Product Distribution Basics You Should Know
BASIC PROCESS OF PRODUCT DISTRIBUTION
Distribution is influenced by several factors in the distribution network structure that can lead to achieving good service for consumers. These factors include the following. (Chopra and Meindl, 2007):
Response time
Relates to the time it takes to reach the consumer. This is very influential on the product because if there is a substitute product if there is a delay in the delivery process, the consumer will switch to another product. Thus, the distribution network must quickly respond to market conditions that can change at any time.
Product variety
The many types of products offered by these distribution channels, when the types of products offered are many, the distribution channels will be more complicated and require other control tools to get efficient costs.
Product availability
The availability of these products when market demand is higher than the expected demand. This usually occurs at certain times, for example for products that are fast-moving consumer goods during religious holidays or new years. Forecasting the increase in sales is very important to get the maximum profit for a limited time.
Customer experience
The ease with which consumers can get the product and use the product. For example, if a product is categorized as a consumer product, the market demand for that product is in a large capacity or volume.
Time to market: the time it takes for the market to be able to accept and respond to the product when there is a new product. Channels or distribution networks must take this problem into account because if the forecast for the absorption of new products misses a lot then the product will usually be called a failed product by the market.
SUPPLY CHAIN MANAGEMENT OPERATIONAL ACTIVITIES
Production And Distribution
1. Product Design
Selection and design concern the components needed to build a product based on available technology and product performance requirements. Product design will describe the shape of the supply chain and have a big impact on the availability of costs.
In designing a good product, three perspectives are coordinated, namely design, procurement, and manufacturing, so that an efficient supply chain can be formed. This will speed up the time to deliver the product to the market and at the same time create competitive products.
2. Production Scheduling
Production scheduling means allocating the available capacity (equipment, manpower, and facilities) with the work required to be carried out most profitably and efficiently.
Production and operation scheduling includes a process of finding the balance between several competitive targets, which are as follows:
- Utilization of high-level tariffs, means production is focused on distribution and manufacturing. The goal is to produce products that benefit from economies of scale.
- Low inventory levels, this generally means that production is short/short and on time, delivery of raw materials must be and carried out frequently.
- High level of service for customers, often requires many short productions. The goal is to provide products for customers with a fast time and not allow them to run out of stock.
One of the common techniques in scheduling production is the product concept which is based on the number of weeks or days in determining product inventory based on demand.
3. Order Management
Order Management is the process of order information from customers to retailers than to distributors through the supply chain. This process also includes information about the order delivery, product replacement, and re-ordering to customers in the supply chain.
The order management process must be carried out to meet consumer demand by always providing information to workers so that corrective action can be taken. One of the management that can be done is automating routine orders and handling them specifically. Therefore, supply chain complexity and market demand in order management is a process that must be developed rapidly.
4. Delivery
Scheduling product delivery operationally will influence decisions regarding the transportation style to be used. In connection with the delivery schedule related to transportation, there are two types of delivery methods, namely direct submission and submission milk run.
Direct submission
This method of submission is done simply, namely choosing the shortest route. This type of delivery scheduling involves decisions about the number of deliveries and the frequency of deliveries to the destination.
The advantage of this method of delivery is the simplicity of coordination of delivery and operation because it transfers products directly from the manufacturing or storage location. This type of delivery is efficient if it is carried out based on the economical order quantity and the selection of the right type of transportation.
Milk run
submissions Milk run submissions are deliveries that funnel product from a single initial placement to multiple product-accepting placements until finally to a single recipient placement. Scheduling milk runs submissions is much more complex than scheduling direct submissions.
The decisions that must be made include the delivery of products in different quantities, frequency of delivery, and the sequence of deliveries.
MARKET MODEL AND INVENTORY CHAIN
The four basic quadrants of the market, namely the first quadrant is a market in which both the demand and supply of products are low and unpredictable.
The second quadrant is a market where supply is low and demand is higher and is called a developed market.
The third quadrant contains a market where both supply and demand are high. There are many possibilities to predict in this market, therefore it is also called a steady market.
The fourth quadrant is a market where supply is higher than demand. This kind of market is called a mature market because there is the competition between its products.
First Quadrant
In a developing market, demand and supply are low and uncertain. This market is generally an emerging market.
