7 Supply Chain Management and

Distribution Decisions

CONTENTS
Supply Chain
Supply Chain Management
Distribution Decisions

OUTCOMES
LO1.

OBJECTIVES
For many decades, the customer’s
involvement in the supply chain only
came at the very end. Where
products came from, who made
them, and how they arrived in the
store were not were given much
consideration. Today, consumers are
vitally concerned with supply chain
transparency and sustainability.

To grow and compete in today’s

market, modern SCM software must
be able to gather and interpret all
the data generated and captured
across the entire supply chain. New
technologies are needed to fully
leverage this data – turning it into
real-time insights and using it to
automate SCM processes and
workflows in a smart and agile way.

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 ABSTRACTION

Distribution Decisions
Distribution decisions refer to the strategic choices made by
businesses regarding the distribution of their product and services to
customers. These decisions involve determining the most effective and
efficient ways to get products from the manufacturer or producer to the end
consumer. Ultimately, distribution decisions are integral to a company’s
overall marketing strategy. By effectively managing the flow of products and
services, businesses can optimize customer reach, enhance customer
experience, and gain competitive advantage in the market.
Distribution decisions in strategic business analysis
involve determining the most effective and efficient methods for delivering
products and services to target customers, encompassing choices like direct
sales, intermediaries (wholesalers, retailers), and e-commerce
platforms. These decisions require evaluating factors such as product
characteristics, customer preferences, cost-effectiveness, logistics, inventory
management, and competition to ensure products are available to consumers
when and where they want them.

Key Aspects of Distribution Decisions

1. Channel Selection: businesses must decide on the most appropriate
distribution channels to reach their target market. Choosing between
direct selling (e.g., from manufacturer to consumer), indirect selling
(using intermediaries), or dual distribution (a combination of
both). Channels can include direct sales, retail stores, wholesalers,
distributors, online platform, or combination of these.

2. Channel Design: This involves establishing the structure and

organization of the chosen distribution channels. It includes decisions
regarding the number of intermediaries, their roles and responsibilities,
and the relationship between the manufacturer, distributor, retailer,
and customer.

3. Logistics and Transportation: determining how products will be

physically transported from the point of production to the point of
consumption is crucial. This includes considerations such as mode of
transportation, inventory management, warehousing, and order
fulfillment.

4. Geographic Coverage: businesses must decide on the geographi that

they want to serve and develop distribution networks accordingly. This
may involve decisions on regional, national, or international
distribution, depending on the scope of business.

5. Customer convenience: businesses must ensure that their products

are easily accessible to customers through suitable distribution
channels and locations. This may involve establishing partnerships with

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 retailers, offering online purchasing options, or providing delivery
services.

6. Cost Considerations: Distribution decisions must also take into

account financial implications of various distribution options.
Businesses need to analyze the costs associated with each channel,
transportation, inventory holding, and any additional services required
to deliver the products to customers.

7. Market dynamics and competition: understanding the market

landscape and competitive environment is crucial in making effective
distribution decisions. Analyzing customer preferences, competitor
strategies, and market trends can help businesses determine the most
advantageous distribution approaches.

8. After-sales service: distribution decisions must also consider the

provision of after-sales services such as product warranties, repairs,
and customer support. Ensuring that customers have access to support
and assistance can contribute to customer satisfaction and loyalty.

Factors Influencing Distribution Decisions

1. Product Characteristics: The nature of the product, its value, and
perishability influence the appropriate distribution channel.

2. Target Market & Customer Preferences: Understanding how and

where target customers prefer to shop and receive products is crucial.

3. Cost and Efficiency: The cost of different distribution options and the
overall efficiency of the supply chain are significant considerations.

4. Competition: Analyzing competitors' distribution strategies can reveal

opportunities or necessitate different approaches.

5. Resources and Capabilities: A company's financial resources,

logistical capabilities, and existing partnerships play a role in
determining feasible distribution options.

6. Legal and Regulatory Considerations: Compliance with laws and

regulations related to distribution and sales is essential.

