Distribution Network Models in Economics

In the commercial sector, product distribution management is essential. Commodities may arrive early and deteriorate before being used. Alternatively, finished goods may arrive late, allowing a competitor to gain a significant market share. 

Distribution and logistics management has become so critical that sub-discipline practices like just-in-time inventory are becoming a vital part of the process. In general, effective distribution necessitates many moving parts and processes. As a result, effective distribution network models based on real-time data are required.

What Is Meant By A Distribution Network Model?

A distribution network is an integrated series of storage and logistics systems. It accepts commodities, maintains an inventory, and then delivers them to end customers as part of a supply chain. It is a transition point between the manufacturer and the end-user, either directly or through a retail network. 

Key Drivers For An Ideal Distribution Network Model

The distribution network models keep changing, with organisations attempting to reach out to more customers. The satisfaction of consumer demand plays a role in determining the effective and optimal distribution network models. Consumer demand must be fulfilled at affordable prices and with appropriate service levels. 

Knowledge and expertise in supply chain management are required to create ideal distribution and network models. Let’s look at some of the critical factors for efficient distribution network models. 

• Quantity of orders and their frequency

The number of orders and order frequency are important factors in determining appropriate distribution network models. A firm must understand how frequently consumers buy a product and the volume of purchases linked with that product. It helps in the management of the inventory.

• Location of customers

All essential service and cost objects are considered while constructing distribution network models. Customer location is one of the most significant drivers for distribution network modelling. Organisations must know where their consumers are based in order to establish an efficient and affordable distribution system that does not significantly affect the product’s price for the buyers. Logistics planning is heavily dependent on customer location. 

• Warehousing

Warehousing is also a key component of well-designed distribution network models. To guarantee the proper fulfilment of distribution demands and ensure total customer satisfaction, the company must assess the ideal warehouse sites, size, convenience of access, and related costs.

• Mode of transportation and associated cost

​​The cost of transportation and the form of conveyance necessary are also essential factors to consider when developing a distribution plan. Identifying order frequency and consumer location assists in determining the appropriate mode of transportation. It also helps determine the expenses involved with the modes of transportation and necessary vehicles.

Types Of Distribution Network Models

• State – It is a distribution network where the government is solely responsible for providing the products and services that the population requires.

• Market – In this distribution network, commodities and services are made accessible in the open market, and their pricing is set based on supply and demand.

• State-Market Mix – In this distribution system, the government may make some goods and services available to the public for free or at subsidised prices, while others may be offered by the market for which customers must pay.

Benefits of Distribution Network Models

Your overall profitability is heavily influenced by distribution. It has a direct effect on the costs of your supply chain and customer satisfaction. Establishing dependable distribution network models can thus provide a significant competitive edge and assist your company in remaining competitive. Some of the key advantages distribution network models offer include:

• Broader consumer base

Another benefit of distribution networks is the rapidity with which your products may be distributed across huge geographical areas. Established distributors can easily get in touch with other retailers and distributors to assist with market coverage. 

As a result, you won’t have to worry about the time, money, or effort required to develop such partnerships. Plus, you won’t have to go through the trouble of building up your direct distribution network in the new market.

• Greater consumer satisfaction and feedback

Retailers are well-versed in what products sell best in their target markets. Their input can help you understand the clients and their product preferences better. It will help you create products that more consumers want and need. Therefore, it will automatically boost consumer satisfaction. 

• Reduced cost

Existing distribution network models also reduce the cost of creating a new distribution model. An existing network distribution model delivers products at great speed. It is also convenient for expanding product reach concerning locations. It also removes the expenses and constraints related to human resources, capital and time.

• Effective marketing strategy

Additionally, you can work with other manufacturers and launch combined marketing or promotional campaigns, thereby bringing more shoppers to the retail stores that sell your products. It will help you to get the most out of your marketing money. You won’t have to bear the total cost of promoting this way.

Following distribution and network models may appear to be a large and complex task. But it’s not the case. There are cloud-based logistics management methods that enable you to develop a set of efficient logistics services. You can create these services as per your requirements to effectively serve your customer base. 

Conclusion

The primary economic problem is to meet the requirements of the population. Distribution network models act as the economy’s distribution systems to offer goods and services to end customers. Three main types of models exist in terms of economic perspective. These are state, market, and state-market mix. The majority of the world’s economies use some form of a distribution system. The evolution of socio-economic parameters in the world population has redefined the mix of products and services from time to time.