Distribution Strategies

Sudarshan Ku. Patel

PGDMA-1320

NAARM

Introduction• In business, distribution strategies are the process of making a company’s

product or service available to consumers either directly, through means such as an online website, an actual storefront, or the dreaded telemarketer, or indirectly, through multiple resellers.

• Important to the process are channels and intermediaries

• Intermediaries are organizations and individuals

• Channels are sets of these intermediaries, classified by how many there are between the producer and the consumer of a particular good or service

• Oftentimes, most organizations will use a mix of several different channels, so that they can reach a larger potential consumer base

Distribution Strategies

1. Intensive Distribution• A distribution strategy that sees a product sold in as many

outlets as possible; it is used primarily for goods that are appeal to a broad range of consumers, such as basic supplies, magazines, and snack foods.

2. Selective Distribution• This distribution method relies on fewer intermediaries, while

still maintaining a respectable amount, and is used primarily for more specialized goods, such as automobiles and computers.

3. Exclusive Distribution• A strategy wherein a business selects a limited few

intermediaries as partners; oftentimes these intermediaries will sell only that business’s products to the exclusion of everything else. This distribution strategy is typical of high end, luxury products, like sports cars and designer clothes.

Direct Shipping

• Method of distribution in which goods come directly from suppliers to retail stores

• The routing of each shipment & manager only need to decide on quantity to ship & mode of transportation to use

• It eliminates need of intermediate facilities e.g. warehouses & distribution centers

Advantages • Elimination of intermediaries • Saves time• Less Damage• Improved accuracy

Challenges• Large retail stores : It is justified if the retail stores are

large enough. With small size of retail stores cost increases.

• Higher costs : Due to system of direct distribution the costs of transporting the goods may be higher than other systems of distribution.

• Hassle for store personnel : e.g. more deliveries, paperwork, loading & unloading.

• No safety stock

Direct Shipping

Intermediate Inventory Points Distribution Strategy

• All channel strategies that involve one or more intermediaries to reach the end consumer are classified as the Intermediate Inventory Point Distribution Strategy.

• They are know as that because it essentially involves one or more additional stocking points as the distributors, retailers all carry stock.

• The selection of the channel partners are key functions in this strategy.

• Logistics from the producer’s point of view involves delivering the desired quantity of items to the first level distributor’s warehouse.

Distribution Strategies

Tradional warehousing strategy

Centralised pooling and transhipment strategy

Cross docking strategy

Traditional warehousing strategydistribution centers and warehouses hold stock inventoryprovide their downstream customers with inventory as needed.

Cross-docking strategywarehouses and distribution centers serve as transfer points for inventoryno inventory is held at these transfer points.

Centralized pooling and transshipment strategies may be useful when there is a large variety of different products

TRADITIONAL WAREHOUSING

• A traditional warehouse is a typical stock carrying unit of the supply chain. As far as distribution is concerned this is a place where the manufactured and ready-to-sell products are stored.

• Items are shipped to fulfill orders from customers (end customers or intermediaries). These warehouses are also called as distribution centers.

• Costs associated with a traditional warehouse include inventory carrying costs in addition to the facility costs and the transportation costs.

FUNCTIONS OF WAREHOUSES

1.Breakbulk2.Repackaging3.Assembly4.Quality Inspection5.Material Handling and Maintainance6.Storage

Centralized warehouseBenefits:1. It improves operating efficiency and inventory control is felt easier and effective

2. There is no need to carry large stock and there are no dangers of stock outs resulting in low level inventories

3. Transport facilities are optimally used as routing and scheduling becomes handy.4. The firm is better placed to meet the demand fluctuations from different market

segments at relatively short notice.

Drawbacks:

5. It results in loss of customer service due to spatial considerations and delays are caused.

6. The firm is deprived of its potential market share7. . It results in heavy transport costs unless each delivery is sizeable as the carrier has

to cover long distance.

Decentralized warehouseBenefits: 1. The firm serves the customers better positioning the inventory in their proximity. This is

the result of maximum time utility created by it.

2. The firm is likely to effect savings in freight charges because of bulk handling

3. It facilitates product movement by block rates

Drawbacks:

1. It adds to the administrative cost as the firm is to manage number of warehouses distantly located with the acute problem of maintaining high level efficiency

2. It calls for heavy investment as the firm is to hold inventory at different locations in larger lots.

CROSS DOCKING

Inbound goods transferred directly into outbound vehicles without being stored in DC

Disaggregate goods from one supplier to several retailers

Aggregate different goods from respective suppliers to one retailer

Economies of scale (both in- and out-bound)

Cont………….

CD is a distribution strategy in which shipments from inbound suppliers are moved directly to outbound vehicles, with very little if any storage in between. In the best possible situation, products never touch the floor or a shelf, though some amount of staging is often use.

Cross-docking favors the timely distribution of freight and a better synchronization with the demand.

Cross-docking is mainly dependent on trucking.

Cont…………….

Cross docking is the movement of materials from the receiving docks directly to the shipping dock.

Goods do not need to be placed in storage, creating a significant cost savings in inventory and material handling .

Reduces direct cost associated with excess inventory .