Strategic Importance
1. Market Penetration: Effective distribution ensures products reach
target markets, driving penetration and sales.

2. Customer Satisfaction: Products being available at the right place,

at the right time, and in the right quantities leads to higher customer
satisfaction.

3. Cost Reduction and Profitability: A well-planned strategy can

optimize logistics, reduce costs, and improve profit margins.

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 4. Competitive Advantage: A superior distribution network can provide
a distinct competitive advantage by making products more accessible
and visible.

Distribution Strategy
In the business world, the term “distribution” refers to the channels,
logistics, and processes to move products and services from the point of
manufacture, production, or creation to the ultimate end-users.
When “distribution” is linked to “strategy,” the question is: How can
distribution serve as a component or variable to support a company’s overall
business and marketing strategy?
Distribution is often an unrecognized and underappreciated element of
strategy, yet it is almost always an important factor in a winning strategy.

We could go on with an unlimited number of companies and examples

of distribution strategies that helped propel those companies to success, but
it might be more enlightening to summarize some of the ways that
distribution can play a key role in strategy:

 Open new markets. Opening up a new channel of distribution, or

expanding distribution into new geographic areas, can give new groups
or new types of consumers access to a company’s products or
services. For example, a coffee manufacturer selling its coffees only in
supermarkets might decide to buy its own trucks and start an office
coffee business to deliver its coffees directly to workplaces. Or, the
coffee manufacturer might decide to open its own coffee shops, or it
could decide to distribute its coffees in new geographic areas.

 Speed up delivery. Distributing a product or service more quickly is

sometimes enough of an advantage to justify a new distribution
strategy. Amazon combined speed-of-delivery with a direct-to-
consumer business model to forge its distribution strategy. Uber
combined speed of delivery with smartphone app convenience.

 Reduce costs. If a new system of distribution or improved logistics

can significantly reduce costs and improve profit margins, then that
distribution strategy might be worthy of pursuit. For example, if a
retailer is operating a very expensive retail-store distribution system,
the chain might benefit from shifting some of its sales to an online
distribution system to save money.

 Reduce out-of-stocks. If retail out-of-stocks is a major problem in an

industry or product category, then a new distribution strategy might be
called for. Often, an out-of-stocks problem must be attacked with one
eye on marketing and promotional activities and the other eye on
supply chain and logistics. What looks like a logistics problem might
actually be a promotional problem (i.e., consumer promotions might be
causing the out-of-stock problem).

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  Achieve distribution. If a small company with limited resources has
developed an appealing new product but can’t get its new product on
the shelf in retail stores, then it could approach a major retailer and
offer to distribute its new product exclusively in that retailer’s stores.
While this strategy limits the upside potential of a new product
because it limits distribution possibilities, it might still be a wise
strategy for a small company (limited distribution is better than no
distribution). A variation of this strategy is to offer the new product to
each retail chain under an exclusive brand name (i.e., each retailer has
its own unique brand identity).

 Burnish a brand image. The types of stores a product is placed in

can shape and reinforce the consumer’s image of that brand. So, a
luxury brand might choose to be distributed exclusively in upscale,
high-end retail stores. In contrast, a brand targeting a mass market
might seek distribution in every channel and every nook and cranny of
the economy.

 Block a competitor. If a manufacturer should become aware that a

major competitor is planning to massively expand its online presence
and direct-to-consumer business activity, then that manufacturer
might aggressively expand its own direct-to-consumer channel of
distribution as a blocking action or delaying tactic to blunt the
competitor’s actions.

Supply Chain Management

What is a Supply Chain?

A supply chain is an entire system of producing and delivering a
product or service, from the very beginning stage of sourcing the raw
materials to the final delivery of the product or service to end-users.

