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Posted on August 11, 2020

A Comparison of Distribution Methods: Conventional vs Distributed

Conventional Manufacturing & Distribution

For example, consider XYZ Company located in Pittsburgh, Pennsylvania who makes valves used primarily in the oil & gas market and conducts conventional manufacturing and distribution methods. They employ leading engineers in the design and development of fluid handling products. They perform final assembly of their products at the Pittsburgh headquarters, yet utilize subcontractors for parts and components located in the Asia. These subcontractors employ cheap labor to produce the valve components designed by engineers in Pittsburgh. The components are produced and then shipped to America where they are inspected and any out-of-spec product is rejected and returned. Without the control of localized manufacturing of all necessary components, the Pittsburgh valve manufacturer can incur more costs and slower lead times. This cuts into their mar

gins and opens them for competitive intrusion. Add this to the fact that though there is a substantial O&G market in Pennsylvania and surrounding states, they are still competitively landlocked from the larger markets in the U.S. gulf region and overseas.

Distributed Manufacturing & Distribution

distribution methodsNow let’s look at ABC Company who also makes valves for the oil & gas market located in Tulsa, Oklahoma whose market stretches down to the Gulf Coast, up to the North Atlantic and all the way to the Middle East. Beginning with a specialized project manager in Tulsa they identify a contracting firm to source engineers in local markets who are experienced in valves. These engineers repurpose the development of the company’s products to meet local needs in their remote markets. ABC Company then builds their own factories or develops relationships with dedicated manufactures near the end users who are capable of manufacturing their product to specification, meeting the same exacting quality standards and have or can easily develop a localized distribution network. The local design, manufacturing and logistics costs are much lower than performing all of these from Tulsa, providing better service for the end user and higher margins for the company. This distributed manufacturing method proves to be a very agile model that is flexible and scalable.

However this is not a new concept. Take the example of General Motors and other domestic automotive OEMs. In the mid to late 20th century they all operated autonomous manufacturing plants, each assembling their own brands, such as Pontiac, Oldsmobile, Chevy, Buck and Cadillac. There was some consolidation of engine manufacturing, but even body clips to join similar panels were different between brands. It wasn’t until foreign automakers such as Honda and Toyota began taking U.S. market share by opening plants in the U.S. did domestic OEMs begin to catch on to decentralizing and begin sharing their supply chains and engineering (decentralized to meet local demands). Furthermore, Japanese auto companies even took advantage of the U.S. domestic supply chain when they opened plants. U.S. Interstate 75 is the primary automotive corridor for OEMs and their supply chains. Running from Detroit to Miami, route 75 is not only home to domestic car companies but also to Honda, Toyota, and Nissan, along with organizations such as Fuyao Automotive North America, a Chinese company with plants in Detroit and Dayton who supplies auto glass to the route 75 supply chain.

Using a distributed manufacturing model takes advantage of regional and local resources that allow companies the ability to do revisions to the local customer’s specific product needs more quickly, leverages the local supply chain and decreases burdens on logistics.

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