Distribution
Channels
• Introduction
• Design Options for Distribution Networks
• Distribution Center types
• Business Case
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There are a lot of distinct distribution network designs
Order flow Stores
Physical Flow Customers
DCs required No DC required
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Due to a progressive growth in online sales, the channel mix in demand continues to evolve
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Distribution
Channels
• Introduction
• Design Options for Distribution Networks
• Distribution Center types
• Business Case
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2 fundamental types of distribution networks,
for delivery of a customer’s order
In centralized distribution a In decentralized distribution, the
customer order for a given given product is stored in several
product is fulfilled directly from decentralized warehouses or with
the production plant or from one (often independent) distributors,
or a few of the manufacturer’s from where the customer order is
central warehouses fulfilled
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2 fundamental types of distribution networks,
for delivery of a customer’s order
Advantages of a centralized Advantages of a decentralized
distribution: distribution:
• A bigger selection of products • Shorter delivery lead times
(in stock or made per customer • A more efficient possibility for
order) product returns
• A greater availability • Lower transport costs
• Lower total costs for • Shorter Last Mile
inventories, plants, and • Multiple articles can be
handling bundled into a single
delivery
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6 Design Features for Distribution Networks
1) Demand volatility 2) Value density 3) Customer tolerance time
= product value / m³ or kg
Stable demand vs. highly = the time span the
volatile demand Transport costs are of customer will (or can)
greater consequence if tolerate from order release
value density is low than if to the delivery of the
value density is high product
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6 Design Features for Distribution Networks
4) Demand Variety
High demand variety means
that customers demand many
different products.
For these products the
demand volatility is mostly
high as well.
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6 Design Features for Distribution Networks
5) Degree of customer
involvement in picking up
To what extent are customers
willing and able to picking up
the product themselves?
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6 Design Features for Distribution Networks
• 84% of online shoppers would turn their back on a
retailer after a bad returns experience
6) Need for efficient returns • 80% of online shoppers believe that returns are a
normal part of online shopping today
Is it important that the • 81% expect that every retailer they shop with offers
customer is able to return free returns as a minimum standard of service
goods efficiently through the • 36% cited slow refund processes as the most
same distribution network, frustrating element of returning items bought online
and that the network is able to
handle these returns Survey of 2,000 consumers across the UK 03/2021
efficiently?
(keyword: reverse logistics)
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6 Design Features for Distribution Networks
Degree of customer involvement
Need for efficient returns
in picking up
BOPIS (Buy online pick-up in-store) BORIS (Buy online return in-store)
The 4 advantages of BOPIS and BORIS
1. Reduced transportation costs
2. Increased in-store footfall and more cross-selling
3. Faster and cheaper returns processes
4. A service in step with consumer wants
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6 Design Features for Distribution Networks
Degree of customer involvement
Need for efficient returns
in picking up
BOPIS (Buy online pick-up in-store) BORIS (Buy online return in-store)
How to implement BOPIS and BORIS?
Step1
Implementing an Order Management System (OMS) to unify all stocks (stores,
warehouses, suppliers, drop shipping, future stock, etc.) within the same tool.
Thanks to the orchestration rules, it is a highly customizable solution for retailers.
For example, you can decide that web orders will be served, in priority, by stores
located near the customer’s delivery address and that have available stock.
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6 Design Features for Distribution Networks
Degree of customer involvement
Need for efficient returns
in picking up
BOPIS (Buy online pick-up in-store) BORIS (Buy online return in-store)
How to implement BOPIS and BORIS?
Step2
Training of the store associates in cross-sell or upsell techniques when the
customers come into your stores.
An Order Management System should also offer stores a solution that provides a
hyper-personalised shopping experience via customer data:
purchase history and products viewed online
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6 Design Features for Distribution Networks
1) Demand volatility 5) Degree of customer
involvement in picking up
2) Value density
6) Need for efficient returns
3) Customer tolerance time
4) Demand Variety For cases where the need for an
efficient product-returns process
In general, if these 4 features are at using the same distribution
the high side, centralized network is key, and for customers
distribution is advantageous both willing and able to pick up the
product themselves, various
If at the low side, decentralized designs of decentralized
delivery will be advantageous. distribution are advantageous.
