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Lecture 42 : Importance of Distribution in Supply Chain — Transcript

by NPTEL IIT Kharagpur · 6,836 words · 1,031 segments · language en · Watch on YouTube

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0:01[Music]
0:22[Music]
0:26hello dear friends welcome back to nptl
0:28online course on Logistics and Supply
0:30Chain management so today we'll start
0:33discussion on very important topic which
0:35is designing the distribution Network
0:38having said that important means why
0:40because this is the network which is
0:43going to ensure the Final End mile
0:46delivery of the product and services
0:48it's not only that through this
0:49distribution Network you will deliver
0:51your product or services but this is the
0:54point of contact where you are directly
0:57in touch with the End customer or
0:58consumer who is going going to consume
1:00your product or services so that means
1:04when you are in contact with the
1:06customer recording their information
1:08feedback preferences whatever their
1:11preferences are so that is very
1:13important so this channel becomes
1:15important in that aspect as well right
1:18so we'll spend couple of session on uh
1:22uh what are important factors when we'll
1:23talk about you know designing the
1:25distribution Network so uh very basic
1:29concept here is whenever we are talking
1:31about designing distribution Network so
1:33obviously we'll keep some points in our
1:36mind right like points means what are
1:39the uh set of services we are going to
1:42provide obviously when you are saying
1:44comparing your online distribution
1:46Network or with the retail shop
1:49obviously two different set of you know
1:52uh establishments so both are providing
1:55different experience when you want to
1:57you know physically check some product
1:59feel some product or visualize some
2:01product so obviously you prefer to go to
2:04retail shop and then you are picking the
2:06product right so that maybe the one
2:08advantage but when you are you know so
2:10overburdened with the day routine life
2:13so then you want to order because maybe
2:15standardized routine items you want to
2:18uh place the order to some maybe any
2:21platform and then you want the Doorstep
2:24Delivery so these are kind of services
2:27means extreme end and then you know when
2:29you we are talking about e-commerce
2:31industry different level of services
2:33when we are talking about the long chain
2:35of wholesaler distributor retailer then
2:37this different set of services are there
2:40right so this is one aspect level of
2:43services the other aspect when we'll
2:45pick our distribution network is the
2:48cost if we are talking means we
2:51discussed in the last session I think as
2:53well about the supply chain cost so
2:55total cost is your obviously the
2:58material cost mat material acquisition
3:00cost manufacturing cost your
3:02distribution cost your storage cost
3:04facility cost where you are setting up
3:06your distribution Network these are some
3:08of the cost right but here we are going
3:10to discuss only about the distribution
3:14cost what can be the dist your
3:15distribution cost will be your Logistics
3:18cost right so your Logistics cost will
3:21be including your transportation cost
3:23your warehousing cost your storage cost
3:26and facility setup cost right if you are
3:29setting up Distribution Center so that
3:30is one factor so cost versus level of
3:33services will will try to uh make the
3:37trade off between these two parameters
3:39and then we'll say this is a kind of
3:41particular design uh distribution design
3:43we'll go for right so then we'll see the
3:47uh this distribution designing with
3:50perspective of your online sales because
3:52now the online sales platform are
3:55growing like anything and uh we'll
3:57discuss this uh uh discussion in the
4:00next session we will discuss what are
4:01the different options available as when
4:04we are talking about you know
4:05considering all these parameters
4:07considering the impact of online sales
4:09then we'll talk about all those uh
4:11different design options and we'll
4:13evaluate those different design option
4:15with the respect to cost parameters with
4:17respect to level of services they are
4:19providing right and then we'll end this
4:21discussion on designing distribution
4:23network with one beautiful case of Dell
4:26right so quickly going through supply
4:29chain we know the complete supply chain
4:31raw material suppliers manufacturers and
4:34customer at one end right so in between
4:37those three major stakeholders we will
4:40try to manage the distribution
4:42distribution of the product and services
4:45right so having said that that means
4:47movement of either raw material from the
4:49supplier to manufacturer or the movement
4:52of the finished goods from the
4:53manufacturer to the End customer right
4:56so like I pointed out whenever we are
4:59making this decision of Designing the
5:01distribution network will consider cost
5:04and then what value we are delivering to
5:07the customer right level of services so
5:10quickly going through one example
5:12Walmart when we are saying that the
5:14Walmart case study we have discussed in
5:16detail low cost huge variety Fair
5:20quality right this is their key tagline
5:23if will uh you know just uh Define
5:27Walmart on the other hand if Will Define
5:29D very responsive supply chain where
5:32they are you know providing the
5:34customized PC to the customers right if
5:36you talk about Zara they are you know so
5:39quickly replenishing their uh design
5:42patterns so they are in that way very
5:44responsive they are not cost efficient
5:47cost efficiency is not main Criterion
5:49which on which they are competing if you
5:51are talking about 71 Japanese store
5:54where they are you know changing the
5:56shelves so quickly and providing the
5:59merchant merise morning if you'll go
6:01you'll get some other merchandise
6:03evening they will change right totally
6:05and they are also including the local
6:07merchandise as well so these different
6:10players working on different strategy
6:12different distribution Network so if
6:14I'll say here that one particular
6:16distribution network is good enough to
6:19all the industries is not fair enough
6:22right even if I'll say one distribution
6:24Network in one industry only not
6:27sufficient right because if will talk
6:30about Amazon shop Clues Walmart uh flip
6:34cart eBay myantra all those players
6:37misho all those AO all those players are
6:41having different distribution strategies
6:44right so one are hitting some parameters
6:46other are hitting some other parameters
6:48right but only thing is Broad concept
6:51will take care is one hand your cost
6:54parameters how you are affecting other
6:56hand your level of services you are
6:58providing to the customer so saying that
7:02level of services that means what can be
7:05the factors obviously when we are
7:06talking about level of services to the
7:08customer one is response time how much
7:11time you are taking to respond to
7:12customer query then product variety
7:15product availability whether your
7:17distribution network is supporting huge
7:20variety of the product or you are
7:22keeping limited uh product variety
7:25because you want to be cost efficient so
7:26you want to cut down the inventory cost
7:28right product availability whenever you
7:30are visiting my retail shop you are
7:32always finding the availability of the
7:34my product right that means I managing
7:37that inventory of the product but if I'm
7:40not if I'm cost efficient obviously
7:42maybe sometimes I may be out of stock
7:45customer experience if customer is
7:48visiting my shop and they have picked
7:50I'm not talking about online store I'm
7:52just talking about the physical store if
7:54you are visiting let's say Spencer and
7:56then you are picking all the items and
7:59after billing you are asking them you
8:01deliver this these boxes maybe two three
8:04boxes at my doorstep if they are doing
8:06that that means customer experience is
8:08enhanced in the offline retail store as
8:11well where you are seeking for Doorstep
8:13Delivery time to Market is another
8:16parameter that means today you are
8:18launching the product or services and
8:21when it is available for the sales in
8:23the market so if you are launching
8:25anything very simple concept online at
8:28the moment you are launching everything
8:30is available in the market but if you
8:32are just imagine somewhere product you
8:34are launching in Delhi how long it will
8:36take to reach in Kolkata kakur or other
8:40geographical reasons order visibility
8:43and you have seen that when we are going
8:45through online so we are tracking where
8:47is our order returnability is very very
8:50important concept whether offline or
8:52online any issue with the product
8:54quality it should be our distribution
8:57Network should support that that return
8:59should be easily processed it's not that
9:01only you are accepting the product you
9:04need to you know again credit back to
9:06the customer right so that depends upon
9:10distribution network with the shorter
9:12response time can provide faster
9:14obviously shorter response time means
9:16faster delivery larger product variety
9:19more options to the customer which which
9:22type of distribution Network you are
9:23opting for so when we are designing we
9:26need to take care of two broad phases
9:28first one is you visualize the broad
9:31structure of the supply chain Network
9:33right and second is Broad structure
9:36means whether you are opting for offline
9:38store where customers will now this
9:41again I'm saying that there is no pure
9:43one strategy so if I'm talking about
9:46let's say furniture market so Furniture
9:48Mar Market is something unless you will
9:50not actually feel the product and then
9:54you are going and then feeling the boot
9:56quality and finish and the color and the
9:59what whatever whatever you know
10:01parameters are there you will not you
10:03know finalize the furniture because that
10:05furniture will be with you for next 15
10:0720 years at least right this is the
10:10average right so that means what is the
10:13broad structure if I'm talking about
10:15some routine grocery items always I'm
10:18using Tata salt let's say so Tata salt
10:21if I'm buying offline or online how does
10:23it matter so as long as that packet of
10:26salt is reaching safely at my doorstep
10:29I'm okay with that right so once that
10:31broad structure is done then you will
10:33convert that broad structure into
10:35specific locations right if you are
10:37going through offline you need to set up
10:39store in kakur but if you are going
10:42through online you are accepting online
10:44order only and then delivering at my
10:46doorstep then you can be in Kolkata you
10:48can be in Delhi you can be in Bangalore
10:50aabad anywhere you can be you can be
10:53oversees as well you need not to set up
10:55those facilities right so choice of
10:58distribution Network can have a
11:00significant impact on the profit
11:02profitability and that becomes your USP
11:05as well so if I'm saying Dell why Dell
11:08is so successful because they are
11:10providing you the customized product how
11:12they are doing that you visit Dell
11:15website and then then you can add your
11:18features your requirement your
11:19configuration and then they will deliver
11:21you through their local retailer still
11:24retailer they are managing earlier they
11:26were not managing retailer even but then
11:28they thought that
11:29because some standardized products are
11:31there where we maybe we need to go for
11:33you know uh a high responsive rate we
11:36need to go for right so then it can be
11:39done only when we have localized retail
11:41store right so the main point here is
11:44you should whatever distribution Network
11:46you are picking you should align it with
11:48your strategic goal and your strategy is
11:51cost efficient then you need to pick the
11:54distribution Network which is you know
11:55hitting all the cost parameters so
11:59quickly will go through service
12:00parameters like we talked about okay so
12:04customer what customer is looking for
12:06response time whether customer is ready
12:08to wait here very simple concept is if
12:11you are dealing with some maybe very
12:14customized kind of products right so
12:16then even if because you cannot produce
12:19unless customer is giving the you know
12:21requirements so that means in those kind
12:24of customized product customer is ready
12:26to wait for some period of time but but
12:29if it is not kind of you know very
12:32regular or standardized product
12:33obviously I want very less response time
12:36so that quickly it can be delivered
12:38product variety what type of variety is
12:41required so if very standardized product
12:45in steel roads in Sugar industry in salt
12:47industry those commodity products what
12:50extra you will do with the product there
12:52is very less variety right but when we
12:54talk about automobile industry so I
12:57talked about maruti Suzuki right we in
13:01petrol they are you know vxi is there
13:03LXI is there then next model of LXI then
13:06vxi next model of vxi then jxi next
13:10model of jxi so that means minimum six
13:12models for petrol version then six model
13:16for diesel version then six model for
13:18hybrid version six model for electrical
13:21version and this I'm talking only about
13:24one color now let's say if these are for
13:28uh uh six uh 24 different models are
13:32there then if I'm having two colors 48
13:36if I'm having four colors 10 colors 240
13:3910 colors 240 model then 240 models one
13:43engine capacity is maybe 1200 cc other
13:45engine capacity May be, 1600 CC so just
13:48you double the number right so that
13:51means that product variety it is very
13:54difficult to maintain offline right so
13:56if that kind of product so then you can
13:59maintain it online whenever customer is
14:01ordering that product maruti Suzuki will
14:04take minimum 2 months 3 months you know
14:06waiting time and then they will process
14:08the product accordingly but standardized
14:11product maybe if that uh middle model
14:13maybe vxi is very famous in that
14:16particular model let's say Grand bitara
14:18so then you may be may be getting very
14:21you know quick delivery product
14:23availability is another feature that
14:26means whenever you are visiting my
14:29online store or retail shop huge
14:31availability of the product so always in
14:33stock but then you compare online versus
14:36offline so let's compare the parameters
14:38online versus offline it will be better
14:41to you know understand the rest of the
14:43you know design options so online if
14:46today you are launching the product
14:47today it is available in the market and
14:50just you need to click the pictures of
14:51the product different product different
14:53colors and inventory is maintained only
14:55virtual inventory you are maintaining so
14:57that means any Ty customer is visiting
15:00that you can show the availability but
15:02sometimes we are seeing that because if
15:04that we are depending highly on some
15:07third vendor like let's say if we are
15:09talking about Apple iPhone so usually
15:12you might have seen the model which is
15:14you know in huge demand so sometimes
15:17these uh Flipkart or Amazon they are out
15:19of stock they are showing out of stock
15:22right so that happens when that uh high
15:26demand for particular products are there
15:28or seasonal offers are there so people
15:30are consuming more than actual demand so
15:33then that may happen but maintaining
15:35High product availability during offline
15:38is Big Challenge because that inventory
15:40you cannot handle customer experience if
15:43you are ordering product on my website
15:46so I'm delivering to your doorstep your
15:49customer experience is enhanced if I'm
15:51giving you option to customize your
15:54product that your experience is enhanced
15:57so that means online but if you go to
15:59retail shop maybe you will get only
16:01stred product so there you can compare
16:04time to market today I'm launching the
16:06product online it is available
16:08everywhere every corner of the world
16:10wherever you are delivering that product