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 The supply chain lays out all aspects of the production process,
including the activities involved at each stage, information that is being
communicated, natural resources that are transformed into useful materials,
human resources, and other components that go into the finished product or
service
A supply chain is a network of individuals and companies that are
involved in creating a product and delivering it to the consumer. Links on the
chain begin with the producers of the raw materials and they end when the
van delivers the finished product to the user.
In strategic business analysis, the supply chain is crucial for achieving
competitive advantage and operational efficiency. It's not just about
logistics; it's about aligning the entire flow of goods and services with the
overall business strategy. A well-defined supply chain strategy ensures that a
company can meet customer needs effectively, optimize costs, and adapt to
changing market conditions.

Key Aspects of Supply Chain in Strategic Business Analysis:

1. Alignment with Business Goals: The supply chain strategy must
directly support the company's mission, vision, and overall business
objectives.

2. Holistic Approach: It encompasses all aspects of the supply chain,

from sourcing raw materials to delivering the final product to the
customer, including all related processes and partnerships.

3. Strategic Decision-Making: The supply chain strategy informs

decisions about what products to offer, when to offer them, and where
to offer them, as part of a competitive plan.

4. Competitive Advantage: A well-managed supply chain can be a

source of competitive advantage, leading to cost savings, improved
customer service, and increased agility.
5. Data-Driven Insights: Supply chain analytics, including the analysis
of both structured and unstructured data, helps in optimizing
processes, predicting demand, and making informed decisions.

6. Resilience and Adaptability: A strong supply chain strategy includes

the ability to adapt to disruptions, manage risks, and ensure business
continuity.

7. Collaboration and Partnerships: Effective supply chain

management requires collaboration and strong relationships with
suppliers, distributors, and other partners.

8. Continuous Improvement: Supply chain strategy should be a

dynamic process, constantly evaluated and improved to meet evolving
business needs and market conditions.

Examples of Supply Chain in Strategic Business Analysis:

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 1. Demand Forecasting: Using historical data and other factors to
predict customer demand, allowing for efficient inventory management
and production planning.

2. Inventory Management: Optimizing inventory levels to minimize

holding costs and prevent stockouts.

3. Logistics Optimization: Using data analytics to improve

transportation routes, warehouse locations, and delivery schedules.

4. Supplier Relationship Management: Developing strong

relationships with reliable suppliers to ensure a consistent supply of
quality materials at competitive prices.

5. Technology Adoption: Implementing technologies like automation,

blockchain, and AI to streamline processes, improve visibility, and
enhance decision-making.

By integrating the supply chain into strategic business analysis,

companies can create a more efficient, resilient, and customer-focused
operation, leading to improved profitability and competitive advantage.

Understanding a Supply Chain

A supply chain includes every step that's involved in getting a finished
product or service to the customer. The steps may include sourcing raw
materials, moving them to production, then transporting the finished
products to a distribution center or retail store where they can be delivered to
consumers.
The entities involved in the supply chain include producers, vendors,
warehouses, transportation companies, distribution centers, and retailers.
The supply chain begins operating when a business receives an order from a
customer. Its essential functions include product development, marketing,
operations, distribution networks, finance, and customer service. It can lower
a company's overall costs and boost its profitability when supply chain
management is effective. It can affect the rest of the chain and can be costly
if one link breaks.

What Are the Main Supply Chain Models?

The supply chain model that a company selects will depend on how the
company is structured and its specific needs.

 Continuous Flow Model: This traditional supply chain model works

well for companies that produce the same products with little variation.
The products should be in high demand and require little to no
redesign. This lack of fluctuation means managers can streamline
production times and keep tight control over inventory. Managers must
regularly replenish raw materials to prevent production bottlenecks in
a continuous flow model.

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  Fast Chain Model: This model works best for companies that sell
products based on the latest trends. Businesses that use this model
must get their products to market quickly to take advantage of the
prevailing trend. They must rapidly move from idea to prototype to
production to consumer. Fast fashion is an example of an industry that
uses this supply chain model.

 Flexible Model: Companies that manufacture seasonal or holiday

merchandise often use the flexible model. They experience surges in
demand for their products followed by long periods of little to no
demand. Using the flexible model ensures that they're able to gear up
quickly to begin production and shut down efficiently as soon as
demand tapers off. Profit depends on being accurate in forecasting
their need for raw materials, inventory, and labor.

