Distribution and channel management is a vital part of a company and the quality of such plays a huge role in the success of said company. I will evaluate this importance based on various topics covered in lectures and readings along with further in depth analysis. When managing the distribution of a product or service one area that must be reviewed is the Supply Network. A supply network is “an interconnection of organisations which relate to each other through upstream and downstream linkages between different processes and activities that produce value in the form of products and services to the ultimate customer.” When it comes to managing this, decisions must be based from the speed, cost, flexibility and quality of the network. Further management of a supply network categorically involves the management of both upstream and downstream relationships with suppliers and the valued customers to ultimately deliver to the preferred customer value at as low of a cost as possible. The success of correctly managing the upstream and downstream relationships will aid the company achieving desired objectives. These objectives include satisfying the end customer from which the only real value is obtained, and aligning and integrating the whole supply chain, which whittles down to transparency costs and logistics systems. (Paul Davis, 2017)
As competition within companies is becoming more and more about supply chain versus supply chain, distribution management must really devote time to decide what the best route to take is in regards to their overall supply network. This is where outsourcing may come into play. The company must evaluate their activity and decide whether or not to keep the function ‘in-house’ or to outsource. Suppliers will submit bids and the company must choose if it is more desirable than the internal option. The effect of outsourcing and all its attributes is excellently highlighted in the work of Thomas & Wilkinson, Outsourcing Compulsion. The article insists that in todays world the vast majority of consumer products that are sold, distributed and controlled by entities other than the actual manufacturers. This may result in the manufacturers having little to no control over the products being sold. Companies can become forced into overseas outsourcing, as they believe it is the only way to grow the company. This is why managing a good supply network is vital for overall Distribution and channel management. Companies feel they must chase the cheapest inputs and labour to retain market value. To break free from the outsourcing compulsion, companies can explore new distribution channels to achieve more control of their supply network. (The Outsourcing Compulsion, 2006)
Distribution and channel management is also important as it involves Distribution network design. This network design is vital as it refers to steps that are taken to move and store products from suppliers and then progress them on to the customer on the supply chain. Distribution is one of, if not the most important key in overall success of a company. It has an influence on both the valued customer experience along with the supply costs. Competitors within the same industry may opt to go with different distribution networks, which is why this is a very important factor to address.
When managing the distribution network design, there are a number of factors that will influence the decision. When this is being evaluated, there are two dimensions by which the decision may stem from, these are customer needs that are met and the cost of meeting such needs. The customers needs will strongly influence the company’s revenue and profit, the distribution network will determine if these needs are met. The influential measures include response time, customer experience, and product variety to mention a few. As customers and consumers alike strongly look out for these measures, it becomes a necessity for companies to priorities these variables. Hence, why Distribution and channel management as a whole is so vital. The company must decide if they want to focus on customers who can tolerate long response time or those who value short response time. This decision will then impact the company’s facilities in terms of locations, thus affecting costs such as logistics. When designing the distribution network, the company has a number of choices. The first choice stems from two key decisions, will product be delivered to customer location or must the consumer collect it, and will the product go through an intermediary. Following this decision, there are six distribution network designs:
1. Manufacturer storage with direct shipping
2. Manufacturer storage with direct shipping and in-transit merge
3. Distributor storage with carrier delivery
4. Distributor storage with last mile delivery
5. Manufacturer or distributor storage with consumer pickup
6. Retail storage with consumer pickup
When it comes to the decision, it may be of interest to the company to go for a network with local storage to keep costs low in deliveries while increasing response time. (Designing the distribution network in a supply chain, 2003)
While this topic can be a vital part of the Distribution system as a whole, is it as efficient as it could be? I would argue that the case of a company experiencing waste as a result of this design should be mentioned. The limited six network designs may not be applicable or even fully functional to all companies in the real world and especially in this modern generation. So smaller organisations may feel like they must base their network off one of these factors, even though it may not suit their systems.
For all of this to work significantly, Distribution management must develop Network Planning. When making network design decisions, there are a number of factors, which may have an influence. Factors that can influence include:
These factors act as a baseline for organisations to map out their actual network. Companies that turn their focus to cost leadership would aim to find the lowest cost in manufacturing facilities. Thus, the companies’ strategies may beckon to facilities of low cost zones. The same goes in terms of macroeconomic factors, a company may be hesitant to work with overseas relationships due to various taxes and exchange rates. The chosen network planning may also depend on each company’s competitive environment. If there is a vast presence of competition, this will in turn affect how a company would like to design their overall supply chain.
These factors lead into the discussion of whether or not warehouse storage can add sufficient value to a supply chain. Warehousing is used to join the point of origin and manufacturing to the consumption point. Using a warehousing strategy can sufficiently reduce lead times by limiting the actual inventory movement and improving accuracy of the inventory records, thus increasing inventory turnover. Depending on the nature of the organisations, warehousing can also enhance customer service if that is a high priority of said company. Companies can more accurately determine their own product availability while also providing more accurate delivery dates. While these advantages exist, I believe just simply does not suit all types of organisations therefore should be reconsidered when designing a network plan. Businesses on the lower spectrum simply would not benefit from warehousing even though in modern day they are almost expected to part take in this strategy, the main reason being cost implications. To determine the economic viability of implementing warehousing, a company must consider costs of hardware, software and retaining costs associated with warehousing. (Brien, 2017)
Network planning
is vital to Distribution management and great care must be taken in order to ensure maximum viability for the company.
Another implication of Distribution management that highlights its importance is both the Lean and Just-In-Time models. Lean tends to be the philosophy of working that aims to put quality, harmony and flow at the very foundation of a company, while JIT refers to a production system that aims to reduce waste. These two models are seen as key in terms of distribution, although they have seen their criticisms in respect to how they functionally apply to the world. The Lean approach overall function is to eliminate waste that does not add value to the end customer. Lean approaches, such as JIT, do not allow for much margin of error. Yes, eliminating waste that does not add value to excel in performance is important, however such perfection may not be viable in some situations. While the Lean supply focuses on ensuring efficiency through eliminating waste, it may in the process neglect other important aspects in the overall network and organisation such as Corporate Social Responsibility. (Brighthub Project Management, 2017)
Distribution management must understand that implementing the Lean supply model without considering the network system as a whole may not be beneficial, as savings in distribution must be weighed against costs in manufacturing. (Womack and Jones 1996, Holweg and Pil 2004).
In conclusion, it is clear to see from research that Distribution and channel management is extremely important when it comes to selecting a supply chain network. However, these textbook strategies and topics have room for criticism in respect to the real world and how they can efficiently apply to it and organisations must be wary of this when making distribution and channel decisions.