16:13but offline it will take time maybe 10
16:16days 15 days 20 days to reach that
16:19inventory to the end level order
16:21visibility obviously is very important
16:23when we are talking about online and
16:25online because many players you you you
16:29get the updated information now your
16:31product has reached uh somewhere in the
16:34goodgo facility Hub and then it is
16:37transported to Kolkata it has reached to
16:39Kolkata Hub now it is reach reaching to
16:42maybe kakur then today it is out for
16:44delivery all that information is there
16:46but when we are talking about offline
16:48store that information if you are
16:50placing order for something and you are
16:52waiting for that it that that level of
16:54visibility or maybe digital platform we
16:56are not using right
16:59returnability returnability in obviously
17:02online store the high rate of returns
17:0525% to 30% rate of return and we have
17:09talked about this in e-commerce session
17:12when we talked about that somewhere
17:14maybe around 60 to 70% of the people or
17:18customers they are just before buying
17:21any product they are checking whether
17:23the return option is available or not so
17:26these are some of
17:27the uh parameters where customers are
17:30evaluating different distribution
17:32Network Services level now to provide
17:35those Services obviously we are
17:36maintaining inventory that is cost we
17:39need to transport whether you are
17:40transporting to retail shop or you are
17:43transporting to individual customer home
17:45so obviously that cost will be higher
17:47facilities and handling in between
17:49warehouses are there distribution
17:51storage are there or if manufacturing is
17:54uh uh companies uh managing the
17:57inventory so that cost cost will be
17:59there information obviously that
18:01information Network platform you need to
18:03develop like Amazon Flipkart Walmart
18:06they have developed or any website right
18:08where you can you know enter your order
18:10detail where you can get the information
18:12of the product pricing policies
18:14everything you can get red so these are
18:16the four parameters or drivers we have
18:19discussed which will impact obviously
18:21these will also impact the sourcing and
18:23pricing also what you are how you are
18:26delivering and what product you are
18:28delivering will impact your pricing
18:30strategy as well so quickly we'll go
18:33through what are the relationship
18:35between these parameters and what will
18:37happen if we'll change you know one
18:39parameter how it will affect other see
18:42if I'm increasing the number of
18:44facilities so response time is very less
18:48this is let's say T1 so number of
18:50facilities are N1 let's say but if I'm
18:54reducing the number of facilities you
18:55can see the response type T2 is very
19:00very high so that is quite obvious see
19:04that means I'm having this facility in
19:09Kolkata right so now through this
19:13centralized distribution Network I'm
19:16covering let's say almost 700 to 1,000
19:20kilom
19:21area all around right so these different
19:25markets I am covering so obviously that
19:28means only one facility is covering
19:31around 1,000 kilomet area Okay so 1,000
19:35kilomet in One Direction so if 10
19:37Direction 10 different markets or 100
19:40different markets or 500 different
19:42markets number of facilities are less so
19:44obviously 1,000 kilomet when you are
19:47shipping the product it may take 3 to 5
19:50days to deliver the product simple but
19:53if I'll say put facility is near to all
19:57those markets so now now only maybe I'm
19:59covering 50 km or less than that right
20:03so less than that means now response
20:05time customer is coming to me quickly
20:07I'm delivering the order that is the
20:11relationship between number of
20:12facilities and uh the response time but
20:15the other thing is when we'll increase
20:17the number of facilities obviously
20:19inventory cost will increase because now
20:22instead of managing inventory at one
20:24location in Kolkata now we are managing
20:27inventores at
20:29100 different markets or
20:32locations right so that means those many
20:35facilities you are setting up so number
20:37of facilities are increasing inventory
20:39cost will increase because you are
20:41maintaining inventory at different
20:43locations another very beautiful
20:45relationship of number of facilities
20:47with the transportation cost now this I
20:50have discussed very basic example let's
20:53say one network structure is like
20:57this here here is
20:59manufacturer and here is distribution or
21:02fulfillment center here is customer
21:05let's say this distance is 100 kilm this
21:07distance is 10 km the other structure is
21:11where this distance is 10
21:14km and this distance is 100 kilm now
21:19this is let's say for distributor this
21:21is your inbound Logistics cost whatever
21:25is coming in that is inbound Logistics
21:30cost and whatever you are shipping out
21:33of your company that is outbound
21:35Logistics
21:40cost right so now you see when the
21:46always inbound logistic cost is higher
21:49than the outbound Logistics cost that
21:51means we need to minimize the outbound
21:55Logistics distance how it can happen
21:57when we have have when we have more
22:00facilities near to End customer more
22:04earlier we were covering 1,000 kilm now
22:07we are covering only 10 kilm so that
