ITLS6002 Chap.6 Distribution Networks and Last-Mile Design
Distribution Networks and Last-Mile Design
Distribution design determines which stages hold product, who performs transport and fulfilment, and how the customer receives an order. Alternative structures shift inventory aggregation, facility expense, transport cost, response time, assortment and customer experience rather than improving every measure simultaneously.
Direct shipping can pool stock but increase parcel movement; local storage can accelerate response but duplicate inventory; pickup can reduce last-mile cost while adding customer effort. This chapter supplies a structured comparison method, a total-cost threshold calculation and a decision process for selecting a network that fits product value, demand uncertainty, order density and promised service.
Product characteristics and customer segments can justify more than one channel within the same supply chain, but the routing rule must remain explicit. Returns, failed delivery, information visibility and pickup participation belong in the comparison because they alter both cost and experience. A break-even volume identifies where one operating structure overtakes another under stated assumptions.
The final choice should be conditional, naming the demand density, response promise or adoption level that would cause managers to switch.
What this chapter covers
- 01
Distribution network roles
- 02
Direct shipping and in-transit merge
- 03
Distributor and local storage
- 04
Pickup and retail fulfilment
- 05
Response-time and cost frontiers
- 06
Last-mile threshold decisions
Worked example · free
Finding a home-delivery break-even order density
- 2Write local-route cost as 360 + 3N for N daily orders.
- 1Write parcel-carrier cost as 15N.
- 3Set the alternatives equal: 360 + 3N = 15N, so 12N = 360 and N = 30.
- 2Above 30 daily orders, the local route has lower stated cost; below 30, the parcel carrier does.
Key terms
- Direct Shipping
- Fulfilment in which the supplier sends the product directly to the customer.
- In-Transit Merge
- Coordination of separately sourced components so they arrive together for the customer.
- Last-Mile Delivery
- The final movement from a distribution point to the receiving customer.
- Inventory Aggregation
- Pooling stock across demand locations to reduce total uncertainty protection.
Distribution Networks and Last-Mile Design FAQ
Why can direct shipping reduce inventory but raise transport cost?
Central pooling reduces duplicated stock and improves demand aggregation, but customer orders travel individually over longer distances. The network exchanges inventory efficiency for smaller, more frequent and often more expensive transport movements.
When is local storage most attractive?
It becomes attractive when response time is valuable, order density is sufficient and the product range can be stocked economically near customers. Slow-moving or highly varied assortments weaken the case because local inventory fragments demand.
What should accompany a cost matrix in a distribution recommendation?
Include response time, availability, assortment, customer effort, return handling and scalability. State which criteria are constraints and which are trade-offs, then explain how demand density and product characteristics drive the preferred structure.
How does order density change last-mile economics?
Higher stop density spreads route time and fixed vehicle cost across more deliveries, often lowering cost per stop. Sparse demand can favour parcel carriers, scheduled windows or pickup consolidation. Geography and access constraints still need testing alongside the numeric threshold.
Why should returns be designed with the forward network?
Returns create collection, inspection, disposition and possible refurbishment flows. Stores or pickup points can consolidate them, while home collection improves convenience at additional cost. Omitting reverse flow can make an apparently efficient forward design expensive to operate.
When is a multi-channel distribution design defensible?
Different products or customer segments may have materially different urgency, value, volume, variability or return needs. A hybrid is defensible when the routing rule is explicit, information systems can support it, and each channel is compared using the same service and cost definitions.
Exam move
Construct a matrix with network options as rows and inventory, facility, transport, response, variety, experience and returns as columns. Add directional reasons rather than memorising arrows. For calculations, separate fixed and variable terms and find a break-even volume. For recommendations, name the product and demand conditions that justify the option, then identify the metric that would invalidate the choice if it moved.
Recreate the matrix for one high-value slow mover and one urgent high-volume item, noting why the same channel need not win. Practise a fixed-plus-variable comparison and interpret both sides of the resulting threshold. Add failed delivery and pickup participation to a second version so omitted last-mile effects become visible.
Finish a written answer with an implementation sequence, the performance measure to monitor and a reversal condition. That last sentence turns a static network choice into an accountable management rule.
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