Insight

Another Key Element in Supply Chain: Distribution

Raw materials are delivered earlier than required and are damaged, or finished products arrive too late to satisfy customer demand – both are potentially disastrous for business. This is why distribution is also important in supply chain! Distribution is essential to maintaining smooth communication between producers and customers.

What is distribution and what is the correlation between distribution and supply chain?

Distribution and Distribution Channels

Every pair of stages in the supply chain have distribution in between them. Distribution is part of the supply chain process that delivers products to customers. As distribution directly affects both the supply chain and the customer value, it’s a key factor in business’ profitability. Distribution can improve a company's reach, speed up response times, and even produce value-added services to customers.

Distribution channel is a method to deliver products or services to customers, involving manufacturers, wholesalers, and retailers. It is important to note that managing supply chains also involves choosing and monitoring distribution channels. Generally, there are 4 types of distribution channels that usually used by most businesses nowadays.

1. Wholesaler – buy products from manufacturers and then sell them to retailers and other businesses.

2. Retailer – buy products from the wholesalers and sell goods to the consumers.

3. Distributor – move products from the sources or manufacturers to authorized distributors.

4. Ecommerce – the newest and most disruptive method in which products are presented online before being delivered to customers.

Breaking Down the Importance of Distribution

1. Providing satisfaction

The marketing paradigm places a strong emphasis on generating revenue through customer satisfaction. Thus, distribution assists producers in the creation of new products in addition to helping with market research for the development and sales of products based on consumer needs and wants.

2. Improving Living Standard

The distribution function contributes to raising customers’ living standards in society. Customers are not only satisfied when necessary products and services are delivered to them quickly and at the appropriate time, but their standard of living also changes.

3. Value-Added

The importance of products is increased by distribution processes like transportation, warehousing, inventory management, etc. by generating place utility, time utility, and quantity utility. By delivering goods in the proper quantity, at the proper location, and at the proper time, the distribution mix contributes significantly to increasing the value of the products.

Distribution management is primarily concerned with planning every step necessary to deliver products to the customers on time and with the least amount of waste possible. As mentioned earlier, distribution has a direct impact on profits.

Why Business Needs Effective Distribution

Because efficient distribution is highly important, sub-discipline practices, like just-in-time inventory, have been incorporated into supply chain and inventory management. Overall, effective distribution requires a strong distribution management strategy supported by real-time information because it involves numerous moving parts and methodologies.

When a business has effective distribution, they will be capable to:

• Lower logistical costs

• Eliminate supply chain issues

• Meet delivery deadlines

• Improve customer experience

• Promote products to other markets and customers

Common Challenges in Today’s Distribution System

Distribution is crucial. Business can’t guarantee the best service without a role that monitors the manufacturers and customers. However, most distribution systems today are complex and outdated. Here are 5 common challenges in today’s distribution system!

1. Inaccurate Stock Management

Without an automated system, inventory needs to be manually tracked. It also would be difficult for the stakeholders to decide whether to restock if there was no digital record of the inventory.

2. Meeting Customer Demand

Customers expecting great customer service from distributors due to e-commerce adds extra work for them as they never worried about making customers happy in the way they’re being demanded now.

3. Manipulations in the Trade Scheme

Ironically, there’s a certain marketing strategy with no direct customer impact, allowing anyone to manipulate values without the customers being aware of it.

4. Complex Supply Chain Networks

The complexity of distribution supply chain networks increases along with changes in customer behavior. As a result, they demand to get exact delivery times rather than estimated delivery dates.

5. E-commerce

Manufacturers engaging in e-commerce are avoiding using wholesalers. As a result, distributors now need to fulfill orders from both direct customers and a small number of wholesalers.

Distribution is more than moving products. It serves as a link between producers and customers. It also identifies chances for market expansion and competitiveness, making an effective distribution as an essential component that every business must have, especially in today’s business environment. In addition, effective distribution can meet supply chain objective from low cost to high responsiveness. Thus, ensuring your business has an effective distribution system counts as a critical step in securing your business' success.

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