Effective Distribution Models In The Supply Chain

In the supply chain, distribution is considered the link that determines the success of bringing products from manufacturers to consumers. Understanding distribution models and applied strategies will help businesses build a flexible and efficient supply process, while meeting the diverse needs of the market. In this article, RX Tradex will analyze in detail popular distribution strategies and models, thereby providing an overview of the role of distribution in the supply chain.

1. What is distribution in the supply chain?

Distribution in the supply chain is the process of managing the flow of goods and services from the manufacturer to the final consumer. This process includes activities such as storage, shipping, order processing, inventory management, and product distribution to retail points of sale or direct consumers. This is an extremely important link in the supply chain, ensuring that products are brought to the right place, the right person and at the right time.

2. Strategy of each distribution channel in the supply chain

The strategy of each distribution channel in the supply chain plays an important role in optimizing business efficiency and meeting market demand.

2.1. Direct delivery strategy

In this strategy, businesses directly provide products or services to customers without going through any intermediaries.

• Advantages: Control the entire distribution process, directly approach customers, optimize profits because they do not have to share with intermediaries.
• Applicable strategy:

• E-commerce: Businesses use online platforms to sell directly to customers.
• Selling through genuine stores: Businesses open a chain of stores or showrooms to display and sell products directly.
• Private Delivery Service: Optimize shipping and fast delivery services to enhance the customer experience.

2.2. Distribution strategy through intermediaries

Intermediary distribution is a strategy in which businesses use agents, retailers, or distributors to get products into the hands of consumers.

• Advantages: Taking advantage of an extensive distribution network, reaching more customers, reducing operating costs.
• Applicable strategy:
  • Omni-channel distribution: Combining traditional retail channels and online sales channels to reach a diverse group of customers.
  • Promote relationships with large agents and distributors: Create close relationships with intermediary partners to ensure a stable supply of goods and expand the market.
  • Attractive discounts and incentives for intermediary channels: Create incentives for sales agents through good discount policies, thereby increasing sales.

2.3. Selective distribution strategy

This strategy focuses on distributing products across a limited number of distribution channels to maintain service quality or high-end brand positioning.

• Advantages: Maintain high control over product quality and brand image, creating scarcity and value for products.
• Applicable strategy:
  • Choose the right distribution partner: Choose partners who are able to provide high-quality services and align with your brand vision.
  • Ensure consistency in customer experience: Establish standards for display, sales, and after-sales service to maintain credibility.
  • Limit the number of points of sale: Focus on certain premium stores or distribution channels to create exclusivity for the product.

2.4. Wide distribution strategy

This strategy is used primarily for fast-moving consumer goods (FMCG), which focuses on getting the product to as many points of sale as possible.

• Advantages: Increase customer reach, quickly occupy the market, increase sales.
• Applicable strategy:
  • Create extensive cooperative relationships: Sign contracts with many agents and retailers to expand the distribution network.
  • Optimize logistics: Enhance transportation efficiency and inventory management to ensure products are always available at points of sale.
  • Synchronized promotion campaigns: Implement promotions and ads across the board to drive brand awareness and stimulate demand.

2.5. Hybrid distribution strategy

This strategy combines direct and intermediary delivery to take advantage of the advantages of both methods.

• Advantages: Ensure flexibility, reach many different customer segments, optimize costs and profits.
• Applicable strategy:
  • Channel allocation by geographical area: Combine direct distribution in areas with high purchasing power and through intermediaries in other regions.
  • Combining online and in-person sales: Businesses can sell through websites or e-commerce platforms, while maintaining traditional sales channels.
  • Customize the strategy for each customer segment: Depending on the customer’s needs and shopping behavior, choose the right distribution channel.

3. Distribution models in the current supply chain

3.1. Manufacturers store and distribute directly

This is a model that does not go through the retail channel, but the product is sent directly from the manufacturer to the consumer or ordering units. The manufacturer ensures the ability to meet diverse needs from different orders, maintains a wide product range and availability.

Advantage:

• Provide good service with low cost of production and handling of goods.
• The manufacturer has complete control over the quality of the product without having to go through intermediaries.

