Impact and Adoption of Flexibility in a Rigid and Centralized Distribution Network

Rigid and Centralized Distribution Network

-

A Case Study on a Global Manufacturing Company

ANTON SÖDERBERG

ALEXANDER WALLENBERG

Centralized Distribution Network

- A Case Study on a Global Manufacturing

Company

Anton Söderberg

Alexander Wallenberg

Master of Science Thesis INDEK 201

6:119

KTH Industrial Engineering and

Management Industrial Management

Approved Supervisor

Andreas Feldmann

Case Company

N/A

For manufacturing firms to succeed in the global marketplace it is important that they have an efficient supply chain that is well adapted to the characteristics of the products.

This thesis explore the companies' challenge to adapt its supply chain to the characteristics of their products. A case study has been conducted on a global manufacturing company's distribution network. The company, which is in focus of the study, has conducted extensive effort with standardization and centralization of the distribution network to improve the performance indicators. Consequently, the study focuses on examining how the factors, standardization and centralization, impact the performance indicators in the distribution network.

The empirical results show that the company's distribution network is designed to operate efficiently for Make-To-Stock (MTS) products. Nonetheless, the network does not work as efficiently for Make-To-Order (MTO) products. These products are forced through a series of non-value activities. The lack of flexibility in the network leads to manually bypasses, which increases both the workload and risk. Therefore, the performance indicators are improved by a more flexible design adapted to the product characteristics and customer needs.

The study identifies four barriers preventing the company to adapt its distribution network to a more flexible design:

• An excessive focus on economies of scale

• Imbalance between central and regional capabilities in the organization • Rigid processes and lack of software support

• Complexity in transfer pricing and revenue sharing between entities

Finally, the study contributes with suggested actions aimed to increase the flexibility of the company's distribution network.

Keywords: Manufacturing and Distribution Network, Standardization, Centralization,

Flexibility

Examiner

Jannis Angelis

Impact and Adoption of Flexibility in a Rigid

and Centralized Distribution Network

- A Case Study on a Global Manufacturing Company

Approved _Supervisor

Andreas Feldmann

Case Company

N/A

Jannis Angelis

För att tillverkningsföretag ska lyckas på den globala marknaden är det viktigt att de har en effektiv försörjningskedja som är väl anpassad till produkternas egenskaper.

Den här uppsatsen undersöker företagens utmaning att anpassa sin försörjningskedja till sina produkters egenskaper. En fallstudie har genomförts av ett globalt tillverkningsföretags distributionsnätverk. Företaget som står i centrum för studien har arbetat länge och intensivt med standardisering och centralisering av distributionsnätverket för att förbättra nyckeltalen. Följaktligen fokuserar studien på att undersöka hur faktorerna, standardisering och

centralisering, påverkar nyckeltalen i distributionsnätverket.

Det empiriska resultatet visar att företagets distributionsnätverk är utformat för att fungera effektivt för produkter som är tillverkade mot lagerbehov. Däremot fungerar inte nätverket lika effektivt för produkter tillverkade mot kundorder då de tvingas genom en serie av aktiviteter som inte är värdeskapande. Bristen på flexibilitet i nätverket leder till manuella lösningar vilket ökar både arbetsbörda och risk. Därför skulle nyckeltalen förbättras av en mer flexibel design anpassad till produkternas egenskaper och kundernas behov.

Studien identifierar fyra barriärer som förhindrar företaget att anpassa distributionsnätverket till en mer flexibel design:

• Stort fokus på skalfördelar

• Obalans mellan centrala och regionala förmågor i organisationen • Stelbenta processer och brist av mjukvarustöd

• Komplexitet i internprissättning och intäktsdelning mellan entiteter

Avslutningsvis så bidrar studien med föreslagna åtgärder som syftar till att öka flexibiliteten i företagets distributionsnätverket.

Nyckelord: Produktions- och Distributionsnätverk, Standardisering, Centralisering, Flexibilitet

Impact and Adoption of Flexibility in a Rigid

and Centralized Distribution Network

- A Case Study on a Global Manufacturing Company

List of Figures 3

List of Tables 3

Introduction 6

Aim and Objective . . . 7

Research Questions . . . 7

Delimitations . . . 7

Thesis Outline . . . 8

Literature Review 9 Supply Chain Network . . . 9

Configuration and Coordination . . . 10

Configuration . . . 11

Coordination . . . 13

Centralization . . . 13

Performance . . . 14

Distribution Network Design . . . 16

Distribution Network Alignment . . . 16

Standardization . . . 17

Flexibility . . . 18

Distribution Network Design Alternatives . . . 19

Chapter Summary . . . 21 Methodology 22 Research Approach . . . 22 Research Process . . . 23 Research Methods . . . 25 Limitations . . . 28 Reliability . . . 28 Validity . . . 29 Ethical considerations . . . 30 Chapter Summary . . . 30

Result & Analysis 31 Configuration of the Distribution Network . . . 31

Nodes . . . 31

Links . . . 32

Product characteristics . . . 33

Coordination of the Distribution Network . . . 34

Roles in the Distribution Network . . . 34

Flexibility in the Distribution Network . . . 40

Manually Bypasses . . . 40

Stakeholder Perspectives . . . 43

Cost & Lead-Time Analysis . . . 43

Chapter Summary . . . 45

Discussion 46 Standardized and Centralized Distribution Network Design . . . 46

Flexible Distribution Network Design . . . 47

Barriers to Flexibility . . . 48

Reflection on Sustainability & Ethics . . . 50

Chapter Summary . . . 50

Conclusion 51 Answers to Research Questions . . . 51

Contribution . . . 52

Limitations and Future Research . . . 54

Bibliography 55 Appendix 59 Interview Template . . . 59

1 Typical Supply Chain . . . 9

2 Complex Supply Chain . . . 10

3 Global Production Networks Categorization . . . 11

4 Centralized Logistic Center . . . 13

5 Centralization . . . 14

6 Party Logistics Pyramid . . . 16

7 Six Distribution Designs . . . 19

8 Five Network Routing Designs . . . 21

9 The Abductive Research Process . . . 23

10 Distribution Network Structure . . . 32

11 Key Stakeholders . . . 36 12 Standardized Routing . . . 37 13 Example Routing . . . 38 14 Survey Result . . . 40 15 Alternative Routings . . . 44

List of Tables

3 Table of Interviews, Part2 . . . 27

4 Administration and Planing Tools . . . 28

5 Bypass: Geographic Data . . . 42

6 Bypass: Product Data . . . 42

7 Cost Model . . . 45

8 Lead-Time Model . . . 45

This report was written as a Master of Science thesis at the department of Industrial Engineering and Management at the Royal Institute of Tech-nology in Stockholm, Sweden. The thesis was designed as a 30 credit course and was conducted from January to June 2016.

