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Understanding the need to evolve distribution channels

Posted: 09 Apr 2014     Print Version  Bookmark and Share

Keywords:distribution channel  electronics  customer base  business model 

The need to shift distribution bases to keep pace with the rapid shifts in business and customer bases has never been more pronounced than as of late. From the analytics standpoint, the process is easy. Companies can now see shifts in their customer base, changes required in their business models, and even shifts in demand in near real-time. But getting the physical realities of the supply chain aligned with the realities that appear in digital reports is where the problem comes in.

Nowhere is this more evident than in the electronics industry, where Simon Ellis, who leads the supply chain strategies practice at IDC Manufacturing Insights, reports four major trends: a need to capitalize on emerging markets like India, the Middle East and South America; a need to change sourcing patterns to more country-specific or regional strategies; a need to build customer-centric supply chains that are near customer bases and offer improved customer service; and a need to "get smarter" with greater supply chain visibility and improved use of business analytics.

Like the retail industry in general, the distribution channels for electronics now must shift with the currents of new customer bases and demands, instead of remaining staid and relatively stable, as they have in years past. This is a major change for companies, which by practice have reviewed their distribution networks every five or six years, and not a moment sooner, due to the effort involved.

There are lots of reasons to avoid distribution network reviews. As a starter, these reviews are time-consuming and gruelling. It is much more convenient to stay with your current distribution centres and just fit your costs into them. That approach has historically worked and is culturally comfortable for many organisations.

The tried-and-true approach of a set distribution network also means that everyone internally who would have to be involved in a distribution network review doesn't have to do it. Instead, they can focus on their many other responsibilities. Then there is the reality that many companies lack the internal expertise to perform a thorough review of their distribution networks, which can involve complicated network modelling, cost modelling and scenario projections.

Nevertheless, as the global economy continues expanding and as retailers (including electronics manufacturers and dealers) see their e-commerce and brick-and-mortar sales and distribution channels come together in omnichannel retail, there is a growing recognition that distribution networks can no longer remain static. Instead, these networks must be malleable and able to adjust to changes in business and customers.

"The variety of customer bases and retail business models means that there must also be a diversity of approaches to the market, as well as different patterns of distribution," Ben Cubitt, SVP of consulting and engineering for the third-party logistics and technology solutions provider Transplace, told me this week. "The supply chain distribution network needs to be fluid. One size does not fit all when it comes to [distribution centres] and supply chain networks."

This means that freight, labour, inventory carrying and real estate costs must be balanced against customer service requirements. If all your customers are satisfied with a normal delivery timeline of 3-5 days, your distribution picture is simplified. If some customers expect immediate fulfilment, the task becomes locating distribution centres closer to major concentrations of customers or transportation points, and being able to modify these locations when customer and business shifts require it.

"Retailers need to have facilities located close to UPS or FedEx ground locations because consumers want next-day delivery of their orders," noted Kris Bjorson, managing director of the retail/e-commerce distribution group for Jones Lang LaSalle. "You can pick an order faster and get it to a later cut-off time to deliver to a customer the next day."

- Mary E. Shacklett

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