Supply Chain Management : Distribution

Alongside product management, promotion, and pricing, distribution is one of the four key components of marketing. In simple terms, distribution provides an inlay between the producer of a product and the seller of that product. After a product is made, it is usually then sold to a distributor, who in turn will sell the product either directly to customers, or to retailers who will in turn sell it to customers.

What is Distribution?

Throughout history, distribution has been related to questions in the field of logistics, namely, how does one get a particular product to a customer. Thus, the distribution end of supply chain management must contend with such decisions as to whether to sell the product directly, or through a retailer; whether the product should be distributed on a wholesale basis; whether the product should be sold via multi level marketing channels; whether members of the channel should share advertising costs, etc.

The Channels of Distribution

Quite often, there is a chain of intermediaries who pass the product down to other organizations. The product might change hands several times before it eventually reaches the customer. This is what the “distribution channel” means. The producer has to take in to account the fact that each level of the distribution channel might have particular needs they are hoping to have fulfilled by the product – and that is before it even reaches the end user!

Several distribution channel options might be available, depending on the exact nature of the product or service you are offering. It might be best, for example, for you to eliminate the channel altogether and sell direct via the Internet, mail order, or the telephone. Or you can go through an agent, who will sell your product directly on behalf of you. Alternately, you can use a distributor, who will sell your product to retailers. They, in turn, will make sure your product get to end customers.

There are many ways by which a product might be sold. But services are also sold in this fashion. Hotels often sell their service, which is essentially a room, via travel agents, airlines, centralized Internet portals, etc.

In fact, recent years have seen a number of innovations in the sector of service distribution. One instance has been a vast increase in rental services as well as franchising. Rental services these days might offer anything from tools through televisions and beyond.

There has also been a lot of integration in the service industries, with two or more related services coming together to offer related services. This is particularly evident in the area of tourism and travel. Sometimes, you can rent a car, book a flight, and book a hotel all on the same website. There is also an increasing demand for retail outlets for services. In shopping centers, you can easily find travel agencies, real estate companies, and more service providers.

There can be a number of different levels to each distribution channel. There is the zero level channel, which involves distribution with no intermediaries whatsoever. The one level channel involves one intermediary – in the case of consumer goods, this usually refers to the retailer. If it is industrial goods we are talking about, then that one intermediary will generally be a distributor. For smaller markets, using a zero or one level scheme can be quite practical and effective.

For larger markets, however, it is generally better to use a two level system, which will involve a wholesaler. This enables a ton of smaller retailers to receive and sell the product. The Japanese market uses even further levels than this, having evolved a highly complex distribution system for even simple consumer items.

In the realm of supply chain management, of course, we must also take in to consideration the relationship among the various members of the distribution channel. Generally, the relationship among the players can be described in one of three ways. First, there is the conventional channel relationship, which involves a bunch of middlemen passing the goods on from the producer to the end user. Then, there is the single transaction relationship, wherein a channel is set up for only one transaction. This frequently happens when a piece of real estate is sold, for example. Then there is the Vertical Marketing System, or VMS, in which disparate distribution elements are all integrated in to one cohesive system.

Keep in mind that a lot of the marketing techniques that you apply to external customers of your company can also be applied to each division’s internal customers, as well. This might come about in the form of a formalized arrangement, wherein goods are transferred to different units in the distribution channel at a “transfer price.” When this happens, all sides should view the interaction as a normal relationship between a buyer and a seller. The same marketing techniques can thus be employed.

What’s more, administrative and service divisions of the business can also employ marketing techniques. These techniques can be used to optimize their relationship with their customers, who may only be the other members of the organization. The way that non-profit organizations have typically dealt with their clients is a good example for this.