Distribution Management
The supply chain process that ultimately delivers goods to end-users or consumers
What is Distribution Management?
Distribution management is part of the supply chain process that ultimately delivers goods to end-users or consumers. Managing distribution is essentially managing the movement of goods, whether it be from a wholesaler to a retailer or from a retailer to a consumer.
Distribution management focuses on the timely delivery of goods and prevention of loss (such as ensuring delivery of perishable goods without spoilage) through distribution channels. It is part of the larger logistics system that includes the planning and creation of processes for managing supplies of goods and transport. It involves several aspects, such as packaging, routing, warehousing storage, and fleet management.
A distributor may be any individual or business that delivers goods to a customer. For example, a pharmaceutical company is a distributor of products to pharmacies, while an e-commerce business, such as Amazon, is a distributor of goods to consumers.
Effective distribution management reduces shipping costs and delivery times and increases customer satisfaction.
Summary
- Distribution management is essentially managing the movement of goods, whether it be from a wholesaler to a retailer or from a retailer to a consumer.
- Different distribution channels are concerned with the delivery of goods to different types of entities along the supply chain.
- Some of the factors that distribution management must consider include things such as variations in the level of buyers’ demands, shipping optimization, and potential causes of shipment delays.
Distribution Channels
Different distribution channels service different points or entities along the entire supply chain that extends from raw material suppliers and manufacturers all the way to consumers or other end users. The various distribution channels have to consider different factors that can affect efficient distribution.
Wholesale distribution channels are business to business distribution channels charged with delivering goods from raw material suppliers or manufacturers to wholesalers. For example, oil companies must move their product to oil refining companies.
Retail distribution channels are concerned with the delivery of goods from wholesalers to retailers, such as a cosmetics company delivering goods to various retail stores.
Exclusive distribution channels are those that deliver goods from a manufacturer only to specifically authorized or designated customers. For example, auto manufacturers deliver their cars to authorized dealers.
A relatively new distribution channel is that of e-commerce, represented by entities such as Amazon or eBay. The direct delivery of goods to consumers through e-commerce websites has led to a number of changes in distribution methods. For example, Amazon has numerous order fulfillment centers from which it can arrange to have goods shipped to customers. It enables it to offer a more timely delivery service than would be possible if all goods were warehoused in and shipped from a single location.
What Affects Distribution Management?
The planning and operation of distribution must take into account a number of factors that can alter or affect distribution.
1. Buyers’ demands
The first is the variation in buyers’ demands. Throughout the year, buyers have different demand levels for goods. For example, the Christmas season sees an upsurge in consumer buying of all kinds of products. Therefore, companies need to plan for how to handle increased purchases, orders, and deliveries.
2. Shipping optimization
Shipping optimization is another factor that can impact effective distribution management. For example, it is more cost-efficient for a company to ship all of the goods going to one destination together, such as in a single truckload, compared to creating multiple, less than capacity shipments to the same destination.
Efficient shipping of perishable goods is always important for any business that handles such items because any losses through spoilage will negatively impact profits.
3. Other factors
In addition, there are a number of other factors that can impact efficient distribution and that distribution management needs to consider. They include such things as shipping delays that can be caused by vehicle accidents or breakdowns, airport delays, or delays related to severe weather events.
Potential changes in government regulations regarding transportation or shipping are another factor that distribution management teams must create plans for dealing with. Product recalls or packaging problems can also affect distribution. Buyers may derail efficient distribution by doing things such as making changes to orders or to the address for delivery of goods.
Because of all the various factors related to distribution management, managers must not only make careful distribution plans but also create a number of contingency plans designed to deal with problems in distribution that may arise.
Keep Learning
CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ program, designed to teach you all the knowledge and skills required to become a skilled credit analyst. The following CFI resources will be helpful in furthering your financial education and advancing your career:
