Building a Fail-Proof Distribution Network

What Is a Distribution Network?

A distribution network is the way a merchant or retailer gets goods into the hands of their customers – either brick and mortar stores (B2B) or directly to end consumers (D2C). While some merchants ship products directly from the manufacturer to buyers, most have a network of warehouses and/or distribution centers that act as an intermediary to house their products until they’re purchased.

An effective distribution network is essential in today’s digital-first economy where consumers expect products to arrive on their doorstep 1- to 2-days from purchase. A positive delivery experience takes out the last possible opportunity for friction in the buying process, allowing the end customer to have a positive first experience with the product they’ve purchased. In fact, according to a 2021 consumer survey, 79% of consumers reported that they were more likely to make a second purchase from a brand after a positive delivery experience.

As Mark Livingston, VP of Worldwide Sales and Marketing for YBell Fitness puts it, “You can have the best products and the best sales platform in the world, but if you can’t get your products to your end customers, you’re dead in the water.”

“You can have the best products and the best sales platform in the world, but if you can’t get your products to your end customers, you’re dead in the water.”

Mark Livingston, VP of Worldwide Sales and Marketing for YBell Fitness

What Makes an Effective Distribution Network?

As the past year and a half of supply chain disruptions have proven, all distribution networks are not created equal. The best networks, however, typically have four things in common:

1. Warehouse coverage: An effective distribution network will consist of multiple warehouses across the country located in fulfillment hubs with easy access to densely populated areas. This way a merchant can distribute their inventory throughout the network to position themselves as close as possible to their end customers. This type of distribution network is often referred to as distributed warehousing.
2. Full-service solution: For fast-growing brands, it’s important that a single provider can meet all of their fulfillment and distribution needs. Often 3PL networks (or 4PLs) will offer inbounding; pick, pack, and ship services; dedicated client support; and the ability to support special projects. It’s also important to look at the provider’s service level agreements (SLAs) around dock to stock time, on-time fulfillment, and inventory cycle counts.
3. End-to-end visibility: An effective distribution network will allow full visibility into inbound statuses, inventory levels at each warehouse location, order statuses, and fulfillment and delivery statuses. Visibility is the key to making informed decisions around reordering inventory, scheduling promotions, customer service, and more.
4. Flexibility: Particularly in light of ongoing supply chain disruptions, merchants of all sizes need flexibility in their distribution network to pivot in the face of changes in the marketplace and to take advantage of opportunities in new or emerging markets. The right fulfillment partner will give merchants the flexibility to easily move inventory between warehouse locations and sales channels, fulfill any transit type for D2C and B2B sales, flex up or down on space and labor based on need to accommodate seasonal demand spikes.

The Benefits of Distributed Fulfillment

The prospect of adopting a distributed warehousing model for fulfillment may feel out of reach for small to mid-sized businesses (SMBs). Stocking more warehouses means carrying more inventory, driving up inventory carry costs. However, the benefits of distributed warehousing can give smaller merchants a competitive advantage. These benefits include:

1. Improved delivery speeds: Positioning inventory closer to end customers allows merchants to deliver to all of their customers within 1-2-days. Today’s ecommerce shoppers place a high value on 1-2 day shipping, with 75% of shoppers reporting that they are more likely to purchase from a brand that offers 1- to 2-day delivery.
2. Lower fulfillment costs: When their inventory is stocked closer to their end customers, merchants can deliver in 1-2 days via UPS Ground. They’re lowering shipping costs by both shortening the distance traveled and reducing the number of next-day air shipments they send.
3. Decreased carbon emissions: Due to the ecommerce boom, shipping emissions increased by almost 5% in 2021, and a 2021 consumer survey indicates that sustainability is an important part of the purchasing decision for most shoppers. Storing inventory closer to end customers lowers time in transit, which in turn lowers carbon emissions. The less distance a package travels in the final mile, the less of an environmental impact it makes.
4. Eliminate single points of failure: Supply chain resilience has been a hot topic since the onset of the pandemic, but the truth is, supply chain disruptions have always threatened distribution networks. Having multiple fulfillment centers eliminates single points of failure so if a warehouse is unable to fulfill orders due to weather, stockouts, power outages, the orders can be rerouted to an alternate facility. This kind of flexibility is especially important for Amazon sellers enrolled in Seller Fulfilled Prime (SFP). SFP requirements are stringent, and failure to comply can result in suspension, so it’s important to have a backup fulfillment center for those orders.

Challenges of Distributed Fulfillment

Many SMBs shy away from distributed warehousing due to increased costs, which can include:

• Increased capital investment in inventory: Distributing inventory a distribution network involves more than just spreading out existing assets. Each additional can require a 30% increase in inventory as an upfront investment.
• Additional inbounding costs: The cost of forwarding inventory to additional warehouses and the labor costs for receiving and storing once it gets there is increased.
• Higher storage costs: More inventory on the shelves equals more storage fees.

However, research shows that consumers are drawn to faster shipping promises. In fact, 69% consumers report that they are more likely to click an ad that mentions fast and free shipping, and 75% are more likely to make a purchase from a brand that offers 2-day shipping. Faster shipping, then, is actually a competitive advantage for merchants. The investment in distributed warehousing to support 1- to 2-day delivery can actually drive more sales.

According to Ware2Go’s supply chain strategist, Matt Reid, simply offering 2-day shipping can lead to 20%-25% uplift in sales volume.

How to Build a Distribution Network for Your Business

SMBs do not ordinarily have the resources to build out a distributed warehouse network internally, and often, even if they do, they find that outsourcing fulfillment allows them to focus more on their core competencies. That was the case for ECR4Kids, a children’s furniture retailer that decided to close all of their inhouse warehouses and outsource all of their fulfillment to a 4PL.

Partnering with 4PL (or 3PL network) gives merchants of all sizes access to enterprise-level fulfillment capabilities and technology paired with the flexibility to pay only for the storage and labor they need when they need it. These kinds of partnerships help SMBs scale without the risk of over-investing in fixed assets or increasing headcount.

To learn more about how a fulfillment partner like Ware2Go could help your business build a better distribution network, reach out to one of fulfillment experts today.