22:09means outbound distance has decreased
22:12and because outbound distance cost is
22:14higher than inbound so we can minimize
22:16the cost so this is how number of
22:19facilities will increase so
22:21Transportation cost will decrease first
22:24why it is increasing after that point
22:26because maybe after that we are not able
22:29to use the economies of scale concept
22:34because let's say if one truck can carry
22:38up to this maybe 10 ton so after that
22:42maybe we are hiring small trucks and
22:44they can carry maybe 2 ton capacity
22:47let's say but because our customer is
22:49only ordering maybe less than somewhere
22:521 ton or 1.5 ton that means that
22:55capacity we are not able to utilize
22:57fully so there the per unit cost will
23:00increase that's why after that if we are
23:03including more number of facilities so
23:06that it will shoot up the cost another
23:08very simple example why your outbound
23:11Logistics cost is higher than inbound
23:14let's say we are shipping Furniture
23:16table so if I'll ship the finished table
23:20maybe only in one truck we will ship
23:23maybe not more than 10 or 15 or 20
23:25tables depending upon the capacity of
23:27the container right but if I'm only
23:30shifting in you know if I'll disassemble
23:34that table and then it will shift maybe
23:36I can shift for more than thousand
23:39tables material and then at the customer
23:41end again it can be assembled with
23:43minimum effort because already we have
23:45assembled it and then so you might have
23:47seen in when you are placing order in
23:49Amazon or Flipkart some of the items you
23:52need to assemble again right so this is
23:55example how you can reduce the outborn
23:58Logistics
24:00cost so these example already I
24:02discussed another example for uh uh
24:07Amazon warehouse what they are doing
24:09they receive full truck lot shipment of
24:11books on the inbound so they are setting
24:14up small centers near to the customers
24:17because customer are placing order for
24:19one or two or three books maximum right
24:22so that way you need to cover long
24:25distance to cover many customers right
24:28you are not getting order from one
24:30Library where you need to drop all the
24:31books then it is fine right then you can
24:34increase the inbound Logistics cost uh
24:37distance but when it is you know like
24:39that uh when segregated orders are
24:42coming from different locations so then
24:44what Amazon warehouse they are doing
24:47they are extending this inbound logistic
24:49cost where they are you know uh
24:51consolidating large number of books in
24:54one truck and then they are maintaining
24:56inventory somewhere distributions
24:58storage near the customer and then they
25:00are finally delivering it right another
25:02example number of facilities facility
25:04cost obviously you have two facilities
25:07this cost three facilities this cost
25:09four facilities this cost 10 facilities
25:12cost will increase right so that
25:14facility cost will increase so uh number
25:17of facilities that fixed investment is
25:19required so these relationships are very
25:22important now let's plot the total
25:24logistic cost total logistic cost is
25:27like this and we include your facility
25:30Cost Plus your transportation Cost Plus
25:33your inventory cost right this is the
25:35total Logistics cost and other cost we
25:39discussed we we can discuss is about
25:41information cost that we will discuss
25:43when we'll discuss about the you know
25:45different distribution Network designs
25:47right but here the logistics cost is
25:50facility cost inventory cost and
25:52transportation cost so this as long as
25:54you are enjoying the economies of scale
25:57the cost will low down with the number
25:59of facilities okay so but if you'll
26:02increase further the number of
26:04facilities your cost will increase
26:07because that full capacity of the truck
26:09may not be utilized and response time
26:11already we have seen you can see this is
26:13the point where you can minimize the
26:16total cost as well as you can minimize
26:19the response time as well so you can say
26:22these many number of facilities are
26:24maybe the right decision to go for right
26:28so where you can minimize the total cost
26:31and also you are maintaining Fair
26:34response time that customer need not to
26:36wait that much where they start shiing
26:39uh shifting to some other vendor right
26:42so what are the design options for a
26:44distribution Network we'll see one is
26:47direct shipping direct shipping mean
26:49manufacturer or any supplier is storing
26:52the product you are placing the order
26:55online and they are directly shipping
26:57the product right this is maybe Dell you
26:59can take the example you can go on their
27:02website you can give your uh preferences
27:05your configuration they will deliver the
27:08product at your doorstep right so now
27:10they are delivering through retailer
27:11also so best the beauty of this direct
27:14shipping is all intermediaries are
27:16removed that means retailer wholesaler
27:19distributor carry forward agent that
27:22long structure you are not following so
27:24you can cut the cost as well you have
27:28uh control over the quality as well
27:30right centralized distribution which
27:33Walmart is known for doing that where
27:35they are maintaining inventory in the
27:37center and distributing from there to
27:41every every market right so then you you
