Executive Briefings

The Line Between Manufacturing and Distribution Is Blurring

To keep pace with changing consumer demand, companies are embracing strategies that require a much broader set of skills on the distribution end, says Dave Kilzer, principal of Consultleague.

Years ago, manufacturing and distribution constituted two distinct areas within most companies. Things are different now, according to Kilzer. As they scramble to meet changing customer needs, organizations are embracing creative processes that have blurred the line between traditional functions. Chief among those innovations is the concept of postponement, whereby a generic product is modified to meet the specific needs of a region in a facility close to the customer. "You don't have to plan the end unit back at the large manufacturing centers," says Kilzer. Suppliers can react more quickly to customer demand, and do a better job of managing promotions.  In the process, distribution operations find themselves adopting terms that used to be the exclusive province of manufacturing, such as bill of materials. And the discipline that has long been known as "distribution" becomes something quite new.

Into this picture steps the third-party logistics provider, which has broadened its menu of services to keep up with the change. "3PLs do much more than put a box on the shelf and ship it when required," says Kilzer. They become partners in their customers' efforts to reduce total pipeline costs.

A company should not accept outright the claims of a 3PL to such multi-faceted expertise. "A little bit of nervousness is not bad," Kilzer says. "Trust has to be developed. It doesn't come without a little bit of history." The best 3PLs win business by building a track record. Potential clients should consult companies that are familiar with their services. Ultimately, the right choice of partner will depend on a combination of the client's knowledge of its own business, the skill sets of the 3PL, and the high-level view of a consultant, if one is hired.

Any successful partnership between a 3PL and its client must be preceded by a discussion about the thorny issue of liability. Neither party wants to be left holding all of the inventory when consumer demand collapses or fails to materialize. Such matters, says Kilzer, must be addressed "with great care and with forethought."

To views this video interview in its entirety, Click Here

Years ago, manufacturing and distribution constituted two distinct areas within most companies. Things are different now, according to Kilzer. As they scramble to meet changing customer needs, organizations are embracing creative processes that have blurred the line between traditional functions. Chief among those innovations is the concept of postponement, whereby a generic product is modified to meet the specific needs of a region in a facility close to the customer. "You don't have to plan the end unit back at the large manufacturing centers," says Kilzer. Suppliers can react more quickly to customer demand, and do a better job of managing promotions.  In the process, distribution operations find themselves adopting terms that used to be the exclusive province of manufacturing, such as bill of materials. And the discipline that has long been known as "distribution" becomes something quite new.

Into this picture steps the third-party logistics provider, which has broadened its menu of services to keep up with the change. "3PLs do much more than put a box on the shelf and ship it when required," says Kilzer. They become partners in their customers' efforts to reduce total pipeline costs.

A company should not accept outright the claims of a 3PL to such multi-faceted expertise. "A little bit of nervousness is not bad," Kilzer says. "Trust has to be developed. It doesn't come without a little bit of history." The best 3PLs win business by building a track record. Potential clients should consult companies that are familiar with their services. Ultimately, the right choice of partner will depend on a combination of the client's knowledge of its own business, the skill sets of the 3PL, and the high-level view of a consultant, if one is hired.

Any successful partnership between a 3PL and its client must be preceded by a discussion about the thorny issue of liability. Neither party wants to be left holding all of the inventory when consumer demand collapses or fails to materialize. Such matters, says Kilzer, must be addressed "with great care and with forethought."

To views this video interview in its entirety, Click Here