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What Is Supply Chain Distribution?

Max Freedman
Max Freedman

Supply chain distribution is used to balance supply and demand.

Supply chain distribution refers to your methodology for getting products to consumers. With a formal distribution plan that's implemented rigorously, you reduce cycle times for product deliveries. There are four main distribution channels that a company can choose when looking for ways to best market their products. Options include direct sales, wholesale, brokerage, and dual distribution. For best practices, carefully choose your supply chain distribution partners. There are also tools to help manage your distribution channels like supply chain management software programs.

What is a supply chain distribution?

Supply chain distribution is the way in which businesses get their products to customers. Distribution plans largely depend on the financial and company goals of the business. An organization may choose to sell products directly to their clients while others use third-parties for distribution purposes. In order to be successful,  your supply chain distribution should be formalized through an organized plan.

[Read related article: Supply Chain Finance or Invoice Factoring: Which is Better for Managing Cash Flow?]

When creating the plan, the expectation is that companies will review the different distribution options open to them and choose the best option for their customer base and product line. Formal distribution plans reduce the cycle days between when a customer places an order to delivery. Supply Chain Management Review states that those who have an extensive distribution plan only take two days for order fulfillment. In comparison, those without a distribution plan take 10 days. Supply chain distribution is used to balance supply and demand. Your distribution plan should be able to handle any type of market changes, including supply disruptions and demand increases.

TipTip: Create your supply distribution chain plan in a way that reduces the number of transactions needed to get a product from supplier to customer.

What is the difference between supply chain distribution and logistics?

In supply chain management, you'll often see the terms distribution and logistics used interchangeably. In reality, the two terms aren't quite the same (and neither one quite accounts for the increasing importance of transportation marketing).

Logistics

Logistics describes how products get from their origin point to the location at which customers buy them. It prioritizes efficient paths from warehouses and inventories to points of sale. It involves the following processes:

  • Materials handling
  • Supply and demand planning
  • Information flow
  • Supply chain security
  • Inbound transportation management
  • Outbound transportation management
  • Fleet management
  • Production
  • Network design
  • Order fulfillment
  • Third-party logistics (3PL) management, but only if you outsource your logistics processes

Distribution

Supply chain distribution is logistics in practice. If logistics is the process of figuring out how products will get from the manufacturer to the point of sale, then distribution describes actually getting those products where they're going.

For example, let's say your warehouse facility produces 100 units of the item you sell per day, and a nearby department store has placed an order of 300 units. Logistics is the process of determining how to get those 300 units to the department store in a timely, cost-efficient fashion. Once you've nailed that down, distribution is the act of successfully getting the order to the department store. Distributing your product will involve inventory management, packaging and warehousing.

What are the four channels of distribution?

There are four main channels of distribution in the supply chain. Each distribution channel may work well for one type of business but falter for another.

  1. Direct sales: Direct sales involve direct distribution from manufacturer to customer. Direct sales is best for products that have a mid-price point. The products should be affordable enough to have broad appeal. Direct sales also require that products sold have an extended shelf-life.

  2. Brokerage: Brokers work as a go-between for manufacturers and retailers. For instance, food manufacturers may hire a broker to sell their products to grocery stores. Brokers don't ship the products directly but handle the sale contracts.

  3. Wholesale: Wholesalers purchase products in bulk from the manufacturer to sell at a higher price point through resales. As a reseller, wholesale companies take on more of the risk if products don’t sell since buyers purchase directly from them.

  4. Dual distribution: For dual distribution, a company may use several strategies to get its products to customers. For instance, the company may decide to offer both direct sales and wholesale. Franchises are one business model that frequently uses more than one type of distribution channel.

Although there are four distribution channels, emerging technologies are changing the way products are getting to consumers.

The supply chain and distribution channel is not your daddy's supply chain and distribution channel anymore.

In fact, today's distribution chain is facing unprecedented changes that pose challenges and rewards to all participants in the supply and distribution trade.

Partners all along the "traditional" distribution and supply chain channel are being challenged by new entrants into supply and distribution markets across many industries. The waters have been muddied by the Internet and the introduction of consumers and end-users into supply chain distribution.

Did you know?Did you know? Successful distribution and supply chain management is characterized by a solid organization featuring a centralized hub supported by a satellite chain distributor. Picture it like the spokes of a wheel connected at the middle – the hub.

The "new" supply chain and distribution channel has several key components, which fall under the supply chain management "umbrella." These components include:

  1. Distribution: The physical logistics of moving inventory along a chain of distribution.

  2. Inventory management: The entities that control how much is moved and where it is stored.

  3. Customers: identifying who the "real" customers are and keeping their loyalty despite all of the changes to the supply chain and distribution channel.

Plan the chain of distribution carefully

Manage your plan from within your chain, not from above. If you use statistics and historical data, you are not getting the whole picture. Talk to your partners and understand their needs using the traditional one-on-one approach. 

Choose your distribution chain players

Whom do you trust to make you successful? The answer should be your distributor partner. Not only is that partner a known commodity, but they can also provide business in the growing global market. Your newest partner could be half a world away, thanks to globalization and the new global economy.

Use supporting distribution chain management software

Technology has made supply chain management for distributors manageable and reliable. Supply chain management software helps in planning, projecting and implementing the chain of distribution.

  • Plan and implement a supply chain and distribution program, understanding the role of each player along the distribution channel, including the "new" global community and the changing face of end-users.

  • Research the tools and training needed to have a successful supply chain distribution strategy.
Image Credit: shironosov / Getty Images
Max Freedman
Max Freedman
business.com Contributing Writer
Max Freedman is a content writer who has written hundreds of articles about small business strategy and operations, with a focus on finance and HR topics. He's also published articles on payroll, small business funding, and content marketing. In addition to covering these business fundamentals, Max also writes about improving company culture, optimizing business social media pages, and choosing appropriate organizational structures for small businesses.