Distribution FAQs

Click on a link below to access that FAQ (frequently-asked question) topic.


Closing a Distribution Center and Remaining Inventories
Cross-Shipment of Sub-Assembly Components
Cross-Shipping Postponed Production
DC Opening and Postponed Production
Distribution Center Strategy at Initialization
Distribution Centers Salvage Value
Emergency Carrier For Region 1
Inventory Impacts With DC Status Change
Multiple DCs in a Region
Owned Distribution Centers Not on Balance Sheet
Postponement With One Product
RFID Insourcing at DC1
Sales in Regions 2 and 3 Without DCs in Those Regions
Timing of DC Opening
Zero/Near-Zero Sales Volume in Channel 1




Closing a Distribution Center and Remaining Inventories

“If we close a regional distribution center, what happens to the remaining inventory at that distribution center?”

The LINKS software automatically disposes of residual inventory of sub-assembly components and finished goods when a DC is closed. The inventory is converted to cash at the current balance-sheet values and a corresponding disposal cost of 20% of the inventory's value accrues.

revised 11/20/2015
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listed under "Distribution"
listed under "Procurement"
listed under "Replacement Parts"





Cross-Shipment of Sub-Assembly Components

“Can we ship sub-assembly components between distribution centers?”

No.

revised 02/25/2000
[000021.html]
listed under "Distribution"
listed under "Procurement"





Cross-Shipping Postponed Production

“Can we have postponed production in one distribution center and ship the finished goods to another distribution center thereby creating a make-to-order production system?”

No.

revised 06/15/2006
[000057.html]
listed under "Distribution"
listed under "Manufacturing"
listed under "Postponement"
listed under "Transportation"





DC Opening and Postponed Production

“Can postponed production be initiated in the same month in which a DC is opened?”

Yes. Postponement and DC opening occur immediately (i.e., within the current month) and new postponed production may be transported to a just-opened DC in the same month in which postponed production initially occurs.

revised 01/18/2002
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listed under "Distribution"
listed under "Postponed Production"





Distribution Center Strategy at Initialization

“As we assume management of our LINKS firm, we notice that we only have limited distribution centers rather than distribution centers in all regions. Why is that? Other decision variables seem to be 'fully' operational.”

Prior management of your firm was pursuing various strategies and tactics in hopes of outperforming their competitors. There should be no assumption that their strategies and tactics were "best" but only that they were profitable. As you can see from your initial financial reports, you are inheriting a firm that is profitable at the present time (i.e., at initialization). Your task is to move your firm forward, financially and operationally, in the face of new invigorated competition.

Distribution center strategy is an on-going issue for your firm. Is a distribution center only in region #1 the best way to structure your supply chain? Or, alternatively, perhaps you need distribution centers in other regions than region #1. And, if you wish to have distribution centers in other regions, decisions are required as to whether those distribution centers will be third-party or owned. Distribution center strategy is always a challenging decision sub-area in supply chain management, especially in light of its longer-term implications (distribution centers are costly to open and close, for example).

Just as you shouldn't assume that your inherited distribution center strategy is optimal, you need to review all existing supply chain management decisions. Are your sub-assembly vendors the best ones to use? What about the existing transportation mix (via surface or air)? Should you use postponed production and, if so, to what degree? Should you change your existing generate demand decisions and, in particular, should you continue to use the same prices and marketing spending in all channels and regions for each product? What information technology policies and research studies are needed to manage your firm?

revised 09/11/2013
[000139.html]
listed under "Distribution"
listed under "Strategy"





Distribution Centers Salvage Value

“Since we'll only be managing our LINKS firm for a limited period of time, is there some sort of salvage value at the end associated with purchasing a DC now? We're concerned about making the right investment decisions.”

No salvage value exists for any asset in LINKS. Please view your firm as a going concern and attempt to continue to improve the financial and operational performance of your firm throughout your time as managers. Treat the firm as a cherished asset that you wish to grow for the benefit of your grand-children's grand-children. Also, as a matter of practice, end-gaming is rather difficult given the uncertainty of when the simulation will really end, the possibility of a double- or triple-run at the end using your final inputs without change throughout the run-out period, and the need to justify your decisions/strategies/tactics during a final presentation.

revised 04/06/2000
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listed under "Distribution"
listed under "Performance Evaluation"





Emergency Carrier For Region 1

“How do we change our emergency carrier for region 1?”

There is no emergency carrier for region 1. Carriers transport finished goods to other regions from the distribution center at region 1. There are no finished goods transported to region 1.

revised 10/28/2012
[000246.html]
listed under "Distribution"
listed under "Transportation"





Inventory Impacts With DC Status Change

“If we change a DC from outsourced to owned, what happens to current inventory at the DC? What happens to the in-bound Epsilon sub-assembly components that we have ordered?”

When a DC is changed from outsourced to owned or from owned to outsourced, the current inventory of finished goods and sub-assembly components is automatically and immediately transferred to the new DC. There are no additional costs associated with this intra-region inventory transfer, beyond the normal costs associated with the adjustment in status of the DC. In-bound epsilon sub-assembly component orders will be delivered to the new DC. There are no calendar delays in adjusting these inventories to the new DC status; everything happens seamlessly with the relevant inventory being available for use immediately.

revised 05/14/2001
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Multiple DCs in a Region

“We're looking at our initial financial reports. Why do we have two DCs in region #1 and only one DC in other regions?”

