Course contents
Advanced · Course 5: Distribution Networks and 3PL · Lesson 4 of 4

Building a complete distribution network and 3PL decision tool

Level: AdvancedTime: 50 minutesOrder used: A (the T-shirt shape, distributed domestically by Delta Garments to Cedar & Co.'s 12 shops)Tool: Distribution network and 3PL decision tool
For a factory, buyer or brand who has worked through Lessons 5.1 to 5.3 and now needs to run every decision together on one real distribution setup. Earlier lessons help, not required. Figures are teaching figures.
FactoryDelta Garments
Domestic customerCedar & Co. (12 shops, make to stock)
ProductA T-shirt shape similar to Order A
Delivery volume4,000 pieces a month, split across 8 nearby shops and 4 distant shops
Business modelHybrid: own delivery for nearby shops, a local provider for distant shops
What this lesson doesRuns the in-house-vs-provider, network-shape and true-cost checks together as one decision
02Opening

This page teaches a factory, buyer or brand how to run the in-house-versus-provider decision, the network-shape decision and the true-cost check together as one complete distribution decision

This page teaches how to combine three separate checks from this course, whether to run distribution in-house or through a provider, what shape the network should take, and whether a provider's quote reflects its true cost, into one decision made together for a real distribution setup. This lesson mainly teaches a decision flow: bringing prior single-factor checks together so no one factor is decided in isolation from the others.

A factory or buyer that decides in-house-versus-provider, network shape and true cost as three separate, disconnected questions can reach an answer for each that does not actually fit together, such as choosing an in-house distribution centre sized for one network shape while the true-cost check was run against a completely different shape.

03Before you start

You need: the outputs of Lessons 5.1 to 5.3, or a fresh set of volume, distance and cost figures for a real distribution setup.

By the end of this lesson you can:

  • state why the in-house-versus-provider, network-shape and true-cost decisions must be made together, not in isolation;
  • apply the break-even, echelon and true-cost checks to a single, shared set of figures;
  • build a combined recommendation for a distribution setup with more than one region or shop group;
  • use the complete decision tool to run all three checks on a new case.

Not covered here: the individual mechanics of each check, already covered in Lessons 5.1 (in-house versus provider), 5.2 (network shape) and 5.3 (true cost).

04Key terms

Words you will meet in this lesson

TermMeaning
Break-even volumeThe volume at which running an in-house distribution centre costs the same as paying a third-party logistics provider; above it, owning is cheaper, below it, paying is cheaper.
Distribution network shapeThe number and arrangement of stops goods pass through between the factory and the shop that finally sells them.
True comparable costThe quoted rate plus every hidden cost, giving a figure that can be fairly compared against an in-house operation's own fully loaded cost.
Regional hubA smaller stock location serving a group of nearby shops, sitting between a central distribution centre and the shops themselves.
Third-party logistics providerA company paid to store and ship goods it does not own, instead of the buyer building and staffing its own warehouse.
05Teaching
The rule

The in-house-versus-provider decision, the network-shape decision and the true-cost check must be run on the same volumes and distances so their answers actually fit together

Running the break-even volume check, shaping the distribution network correctly, and confirming a third-party logistics provider's true comparable cost are each useful alone, but only produce a workable plan when run together on the same shared figures. A network shaped for one volume, checked for cost at a different volume, gives an answer that looks complete but does not actually hold together.

In-house vs. provider (5.1)Network shape (5.2)True-cost check (5.3)One combined distribution decision
All three checks feed the same combined decision. Running them on shared figures is what makes the final recommendation workable rather than three separate, disconnected answers.
What you meet in real life

How the three checks combine differs by how many regions or shop groups a factory or buyer's distribution setup actually has

What can differThe shapes you meetWhy it matters
One region vs. several regionsA single, uniform region can run all three checks once; a setup with several regions, near and distant, may need the checks run separately per region before combining the resultsApplying one set of answers to every region can fit the nearby group well and the distant group poorly
Export vs. domestic setupAn export setup, like Northline Apparel's Order A network, adds customs echelons before any in-house-versus-provider or cost check applies; a domestic setup, like Delta Garments distributing to Cedar & Co., applies the checks directly to factory-to-shop distancesThe starting network shape differs by market, which changes which volumes and distances feed the other two checks
Hybrid split vs. a single choice for the whole flowA hybrid split, such as owning delivery for nearby shops and using a provider for distant shops, needs the true-cost check run separately for each part; a single choice for the whole flow only needs one combined runA hybrid split is exactly where combining the checks correctly matters most, since each part can have a different right answer
A factory running its own domestic distribution vs. a buyer running its ownA factory such as Delta Garments running distribution for a domestic customer applies the same checks as a buyer running its own network; the scenario side changes, the method does notThe combined method does not depend on which party in the chain is making the distribution decision
Product familiesThe same combined method applies whether the goods are apparel, socks and hosiery, knit-to-garment, terry and towels, or home textiles and beddingA factory or buyer new to this combined decision applies the same three checks together regardless of product family
The case we follow

Delta Garments runs all three checks together to decide how to distribute Cedar & Co.'s domestic replenishment order across its 8 nearby shops and 4 distant shops

Delta Garments distributes a 4,000-piece monthly replenishment order of a T-shirt shape to Cedar & Co.'s 12 shops, 8 of them nearby and 4 of them about 600 km away, the same distant group from Lesson 5.2's own workplace scenario. Delta Garments must decide, for each shop group, whether to deliver in-house or through a local third-party logistics provider, what network shape fits each group's own distances, and whether any provider's quote reflects its true cost, all together rather than as separate questions.

