The New Role of Distribution Centers in Business
For the last few generations, distribution centers were often seen as a necessary evil. Companies would only look at a distribution center (DC) as a costly place to store inventory and form logistic systems. They were measured by cost savings by metrics such as the cost of moving inventory items than serving any form of strategic advantage. However, some companies have realized that there has been a fundamental shift in the role of the distribution center in regards to strategic management.
“Cost still matters, let’s not kid ourselves. Increasingly, however, distribution centers are all about the business. Processes are designed to make good on a company’s go-to-business strategy. The best DCs are strategic assets that give their companies a competitive advantage in the marketplace.” (Trebilcock, 2015)
One interesting case in how a business can use new technologies and process to create a competitive advantage through distribution can be illustrated by Papa John’s pizza. The company uses a marketing phrase “Fresh ingredients make better pizza” and tries to honor this pledge with the latest advances in distribution. The company has experienced something of a mobile revolution and now more than half of the orders that the pizza franchise takes are generated online. The company has adopted lean processes to make ingredients move quickly through its logistics system so they reach the customer as soon as possible.
Papa John’s launched in 2006 to transform a network of 10 distribution centers that serve more than 3,200 stores in the United States through the use of technology; the focus is on managing inventory, especially perishable products, to deliver the freshest ingredients to its stores, twice a week (Trebilcock, 2015). Much of this system is entirely automated. The demand information from individual franchises through their POS systems is automatically loaded into a central planning system that makes DC replenishment suggestions based on inventory levels, orders already in the system, lead times and anticipated demand that may be influenced by seasonal events and promotions (Trebilcock, 2015). The company thus is using its distribution system and broader logistical system in a way that creates value for the consumer and provides a strategic advantage in the pizza niche.
A recent generation of strategic managers have realized that warehousing, distribution and manufacturing have come out of the shadows and can play a more important role in overall value creation. In previous generations, senior-level executives knew they had plants, warehouses and distribution centers, but they didn’t necessarily know what purpose they served (Trebilcock, 2013). This trend has become even more pronounced that multi-level sales have become more mainstream. Many modern business sell as much, or sometimes more, products through ecommerce solutions than they do through their traditional brick and motor sale network. Thus getting products to customers quickly has highlighted the need for advanced logistics systems that rely on strategic management to drive customer satisfaction. Furthermore, as more retailers offer increased customization of products, the need for advanced distribution networks grows even larger.
From the perspective of the availability of new technologies to provide the backbone of new distribution networks, networks today operate more efficiently than ever believed imaginable. At the forefront of this trend has long stood Walmart as an industry leader. The evolution of Walmart’s supply chain includes three elements, according to an Arkansas Business article: distribution practices, operating its own fleet of trucks and technology … benefits from its supply chain efficiency result in time savings, more cost-effective inventory management and improved product forecasting (University Alliance, 2015).
Furthermore, the company has a sprawling network of nearly 160 distribution centers covering almost 120 million square feet and all within 130 miles of the stores it supplies (University Alliance, 2015). One interesting point about Walmart’s distribution strategy is that it only utilizes some of the modern technologies that are available. As a low cost leader in the retail industry, Walmart’s supply chain is heavily focused on cost. However, value can be created in the supply chain and the use of distribution centers in a multitude of different ways. Different processes that can add value can include factors such as design, quality, price, or efficiency. Furthermore, supply chains should also be matched with the broader organizational objectives. For example, a quality leader in an industry will focus on suppliers who also focus on quality such as Apple computers. However a low cost leader, such as Walmart, will be more price than quality focused when selecting suppliers for their supply chain.
The issue in strategic management that was identified was how to use new forms of distribution networks, technologies, and supply chains in general to form a competitive advantage. In previous generations, manufacturing and distribution was thought of as more of a background process that was not inherent to strategic management. However, many modern organizations have shown just how important these function can be to strategic planning and value creation.
Trebilcock, B. (2013, November 11). Creating Competitive Advantage with Warehouse and Distribution Centers. Retrieved from Supply Chain 24/7: http://www.supplychain247.com/article/creating_competitive_advantage_with_warehouse_and_distribution_centers
Trebilcock, B. (2015, November 1). Distribution centers: It’s all about the business. Retrieved from Modern Material Handling: http://www.mmh.com/article/distribution_centers_its_all_about_the_business
University Alliance. (2015). Walmart: Keys to Successful Supply Chain Management. Retrieved from University of San Fransico: http://www.usanfranonline.com/resources/supply-chain-management/walmart-keys-to-successful-supply-chain-management/
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