The Role of Distribution Operations in SCM

Supply Chain includes interconnected facilities and distribution activities that are involved in procurement of materials, processing of these materials to finished goods and distribution of the finished goods to customers. Distribution is a major component of the supply chain. Distribution operations include distribution centers, warehouses, cross-docks and retail stores all of which are established within the supply chain. Distribution managers play an important role in supply chain and concentrate on flow of products to fulfill customers’ requirements at the lowest cost possible. It should be done fast but efficient and follow the right network. Distribution managers strive to achieve maximum supply chain and should, therefore, have a well developed plan, proper co-ordination, carry out distribution operations and share information.

Distribution operations concentrate on building the supply chain. They focus on production of goods and services needed to fulfill customers’ requirements. Production facilities must interact with the supply chain in order to make the outputs from production readily available to buyers. Productions operations create outputs that are distributed through the supply chain networks. Goods that are demanded have to be produced and then delivered through transportation to ensure they are received in time.

Inventory handling, storage and processing facilities help supply chains create time and place utilities. Goods are, therefore, made available when and where they are needed, reducing delivery costs and enhancing distribution operations which can improve the competitive position of the supply chain.

Distribution operations ensure customer service provision in the supply chain. These operations help organizations overcome challenges, support other processes and benefit from economies of scale.Through distribution, there is a balance in supply and demand as the goods demanded can be stocked and supplied when needed. Distribution facilities can also help protect against uncertainties by holding inventory in times of supply disruptions, demand spikes and forecasted errors. These facilities allow quantity purchasing discounts by holding additional quantities until there appears a need to reduce the purchase cost per unit.

Distribution operations support production through long productions or where outputs can age or ripen e.g. wine, fruits, and cheese, and need a place where they can be kept in a warehouse prior to distribution. Also, moving products in large quantities and full utilization of container capacity make distribution cheap. Distribution facilities can also be used to hold larger deliveries of inventory for future requirements.

Traditional distribution operations have the following four functions: accumulation, sortation, allocation and assortment. The distribution center acts as a collection point for products from numerous origins where they may be transferred, stored or processed. Accumulation, therefore, facilitates receipt of goods from various sources. Accumulation is important as it leads to fewer deliveries to schedule and manage and saves on transportation costs.

Sortation involves assembling the like products together to be stored in the warehouse or to be distributed to customers. Goods are assembled according to their key characteristics such as case pack size, expiration date etc. where they are prepared for storage or distribution. Sortation is important as it helps to effectively manage inventory and eventual delivery to customers.

Allocation deals with matching available stock to what customers require for a stock-keeping unit.The customers’ order is compared to inventory levels and available stock according to the quantity requested by the customer.The advantage of allocation is that customers get the right amount they require.

Assortment involves the assembly of customers’ orders for multiple stock-keeping units held in the distribution facility.Assortment is important as customers can order for a variety of products from a single location. This reduces the cost of placing multiple orders.

Supply chain professionals have to balance customer’s service and cost in order for the distribution process to be a success.This requires an understanding of tradeoffs between distribution and other key components of the process. The tradeoff between distribution and transportation operations is experienced when products are sent directly from plants to individuals making the process very expensive.This means that there is no market for the distribution channel.The solution may be to build so many warehouses, but again, this may be costly than to transport large shipments over long distances.

There also exists a tradeoff between distribution and inventory. Sometimes a distribution channel or warehouses may be large in number, but this will increase the inventory at a decreasing rate.These big facilities will be required to hold additional safety stock due to high risk. There is, therefore, a choice between smaller inventories and more facilities.

Another key tradeoff must be made between the resources available and distribution managers - space, equipment and people. Space is directly proportional to the facility and allows for storage of goods.The larger the space the more equipment needed to ease in movement and storage of goods. With much equipment, there are the low labor requirements if the equipment is automated as opposed to manual equipment. Nonetheless, manpower is crucial in distribution, and their capacity can be increased through training.

In order to carry out effective distribution for the fulfillment of customers’ needs a number of strategies have to be executed according to the type of products, customer requirements, expertise and resources available. Distribution planning decisions are crucial to minimize cost and at the same time provide the supply chain demands. When establishing a distribution channel it is necessary to consider the product’s characteristics that include its durability, obsolescence, sensitivity to temperatures and product value. Thus, the distribution process used should match the product to enhance the quality and ensure customers’ satisfaction. The product flow requirement of the supply chain should also be considered. It could either be through direct shipment from the plant to retailers then to the customer or through the distribution channels to customers. The chosen method should consider the inventory, transportation costs and service tradeoffs.  A rational individual would go for the one that reduces cost but again can choose to use a combination of the two strategies to enhance distribution efficiency and fulfillment of customers’ needs. The supply chain roles to be fulfilled will as well be considered in selecting the best strategy. The specific capabilities needed by the supply chain should give the design strategies and facility planning.

