Factors of distribution network design: evidence from Russian market
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Introduction 6
1. Distribution network design 9
1.1. Decision making approaches to distribution network design 10
1.2. Design options for a distribution network 13
1.2.1. Types of facilities 13
1.2.2. Number of echelons 14
1.3. Factors affecting distribution network design 16
1.3.1. Product characteristics 17
1.3.2. Cost related factors 18
1.3.3. Market uncertainties & customer needs 20
1.3.4. Other factors 22
2. Methodology and data collection 26
2.1. Research design 26
2.2. The multiple case study approach 29
2.3. Data collection 31
3. Analysis and findings 34
3.1. LSR Stenovye case 34
3.2. Slotex case 37
3.3. Procter & Gamble case 41
3.4. Palfinger case 45
3.5. Cross-case comparison 50
3.6. Discussion 55
3.7. Theoretical and practical contribution 62
3.8. Limitations 63
Conclusion 65
List of references 68
Appendices 73
1. Distribution network design 9
1.1. Decision making approaches to distribution network design 10
1.2. Design options for a distribution network 13
1.2.1. Types of facilities 13
1.2.2. Number of echelons 14
1.3. Factors affecting distribution network design 16
1.3.1. Product characteristics 17
1.3.2. Cost related factors 18
1.3.3. Market uncertainties & customer needs 20
1.3.4. Other factors 22
2. Methodology and data collection 26
2.1. Research design 26
2.2. The multiple case study approach 29
2.3. Data collection 31
3. Analysis and findings 34
3.1. LSR Stenovye case 34
3.2. Slotex case 37
3.3. Procter & Gamble case 41
3.4. Palfinger case 45
3.5. Cross-case comparison 50
3.6. Discussion 55
3.7. Theoretical and practical contribution 62
3.8. Limitations 63
Conclusion 65
List of references 68
Appendices 73
Rapidly changing environment, time-based competition, decreased product life cycle and greater customer expectations have significantly changed the way companies operate. The pressure on supply chains has surged dramatically. As a result, many companies started to recognize strategic role of supply chain management as it influences directly not only costs, but also customer satisfaction. Thereby, supply chain management has become a crucial source of competitive advantage.
Supply chain network design is concerned with physical configuration of facilities: number, locations, allocations, capacities of production and distribution facilities. Distribution (see figure 1), in turn, is an important part of supply chain network design. It is responsible for a huge share of total logistics costs, only inventory costs generally account for up to 30% of total logistics costs (Pedersen et al, 2012). Another important role of distribution is supplying the customers with desired products at the right place and at the right time, at a minimum possible cost. Thus, distribution directly impacts customer satisfaction.
Supply chain network design is concerned with physical configuration of facilities: number, locations, allocations, capacities of production and distribution facilities. Distribution (see figure 1), in turn, is an important part of supply chain network design. It is responsible for a huge share of total logistics costs, only inventory costs generally account for up to 30% of total logistics costs (Pedersen et al, 2012). Another important role of distribution is supplying the customers with desired products at the right place and at the right time, at a minimum possible cost. Thus, distribution directly impacts customer satisfaction.
The goal of this research was to reveal the factors that influence distribution network decisions and describe their influence on selection of particular distribution network type of goods producers with demand fragmented across Russia.
In order to reach this goal, the following objectives were set:
1) Analyze existing theoretical approaches to distribution network design and factors that have an impact on distribution network decisions
2) Provide a classification of physical distribution network types
3) Justify selected research design and collect data for a multiple case study method
4) Identify factors that influence distribution network decisions of goods producers with demand fragmented across Russia
5) Describe the influence of these factors on distribution network decisions
6) Develop recommendations that would facilitate selection of appropriate type of distribution network for companies with demand fragmented across Russia
The first objective was addressed in the first chapter, which was dedicated to the literature review of distribution network design and the factors that influence distribution network decisions. Two major groups of distribution network facilities were identified: warehousing facilities and transshipment facilities; as well as design options for distribution network design in terms of number of echelons were considered. Afterwards, a review of factors influencing distribution network decisions was provided. The discussed factors were grouped in four categories: product characteristics, cost related factors, market uncertainties & customer needs and other factors.
