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 Cross docking strategy Centralised pooling and

strategy transhipment strategy

Traditional warehousing strategy

distribution centers and warehouses hold stock inventory
provide their downstream customers with inventory as
needed.
Cross-docking strategy
warehouses and distribution centers serve as transfer points
for inventory
no 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.Breakbulk
2.Repackaging
3.Assembly
4.Quality Inspection
5.Material Handling and Maintainance
6.Storage
 Centralized warehouse
Benefits:
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:

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

2. The firm is deprived of its potential market share

3. . It results in heavy transport costs unless each delivery is sizeable as the carrier has
to cover long distance.
 Decentralized warehouse
Benefits:
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

ƒ
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

A 25
30
1
9
7

8 B 15

20 2 10

C 10

supplies demands