Supply chain management revolves around the efficient integration of the various entities of the supply chain in order to improve performance. A fully effective supply chain requires the integration of the front end of the supply chain, customer demand, with the back end of the supply chain, the production, and the manufacturing process.

Items can be directly shipped from the supplier or manufacturer to the retail store or end customer, more intermediate inventory storage point. Warehouses can be used in a variety of different ways, depending, among other things, on the manufacturing strategy, the number for warehouses, in the inventory policy, the inventory turnover ratio, whether these are internal warehouses owned by the firm or by an outside distributor.

Distribution Facility Functionality

Distribution facilities can provide numerous services, depending on the requirements of the supply chain. In traditional distribution operations, four primary functions are carried out: (1) accumulation, (2) sortation, (3) allocation, and (4) assortment.

  • Accumulation involves the receipt of goods from a variety of sources. The DC serves as a collection point for products coming from multiple origins and provides required transfer, storage, or processing services. The accumulation function allows organizations to consolidate orders and shipments for production and fulfillment processes.
  • Sortation focuses on assembling products together for storage in the distribution facility, processing or transfer to customers. During the receiving process, goods are segmented according to their key characteristics—production lot number, stock-keeping unit (SKU) number, case pack size, expiration date, etc.—and prepared for safe storage in the facility or immediate distribution. Proper sortation is essential for the effective management of inventory and fulfillment of customer orders. For example, mixing cases of fresh chicken with two different expiration dates on a single pallet can lead to improper inventory rotation and some product spoilage. Likewise, improper sortation of SKUs may result in shipping the wrong products to customers.
  • Allocation focuses on matching available inventory to customer orders for an SKU. The order is compared to inventory levels, and available units are retrieved from storage according to the quantity requested by the customer. This break-bulk capacity promotes product availability for multiple customers and allows them to purchase needed quantities rather than the excess volume that is not desired. For example, rather than distributing chewing gum only by the pallet (36 cases × 12 display boxes × 24 selling units = 10,368 packs of gum), a DC can allocate product on a case or individual display box basis.
  • The assortment involves the assembly of customer orders for multiple SKUs held in the distribution facility.

Source: warehouse and transportation management