Basic knowledge

Distribution logistics - definition, basics, examples

| Author / Editor: Sebastian Hofmann / Theresa Knell

Distribution logistics is part of extra logistics and deals with the delivery of goods to the customer.
Distribution logistics is part of extra logistics and deals with the delivery of goods to the customer. (Source: ©THATREE - stock.adobe.com)

This article provides the essential information about distribution logistics: Definitions, goals, basics, examples and key figures at a glance.

A brief definition of the term: Distribution logistics ensures that manufactured goods reach the customer quickly and reliably.

A detailed definition of distribution logistics technology can be found on the website Betriebswirtschaft lernen: ”Distribution logistics comprises the planning tasks, control and all processes concerning the flow of goods and information between production companies and customers.”

Distribution logistics (also known as transport logistics or sales logistics) is the link between production and the market. The area comprises all processes involved in the distribution of goods - from manufacturing companies to customers. Customers are either final customers, distributors or processors. In concrete terms, distribution logistics includes goods handling, transport and interim storage. This makes the subject a central component of extra logistics and closely links it with packaging technology (after all, packaging must be adapted to transport requirements in order to be able to deliver the product safely). Sustainably structured information, decision-making and control processes are essential for implementing successful transport logistics.

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Objectives of distribution logistics

An important question of sales logistics is: Which distribution channels (or modalities) do I use to transport my goods? Either water (ship), rail (train), road (truck) or air (airplane).
An important question of sales logistics is: Which distribution channels (or modalities) do I use to transport my goods? Either water (ship), rail (train), road (truck) or air (airplane). (Source: CC0)

The following guiding principle illustrates the key objectives of sales logistics: “The right objects must be available to customers in the right quantity at the right time with the right information at the right cost in the right place with the right quality.”

Distribution logisticians essentially pursue three goals:

  • 1. Availability: They must always ensure that a sufficient quantity of products is available to customers. Customers should be able to receive goods promptly and without great effort.
  • 2. Cost minimization: High quality demands of the manufacturers require sales logisticians to keep shipping and delivery costs as low as possible. In concrete terms, the aim is to reduce costs associated with transport, storage, shortage and order processing. At the same time, however, delivery is to become faster, more energy-efficient and more environmentally friendly.
  • 3. Influence: Distribution logisticians want to have the highest possible say in the marketing of their products, for instance. It is about answering the questions of “How are my products placed on the sales shelf?” and “How can I stand out from the competition with the presentation of my goods?”.

Sales logisticians also have to optimize their logistics services: Delivery reliability, delivery flexibility, delivery time and delivery condition should meet high quality demands. Only then are customers at the end of the supply chain satisfied and will use the service again.

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Tasks of sales logistics

Transport logistics comprises three fields of activity:

  • 1. Operational control: Operational tasks refer to the processing of orders, shipping, returns management, route planning and customer service.
  • 2. Tactical control: Tactical tasks include fleet management, defining minimum purchase quantities, defining a service level and deciding whether the company should manage transport logistics on its own or resort to external providers.
  • 3. Strategic control: Strategic tasks include the planning of marketing strategies, the development of distribution networks, the choice of location and both horizontal and vertical networking.

Digression
  • Horizontal networking: The creation of collaborative value adding networks between companies. Example: Company A cooperates with company B to make distribution logistics more cost effective for both companies.
  • Vertical networking: Describes the internal combination of areas and departments - from production to the customer. Example: At company C several departments work closely together. In this way, the company can offer customers the opportunity to individually design products and track the production and delivery status of the goods at any time.
  • Direct and indirect transport logistics

    One of the most important tactical considerations for sales logisticians is how shipping should take place. Companies can choose between two variants:

    Variant 1: Direct distribution Direct distribution involves the direct contact between the manufacturer and the customer. This variant is used for products with the following characteristics:
  • High-priced segment
  • Narrow customer base
  • High complexity
  • Much need for instructions
  • High sensitivity
  • An advantage of direct distribution is the close contact with the customer. It also saves manufacturers the cost charged by an intermediary. Nevertheless, this variant is comparatively expensive and requires precise and far-sighted calculation.

    Variant 2: Indirect distribution In indirect distribution, sales are handled via so-called sales intermediaries (middlemen). A distinction is made between single-level processing (only one sales agent), two-level processing (two sales agents) and multi-level processing (several sales agents).

    The problem with indirect distribution is that every sales agent must be convinced again and again of the product and its benefits. A winegrower, for example, must not only sell his goods to the end customer, but also to all intermediaries. In this practical example, these customers include cooperatives and restaurateurs.

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    Distribution channels

    When it comes to choosing a suitable distribution channel, manufacturers have a wide range of options:

    • Direct sales are suitable for expensive and products with a strong need of explanation.
    • Retail trade is suitable for the sale of goods requiring intensive consultancy. In addition, a particularly broad audience can be addressed. The only drawback is: The company's own products are launched on the market at the same time and place as those of its competitors.
    • The mail order business is declining more and more and is increasingly being replaced by the online trade. This development is the reason why many formerly important mail order companies have recently gone out of business.
    • Wholesale is ideally suited for the sale of large quantities. In this sector, manufacturers usually generate significantly higher sales volumes than in the retail sector, but also with significantly lower profit margins.
    • In times of increasing digitalization, sales via online shops are becoming increasingly attractive. E-commerce is growing rapidly and presents the industry with completely new challenges, such as same-day delivery.