Shortcoming:

• It requires a large investment in information systems to effectively manage and maintain the ability to supply goods continuously.
• The cost of product recalls is high, and the production process can be prolonged.
• Orders are often broken down due to heterogeneous completion times from different manufacturers.

3.2. Visitors come to collect directly from the storage manufacturer

With this model, the goods are stored at the manufacturer’s warehouse and the customer will come to pick it up directly at a specific location, usually after ordering online. This method helps reduce distribution costs by eliminating transportation.

Advantage:

• Save delivery costs due to customer self-pickup.
• Suitable for businesses with an existing network of stores or pick-up points.

Shortcoming:

• Requires a large investment in infrastructure and order tracking systems.
• Close coordination between retailers and logistics systems is required to ensure efficient operation progress.

3.3. Forms of delivery through the consolidation center

In this model, products from the manufacturer are concentrated in consolidation centers, managed by third parties or retailers. The goods are then delivered to the final consumer through the center’s transportation system.

Advantage:

• Ability to consolidate goods from multiple sources and optimize storage costs.
• Reduce the burden of investing in infrastructure for businesses.

Shortcoming:

• High requirements for information systems to track and manage goods.
• The overall cost of the chain can increase due to intermediaries.
• Order processing times are long and it is difficult to recall products when there are problems.

3.4. Last-mile delivery through a storage distributor

In this model, goods are stored at the warehouse of the distributor or retailer. Customers can pick up in person or order online for quick pickup.

Advantage:

• Fast order processing time, meeting immediate consumer demand.
• Low delivery costs thanks to the use of the available distribution system.

Shortcoming:

• The cost of storing goods at the distributor’s warehouse increases.
• The product variety is lower than other models.
• High standards of service quality from retail partners and the use of an effective warehouse management system.

3.5. Package delivery from the storage distributor

In this model, goods are stored at the warehouses of distributors and retailers, then delivered in the form of packages in large volumes. Although the amount of goods stored at the distributor’s warehouse is smaller than that of the manufacturer, it still meets the needs of the market.

Advantage:

• Faster delivery times due to the close proximity of the distribution warehouse to the customer.
• The ability to process and recall products quickly thanks to the availability of goods at storage points.

Shortcoming:

• Requires large investments in infrastructure and equipment maintenance.
• The cost of operating and managing the warehouse is higher, and a strict control system is needed to ensure efficiency.

4. Difference Between the Role of Distribution in Supply Chain and Logistics

In supply chain management, the terms “distribution” and “logistics” are often used interchangeably. However, although they are closely related, they are not exactly the same. The role of transportation marketing is also becoming increasingly important in optimizing supply chain processes.

Logistics focuses on the process of moving goods from the place of production to the final point of consumption. This includes optimizing routes from the warehouse to the point of sale, while ensuring efficient end-to-end supply chain management. Logistics-related activities include: material handling, supply-demand planning, information management, supply chain security, domestic and international transportation management, fleet management, manufacturing, network design, order fulfillment, and outsourced logistics (3PL) management where applicable.

Distribution in the supply chain, on the other hand, is a more practical and specific aspect of logistics. If logistics determines how products are transported from the manufacturer to the point of sale, distribution is the process of efficiently carrying out that transportation and ensuring that goods arrive at the right place at the right time. For example, when a grocery store orders 300 products, the logistics department will look to optimize shipping costs, while distribution will include tasks such as inventory management, packaging, and warehousing so that orders are delivered accurately and in a timely manner.

5. Conclusion

Thus, choosing the right distribution model is not only a decisive factor for the competitiveness of businesses but also a key factor to optimize the entire supply chain. The smooth coordination between distribution and logistics will help products reach consumers quickly, accurately and meet the maximum market demand. Through this article, RX Tradex hopes to provide you with the basics of distribution models in the supply chain and their importance in business. To explore more deeply about advanced solutions and technologies to optimize the supply chain, opening up opportunities to participate more deeply in the global supply chain, do not miss the opportunity to participate in the Vietnam Manufacturing Expo organized by RX Tradex Vietnam,  will take place from 07-09/08 at the I.C.E, Hanoi.