What Is a Distribution Network?
Let me explain to you what a distribution network really is. In a supply chain, it's an interconnected group of storage facilities and transportation systems that receive inventories of goods and then deliver them to customers. Think of it as the intermediate point getting products from the manufacturer to the end customer, either directly or through a retail network. In today's world where consumers expect instant gratification, you need a fast and reliable distribution network to keep up.
Key Takeaways
Here's what you should remember: A distribution network in a supply chain is that interconnected setup of storage facilities and transportation systems handling inventories and delivering to customers. It serves as the bridge from manufacturer to end user, directly or via retailers. Speed and reliability are non-negotiable in our instant-gratification society. Location close to customers and solid infrastructure quality stand out as two of the most critical aspects. You'll find various types like hub-and-spoke or decentralized networks that suit different products best.
Understanding a Distribution Network
I want to dive deeper into this. Developing an efficient distribution network is one of the most critical aspects for a company's success. It's part of strategic planning that gets products to customers quickly and efficiently, all while keeping costs low to boost profit margins.
The supply chain for goods can involve a wide-reaching distribution network, depending on the product and customer locations. A manufacturer might serve wholesalers, who then ship to retailer-operated networks, and finally, the goods end up in retail stores as the last link.
On the simpler side, a manufacturer could ship directly from its distribution network to end consumers. Location—being close to the customer—and infrastructure quality are key attributes. The storage, handling, and transportation at a site are tailored to the company's needs for serving a geographic area.
There can be high sophistication at a single site, and across the network, to handle order flows—whether it's large items like farm tractors or thousands of SKUs for retail. For the whole network, a company plans equipment, workers, IT systems, and transportation fleets. You have to decide if a hub-and-spoke model fits your business or if a decentralized one is better.
These networks come after manufacturing in the supply chain, covering the flow of goods and services, including all stages that put final products in consumers' hands.
Real World Examples
Establishing an effective distribution network requires a studied approach, especially in this e-commerce era where it's a critical asset. Take Walmart, for instance—with 190 distribution facilities as of 2020, they're investing more to build additional fulfillment centers to stay competitive.
As of July 2020, Walmart's network, including retail stores, covers 924 million square feet—that's larger than Manhattan, which is 661 million square feet. For efficiency, they divide it into categories like regional centers, food distribution, fashion centers, and more. This way, each center focuses on one product area, designed to deliver quickly and at low cost.
Amazon is another example, expanding with enormous robotically-controlled warehouses worldwide, plus their own trucking fleets and cargo planes. They've even talked about using autonomous drones for deliveries, which would innovate distribution.
As a global retailer, Amazon's network spans many countries—with 1,215 facilities in 21 countries as of July 2020. They break it down into prime hubs, fulfillment centers, inbound and outbound sortation centers, and delivery stations.
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