Distribution Centers as Strategic Assets in Supply Chain Management

The Changing Role of Distribution Centers

For the last few generations, distribution centers were often seen as a necessary evil. Companies would look at a distribution center (DC) as little more than a costly place to store inventory and manage logistical systems. Performance was measured by cost-savings metrics — such as the cost of moving inventory items — rather than by any form of strategic advantage. However, some companies have realized that there has been a fundamental shift in the role of the distribution center with respect to strategic management.

"Cost still matters, let's not kid ourselves. Increasingly, however, distribution centers are all about the business. Processes are designed to make good on a company's go-to-business strategy. The best DCs are strategic assets that give their companies a competitive advantage in the marketplace." (Trebilcock, 2015)

Papa John's: Distribution as a Competitive Tool

One compelling example of how a business can use new technologies and processes to create a competitive advantage through distribution is Papa John's Pizza. The company uses the marketing phrase "Fresh ingredients make better pizza" and tries to honor this pledge through the latest advances in distribution. The company has experienced something of a mobile revolution, and now more than half of the orders that the pizza franchise receives are generated online. The company has adopted lean processes to move ingredients quickly through its logistics system so they reach the customer as soon as possible.

Papa John's launched an initiative in 2006 to transform a network of 10 distribution centers serving more than 3,200 stores in the United States through the use of technology. The focus is on managing inventory — especially perishable products — to deliver the freshest ingredients to its stores twice a week (Trebilcock, 2015). Much of this system is entirely automated. Demand information from individual franchises, transmitted through their point-of-sale (POS) systems, is automatically loaded into a central planning system that generates DC replenishment suggestions based on inventory levels, orders already in the system, lead times, and anticipated demand that may be influenced by seasonal events and promotions (Trebilcock, 2015). The company thus uses its distribution and broader logistical system in a way that creates value for the consumer and provides a strategic advantage in the pizza market.

Technology and the Modern Supply Chain

A recent generation of strategic managers has realized that warehousing, distribution, and manufacturing have come out of the shadows and can play a more important role in overall value creation. In previous generations, senior-level executives knew they had plants, warehouses, and distribution centers, but did not necessarily understand what strategic purpose those assets served (Trebilcock, 2013). This trend has become even more pronounced as multi-channel sales have become mainstream. Many modern businesses sell as much — or sometimes more — product through e-commerce solutions than through their traditional brick-and-mortar networks. Getting products to customers quickly has therefore highlighted the need for advanced logistics systems driven by strategic management to sustain customer satisfaction. Furthermore, as more retailers offer increased product customization, the need for sophisticated distribution networks grows even larger.

Conclusion

The central issue in strategic management examined here is how to use new forms of distribution networks, technologies, and supply chains to build a competitive advantage. In previous generations, manufacturing and distribution were considered background processes not inherent to strategic management. However, many modern organizations have demonstrated just how important these functions can be to strategic planning and value creation.

References

Trebilcock, B. (2013, November 11). Creating competitive advantage with warehouse and distribution centers. Retrieved from Supply Chain 24/7: http://www.supplychain247.com/article/creating_competitive_advantage_with_warehouse_and_distribution_centers

Trebilcock, B. (2015, November 1). Distribution centers: It's all about the business. Retrieved from Modern Material Handling: http://www.mmh.com/article/distribution_centers_its_all_about_the_business

University Alliance. (2015). Walmart: Keys to successful supply chain management. Retrieved from University of San Francisco: http://www.usanfranonline.com/resources/supply-chain-management/walmart-keys-to-successful-supply-chain-management/