A smart distribution management system determines the success of your business. So much so that it can make or break even the most sophisticated supply chain networks.
Poor distribution management can lead to underperforming logistics, low profits, and damaged customer relationships. But a lot goes into the process.
Ahead, you’ll learn how distribution management impacts business performance and how to set yourself up for success.
What is distribution management?
Distribution management is the process of overseeing and controlling the movement of goods from manufacturers or suppliers to end customers. It involves coordinating various activities to make sure products are stored, transported, and delivered efficiently. The goal is to improve delivery speed, while reducing operational costs and increasing supply chain efficiency.
Distribution vs. logistics
Distribution and logistics are both part of supply chain management, but they have different focuses.
Distribution focuses on the downstream supply chain, like warehousing, inventory management, order processing, and delivery. The objective is to guarantee that products are available to customers at the right time and place.
Logistics consists of both upstream and downstream activities, like transportation, materials handling, procurement, and information flow. It aims to maximize the efficiency of the entire supply chain.
Why is effective distribution management important for retail?
Retail has undergone a huge digital transformation with the growth of online shopping.
Ecommerce sales in 2023 accounted for 19% of retail sales worldwide. Forecasts suggest that by 2027, they’ll make up close to 25%. This shift has forced retailers to adapt their distribution strategies to accommodate both brick-and-mortar and online channels, known as omnichannel retailing.
Distribution management has also become more important, due to modern retail’s global nature, where products are now sourced from all over the world. After some 94% of Fortune 500 companies saw supply chain disruptions in 2020, many retailers are re-evaluating their distribution strategies.
Some are “nearshoring,” which means making products closer to end markets to save money and minimize risk. Others use AI and machine learning to forecast demand and manage inventory.
But most of all, having a good distribution system ensures that customers get their stuff when and where they want it, which makes them happier. Retailers that can build sustainable distribution management systems are better positioned to meet consumer demands and withstand disruptions.
Advantages of distribution management
Lower costs
Every step of the supply chain can be optimized, from sourcing to storage to last-mile delivery. You can cut fuel consumption and delivery times as a distribution manager by implementing advanced algorithms and dynamic systems. You can also optimize inventory levels by keeping just the right amount of stock, reducing carrying costs and obsolescence.
Higher customer satisfaction
Distribution management can help boost customer satisfaction by ensuring products are available when and where customers want them. Faster order processing and improved logistics networks can also shorten delivery times and increase repeat purchases.
More resilient supply chain
A well-managed distribution system lets you adapt to market changes and disruptions. It gives you real-time data so you can adjust inventory levels and distribution patterns based on real-time data. If, for instance, you had an agile system where inventory moved between stores based on local demand, you could cut stockouts and sell more products at full price.
Distribution management challenges
Inventory optimization
According to a recent survey by The Hackett Group, 70% of companies reported that inventory optimization was a top priority. The balance between meeting customer demand and minimizing carrying costs can significantly impact a company’s bottom line, as 8% of stock perishes or is discarded annually.
The average inventory turnover ratio in retail is 11.02, meaning organizations should aim to sell and replace inventory 11 times per year. To achieve a high turnover rate, you’ll need advanced forecasting systems and efficient fulfillment processes.
Last-mile delivery
Last-mile delivery is still an issue in distribution, accounting for 41% of shipping costs. The complexity of this last-mile delivery leg is reflected in the global last-mile delivery market, which will reach $357 billion by 2031.
It’s a challenge retail organizations are trying to figure out. Among them are leveraging existing store networks as fulfillment centers, partnering with third parties to get specialized delivery services, and investing in technology like autonomous vehicles and drones.
Some retailers are also using flexible delivery options like curbside pickup and locker systems to improve customer convenience and optimize delivery operations.
Supply chain visibility and data integration
As companies adapt to constraints, inflation, sustainability goals, and changing policies, real-time visibility across complex networks becomes critical. Companies with high supply chain visibility can achieve higher perfect order rates than those with low visibility.
Evolving networks, which now span a variety of operating models, including hybrid regional, global with regional final assembly, and local-for-local, require sophisticated data integration systems to manage effectively. Industry leaders like Maersk are pioneering solutions like TradeLens, a blockchain platform for secure, real-time supply chain data sharing.
Such innovations are crucial as organizations navigate the complexities of diversifying their supply chains, with 95% of companies with a presence in China evaluating or executing changes to their sourcing and manufacturing strategies.
Distribution channels
Wholesaler
Wholesalers are the bulk buyers in distribution. They purchase large quantities of products directly from manufacturers and sell them to retailers or other businesses.
Think of companies like Costco Wholesale or Sam’s Club. Their main advantage is lower prices due to volume purchasing. For example, a small local grocery store might buy its inventory from a wholesaler rather than dealing with dozens of individual manufacturers.
Retailer
Retailers are businesses that sell directly to consumers. They buy from wholesalers or manufacturers and mark up products for sale to the public. Retailers include everything from your corner store to big chains like Walmart or Target. They handle customer service, returns, and the final delivery of products.
Distributor
Distributors act as middlemen between manufacturers and retailers or wholesalers. They typically specialize in a particular industry or product type.
