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Despite being the subset of Logistics, Distribution Logistics play an integral role in a company’s overall success. Read more below.
Logistics is the overall process dealing with comprehensive planning, management, maintaining an adequate flow, and storage of goods and related information and data for effective processing. Logistics is responsible for creating a united, integrated, and optimized supply chain flow, ensuring a seamless and continuous exchange of goods and services, aiming for customer satisfaction.
The part of logistics responsible for storing and transporting goods from the manufacturer to the receiver’s end is distribution logistics. In terms of macro logistics, distribution logistics ensures the secure implementation of physical links between the two networks and the logistics chain.
What are Distribution Logistics?
Distribution logistics is the subsystem of logistics dealing with the production and the market base. For direct-to-consumer brands (DTC), distribution logistics functions on getting the finished goods delivered from a manufacturer or supplier directly to the retailers, distribution centers, and customers to complete the fulfillment process. It comprises the basic planning tasks, control, and process related to the flow of goods between manufacturing companies, retailers, and customers.
The functions of distribution logistics include handling the materials and goods, shipment and transportation, and interim storage. This provides structural, organizational, operational, and information links between the manufacturing units and customers. The secret to a successful distribution system lies in implementing sustainable structured information, effective decision making, and control processes in the distribution logistics.
Objectives of Distribution Logistics
The primary mission of distribution logistics is to balance the supply of goods in the market according to the market demand.
The main objectives of distribution logistics are:
Availability of goods
Ensuring a sufficient quantity of product availability is the primary objective of distribution logistics management.
High-quality demands of the manufacturers require low-cost delivery. The distribution logistics department aims at reducing costs associated with the overall transportation, storage, product availability, and order processing. This results in a structured, faster, more time-efficient, and sustainable delivery.
Optimize delivery performance
Providing on-time delivery to the customer base is one of the essential aspects of building a long-lasting and sustainable relationship with the customer. Distribution logistics ensure a proper consistency in the delivery performance through appropriate planning and implementation to meet customer expectations better.
Efficient information flow
One of the integral parts of effective logistics management is strengthening the communication flow in the business. Maintaining a transparent and efficient communication network allows companies to be agile and more responsive.
Types of Distribution - Direct vs Indirect Distribution
Distribution logistics management in e-commerce possesses two approaches to choose from: direct and indirect.
Direct Distribution Channel
A Direct Distribution Channel enables consumers to buy or receive goods directly from the manufacturing units. Direct distribution works entirely by taking on the distribution management process in-house by eliminating the intermediary.
Direct Distribution Channels require more work and are cost-effective. It involves purchasing inventory to be delivered directly to the online retailer to complete the fulfillment processes. They need significant investment to manage their own inventory to efficiently track and manage the whole process.
Brands acknowledging their own distribution logistics requires an investment to optimize logistics operations and warehouse management system (WMS) to fulfill orders in-house and maintain carrier partnerships more effectively. The Direct Distribution Channel is shorter and time-efficient.
Indirect Distribution Channel
An Indirect Distribution Channel involves a third-party logistics provider to fulfill their distribution requirements. Indirect Distribution eliminates some extra costs for the manufacturing companies with less time required for order processing. Indirect Distribution enjoys the flexibility to outsource fulfillment to a third-party logistics (3PL) provider that takes care of all the additional logistical tasks like warehousing, shipment pickup and delivery, and shipping on behalf of the service provider. An outsourced partner provides the necessary resources, tools, expertise, and customer service without any immediate need to invest in the in-house fulfillment structure of a company. However, indirect distribution adds new layers of expenses, contributing to increasing costs to the consumer.
Tips for Improving Your Distribution Logistics
Some crucial measures to manage the distribution logistics more effectively are
- Sustainable Planning Strategy – The critical aspect of developing efficient distribution logistics management is implementing the correct planning. A Sustainable Planning Strategy includes the procurement of goods, planning the delivery chain, storage and inventory management, etc.
Sustainable planning results in completing the process in a lesser time with reasonable budget limits, leading to maximized revenue. Structured planning accounts for the practical success of logistics management
- Demand Forecasting – Data-driven accurate demand forecasts are essential for making informed decisions. The right technology provides the right tools and metrics to ensure a precise market scenario and makes way to replenish inventory on time.
Accurate demand forecasts help optimize inventory, minimize product shrinkage, optimize shipping charges, and keep consistent, effective customer service.
- Leveraging technology and software – With the ever-increasing flow of information, technology is the future of e-commerce. The vast opportunities to integrate technology and software ensure a clean and seamless business automation prospect.
Implementing the right technology helps in improving different aspects of distribution logistics. Automated system inventory provides real-time monitoring fulfillment and a faster shipping experience.
- Outsourcing – The most efficient way of ensuring a smoother distribution is by partnering with outsourced partners or third-party logistics providers. Outsourced distribution partners not only help in providing the best services for fulfillment but also take care of the warehousing and distribution. This helps reduce costs with faster and more accurate fulfillment processes to improve customer service.
