Distribution in the supply chain

Distribution is part of the supply chain and it involves the transportation of goods from the producer to the end-customer (Encyclopaedia Britannica 2013a). Stevenson (2011, p. 644) gives a conceptual example of a typical supply chain in a manufacturing envi-ronment, and it is shown in figure 3.1. with distribution separated from the supply chain. The arrows indicate the direction of materials and finished products flowing downstream in the supply chain. Other flows include the flow of information and money and reverse logistics (Stevenson 2011, p. 644; Ballou 2004, p. 8), but they are not pre-sented in the figure.

Figure 3.1. An example of distribution in the supply chain (adapted from Stevenson 2011, p. 644)

This example is similar to Company X’s situation: goods are transported from manufac-turing to storage whence distributors collect them to their own distribution centers. Ul-timately, the products are delivered to the end-customers, and a separate retailer echelon does not exist per se. Stevenson’s example is clearly created from the point of view of a single customer or product as there is only one customer, one retailer and so on. In an actual supply chain, the number of participants would multiply downstream from manu-facturing: the number of storage facilities, distributors and especially retailers and cus-tomers is seldom only one. When complex products, such as cars or cell phones, are produced, the supply chain is far more complex upstream, also, and there may be hun-dreds of suppliers.

In figure 3.1., no separate text boxes are used to show transportation between different facilities. However, transportation is needed in most occasions between the different steps – even if the warehouse is situated in the same building as manufacturing, the fin-ished products have to be transported between the two by forklifts or other in-house lo-gistics measures. Thus one could argue that every arrow in the figure is a separate trans-portation event.

Naturally, the structure of the supply chain and the organization of distribution vary from one company to another. If multiple steps, or echelons, between manufacturing and the end-customer exist, inventory can be handled my multi-echelon inventories, which refers to planning inventory levels in the different echelons simultaneously and in accordance with each other (Ballou 2004, pp. 334-335). This, however, requires close

cooperation between the different parties and is most suitable for situations where the manufacturing company is in charge of the entire outbound logistics chain with as few intermediaries as possible (Simchi-Levi et al. 2003, p. 69). In a situation like Company X’s, where distributors are in charge of the process after they receive the products, such harmonization of inventory levels is impractical.

The scope of investigating a distribution channel is, of course, defined by the extent to which changes can be made. If a manufacturer controls the distribution channel all the way to the end-customer, it is simpler to solve problems within the distribution channel as a whole. However, if the manufacturer considers its distributor to be the end-customer, the distribution channel ends at the distributor. Thus the manufacturer’s dis-tribution channel can even be considered to be limited to finished products being trans-ported from manufacturing to distributors. Such transactional views of the supply chain have historically been the focus of companies, but extending it to the entire supply chain is an emerging alternative – and a reason why the concept “supply chain” has even come to existence (Ballou 2004, p. 8).

The scope of this thesis is more specific than supply chains in general - or even distribu-tion. Namely, this thesis is interested in the transportation from manufacturing to dis-tributors. In figure 3.2., the part of Stevenson’s supply chain example that is relevant to this thesis is highlighted. The example is not identical to Company X’s situation, but the principle is the same: transporting products from manufacturing to distributors.

Figure 3.2. Scope of this thesis visualized in a supply chain example (adapted from Stevenson 2011, p. 644)

In short, the scope of this thesis consists of outbound transportation from the manufac-turing plant in Tatarstan and Yanino, the warehouse in Saint Petersburg, to one or more distribution centers and from then on to the distributor. In a larger, strategic sense, the role of distributors in general is discussed, but their existence is still considered as a pre-requisite for the alternatives developed.

Company X’s distribution situation post-Tatarstan is visualized in a greatly simplified form in figure 3.3., where it has been fitted to Stevenson’s example. The figure depicts the steps in Company X’s supply chain downstream from manufacturing. Only four symbolical distributors are drawn, and their function is to show that some distributors are catered to by one distribution center (DC X) and the rest by the other distribution center (DC Y) – if two new distribution centers are chosen. The amount and direction of the transportation flows may vary, too, and although there is no arrow between Yanino and distribution center Y, some transportation would most likely happen.

Figure 3.3. Company X's future supply chain in Russia downstream from manufactur-ing. The nodes with a solid line are “set in stone” whereas the dashed-line nodes – the distribution centers – are still speculative. The transportation between nodes depends on their final configuration.

Figure 3.3. could be drawn in a number of different ways by omitting one distribution center, drawing more or fewer transportation arrows, echelons of distributors and so on.

Thus the figure above is mostly an attempt to present visually what possibilities are dis-cussed in this thesis and what elements constitute them. What is essential is the concep-tual division between products coming from Europe and from Tatarstan. The current

situation is similar to the left side of the figure, and the nodes for Tatarstan and distribu-tion centers X and Y do not currently exist at all.

Other than visualizing the future situation, the value of figure 3.3. is in defining the cur-rently non-existent parts of the supply chain and the scope of this thesis: the part of the figure where these two overlap is what is borne in this thesis. These new storage nodes are distribution centers, and the theoretical significance of distribution centers in the supply network is discussed in the next subchapter.