Getting ahead of the rest
September 1st 2011

Richard Powell at Crimson & Co says focusing on the need for seamless distribution is crucial to creating competitive advantage

Distribution has been rigorously honed and streamlined.

Not everywhere; but most practitioners know that they need to make the most efficient use of their assets, balance transport flows effectively, and achieve the best cost/service trade-off for their business model.

Where this doesn't happen, management generally knows its distribution shortcomings but perhaps just hasn't got round to putting in a fix. This is a management failing, not a lack of understanding.

The recession has caused margins to reduce, cost pressures to rise, cost of goods to climb and there are ongoing pressures on manufacturing.Cash has become even more important for businesses to hold onto, which puts the spotlight onto stock levels and underutilised assets. Service level requirements haven't diminished, though, as companies vie for every ounce of competitive advantage.

So how does distribution improve? The first move is to put the basics in place. This includes optimising the distribution network so there is the right amount of capacity in the right areas, balancing transport flows and taking intelligent decisions as to where and when to outsource to the right partners.

Focusing on the need for seamless distribution as part of a supply chain is also crucial; the rest of the supply chain probably has more of an influence on competitive advantage than distribution alone.

Businesses with elongated or 'long' supply chains have issues, such as long order lead times, and long transit times, that are exacerbated by market conditions.Many companies fail to deliver when immediate decisions are needed, instead attempting minor fixes, which won't provide long term solutions.

Distribution is rarely the crucial element of supply chain cost and if companies are looking at more fundamental changes, they need to think beyond functional improvements. Look forward in the supply chain to the customer proposition itself.

Making a step change in delivery costs is not always about doing things 'more efficiently' – sometimes it is achieved by doing something different. This was the case for one of our clients, Avon Cosmetics. Historically, Avon had delivered all orders to its reps directly. This had advantages, but we improved it.

Some reps continued with the milk-round deliveries and others would move to picking up product themselves, when they needed it, from a pick-up location. This was a big change to the customer offering, giving the opportunity to reduce the time a consumer has to wait before delivery.

This presented a challenge; reducing volume through a distribution network typically has an adverse impact on costs.

This would be true if 'average' representatives were transferred to a pick-up solution. However, the breakthrough came when the relative costs of serving 'large' and 'small' representative orders was analysed.While the 'average cost per representative' was cheaper than comparable pick-up costs, the costs of serving 'small' representative orders (one or two cases) was more than the pick-up costs. Knowing this allows Avon to segment its delivery options and offer a better service while reducing cost; the end-to-end supply chain has been considered, and this has generated a step-change improvement for distribution.

That said, only implement once a full sanity check has been completed and use benchmarking and best practice to continually improve.

Operating your warehouse or distribution perfectly is not enough nowadays; best practice for distribution must include distribution planning, network design and optimisation of the distribution parameters, all done in an end-to-end business context. Streamlining your distribution function means thinking beyond what distribution has meant for your business to date.

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