Acknowledgements

3PL Third-Party Logistics. C1 Category 1 Products. C2 Category 2 Products. C3 Category 3 Products. DP Distribution Point. IP Intellectual Property.

ITC International Trade Compliance. KPI Key Performance Indicator. MFG Manufacturing Site. MTO Make To Order. MTS Make To Stock.

PDP Primary Distribution Point. RDP Regional Distribution Point. RQ Research Question.

This chapter gives a brief overview of the theoretical fields the research were based on. Further, the corresponding objective and research questions are presented followed by delimitation and the thesis outline.

This study explored how flexibility impacts the performance in a global manufacturing compa-nies’ distribution network with focus on standardization and centralization. Where a distribution network is defined as interconnected organizations of people, storage facilities, and transporta-tion systems distributing goods and services from manufactures to consumers [Chopra (2003)]. Global distribution network is a topic greatly covered in terms of decisions regarding location, capacity, and configuration of facilities. However, a gap has been identified regarding per-spectives targeting softer issues as site competences, facility relationships, flexibility and risk [Olhager et al. (2015)]. Therefore, scientific studies concerning these issues, helps to obtain new perspectives on distribution network design.

The competitiveness of global manufacturing networks is to a large extend determined by the performance of the distribution networks as they link production and consumption [Hesse & Rodrigue (2004)]. Hence, the distribution network has long been acknowledged as a fundamen-tal source of the competitiveness of manufactures [Hayes & Wheelwright (1984)]. The rapidly changing environment makes manufactures face new challenges to design, produce, and dis-tribute products for a global market and simultaneously manage its global network of operation as efficiently as possible [Olhager et al. (2015)]. Therefore, the importance of having a well con-figured and coordinated distribution network has increased. Furthermore, there is a developing acknowledgement of how modern competition is being fought “supply chain vs. supply chain” rather than “firm vs. firm” [Ketchen & Giunipero (2004)]. This enhances the importance of an efficient distribution network.

prod-ucts. This combined with a geographic shift has created a challenge for the case subject to handle. The new products were often Made-to-Order (MTO) which involved longer lead time and customized transport. The case subject’s distribution network was optimized to handle Make-to-Stock (MTS) products which was stored in the warehouses and replenished by periodic reviews. Therefore, the firm had recognized a potential to improve their performance due to a miss-alignment between the supply chain and the product portfolio. The structure of the industry, where the case subject operates within, require firms to have a complex manufacturing and distribution network due to the regulations and standards preserved.

Aim and Objective

The aim of this research was to explore how flexibility is adapted in a standardized and central-ized distribution network to improve performance. The objective was to understand how the distribution network is performing, how the performance is improved by increased flexibility, and to identify critical factors that hinders adoption of flexibility.

Research Questions

Given the objective, the main research question was derived:

How does flexibility impact the performance of the standardized and centralized distribution network?

To answer the main research question, three research questions were defined. The first research question explored the performance of the case subjects standardized and centralized distribution network design. Further, this included an investigation of the distribution networks configuration and coordination. The question was derived as:

RQ 1: How does the standardized and centralized distribution network perform?

The second research question explored how flexibility impacts the performance through e.g. multiple routing options, and it was derived as:

RQ 2: How does flexibility impact the performance of the distribution network?

Furthermore, to be able to realise the net impact of flexibility it is important to consider barriers that hinders flexibility. Therefore, the third question was derived as:

RQ 3: What are the most crucial barriers to consider when enabling flexibility?

Results directly linked to the main research question was not derived. Instead, by answering the three research question, a foundation for a discussion on how flexibility impacts the performance of the distribution network was possible, which in turn answered the main research question.

Delimitations

Thesis Outline

This thesis follows the structure presented below.

Literature

This chapter provides an understanding in the previous research that is relevant for the addressed research questions. The chapter begins with Supply Chain Management (SCM) literature from a general perspective to define the research frame. This is followed with an in-depth research review that is more closely linked to the objective of this study.

Methodology

This chapter presents the methodology and the methods used in the study. It discusses the research design and specific methods that contributes to understanding of the research process. The last section of this chapter is a discussion of the research limitations in terms of reliability and validity.

Results & Analysis

This chapter presents the results from the data collection of the case study. The section focus on the distribution network and the relevant aspects to consider for configuration and coordination, e.g. products, stakeholders, performance, and business environment.

Discussion

This chapter is based upon the previous chapters and includes a discussion of the results and analysis from the study. This includes both context specific understandings and aspects that have the potential to be generalized to a broader audience. The chapter concludes in a discussion of suggestions with both benefits and barriers that needs to be considered and handled.

Conclusion

This chapter describes the theoretical frame of references that the study originates from. The chapter follows a funnel approach which initially focus on a broad theory base to provide an overview of the topic. The focuses later shift into more in-depth research of topics related to the research questions. The covered topics are; supply chain, configuration, coordination, per-formance and distribution network design.

Supply Chain Network

A supply chain does not only include the manufacturer and its suppliers but also the distributors, customers, warehouses, and/or retailers. Within each role, such as the manufacturer, the concept of supply chain includes all functions involved in receiving and fulfilling a customer request. The different roles in the supply are interconnected by flows. The flows are dynamic and consists of products, information, and funds between different actors [Chopra & Meindl (2016)]. Figure 1 illustrates the simplest layout of a supply chain.

Figure 1: Illustration of a typical supply chain. Adapted from Chopra & Meindl (2016).

Figure 2: Illustration of a complex supply network. Adapted from Chandra & Kumar (2000).

With the increasing complexity of these networks, the ability to managing supply network be-comes a way of competitiveness by reducing uncertainty and enhancing customer service. Houli-han (1985) defines SCM as the activities that strive to balance conflicting activities as promotion, sales, distribution and production. Therefore, the primary purpose of supply chain management is to minimize the flow of raw material and finished products at every point in the chain to enhance productivity and cost savings [Coyle et al. (1996)].

Definition of Global Distribution Networks

Distribution networks are interconnected organizations of people, storage facilities, and trans-portation systems that transport goods and services from manufactures to consumers [Chopra (2003)]. The distribution network are diversified in different alternatives to achieve a selec-tion of supply chain objectives. The competitiveness of global manufacturing networks is to a large extend determined by the performance of the logistics networks as they link produc-tion, distribuproduc-tion, and consumption [Hesse & Rodrigue (2004)]. Therefore, distribution has long been acknowledged as a fundamental source of the competitiveness of manufacturing com-panies [Hayes & Wheelwright (1984)]. Furthermore, the rapidly changing environment makes manufacturing firms face new challenges to design, produce, and distribute products globally and simultaneously manage its operation efficiently [Olhager et al. (2015)]. This increases the importance of a having a well configured and coordinated distribution network. Furthermore, there is a developing acknowledgement that modern competition is being fought “supply chain vs. supply chain” rather than “firm vs. firm” [Ketchen & Giunipero (2004)]. This enhances the importance of an effective supply chain.