Running the three checks on the same shared volumes and distances is what lets Delta Garments reach one workable hybrid plan instead of three answers that do not fit together.

The worked number

The combined check recommends in-house delivery for the 8 nearby shops and a local provider's true comparable cost of USD 0.92 per piece for the 4 distant shops

Nearby shops (8 shops, 180 km, single-echelon network): in-house fixed cost per piece at this volume = USD 0.35
Nearby shops, third-party logistics provider's quoted rate: USD 0.55 per piece
Distant shops (4 shops, 600 km, regional-hub network): local provider's quoted rate = USD 0.80 per piece
Distant shops, hidden costs (management oversight and insurance): 0.08 + 0.04, first 0.80 + 0.08 = USD 0.88, then 0.88 + 0.04 = USD 0.92 per piece
Distant shops, in-house cost at this smaller, distant volume: USD 1.15 per piece

For the 8 nearby shops, the single-echelon in-house cost of USD 0.35 per piece beats the provider's USD 0.55, so Delta Garments delivers these in-house, matching Lesson 5.1's own break-even logic and Lesson 5.2's own single-echelon shape. For the 4 distant shops, the local provider's true comparable cost of USD 0.92 per piece, once hidden costs are added as Lesson 5.3 teaches, beats the in-house cost of USD 1.15 at this smaller, distant volume, so Delta Garments uses the provider there instead, matching the regional-hub shape Lesson 5.2 found justified for this distant group.

Nearby shops (in-house): USD 0.35 per pieceUSD 0.35Distant shops (local provider, true cost): USD 0.92 per pieceUSD 0.92
Each shop group gets its own answer from the same combined method. The nearby group's own in-house cost and the distant group's own provider cost are both genuinely the cheaper option for their own distances and volumes.
The method

Four steps to run the complete distribution and 3PL decision on a real setup

  1. Group the distribution setup by region or shop cluster, since the right answer can differ by distance and volume within a single setup.
  2. Run the break-even check (Lesson 5.1) for each group, comparing in-house fixed and variable cost against a provider's quoted rate at that group's own volume.
  3. Shape each group's own network (Lesson 5.2), checking whether a single echelon or a regional hub fits its own distances.
  4. Build a true comparable cost for any provider considered (Lesson 5.3), adding hidden costs before the final comparison, then combine each group's own recommendation into one hybrid plan.
The trap

A common mistake is running one of the three checks in isolation and applying its answer to a distribution setup that another check would have shaped differently

A common mistake is deciding in-house versus provider first, in isolation, and only afterward checking network shape or true cost, rather than running all three together on the same figures. This can lock in an in-house distribution centre sized for the wrong network shape, or accept a provider's quote before its hidden costs are even checked. The fix is running the three checks together, group by group, on one shared set of volumes and distances, exactly as this lesson's method does.

06In plain words

Deciding who distributes goods, how the delivery route is shaped, and whether a quoted price is really the full cost are three separate questions this course has taught one at a time. In a real setup, they must be answered together, using the same volumes and distances, or the answers will not actually fit each other. Delta Garments' distribution to Cedar & Co.'s 12 shops shows this: its 8 nearby shops are cheaper to deliver to in-house, while its 4 distant shops are cheaper through a local provider once that provider's hidden costs are added, two different answers from the same combined method applied to each group's own distances.

07Quick check
  • The in-house-versus-provider, network-shape and true-cost decisions must be run together, on the same shared figures.
  • A distribution setup with several shop groups or regions can need the checks run separately per group before combining results.
  • A hybrid plan is exactly where combining the checks correctly matters most, since each part can have a different right answer.
  • Deciding one factor in isolation risks an answer that does not actually fit the other two.
  • The combined method does not depend on which party in the chain, factory or buyer, is making the distribution decision.
  • Running the checks group by group, on shared figures, produces one workable hybrid plan instead of three disconnected answers.
08Workplace scenario

Cedar & Co.'s owner asks Delta Garments whether the same in-house delivery used for the 8 nearby shops should simply be extended to the 4 distant shops too, to keep things simple

Cedar & Co.'s owner asks Delta Garments whether using its own delivery truck for all 12 shops, nearby and distant alike, would be simpler than running two different arrangements. The facts in front of Delta Garments:

  • The 8 nearby shops' own in-house delivery cost is USD 0.35 per piece, already cheaper than a provider's USD 0.55 there.
  • The 4 distant shops' own in-house delivery cost is USD 1.15 per piece at their smaller, distant volume, higher than a local provider's true comparable cost of USD 0.92.
  • Extending in-house delivery to the distant shops would mean sending Delta Garments' own truck 600 km each way, well beyond its usual nearby route.

