Distribution and Supply Chain Management

Distribution comprises channels and supply chain management. Channels deal with institutional linkages such as retailers and wholesalers, whereas supply chain management addresses the processes underlying these linkages, such as warehousing, transportation, and inventory management, and connects them from the supplier to the end user. The objective of both components is to provide a high level of customer service at a manageable cost. Distribution channels take on various functions of the manufacturers because they can perform them more efficiently. Depending on the type of product and type of consumer, they can range from the zero level, where the contact between manufacturer and end user is direct, to multiple levels, from producer to wholesalers and retailers. The choice of channel is an important one because it has major strategic implications and is difficult to change. Within the channel choice, decisions also need to be made about channel compensation and control. To a large degree, effective channel management depends on close information linkages. The use of information analysis at the retail level increasingly makes other channel members dependent on these information sources. Overall, channel members need to add value to the distribution process—or be eliminated. This also applies to the purchasing process, which is an integral part of distribution, albeit an internally focused one. Supply chain management benefits from a systems view of corporate activity and includes the development of close relationships with both suppliers and customers. Effective coordination between parties reduces cost and provides for competitive advantage through approaches such as just-in-time (JIT) delivery, electronic data interchange (EDI), and early supplier involvement (ESI). Production, transportation, facility, inventory, and communication decisions are the key areas within logistics, all of which require trade-offs and collaborative action among participants. Even though the optimizing activities of a firm provide for some benefits, competitive differentiation occurs mainly through coordination with other companies. The firm may evaluate transportation based on transit time, reliability, and cost and achieve operational improvements, but a strategic collaborative approach with customers and suppliers can deliver even greater benefits. Such collaboration can include the use of third-party logistics providers. Logistics can also play a major role in making the firm more environmentally responsive by designing reverse distribution systems for the recycling of merchandise and by devising distribution processes that minimize risk and damage to the environment. All channel and supply chain efforts are designed to increase customer service. The intent is to delight the customer. It is therefore important to understand the importance of customer complaints. Such complaints should be encouraged so that the firm learns early on about potential problem areas. In addition, they need to be resolved quickly so that customers are willing to return. Good customer service requires the orientation and commitment of the entire corporate culture so that the customer notices at each point of contact with the firm that customer service thinking is a part of the organization.