Configuration and Coordination

Configuration

The increased trend of globalization has created a increased geographic spread in the configu-ration of production sites and networks. This have forced firms to structure their production according its supply strategy. According to Knox et al. (2014) a global production network can the configuration be divided into the following two categories:

• Multi-domestic — which concerns operation where each market is serviced independently. This category can relate to simple products that are easy to replicate but costly to trans-port long distances. Production can be integrated globally, while the marketing is multi-domestic, reflecting cultural and consumer preference difference. The goal is therefore to better answer the demand in every market. This implies that the productivity is indepen-dent because the efficiencies and productivity achieved in different markets are unrelated from each other.

• Global integrated — which concerns operation where the production system is located in several countries and commonly involving complex products. The logistics activities are highly important in this category because production and distribution capabilities need to be effectively resigned. This implies that the productivity is interdependent, as each component directly impacts the cost and the quality of the final products.

Given the categorization above; the location strategies for global production networks can be identified as follow, see figure 3, [Knox et al. (2014)]:

Figure 3: Categorization of Global Production Networks. Adapted from Knox et al. (2014).

It particularly applies to well-known manufacturing technologies and/or when products have high distribution costs.

• Regional specialization — This type of global production network involves a spatial di-vision of the production based on competitive advantages. Each region specializes in the production of a specific goods and imports from other regions what it requires.

• Vertical transnational integration — This global production network includes different stages of production. The production occurs at the location which offering the best com-parative advantages. Raw material is extracted from locations where they are the most accessible, while assembly is performed in regions having low labor costs or high skill levels depending in the type of products.

The role of a production unit can be either flexible, dedicated, or a combination of these two. Dedicated production capacity can be used for production of a limited number of products. However, this production is more efficient than flexible production. Flexible production, on the other hand, can be used for producing many types of products in the same manufacturing unit. When it comes to warehouses, the role of the facility can be either primarily cross-docking or primarily storage. For storage facilities, the major purpose of the facility is to store products as inventory. In a cross-docking facility, the primarily focus is to handle in-bound and out-bound activities as fast possible [Apte & Viswanathan (2000)].

The location has strong impact on the performance. Therefore, it is important to align the configuration with the overall strategy. According to the main objectives of the strategy, location decision can be divided into two different strategies. The first one is centralization where the firm can gain benefits of economies of scale. The second strategy is de-centralization where the firm becomes closer and more responsive to customers. Due to the nature of networks discussed above, different units within the network have different capacity and capabilities. Hence, a firm decides how much capacity and which capabilities to locate at each location [Chopra & Meindl (2016)].

Distribution Centers

Distribution centers (or logistics centers) are a geographic units of operations that consists of activities that relate to logistics, transportation and distribution of goods. These facilities employees several people that conduct these task to effectively optimize the logistics flow. There are several different ways to plan a logistics center, see figure 4 for an example from Skowron-Grabowska (2007).

There are several ways to distinguish a distribution center depending on its usage and factors such as location and geographical coverage:

• International distribution center: highest degree of organizational and functional develop-ment to enable a global range and international distribution

• Regional distribution center: services regional and major city distribution network • Local distribution centers: serves a local and smaller city distribution network

Figure 4: Centralized logistic center with several functions concentrated together such as trans-portation, storage, packing and labeling. Adapted from Skowron-Grabowska (2007).

Coordination

In this context, coordination refers to how linked activities, performed globally, are executed with another. This is an important dimension since it enables the distribution network to optimize internal operations. It has been proved that coordination improves the responsiveness to changes and disruptions in the business environment [Zhang et al. (2014)]. Furthermore, supply coordination is applied to decrease logistics cost through knowledge of customer needs and better customer service. According to Abrahamsson & Brege (1997), logistics coordination consists foremost of an administrative coordination, e.g. information regarding order, forecast and customer transaction.

In order to achieve efficient coordination there is needs of mandate to control the logistics. People are often keen to focus on themselves and this is not sufficient if proper coordination is the goal. The main part of coordination is to actively handle dependencies between different activities which can be divided into:

1. Combined dependencies — when they are connected because the use the same resource 2. Mutual dependencies — they are both depend on the others output and therefore need to

adjust their actions to the other part

3. Sequential dependencies — when one part is depended of the other output, in this case the first does not consider the seconds action

These aspects are often considered as the weak link in the supply chain and often prevent the flow from reaching the optimal coordination and the improved performance.

Centralization

• Reduced overhead cost due to the decreased number of storage points • Reduced inventory levels and capital allocated

• Increased management and overview of the distribution flow due to economies of scale • Simplified handling of new products

However, centralization can involve negative benefits on the customer service due to increased distance to the central hub. There is opportunities to find a combination between a centralized network and a decentralized network, see figure 5. The middle way is to transport the goods consolidated as long as possible and draw benefits from centralization but simultaneously strive to achieve flexibility. This system demands high coordination and structure to be possible [Tarkowski et al. (1995)].

Figure 5: Centralization — The figure on the left shows a system with a consolidation on the flow and the right figure is a centralized system. Adapted from Tarkowski et al. (1995).

Performance

To be able to define and evaluate performance, it is necessary to first understand the measure-ments in this area. In general, performance is a concept which is hard for researchers to define in a mutual way. Though, Rhea & Shrock (1987) defines physical distribution effectiveness as “the extent to which distribution programs satisfy customers”. Hence, logistics performance refers to the extent of completion of goals for the logistics department.