You don't have two DCs in region #1. The "2" for "Distribution Center?" is the coding for an "owned" DC, not the number of DCs. Please review the LINKS participant's manual for details about distribution centers and how the distribution center decision variable is coded in LINKS.

revised 10/06/2003
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Owned Distribution Centers Not on Balance Sheet

“Why aren't our owned distribution centers reported on our Balance Sheet?”

Owned distribution centers do not involve any physical assets, just leased facilities and some full-time employees. Thus, owned distribution centers have some fixed (on-going) costs associated with them but they are not physical assets of the kind that would be reported on a Balance Sheet.

revised 08/18/2005
[000079.html]
listed under "Distribution"
listed under "Financial and Operating Reports"





Postponement With One Product

“ If we're only distributing a single product through a particular regional distribution center, would postponement make sense there?”

You do save on duties and tariffs since postponement meets local production requirements. Local production might also have generate demand implications, since you'd be a "local" firm in market regions in which you have postponed production converted into finished goods. There's also the flexibility of converting just the right amount of postponed production into finished goods to meet customer demand at the distribution center. However, there are additional costs associated with the two-stage manufacturing process inherent in postponed production. You'd have to run the numbers to see if this makes sense.

revised 02/25/2000
[000018.html]
listed under "Distribution"
listed under "Manufacturing"
listed under "Postponement"





RFID Insourcing at DC1

“We currently have DCs in regions 1 and 2. We are thinking of insourcing RFID application in region 1 (i.e., at DC1). In our circumstances, does RFID insourcing in region 1 (i.e., at DC1) include outbound set-top box products for channel 1 in both the local region (region 1) and in "other" regions where we don’t have DCs (i.e., region 3)?”

Yes.

revised 03/29/2004
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Sales in Regions 2 and 3 Without DCs in Those Regions

“How are we making sales in regions 2 and 3 through Channel 1 (retail) without owning distribution centers in regions 2 and 3?”

While your firm always has an owned DC in region 1, you may or may not wish to have DCs in other regions. Even if you choose not to have a distribution center in a market region other than market region 1, you can still have sales in that market region if you choose to have products in active distribution in any channel in that market region. Such sales would be serviced directly from your DC in region 1.

If regions 2 and/or 3 do not have a DC, then products are direct-shipped to customers from DC1 (the required distribution center adjacent to the manufacturing plant). For retail (channel #1) customers, shipments are made to the relevant retailer warehouses. For direct-channel customers (channel #2), shipments are made to individual customers.

revised 01/23/2015
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Timing of DC Opening

“If we open a DC, is that DC available immediately?”

Yes.

revised 10/06/2003
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Zero/Near-Zero Sales Volume In Channel 1

"Why is our sales volume equal to zero units in region 3, channel 1? The last simulation round's sales volume for this product in this channel and region was 8,646 units."

Retailers in channel 1 are intermediaries in the inventory pipeline from manufacturers to final end-user customers. Retailers routinely carry finished goods inventory, to have adequate on-hand supplies to meet final end-user customer demand which varies through time.
If retailers' sales volume is relatively consistent/constant over time, then retailers will be re-ordering relatively predictable volumes from manufacturers. If retailers' inventory is sufficient to meet customer orders (and retailers' on-going target inventory levels) without replenishment from manufacturers, then retailers will not need to make any new purchases from manufacturers in the current simulation round.

There are, of course, noteworthy differences between retail and direct channels ... for example, there's no inventory buffer stock in a direct sales channel (direct from manufacturer to final end-user customer).

Details of the sales and inventory transactions for your product in region 3, channel 1 are reported in the following table (data sources include Research Study #12 and Research Study #14):
Region 3, Channel 1
Round #7 Ending-Quarter Channel 1 (Retail Channel) Inventory [Source: RS #12] 5,982
 - Round #8 Channel 1 Sales Volume (To Final End-User Customers From Retailers) [Source: RS #14] - 2,083
+ Round #8 Orders From Manufacturer [Source: Sales Volume on the Manufacturer's P&L Statement] + 0
= Round #8 Ending-Quarter Channel 1 (Retail Channel) Inventory [Source: RS #12] = 3,899
Retailers had sufficient on-hand inventory to meet all current final end-user customer sales requirements and retailers' on-going target inventory levels without re-ordering any more units from the manufacturer (your firm). It follows that your sales volume in region 3, channel 1 was zero units in this simulation round.

Why the large drop in sales volume? From your own research studies, your competitive product positioning in this channel and region has become very weak (above-average price, low product quality, low service quality, and average availability), thus explaining declining market share for your product. Perhaps your firm really doesn't have the product that meets customers' needs in this region and channel, given your competitors' current products and positionings in region 3, channel 1.

For further reading on this bullwhip effect in supply chains, the following two web-based articles may be referenced:

  • Bullwhip Effect (Wikipedia.org)
  • The Bullwhip Effect (QuickMBA.com)
  • revised 11/26/2012
    [000104.html]
    listed under "Distribution"
    listed under "Financial and Operating Reports"
    listed under "Forecasting"
    listed under "Generate Demand"




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