Wednesday, February 1, 2012

Example of how a manufacturer would sell and distribute widgets to Wal-Mart

As a manufacturer of widgets, a fast-moving, low-value consumer goods product, sold mainly to Wal-Mart stores nationwide, I would utilize a distribution network incorporating manufacturer storage with customer pickup.  To facilitate compatibility with Wal-Mart’s focus on customer needs and strategy of reducing costs through efficient supply chain management practices, widgets from our three geographically- disbursed factories would be stored at our warehouse/distribution centers located within acceptable driving distance of selected Wal-Mart distribution centers (DCs).  With Wal-Mart’s approximately 150 distribution centers centrally located within its network of stores, our storage facilities could be located to serve more than one Wal-Mart distribution center.  Additionally, sufficient storage could be provided at our three manufacturing plants to accommodate direct pickup by trucks from Wal-Mart distribution centers located nearby.

The significant increase in processing and new facilities costs incurred because of the number of distribution centers we would require in order to be located close to selected Wal-Mart DCs would have to be weighed against the increase in revenues received because of better responsiveness.  The capacity of each of our facilities would be determined by the number of Wal-Mart DCs served:  the more facilities, the lower the inventory required at each facility.  Accordingly, the more facilities, the more coordination and investment required in information systems.  With global giant Wal-Mart as our number-one customer, the most effective distribution network for our widget company would be one of manufacturer storage with customer pickup, even though facilities most likely would have to be added beyond the total logistics cost-minimizing point. 

Copyright 2012 JamesL. Alyea. All Rights Reserved.