Distribution Logistics - Definition, Guide, & Services

7/28/2023

Distribution Logistics - Definition, Guide, & Services

The distribution logistics market is estimated at $12,019 billion in 2021. It is estimated to grow at a CAGR of 7.7% and would reach $25,788.7 billion by 2031. Distribution logistics is a key part of supply chain management and is relevant to several industries.

The Warehousing and Distribution Logistics Market Report shows higher expected growth in distribution compared to warehousing by 2031. The report states that the rising trend for fast delivery in eCommerce plays a crucial role in the growing demand in the logistics distribution industry.

Warehousing and distribution logistics market

In this article, we will understand the definition and function of logistics distribution services in supply chain management. We will also discuss the different distribution channels and how they support different business models.

What is Distribution Logistics?

Distribution logistics is the process of distributing goods or products from the manufacturer to the customers. The process involves both transportation and storage. Distribution logistics begins when the products are dispatched from the manufacturer and are complete when the customer or customers receives the product.

To better understand distribution logistics, you need to know about the two words that make up this term: distribution and logistics.

Logistics vs Distribution

Distribution is part of logistics operations. The overall logistics operations encompass the movement and storage of goods in the supply chain. On the other hand, distribution is only concerned with order fulfilment

The simplest way to understand the difference between logistics and distribution is to remember their goals. The goal of logistics is to transport anything from one point to another. While the goal of the distribution is to move the products from the manufacturer to customers.

So distribution logistics is the process of transporting products from the manufacturer’s location to the customers’ location. It is a one-to-many logistics process. The term distribution refers to the fact that the goods produced by the manufacturer are distributed to several customers in different locations.

What does Distribution Logistics Involve?

Distribution logistics includes all transport and storage-related operations between the manufacturer and the consumer. The logistic distribution function includes:

  • Freight Transportation Management
  • Customs Clearance (for international distribution logistics)
  • Warehousing
  • Inventory Management
  • Order Fulfilment
  • Last-Mile Delivery

Distribution logistics in a supply chain takes care of everything once the products leave the manufacturing locations. But, the scope of logistical distribution services depends on the channel of distribution.

Distribution Logistics Channels

The distribution logistics channels are categorised based on how the products reach the consumer. There are three channels of logistics distribution in supply chain management:

  1. Direct Distribution: The brand sells directly to the customer through retail outlets or eCommerce channels.
  2. Indirect Distribution: The brand sells its products through different 3rd party channels such as wholesalers, retailers, franchises, and so on.
  3. Hybrid Distribution: The brand sells its products through both direct and indirect distribution channels.

Types of distribution in logistics

The direction and destination remains the same for the flow of goods in each distribution channel. But, each of these channels entails different functions for logistics distribution and supply chain management.

Direct Distribution Logistics

In direct distribution logistics, the manufacturer is responsible for supplying products to all points of consumption. These can include retail outlets and customer locations.

Logistics in Direct Distribution:

  • The manufacturer is responsible for distributing products to all retail outlets and customer locations.
  • The manufacturer is responsible for the storage of products in warehouses, or distribution centres during the distribution process.
  • The manufacturer is responsible for all cycles of storage and transportation during the distribution. For example:
    • Manufacturer to warehouse
    • Warehouse to distribution centre
    • Distribution centre to customer’s location (i.e. last mile delivery)

Indirect Distribution Logistics

Indirect distribution logistics involve selling through third-party vendors. The manufacturer does not access the points of consumption in this distribution model. The indirect distribution logistics can be further divided into two categories:

  • Selling Through Retailers
  • Selling Through Wholesalers

Types of indirect distribution logistics

Logistics for Indirect Distribution:

1. Selling Through Retailers

  • The manufacturer transports the goods to all retail locations.
  • The manufacturer is responsible for storing the products until they reach the retail locations.
  • The retailer is responsible for storing the products after receiving them from the manufacturer.
  • The retailer is responsible for the sales of products.
  • The customer can purchase products from retail outlets.
  • The retailer is responsible for the fulfilment of online orders.

2. Selling Through Wholesalers

  • The manufacturer transports the products to the wholesaler’s warehouse or distribution centre.
  • The wholesaler distributes the products to retail outlets.
  • The customer can purchase the products from retail outlets or online.
  • The retailer is responsible for the fulfilment of online orders.
  • The storage responsibility is transferred to the wholesalers and retailers once the manufacturer delivers the products.

Hybrid Distribution Logistics

The hybrid model is a combination of direct and indirect distribution channels. This is usually applicable to omnichannel retailers. The manufacturer sells its products through a variety of self-owned and third-party channels. These include eCommerce, retailers, wholesalers, resellers, affiliate stores, and so on. 

The logistics in hybrid distribution change based on the destination. If the manufacturer is shipping products directly to the customer it’s called direct distribution logistics. On the other hand, if they are selling through a third-party retailer, they would use indirect distribution logistics.

A company may use one or more of these distribution channels to reach their customers.

What are the Logistic Distribution Services?

The logistic distribution services can essentially be broken down into two parts: Transportation and Warehousing. But, each of these involves multiple functions.

Transportation in Distribution Logistics

Transportation in the logistic distribution function involves all activities that contribute to the movement of goods from one location to another. Here is a list of transportation activities that fall under logistics distribution services:

  • Packaging
  • Cargo Collection
  • Loading / Unloading
  • Dispatch Management
  • Route Planning
  • Customs Clearance
  • Transport Vehicle Management
  • Shipping through Road, Air or Sea Freight
  • Last-Mile Delivery
  • Delivery Management

The products may go through many cycles of transportation in logistics distribution and supply chain. The transportation cycles in distribution logistics include:

  • Manufacturing Location to Warehouse
  • Warehouse to Distribution Centre
  • Distribution Centre to Retailer / Wholesaler
  • Distribution Centre to Micro Fulfilment Centre
  • Micro Fulfilment Centre to Customer Location

Warehousing in Distribution Logistics

Warehousing in the logistics distribution process is broken down into segments based on storage-locations. A logistics distribution network in the supply chain may involve different types of storage locations.

Each of these storage locations is tasked with several logistics distribution functions. These are resting places for the products until they move further in the distribution channel. Here is a list of storage activities that fall under warehousing and logistics distribution services:

As with transportation, products may also undergo several cycles of storage before they reach the consumer. The points of storage in logistics distribution and supply chain include:

  • Warehouses
  • Logistic distribution centres
  • Retail outlets
  • Wholesale warehouse
  • Micro fulfilment centres

The scope of these logistics distribution functions depends on the channel of distribution. Although there are only two functions, they require a lot of resources for effective execution. 

Conclusion

A company may perform logistics distribution functions through their owned resources. But, this would require significant investment in many areas of distribution logistics and supply chain. The company will need its own fleet of vehicles for transportation. They would also need fulfilment centres and warehouses for distribution logistics.

On the other hand, a company can hire a 3PL distribution logistics service provider, like PACK & SEND, to carry out the entire process for them. The 3PL company can collect products from the manufacturer and distribute them to various points of consumption such as retail outlets, wholesale warehouses, and customer locations. It is also responsible for warehousing and inventory management of the products during logistics distribution.

Image Sources: Stratechi, Check Stand Program

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