27:45are minimizing the inventory cost you
27:47are more cost efficient in that way
27:49decentralized distribution when you are
27:52like example we talked about so that is
27:55another option you have that you you
27:57want to be very near to the customer so
28:00that immediately product can be shipped
28:02can so that we can minimize the response
28:04time but you are increasing the
28:07inventory cost so these different
28:09options I already initially told you
28:11will you know change the parameter
28:13whatever option you will pick we change
28:15the parameters cost parameters as per
28:17that cross docking what is cross docking
28:20we discussed about when we are not
28:23storing in the warehouses only temporary
28:26storage is being done let let's say this
28:28is the location up to this we utilize
28:31the full truck capacity right from point
28:33A to point B but after pointb maybe many
28:37different locations are there so maybe
28:40from here also truck is coming which is
28:43utilizing the full capacity now we need
28:45to you know some products this is One
28:47Market let's say this is one location in
28:50kakur this is kakur kgp now some
28:53products are coming from this truck some
28:56products are coming from this product
28:57May maybe some are coming from some
28:59other seller right so here you will not
29:02store you will just ship those product
29:06in smaller truck and consolidate all the
29:08orders going to that location of kakur
29:11right so this is how you are doing the
29:13cross talking Drop Shipping you place
29:16the order online they will drop the
29:18product in your uh doorstep right so in
29:22that way if Drop Shipping can be best uh
29:25you know uh performance Criterion when
29:28you are maintaining inventory at
29:30manufacturing location only and
29:32whosoever is placing the order you are
29:35delivering direct to the customer and
29:36customer experience is also enhanced
29:38because they need not to waste time but
29:40then again if we are talking about the
29:43customized kind of standard products you
29:45can go for Drop Shipping but if it is
29:47kind of customized product right or
29:50maybe where variety is huge where you
29:52want to see the product then this Drop
29:54Shipping will not work hybrid
29:56distribution where you you can use
29:58centralized as well as decentralized
30:01some of the locations if uh many orders
30:04are coming you can enjoy economies of
30:06scale you can go for decentralized maybe
30:09uh one location from Kolkata is midnapur
30:12and another location is kakur right
30:14maybe midnapur the the population size
30:16is used right so they can utilize the
30:18economies of scale let us set up one
30:20Distribution Center in midnapur but the
30:22other location is kakur where the uh so
30:26many orders are not coming so let's say
30:28Let's uh serve it from either midnapur
30:31or from Kolkata so whosoever is nearby
30:34location we can go uh with the hybrid
30:37hybrid can be like offline as online
30:41also right like what Dell is doing
30:43offline also and online also right third
30:47party Logistics provider this is we have
30:50discussed in detail first party to sixth
30:52party Logistics provider where you know
30:54if you are not sure about the orders
30:58scalability you need to scale down scale
31:00up where you are not sure about the
31:01market where you don't have expertise
31:04with the logistics activities you don't
31:06have the career partners then you can
31:08Outsource this right now we'll talk
31:10about online sales and distribution
31:13Network obviously providing you the
31:15opportunities in terms of huge access to
31:19the market so that is one biggest
31:21opportunity when you are going online
31:23but the challenge is when we are saying
31:26huge access to the market that
31:28geographical reason you need to cover
31:30with your online distribution Network so
31:33how we are doing that fulfillment
31:35centers are there which dedicated
31:38fulfillment centers warehouses are there
31:40if I'll place the
31:42order maybe from flip cart so flip cart
31:45is having fulfillment center nearby me
31:47in kakur or in Kolkata and will my order
31:50will be processed through there only
31:52right inventory management inventory
31:55management now see uh when we are
31:58talking about online stores usually we
32:01have two three option one is uh
32:03inventory LE
32:05model inventory lead
32:09model another one is zero inventory
32:13model and third one
32:17is retailer storage
32:20model now sometime what is happening
32:24inventory LE model is like you have your
32:26fulfillment centers is having
32:28fulfillment center maybe in Kolkata and
32:31customers are placing order nearby maybe
32:33Kolkata fulfillment center is covering
32:35500 kilomet from there they are
32:37fulfilling the orders this is how Amazon
32:40is maintaining the inventory and then
32:42they are uh you know shipping the
32:45product another is zero inventory model
32:47where Amazon is not maintaining any
32:49inventory in the Fulfillment center what
32:51you are doing in the other option you
32:54will as soon as you will get the order
32:56you will process it from the
32:58manufacturer and then you will supply it
33:00through cross doing or whatever you are
33:02doing retailer storage inventory what
33:04I'll do I'll tie up with the local
33:06vendors here in kakur whosoever let's
33:08say I'm buying uh AC Hitachi so now I
33:13want to place order through flip cart
