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When making distribution decisions for a single item, there must be a systematic approach to determining the most cost-effective and efficient means of distribution. Three common options of warehousing and distribution are:
- Supplier provides storage and distribution, or direct vendor delivery (DVD) and manufacturer delivery — after the item is purchased, the supplier is responsible for storing the item and distributing it to the Postal Service client destination. The costs associated with storage and distribution are built into the purchase price for the item.
- Postal Service-provided storage and distribution, through the Material Distribution Centers (MDCs) or other Postal Service facilities — the Postal Service assumes responsibility for the item once it is purchased, provides storage and distribution of the item, and incurs the associated costs directly.
- Logistics service providers — third-party logistics (3PL) providers, Critical Parts Centers (CPCs), fourth-party logistics (4PL) providers, and virtual service providers. 3PLs provide logistics services under contract. 4PLs manage other logistics providers under contract. A virtual service provider assembles a number of physical logistics providers into strategic alliances that encourage sharing of their facilities to achieve the pooling of warehousing and transportation over a wide geographical area. It is possible to have a virtual purchase, a virtual transportation provider, and an integrated extended logistics enterprise hub. The Postal Service may contract with commercial logistics providers to store and/or distribute the item after purchase and then pay the providers for their services.
The storage and distribution costs associated with each of these options may differ from each other and may vary depending on the specific item. In addition, some items could potentially use a combination of these options. As a result, when purchasing an item, it is critical to evaluate the different viable storage and distribution alternatives and select the one that is most cost-effective and efficient. Cost-modeling tools are effective in this evaluation and selection. The Postal Service uses the Order Fulfillment Cost Analysis Tool (OFCAT) for making storage and distribution decisions in cooperation with Postal Service and 3PL transportation providers. The OFCAT is a cost estimation tool that can be used to evaluate postpurchase warehousing and distribution costs. Transportation allocations are addressed by the Transportation Solution Determination Process.
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