Distribution Channels are the pathways by which the goods and services are provided from the source to the intended customer. Distribution Channels can be short or long, depending on the type and quantity of products delivered and the number of intermediaries associated with processing the fulfillment.
Types of Distribution Channels
Though the distribution channels are primarily broken into two types – direct and indirect. Based on the type of shipment, there are three main channels, which have a common combination of a producer, a wholesaler, retailers, and the customer.
- The first channel is the longest and includes all four entities (producer, wholesaler, retailer, and customer). This channel usually works in a chronological supply frame, starting from the producer/manufacturer and ending with the consumer. The wine industry is the perfect example of an extended distribution channel.
- In the second channel, the wholesaler is eliminated. This channel allows the producers to directly sell the products to retailers who sell the product to the end consumer. Any big technology firm like Dell, Apple, etc comes under the second distribution channel.
- The third distribution channel involves only the producer and the customer. It is a direct-to-consumer model where the manufacturing units sell their products directly to the customers—for example, Amazon. Amazon sells the Kindle ebook reader directly to the market without any interventions. This is the shortest distribution channel possible, involving a considerable cost reduction.
Advantages of Distribution Logistics
Distribution logistics help in direct streamlining of the company’s distribution and fulfillment process. Here’s how distribution logistics helps a company grow through strategic distribution.
- A better distribution network – With an efficient distribution network with different logistics operations, the process becomes easy to optimize along with the supply chain.
- Multiple fulfillment centers – With an influential network, distribution logistics work widely across various locations for faster transit times. Companies can optimize their average delivery timeline with an ideal multi-distribution strategy.
- Reduced Charges – An effective shipping strategy ensures a good, competitive, cost-effective delivery option for the consumers. Companies can enjoy an excellent shipping speed with optimized and reduced shipping costs, leading to final customer satisfaction.
- Reduced liability in freight operations – With indirect distribution logistics, the outsourcing partner assumes the liabilities, leading to an overall cost reduction.
- Improved Visibility – Strategic distribution logistics management allows for a fully transparent fulfillment process with no hidden charges.
Challenges in Distribution Logistics
Though distribution logistics focus on implementing an overall cost-effective measure, some obvious challenges are encountered along the way. They include:
- Increased Fuel Costs – Higher fuel costs result in increased transportation costs. The rise in fuel prices escalates the overall freight rates, making the overall revenue cut difficult.
- Lack of reliable automation – It is challenging to track all the shipments for a logistics company manually. Implementing proper tracking software is still a cost reliable step for many small and medium enterprises.
- Increased emphasis on logistics rules and regulations – Logistics, on the whole, is a globally operating process. Thus, distribution logistics management must follow numerous laws and regulations of different places and countries. Companies must be updated with the ever-changing rules and regulations to continue shipping without significant issues.
- Lack of communication – As the supply chain is an amalgamation of several steps involving some teams associated with it, sometimes, the lack of collaboration between the involved authorities harms logistics functioning.
- Lack of proper Infrastructure – One of the significant challenges faced by the providers includes some physical problems like appalling road conditions, adverse weather conditions, poor connectivity, inefficient port capacities, and absence of developed transportation.
Distribution logistics deals with all activities associated with providing finished products from the producer to the customer. As an efficient link between production and sales of an enterprise, distribution logistics includes all the steps like inventory management and transportation to ensure the best delivery experience to the customer. Distribution logistics is a market-linked logistics connecting a company’s production logistics with the customer’s procurement logistics.
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Distribution in logistics refers to the management of the physical movement of finished products and goods through a specific distribution channel from the manufacturer to the end consumer.
On a broader scale, Logistics deals with overall transportation, freight management, planning, and management of the movement of supplies and goods throughout the supply chain. The logistics nodes include suppliers, manufacturers, distribution channels, shipping providers, and customers.
Distribution refers to the activities associated with moving the goods from the source point to the destination through a distribution channel. Logistics refers to an overall supply chain planning, whereas distribution focuses on the movement of goods from supplier to receiver. Distribution is considered to be a subset of logistics.
A distribution channel is the overall chain of businesses or intermediaries associated with the movement of the finished product from the manufacturer to the end consumer.
The four prime components of a distribution channel are producer/manufacturer, wholesaler, retailer, and the end consumer.
The advantages of an effective distribution logistics are:
- Reduced Distribution Charges
- Effective market forecast
- Elimination of intermediaries
- Increased efficiencies
- Better Inventory management
- Transparent shipping and tracking information
- Improved customer service
- Increased Customer Satisfaction.
Yes, distribution logistics can be outsourced if strategically planned. Outsourcing the distribution channel involves entrusting the distribution-related activities to an outsourced party. Though outsourcing has some risks, including losing control over marketing, pricing of products, etc., the advantages of outsourcing are
- Better customer service
- Better access to global capability
- Increase flexibility