Distribution - Supply Chain Management

Distribution is defined as the steps taken to both move and store a product from the supplier to a customer stage in the supply chain. Distribution takes place between every pair of stages in the supply chain.

distribution is a key driver for the profitability of a business because it affects the supply chain cost and customer value directly.

the appropriate distribution network can be used to get a variety of supply chain objectives.

there are various design options that an organisation can use for a distribution network. Firstly, two major decisions need to be made by the manager when designing a distribution network. The first decision is whether the product will be delivered to the customers location or picked up from a sight that has already been prearranged? the second decision is whether the product will flow through an intermediate location or intermediary?

Once a manager has decided on one or the other, he/she can have six distinct distribution network design to choose from to move products from the factory to the customer.

1. Manufacturer storage with direct shipping

Another name for this design option is “Drop- shipping”. With this option, a product is shipped directly from the manufacturer to the end customer, without passing through the retailer.

with this option, the retailler does not carry any inventory. the retailer acts as an intermediary and passes the information from the customer to the manufacturer.

This option offers the manufacturer the opportunity to postpone customisation until after a customer has placed the offer. Inventory costs are low and transportation costs are high because manufacturers are far away from the customers. A customers order can include items from many manufacturers, and will involve various shipments to the customer with this design option.

Drop-shipping has many advantages, but the greatest advantage is that it is able to centralize inventories at the manufacturer, this in turn can total demand across all the retailers that it supplies. because of this, the supply chain is able to provide a high level of product availability with lower levels of inventory, as retailers don’t carry inventories.

A disadvantage with Drop shipping however, is that the ownership structure of the inventory at the manufacturer.