33:14because those seasonal offers are going
33:17on if I'll go maybe uh physically on the
33:20store maybe those offers cash back and
33:23those things or maybe Emi I will not get
33:26easily right so I want to buy online now
33:29when I'm I'm buying online so obviously
33:32shipping product AC from Delhi to kakur
33:35will be difficult or from any 500 or
33:381,000 kilomet location so what they can
33:40do is retailer storage inventory is
33:43where retailer will store the inventory
33:45whosoever is the retailer of the Hitachi
33:47they will ship the product so we have
33:50you know tie up with that so this is
33:52inventory management last mile delivery
33:54is also very very important we you know
33:57know this is the last uh end leg of any
34:01uh you know services or manufacturer
34:03provider right where you are you know
34:06delivering the product to the End
34:07customer order processing and packaging
34:10as soon as you are getting the order you
34:12are picking the order in the warehouse
34:14you are packing it and then you are
34:16finally doing the shipping process
34:19return management is very important in
34:21online and we have seen that because
34:23tendency of buying online is used
34:26because without any reason we can
34:28return right so we that we need to
34:31ensure through effective return
34:33management process right so we need to
34:35handle the return and then see this is
34:37also very important we are maintaining
34:40the inventory of the finished good in
34:41our warehouse but whatever you know
34:44unused product is coming because
34:46customer did not like that is also
34:48inventory we need to update that
34:49inventory as well technology and
34:52automation huge investment is required
34:54when we are talking about online retail
34:56store right warehouse management system
34:59your you know distribution routing
35:01system right how you can make the end
35:04mile delivery right keeping the customer
35:08informed that will happen only when you
35:10have technological and automation system
35:13customer experience obviously you can
35:15provide only positive customer
35:17experience when you are giving them
35:18returns also all those you are hitting
35:21all those parameter we talked about in C
35:23customer services and when customer is
35:25not feeling happy with the product they
35:27can easily return that product scal
35:29scalability and flexibility so your
35:32distribution Network should be aile or
35:34flexible enough if those orders are
35:37coming those many you can process
35:39minimum orders are coming you can
35:40process that as well the best example
35:42always I code you right now maybe IIT
35:45kakur campus the uh the people living
35:49here may not be more than 5,000 but you
35:52just imagine after 20 25 days it will
35:54raise to somewhere 25 to 30,000 when all
35:57all the students will be back so see
36:00this is how you know this population is
36:03and then you just imagine the number of
36:04orders will be placed or zato or swiggy
36:07so that is obvious integration with
36:10physical store is best option when you
36:12don't want to maintain the inventory you
36:14just process the order zum they are not
36:17at all maintaining any inventory they
36:19don't know how to cook they don't know
36:21what what are the different recipes just
36:23tie up with the storage uh mini uh local
36:26vendors restaurants and start delivering
36:28the products Ola is another example data
36:31analytics this is the you know main
36:33property of online store right so when
36:36they are selling through online usually
36:39because of those seasonal offers and all
36:41those things they are suffering from the
36:42losses where they are making money they
36:44are making money because of this
36:46information data they are collecting how
36:48customers are visiting their website
36:50what is the footfall rate how many
36:52product they are viewing so that Target
36:54advertisement can be done and then on
36:56their website you can highlight your
36:58brand and then all those things are
37:00there right so data analytics is one
37:03very you know uh strong field which is
37:06promising High returns for those players
37:09what will be impact of online sales on
37:11customer services if you are talking
37:13about physical product response time
37:15will be higher today you are process uh
37:17placing the order it will take minimum 2
37:193 days to deliver right but digital
37:21product just now you buy the uh your
37:25this antivirus within uh no second you
37:28will get the key and you can install
37:30right product variety online huge
37:34variety can be maintained only you need
37:35to maintain the photographs only you
37:37need to upload the images right physical
37:40inventory you are not maintaining where
37:41the cost will be product availability
37:43you can show high product availability
37:45because through online customer
37:47experience 24 into 7 so today whole day
37:50is packed and I got free around maybe
37:539:00 in the evening 10:00 in the evening
37:55I suddenly realized oh I don't have to
37:58uh for tomorrow morning breakfast I
38:00don't have bread and butter so how I can
38:02place order with Amazon Fresh and I'll
38:05just give them instructions as Prime
38:07customer tomorrow morning by 8:00 I need
38:10my bread and butter so 24 into 7 if I'll
38:13start searching the retail shop at that
38:16time maybe I'll get the one but maybe
38:18then bread will be out of stock butter
