Customer service: Implications for distribution system design

The interaction between customer service policy, as defined by the in-transit delivery lead time component of the order cycle, and the design of least cost distribution systems is examined. A broader view of the distribution system design problem than previously taken in the literature is given and both the firm’s network strategy (number and location of facilities) and transportation strategy (mode/method of shipment) into the planning process are incorporated. Procedures for incorporating customer service policy into the distribution system design process are discussed; the effect of alternative customer service definitions on the least cost distribution system design are evaluated; and new mathematical procedures that integrate customer service policy, network strategy and transportation strategy into a comprehensive planning model are provided. Example problems in the text illustrate the potential benefit of accepting premium transportation costs in return for reduced facility proximity to customers.