The success of any product distribution franchise is very much dependent on the distribution strategy and this can break or make the success of a product. In most cases, it is the difference between having a large distribution center or smaller regional distribution centers. This mostly depends on the efficiency of logistics which is the backbone of any distribution channel. Besides, the whole process is data-driven and must be flexible enough to adjust according to the data. Shared below are the important factors that you must consider for a cost-effective distribution strategy.
The first and foremost factor that any product distribution franchise must consider is the location of distribution centers. This is mainly determined by the location of the majority of customers. But, the other important point that you must take into account is the location of the carrier if you are hiring their services, otherwise, it can be ignored. Last but not least, you should also look into the location of branches. So an equilibrium of proximity between these three factors will ensure that the shipping cost remains minimal.
Avoid Depending On One Distribution Center
The disadvantage of relying on one major distribution center is that in case of an emergency like a fire, all the inventory will be damaged, and this can put you in a tight spot. So, to avoid such a situation it is better to have a network of smaller distribution centers. Most retail distribution companies follow this strategy because it has been proven effective time and again.
The other advantage of having smaller regional distribution centers is that it makes the shipping or transportation of bulky items cheaper. This avoids the situation of hauling them over long distances, increasing the product’s shipping charges.
Nowadays, the labor expenses are rising and this must be factored in when deciding about the distribution center. Having multiple smaller regional distribution centers requires more labor compared to having one major distribution center. The decision is a fine balance between capital expenditures and labor costs.
A product distribution franchise should decide whether the local branch office(s) should receive the entire inventory from the distribution center or should they receive some products directly from the vendor. Also, they must decide the type of products to be stocked at the local branch, i.e. customer favorite items, products that have higher demand etc.
You should also take into account the shipping charge for product returns and must determine what it must cost. Bear in mind, that returning them to the main distribution center separately can cost more.
Retail distribution companies also use software that helps them to adjust distribution strategy so that it is cost-effective.