Based on the conducted literature review, the following research gap was identified. First of all, no comprehensive classification of distribution network types has been revealed, since most of the research papers focus on mathematical modelling where number of echelons and type of facilities are mostly perceived as constraints. Secondly, various factors that influence distribution network decisions were discussed in the literature, however, their impact on such decisions has been mostly considered from a very broad centralization - decentralization perceptive. The question, which is not widely discussed in the literature is what is the influence of these factors on selection of particular distribution network type. Taking into account that this research focuses on implications for goods producers with demand fragmented across Russia, in order to address the mentioned above research gap, the following research questions were identified:
(Q1) Which types of physical distribution networks can be identified?
(Q2) What are the factors and how do these factors influence selection of distribution network type of goods producers with demand fragmented across Russia?
The answer to the first research question, which also corresponds to the second objective of this master thesis, was provided based
1) Single echelon distribution network, where the goods are directly shipped to customers from the plant warehouses or central depots
2) Two echelon distribution network, where consolidated orders are shipped from plant warehouses or central depots to the transshipment depots and than are distributed to customers
3) Two echelon distribution network, where the goods are delivered from plants or central depots to regional depots, which perform the function of buffering the demand and supply sides, and than are transported to customers
4) Two echelon distribution network, where the goods from plant warehouses or central depots are shipped to local warehouses, which are located in proximity to demand points, and afterwards are transported to customers
In order to reach this goal, the following objectives were set:
1) Analyze existing theoretical approaches to distribution network design and factors that have an impact on distribution network decisions
2) Provide a classification of physical distribution network types
3) Justify selected research design and collect data for a multiple case study method
4) Identify factors that influence distribution network decisions of goods producers with demand fragmented across Russia
5) Describe the influence of these factors on distribution network decisions
6) Develop recommendations that would facilitate selection of appropriate type of distribution network for companies with demand fragmented across Russia
The first objective was addressed in the first chapter, which was dedicated to the literature review of distribution network design and the factors that influence distribution network decisions. Two major groups of distribution network facilities were identified: warehousing facilities and transshipment facilities; as well as design options for distribution network design in terms of number of echelons were considered. Afterwards, a review of factors influencing distribution network decisions was provided. The discussed factors were grouped in four categories: product characteristics, cost related factors, market uncertainties & customer needs and other factors.
Based on the conducted literature review, the following research gap was identified. First of all, no comprehensive classification of distribution network types has been revealed, since most of the research papers focus on mathematical modelling where number of echelons and type of facilities are mostly perceived as constraints. Secondly, various factors that influence distribution network decisions were discussed in the literature, however, their impact on such decisions has been mostly considered from a very broad centralization - decentralization perceptive. The question, which is not widely discussed in the literature is what is the influence of these factors on selection of particular distribution network type. Taking into account that this research focuses on implications for goods producers with demand fragmented across Russia, in order to address the mentioned above research gap, the following research questions were identified:
(Q1) Which types of physical distribution networks can be identified?
(Q2) What are the factors and how do these factors influence selection of distribution network type of goods producers with demand fragmented across Russia?
The answer to the first research question, which also corresponds to the second objective of this master thesis, was provided based
1) Single echelon distribution network, where the goods are directly shipped to customers from the plant warehouses or central depots
2) Two echelon distribution network, where consolidated orders are shipped from plant warehouses or central depots to the transshipment depots and than are distributed to customers
3) Two echelon distribution network, where the goods are delivered from plants or central depots to regional depots, which perform the function of buffering the demand and supply sides, and than are transported to customers
4) Two echelon distribution network, where the goods from plant warehouses or central depots are shipped to local warehouses, which are located in proximity to demand points, and afterwards are transported to customers
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