Moreover, measures for performance is needed to examine and understand the viability of strate-gies. The strategic decision needs to be based on the potential for improvement in one or more of the targeted performance metrics. Therefore, logistics research is conducted on the basis that there exists a relationship between strategic options (course of actions) and logistics performance (effectiveness) [Chow et al. (1994)]. Performance measures are needed to justify and analyze both everyday processes and potential long-term strategic actions.

dimension can be depict to seven factors that influences the structure of the distribution network [Chopra (2003)]. These factors are (1) response time, (2) product variety, (3) product availability, (4) customer experience, (5) time to market, (6) order visibility and (7) returnability. Different customer segments prioritize different aspects and receives different amount of value depending on the distribution design. A client that value high product variety but tolerate long response time would gain greater value from a design with a central warehouse with large capacity, rather than a design with many but small warehouses with lower product availability. The second dimension of performance, cost, is an important performance indicator that are analyzed and defined from several perspectives. In the given context, the supply chain cost derives from the many different process and activities. This lead to a wide range of costs [Lovell et al. (2005)]. Looking at a typical supply chain, some of the major supply chain cost can be identified as (1) manufacturing cost, (2) transportation cost, (3) facility cost and (4) inventory cost. Facility cost arises at specific points along the supply chain, while inventory cost can be seen as fluid cost that exists from end-to-end of the supply chain. Furter, the transportation cost often represents half of the total logistics cost [Thomas & Griffin (1996)]. Therefore, much focus is upon this aspect and ways to optimize it with the use of e.g. transportation options, alternative routes and consolidation.

A more explicit definition, distribution cost, find similar cost drivers but exclude the manu-facturing and include an information cost [Chopra (2003)]. Where the information cost stands for the cost of implementing and maintaining information and knowledge flows through the distribution chain, both internally and externally.

A trade-off that often occurs in many supply chains is between lead-time and transportation cost. The lead-time of transportation can differ between the modes that are used. Commonly are transportation modes with lower transit time associated with a higher cost. On the other hand, a transportation mode with low transit time can increase the service level as well as decrease inventory cost. This relationship is commonly used to justify the increased use of air freight in global manufacturing firms [Lovell et al. (2005)]. Other distribution costs that are associated with the logistics activities are consist of taxes, insurance, obsolescence, and storage.

Logistic Solution Provider

As described above, companies use their distribution network design as a competitive advantage and strives to continuously improve the performance. Therefore, the firm faces a strategy de-cision, either to keep the distribution internally or strategically source it to a specialist within logistic solutions [Holcomb & Hitt (2007)].

Figure 6: Party logistics pyramid. Adapted from Vasiliauskas & Jakubauskas (2007).

Distribution Network Design

The previous presented theory shows the context, configuration, coordination, and performance. The next step is to present the diversity of design options available and present how these can gain competitive advantage. The two focal topics are standardization and flexibility of distribution networks. Nonetheless, the first section covers influencing factors that needs to be considered.

Distribution Network Alignment

The following factors are important to consider because they limit the compatibility of certain design, e.g. a industry with huge amount of small/low-value orders does not align well with high degree of flexibility for the delivery service. This have been discussed by Tomlin (2014) where the author discusses how previously efficient supply chains struggle to adapt to the changes in influencing factors. There are two aspect that needs to be considered, product characteristics and delivery service.

Product Characteristics

Fisher (1997) explored the need of different supply chains strategies with respect to the type product. He classified products as either primarily functional or primarily innovative. A primar-ily functional product requires a physically efficient supply chain with strong cost focus, while an innovative product needed a responsive supply chain with focus on market mediation. The author argue on basis theory that an “one-size-fit-all” supply chain is not a viable solution for all customers and products. This theory has been strengthen with further research by Harris et al. (2010).

• Number of units (i.e. the size of flow) • The demand (i.e. the frequency of the flow) • The size of the units

• Specific needs of the product (e.g. handle with care) • Geographic concentration of the customer

• Value

• Accuracy of forecasting

These aspects, together with the market characteristic below, are important to consider while designing a distribution network to ensure a good fit and efficient performance.

Market Characteristics

Different market segments demand and prioritize aspects differently. Therefore, the character-istics of a market are important to consider when designing a distribution network. Oskarsson et al. (2006) has pointed six (6) important factor to consider from a distribution perspective on delivery service. These aspects are:

• Lead-time — the time from the order has been placed until delivery

• Reliability — measure if actual shipment follows the specified delivery estimation • Dependability — if the shipment contains the right product/s, if it matches the order • Information — provides a transparent logistics system with inventory levels to meet the

customer demands and be able to track shipments.

• Flexibility — be able to adapt towards the client with the transportation but also adjust-ment of the order

• Inventory — be able to deliver products without waiting the manufacturing period, this is only applicable to goods that is made to storage and not customer specific goods.

It is important to consider both these factors, product and market, when devising upon a strategy due the probability of success depend strongly upon it [Fisher (1997)].

Standardization

The definition of standardization is to change aspects to a state where they are similar, consistent and follows the rules about what is proper and acceptable. Standardization is achieved when firms create process, guidelines, and/or rules for the activities in an organization. Further, this allows firms to ensure that activities are conducted according to the standard of the firm that aligns with the strategy. Standardization has both positive and negative aspects that need to be considered before deciding on the level of standardization within an organization. It has been argued that standardization has become one of the most important measures to enhance core competitiveness of firms [Zhuling et al. (2009)]. Thus, early authors discusses if the benefits of standardization can “trap” an industry in an obsolete or inferior standard when there is a better available [Farrell & Saloner (1985)].

• Information standardization can improve the accuracy and timeliness of information. • Business process standardization strengthens the scientific and objective of processes, and

provides the references with decision-makers.

• Standardization strategy can reduce the economic losses which are caused by information asymmetry. It avoids frictions and disputes in trades, improves the level of standardization and generality, and contributes to modular production.

• Standardization strategy can promote scientific and technical innovation, urges that prod-ucts gradually satisfy standards, thereby enhancing the resource utilization and output rates, reducing the production costs, and strengthening the international competitiveness.

Standardization within a distribution can therefore contribute in many aspects and create a rigid distribution network. However, the standardization can impede the organizations performance by limiting flexibility which is presented next.

Flexibility

Singh & Sharma (2014) argues that the success of supply chains depends on effective strategy for improving coordination among the members to make it more responsive for market needs by optimizing available resources. Further, a definition of supply chain flexibility is “the supply chain’ s promptness and the degree to which it can adjust its supply chain speed, destinations and volume in response to changes in customer demand” [Lummus et al. (2003)]. These articles along with other authors argue for the importance of flexibility in all functions of an organization, including the distribution. This is supported by several papers that discusses efficiency and responsiveness in a supply chain. Further, this reflects the increasing efforts, to gain customer satisfaction and understanding of the market, is needed to create a effective supply chain. Since a flexible and agile business is a key strategy in the business context of today in order to configure several parameters as partners, relationships, products and markets. Meanwhile, focus on constraints as time, cost, risk and quality and align these factors to meet the requirements of both the end customer and the supply chain [Christopher & Towill (2001)].There is also theories that a complex business environment can not be satisfied by a single supply chain and that firms need multiple supply chains to be successful [Coyle et al. (1996)].