Supply chain management (SCM) is a crucial component of strategic

business analysis, focusing on optimizing the flow of goods and services from
origin to the end customer. It involves coordinating all activities within the
supply chain, including sourcing, procurement, logistics, and more, to
enhance efficiency, reduce costs, and improve overall business
performance. Effective SCM is essential for gaining a competitive advantage
by ensuring timely delivery, minimizing disruptions, and meeting customer
expectations.

Key Aspects of SCM in Strategic Business Analysis:

1. Strategic Alignment: SCM strategies must align with the overall
business strategy, mission, and vision of the organization. This ensures
that supply chain operations support broader organizational goals and
objectives.

2. Cost Optimization: SCM aims to minimize costs throughout the entire

supply chain, including production, transportation, and inventory
management.

3. Efficiency and Responsiveness: Efficient supply chains streamline

processes, reduce waste, and minimize delays, while also being
responsive to market demands and customer needs.

4. Risk Management: SCM plays a vital role in identifying and

mitigating potential disruptions, such as natural disasters, supplier
issues, or IT failures.

5. Customer Satisfaction: By ensuring timely delivery and product

availability, SCM directly impacts customer satisfaction and loyalty.

6. Technological Integration: SCM utilizes various technologies,

including Enterprise Resource Planning (ERP) systems like SAP
S/4HANA, to improve visibility, automate processes, and enhance
decision-making.

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 7. Data Analysis and Business Analytics: SCM relies on data analysis
to identify trends, optimize performance, and make informed
decisions.

What Is Supply Chain Management (SCM)?

Supply chain management (SCM) is the monitoring and optimization of

the production and distribution of a company’s products and services. It
seeks to improve and make more efficient all processes involved in turning
raw materials and components into final products and getting them to the
ultimate customer. Effective SCM can help streamline a company's activities
to eliminate waste, maximize customer value, and gain a competitive
advantage in the marketplace.

How Supply Chain Management (SCM) Works

SCM represents an ongoing effort by companies to make their supply
chains as efficient and economical as possible.
Typically, SCM attempts to centrally control or link the production,
shipment, and distribution of a product. By managing the supply chain,
companies can cut excess costs and needless steps and deliver products to
the consumer faster. This is done by keeping tighter control of
internal inventories, internal production, distribution, sales, and the
inventories of company vendors.
SCM is based on the idea that nearly every product that comes to
market does so as the result of efforts by multiple organizations that make up
a supply chain. Although supply chains have existed for ages, a lot of

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companies didn't pay attention to them as a value-add to their operations
until recently.

5 Phases of Supply Chain Management (SCM)

A supply chain manager's job is not only about traditional logistics and
purchasing. They have to find ways to increase efficiency and keep costs
down while also avoiding shortages and preparing for unexpected
contingencies. Typically, the SCM process consists of these five phases:

1. Planning. Planning involves forecasting demand, arranging production

and managing inventory levels to ensure that the right products are
ready to meet customer demand. It also involves setting an overall
SCM strategy by determining metrics to measure whether the supply
chain is efficient, effective and meets company goals. And it includes
adapting to new product needs. To get the best results from SCM, the
process usually begins with planning to match supply with customer
and manufacturing demands. Companies must try to predict what their
future needs will be and act accordingly. That means taking into
account the raw materials or components needed during each stage of
manufacturing, equipment capacity and limitations, and staffing needs.
Large businesses often rely on enterprise resource planning
(ERP) software to help coordinate the process.

2. Sourcing. Sourcing involves identifying which providers to work with,

negotiating contracts and managing supplier relationships to ensure a
reliable supply of raw materials and components. The work includes
ordering, receiving, managing inventory and authorizing supplier
payments.
Effective SCM processes rely very heavily on strong relationships
with suppliers. Sourcing entails working with vendors to supply the
materials needed throughout the manufacturing process. Different
industries will have different sourcing requirements. In general, SCM
sourcing involves ensuring that:
1. The raw materials or components meet the manufacturing
specifications needed for the production of the goods.
2. The prices paid to the vendor are in line with market
expectations.
3. The vendor has the flexibility to deliver emergency materials
due to unforeseen events.
4. The vendor has a proven record of delivering goods on time and
of good quality.
5. SCM is especially critical when manufacturers are working with
perishable goods.

