What is a 'Distribution Network'

A distribution network is an interconnected group of storage facilities and transportation systems that receive inventories of goods and then deliver them to customers. It is an intermediate point to get products from the manufacturer to the end customer, either directly or through a retail network. A fast and reliable distribution network is essential in today's instant gratification society of consumers.

BREAKING DOWN 'Distribution Network'

The supply chain for goods can involve a far-reaching distribution network depending on the product and where the end customers are located. A manufacturer may have a distribution network to serve wholesalers, who in turn have their own network to ship to distribution networks operated by retailers, who at the last link of the supply chain would sell the goods in their retail stores. Alternatively, a simplified supply chain could involve a manufacturer shipping finished products to its distribution network and then directly to end consumers.

Location (proximity to the customer) and infrastructure quality are important attributes of a distribution network. Additionally, the storage, handling and transportation functions at a distribution site are set up to suit the particular needs of the company to serve its customer base in a geographic area. There can be a high level of sophistication at a single site — and by extension, the entire distribution network — to optimally process order flow of finished goods, whether a handful of large items such as farm tractors or thousands of SKUsfor a retail chain. For the entire distribution network, a company must plan out needs for equipment, workers, information technology systems and transportation fleets. The company must determine whether a hub-and-spoke distribution network is right for its business or a decentralized network.

Example of a Distribution Network

Establishing an effective distribution network requires a studied approach because it is increasingly considered a critical asset in this new age of e-commerce. Walmart, for example, with 147 distribution facilities at the end of its fiscal year 2017, is allocating more capital to build out additional fulfillment centers for its distribution network as it evolves with the competitive demands of the market.

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