| Introduction | | | | number. The distributor receives all notification |
| Direct Supply is the process whereby the supplier | | | | statements and invoices from the supplier and in turn |
| ships goods directly to the dealer without having to | | | | invoices the dealer. Without the distributor, the |
| transition the goods through the distributor's | | | | supplier's financial systems would become very |
| warehouse. This enables the distributor to be the | | | | complicated, with numerous transactions with many |
| conduit between the supplier and the dealer. The | | | | dealers. Additionally some suppliers are not interested |
| delivery process can be streamlined without directly | | | | in trading directly with the retail outlets due to their |
| handling goods. | | | | low volume. The distributor therefore is required to |
| In the normal supply process, a dealer purchases | | | | negotiate with the supplier and manage the financial |
| from a distributor. The order is processed and the | | | | process with individual dealers. |
| goods sent to the dealer. If the distributor does not | | | | Advantages for distributor, supplier and dealer |
| have the goods in stock, an order is sent to the | | | | For the distributor, the stock is virtually passed |
| supplier who then sends the goods into the | | | | through the warehouse, and the supplier maintains |
| distributor's warehouse. The goods are unpacked, | | | | control and responsibility over all of the physical |
| checked and stored; the dealer's backorder is | | | | supply chain process, just as they would when |
| processed and the goods are picked and sent out. | | | | supplying to the distributor's warehouses. The cost of |
| Direct Supply, by sending goods directly to the dealer | | | | additional warehousing is eliminated and this benefits |
| from the supplier, eliminates additional handling, | | | | both the distributor and dealer. Another important |
| storage and repackaging but maintains the logical | | | | benefit is the reduction in the number of goods with |
| interaction with the distributor. The order processing | | | | expiry times in the distributor's warehouse. Generally, |
| time is dramatically reduced, the goods are delivered | | | | a distributor would incur a cost of continually |
| faster to the dealer and the overall supply chain | | | | reviewing and checking goods with respect to expiry |
| costs are reduced. | | | | and shipping dates. This is largely eliminated for high |
| Cost reductions | | | | demand items that can be supplied directly. |
| Cost reductions are the result of the distributor not | | | | While the benefits for the supplier may not be as |
| directly handling the stock, and using the supplier as a | | | | obvious one significant advantage is that the time to |
| virtual warehouse. For the distributor, the logistics | | | | meet distributor supply requirements is spread, |
| costs of handling and continual movement of goods | | | | potentially, over several branches, which eases |
| is removed, as are any storage costs, which remain | | | | pressure on the supplier's distribution network. This |
| with the supplier. This becomes more important when | | | | also results in higher levels of customer satisfaction |
| a third party logistics operation is being used by the | | | | for the distributor and their dealers. Forecasting is |
| distributor as each transaction in the warehouse | | | | also improved because direct supply provides an |
| attracts specific costs. | | | | indication of the real usage of goods. The supplier can |
| Furthermore, local suppliers often have multiple | | | | compete more effectively and as such, encourage |
| branches and the cost of either supplying to a dealer | | | | the use of genuine/authorised components. |
| directly, or to the distributor's warehouse, is about | | | | The advantages for the dealer include significant cost |
| the same. Transportation costs are decreased | | | | reductions, which are passed from the distributor, |
| because there is now a single transportation process, | | | | and the delivery of goods is more predictable without |
| as opposed to two. | | | | the additional distribution process. The dealer can |
| Transportation times are reduced because goods do | | | | implement a more cost efficient and streamlined |
| not go through an intermediary warehouse at the | | | | ordering process that addresses actual, as opposed |
| distributor level, and as a result, delivery times are far | | | | to expected, requirements and they also benefit |
| more predictable. Where the supplier has multiple | | | | from a simplified ordering system and reduced pricing |
| branches the delivery times are improved again, for | | | | of parts. Direct Supply, by removing one complete |
| example, interstate dealers for the distributor are | | | | step in the traditional supply chain, streamlines the |
| being supplied by their local state branch. | | | | process - the goods are sent directly from supplier to |
| However, not all goods are suited to this process. | | | | dealer. The distributor still plays a pivotal role, |
| Those that are a perfect fit for the strategy include | | | | managing the process, undertaking price negotiations, |
| locally supplied parts and consumable goods. For | | | | handling financial transactions and maintaining the |
| example, in the automotive industry this might include | | | | communication channel. The result is a more efficient |
| high turnover items such as tyres, oil and batteries. | | | | supply chain with reduced warehousing, transport and |
| These can be supplied directly using local authorised | | | | administrative costs, increased efficiency, faster |
| suppliers. In addition, some automotive dealers have | | | | delivery of goods and greater customer satisfaction. |
| expanded that process within the network to | | | | Summary |
| incorporate services such as the fitting of tow-bars, | | | | Supplying products directly from the supplier to the |
| sports kits or spoiler kits. Large components are an | | | | dealer significantly enhances and streamlines the |
| example of goods which may best be handled | | | | supply chain process. Direct benefits across the board |
| through a distributor. For example, it would not be | | | | to the supplier, distributor and the dealer include |
| cost-effective for engines to be shipped from an | | | | reduced delivery times that are more predictable as |
| overseas supplier directly to a dealer, with the | | | | well as reduced costs in product handling, |
| transportation and logistics costs being too great. | | | | warehousing and transportation. The successful |
| How it works | | | | management of the entire direct supply process, |
| The operation of the Direct Supply system is | | | | maintaining control of the products through |
| relatively simple once it has been correctly set up. | | | | administration, financial, warehouse and inventory |
| The order is placed through the distributor and then | | | | processes can be achieved with a well structured |
| passed to the supplier with a delivery instruction - | | | | supply chain management system. The benefits are: |
| please deliver to customer. The supplier can then | | | | - Increased efficiency |
| make use of local warehouses/branches. The | | | | - Cost reduction |
| distributor plays a pivotal role in the overall business. | | | | - Faster delivery |
| The distributor is able to negotiate volume based | | | | - Increased customer satisfaction |
| pricing and sets up the primary agreement with the | | | | - Reduced handling of goods |
| supplier. This may even allow direct ordering from | | | | - Reduced transportation of goods (c) Copyright - |
| dealer to supplier, via a unique customer identification | | | | IBS Australia Pty Ltd. All Rights Reserved Worldwide. |