Question

Consolidated Distribution Recall from lecture the example of direct delivery versus consolidated distribution. In the direct delivery scenario, a single supplier ships directly to 100 retail stores with an 8-week lead time to each store. Each retail store faces normally distributed customer demand with a mean of 2 units/month and a standard deviation of 1.41 units/month (assume 4 weeks in a month). In the consolidated distribution scenario, the supplier ships directly to a regional distribution center (DC), which then ships directly to each retail store. The lead time between the supplier and the DC is 8 weeks. The DC and the retail stores use an order-up-to level inventory policy with a target service level of 95 percent. Question 8 (10 pts.) In lecture, we demonstrated that when the lead time between the DC and each retail store is 1 week, the average inventory level in the consolidated distribution scenario is less than the average inventory level in the direct delivery scenario, thus providing some motivation for consolidating distribution despite the lengthened supply chain. What lead time between the DC and each retail store equalizes this benefit, i.e., what lead time results in equal average inventory levels in each system? Question 9 (10 pts.) Reducing average inventory levels via lead time pooling is one reason to consider consolidated distribution over direct delivery. But, as the previous question implies, this benefit decreases as the lead time between the DC and each retail store increases. Yet, many supply chains implement consolidated distribution even if the average inventory level is higher than that of a direct delivery scenario. Briefly describe alternative reasons firms might opt for consolidated distribution.

Answer 1

Answer to Question No.9: Alternative Reasons Firms opt for Consolidated Distribution

Under this problem discuss about the direct Distribution Centers and Consolidated Distribution.Each one has it's own pros and cons. A system can be proudly good with its benefits and merits than the others.As we can compare the two systems and fiond out a conclusion based on thefacts and figures involved in it. Let us know about distribution centers first. A distribution center for a set of products is a warehouse or other specialized building, often with refrigeration or air conditioning, which is stocked with products (goods) to be redistributed to retailers, to wholesalers, or directly to consumers.So we need most powerful distribution management in our Organization.Distribution management includes forecasting, transportation, warehousing, and delivery within the larger universe of logistics and supply chain management. These require precise tracking, real-time information, and highly-skilled staffing to execute effectively.

Managing a retail operation is a full-time endeavor. You need to create employee schedules. You need to deal with customers. You need to keep an eye on profits and losses. But most importantly, you need to track your inventory to make sure you’re keeping the items stocked that people come to you to buy.That’s where understanding the distribution system is a vital to your business’ success. There are several variations of retail distribution, but the two main approaches include Direct Store Delivery (DSD) and Consolidated Distribution.Under the DSD model, each manufacturer of the products, you transporting or delivering merchandise directly to your location via a distributor. That supplier/distributor checks inventory, orders stock, unpacks pallets, assigns shelf spacing, inventory level, removes expired or outdated stock, sets up promotional displays, and displays pricing, among other things.

With Consolidated Distribution, inventory is delivered to a central location where it is warehoused until needed. It is then transported to the retailer when ordered by the store manager or someone else in charge of inventory. Through this method, the retailer is fully responsible for everything mentioned above that manufacturers handle via the DSD method.In the mentioned problem the average inventory level is higher than the direct delivery scenario in consolidated distribution systems. So most of the firms choose the consolidated distribution system than the Direct Delivery packages with the alternative reasons of benefits.Let us briefly address the benefits of Consolidated distribution centres.

• Better control

  One of the advantages of having a consolidated distribution is to have better control. Organizations set up central stores that are responsible for all activities and transport their inventory as and when required to other stores which are usually attached to the production capacities located in different locations.

• Inventory management

  Inventory can be as minimum as material ordered based on the requirement of all other attached parties. The material can also be ruled out to and from the attached central stores. This is especially so in the case of tools, fixtures, equipment, and spares.

• Reduced cost

  By choosing the consolidated distribution, the need to pay rent or utility and incidental expenditures for different distribution centres are reduced. The need to spend more on new equipment and technologies for each centre is also eliminated.With these reductions in costs, retailers can now set pricing strategies with more ease due to the more stable nature of its inventory management. This will allow for higher margins or lower prices for customers.

• A requirement of fewer team members

  Unnecessary duplication of records takes place in distribution centers. Consolidated distribution will require fewer staff members for management. For a smaller business, this can be one of the most important reasons for having decentralized distribution systems.

• Economy in storage

  Is possible in a consolidated distribution system as goods in bulk will occupy less space. That will offer you even lower renting costs, which will make you able to invest more into other things like marketing.

• Accessibility

  One of the biggest advantages of having all the products in one central location means getting easy access whenever needed. That also makes it easier for you to handle some kinds of crises. The reason for that is you know something is missing for example you can check it instantly.

• Reporting

  Depending on the kind of business or the kinds of products you offer to your customers, you need to keep a close eye on what you have in stock. With a central distribution center, creating these types of reports becomes incredibly easy. You only have to go to one source rather than track down multiple reports from multiple distribution centers.

• Standardization

  Implementing consolidated would result in the standardization of the processes. This guarantees lesser variations and better performance. It will save you from a lot of potential headaches and make it easier for you to make decisions.That will give you more time to do the things that will make you able to really grow your business like strategizing, developing new leaders, etc.

• Flexibility

  In a crisis or an emergency, standardization of work takes just one step to revise all the activities at once. This guarantees a greater degree of flexibility in an organization than in a company with no Consolidated distribution

• Better customer service

  By choosing to limit the number of distribution centres or distributors, a company can focus its resources on fewer facilities. This means the facility will have highly skilled workers, the latest technology, and the best equipment. With all of this in one facility, the highest quality of service can be offered to customers.

The above mentioned things are the favourable reasons for superiority of consolidated distribution system other than direct delivery distribution centres.