These markets are created by newly available technology or by social and economic trends that cause a group of customers to feel a need. An opportunity in a developing market is the partnership between the players in the market and the supply chain.
Second Quadrant
A developed market is a market if the demand is higher than the supply so that the supply is often uncertain. The opportunity in a developed market is to provide superior and scalable customer service by on-time orders and delivery. Customers in a market like this are customers who can be trusted and are willing to pay a premium for reliability.
Third Quadrant
In a steady market, demand and supply are high and so predictable. It is a market that is formed when supply and demand are in balance. Companies need to focus on reducing sales costs and inventory on maintenance for customer service.
Fourth Quadrant
In mature markets, supply is higher than the existing demand. Demand is stable or slowly falling due to oversupply competition, demand seems uncertain from the supplier side of this market. Customers can get convenience because they can buy an inexpensive product.
a. Achievement of market categories
Each quadrant has its combination of market opportunities for the supply chain. To grow, companies in a supply chain must be able to work together to take advantage of the opportunities available in their markets. The measurement categories used are as follows.
Customer service
Customer service measures the ability of the supply chain to meet customer expectations. In the type of market that is being served, customers in that market will have different expectations for customer service. Customers in some markets are expected to pay more for product availability and faster delivery.
Internal Efficiency
Internal efficiency refers to the ability of a company or a supply chain to operate to produce an appropriate level of profitability. A developing market will get a higher profit margin in the context of investing money and time. In a mature market, there is uncertainty and risk so that profit margins are lower. This marketplace offers an opportunity to enlarge the volume of businesses to assemble and deliver products in bulk.
Several measures of internal efficiency are as follows:
- Inventory value. In the supply chain, companies are always looking for ways to reduce inventory while trying to avoid excess inventory.
- Inventory turnover. This is a way of measuring the profitability of inventory throughout the year.
- Inventory for resale. Is a measure of how well an operation is by measuring how well the determination of variable costs and also gross profit.
- Cash-To-Cash. This is the time a company pays its distributors for the purchased material.
- Request Flexibility. This category measures the ability to react to uncertainties in the level of production demand. This shows how an increase in demand can be handled by a company or a supply chain which means it also includes the ability to react to uncertainties in the market. This capability is often required in the adult market.
- Product development. This includes the company's ability and supply chain capabilities to jointly improve market services. This is necessary to measure the capabilities of new products on time. This capability is necessary for emerging markets.
b. Generic model of product distribution
In distribution practice, several products of the same type are often obtained but have different distribution characteristics. Products of the same type are still successful in the market.
The opposite also happens where products of different types, but using the same distribution method, which ultimately also get the same success.
For example, Dell's notebook products are only available in the market with a very limited model because Dell uses the Make To Order method (MTO) through internet sales (web-based transactions) so that the distribution model will follow the dropshipping method (given directly to customers after manufacturers accept orders).
Even in the case of Dell, a buyer could choose his own shipping company with different cost consequences. The opposite is done by Toshiba, namely, consumers can get Toshiba notebook products of various types with quite a lot of product variants.
This shows that Toshiba's distribution type is more on fulfilling stock in the market to anticipate consumer demand. Some examples of generic product distribution models can be explained as follows.
Direct delivery (drop shipping)
In this product distribution method, consumers will initially carry out the order process through a retailer or agent appointed by the manufacturer, then the agent forwards orders from the consumer to the manufacturer.
The manufacturer already has stock which can then be sent directly to consumers without going through the retailer who is the previous ordering agent. In other types, the role of the retailer or agent can be replaced by virtual means such as the internet for transactions via the internet.
Furthermore, if the manufacturing company has been able to meet the product desired by consumers, it will send it directly. This method is often referred to as manufacturer storage with direct shipping. In terms of the complexity of procurement and distribution, this method of dropshipping is quite simple and inexpensive so that many manufacturers use this method to reduce their distribution costs by establishing mutually beneficial cooperation with the shipper.
Another advantage obtained is that companies do not need to place their stock of goods on the market so that it will reduce inventory costs and the complexity of demand caused by product variations that retailers will store in response to consumer desires.
Direct shipping through transit products (direct shipping and in-transit merge)
Distribution by direct shipping is expanding more widely by involving transit facilities that are managed by distributors or retailers. This is a response to consumer desires, especially for products consisting of several components supporting, for example, a personal computer unit (PC).
