels at the stores.

E.g.: If the manager decides to reduce the number of trips of transportation to minimize transportation cost then he has to decide on larger inventories at the retail store. But maintaining large inventories have their disadvantages as well. Again to keep the inventory level minimum at the retail store. There will be more number of trips by truck to the retail store. This will increase the cost of transportation.

The major advantages of a direct shipment transportation network are the elimination of intermediate warehouses and its simplicity of operation and coordination. The shipment decision is completely local i.e. the decision made for one shipment doesn’t influence the other shipment. Again since each shipment will be direct the transportation time from the supplier to the retail store will be short.

A direct shipment network is justified if the retail stores are large enough and have sufficient store capacity. This is because where the retail store requires replenishment of stocks, the trucks dispatched from the supplier to the retail store should preferably be near-to full or to full capacity. If however the retail store is small the direct shipment network tends to have high costs. The reason is that if truck with full capacity is sent to the small retail store. The retail store may not be able to unload all the goods in the store. Even if it does it may not able to sell all the goods resulting in high inventory holding costs. Again to send trucks which are half —empty is also not advisable from sound logistical cost management.

2)      Direct shipment with milk run

One Supplier        Many Retail Stores                       Many Suppliers                   One Retail Stores

A Milk run is a route in which a truck either delivers product from a single supplier to multiple retailers or goes from multiple supplier to a single retailer. Hence in direct shipment will milk runs a supplier delivers directly to multiple retail stores on a truck or a truck picks up deliveries from many supplier destined for the same retailer. When using this option a supply chain manager has to decide on the routing of each milk run. This is because if a supplier has to deliver to multiple retail store. The supply chain manager has to decide on the routing of each milk run. This is because if a supplier has to deliver to multiple retail stores, the supply chain management has to decide which retail stores are to be given priority and accordingly the routes have to be decided. Similar decision about the route has to taken by the supply chain manager when many supplier have to be contacted by the truck to take delivery of goods meant for the same retail store.

Direct shipment of goods to the destinations provides the benefit of eliminating the need of having intermediate warehouses. Further the milk run helps to lower the transportation cost by consolidating shipment to multiple stores on a single truck. E.g.: if the replenishment to each retail store is considers on a direct shipment basis, it may happen that the lot size dispatched to that retail store may be small and the truck cannot be loaded to its full capacity. However if.milk runs are used in such a case the

deliveries to multiple store can be profitably consolidated onto a single truck. This will result in the better utilization of the truck and also help to reduce costs.

E.g.: Toyota uses milk run from suppliers to support its just-in –time (JIT) manufacturing system in both Japan and the United States. However in Japan Toyota has many of its assembly plants located close together and thus uses milk runs with a network of a single supplier to many plants. Whereas in the united State Toyota uses milk runs from many suppliers to it’s only assembly plant in Kentucky

3)      All shipment via central distribution centre

In this transportation network the suppliers do not send the shipment of goods directly to the retail stores. The retail chain divides the stores as per geographical regions. One central distribution centre is set up for a few retail stores within one geographical region. The suppliers send goods to this central distribution centre. From there the goods go to different retail stores as per their requirements.

The central distribution centre is an extra layer between the suppliers and the retail stores. Such a network is more beneficial when the retail stores do not have enough storing capacity and need replenishments at irregular short intervals. In this case the suppliers can have cost benefit by sending larger shipments to the central distribution centre and also avoid the risk of overstocking of goods in retail stores.

4)      Cross Docking

In Cross Docking goods from many suppliers reach a central distribution centre via trucks. However, after reaching the central distribution center, instead of storing the goods, the goods from different suppliers are consolidated into one truck and are directly send to the various retail outlets for replenishment. Hence Cross Docking helps to save the inventory carrying cost as well as time required for delivery of goods to the retailers.

E.g.: A company imports 4 types of products. When these products arrive at the docks, they are loaded on to 4 trucks and are sent to the central distribution center. Thereafter, central distribution center can cross dock products arriving from the four overseas suppliers on inbound truck, by breaking each inbound shipment into smaller shipments that are then loaded onto the trucks which are outbound and going to each of the retail stores.

Traditionally warehousing was used as storage in order to support manufacturing and marketing activities. With forecasting and production scheduling this need has been reduced. Now warehousing is used to reduce material, storage and handling cost while optimizing production.