Delivery Network
Designing the Distribution Network in a Supply Chain
Sunil Chopra
Kellogg School of Management, Northwestern University
2001 Sheridan Road, Evanston, IL 60208, U.S.A
Tel: 1-847-491-8169; Fax: 1-847-467-1220; e-mail:s-chopra@kellogg.northwestern.edu
Abstract
This paper describes a framework for designing the distribution network in a supply chain. Various factors influencing the choice of distribution network are described. We then discuss different choices of distribution networks and their relative strengths and weaknesses. The paper concludes by identifying distribution networks that are best suited for a variety of customer and product characteristics. 0. Introduction
Distribution refers to the steps taken to move and store a product from the supplier stage to a customer stage in the supply chain. Distribution is a key driver of the overall profitability of a firm because it directly impacts both the supply chain cost and the customer experience. Good distribution can be used to achieve a variety of supply chain objectives ranging from low cost to high responsiveness. As a result, companies in the same industry often select very different distribution networks.
Dell distributes its PCs directly to end consumers, while companies like Hewlett Packard and Compaq distribute through resellers [3]. Dell customers wait several days to get a PC while customers can walk away with an HP or Compaq PC from a reseller. Gateway opened Gateway Country stores where customers could check out the products and have sales people help them configure a PC that suited their needs. Gateway, however, chose to sell no products at the stores, with all PCs shipped directly
1
from the factory to the customer. In 2001, Gateway closed several of these stores given their poor financial performance. Apple Computers is planning to open retail stores where computers will be sold
[4]. These PC companies have chosen three different distribution models. How can we
Sunil Chopra
Kellogg School of Management, Northwestern University
2001 Sheridan Road, Evanston, IL 60208, U.S.A
Tel: 1-847-491-8169; Fax: 1-847-467-1220; e-mail:s-chopra@kellogg.northwestern.edu
Abstract
This paper describes a framework for designing the distribution network in a supply chain. Various factors influencing the choice of distribution network are described. We then discuss different choices of distribution networks and their relative strengths and weaknesses. The paper concludes by identifying distribution networks that are best suited for a variety of customer and product characteristics. 0. Introduction
Distribution refers to the steps taken to move and store a product from the supplier stage to a customer stage in the supply chain. Distribution is a key driver of the overall profitability of a firm because it directly impacts both the supply chain cost and the customer experience. Good distribution can be used to achieve a variety of supply chain objectives ranging from low cost to high responsiveness. As a result, companies in the same industry often select very different distribution networks.
Dell distributes its PCs directly to end consumers, while companies like Hewlett Packard and Compaq distribute through resellers [3]. Dell customers wait several days to get a PC while customers can walk away with an HP or Compaq PC from a reseller. Gateway opened Gateway Country stores where customers could check out the products and have sales people help them configure a PC that suited their needs. Gateway, however, chose to sell no products at the stores, with all PCs shipped directly
1
from the factory to the customer. In 2001, Gateway closed several of these stores given their poor financial performance. Apple Computers is planning to open retail stores where computers will be sold
[4]. These PC companies have chosen three different distribution models. How can we
References: Prentice Hall, New Jersey, 2001. 2. Fulford, Benjamin. "I got it @ 7-Eleven." Forbes, April 03, 2000. 3. Magretta, Joan. "The Power of Virtual Integration: An Interview with Dell Computer 's Michael Dell." Harvard Business Review (March-April 1998), 72-84. Washington Post, December 04, 2001.