Effective supply chain distribution channels and models
Distribution in today's supply chain directly affects the process of delivering products to customers. Good supply chain management helps reduce the time between ordering and delivery. Let's analyze in detail the supply chain distribution models with 1C Vietnam in the article below.
1. What is supply chain distribution?
Distribution in the supply chain is the form in which businesses transport products to customers based on the company's financial goals and available resources. For example, many organizations choose direct distribution, while other businesses choose to distribute through a third party. Choosing the form of distribution is an important factor determining the success of a business.
A specific, detailed supply chain distribution plan plays an important role in providing a business's goods. Specifically:
- Reduce the time between ordering and delivery.
- Supply chains help balance supply and demand, helping businesses adapt quickly to market changes such as times of increased demand or interrupted supply.
2. Strategy of each distribution channel in the supply chain
Each supply chain will have 4 main distribution channels. Depending on the product category as well as business purposes, administrators need to build appropriate strategies for each channel. Refer to the specific strategy in the table below:
Distribution channel | Strategy |
Direct sales | Is a direct distribution channel from manufacturers to customers. Focus on selling products with mid-range prices. The product is attractive enough and has a long shelf life. |
Intermediaries | Commonly used in the food industry for sales to grocery stores. |
Business | Wholesalers will buy large quantities of goods from manufacturers and resell them at a higher price |
Dual distribution | Use multiple distribution channels at the same time to suit business goals |
3. Current supply chain distribution models
Currently, there are many distribution channel models applied by businesses. Each model has its own advantages and disadvantages. Let's find out now!
3.1 Manufacturer direct storage and distribution
The model refers to a non-retail form of distribution, focusing on requests from different orders, ensuring a high product range and availability from the manufacturer.
The advantages of this model are providing good service, saving production costs and reducing goods handling costs at retail stores. Besides, the manufacturer can also ensure the best product quality when it reaches the user because it does not go through any distribution intermediaries.
However, the direct distribution model requires the manufacturer to have a good information infrastructure to be able to provide to customers even when the product is stored at the production site. Besides, this form also has some disadvantages such as high product recall costs and long production process.
Normally, orders will be received from retailers to be sent to different manufacturers. This leads to the situation of splitting orders for delivery due to different completion times.
3.2 Customers come to pick up directly from the storage manufacturer
With this model, goods will be stored at the manufacturer's warehouse and customers will pick them up at a designated location, usually via online orders. The costs of this form of supply chain distribution are often kept low for manufacturing units because no delivery vehicles are used.
However, this model requires high infrastructure investment costs due to the delivery location. This model is suitable for manufacturers that already have convenience stores and grocery stores that can be used as pickup locations. In addition, direct pick-up by customers also requires close coordination between retail units to provide order tracking progress.
3.3 Delivery method through consolidation center
With this model, manufacturers typically send products to a consolidation center. The center is typically operated by a third-party contractor or retailer. The order will then be delivered to the end user through the separate delivery method of the unit in charge of the center. This supply chain distribution method is suitable for businesses that do not want to invest in warehouses and infrastructure.
The advantage of this order is the ability to consolidate goods and delay orders. However, this model requires higher investment in information systems as well as cooperation with retail partners. Besides, the costs of the whole chain will increase while delivery costs will be low. The time to complete the application will also be longer than other forms and recovery will also be more difficult.
3.4 Last mile delivery through storage distributor
In this model, retailers will store goods in separate warehouses, customers will go directly to the retailer to pick up or order online. This form of product delivery is suitable for products that need to be purchased quickly. Rates also increase when requests for goods are processed immediately. Delivery costs are also lower than with other models.
However, the disadvantage of this model is that the cost of storing goods is increased and the variety of goods is also lower than other models. In addition, using retail locations as delivery locations also requires manufacturers to ensure standards and more thorough inspection of retail partners.
3.5 Package delivery form from storage distributor
With this model, distributors and retailers will store goods directly at their locations and deliver them via package delivery. The volume of goods stored by the distributor will be lower than that of the manufacturer but still larger than that of the retailer. At the same time, delivery costs will be lower due to the advantage of large shipment sizes.
Fulfillment times in this model are better than in the manufacturing facility storage model because the distributor's warehouse location is often closer to the customer. Product recall is also better because it can be processed right at the warehouse without having to send it back to the manufacturer. However, this model requires investment in infrastructure, maintenance costs, and machinery maintenance.
Supply chain distribution refers to a business's approach to delivering goods to customers. Each distribution channel in the chain will have its own strategies as well as the characteristics of the models will also be different. Hopefully the above article has provided your business with useful information, supporting the building of effective distribution channels. If you have any questions, please contact 1C Vietnam for support.