- The ownership structure of the distribution network can have as big an impact as the type of distribution network. The bulk of this chapter deals with different types of physical networks and subsequent flows to distribute products successfully. However, equally important is who owns each stage in the distribution network. Distribution networks that have exactly the same physical flow but different ownership structures can have vastly different performance. For example, a manufacturer that owns its distribution network can control the network’s actions. However, if the manufacturer does not own the distribution network, as is more often the case, a wide variety of issues must be taken into account to optimize over the network. Obviously, an independent distributor wants to optimize its own enterprise, not necessarily the entire supply chain. Attempting to optimize over a distribution network with multiple enterprises requires great skill in coordinating the incentives of each of the players and in creating the right relationships.
- It is important to have adaptable distribution networks. Distribution networks must be able to adapt to changing technology and environments. An inability to adapt can be very damaging in these times of rapid change. For example, Blockbuster in the movie rental business and Borders in the bookselling business had great success with a network of retail stores. Their inability to adapt to the arrival of the Internet, however, allowed competitors such as Amazon and Netflix to gain market share at their expense. If either Blockbuster or Borders had adapted to take advantage of the Internet to create a tailored distribution network, it can be argued that they could have continued their dominance. Walmart is an example of a company that, through trial and error, adapted its distribution network to take advantage of the Internet along with its existing retail store network.
- Product price, commoditization, and criticality affect the type of distribution system preferred by customers. Interactions between a buyer and a seller take time and resources. As a result, it is much more convenient for a buyer to deal with a single enterprise that can deliver a full line of products. For high-value, specialized, or critical products, customers are willing to have a relationship solely around that particular product. For low-value, commoditized products like office supplies, however, most customers prefer a one-stop shop. Whereas Apple has been successful with stores selling only Apple products, it is highly unlikely that a stapler manufacturer could succeed without distributing through general stationery stores. As hardware has become more commoditized, customers have shifted purchase to locations that are not manufacturer specific even for products such as computers and smartphones.
- Integrate the Internet with the existing physical network. To extract maximum benefit from the online channel for physical goods, firms should integrate it with their existing supply chain networks. Separating the two networks often results in inefficiencies within the supply chain. They should be coupled in a tailored manner that exploits the strengths of each channel.
Tesco’s use of its physical assets to satisfy both online orders and people who want to shop in a supermarket is an effective integration of online sales within a supply chain network. Another example of an effective tailored strategy is Walmart, which allows customers to pick up online orders at its retail stores. The Internet is used to expand the variety available to customers at a Walmart store. Walmart stores stock popular items, whereas customers can order online the colors or sizes that may not be available in the store. This allows Walmart to centralize low-demand items while increasing the variety available to customers. Each channel is tailored to carry the products it handles best.
Source: Chopra Sunil, Meindl Peter (2014), Supply Chain Management: Strategy, Planning, and Operation, Pearson; 6th edition.