Types of Distribution Networks

– Whether the product will be picked up on-site or delivered to the customer.
– Whether or not the product will flow through an intermediary.

• The biggest advantage of this design is that it allows centralization of inventories at the manufacturer, who can aggregate demand across all the retailers that it supplies, thus being able to provide high level of product availability with relatively low inventories.

• Although inventory costs are typically low, transportation costs are high, because the average outbound distance to the customer is large.

• This design requires a good information infrastructurebetween the retailers and the manufacture, such that the retailer can provide product availability information to the customer.

• Response times tends to be long when drop-shipping is used.

• This design requires an increase in coordination; however, in-transit merge decreases transportation costs relatively to drop shipping because it aggregates the final delivery.

• A sophisticated information infrastructure is needed to allow in-transit merge.

• Response times, product variety, availability, and time to market are similar to drop-shipping.

• Compared to manufacturer storage, facility costs of warehousing are higher with distributor storage because of a loss of aggregation.

• The information structure needed is less complex than that needed with manufacturer storage.

• Response times are usually better than under manufacturer storage because distributor warehouses are, on average, closer to customers.

• This configuration is well suited for slow-to-fast-moving items.

• Among all distribution networks, transportation costs are the highest for last-mile delivery, especially when delivering to individuals.

• The information infrastructure with last-mile delivery is similar to that for distributor storage with package carrier delivery.

• Response times are faster than using package carriers.

• A significant information infrastructure is needed to provide visibility of the order until the customer picks it up (order visibility is extremely important for customers pickups).

• Transportation cost is much lower than with other solutions because inexpensive modes of transport on inbound logistics. Outbound logistics is not needed.

• Facility costs are high because many local facilities are needed.

• Minimal information infrastructure is needed if customers just walk-in and place their orders.

• Good response times can be achieved with this system.

Only niche companies end up using a single distribution network. Most companies are better served by a combination of delivery networks.

The combination used depends on the product characteristics and the strategic position that the firm is targeting.