Distribution network
Distribution network is the interconnected system of storage facilities, transportation routes, and intermediaries that moves products from manufacturers to end consumers. The network encompasses warehouses, distribution centers, trucking fleets, rail connections, and retail outlets[1]. Effective network design balances customer service levels against total logistics costs.
Amazon operates one of the world's largest distribution networks. The company maintains over 1,500 fulfillment centers, sortation centers, and delivery stations worldwide.
Historical development
Distribution networks evolved alongside transportation technology and urbanization. Canal systems in eighteenth-century Britain enabled factory goods to reach distant markets. The Erie Canal, completed in 1825, reduced shipping costs from Buffalo to New York City by 90% and transformed American commerce[2].
Railroads revolutionized distribution in the nineteenth century. Sears, Roebuck and Company built a massive Chicago distribution center in 1906, enabling catalog sales to rural customers across the continent. The 40-acre facility could process 100,000 orders daily and employed 9,000 workers during peak seasons.
Interstate highways created new distribution possibilities after World War II. Walmart's Sam Walton pioneered hub-and-spoke distribution in the 1960s, placing stores within one day's drive of regional distribution centers. This strategy supported everyday low pricing through efficient inventory replenishment.
Container shipping transformed international distribution beginning in 1956 when Malcolm McLean's converted tanker carried 58 containers from Newark to Houston. Containerization reduced loading costs by over 95% and enabled global supply chains[3].
Network design factors
Customer location
Geographic distribution of customers determines facility placement. Companies analyze population density, purchasing patterns, and service expectations. Publix Super Markets operates 1,353 stores across seven southeastern states, served by nine distribution centers strategically positioned to minimize delivery distances.
Order characteristics
Product demand patterns influence network structure. High-volume, predictable items justify regional warehousing. Slow-moving products with sporadic demand concentrate in central locations. W.W. Grainger maintains local branches stocking 20,000 fast-moving items while its Chicago distribution center holds 500,000 products for national shipment.
Transportation costs
Distance, shipment size, and mode selection affect total logistics expense. Rail transportation costs approximately 4 cents per ton-mile versus 25 cents for trucking. However, rail lacks the flexibility and speed of motor freight. Intermodal combinations optimize cost and service tradeoffs.
Inventory carrying costs
More facilities require more inventory to maintain service levels. Each additional warehouse adds safety stock. Capital costs, storage expenses, obsolescence risk, and insurance must be weighed against transportation savings and service improvements.
Network structures
Direct delivery
Manufacturers ship directly to customers without intermediate storage. Dell Computer pioneered direct delivery for personal computers in the 1990s. The model eliminates warehouse costs and inventory obsolescence. Direct delivery works best for high-value items, customized products, and customers who accept longer lead times.
Hub-and-spoke
Products flow through central hubs before distribution to regional facilities. FedEx operates its primary hub in Memphis, Tennessee, sorting 2.5 million packages nightly. The hub-and-spoke model consolidates shipments for efficient sorting and routing but adds transit time compared to point-to-point movement.
Cross-docking
Inbound shipments are immediately sorted and loaded onto outbound vehicles without storage. Walmart processes 85% of merchandise through cross-dock facilities[4]. This approach reduces inventory investment and handling costs. It requires precise coordination between suppliers and transportation providers.
Hybrid networks
Most companies combine multiple approaches. Amazon fulfills orders from fulfillment centers, sortation hubs, Prime Now locations, and Whole Foods stores depending on product type and delivery speed requirements. The company can deliver 10 million products within same-day or next-day windows in major metropolitan areas.
Technology and optimization
Warehouse management systems
Software platforms coordinate receiving, putaway, picking, packing, and shipping operations. Modern systems direct workers through voice commands or wearable displays. Manhattan Associates and Blue Yonder dominate the enterprise warehouse management market.
Transportation management
Routing algorithms optimize delivery sequences, load consolidation, and carrier selection. UPS saves 10 million gallons of fuel annually through ORION (On-Road Integrated Optimization and Navigation), which calculates efficient routes while accommodating delivery time windows[5].
Network modeling
Companies use optimization software to evaluate facility locations, inventory positioning, and service policies. Tools from FICO, IBM, and specialized providers solve mathematical models with millions of variables. Procter & Gamble reduced North American logistics costs by $250 million through network redesign in 2015.
Performance metrics
Distribution networks are measured on multiple dimensions:
- Order cycle time - elapsed time from order placement to delivery
- Perfect order rate - percentage of orders delivered complete, accurate, undamaged, and on time
- Inventory turns - annual cost of goods sold divided by average inventory value
- Transportation cost per unit - total freight expense divided by units shipped
- Warehouse cost per order - facility operating expense divided by orders processed
Industry benchmarks vary substantially. Grocery distribution targets 98%+ fill rates with weekly inventory turns. Electronics distributors accept lower fill rates for slower-moving items. Fashion retailers prioritize speed over efficiency given short product lifecycles.
Recent developments
E-commerce growth has reshaped distribution networks. Online orders require individual shipment to residences rather than bulk delivery to stores. Last-mile delivery constitutes 40-50% of total fulfillment cost. Companies experiment with lockers, pickup points, crowdsourced delivery, and autonomous vehicles.
Sustainability concerns influence network design. Scope 3 emissions from transportation face increasing scrutiny. IKEA committed to zero-emission home deliveries in major cities by 2025. Electric delivery vehicles and hydrogen-powered trucks are entering commercial service.
Supply chain disruptions during 2020-2022 prompted network diversification. Companies reduced dependence on single distribution points. Regional inventory buffers increased despite higher carrying costs. Near-shoring manufacturing shortened international supply lines for critical products.
References
- Chopra, S. & Meindl, P. (2019). Supply Chain Management: Strategy, Planning, and Operation. Pearson
- Ballou, R.H. (2004). Business Logistics/Supply Chain Management. Pearson Prentice Hall
- Simchi-Levi, D., Kaminsky, P., & Simchi-Levi, E. (2008). Designing and Managing the Supply Chain. McGraw-Hill
- Council of Supply Chain Management Professionals (2023). State of Logistics Report
Footnotes
- Distribution networks encompass all physical infrastructure and organizational relationships connecting production to consumption.
- Shaw, R.E. (1990). Canals for a Nation: The Canal Era in the United States, 1790-1860. University Press of Kentucky.
- Levinson, M. (2006). The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger. Princeton University Press.
- Walmart corporate sustainability report and operations documentation.
- UPS corporate communications and published case studies on ORION implementation.