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Design Options for
Distribution Networks
The quadrant shows in
addition to the two classical
designs D1 & D4 (the two
sectors in the one-dimensional
space, namely centralized or
decentralized distribution),
two possible mixed designs D2
& D3.
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Design Options for
Distribution Networks
Sector D1 describes
centralized storage near the
producer or — in the case of
make-to-order — delivery
directly from production, with
direct shipping to the
customer.
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Dropshipping is a business
model where you sell
products on your online
store without keeping
them in stock.
Once you get an order,
you forward it to your
dropshipping supplier,
who will ship the product
directly to your customer.
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Pros of dropshipping Cons of dropshipping
The dropshipping mindset (Most people think
Quickly test products without inventory
dropshipping equals getting rich quick, thanks to gurus)
Almost no control over things like shipping times,
Not much startup costs
package design, and the supply chain.
Your dropshipping supplier handles most of
Sometimes you can’t combine products for an order
the work
Learn useful skills Potential quality control issues
You can open a dropshipping store really
Stock shortages
fast
Highly scalable Less profit than purchasing the products in bulk
Refunds can be complicated if your suppliers are on the
other side of the world
Customer service can be difficult
A lot of competition
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Design Options for
Distribution Networks
Sector D4 describes
decentralized storage at a
retailer with customer pickup.
This design option is suitable if
customers are able and willing
to pick up the desired
products.
It also allows returns of
products.
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Design Options for
Distribution Networks
The intermediate sector D2
describes decentralized
storage in the distribution
center of a wholesaler or
retailer with shipping to the
customer.
This is the most convenient
design option for customers.
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Design Options for
Distribution Networks
The intermediate sector D3
describes delivery directly
from production, or
centralized storage in the
distribution center of the
wholesaler, with shipping to
the pickup site.
This design option can be
selected if customers are
willing to pick up the goods
and thus profit from much
lower transport costs.
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It was a neat option available to new
Audi owners in the U.S. :
• Hotel stay + factory tour + free food
• Full-on VIP experience, including
seeing your recently ordered car for
the first time
• Audi would also provide 2 weeks of
auto insurance so you could then
drive your brand new car while sight-
seeing through Europe.
• At the end of the trip, you’d drop the
car at one of several locations and it
would take a boat ride across the
pond, eventually arriving at your
dealership.
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If the pickup site entails high costs, this solution will not be cost effective.
For this reason, pickup sites should be able to be combined with existing
distribution centers for other products or service centers
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Production & Distribution Networks Design relationships
Centralized production Centralized or Decentralized Distribution
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Production & Distribution Networks Design relationships
Decentralized production Decentralized Distribution only
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The optimum sourcing solution will define
the type of the required DC structure
Order flow Stores
Physical Flow Customers
DCs required No DC required
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Distribution
Channels
• Introduction
• Design Options for Distribution Networks
• Distribution Center types
• Business Case
47
Types of Distribution Centers Factory warehouse
Serve as storage for inbound raw
materials or intermediates,
as well as finished goods
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Types of Distribution Centers Outbound Consolidation Centers
Consolidate goods,
delivered by several suppliers,
in full truck loads or containers
Outbound Consolidation Centers will be typically
close to import ports or supplier cluster
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Types of Distribution Centers Regional / National / Local DCs
NDC Traditionally, the most forward
locations are replenishing local
fulfillment centers, stores or
delivering direct to customers
NDC
RDC
NDC
NDC
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Types of Distribution Centers Cross-Dock DCs
Location that goods pass through
(usually some hours) without being
stored into inventory
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Types of Distribution Centers Sortation Centers
Utilized for parcel or smaller items for
delivery of online orders
Typically, packages are sent from here to
parcel delivery partners for regional
shipping or routed for local delivery
using local couriers/own drivers
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Types of Distribution Centers E-Commerce-Only Fulfillment Centers
Dedicated centers for handling
online order shipments
Location optimized for parcel
