5 Distribution Strategies Used in Supply Chain Management
Proper distribution strategies are a foundational component of an effective supply chain management system. However, while 90% of organizations report that they have implemented distribution strategies only around 50% of those organizations have aggressively executed their distribution strategy.
A distribution strategy focuses on 3 main components-
- Means of transmission of product from manufacturing point to end customer.
- Control and optimization of both costs and time.
- Development and maintenance of competitive advantage.
Distribution strategies have massive implications on a wide range of business activities, ranging from inventory management including warehouse management to logistics. For example, businesses that use certain distribution strategies will not require the same level of warehouse management capacities as other companies due to a lower level of inventory demanded.
Distribution strategies are largely dependent on business operations and the overall business strategy. For example, a single company may contain various product lines that each have their own unique distribution strategy in place.
As the global supply chain extends, supply chain management is more important than ever before. Whereas previously a product may only go through a single distribution center it is not uncommon for many distribution centers to be visited across different countries throughout a product's supply chain journey.
The 5 top distribution strategies utilized in supply chain management include-
1. Intensive Distribution
The intensive distribution strategy makes a product available at every outlet plausible. The primary objective of intensive distribution is to reach as much of the market as possible.
Businesses that engage in mass marketing may prefer the intensive distribution method. Both fast moving consumer goods and consumer durable products are great candidates for intensive distribution.
An intensive distribution strategy is commonly undertaken when there are many competitors for a product and if a specific distributor does not supply the product a customer will likely purchase the product from a competitor instead. If increased product availability will result in more sales, intensive distribution is an ideal strategy for a business to choose.
2. Exclusive Distribution
Certain companies chose to work with a sole exclusive distributor concerning their products reaching end customers. Exclusive distribution is useful for companies that deal with high value goods and have an excellent brand reputation.
Exclusive distribution is preferable for businesses that customers are willing to travel to and have a high emotional investment in. For example, a luxury clothing brand may only have storefronts in select regions, catering to a customer base that has the time and money needed to acquire their products.
Exclusive distribution is advantageous for avoiding competition in the market. Due to an exclusive agreement made between distributors and the brand, distributors are not at risk of partnering with competing brands.
With a decreased need to focus on its distribution base, the brand can instead focus on its marketing initiatives and promotional activities.
3. Selective Distribution
Whereas intensive distribution targets all outlets available and exclusive distribution uses a sole distributor, selective distribution occurs when a limited number of selected outlets are chosen. The selective distribution strategy is an ideal choice for businesses that are looking for a middle point between intensive and exclusive distribution strategies.
4. Direct Distribution
Direct distribution occurs when a business sends an item directly to an end customer. Alternatively, direct distribution can refer to a very short supply chain process.
eCommerce merchants and retail businesses commonly utilize direct distribution methods. Direct distribution can be much more cost efficient and less time consuming than indirect distribution methods.
5. Indirect Distribution
Instead of a product going directly from a supplier to an end customer, indirect distribution occurs when a product travels between multiple providers. As a result, indirect distribution methods generally result in a longer supply chain.
As the global supply chain expands and grows, indirect distribution is becoming more widespread. In fact, it is not unusual for a product to go through dozens of distribution centers throughout its supply chain journey.
- Extensively intergrated distribution strategies are a primary component of an effecient supply chain management system. However, although 90% of businesses report they have an integrated distribution strategy in place, only about 50% of those businesses have extensively integrated their distribution strategy.
- A distribution strategy focuses primarily on the means of transportation from a manufacturing point to an end customer, cost and labor control and optimization, and competitive advantage development and maintenance.
- While intensive distribution targets all outlets and exclusive distribution utilizes a single distributor, selective distribution selects a limited number of outlets.
- Direct distribution occurs when businesses send products directly to an end customer while indirect distribution occurs when a product travels between multiple providers before reaching the end customer.