Flexibility is an factor that can be acknowledged as a complex aspect with many definitions, however [Lummus et al. (2003)] targeted to bridge the gap of misunderstanding with the defi-nition of seven types of flexibility that contribute to the supply chain flexibility. The types of flexibility are (1) operation system, (2) logistics processes, (3) supply network, (4) organization design, (5) information systems, (6) customer satisfaction and (7) supply chain assets. These are important to recognize in the whole supply chain and it is noticeable that the aspects include both soft and hard business element. The objective to improve the flexibility can neither seen as an isolated issue e.g. an attempt to decrease the lead-time to customer cannot be achieved with focus on one single part in the value, several aspects and functions must be considered to achieve significant impact [Bhatnagar & Teo (2009); Zhang et al. (2014)]. Furthermore, to achieve a truly flexible supply chain one must not only configure and coordinate the own firm. The focus should also be external because manufacturing flexibility and supplier flexibility is needed to achieve the truly flexible supply chain [Avittathur & Swamidass (2007)].

flexibility can be achieved by accommodating changes in transportation routes, warehouse loca-tions, and the transportation mode due better adapt the end-customers’ requirements to improve the performance [Bowersox et al. (2002)].

One of the positive aspects gained from an increased flexibility is the ability to better handle risk. The value of operational flexibility can be exploited, e.g., through global coordination, transfer pricing and knowledge transfer. These aspects together enables the organization to better handle functions and situation that occurs. The importance of operational flexibility is derived from leveraging the company’s global supply chain network structure and be able to transfer knowledge and experience of best practices [Frenkel (2005)].

Distribution Network Design Alternatives

The next section presents some distribution network design alternatives based on the previous aspects and theories. There exist several different design alternatives from several different perspective and only a selection is presented. [Chopra (2003)] has developed six (6) distribution designs from a B2C perspective, see figure 7

The author has investigated the performance for different product/customer characteristics of the different distribution network designs. The results are presented in the following table 1.

Retail Storage with Customer Pickup Manu-facturer Storage with Direct Shipping Manu-facturer Storage with In-Transit Merge Distri-butor Storage with Package Carrier Delivery Distri-butor storage with last mile delivery Manu-facturer storage with pickup High demand product ++ - - - +- + -Medium demand product + - +- + +- +-Low demand product - + +- + - + Very low demand product - - ++ + +- - - + Many product sources + - - ++ + +-High product value - ++ + + +- ++ Quick desired response ++ - - - + -High product variety - ++ +- + +- ++ Low customer effort - - + ++ ++ ++

-Table 1: Performance of Distribution Networks for Different Product/Customer Characteristics. Adapted from Chopra (2003).

Furthermore, [Woxenius (2002)] have described five more specific different distribution network designs. From a shipping industry perspective, this could be more specifically described as a different network routing designs.

1. Point-to-Point — are common when the network needs to handle infrequent and specialized orders. Creates often not full-loads and empty backhaul problems

3. Hub-to-spoke — one major site functions as the central hub and has high requirements of efficiency to be able to handle the major amount gathered from the connecting nodes and these goods are often under strict time-constraints.

4. Fixed routing — when the design allows shipments to flow in a specific way and can connect to any node in the system by either efficient or long shipment route.

5. Flexible routing — is the same as fixed routing but also allows shipments to take alternative routes to better suit the customer needs under the constraints of the business.

Figure 8: Five Network Routing Designs. Adapted from Woxenius (2002).

Chapter Summary

This chapter provides a description of the methodology used in this research. The chapter is divided into subchapter that explains each step of the methodology in detail. The selected methods are described in detail and particulars about the sources are included. This section allows the reader to a clear insight in the process and promote repeatability but also the reader to consider the benefits and limitations of the selected methodology.

Research Approach

The purpose of this study was to investigate a given situation and examine suggested solutions to the problem that the case subject is facing. This was made with an exploratory type of research that describes an existing phenomenon [Collis & Hussey (2013)]. However, the study also involves aspects from a descriptive type of research in the aspects of performance and current-state analysis. The approach of the research has followed the interpretivism paradigm because the standpoint of the research was that the social society is highly subjective and has a great complexity. Furthermore, the study required qualitative data-collection methods in order to achieve rich data that findings is derived upon. Therefore, the research could not depend solely upon quantitative methods that are commonly used in the positivist paradigm [Blomkvist & Hallin (2014)].

An abductive research approach was selected because this approach origins from the under-standing that greatest achievements in science are neither based upon pure deduction or pure induction research [Kirkeby (1994)]. The historic research in logistics has been dominated by the deductive methods. However, the need for abductive attempts has recently been emphasized to develop new research [Kovacs & Spens (2005)]. The objective of this abductive process was to understand a new phenomenon [Alvesson & Sköldberg (1994)] and suggest new theory in the format of hypothesis and propositions (H/P) [Andreewsky & Bourcier (2000)]. A lillustration of the abductive research process is found in figure 9.

Figure 9: The abductive research process. Adapted from Kovacs & Spens (2005).

Research Process

The overall research process followed to a large extent the fundamental stages in scientifically based investigations [Collis & Hussey (2013)].

1. Review the literature and define the research questions 2. Design the research and write the proposal

3. Collect the research data

4. Analyze and interpret the research data 5. Write the study report

This process is described as a continuously model but the research followed an arrangement of iterations and parallel stages. The research was conducted following the general guidelines of these stages. However, some modification was made and each stage of the modification are presented in the next section where the project has been broken down to four major steps.

Pre-study

The initial stage of this study was to identify the problem and the scope that enabled a high-perspective review of the literature and the case subject to define the preliminary research questions. This stage was important to get an overview of the scope and direction of the study at hand.

Research Proposal

Data-collection and Analysis

The data-collection and analysis was combined because both stages were divided upon the se-lected research questions (RQ) of this study. The following section describes each research question and which methods that was used to investigate these. Further, the section also de-scribes how the answers of these sub-research questions were used to answer the main research question. These steps followed a natural chronological order and followed the presented order to some extent. However, the processes were also conducted in parallel to each other to en-sure higher flexibility and productivity. Each step of this process was conducted within a given timespan to guarantee progress to succeed but also a review and iteration stage to ensure quality control to kept the results and the objective of the study aligned.

Sub-RQ1: How does the standardized and centralized distribution network perform?

It was crucial to first investigate the relationship between performance and distribution from a general perspective. This was a complex area that was of vast size and this question alone could be a whole report. Therefore, a narrow scope with focus upon the focal points, standardization and centralization, was selected. This stage was conducted by both analyzing relevant literature and information from the case subject. The firm specific data was collected through review of internal documents, guidelines and processes with a combination of a survey and interviews with relevant stakeholders.

Sub-RQ2: How does flexibility impact the performance of the distribution network?

