The Basics of Distribution Network Design

When it comes to business growth, a well-designed distribution network is critical. This network is the conduit that connects companies with their end customers. It involves warehouses, transportation systems and the processes that support those movements. There are several ways to create a distribution network that supports future operational needs, including analyzing competitors to detect weaknesses, identifying potential environmental challenges and working with logistics suppliers who offer distribution services.Resource:

What are the five major types of distribution channels?

The first step in distribution network design is building a baseline model that accurately reflects current operations and capabilities. This takes time, but is a necessary step to ensure confidence in the results of optimization models used to evaluate alternative networks. The models are sensitive to changes in data, assumptions and parameters, so it is important to have a solid understanding of the current network before moving forward with modeling.

Once the baseline model is built, various conceptual alternative distribution networks can be evaluated based on cost and service level from warehouse to customer. These alternatives are compared against current and forecasted volume to determine the most cost-efficient way to fulfill the promise made to customers. This includes evaluating transportation costs, warehouse storage capacity, inventory carrying costs and service performance levels.

Once the best option has been determined, the company can begin preparing to implement the new network. This involves negotiating with distribution partners and channels, assessing the financial and operational benefits of each option and determining the optimal distribution strategy. The goal is to balance the needs of both parties while minimizing operating costs and taxes, maximizing customer service and improving flexibility to respond to changes in the business strategy or market conditions.

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