Opportunities in Distribution

distribution1

 

Distribution is a big challenge for any organization involved in making a large number of Stock Keeping Units (SKUs) available at numerous retail outlets. These include Consumer Goods, FMCG and Apparel companies, Automobile Component Manufacturers, Wholesalers and Retailers.

Distribution systems have a few typical characteristics.

  • Consumptions locations are normally far from production locations
  • Tolerance time of buyer much shorter than what it takes to make product available at consumption location
  • Availability i.e. having the right inventory at the right place at the right time is the key challenge
  • For wholesalers, cash is the constraint as it is tied up in the inventory.

To improve availability, manufacturers ‘push’ their  products in the distribution so that there is high inventory available at the retail points. However, there are a number of problems associated with high level of inventory that can jeopardize sales:

  • Products with short shelf life may be difficult to sell close to the expiry date and can result in losses if expired
  • Due to obsolescence, it may be difficult to sell some products and company may delay introduction of new products due to unsold inventory resulting in loss of market share. Further, these products may have to be sold at discount resulting in lower profitability
  • Carrying high inventory also means less variety at consumption points and lost sales

 

Theory of Constraints (TOC) Distribution solution (also known as Replenishment solution) is an extremely effective solution that addresses the challenges in the supply chain. It is a counter-intuitive solution based on principles of statistics and buffer management. The sophisticated solution results in a drastic reduction of shortages (hence increase in availability) and reduction of high level of inventory in the system, thus releasing cash and huge improvement in inventory turns.