What is a distribution center?

Distribution Distribution Centers Centers Louis Louis Luangkesorn Luangkesorn A distribution center (DC) is a node in a supply network Distribution Centers which can be used for: IE 1079/2079 Logistics and Supply Chain storing goods (short term or longer), processing products, Louis Luangkesorn de-aggregating vehicle loads, creating SKU assortments, University of Pittsburgh Department of Industrial Engineering assembling shipments, among other things. July 8, 2009

Some definitions of distribution center Contrast DCs and warehouses

Distribution Distribution Centers Centers Louis Louis Luangkesorn Luangkesorn “a post production warehouse for finished goods held for distribution” facilities that “accumulate and consolidate products Warehouses hold all products from various points of manufacture within a single firm, DCs hold minimum inventories or from several foirms, for combined shipment to Warehouses have four activities in a cycle (receive, common customers.” store, pick and ship) A type of warehouse where the storage of goods is DCs have two activities (receive and ship) limited or non-existent. DCs focus on product movement and throughput and information collecting and reporting rather then storage. Role of DCs in supply chains Roles of distribution centers

Distribution Distribution Centers Centers Louis Louis Luangkesorn Supply chains have been changing over the past few Luangkesorn decades Some roles that a distribution center can take on include: Reduction in number of warehouses. Make-bulk/break-bulk consolidation terminal Greater emphasis on the flow of goods rather then their Cross-dock operation storage. The emphasis on inventory reduction allows Transshipment node for closing of facility, closer control of safety stocks, and Assembly facility elimination of obsolete and slow-moving items. Product fulfillment center Increased outsourcing of warehouse/distribution center Returned goods depot activities. this allows for third parties to provide increased economies of scale to their clients.

DC as a make-break/break-bulk DC as a cross dock consolidation center

Distribution Distribution Centers Centers Cross docking is the process where the product is received Louis The traditional function of a distribution center Louis in a facility, occasionally married with product going to a Luangkesorn Break-bulk facility - Large incoming loads are Luangkesorn same destination, then shipped at the earliest opportunity, disaggregated. without going into long-term storage. Make-bulk facility (consolidation center) - Small In cross docking, orders are fulfilled from the factory (or quantities of several different products are combined other source). The DC is merely a pass through point. into fewer, larger assortments. Does not include traditional warehousing activities such Involves determining which products should be as incoming inspection, storage, pick-location dispatched together, which customer orders will be replenishment, and order picking. combined, and when consolidated orders will be Allows for faster product flow and improved customer released. service. Used when products are shipped in packaging or Reduced product handling. Leads to lower probability quantities inappropriate for their final destination. of damage and less wear on material handling e.g. Strategic National Stockpile equipment and labor. Lower inventory Disadvantages to cross docking DC as a transshipment facility

Distribution Distribution Centers Complex planning and coordination is required. Centers Louis Louis Luangkesorn Most manufacturers are not equipped to efficiently Luangkesorn create store-order quantity packages, so it could lead to Transhipment is another traditional role of distribution additional costs in fulfilling from a distance plant instead centers. of a local warehouse. Taking an item or shipment out of one vehicle and Requires suppliers consistency in delivering proper loading it onto another vehicle. quantities on time. This may or may not include consolidation or Capital to sustain CD information systems and de-consolidation. personnel that recognize their job is moving, not Use when there is a need to change transportation storing, product. modes or vehicle types. Space for material staging, with appropriate docks and E.g. Line-haul transportation vs. local delivery. Delivery material handling. in dense urban areas. Inbound shipments which have been packaged into cases or pallets going to a single destination to minimize sorting.

DC as an assembly facility DC as a product fulfillment center

Distribution Distribution Fulfilmment centers respond to product orders from the final Centers A distribution center as an assembly facility has the Centers Louis Louis customer, by shipping items directly there. These difer from Luangkesorn following advantages Luangkesorn traditional warehouses in the following ways Delaying item-differentiation, packaging and labeling Because fulfilment centers deal directly with end Wait until more information is known about actual customers, customer service staff and procedures are demands important. Product localization Size of typical order is smaller, but the number of orders is larger Example HP Europe Most or all orders are received electonically A generic printer is made in Vancouver BC. Shipped to Fulfillment typically must receive and process customer Europe. European DC which could do final assembly to payments (e.g. credit card) produce 6 product lines in the proper quantities to A large amount of time is spent dealing with returns match demand. from customers. Disadvantage - DC workforce are not generally trained Computerized information systems and task or recruited for assembly automation are increasingly critical, and the transporation function is more complex. DC as a depot for returned goods Measuring distribution center performance

Distribution Distribution Centers Centers Louis Reverse distribution channel deals with product returns. It Louis Luangkesorn tends to be more complex then the forward channel. Luangkesorn Objective is to minimize cost while getting the product back to the forward distribution channel Measuring DC performance is really the ability of the DC to support the rest of the supply chain Without mixing SKUs Benchmark performance against past results. e.g. Dealing with many small shipments other supply chain configurations. Labor intensive - returned items must be inspected, Looking at total costs: inventory holding, transportation separated into those that can be repaired or and material handling. repackaged, sent back to supplier or scrapped. Often, a firm will outsource this to maintain a completely separate return channel to avoid mixing and complications

DC performance measures Reprise - Roles of distribution centers

Distribution Distribution Centers Centers Louis Louis Luangkesorn Luangkesorn Some roles that a distribution center can take on include: Throughput Make-bulk/break-bulk consolidation terminal Inventory turnover Cross-dock operation Cost per case/pallet/employee hour/etc Transshipment node Accuracy (order picking, shipping) Assembly facility Damage Product fulfillment center Returned goods depot