38:20will be out of St that also can happen
38:24geographical reach so if you are you
38:26know maintaining the distribution
38:28Network that that that is another
38:30challenge right how to manage you know
38:32distribution challeng in the rural
38:34Network where minimum orders are coming
38:37personalization you can give your
38:38recommendation and tailored products can
38:41be provided to you faster time to Market
38:44already I told you today you are
38:45launching tomorrow the product is
38:47available for sale impact of online
38:50sales to customer services order
38:52visibility you can track wherever your
38:54order is returns are easy direct sales
38:56to customer customer feedback because
38:58you are interacting with the customer
39:00directly on your uh platform so you can
39:03get the feedback as well right flexible
39:06pricing and promotions that happens that
39:08you can see uh during big billion days
39:10Prime Amazon Prime days all those things
39:12are going on seasonal offers are there
39:15and then they have seen the fluctuation
39:17of 50 to 60% rise in their demand of uh
39:22electrical products or home appliances
39:24or mobile phon especially right so those
39:28uh seasonal offers attached with you
39:30know some Festival seasons are there so
39:32those offers are there efficient fund
39:35transfer on online if you are placing
39:37order now or receiving order now if it
39:39is cash on delivery just you you will
39:41receive product once you have done the
39:44payment that mean easily you can
39:46liquidate the assets but offline
39:49sometimes you are selling on credit bad
39:51credit can happen so those things are
39:54there on cost inventory cost
39:57because you are selling through one
39:59store you can aggregate the inventory in
40:02the centralized locations and then serve
40:05the product and services to the
40:07different location but if you are having
40:10you know fast moving kind of items like
40:12Amazon you know books which are you know
40:15uh in great demand so then they they are
40:18maintaining inventory huge inventory
40:20near to customer but if those which are
40:23having low demand they are only starting
40:26the printing once they will get the
40:28order so postponement is also possible
40:30in those products when you are selling
40:32you know customized product like Dell is
40:35doing like Amazon print low volume books
40:38like I quoted right so Dell will start
40:40assembly once they will record the order
40:44facility cost network centralization if
40:47that is there will reduce the cost and
40:51if you are utilizing the existing
40:52Network then also you can load on the
40:54cost you can see Netflix operates from
40:57about 50 warehouses whereas Blockbuster
41:00is having more than thousand retail
41:02stores because they are directly going
41:04through physical store operational
41:07efficiency will be higher when you are
41:09not maintaining inventory at different
41:11locations so then it will be higher
41:13handling and delivery because you are
41:15maintaining inventory only at the
41:17centralized location so and then you
41:20just see but in this case uh when we are
41:24talking about online or offline you see
41:27if we are having grocery store
41:29especially for grocery item I'm talking
41:31about usually we are going to Spencer
41:33big Bazar or any other uh mall right so
41:37then we are picking the product we are
41:39uh putting in the basket and then we are
41:41standing in the queue for billing
41:43purposes so that work usually is done by
41:47any if local retailer you are going
41:48kanana store you are going right but
41:51here you only are picking your product
41:54the experience is also enhanced because
41:56directly you are you are all the
41:58products are displayed there right so
42:00that experience is also enhanced and I'm
42:02minimizing the cost also because now I'm
42:04not picking the product my customer is
42:06picking only I'm doing the billing part
42:08right so impact on online sale on cost
42:12Transportation digital Goods can be
42:14transported means easily no cost will be
42:17there but non digital products again so
42:20if you are aggregating the inventory
42:22then it will reduce the outbound
42:24Logistics cost but if you are processing
42:26the individual order so then it will
42:28increase the outbound Logistics cost
42:30information cost you need to set up very
42:34strong in uh information system so that
42:37visibility of the order can be enhanced
42:39you can track the order easily and then
42:42infrastructure cost will be there like
42:44Amazon acquired japos we discussed this
42:46case and then they once they acquired
42:49they got access to one million products
42:52more than 1 million products to manage
42:54those 1 million products on their
42:55website they need to upload more than 2
42:58million photographs on their website so
43:02you can see this how this these decision
43:04will affect the services levels and cost
43:07Factor so in the next session we'll uh
43:10explore what are the different options
43:11we have and uh we'll discuss about the
43:14positive and negative of all those
43:15options so uh the maximum content for
43:18Designing distribution Design Network so
43:20you can refer this book of Supply Chain
43:22management strategy planning and
43:24operation by uh chra and Mandel so
43:26that's all all thank you very much

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