In today’s business climate, the speed of moving goods through the distribution center is a critical function. This important link in supply chain management serves as a resource network of products for multiple sources. Whether known as distribution centers, warehouses or throughput centers, business profit relies on getting goods to stores on time and in the right amount. The accuracy of this process depends on efficient processes within the distribution center.
In its basic form, distribution provides the inlay between the manufacturer and the seller of a product. After making a product, the manufacturer usually sells it to a distributor where one of two things can happen. Either the customer orders the product directly from the distributor through a catalog or online. Or, the distributor sells the product to retailers who sell it to the customer.
In addition to promoting, pricing and managing the product, distribution is a key element of marketing. Distribution has always related to questions of logistics: how to get a particular product to customers. Some may consider distributing the product on a wholesale basis; others may opt for multi-level marketing or a retailer. As the end point of the supply chain, decisions of selling the product directly or through other channels are important to resolve.
Managing and monitoring distribution channels are vital elements of supply chain management. Similar to how businesses manage their sales department, each level of the distribution chain plays an important role. Even when utilizing a mix of distribution channels, how each are managed can directly impact the success of the product.
Decisions about the extent of a distribution channel should be well-informed and in line with business objectives. If the company wants a cost-effective solution, having a wide distribution of intermediaries might be the best decision. A vast majority of manufacturers cannot afford to sell their products directly to customers. Therefore, using intermediaries is the better choice to avoid transferring extra costs to customers. In these situations, the product might change hands several times before reaching the customer.
It is also important to remember that having several distribution channels means each level may want to benefit from the product. When several distribution channels exist based on the nature of the product or service, the manufacturer might benefit from selling directly to the customer through Internet or telephone orders.
In the realm of supply chain management, relationships between various levels of the distribution are also taken into consideration. Generally, there are three ways to describe relationships that may exist among different channels. First, the conventional channel relationship involves middlemen passing the products from the manufacturer to the end user. The next relationship is a single transaction where the channel is used for only one purchase. Finally, there is a vertical marketing system where disparate channels integrate.
Vertical marketing is one of the most recent developments in distribution. This concept unites the manufacturer, wholesalers and retailers into one channel. There are times when this happens because one member of the integrated channel owns the other (for example, when the supplier of designer jeans owns retail outlets).
The opposite is known as backward integration, where the retailer owns the supplier of a product. One example of this is a furniture retailer that manufactures a line of bedroom and living room sets. Another way to look at the vertical integration model is through a franchise such as fast food restaurants.
Management of distribution channels are often related to the costs. Practical matters, however, are based on customer control. There are some manufacturers that believe their role ends once a product is sold to the distribution channel. Despite selling the product, the manufacturer should also take a market-oriented approach to distributing the product. Management at every level until the product is in the hands of the customer is essential for long-term success.
Good things come in threes when it concerns distribution. Resellers of products are also broken down into three membership levels: intensive, selective and exclusive. Intensive distribution allows selling a product through multiple outlets. Resellers are responsible for stocking the product to make it available to customers.
As the name implies, selective distribution is used to sell the product through resellers who are carefully selected. Only a few resellers cover a specific geographical area. Typically, this membership is reserved for specialty products or designer goods.
The third membership type, exclusive distribution, is similar to selective distribution. However, the producer and distributor have entered into an agreement that only allows the distributor to sell the products. Customers desiring the product must come to the distributor.
Every distribution center should have several practices that helps keep operations at optimal levels. Errors are reduced, labor utilization is maximized and cycle time is improved. The lasting results are order accuracy and better service.
What works for one facility might not be the best practice for another. This is true even for companies that manufacture and distribute similar products. However, even with the best procedures in place, there is always room for improvement. Changing technologies and systems are always options dedicated to keeping distribution on top.
Advanced Shipping Notification
Typically, manufacturers can use advanced shipping notification to let receivers know a specific purchase order has shipped. Giving the receiver lead time on when to expect a shipment may help in planning for distribution and sales.
This process is usually carried out through a web-based module or via electronic data interchange. Often, this is one component of the entire warehouse management system. Managers can make staffing plans to make sure enough workers are available to handle the shipment.
When the facility has a limited number of dock doors, being able to plan in advance will help to increase dock utilization. There are situations where arrival times cannot be controlled. Flexibility is necessary on both sides to make adjustments as smoothly as possible.
Still, having the ability to schedule inbound shipment can make a huge difference. Randomly delivered shipments become a bed of confusion. Workers have too much idle time or too few are available to handle a large order. Advanced notices ensure shipments are handled appropriately.
System Directed Replenishment
Products that are not sent to a pick location immediately can follow a system directed replenishment system. Basically, this practice uses real-time information to determine the stocking condition for products and how much is picked during the next wave. Products are placed in an area where order pickers can have easy access when needed.
Vendor Compliance Program
Distribution centers can implement a vendor compliance program in conjunction with an advanced shipping notification system. This program is used to advise how products should arrive with conditions such as standard case quantities and labeling requirements. Integrating operational practices between suppliers and distributors helps to achieve maximum throughput and efficiency.
This collaborative effort enables suppliers to configure products for appropriate handling in the distribution center. Direct communication continues beyond procurement where any identified issues can be addressed.
Nowhere in the supply chain link can one system be designed and never evaluated for efficiency. Not only will customer requirements change, but other factors within the industry will also dictate the need for change. Review of customer requirements and other areas should occur every few months. The distribution channel should make changes accordingly.
Controlling the delivery and distribution of goods is essential to meeting customer needs. Not following sound practices creates confusion and logjam that only hurt sales. Businesses – both large and small – are able to accomplish sales goals with the right distribution channel in place. A good system becomes great when practices fit the business model for the product that is being moved from one place to the next.
Additionally, a good distribution channel will make use of technology wherever the system presents an advantage to meeting deliverables. Close monitoring helps distributors make necessary adjustments without interrupting the flow of goods.