When building and growing an online brand, it is important to consider the option of split distribution. Before we dive in any further, let’s understand what this logistics strategy is and how it works.
Split distribution is a method for having inventory strategically allocated and distributed to multiple distribution warehouse fulfillment locations to optimize delivery efficiency. This strategy also helps mitigate risks such as disruptions in supply chains, natural disasters, or logistical challenges in a specific region by spreading inventory across various locations.
How the products and quantity are divided among the multiple locations is based on numerous factors such as customer demand, geographic proximity, transportation costs, and delivery time requirements. By distributing inventory across multiple locations, businesses can ensure that products are positioned closer to customers, reducing shipping distances and thus minimizing transit times and costs. This approach leads to faster order fulfillment and improved customer satisfaction.
How Split Distribution Logistics Work?
When a customer places an online order, order management systems determine the optimal distribution point. This system incorporates order management, inventory, and transportation data to automatically determine the most suitable warehouse fulfillment center for picking, packing, and distributing the package. Notification is sent to the warehouse management system, WMS. The algorithm considers factors such as the availability of all the ordered items in stock and the ability to ship the order at the most affordable cost. While the order processing speed remains consistent, the presence of strategically located warehouse fulfillment centers enables quicker and more cost-effective shipping. Now that we understand the process let’s explore the advantages and disadvantages of split distribution in more detail.
Advantages of Split Distribution
Outlined below are a few of the positive effects that result from implementing a split distribution approach that could improve your overall business:
Faster Delivery: When inventory is divided among multiple strategically located distribution centers that are closer to customers, it decreases shipping time by reducing the distance packages need to travel. As a result, order fulfillment becomes faster, leading to enhanced customer satisfaction.
Cost Savings: Intentionally locating the product near the customer minimizes shipping distances, resulting in time and cost savings for shipping. Businesses can reduce shipping expenses and take advantage of lower freight rates. This principle also applies to returns, as sending them to the nearest facility can reduce shipping costs and time for both the business and the customer.
Regional Market Penetration: Businesses can enhance their ability to cater to consumers in diverse markets and regions by dividing their inventory based on location. This approach enables businesses to meet local customer preferences, address market demands, and comply with specific regulations. For instance, consider a clothing brand that sells bathing suits and beach weather attire. Instead of exclusively storing warm-weather items during the summer season, the company can optimize its inventory by increasing the stock of beach weather attire and strategically allocating it to distribution centers located in regions with warmer climates. By adopting this approach, the brand can effectively target consumers in those regions throughout the year, catering to their specific needs and preferences.
Inventory Optimization: The strategic division of inventory across multiple locations is an essential part of the strategy. Analyzing SKU velocities and items often purchased together is a starting point. There are many technology tools to assist in optimizing inventory, and it helps to have a lower SKU count. This approach facilitates efficient replenishment, reduces instances of stockouts, and enables businesses to allocate inventory according to regional demand patterns. As a result, businesses can achieve improved inventory turnover and minimize holding costs.
Enhanced Customer Service: Small businesses face a challenge when competing against larger companies that can afford to provide free and fast shipping, which has become a customer expectation. By adopting split distribution strategies, smaller businesses can compete effectively by offering quicker delivery times and lower costs to customers. Ultimately, regional distribution centers create a win-win situation for smaller businesses and their customers.
Risk Mitigation: Having products stored in multiple distribution locations helps to mitigate risks associated with disruptions in the supply chain. For example, if one distribution center encounters operational issues such as natural disasters, labor challenges, or technical problems, the presence of other centers allows for uninterrupted operations and ensures the continuity of service. This risk diversification strategy helps businesses maintain a reliable supply chain even in the face of unforeseen challenges.
Scalability and Flexibility: As businesses expand their operations, split distribution offers scalability and flexibility. By adjusting the distribution centers in response to evolving market dynamics, businesses can efficiently adapt to changes in customer demand or geographic reach. This enables them to remain agile and responsive to market shifts as they occur.
Challenges with Split Distribution
Perfection is elusive, and split distribution comes with its fair share of potential challenges. It is crucial to acknowledge and plan for the following obstacles:
Increased Complexity: When implementing any type of process change, it introduces a level of complexity. In the case of split distribution, this complexity extends to managing inventory, coordinating transportation, and establishing efficient communication and coordination between distribution centers. These tasks demand additional resources, systems, and processes to be effectively managed. Incorporating this strategy entails certain areas that pose higher risks for complexity, such as:
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- Potential for Inconsistent Customer Experience: If fulfillment centers exhibit varying levels of efficiency or there are disparities in inventory availability across locations, there is a potential risk of inconsistent order fulfillment and delivery experiences for customers.
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- Order Fulfillment: Efficient coordination, synchronization, and real-time visibility among centers are essential to guarantee accurate and timely picking, packing, and shipping of orders. Inaccurate communication and data may lead to order delays or errors, underscoring the importance of maintaining seamless communication and accurate information across the distribution network. Avoiding multiple shipments on the same order is paramount.
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- Returns: The possibility of customers having to return items to different distribution locations emphasizes the importance of accurate technology and communication among the centers. Additionally, coordinating and managing customer inquiries or complaints across multiple centers can present its own set of challenges.
Higher Initial Investment: When considering the implementation of the split distribution strategy, businesses need to consider the potential higher-than-expected initial investment. Whether a business is partnering with a third-party logistics (3PL) provider or managing logistics in-house, there will be upfront costs associated with split distribution. 3PL providers may adjust their rates to account for the increased costs associated with additional labor, equipment, and technology requirements. Conversely, when a company aims to establish a new distribution location, there are considerable expenses involved in the acquisition and operation of an in-house center.
Inventory Fragmentation: Inventory fragmentation refers to the distribution of products across multiple locations, resulting in smaller stock quantities at each location. This scenario can arise when inventory is divided among distribution centers, retail stores, warehouses, or through consignment arrangements with retailers. With inventory scattered across different locations, it becomes challenging to accurately track and coordinate inventory levels. This fragmentation poses difficulties in inventory management, necessitating additional efforts to consolidate and synchronize inventory across various locations. These efforts are essential to ensure efficient operations and meet customer demands effectively.
Higher Overhead Costs: Expanding the order fulfillment and distribution footprint of a company that handles these operations in-house entails substantial costs. Operating multiple distribution centers leads to increased ongoing operational expenses, such as facility maintenance, staffing, utilities, and other overhead costs associated with each location.
Check The Boxes
Does split distribution make sense for your business? Does it check off all the boxes? Before embarking on split distribution, businesses should conduct a thorough analysis and evaluation of the advantages and disadvantages. It is essential to outline the operational capabilities, costs, and customer requirements during the planning phase and prior to implementation.
In summary, the split distribution strategy offers businesses enhanced operational efficiency, cost savings, improved customer service, and risk mitigation. It enables companies to optimize their logistics network and meet the evolving expectations of customers in a dynamic and competitive market.
At Boxzooka, we provide split distribution through our three strategically located warehouses across the United States in New Jersey, Pennsylvania, and Nevada. Our team has been successfully managing split distribution for numerous clients who have experienced the benefits firsthand. Moreover, our partnership with businesses has minimized the challenges and risks associated with split distribution, thanks to our advanced Warehouse Management Technology (WMS) and efficient communication systems. If you believe that your business could benefit from split distribution, don’t hesitate to complete a contact form and connect with a Boxzooka fulfillment expert to discover how we can contribute to your business’s success!
By Tom Behnke