For instance, Southern Glazer’s Wine and Spirits is the largest wine and spirits distributor in the United States. Distributors often provide additional services like warehousing, shipping, and sometimes even marketing support for the brands they carry.
Ecommerce
The ecommerce sector has revolutionized distribution in recent years. It involves selling goods online to consumers.
Amazon is the biggest player, but it applies to all businesses that sell products online. It’s possible for traditional retailers to run ecommerce on their own (like Zappos) or as part of their multichannel strategy (like Nordstrom). With no physical store overhead, you can reach customers anywhere, anytime.
Each of these channels has its own strengths and challenges. Wholesalers and distributors have economies of scale but face slim margins. Retailers have direct consumer relationships but face inventory management and store overhead. Order fulfillment and returns are challenging with ecommerce, but it has a larger reach.
Three distribution management strategies
Mass
A company with mass distribution wants to get its product in as many outlets as possible. It’s all about exposure and accessibility.
Think of Coca-Cola or Lay’s potato chips. They’re everywhere, from supermarkets to gas stations, vending machines to movie theaters. The goal is to be wherever the customer is.
Mass distribution works well for:
- Low to moderately-priced products
- Items with broad appeal
- Products that customers buy frequently
Selective
The company chooses a limited number of outlets to sell its product, based on criteria like location, reputation, and sales volume.
Olipop, the prebiotic soda brand, employed a selective distribution strategy as it grew its market presence. Initially, Olipop focused on natural and specialty food stores. You could find it in places like Whole Foods, Sprouts, and local health food shops.
As it’s expanded, Olipop has carefully added more mainstream retailers to its distribution network. It’s now available in select Target stores, some regional grocery chains like Kroger and Wegmans, and even some convenience stores. However, you won’t find Olipop in every corner store or vending machine like you would a Coca-Cola product.
Selective distribution is ideal for:
- Higher-end products
- Items that require some customer education or service
- Brands that want to maintain a certain image
Exclusive
In exclusive distribution, a company lets a very limited number of retailers sell its product in a specific geographic area.
Ferrari is a good example of exclusive distribution. It handpicks a small number of dealerships worldwide to represent the brand; in New York, for example, there are only four authorized Ferrari dealerships. Ferrari uses this strategy to maintain tight control over how its products are presented and sold.
Top distribution management partners
Shopify Fulfillment Network
Shopify Fulfillment Network (SFN), powered by Flexport, offers comprehensive fulfillment services to Shopify store owners without order minimums. Merchants can connect their store to Flexport for free using the Shopify Fulfillment Network app and explore at their own pace.
Flexport handles DTC, ecommerce, wholesale distribution, inventory storage, packaging prep, and returns management. Strategically located fulfillment centers across the US ensure fast delivery, with international options available. Merchants can send stock directly to fulfillment centers or a single Flexport facility.
Flexport’s platform selects the best carrier for each order. Shopify’s team and Flexport’s platform offer constant support to merchants. This solution helps Shopify merchants streamline operations and focus on growing their business while experts handle order fulfillment.
ShipBob
ShipBob offers third-party logistics (3PL) services to support business growth. Its platform handles warehousing and distribution efficiently.
ShipBob’s core service is outsourced fulfillment, including pick, pack, and ship operations. It manages inventory across multiple centers to help optimize shipping times and costs. This approach enables faster delivery options, like two-day shipping.
Its technology integrates easily with various ecommerce platforms to streamline order processing and inventory management. A single dashboard provides real-time visibility into stock levels, order status, and shipping information.
👉 Get the ShipBob Shopify app today
NetSuite
NetSuite’s cloud-based ERP system streamlines distribution management. It tracks inventory in real-time across locations, centralizes order management, and optimizes warehouses. The system forecasts demand, automates procurement, and links distribution with finances for clear profit insights.
Robust reporting and analytics help businesses track key distribution metrics. Cloud-based mobile access and seamless integration with ecommerce platforms and shipping carriers enhance functionality. This comprehensive approach boosts distribution efficiency, cuts costs, and improves satisfaction throughout the supply chain.
👉 Get the NetSuite ERP Connector Shopify app today
Improving distribution management with Shopify
One powerful step businesses can take to improve distribution management is to invest in a partner. By partnering with Shopify and using our advanced tools and networks, you can optimize your distribution strategy, reduce costs, and build a more resilient supply chain.
Distribution Management FAQ
What is distribution management strategy?
A distribution management strategy plans and implements processes to move products efficiently from manufacturers to consumers. It optimizes logistics, inventory, and delivery networks for timely and cost-effective product delivery.
What is an example of distributed management?
A company using regional warehouses and local delivery partners in different areas shows distributed management in action. The process speeds up deliveries and reduces transportation costs by storing inventory closer to customers.
What does a distribution manager do?
Distribution managers oversee the entire process, coordinating with suppliers, warehouses, and transporters to ensure smooth product flow. They use data to optimize inventory, cut costs, and improve delivery performance.
What’s the difference between distribution management and supply chain management?
Distribution management focuses on moving finished products to customers, while supply chain management has a broader scope. It includes sourcing materials, planning production, and managing supplier relationships alongside distribution activities.