    In this video, Pea Soup Digital shows the volume of e-commerce revenue and the differences between B2B, B2C, C2B and C2C business models.

    Key figures of transport logistics

    In order to explore the potential for optimization in their processes and formulate meaningful objectives, sales logistics experts must regularly review the following key figures:

    Description: Delivery reliability
    Assertion: How many products from one order did the manufacturer deliver on time?
    Calculation: Delivery reliability = Quantity delivered on time / Requested quantity × 100

    Description: Delivery performance
    Assertion: How punctual is the product delivered by the manufacturer?
    Calculation: Delivery performance = number of deliveries on time/ total quantity of orders × 100

    Description: Transport damage rate
    Assertion: How many goods have reached the customer undamaged?
    Calculation: Transport loss ratio = number of damaged goods / number of all delivered goods × 100

    Description: Utilization rate of means of transport
    Assertion: What is the capacity utilization of my means of transport (from the manufacturer's point of view)?
    Calculation: Utilization rate of means of transport = actual load / possible load × 100

    Transport logisticians must keep the number of empty runs as low as possible.
    Transport logisticians must keep the number of empty runs as low as possible. (Source: Cekay, CC0)

    While the first three indicators have a significant effect on customer satisfaction, the degree of transport utilization is particularly important for the manufacturer. Finally, transport capacities should be utilized as fully as possible, so that no or at least only a few empty runs are necessary.

    A regular control of the benchmark values and a comparison with the market figures is indispensable for transport logisticians. It is important to ensure that the controlling system is aligned with supply chain management and does not pose a black box for users. If problematic values should still exist, the following measures can be taken:

    • Staff training
    • Adjustment or quality improvement in packaging
    • Cancellation of the shipping service provider
    • Recourse to a more efficient goods management system or a comparable technology
    • Improvement of internal and external communication
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    Distribution logistics 4.0

    In times of industry 4.0, sales logistics are also increasingly subject to digitalization. Previously purely analog processes are intelligently networked and supported by appropriate software solutions.

    Advantages: As a result of technological progress, distribution logistics providers have access to increasingly sophisticated systems to optimize their processes: RFID chips, machine to machine communication, robotics, sensor and positioning systems, augmented reality and cloud computing.

    Disadvantages: Customer demands on logistics processes are increasing: Reliable and customer-oriented service is becoming more and more important. Companies must also pay more attention to high quality, energy efficiency and sustainability. At the same time, growing competitive pressure is increasing the pressure on companies to reduce the costs of distribution logistics.

    Research project on transport logistics 4.0 At the Bremen Institute for Production and Logistics (BIBA), researchers have investigated processes for the energy-efficient telematics operation of transported goods (telematics refers to the combination of telecommunications and information technology). The result is a patented system that determines and records environmental parameters relevant to the transport of goods. A location and communication module and a wireless sensor network are used to measure ambient temperature, humidity and vibrations. In this way, any errors or weak points can be detected and rectified quickly.

    Current trend topics in sales logistics are:

    • E-Mobility
    • Self-driving means of transport
    • Increased quality requirements
    • Sustainability and environmental protection
    • Energy efficiency

    Environmental protection currently plays a particularly important role. Legislative projects at national and European level are forcing companies to reduce CO2 emissions and switch to more sustainable models. However, depending on the means of transport, there are currently massive emissions, not least due to the rapidly growing e-commerce market. According to estimates of the German Federal Environment Office, this amounts to about 500 to 900 g per ton-kilometer for an aircraft. The most environmentally friendly type of distribution logistics is transport by ship. Only 5 to 30 g of CO2 are emitted per ton-kilometer (the term ton-kilometer refers to the transport of a mass of one ton over a distance of one kilometer).

    Research project on e-mobility Together with DB Schenker and other partners, the Institute for Electromobility at the University of Bremen has developed concepts for e-transport vehicles to supply heavily frequented inner-city areas. A similar logistics concept was also developed within the framework of the “Zemi-Sec” project. The challenge was to ensure that electric vehicles were sustainable, energy-efficient and quiet.

    Training and professions

    If you want to start your career in distribution logistics, you should have studied logistics management, trade management, export management or a comparable discipline. The IUBH Frankfurt and the Euro-FH offer corresponding courses. Applicants for jobs with lower qualifications (i.e. Bachelor's or Master's degree not a prerequisite for employment) have to cope with tough working conditions in sales logistics: Whether truck driver or deliverer - a high workload, physically demanding tasks and comparatively low earnings do not make their professions any easier. According to Gehalt.de, truck drivers, for example, earn just 24,000 to 31,000 euros per year.

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    The industry is facing increasing pressure not least because of this situation: Skilled workers tend to avoid these jobs and numerous vacancies remain unfilled. In a Survey of the German Logistics Association 90 % of the participating companies stated that they felt the lack of suitable trainees. Logistics service providers are particularly hard hit: 76 % of respondents in this sector say they find not enough young and well-educated skilled workers.

    Possible solutions to this problem are:

    • Increase in wage levels
    • Stricter regulation of working hours
    • Improvement of the industry’s image
    • Use of modern technologies to relieve the burden on employees
    • Creation of equal entry opportunities for everyone (especially women, immigrants, etc.)

    This article was first published by MM Logistik.

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