DISTRIBUTION NETWORK • Supply chain management is a complex process that involves various stages, from the purchase to distribution phase. • A very important aspect of this process is identifying the right type of distribution network . • The distribution network you choose can have significant impact on your company’s bottom line and the efficiency of your supply chain. Distribution Distribution is the process of making a product or service available for the consumers or business who needs it. It is a key driver for overall profitability of a firm because it impacts both the supply chain and the customer experience. What is Distribution Network A distribution network can be seen as the flow of goods from a producer or supplier to an end consumer. The network consists of storage facilities, warehouses, and transportation systems that support the movement of goods until they reach the end consumer. The process of ensuring the consumer receives the product from the manufacturer is done through direct sales or by following a retail network. What is Distribution Channel A distribution channel is the network of individuals and organizations involved in getting a product or service from the producer to the customer. Distribution channels are also known as marketing channels or marketing distribution channels. Types of distribution channels There are three types of distribution channels • Direct • Indirect • Reverse • Hybrid DIRECT CHANNELS In the direct channel, organizations sell directly to the customers. The sellers delivers the product or service directly to customers. In this channel, the vendor might maintain its own sales force or sell its products or services through an e-commerce. Direct approach may also mean lower costs for consumers because they are buying directly from the manufacturer. • INDIRECT CHANNELS The indirect channels use multiple distribution partners or intermediaries to distribute goods and services from the seller to customers. Indirect channels can be configured in the following ways: • Single-tier distribution model The manufacturers develop direct relationship with channel partners (retailer) that sell to the customer. • Two-tier distribution model The vendor sells to distributors that provide products to channels partners, which in turn, package products for the end customer. This model may be beneficial for channel partners that would have difficulty establishing direct sales relationships with large vendors. Reverse Distribution Channels • This type of network involves the returning goods from the end users back up the supply chain. • Examples include returning plastic bottles for recycling, items for refurbishment or disposal. Hybrid • This channel combine the characteristics of the direct and indirect channels. • An example will be a manufacturer selling an item on its ecommerce website, but then using an intermediary to deliver the physical product to the customer. The customer still has a direct interaction with the seller, but an intermediary is also involved. Example • Dell distributes its PCs directly to end consumers, while companies like Hewlett Packard (HP) and Compaq distribute through resellers. • Dell customers wait several days to get a PC while customers can walk away with an HP or Compaq PC from a reseller. Distribution Channel Intermediaries • Intermediaries are used in indirect channels to distribute, sell and promote goods and services. • Intermediaries are usually referred to as middlemen. • Examples include • Wholesalers (intermediaries between manufacturers and retailers. • Agents represent a person or entity and serve as an intermediary between buyers and sellers. • Brokers • Consultants connect distributors with intermediaries lower on the supply chain and give advice on how to distribute product effectively • Retailers (they buy from manufacturers or another intermediary and distribute to consumers through shops, grocery store or website). • Online marketplaces that connect buyers and sellers Importance of distribution channels • Distribution channels regardless of whether it is focused on using one mode or multichannel distribution can open or expand markets, exceed sales goals and increase a vendor’s bottom line. • Distribution channels can broaden portfolio of products and services available to customers • Meeting the customers' needs • The structure and size of the distribution networks you choose is dependent on the size of an enterprise or business. • Companies such as Amazon or Apple are likely to use a sophisticated and complicated distribution networks, transportation, and logistic systems. Elements to consider when designing an effective distribution network • Meeting the needs of the customers (customer satisfaction). We can satisfy customer by giving them an efficient/optimal cost. • Cost of meeting customer needs (Efficiency) • Company’s mission and goals (more cost driven or customer satisfaction) Elements to consider when designing network structure customer Service (Satisfaction) • Key customer needs that must be considered when designing are: • Response time/ lead time • Product variety/availability (order quantity) • Customer experience (convenience) • Order visibility • Returnability Response time is the period of time between a customer's order placement and delivery. Product variety is the number of different products / configurations that a customer desires from the distribution network. Availability refers to the probability of a product being in stock at the time a client places an order. Customer experience is the simplicity with which a customer may place and receive an order . Order visibility is the customer's ability to track their order from the time it is placed until it is delivered. Returnability refers to how simple it is for a client to return defective goods and how well the network manages these returns. Factors to consider when designing a distribution network (supply chain cost – Efficiency) Managers and SCM personnels should consider • Inventories • Transportation (costs and mode of transportation required) • Facilities and handling • Information Increasing number of facilities decreases the response time and transportation cost but increase inventory and facility cost. Benefits of a well-designed distribution network • It can help businesses reduce costs associated with warehousing, shipping and handling by optimizing routes for deliveries. • It can help improve customers satisfaction by providing faster delivery times and more flexible options for receiving products. Benefits of a welldesigned distribution network • It allows for wider customer reach because it opens up opportunities to reach other geographic areas. • It can help improve customers satisfaction by providing faster delivery times and more flexible options for receiving products. • Lutkevich, B., Shiao, D., & Moore, J. (2022, October 28). What is a distribution channel? types and examples explained: Definition from TechTarget. IT Channel. https://www.techtarget.com/searchitchannel/defin ition/distribution-channel Reference • Hamza, H. (n.d.). Distribution network design. LinkedIn. https://www.linkedin.com/pulse/distributionnetwork-design-hazem-hamza-cpim-scm • Distribution network. Corporate Finance Institute. (2023, May 29). https://corporatefinanceinstitute.com/resources/v aluation/distribution-network/ Distribution Network Designs • Traditional Multi-Tiered Distribution • Mixing Centers / Hubs • Distributors • Direct to Store Delivery • Drop Ship to Customer
