In what ways can customer service performance be improved by incorporating flexible distribution operations into a logistical system design?
As the main objective of logistics is to fulfil customer demands in terms of service reliability, performance and availability in the most cost-effective way, it is important for the distribution network to be able to adjust to unpredicted changes. For example, if a customer, who usually orders batch deliveries to own warehouses, is requesting to bring the goods directly to the point of sale, distribution should be altered to accommodate the respective demand. The need for flexible distribution operations usually arises when: customers modify the original service agreements, support is needed for one-time deliveries and promotion campaigns, new product is being introduced by the customer, products are being recalled, due to disturbances in the supply chain or due to unplanned product customization.
Flexible operations are divided into routine and contingency. Their implementation depends on the customer importance and product criticality. Utilization of flexible distribution is usually justified in four cases. Firstly, it is used when several different storage facilities allow better system capacity management and give a chance to respond faster to out-of stock situations, enhancing customer service quality. Secondly, flexible policies are used when an alternative distribution channel is more efficient for a particular shipment size. Thus, for small deliveries intermediate distributors may be more appropriate, while for big batches products should be brought directly to the customer. Thirdly, flexibility is required for selective storage strategy, designed to reduce risk and cost of inventory. In this case, only a limited variety of products is stored in smaller warehouses, with the full product line available only at the mother facility. Finally, supplier service arrangements and cross-docking allow reducing handling and storage costs, thus better servicing the customer. In order to conduct flexible distribution more efficiently, extensive IT communication has to be used. For better operations management, integrated service providers may be hired.
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