Distribution, logistics and the supply
Getting products to customers in the right place and at the right time.
A channel of distribution shows how a product gets from producer to customer. There are two alternatives:
a) direct selling
(producer selling directly to customers).
b) using distributors
(producer selling to customers via wholesalers and/or retailers)
Distribution is closely related to logistics, concerned with transporting supplies to customers on time and in the
right quantity and quality.
This is part of the supply chain which looks like:
Suppliers (of raw materials) to..
Distributors (retailers/wholesalers) to...
What to consider in the supply chain
1. Customer delight
The supply chain should be seen as a complete system consisting of interdependent activities (like purchasing,
production, delivery to customers and transportation) with the overall aim of delighting
customers (particularly to ensure product availability, quality and customer service).
So it should be co-ordinated and flexible (adapting well to changes
in customer requirements).
The costs of the supply chain should be minimized without sacrificing quality and customer satisfaction –
a) stock (or inventory) control
Minimizing stocks of goods and materials without affecting product availability.
This is linked to the idea of just-in-time – see total quality management.
b) economies of scale
Benefiting from the cost advantages of large scale production (e.g. assembly line production and discount
Producing and purchasing in low cost countries like China and India.
- minimizing travelling distances (using distribution depots).
- using the cheapest form of transport (unless speed is vital e.g. air travel).
Using outside companies to carry out certain managerial activities (e.g. transport and IT services).
f) close supplier relationships
(to ensure they deliver the right quality and quantity on time).
Deciding upon the location and number of depots and factories and
making sure they are run effectively.
3. Choosing a channel of distribution
Unless they decide to sell their products directly by mail order or direct customer contact, producers will have
to use distributors (wholesalers/retailers).
Factors to consider are:
a) product and size of the retailer
Big retailers like supermarkets buy direct from the producer (or manufacturer), whilst small stores use
b) expertise of the distributor
The distributor should have:
- market and product knowledge.
- enthusiasm for the product.
- the ability to sell it well.
The producer wants as much control as possible over how effectively its products are sold (so car makers often
have exclusive dealerships).
d) customer service
Retailers are usually best able to deliver what customers want (value, quality, convenience and product
e) buying trends
In recent years out of town shopping centres and Internet sales have
Producers (particularly smaller ones) use overseas agents to sell their products abroad.
g) producer relationships with distributors
These should be long-term and based upon mutual trust and
sensitivity to each other’s needs.
4. Vertical integration
This is a producer buying its suppliers (backwards integration), or retailers/wholesalers
Since the 1990’s this has become less popular.
Key quotes explained
“Battles, campaigns and even wars have been won or lost primarily because
- Dwight D. Eisenhower, American
president and general (pictured right)
His fellow American general in World War Two, George Patton, also believed that supplies of
materials (food, equipment, etc.) are at least as important as strategy.
“A little neglect may breed mischief. For want of a nail the shoe was
lost; for want of a shoe the horse was lost; and for want of a horse the rider was lost”
Franklin , American politician and
businessman (pictured right)
Inadequate supplies, however small, are disastrous.
“Retail is detail”
Schultz (founder and boss of Starbucks,
Attention to detail is important in every part of the supply chain
But it is particularly important in retailing where customers appreciate even small improvements in service
(e.g. Schultz re-introduced coffee grinding in Starbucks stores for coffee aroma).
Best books and articles
Hau Lee (pictured right) , The Triple-A Supply Chain (2004 Harvard Business Review
The 3 A’s describe the characteristics of excellent supply chains:
Quickly responding to short-term changes in demand or supply.
Adjusting to different customer requirements and external changes (political, economic, social and
Effectively combining all the supply chain’s activities.
Yossi Sheffi (pictured
right), The Resilient Enterprise (2005)
The best supply chains are:
- resilient (recovering quickly from major unforeseen changes like changes in demand)
- dependent on motivated and skilled employees.
James Womack (pictured
top), Daniel Jones (pictured middle) and
Daniel Roos (pictured bottom), The Machine That Changed the
This book describes Toyota’s supply chain, once widely admired for its:
- effective combination of its activities (e.g. production and purchasing).
- close supplier relationships.