This question focused primary on extensive literature review of the topic of flexibility both from a high supply chain perspective to an in-depth distribution perspective. This was combined with an analysis of the case subject, focusing on the result from the previous question. This was focused on how flexibility (or lack of flexibility) has positive or negative impact of performance. This data-collection focused on semi-structured interviews with key stakeholders. This stage also included a more quantitative approach with a cost and lead-time analysis based on a model of the distribution design. This model allowed an analysis of the consequences of different distribution flows in terms of cost and lead-time.

Sub-RQ3: What are the most crucial barriers to consider when enabling flexibility?

The final sub-RQ required the results and analysis from both previous sub-questions to be finalized. This stage consisted largely of context specific analysis of the case subject due to the lack of literature in the area. This data-collection consisted of semi-structured interviews with key personal from several functions to be able to identify different perspectives on how to enable flexibility. This stage also consisted of several presentations where a preliminary strategy for enabling flexibility was presented and the questions and feedback was analyzed.

Main RQ: How does flexibility impact the performance of the standardized and centralized distribution network?

The three stages described above answered the underlying questions to the main question of this study. The answers to these three questions were necessary to be able to answer the main question. Therefore, the main RQ was answered last. The main RQ was answered to the major extent on the result and analysis of the previous questions. Additional data-collection in form of interviews, observations, and literature to ensure that the final question was answered with the highest quality in the terms of validity, reliability, and generalizability.

Writing

workload in the final stages and improved quality through multiple iterations of the different segments of text.

Research Methods

Usage of several different methods was conducted to collect data. Both qualitative and qual-itative methods where used to take advantages of the strengths of the different approaches as mentioned above. It is crucial to be skeptical about the credibility of the data and the method used to obtain it [Blomkvist & Hallin (2014)]. Therefore, the data-collection contained several stages of validation of the data to ensure the quality of the end-product, this report.

Literature review

This method includes an analysis of the research from both a broad and a narrow perspective. This was done by a systematic search with selected data sources, time span and selected key words [Collis & Hussey (2013)]. The initial concepts were constructed to achieve a broad per-spective and included key words that captures the broad perper-spective, the starting point was concept involving general terms on the topic such as "logistics", "distribution", "design" and "network" which was combined with a large time period to capture both early key papers but also recently published work to achieve understanding of the progress in the field. This provided a massive base of literature that was used as a base and the focus was upon general articles and literature reviews that provided a needed overview of the targeted area. The second stage involved more precis searches to find in-depth articles that were identified as important for the study. This was conducted by constructing more detailed concepts of keywords for each research question. These articles focused upon a more recent time frame (2005-present) to find the most relevant theory.

Both these two stages followed a framework with initial focus upon the introduction, abstract and conclusion of the papers to maximize the amount of articles analyzed. This enabled high recall [Shaw et al. (2004)] and allows selection of relevant papers. The second step involved a more detailed reading of the paper to achieve the whole contribution of the paper and this enabled high precision. The relevant theory and understanding was collected and in the end summarized in the literature review section to give the reader an understanding for the topic that was covered.

The selected sources were Scopus and Web of Science and they were selected for their immense database and advanced search tools that allowed targeted searches. These sources were sup-ported by KTH Primo, J-Stor and Google Scholar that was used when the initial sources did not provide a sufficient result.

Interviews

technologies. Furthermore, the term "interview" was be substituted to "meetings" in the execu-tion stage to encourage a more open situaexecu-tion for the involved persons. The interview process were divided in three stages:

1. Initialization: a request was sent that include practical information combined with a purpose and agenda. A template agenda was created to ensure consistently throughout the interview, this is found in the appendix .

2. Execution: the interviews were conducted by two interviewers where one is leading the interview and the other taking notes to ensure no information was missed.

3. Validation: the final stage was consists of data validation by summarizing the findings and allows the involved parties to correct misunderstandings before they confirmed the outcome of the interview.

The interviews are presented in chronological order, starting with the first interview. The name of the interview subject has been replaced by a general role description to ensure anonymity from an external perspective.

Role Time Purpose

Global Logistics Leader 120 Learn more about strategic alignment and po-tential RQ

Multiple Distribution roles 120 Receive insight in current performance with re-lated challenges and opportunities

Multiple Warehouse &

Distri-bution roles 120

Warehouse visit to receive initial insight in func-tion and current general status

Multiple Sales & Operations, Distribution & Logistics roles 90

Receive insight in forecast and planning param-eters

Multiple Sales & Operations, Distribution & Logistics roles 240

Attended selected event of conference to receive insight on specific and more general problems Lean Manufacturing Manager 60 Production visit to receive insight in production Sales Operations Leader,

Dis-tribution Planner 30 Learn more about the site and the products Sales & Operations Process

Leader 60 Learn more about current situation and problem Global Process Leader 90 Learn more about current situation and problem General Manager, Global

Ful-filment & Logistics 30 Receive feedback for leadership

Logistic Specialist 60 Learn more about the distribution process Sourcing Analyst 30 Receive information about transport and

ware-house costs

Logistic Specialist 60 Learn more about the distribution process Senior Manager, Transfer

Role Time Purpose Distribution Manager,

Logis-tic Specialist 60

Receive insight from distribution, both general and specific

Logistic Specialist 30 Learn more about the distribution capabilities Global Project Leader 150 Initial findings presentation with feedback

within distribution and organization

Project Manager Export 30 Receive insight into International Trade Com-pliance aspects

Distribution Planner 40 Receive data and analysis confirmation

Multiple Distribution roles 120 Receive overall feedback from distribution per-spective

Logistics Operations Leader 180 In-depth interview with specific data-collection and confirmation

Multiple Finance & IT roles 60 Receive overall feedback from finance and IT perspective

Sales Operations Leader 60 Receive data and analysis confirmation Table 3: Table of Interviews, Part2

Survey

A quantitative survey was conducted with ten interval scale question (1-7) regarding the per-formance of the distribution network. This was done to get deeper understanding in the perfor-mance in terms of products characteristics, prioritizations and how well the distribution design matched the different product groups. The survey was sent to several key stakeholders from different functional roles and hierarchical levels to get multiple perspectives. The subjects of the survey were limited to individuals that we had interviewed and were deemed as relevant to the survey. The survey was conducted by an online application and sent out to the participants by e-mail. When needed, a reminder was sent.

The question for the survey is presented below:

1. How is the current overall performance of the Distribution Network?

2. How is the current lead-time (SCOT) performance of the Distribution Network? 3. How is the current cost performance of the Distribution Network?

4. How is the current inventory performance of the Distribution Network? 5. How is prioritized is lead-time (SCOT) in the Distribution Network? 6. How is prioritized is cost in the Distribution Network?

7. How is prioritized is inventory in the Distribution Network? 8. How well does the distribution suit the C1 product group? 9. How well does the distribution suit the C2 product group? 10. How well does the distribution suit the C3 product group?

Internal Information Systems

The case subject has gathered business critical information in their information systems (IS). Information from the IS was used to gather raw corporate data. The data selected was carefully analyzed to ensure that it was both relevant and accurate to be useful for the study. This data was consisted of both performance data and shipments data.

Internal documents and presentations

An important base for this study was internal documents from the case subject that provided a thorough background of company within both the operational aspect with process, Key Per-formance Indicator (KPI), and design but also crucial strategic tools as overall strategy, vision and long-term impact plans. This data allowed the study to align with the firm’s culture and ambition and made it possible to adapt the suggestions more successfully.

Observations

Observations worked as a complementing method and were used to receive confirming data. The data was gathered on more general topics. However, it provided an overview of case subject that was needed to understand relationships between stakeholders, functions and other softer aspects. This included site visits and observations of manufacturing, distribution centers, administrative work processes and workshops conducted in the distribution functionality of the case subject.

Administration & Planning

Several administration and planning tools was used during this study. They were necessary to ensure structure in the progress because of the time frame of 20 weeks. The tools that have been used is

Time reporting Microsoft Excel

Gantt Chart Microsoft Excel

References Handling EndNote

Documentation handling Microsoft Microsoft OneDrive

Table 4: Administration and planning tools used during the project.

Feedback session with both the case subject and KTH was conducted on weekly versus monthly basis to ensure progress and right focus of the study.

Limitations

This section discusses the limitation of the methodology and methods that were chosen for this study. The investigation of the methodological limitations and rigor was based on a selected framework of [Gibbert et al. (2008)] that focus upon the measures reliability and validity, where the latter is divided into three sub-measures; internal, construct and external validity.

Reliability

different ways and also that the researcher influences the research. However, this measure is still important to consider and attempt to gain increased reliability was done in this research with standardized questions for the interviews, a clear literature review framework that would enable a fellow researcher to conduct a similar research and detailed description of the case subjects context. However, due to the complex nature and the researchers’ interpretation and influence, it is hard to ensure that result will be the same. The base of this research consisted mostly of qualitative data that is often considered subjective and therefore it is harder to establish reliability then with more objective quantitative data that is used less in this study. However, quantitative data was used to increase the reliability and minimize the risk of different analysis from different subjective standpoints.

Validity

Collis & Hussey (2013) defines validity as it refers to the extent to which a test measures what the researchers wants it to measure and also how the results reflect upon the phenomena that is objective of the study. This aspect is important to address in order to ensure mistakes (as research errors, poor sample or misleading measurements) were minimized. The result of the research may contain errors that would make the contribution faulty and have ripple effect through case subject and the academia. The research in this project focused both on internal, construct and external validity.

Internal Validity

Internal validity is best established by examining the phenomena through the point-of-view of various parts in the context [Carlile & Christensen (2006)] and this research have a strong focus upon data-collection from various perspectives. This included both external insight but the focus was mostly on internal insights by both quantitative and qualitative perspectives that were gathered with varied methods mentioned earlier in this chapter. These several perspectives has enabled triangulation that is an important method to conduct to achieve internal validity [Yin (1994)].

Construct Validity

This refers to the quality of operationalization of the relevant concept and needed to be consid-ered in the data-collection phase to ensure that the study actually investigated what it claimed to investigate [Gibbert et al. (2008)]. This gave understanding to the extent to which a procedure provided an accurate observation of the target phenomena [Denzin & Lincoln (1994)]. A frame-work was followed to ensure construct validity: (1) Establish a clear chain of evidence and (2) triangulation to investigate different perspectives at the phenomenon [Yin (1994)]. This study focused upon this stage with detailed documentation of process and data to ensure a reader to insight to the progress from initiation to completion. This was combined with triangulation with different methods and perspectives to ensure construct validity.

External Validity

Nevertheless, efforts were made to achieve this even if only within the scope of the research [Carlile & Christensen (2006)].

External validity is also referred to generalizability that is to which extent research findings can be extended upon other cases or to other settings [Vogt & Johnson (2011)]. It was essential to achieve a high degree of generalizability in order to make a contribution to both the academia but foremost the practitioners. The problem with the research at hand is the interpretivist paradigm and the qualitative data that is the main source of analysis because of the different interpretations. However, even if a case study is based on in-depth knowledge of a single or few firms, it is still possibilities to generalize for the gained knowledge [Gummesson (2000)]. However, this require a though capturing of the characteristics and interactions of the studied phenomena [Norman (1970)]. Due to the low generalizability, the research focused on characteristics of the problem and task at hand that is not firm specific and this would increase the generalizability of the achieved understandings. The research also focused upon the area of distribution in a global context and this is interesting many actors and the aspects we consider as e.g. flexibility and performance are topics that generally generates significant attention.

Ethical considerations

Ethical considerations is specified as one of the most important parts of the research. The study followed the ten (10) principle of ethical considerations presented by Bell & Bryman (2007) and the ethical policy for KTH. The participants was respected and full consent was given prior to the interviews. The research data was high level of confidentiality and the source of the data was anonymised. The study maintained a high level of objectivity in discussions and analyses throughout the research

Chapter Summary

This chapter presents and analyzes the findings from the empirical data-collection. The initial focus is on the context of the case subject followed by the changing business environment, and the consequence of the change on the case subject. The last section provides the results of a cost and lead-time analysis of distribution routes.

Configuration of the Distribution Network

The empirical data in this section were gathered through interviews and observations of the case subject. In the first sub-section are the different functions of the nodes within the case subject’s distribution network presented.

Nodes

The distribution network consists of a large number of manufacturing sites which is connected by five distribution points on three continents; one (1) in Europe, one (1) in North America and three (3) in Asia. The firm operates from a standardized flow through the nodes that enable a global reach. The flow consists of the following nodes:

• Manufacturing Site (MFG) — facilities where the products are produced. This can be seen as the starting point in the distribution network. Each manufacturing site produces a range of products that is only produced in this location that follows the strategy of regional specialization. The characteristics of the manufactured products are more detailed described later in this section.

• Distribution Point (DP) — these are five facilities with warehouse capabilities to handle the flow between the manufacturing and the customers. These sites are responsible to handle the goods with the following activities which together require a minimum of 48 hours.

– Inbound handling — activities associated with receiving the goods from MFG or

another DP and handle it with documentation and unpacking.

– Storage handling — activities to handle the inventory and storage of goods.