delivery, designed to remove
picking/related complexity from
stores or from regional delivery
centers (RDCs) replenishing stores
May be run by dedicated
e-commerce shipping companies
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Types of Distribution Centers E-Commerce-Only Fulfillment Centers
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Solution globale E-Commerce-Only Fulfillment Centers
clé-en-main pour les pure-players
La nouvelle offre
APPROVISIONNER STOCKER PREPARER CONDITIONNER EXPEDIER LIVRER
(option)
• Mutualisation des coûts logistiques
• Préparation à l’UC en tri-température
• Livraison sur tout le territoire, quelle que soit la typologie du destinataire
(B2B/B2C)
• Interfaçage facile et rapide avec les principaux éditeurs web (Shopify,
Magento, Prestashop…)
• Tarifs logistiques « faciles à lire » et à prendre en compte dans vos modèles
de coûts
55 CONNECTING FOOD MARKET PLAYERS
STEF Lieusaint, entrepôt E-Commerce-Only Fulfillment Centers
multi-clients au sud de
Paris dédié à l’offre
E-Commerce-Only Fulfillment Centers
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Types of Distribution Centers E-Commerce-Only Fulfillment Centers
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Types of Distribution Centers Dark Stores
Former store or store-sized fulfillment
center designed to support picking for
online order fulfillment
Typically located close to customers to
enable short delivery lead times
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Types of Distribution Centers Microfulfillment Centers
Micro-fulfillment is a strategy that places
small-scale warehouse facilities in densely
populated urban locations closer to the
consumer to improve delivery times
Micro-fulfillment makes the last mile
shorter and less expensive
A micro-fulfillment center (or MFC) is a
small, sometimes highly automated
fulfillment center that serves e-commerce
as well as local store pick-ups
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Types of Distribution Centers Microfulfillment Centers
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Types of Distribution Centers Microfulfillment Centers
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Types of Distribution Centers Reverse Logistics Centers
Wide range from dedicated ones to handle
large (palletized) returns of unsold
inventory, to locations that handle parcel
returns from end consumers.
May handle other specialized services,
such as repair/refurbishment
Goods are processed and sent to other
locations to restock into inventory, sent for
repair/refurbishment, sent to liquidators or
disposed of
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Distribution
Channels
• Introduction
• Design Options for Distribution Networks
• Distribution Center types
• Business Case
64
Order Flow
Business Case Goods Flow
Sales Order Delivery: Classical Flow
Pick & pack 65
Order Flow
Business Case Goods Flow
Sales Order Delivery: Drop Shipping
Pick & pack
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Order Flow
Business Case Goods Flow
Sales Order Delivery: Drop Shipping 3PL
3PL
Pick & pack
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Business Case
Return Rates
10 30 to
to 35%
15%
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Business Case
Return: Classical Flow
• Returns from Belgian customers sent to Belgian DC
• Within 14 days max
• Cost = 2,95€ to get a pre-paid return label
• 2 reason codes
• Voluntary return (e.g. 2 sizes ordered, 1 returned)
• Unvoluntary return (picking error, broken item…)
➔ return costs reimbursed after analysis
• Undamaged returned goods:
• Are kept in stock if new sales are planned soon
• If no new sales are planned and product is not
returned for the 2nd time ➔ returned to supplier
• Sold in “good deals” if returned for the 2nd time
• If returned from “good deals” ➔ sold per kg at a
wholesaler
• WOW box sold at 10€ to consumers, with 200-300€ of
goods (only choices = gender & size)
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Business Case
Return: C2B Returns
• For some suppliers, Voluntary Returns are sent back to
them (pre-paid label with supplier’s address)
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Business Case
Return: C2C Returns
• If the customer asks for a Voluntary Return there are 2
options:
• 2,95€ classical return
• Free C2C return
• Product will be sold on a special page at a
strongly discounted price
• When sold, Veepee will send a pre-paid label to
the customer, with the address of the new buyer
• The new buyer knows that it is sent by the initial
customer, and will be able to rate him (initial
customer will be blacklisted by Veepee if there
are problems)
NB: C2C returns are not applicable for lingerie &
swimsuits
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Business Case
conclusions
Multiple Distribution channels are used,
depending on the origin & type of the goods sold
Constant focus on the reduction of total return costs:
• 2,95€ paid by customer
• use of different Return Channels
• Thanks to the “Good Deals” and the “WOW boxes”,
a lot of returned products are sold again (no waste)
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Main source Other Sources:
• Gartner 11/2021: Supply Chain Volatility Is an Opportunity to Transform Your Distribution
Network
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• Chapter 3.1.2: • [Link]
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Networks • [Link]
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