Reduces product damages and product obsolescence

TYPES OF CD

Two basic form of Cross Docking-

1. Basic cross dock: The packages are moved directly from the arriving vehicles to

the departing ones. This form of cross docking does not need a warehouse and a

simple transfer point is enough.

2. Flow Through cross Dock. When material arrive and they are in large packages , these

packages are opened and broken into smaller quantities , sorted consolidated to deliver them to different customer and transferred to vehicles.

CD

CD

CD

Typical applications

CONSOLIDATION ARRANGEMENT

DECONSOLIDATION ARRANGEMENT

ADVANTAGES OF CD

1. Helps to improve the speed of flow of the products

2.Reduce cost

a) Labour is removed from the job of storage

b)helps to eliminate the two most expensive distribution operations.

3. Helps to reduce the amount of finished goods inventory that is required to be maintained as safety stock

Cont………….

Minimization of warehousing and economies of scale in outbound flows (from the DC to the customers).

The costly inventory function of a DC becomes minimal, while still maintaining the value-added functions of consolidation and shipping.

Inbound flows (from suppliers) are thus directly transferred to outbound flows (to customers) with little, if any, warehousing.

Shipments typically spend less than 24 hours in the distribution center, sometimes < 1 hour.

Pre- and post-distribution

• In pre-distribution cross-docking, the customer is assigned before the shipment leaves the vendor, so it arrives to the cross-dock bagged and tagged for transfer. 

• In post-distribution cross-docking, the cross-dock itself allocates material to its stores. 

• For example, a cross-dock at a Wal-Mart might receive 20 pallets of Tide detergent without labels for individual stores.  Workers at the cross-dock allocate 3 pallets to Store 23, 5 pallets to Store 14, and so on

The Cross-docking requirements

• The systems for a successful cross-docking on a large scale include:

• automated material handling.

• warehouse management systems (WMS).

• order processing systems.

• quality controls systems.

• strong relationships between supply chain partners.

Automated material handling systems

• An automated cross-docking system typically consists of a series of conveyors for receiving and sorting cases.

• Barcode scanners read an identification code on each case to track the product through the cross-dock system and, based on information from a WMS or an order system, the automated system sorts the cases to trucks or pallets for shipping.

WMS

• Controlling the flow is critical in cross-docking.

• A WMS accomplishes this by receiving product information via WEB or EDI and keeping track of product movement.

• • It supports the real-time requirements of cross-docking,

receiving order details from customers and later informing them of the shipment's carrier and arrival date and time.

• The WMS also tracks warehouse performance, including labor and dock utilization.

Partner relationships

• Failing to establish a good working relationship with your supply chain partners can lead to failure in a cross-dock endeavor.

• The sharing of information, clear communication, confidence in the quality and conformance of goods, and product availability are a few characteristics that produce effective cross-docking

Constraints

• Cross docking requires a strong IT base and real time information sharing facilities.

• Is appropriate for appropriate for products with large predictable demands .

• Requires a great degree of coordination and synchronization between the incoming and outgoing shipments which ,in turn relies on better information and planning.

Milk Run

• A milk run is a route in which a truck either delivers product from a single suppliers to multiple retailers

• Multiple suppliers to single retailers.

Cont…

MILK RUN

STRUCTURE BENEFITS

• Reduces cost• Proximity to suppliers• Reduces inventory

Inventory Pooling

• Inventory pooling is similar to risk pooling.• It involves consolidating multiple DC’s to a single DC in order

to minimize uncertainty• Aggregation of demand reduces uncertainty• Inventory pooling helps reduce the average inventory holding• Average inventory increases in proportion to the square root of

the number of locations in which inventory is held.• Inventory pooling has a diminishing returns effect. Most of the

benefits occur by consolidating a few locations. Total pooling in most cases is neither necessary nor beneficial.

Distributed versus Pooled Inventory

The Impact of Inventory Pooling

Impact on safety stocks�Impact on cycle stocks

Impact on safety stock

Cont..

Conclusion…..

Impact on Cycle Stocks

Examples..

Cont…….

Transportation

• Transportation is the movement of goods from one location to another.

• Modes- air, rail, road, water, cable, pipeline• To find the best way to fulfill the demand of n

demand points using the capacities of m supply points.

• Generally a variable cost of shipping the product from one supply point to a demand point or a similar constraint should be taken into consideration.

Transportation & Transhipment

• A transportation problem allows only shipments that go directly from supply points to demand points. In many situations, shipments are allowed between supply points or between demand points. Sometimes there may also be points (called transhipment points) through which goods can be transhipped on their journey from a supply point to a demand point.

Cont………

• Supply point: it can send goods to another point but cannot receive goods from any other point

• Demand point It can receive goods from other points but cannot send goods to any other point

• Transhipment point: It can both receive goods from other points send goods to other points

Transhipment

• Transhipment is the shipment of goods or containers to an intermediate destination, then to yet another destination.

• Reasons for transhipments:-• Change the means of transport during the journey

(transloading)• To combine small shipments into a large shipment

(consolidation)• Dividing the large shipment at the other end

(deconsolidation)

Example……..

• Ex.- A container load of goods arrive at a port & get split & loaded in trucks to multiple destinations or the entire container can be loaded to a single truck bound for a specific destination.

Transportation problem

1

2

A

B

C

25

15

10

30

20

14

9

7

8

10

5

supplies demands