3. Manufacturing. Using machinery and labor to transform the raw

materials or components the company has received from its suppliers
into something new is the heart of the supply chain management
process. This final product is the ultimate goal of the manufacturing
process, though it is not the final stage of SCM.

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 The manufacturing process may be further divided into sub-
tasks such as assembly, testing, inspection, and packaging. During the
manufacturing process, companies must be mindful of waste or other
factors that may cause deviations from their original plans. For
example, if a company is using more raw materials than planned and
sourced for due to inadequate employee training, it must rectify the
issue or revisit the earlier stages in SCM.

4. Delivery. Once products are made and sales are finalized, a company
must get those products into the hands of its customers. A company
with effective SCM will have robust logistic capabilities and delivery
channels to ensure timely, safe, and inexpensive delivery of its
products.
This includes having a backup or diversified distribution methods
should one method of transportation temporarily be unusable. For
example, how might a company's delivery process be impacted by
record snowfall in distribution center areas?

5. Returns. The SCM process concludes with support for the product and
customer returns. The return process is often called reverse logistics,
and the company must ensure it has the capabilities to receive
returned products and correctly assign refunds for them. Whether a
company is conducting a product recall or a customer is simply not
satisfied with the product, the transaction with the customer must be
remedied. Returns can also be a valuable form of feedback, helping the
company to identify defective or poorly designed products and to make
whatever changes are necessary. Without addressing the underlying
cause of a customer return, the SCM process will have failed, and
returns will likely persist into the future.

Approaches to Supply Chain Management

There are several strategic approaches to SCM. Companies can pursue
different strategies based on their needs, budgets, capabilities and long-term
goals and priorities. Common approaches include:

1. Lean supply chain management. This approach focuses on

eliminating waste in all forms, including excess inventory, unnecessary
transportation and inefficient processes. The goal is to create a
streamlined, cost-effective supply chain.

2. Agile supply chain management. This approach emphasizes quick

response to changes in customer demand and market conditions. It
often involves practices such as quick batch production, rapid
replenishment and flexible supplier contracts.

3. Six Sigma. This approach is data-driven and aims to eliminate defects

and reduce variability in supply chain processes. It uses statistical
methods to identify and remove the causes of errors and minimize
variability in manufacturing and business processes.

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 4. Total quality management (TQM). This approach focuses on
improving quality throughout the supply chain, with the goal of
increasing customer satisfaction. It involves continuous improvement
efforts and often includes practices such as supplier quality
management and process standardization.

5. Resilient supply chain management. This approach focuses on

building a supply chain that can withstand disruptions and adapt to
changing conditions. It focuses on identifying potential risks in the
supply chain and developing strategies to mitigate them. These
strategies might include diversifying suppliers, creating contingency
plans and investing in supply chain visibility tools.

6. Green supply chain management. This approach focuses on

minimizing the environmental impact of the supply chain and
promoting social responsibility. It can involve practices such as
sustainable procurement and participation in the circular economy.

7. Digital supply chain management. This approach uses technologies

such as artificial intelligence (AI), machine learning (ML), Internet of
Things (IoT) and advanced analytics to enhance various aspects of
supply chain management, including demand forecasting, inventory
management and logistics.

In today’s interconnected global economy, supply chain management

has become a critical factor in the success of businesses across industries.
From small startups to multinational corporations, organizations are
increasingly recognizing the importance of efficiently managing the flow of
goods, information, and finances from suppliers to end consumers.
Supply chain management is no longer just about moving products
from point A to point B; it’s a complex, strategic discipline that can
significantly impact a company’s bottom line, customer satisfaction, and
competitive advantage.

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