Getting to Fluid Distribution Networks

As more analytics gets introduced into supply chain management, the need to shift distribution bases to keep pace with the rapid shifts in business and customer bases also comes into play.

From the analytics standpoint, the process is easy. Companies can now see shifts in their customer base, changes required in their business models, and even shifts in demand in near real-time. But getting the physical realities of the supply chain aligned with the realities that appear in digital reports is another matter.

Nowhere is this more evident than in the electronics industry, where Simon Ellis, who leads the supply chain strategies practice at IDC Manufacturing Insights, reports four major trends:

  • A need to capitalize on emerging markets like India, the Middle East, and South America
  • A need to change sourcing patterns to more country-specific or regional strategies
  • A need to build customer-centric supply chains that are near customer bases and offer improved customer service
  • A need to “get smarter” with greater supply chain visibility and improved use of business analytics

Like the retail industry in general, the distribution channels for electronics now must shift with the currents of new customer bases and demands, instead of remaining staid and relatively stable, as they have in years past. This is a major change for companies, which by practice have reviewed their distribution networks every five or six years — and not a moment sooner — due to the effort involved.

There are lots of reasons to avoid distribution network reviews. As a starter, these reviews are time-consuming and grueling. It is much more convenient to stay with your current distribution centers and just fit your costs into them. That approach has historically worked and is culturally comfortable for many organizations.

The tried-and-true approach of a set distribution network also means that everyone internally who would have to be involved in a distribution network review doesn't have to do it. Instead, they can focus on their many other responsibilities. Then there is the reality that many companies lack the internal expertise to perform a thorough review of their distribution networks, which can involve complicated network modeling, cost modeling, and scenario projections.

Nevertheless, as the global economy continues expanding and as retailers (including electronics manufacturers and dealers) see their e-commerce and brick-and-mortar sales and distribution channels come together in omnichannel retail, there is a growing recognition that distribution networks can no longer remain static. Instead, these networks must be malleable and able to adjust to changes in business and customers.

“The variety of customer bases and retail business models means that there must also be a diversity of approaches to the market, as well as different patterns of distribution,” Ben Cubitt, senior vice president of consulting and engineering for the third-party logistics and technology solutions provider Transplace, told me this week. “The supply chain distribution network needs to be fluid. One size does not fit all when it comes to [distribution centers] and supply chain networks.”

This means that freight, labor, inventory carrying, and real estate costs must be balanced against customer service requirements. If all your customers are satisfied with a normal delivery timeline of 3-5 days, your distribution picture is simplified. If some customers expect immediate fulfillment, the task becomes locating distribution centers closer to major concentrations of customers or transportation points — and being able to modify these locations when customer and business shifts require it.

“Retailers need to have facilities located close to UPS or FedEx ground locations because consumers want next-day delivery of their orders,” Kris Bjorson, managing director of the retail/e-commerce distribution group for Jones Lang LaSalle, told Logistics Management in a 2012 article. “You can pick an order faster and get it to a later cut-off time to deliver to a customer the next day.”

Share your thoughts about fluid distribution networks in the comments section below.

5 comments on “Getting to Fluid Distribution Networks

  1. SP
    April 8, 2014

    With the rapid spread of electronics business globally, the distribution network and speed will make a lot of difference in the supply chain business. Even in the developing countries electronics has become the way of life. Earlier the Asian countries were just looked at place of manufacturing, not lots of desing work is also getting shifted and believe me I have seen the pain of not getiing components in time for the design.

  2. ITempire
    April 8, 2014

    I agree with you that Supply chain distribution network should be fluid because the purpose of every business is to provide customer satisfaction which is only possible when their needs are fulfilled on time.

  3. Mary E. Shacklett
    April 8, 2014

    Yes–and that includes getting goods to customers when they want them.

    You don't always have to be the fastest on every order to do this.

  4. ITempire
    April 8, 2014

    @ Mary, True. Forecasting the customers' needs and good understanding of in-house capability to meet those needs can avoid panic in the times when demand is at its peak. Planning is the solution to most of the supply chain problems.

  5. Hailey Lynne McKeefry
    April 9, 2014

    The emerging markets piece of this equation is important. These markets will become increasingly important and serving them well may well be the difference between success and failure.

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