Which of the following consequences is a result of shipping directly from the point of manufacture to the customer rather than through a distribution network?
It cannot be A, when you remove your distribution network, that means less stops for the delivery trucks, and therefore, the lead times should be reduced. The answer is B, since C & D are also wrong.
The correct answer is B. Risk pooling benefits are negated.
Explanation:
Risk pooling is a strategy where a company stores inventory at a central distribution center, allowing them to buffer against fluctuations in demand for different products or regions. By holding inventory centrally, they can respond to unexpected surges in demand from one area by drawing from the pooled inventory without having to scramble to produce more. This minimizes the risk of shortages and lost sales.
When shipping directly from the point of manufacture to the customer, there is no central distribution center to act as a buffer. This means that each individual customer order must be shipped directly from the factory, which can lead to longer lead times and potentially higher costs if production needs to be adjusted to meet individual customer demands. There is also less opportunity for risk pooling, as the manufacturer is exposed to the variability of demand from each customer individually. This can lead to higher inventory levels at the factory and increased costs associated with managing smaller, more frequent shipments.
Why other options are incorrect:
A. Delivery lead times are consistent:
Shipping directly from the point of manufacture to the customer can actually lead to inconsistent delivery times. If there are production delays or transportation issues, these delays will directly impact the delivery time for each individual customer order. A distribution network can help smooth out these inconsistencies by holding and distributing inventory.
D. Order-fill rate is decreased:
While it's possible for order-fill rate to decrease if there are production or shipping issues, this is not a direct consequence of shipping from the point of manufacture without a distribution network. A low order-fill rate is more likely to be caused by problems with production capacity, inventory management, or transportation, rather than the choice of distribution channel. Shipping directly from the manufacturer can exacerbate these issues, but it's not the primary cause. A distribution network can help mitigate these risks and improve order-fill rates by providing a buffer and a more controlled distribution process.
Distribution overhead may be negligibly small here, order fill rate is connected to the number of orders fulfilled (not exclusively mentioned about this here). Option A talks of delivery lead time consistency which may or may not be ensured (this assumes that use of distributors may cause delay/ lead time issues and simply because there is direct shipment from the manufacturer to the customer, there is no assurance regarding adherence to lead times). Option B talks of advantages of risk pooling which is the use of a central DC/ warehouse for multiple supply chains. This is not an option here due to absence of distribution channels and use of direct shipping to customers.
I would think risk pooling would be much better if firm is shipping frm mfg location.
So my understanding is answer should be A
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