FLOW THROUGH DISTRIBUTION
CREATING VALUE IN YOUR SUPPLY CHAIN
If you manage your supply chain solely to reduce costs or improve efficiencies you are missing an opportunity to create
value. Your supply chain can and should go beyond achieving Key Performance Indicators. Implementing a flow through
distribution strategy, with fast-to-market capabilities, can generate value as well as improve operational effectiveness and
bottom-line performance. Use of a third-party logistics provider for flow through services eliminates your investment in
warehouse space and reduces the lengthy development process. Your business realizes its anticipated results, faster.
Flow through distribution, also known as pool distribution, combines economy-of-scale opportunities with the flexibility
of just-in-time initiatives. Broadly defined, flow through distribution is the process of centralizing inbound shipments, sorting
them by delivery destination and then sending them out – all in the same day. This process eliminates the need for fixed
assets, like warehouses; reduces the dependence on high inventory levels; and improves the time it takes to get the
product to market. Companies become more nimble and create value by being better able to help customers respond
to their consumers’ needs.
Flow through distribution is not a new concept. Transportation companies have provided cross docking services
for their customers for many years. However, today’s flow through distribution networks go beyond transportation
with centers that offer other value-added services, such as pick-and-pack, kitting and crating. In addition, flow
through centers frequently use enhanced information technology to make it faster and easier to move cartons
from inbound to outbound trailers.
Who uses flow through distribution?
Retailers are the most common users of flow through distribution, as it provides a means to accelerate products
through the supply chain and better respond to point-of-sales data. In the case of upscale retail “lifestyle centers,”
with their limited backroom space, flow through distribution helps stores reduce inventory levels and enhance
their ability to frequently refresh shelves.
Retailers are not the only ones to deploy flow through practices. Manufacturers are finding success with the strategy
as well. They can consolidate their inbound orders for component parts or ingredients from different suppliers and
transport larger outbound shipments. In addition to realizing economies of scale in transportation, this approach
also supports just-in-time processes and eliminates the need for warehousing inventory.
What activities are included in flow through operations?
In the case of retail, individual store purchase orders (ISPOs) for a single supplier are combined into one bulk order,
giving the retailer the greatest leverage in buying power. The consolidated purchase orders are transported in a bulk
truckload shipment from the supplier, which lowers inbound transportation costs. When the truckload shipments arrive
at a flow though center, they are broken down by ISPOs. Within 24 hours, full truckload shipments leave the flow
through center with multiple-store, multiple-supplier shipments. Each shipment is built based on the specific needs
of each individual store. This supports the distribution-on-demand approach, expedites order processing through
the distribution center and optimizes both inbound and outbound transportation.
There are four main activities generally included under the broad heading of flow through. They are:
Vendor consolidation: consolidate purchase orders from multiple suppliers going to a single distribution center. By
consolidating vendor purchases, the company benefits from greater buying power, which usually means an improved pricing
structure. For retailers, vendor consolidation supports a reduced-inventory strategy. This means for their nonseasonal SKUs, retailers
can cost effectively replenish distribution centers with smaller order quantities on a more frequent basis throughout the year.
Pool distribution: a truckload of product from a distribution center is sorted into individual orders for delivery.
This increases throughput at the distribution center. Inbound pallets are unloaded and staged for outbound delivery,
often times combining pallets from several vendors to create a full truckload.
Import deconsolidation: similar to consolidation, with import deconsolidation the product flow originates
at the port and goes to a distribution center. Rather than make distribution decisions at the country of origin,
this process allows the company to wait until the product reaches the port to determine its ultimate destination.
As a result, companies are more flexible and can allocate distribution based on need and timing. The retailer
can allocate to a seasonal warehouse, distribution center, pool point or directly to individual stores.
Flow through order fulfillment: product arrives from vendors in bulk at a flow through center where it is
then allocated to orders. Retailers benefit by avoiding the need to maintain high inventory levels at the local store.
Flow through centers typically are located at the beginning or end of the supply chain. The primary services offered
at the center dictate its location. For example, import deconsolidation activities are located close to ports. Origin vendor
consolidation activities are located near major vendors in cities such as Los Angeles, New York, Chicago, Atlanta
and Dallas. Pool distribution locations are situated in areas of high population density.
In addition to flow through centers in North America, facilities may be located at country-of-origin ports as well. Typically, this supports
an ocean consolidation strategy for cost-effective transportation and is most effective when the degree of destination allocation is static.
What are the advantages of using a third-party flow through network?
Companies can benefit from third-party flow through networks in many ways:
Increase revenue. In addition to improving their in-stock position, companies can use deconsolidation and flow through
order fulfillment services to manage inventories. For retailers, this may mean a reduction in the need for markdowns.
Decrease expenses. Companies can better schedule their receiving dock personnel, consolidate invoices, reduce
transportation costs and improve management of their shipments, all factors that contribute to selling, general and
Reduce cost of goods sold (COGS). The inbound consolidation of shipments reduces the inbound transportation
cost element in the COGS equation.
Reduce inventory requirements. Benefits in inventory management range from the economical handling of small
order quantities; delivery of goods directly to stores or manufacturing locations, bypassing the warehouse; and logistics
that support just-in-time initiatives.
Reduce days sales outstanding (DSO). With shorter order/delivery cycles, companies can get merchandise
on shelves faster for faster sales.
Reduce fixed assets. Flow through facilities reduce or eliminate the need for costly real estate and material handling equipment.