Network design issues are important in understanding distribution capabilities. Strategic planning involves ownership facilities in the network. An organization can have its own private distribution facility, use a public warehouse or enter in a contract with a third party to provide distribution services. Using a private facility ensures greater control over fulfillment of distribution processes, achievement of greater economies of scale, lower costs per unit delivered and eventually higher profits. Private facilities also provide income to the organization through leasing and renting. Public warehousing is often rented out for a short period of time without commitment or unique service requirements. In contract warehousing, an external company combines a number of distribution services that the organization itself has traditionally provided. Therefore, choosing the distribution facility to use requires analysis of cost, service factors and demand characteristics of the products.

Inventory positioning is also an important aspect in network design. It deals with inventory location in the supply chain. Inventory can either be centralized at a single location such as the original point or any other preferred location in the supply chain. Alternatively, the positioning strategy could be decentralized in multiple customer facing positions. Centralization is advantageous as there is greater control over the inventory and pooling of risk. However, it involves high transportation costs. Decentralization, on the other hand, is preferred as it reduces customers’ delivery costs and order cycle time, although more facilities are required to stock the product, resulting to high running costs and handling costs, risk of product damage and product pilferage. Due to the mixed benefits and cost in both inventories positioning, some organizations have resulted in using both strategies.

The number of location of distribution facilities within the supply chain will be determined by the inventory positioning. If the inventory is centralized, there will be few facilities needed. Also, if the market scope is limited normally, only one facility will be required.On the other hand, if there are decentralized stock of inventory, there will be a large number of distribution facilities which will also be applicable to large companies with a greater market scope. The number of facilities will be greatly influenced by the cost tradeoffs with other functional areas.

Product distribution is important as it aids in movement of the goods, storage and value addition until it reaches the customer. A number of processes occur within the distribution channels and cross docks facilities. Distribution execution, therefore, involves two major functions: product handling function and support function.

Short distance movements within the facility are essential in distribution. Goods arriving at the distribution channels should move rapidly through the building to meet customer’s orders and maintain high inventory turnover. This way, there will be lower holding costs, reduced damage and obsolescence risks. Product handling involves five primary processes; receiving goods from the transport network, putting away-moving goods into storage locations, selecting goods that suit the customers’ order in a process known as order picking, replenishment where products are moved from storage locations to picking slots and finally shipping, which involves delivering goods to customers.

Successful distribution execution also requires support functions to facilitate product movement, storage and fulfillment of perfect orders.There are five main support functions (i) inventory control (ii) safety ,maintenance and sanitation (iii) security (iv) performance analysis, and (v) information technology.

Control over inventory ensures that inventory information matches accurately with what is inside the facility to improve reliability of inventory reports. Safe environment preserves health and welfare of workers. Safety involves training employees on proper techniques of handling and lifting equipment, licensing and creating awareness of potential hazards to reduce accidents in the warehouse. Equipment has to be regularly maintained and repaired to maintain workers safety. A clean environment will as well boost workers morale and should be in accordance to set regulatory standards.

Security function reduces theft and fraud. The organization can put up antitheft measures such as trailer seals, security tags, prescreening potential employees, conducting inspections and audits. Management team should also evaluate and analyze performance on productivity, quality and utilization of resources. Performance can include individual performance and accuracy of work done. Finally, information technology function helps to receive, fill and distribute customers’ orders.This will ensure accurate and timely information in the distribution environment. An organization should thus install proper software tools to execute distribution across the supply chain e.g. warehouse management systems (WMS) and automatic identification tools (Auto-ID).

Distribution being a dynamic component of supply chain faces numerous challenges given the increasing customer orders with the expectation of perfect order fulfillment. One of the challenges faced is finding high-quality personnel for the distribution operations, training them to be more productive and retaining them given the competitive wages in an industry with an ongoing turnover challenge. This requires great effort and investment on the part of the organization.

Balancing supply and demand in the supply chain is also a major challenge. This is because many products are seasonal in nature and may constrain the distribution channels’ space during peak season and make it nearly empty during the off season.This also connects to labor issues as it is difficult to retain labor throughout the period especially in times of low labor requirements.

The expansion of specialized distribution facility successfully creates a problem to the supply chain. Customers are demanding additional capabilities and services besides storage facilities. Customers have reduced inventory due to lean operations and supply chains. They expect smaller, more frequent and faster fulfillment of orders from suppliers. This, in turn, has pressurized distribution channels to increase speed and services while at the same time control its costs. To resolve this, organizations have resulted to building flexible fulfillment processes to enable them handle varying requirements from different customers.