– Outbound handling — activities to handle requests and execution to move the goods

to either another DP or the end-customer, involves picking and packing, and invoice handling.

Distribution Point (PDP). The main hub in the distribution network is PDP from which the other DPs trigger its’ demand. Between the MFG and nearest DP there is daily delivers, e.g. a truck every day. The network of facilities are used when products are sold in markets with long distance to the MFG. The last type of nodes in the network flow is the customer.

• Customer — the importance of a satisfied client is vital for the firm success and the delivery is an essential step. The case subject delivers both small standardized products that are easy to handle but also products that is of a greater size and customized to the customer. The latter category of products often needs installation and special handling. Therefore, this category also creates a need for the customer to plan and depend on the arrival of the product and a deviation from a delivery date has a substantial negative impact on customer satisfaction.

Figure 10 provides an illustration of the overall network structure with the discussed nodes and the linkage. The design follows the guidelines of a system with Distributor storage with package carrier delivery as discussed in the literature see figure 7, [Chopra (2003)]. The case subject design can also be identified in the strategies presented by Woxenius (2002), where the standard design is described as a corridor or fixed routing, see figure 8.

Figure 10: An overall distribution network structure for the case subject

Links

The links in a distribution network is the transportation that allows products and information to flow between different nodes.

Transport modes

shipments and land for the short distances. The second option (land) is often used when prod-ucts move from MFG to the nearest distribution point and the last miles to the customer. The last shipment option of sea is used in rare occasions when items are made to stock. The selection between these options is based upon a trade-off between cost and transit time. The selection of a majority in air indicates transit time priorities which have been strengthen throughout the meetings. However, the benefits of sea transport with lower cost have recently been internally discussed but require further development of coordination.

Third-party Logistics Provider

The selection of shipping prioritization is the second aspect which allows opportunities to create competitive advantages and diversification. The subject uses a Third-party logistics (3PL) solution which handles the transport and warehouses in the distribution network. The transport providers offers two options, standard and deferred, for prioritization at different cost basis that effect the transit time. However, a prioritization parameter was also be found in the planning of distribution, including internal shipments to RDPs, for storage as safety stock that allows reduced lead-time when the product is sold, but increase working capital and increase 3PL cost in form of storage utilization.

The availability of transport are high and the number of flights, trains, boats, and trucks in mo-tion is almost plenteously. All the distribumo-tion points are also strategically located close to major international airport hubs which allow several flights a day to the target destination. Therefore, it is often simple to find a suitable transport option within a reasonable time. However, this is only true for normal size goods, e.g. an EU-pallet. Goods that are oversized needs to be sent with a larger aircraft, with greater loading capacity. According to the meetings with the logistics specialists are these flights not as frequent. These flights usually depart for a specific destination only once a week. This has a significant negative impact on the lead-time for over-sized goods.

Product characteristics

The case subject is of a greater size with several MFG units which produces a massive amount of products from a large amount of product groups. This creates a large and diversified prod-uct portfolio. Therefore, the prodprod-ucts are divided into three prodprod-uct categories regarding its characteristics and inventory policy:

• Category 1 (C1) — This category of products are MTS and are held as inventory with an appropriate level of safety inventory. A order of a product in this category should be shipped from the stock within 72 hours or on requested ship date.

• Category 2 (C2) — This category should be stocked without safety inventory. When the product is available in stock it is handled as Category 1 item, otherwise they are treated as a Category 3 item (see below).

• Category 3 (C3) — This category is products that are MTO and often customized to the customer’s request. This implies that they cannot be shipped to customer faster than the lead-time of the supply chain.

The C3 products are never MTS. Therefore, these products should not be handled as inventory. However, the current design with multiple nodes is optimized to handle inventory and this creates a strategic miss-alignment. The studied product portfolio consists to 75 % of C3 products and 25% of C1 products.

Coordination of the Distribution Network

The role of distribution can initially be seen as a straight-forward task. However, the flow of products is a complex (but essential) task for firms to handle [Zhang et al. (2014)]. Therefore, distribution activities cannot be isolated to only the distribution function. These activities needs involvements from several other stakeholders in the firm to ensure that the flows are handled correctly and satisfies customer needs. These stakeholders, mentioned below, have all been identified to have a critical role in the distribution network of the case subject.

Roles in the Distribution Network

The following actors has been identified as key stakeholders in the case subject.

Manufacturing

The first key stakeholder, to be mentioned, is the manufacturing, which includes both operation and planning. This stakeholder is important to involve because it is tightly linked to the dis-tribution in the value chain. Therefore, close corporation and coordination is needed between these two to ensure efficiency and effectiveness. The performance of the distribution is strongly affected by manufacturing in all the three stated performance aspects. SCOT is in this context most relevant when products are made-to-order (C3) where the total lead-time consists to a majority of manufacturing time and less when products are made to stock (C1). However, the impact of the other two performance aspects are also important to consider. Cost can increase when special shipments are needed because of urgency caused by delays. Inventory is highly impacted by incorrect manufacturing planning.

Finance Department

these transfers prices back to origin is a highly manual process in the case subject. In the perspective of IP-right is it also important to notice that that the IP-right holder should be included in the distribution loop. Otherwise the rewards transferred to the IP-right holder will be transferred as royalties. This can lead to some tax implication for the supply chain surplus.

IT Department

The third key stakeholder is the IT-department. The organization of the case subject is complex and contains massive amounts of data and information. This business information is essential for coordination throughout the whole firm, including the distribution. This requires the IT-department to be involved to assist the different functions with information and software to enable functionality and provide support to enable higher productivity. The IT department has provided IT-system to support the distribution organization to efficiently share information. However, the IT system is rigid and has created constraints, e.g. there is only one transactional flow allowed for a certain manufacturing site to a certain geographic region.

The case subject uses a major IT-vendor as a supplier. This enables standardization and also possibilities to improve the system with more supportive functions. Additional functionality in the system has somehow improved the performance. However, it has not been fully implemented because it would increase the complexity of the system. The complexity has increased the need of knowledge and training of employees and have negative impact on the performance. Therefore, it is important to use the possibilities within IT in a way that optimize the overall performance. Furthermore, the IT-aspect is also a constraint because the limited amount of IT resources. Therefore different department competes in the beginning of each year for the resources needed to implement business critical functionality. Only the highest prioritized receives support from the IT-department.

Sales Department

The sale department is a key stakeholder because of their central role in the value chain and their close interaction with the customer. Their position in the flow of processes from customers’ order to delivery allows them to decide upon essential decisions that constrain the distribution. These decisions include which entities the order will go through and expected delivery date to the customer.

International Trade Compliance