Designing of distribution channels are among the most important supply chain decisions, as their implications are significant and long lasting. While designing, we need to consider how all supply chain drivers-facilities, transportation, inventory, information, sourcing, and pricing- should be used together to support the competitive strategy of a firm and maximize supply chain profits.
Distribution is a key driver of the overall profitability of a firm because it affects both the supply chain cost and the customer experience directly. Distribution related costs make up about 10.5 percent of the U.S economy and about 20 percent of the cost of manufacturing. Two of the world’s most profitable companies, Wal-Mart and Seven-Eleven Japan, have built the success of their entire business around outstanding distribution design and operation.
A manager must consider the customer needs to be met and the cost of meeting these needs when designing the distribution network. Some key customer needs to be considered include response time, product variety/availability, and convenience, order visibility, and return ability. Important costs that managers must consider include inventories, transportation, facilities and handling, and information.