Site Owner & Gold Sponsor
To the uninitiated, the design ofdistribution networks might seem a complicated topic. However, it’s really notthat complex at all. Indeed, the aim of distribution network design is to keepthings as simple as possible.
Distribution Networks: The Industrial Influence
However, the degree of simplicity that canbe attained depends a lot upon the industry concerned, as well as the geographywithin which an enterprise chooses to do business.
ACan of Beans, A Glass Of Beer and A Desktop Computer
No, I’m not about to tell a bad joke.Instead I’ll try to explain the structure of typical distribution networksbehind three simple products that you might conceivably purchase. I’ll leavegeography out of the equation for now and focus on how distribution networksmight differ by industry.
I think it’s fair to say that most of uswould take the purchase of a can of beans and a glass of draft beer completelyfor granted. We might think a little more about the computer, especially if webuy one online. However, we’re still unlikely to pay much mind to the process involvedbefore the parcel company drops a shiny new PC at the front door.
However, without an industry-specificdistribution network, designed to ensure any of the three aforementioned itemsis available in exchange for the appropriate amount of money, we’d find itpretty hard to eat beans, drink beer or enjoy the latest lightning-fastcomputer graphics.
So let’s take a look at how thedistribution networks might be designed for each of the three commodities.
TheCan of Beans
Firstly, even an online grocer is unlikelyto drop a single can of beans off at your front door. Therefore you are goingto have to go to a convenience store or a supermarket to get your beans.
At the same time, you wouldn’t be too happyif you had to order your beans in advance. Therefore you’ll visit a retailerwho has plenty of cans of beans in stock.
To get those cans of beans, the retailerwill have purchased them from a wholesaler or directly from the manufacturer.In either case, such a fast selling/low value product must be purchased in bulkquantities. With this kind of product, a manufacturer will churn out cans bythe thousand.
Storing mountains of stock at theproduction plant is not likely to be practical, so the manufacturer willprobably have at least one distribution centre, which will receive inventoryfrom the plant and store it in sufficient quantities to meet consumer demand.
Selling cans of beans is all about volume,so the manufacturer will only sell large orders of beans, either directly tosupermarket chains or to wholesalers. The producer will not want to spend moneyon distribution, so buyers will need to collect their orders from theproduction warehouse or distribution centre.
Large supermarket chains will have theirown distribution centres, as will wholesalers. Therefore the buyers purchasehuge quantities of canned beans (based on demand forecasts) and store them fordistribution on demand to their outlets (in the case of supermarket chains) orfor sale to retailers (in the case of wholesalers).
The store where you buy your beans shouldtherefore, always have plenty of stocks, since it will receive beans by thepallet or at least, by part-pallet.
TheGlass of Draft Beer
Just like the can of beans, you won’t havethe beer delivered to your door. Instead it will be delivered to your glass.Therefore you must buy your beer in an establishment that can sell beer on tap.That means it will actually be packaged for dispense from an aluminium cask orkeg.
For the beer producer, distributing draftbeer poses a few special challenges. Beer kegs are large, heavy items and theretailers (bars) are often located in town or city centres, along narrowstreets inaccessible to large delivery trucks. Therefore, it’s generallyimpractical to try and service outlets spread around a country, from one or twocentrally located distribution centres.
Because of this logistical challenge, abrewing company might have warehouses situated on the edges of urbanconurbations. Draft beer will be regularly shipped from the production plant ora distribution center to these regional or local warehouses.
Inturn, the warehouses will deliver the kegs of beer to the bars and otheroutlets within their individual distribution areas. Unlike the canned-beanproducer therefore, breweries often have an extra set of nodes in theirdistribution networks.
In contrast to the previous two productswe’ve explored, a desktop computer is much more likely to be delivered right toyour front door. To keep the illustration simple, let’s assume you order yournew computer online. It’s more than likely that you will be able to choose froma wide range of specifications for your computer.
Of course it would be inconceivable thatthere is a warehouse somewhere, stocked with a number of computers complyingwith the exact specifications you chose. Instead, your computer will beassembled after you place your order, meaning you need to wait a few days fordelivery.
Assuming all the components come from asingle manufacturer, the distribution network may in fact, be verystraightforward. The manufacturer will simply assemble the computer at thefactory, to meet your specifications. They will then send the finished item byparcel service, directly to your home. This means the manufacturer will need nostrategically located warehouses and indeed, may not even be located in thesame country as you are.
Nothingto it, huh? … Okay, I’m guilty of simplifying thethree scenarios above, just a little bit. In reality, there are many factorswhich will influence the way distribution networks are designed and there isreally no standard in any specific industry.
For example, some computer manufacturersutilize distribution hubs, where components such as monitors (made by othermanufacturers) are amalgamated with the main processing units and where finalassembly to a customer’s specifications might be completed.
Similarly, some large bars may installtanks on their premises, with beer being distributed directly from the breweryby tanker.
However, hopefully the three examplescenarios give you a reasonable idea how distribution networks might differfrom one industry to another. In a future article, I’ll try to explain some ofthe cost impacts of each type of network, but right now it’s time to close downthe desktop computer, drink some beer and eat some beans, hopefully with a nicepiece of steak on the side.