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Distribution: Dunkin Case Study

Concept: Distribution

Every company has a value chain that includes primary and support activities utilized to design, produce, market, deliver, and support its products (Marshall & Johnston, 2018, p.317). The delivery portion of the value chain encompasses the supply chain activities. It is essential to understand the supply chain and distribution of goods related to adding value to a company’s product through cost savings.

A supply chain represents all organizations involved in supplying a firm, the members of its channels of distribution and its end-user consumers and business users (Marshall & Johnston, 2018, p.317). Maximizing efficiencies throughout the supply chain helps create a competitive advantage for a firm. The marketing managers for the firm must find unique ways to reduce costs and refine processes to achieve this advantage. By becoming part of a value network, a firm can develop value co-creation, where each participant of the network creates value that brings together their individual competencies. If each participant in the organization can focus on their capabilities, it will drive efficiency into the supply chain.

The distribution channel is one piece of the supply chain where value partnerships can create cost reduction. A company must decide on the best distribution channel to utilize in order to get products from the manufacturer to the consumer, whether direct or indirect. In the indirect channel, there are a variety of intermediaries that a company can utilize in the channel, such as; distributors, wholesalers, and retailers. The primary function of channel intermediaries is “physical distribution, or logistics, which is the integrated process of moving input materials to the producer, in-process inventory through the firm, and finished goods out of the firm through the channel of distribution” (Marshall & Johnston, 2018, p.321). The logistics function in the channel can be carried out in various ways. The goal is for the company and its channel intermediaries to move the products in a way that creates the most value.  

Application/Example

Dunkin’ donuts and its partnership with National DCP (NDCP) is a perfect example of a value co-creation relationship. NDCP is Dunkins franchisee-owned distribution and purchasing cooperative that is Dunkins sole intermediary. The NDCP is responsible for every step of supplying business inputs to Dunkin Donuts franchises: sourcing, storing, and shipping raw ingredients to centralized manufacturers (Matthew, 2014, para.1). Having this singular partnership for the logistics branch of the supply chain allows for Dunkin’ to have inherent efficiencies. All logistics functions are more easily streamlined and integrated utilizing a single source. In addition, to those efficiencies driving cost savings, the franchisee-owned model allows for lower overhead and operations costs (Krikorian, 2014, pg1). Dunkin’ corporate realizes the savings, and that burden is spread out among the franchisee owners, incentivizing effective distribution operations to manage costs.

As stated before, the NDCP delivers the goods to centralized manufacturing facilities. Here all the raw materials sourced by the logistics company come together to create goods to send out to the retailers. The centralized manufacturing model is vital to Dunkin’s success. Having centralized production also lends itself to creating consistent product quality and reducing store-level interruption (Matthew, 2014, pg.1). NDCP manages this process in tandem with Dunkin’ corporate as a team.

Since 2014, the relationship between Dunkin’ and the NDCP has only strengthened. The two firms have grown together and have not found the need to introduce new intermediaries. In 2020, they reached a renewed sole source agreement supporting Dunkin’s future growth. This long-term agreement will provide greater consistency in supply chain and distribution services as well as provide significant future cost-efficiencies for the franchise community (Pierce, 2020, p.1).

Question for Class

When considering how a firm and its intermediaries work together, is it better to have more or fewer intermediaries and why?

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