Consumers initially place an order for several types of products from retailers or distributors and then forward them to the respective manufacturers. After the order is filled, the producer does not send it directly to the consumer but sends it back to the retailer or distributor's transit warehouse which is intended to sort and classify products according to orders consumer.
Therefore, the main function of this transit warehouse is to customize products for consumer orders. It is easy to understand that personal computer sets can consist of several well-known manufacturers, from monitor units, CPU units, to printer units.
This description clarifies the meaning of distribution, where producers can choose both types of distribution models, if the producer receives a single or similar order, they can send it via drop shipping directly to consumers. However, if you receive an order requiring a combination with products from other manufacturers, the direct shipping and in-transit merge method can be an alternative distribution.
Product distribution through distributor agencies (distributor storage with package carrier delivery). This product distribution model is more top-down in that the producers/manufacturers have appointed agencies to certain principals or distributors to market their products for certain regions or countries.
The pattern of demand from consumers is passed on to distributors which are then continued to producers. After the product is available, the producer will give the product to the distributor to give to consumers.
This seems to be the case, where a single agency system (as the brand holder or principal) will carry out all its activities commercial based on rights obtained from producers. In this case, usually, the distributor will perform a storage function (storage) if the product has a value that is not too significant, both in terms of the price of the product itself and the cost of storing it.
But for products that are quite expensive and the cost of storing also requires special treatment, the storage function is carried out by the manufacturer (for example, imported cars). If efficiency is the goal of this model
distribution, distributors will try to attract production facilities to areas that are accessible (easily accessible) so that the function of delivering products to consumers becomes more reliable. Another way is to transfer knowledge so that imported products can be produced domestically through a technology transfer mechanism.
Distribution through a product approach to consumers through distributor storage (distributor storage with last-mile delivery) In this distribution model is generally decentralized so that the function of a sub-distributor or distributor warehouse that is separated in each distribution area becomes its main characteristic.
The purpose of using this distribution model is to get the product closer to the consumer as much as possible so that the consumer's desire for the product is pursued as soon as possible or the service level must be maximized.
This distribution model is suitable for products that have many competitors (mature stage) so those producers will greatly avoid the existence of stock-out products which often if this happens will be filled with substitute products or in other words inviting competitors to enter the same business area.
Initially, this distribution pattern was raised by looking at potential customers for an area and if this is sufficient, the distributor will create a warehouse in that area to provide immediate service if there is an order from a buyer.
When a distributor uses this method, there will be a trade-off (exchange) which is the basis for the decision, whether storage and distribution costs are increased or the level of service to consumers is better. Service products often use this method by opening company branches to approach customers for a high level of service.
The consequence of this distribution model is that each potential area will have a distribution warehouse so that it is necessary to uniform the service process to consumers. For example, automotive dealers from one area to another will not find a significant difference in product prices.
Small differences occur due to differences in the cost of transporting the product from the producer to the distributor's warehouse or the existence of an economical ordering of a product so that it is possible to cut prices given to consumers. For the record, in this distribution model, it is not always only used for a single product but the distributor may have an agency function for several products at once.
Distribution with direct collection by consumers (manufacturer/distributor storage with customer pickup) This distribution model combines the cross-docking distribution method introduced by the Wall-Mart convenience store network.
Patterns Distribution this way requires consumers to actively participate in obtaining their products by taking orders at a predetermined point. Consumers in this case can be in the form of retail or product outlets that place orders from producers. At first, consumers place their orders directly to distributors.
This order is generally in the form of several types of products which are then processed from the distributor to be ordered to the relevant manufacturer.
This ordering model is slightly different because all orders are based on the ordering entity, where once the product is available, it will be sent to consumers via cross-docking, where in the process of moving/unloading in this way it is not based on the type of goods but by the ordering entity so that in the process the unloading will not take a long time because it has been separated from one customer to another.
Furthermore, the product will be brought to the agreed place where each consumer (in this case usually retail) will take the appropriate product because it has been sorted since the beginning of the distribution.
The advantage obtained with this distribution model is fast delivery, although it must be combined with several types of products. Many distribution models use this method because of distribution efficiency, especially in terms of costs and time of sorting products to each consumer.
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