Explain how distributors add value to a supply chain and improve its performance
What will be an ideal response?
Answer: Distributors add value to a supply chain between a supply stage and a customer stage if there are many small players at the customer stage, each requiring a small amount of the product at a time. The value added increases if distributors carry products from many manufacturers. Improvement in supply chain performance occurs for the following reasons:
• Reduction in inbound transportation cost because of TL shipments from manufacturers to distributor.
• Reduction in outbound transportation cost because the distributor combines products from many manufacturers into a single outbound shipment.
• Reduction in inventory costs because distributor aggregates safety inventory rather than disaggregating at each retailer.
• A more stable order stream from distributor to manufacturer (compared to erratic orders from each retailer) allows manufacturers to lower cost by planning production more effectively.
• By carrying inventory closer to the point of sale, distributors are able to provide a better response time than manufacturers can.
• Distributors are able to offer one-stop shopping with products from several manufacturers.
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