Distribution Network: Definition, How It Works, and Examples
What is a distribution network?
A distribution network is the system of storage facilities, handling operations, and transportation methods that moves finished goods from manufacturers to end customers. It sits between production and the point of sale (or the consumer), supporting the flow of inventory through wholesalers, retailers, or directly to consumers.
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How it works — core functions
A distribution network performs several linked functions:
* Receives and stores inventory at warehouses, fulfillment centers, or distribution hubs.
* Sorts, picks, packs, and stages orders for shipment.
* Transports goods via trucking, rail, air, or other modes to retail outlets, distribution partners, or final customers.
* Manages returns and reverse logistics when needed.
* Coordinates information flows (order management, inventory visibility, tracking) across the network.
Key components
- Facilities: warehouses, regional distribution centers, fulfillment centers, sortation centers, delivery stations.
- Transportation: fleets, third‑party carriers, intermodal links, air cargo.
- Labor and equipment: workers, material‑handling equipment, automation and robotics.
- Information systems: warehouse management (WMS), transportation management (TMS), inventory and order systems.
- Processes: receiving, storage, order fulfilment, cross‑docking, last‑mile delivery.
Common network designs
- Hub‑and‑spoke: Central hubs consolidate inventory and distribute to regional spokes. Efficient for reducing inventory duplication and transportation costs when demand is concentrated or predictable.
- Decentralized (multi‑node): Multiple regional sites hold inventory close to customers. Better for fast delivery, high product variety, or geographically dispersed demand.
- Hybrid: Combines elements of both (e.g., regional hubs with local micro‑fulfillment centers) to balance cost and speed.
Design considerations
When planning a distribution network, firms weigh factors such as:
* Proximity to customers — shorter delivery times and lower last‑mile costs.
* Infrastructure quality — road/port/airport access and local handling capabilities.
* Product characteristics — size, value, perishability, SKU count, seasonality.
* Service requirements — delivery speed, return handling, order accuracy.
* Cost tradeoffs — inventory carrying vs. transportation and facility costs.
* Scalability and technology — ability to add automation, data visibility, and flexible capacity.
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Why it matters
An effective distribution network reduces lead times, lowers costs, improves customer satisfaction, and supports competitive advantage—especially in e‑commerce, where fast, reliable fulfillment is a core differentiator.
Real‑world examples
- Large retailers design specialized distribution networks by product type (e.g., separate centers for food vs. apparel) to optimize handling and delivery speed.
- Global e‑commerce companies operate multiple facility types—fulfillment centers, sortation centers, delivery stations—and invest in automation, their own freight capacity, and emerging delivery technologies to speed order fulfillment and control costs.
Key takeaways
- A distribution network connects manufacturers to customers through facilities, transportation, labor, and IT systems.
- Location and infrastructure are critical to meeting service goals while controlling cost.
- Network choice (hub‑and‑spoke, decentralized, or hybrid) depends on product mix, demand patterns, and service requirements.
- In the age of e‑commerce, distribution networks are strategic assets that require continuous optimization and investment.