Direct shipping or distributor warehouse
Should an online retailer or supply chain director let manufacturers ship each order directly, or hold stock in a warehouse between factory and customer?
- Origin
- Chopra, 2019
- Diagram type
- Comparison table
- Level of analysis
- Firm
Diagram
Direct shipping or distributor warehouse
| Criterion | Manufacturer storage, direct shipping | Distributor storage, carrier delivery |
|---|---|---|
| Inventory | Stock pooled at the manufacturer: high availability with low inventory | Needs more inventory because pooling is lost, but far less than a retail store network |
| Transportation | High: manufacturer is far from the customer and multi-source orders arrive in several shipments | Lower: full truckloads into the warehouse, orders bundled into one delivery |
| Facility cost | Low: no extra warehousing in the chain | Somewhat higher because of the warehouse; unsuitable for very slow movers |
| Response time | Long: the order passes to the manufacturer and distances are greater | Shorter: warehouses sit closer to customers and orders are consolidated before dispatch |
| Best suited to | High-value, low and unpredictable demand, customers willing to wait | Slow- to fast-moving items, customers who want delivery sooner but not immediately |
When to use it, and when not to
Use it when
Chopra notes that only niche companies use a single network; most combine several, matched to product characteristics. W.W. Grainger stocks fast-moving and emergency items locally, slower items at a national distribution centre for delivery within a day or two, and very slow items are drop-shipped from the manufacturer.
Pitfalls
Direct shipping needs a demanding information infrastructure: retailer and manufacturer must integrate systems to show availability and track orders. The pooling benefit exists only if the manufacturer can allocate stock across retailers as needed rather than ring-fencing portions for each.
Sources
References
Listed A–Z by author surname, Harvard style. A source with a DOI links to https://doi.org/…; one without links to its page or says plainly that it has no DOI.
- Chopra, S. (2019) Supply chain management: strategy, planning, and operation (7th global edn). Harlow: Pearson.No DOIpearson.comCited in 4 articles