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Multi Distribution Centre – an alternative to sales networks

The paper was presented at the International Logistics Conference “Logistics 2002 – Flexible supply chains – concepts, experiences, challenges”. Poznań, May 14-15, 2002.

Introduction
For some time now, we have been observing the development of retail (distribution) networks in Poland. For the purposes of this study, the very concept of a network should be broken down into several subgroups:
• Networks operating within a single company;
• Networks consisting of many business entities managed by a parent unit (e.g., supermarket chains);
• Cooperation networks, in which various entities decide to cooperate based on common goals;
• Others.

Of the first three variants mentioned here, it is definitely most difficult to effectively manage a network based on cooperation principles. From a technological (IT) point of view, it constitutes the most difficult problem. In the case of a single managing entity, it is relatively easy to force all subsidiaries to use an identical IT system. However, in cooperation networks, not only is the ability to cooperate important, but independence (understood as the lack of burden resulting from being a cog in a big machine) is equally significant.
The necessity to maintain independence results from at least several factors, the most obvious of which are:
• The distinctness of business entities – most often having different owners – causes a distinctness of reporting systems both for tax purposes and for the needs of company boards;
• Individual companies belonging to the network are not identical in terms of the goods offered. Very often, the basis is a common range of offered products, but quite often, independently of the “common” offer, individual companies distribute independent products or even establish cooperation within other networks.
• The requirement to be profit-oriented for companies operating within the network means the necessity to differentiate the offer depending on the geographical location. Thus, even with one owner and the assumption of homogeneity of the offer, there is a need to adapt it, e.g., to the wealth of customers.

Equally important as the factors mentioned here is the reason for forming networks. They are created to achieve economies of scale, however, compared to, for example, powerful (financially and technologically) networks entering the Polish market, they do not possess sufficient potential to establish equal competition. In other words, the companies forming the network are not able to survive on the market as independent entities. On the other hand, moving to the “top league” of distribution, they are not able to compete, because the transition very often means the necessity to renounce the flexibility they possessed while operating as small players. After changing classes, they become big, but unfortunately, they occupy the last places in the table.

Problem
It follows clearly from this that one of the drawbacks of joining a network is the loss of existing flexibility. Let us pay attention to the processes taking place on the Polish economic scene: for several years, there has been systematic consolidation among stronger players, however, practically always the creation of a network is synonymous with strong capital involvement of the company within which the network is created. This, in turn, causes the consolidation process to proceed slowly, following financial possibilities. Meanwhile, in macroeconomic terms, time flows relentlessly, and what has so far constituted a competitive advantage will tomorrow be a basic requirement for entering the market and maintaining one’s position on it.

Theoretical solution
It seems that the solution is very simple. If we want, for example, to create a network of wholesalers dealing with, for example, the distribution of building materials, we should gather a group of entities that will cooperate with each other. Unfortunately, this definitely simple idea encounters serious problems in practice, because which company owner will agree to submit to “top-down” orders without receiving financial guarantees (e.g., in the form of invested capital). Therefore, it is necessary to enable small companies to create a cooperation network, while simultaneously guaranteeing them full distinctness. It is also necessary to establish such methods of cooperation that involvement in the network’s work occurs evolutionarily, based on economic calculation.

The entire article in PDF format.

Ref-17.pdf