Source: Federal Highway Administration, Office of Freight Management.
Distribution systems have become increasingly driven by demand instead of by supply, implying a shift in the relative importance of specific logistical functions, mainly inventory, transport, and information systems:
- Supply-driven. In a conventional situation, a supply-driven distribution system is mainly based on the function of inventory. Production, often taking place in large batches, is simply “pushed” on the market with the hope that what is being produced will be consumed. Since elements of the supply chain are loosely integrated, parts and/or products must be stored to accommodate the chronology of the demand. This obviously leads to inefficiencies.
- Demand-driven. Contemporary distribution systems have become increasingly demand-driven. Under such circumstances, low inventory levels are maintained and most of it is in circulation. This is related to the increasing importance of the transport component in distribution. The operational management of such a system relies heavily on information systems to ensure that parts and/or products are delivered where and when they are required (on demand).