The question relayed to Delta Garments:

Cedar & Co., owner's question. "Since our own truck already works for the eight nearby shops, why not just use it for all twelve and keep it simple?"

Should Delta Garments extend its own in-house delivery to the 4 distant shops as well? Decide before you open the decision.

Show decision

No, extending in-house delivery to the 4 distant shops should not happen; the local provider's true comparable cost of USD 0.92 per piece is cheaper there than the in-house cost of USD 1.15.

Two facts decide this. First, this lesson's own method runs the checks per group, not once for the whole setup, and the distant group's own smaller volume and greater distance change which option is cheaper compared with the nearby group. Second, the trap warns against applying one answer everywhere out of habit; "simple" is not the same test as "cheaper," and the nearby group's own in-house answer does not automatically transfer to a group with different figures.

A hybrid plan, in-house for the nearby shops and the local provider for the distant shops, costs less overall than forcing one single arrangement onto both groups.

09What it costs

Forcing in-house delivery onto the 4 distant shops instead of using the hybrid plan would cost Delta Garments about USD 920 more a month

In-house cost for the 4 distant shops, at their own smaller monthly volume of 2,000 pieces: 2,000 × 1.15 = USD 2,300 a month
Local provider's true comparable cost for the same 2,000 pieces: 2,000 × 0.92 = USD 1,840 a month
Extra cost of forcing in-house delivery onto the distant shops: 2,300 − 1,840 = USD 460 a month for that group alone
On top of this, the nearby group's own answer does not change, so the total extra cost of abandoning the hybrid plan is about USD 460 to USD 920 a month depending on how volume is split between groups

The USD 460 to USD 920 range reflects how the distant group's own monthly volume can vary month to month; the underlying method, comparing each group's own true costs before combining a plan, is what keeps this cost visible instead of hidden inside a single, simpler-looking but more expensive arrangement.

10Working template

Distribution network and 3PL decision tool: run the in-house-versus-provider, network-shape and true-cost checks together, group by group

Use the T24-C05 Distribution network and 3PL decision tool. Enter each shop group's own volume, distance, in-house fixed and variable cost, and any provider's quoted rate and hidden costs; the sheet runs all three checks per group and combines them into one recommended hybrid plan.

[Download the Distribution network and 3PL decision tool](../../templates/T24-C05-distribution-network-and-3pl-decision-tool.xlsx)

Download the Distribution network and 3PL decision tool (Excel)

11Check yourself

1. Why must the in-house-versus-provider, network-shape and true-cost checks be run on the same shared figures?

2. A distribution setup has one nearby shop group and one distant shop group with very different volumes. What does this lesson recommend?

3. Cedar & Co.'s owner wants one single arrangement for all 12 shops to keep things simple. What does this lesson's workplace scenario conclude?

12Glossary
ENARFRTRMeaning
Break-even volumeحجم التعادلVolume d'équilibreBaşabaş hacmiThe volume at which running an in-house distribution centre costs the same as paying a third-party logistics provider; above it, owning is cheaper, below it, paying is cheaper.
Distribution network shapeشكل شبكة التوزيعForme du réseau de distributionDağıtım ağı şekliThe number and arrangement of stops goods pass through between the factory and the shop that finally sells them.
True comparable costالتكلفة الحقيقية القابلة للمقارنةCoût réel comparableGerçek karşılaştırılabilir maliyetThe quoted rate plus every hidden cost, giving a figure that can be fairly compared against an in-house operation's own fully loaded cost.
Regional hubالمحور الإقليميPlateforme régionaleBölgesel merkezA smaller stock location serving a group of nearby shops, sitting between a central distribution centre and the shops themselves.
Third-party logistics providerمزود الخدمات اللوجستية الخارجيPrestataire logistique tiersÜçüncü taraf lojistik sağlayıcısıA company paid to store and ship goods it does not own, instead of the buyer building and staffing its own warehouse.
13Next

Course complete

This is the final lesson of Course 5. You have completed all four decisions that make up a distribution and 3PL system: whether to run distribution in-house or through a provider, the network shape for export and domestic orders, a provider's true comparable cost, and now the complete tool that connects them. Back to the course map

14Ladder

RecognizeName the three checks this course teaches and the order in which this lesson combines them.
ConnectSee why running them on shared figures, group by group, matters.
CompareTell a workable combined plan apart from three disconnected single-factor answers.
DecideJudge a complete hybrid distribution plan for a setup with more than one shop group.