Distribution management has long been a business challenge. Raw goods can arrive too earlyand go bad before they are used. Or, finished products can arrive too late, allowing acompetitor to seize the lion’s portion of market share.
Effective distribution is so crucial that sub-discipline practices became an integral part ofsupply chain and inventory management,such as just in time inventory. Overall, successful distribution involves many moving partsand methods requiring a strong distribution management strategy fueled by real-timeinformation.
Video: What Is Distribution Management?
What Is Distribution Management?
Distribution management is the process used to oversee the movement of goods from supplier tomanufacturer to wholesaler or retailer and finally to the end consumer. Numerous activitiesand processes are involved, including raw good vendor management, packaging, warehousing,inventory, supply chain, logistics and sometimes even blockchain.
What Is a Distributor?
A distributor is an entity that supplies products to retailers and other businesses that selldirectly to consumers. Take, for example, a wholesale liquor distributor that suppliesalcohol to restaurants, grocery stores and liquor stores.
Other examples include a produce distributor that supplies lettuce, tomatoes and otherproduce to restaurants; and a pharmaceutical distributor that supplies a variety ofprescription-controlled drugs to pharmacies.
Distribution vs. Logistics
Logistics refers to the detailed planning and processes involved with the effective supplyand transportation of goods. Logistics includes activities and processes such as supplymanagement, bulk and shipping packaging, temperature controls, security, fleet management,delivery routing, shipment tracking and warehousing. It is perhaps easiest to think oflogistics as physical distribution.
Distribution is a management system within logistics that is focused on order fulfillment throughout distributionchannels. A distribution channel is the chain of agents and entities that a product orservice moves through on its way from its point of origin to a consumer. Examples ofdistribution channels include ecommerce websites, wholesalers, retailers and 3rdparty or independent distributors. Distribution includes activities and processes such asconsumer or commercial packaging, order fulfillment and order shipping. In short,distribution is most easily understood as commercial or sales distribution.
Why Is Distribution Management Important?
Distribution management is first and foremost about organizing everything involved in gettinggoods to the buyer in a timely fashion and with the least amount of waste. Therefore, it hasa direct impact on profits.
What Is a Distribution Network and What Are the Benefits?
A distribution network is a connected group of storage facilities and transportation systems.It is formed in accordance with a distribution strategy designed to move goods frommanufacturer to wholesalers, retailers or buyers.
Advantages of Distribution Management
Besides delivering higher profits, distribution management eliminates waste in a number ofways, ranging from reduced spoilage to reduced warehousing costs since products and goodscan be delivered as needed (“just in time” inventory), rather than stored inbigger bulk(“just in case” inventory).
Distribution management leads to decreased shipping charges and faster delivery to customers,and it also makes things easier for buyers as it enables “one stop shopping” andotherconveniences and rewards, such as customer loyalty rewards programs.
Distribution Management Challenges
Distribution challenges can arise from a variety of disruptions. Natural disruptions includesevere weather events, raw material shortages (e.g. bad crop years), pest damages, andepidemics or pandemics. Human disruptions include riots, protests, wars and strikes.
Transportation disruptions include transport vehicle disrepair, maintenance downtimes andaccidents, as well as delayed flights and restrictive or new transportation regulations suchas those regularly seen in trucking.
Economic challenges include recessions, depressions, sudden drops or increases in consumer ormarket demands, new or changes in fees or compliance costs, changes in currency exchangevalues and payment issues.
Product disruptions include product recalls, packaging issues and quality control issues.Buyer disruptions include order changes, shipment address changes and product returns.
5 Factors That Influence Distribution Management
Many things can influence distribution management. The five most common are:
- Unit perishability – if it’s a perishable item then time is of the essencetoprevent loss,
- Buyer purchasing habits – peaks and troughs in purchasing habits can influencedistribution patterns and therefore varying distribution needs that can be predicted,
- Buyer requirements — e.g. changes in a retailer’s or manufacturer’sjust intime inventory demands,
- Product mix forecasting – optimal product mixes vary according to seasons andweather orother factors and
- Truckload optimization – relies on logistics and fleet management software toensureevery truck is full to capacity and routed according to the most efficient path.
3 Distribution Management Strategies
At the strategic level, there are three distribution management strategies:
Mass.
The mass strategy aims to distribute to the mass market, e.g. to those who sell togeneral consumers anywhere.
Selective.
The selective strategy aims to distribute to a select group of sellers, e.g. only tocertain types of manufacturers or retail sectors such as pharmacies, hair salons,and high-end department stores.
Exclusive.
The exclusive strategy aims to distribute to a highly limited group. For example, themanufacturers of Ford vehicles sell only to authorized Ford dealerships, andproducers of Gucci-brand goods only sell to a narrow slice of luxury goodsretailers.
Choosing a Distribution Management System
Choosing the right distribution management system for your organization depends a great dealon your organization’s distribution goals and challenges, and the distribution modelsand channels your company uses. But as a general rule, companies should evaluate:
- Ease of integration and compatibility with legacy systems.
- Scalability and elasticity
- Security
- Data management and analytics, including real-time data streaming and ecosystemdata-sharing
- Adaptability, whether the system is agile enough to accommodate the rapid changes neededto overcome obstacles or seize new opportunities
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What Are the 4 Channels of Distribution?
There were historically three distribution channels:
Wholesaler.
Goods are distributed from manufacturers to wholesalers in this channel. For example,liquor distillers distribute their brands of liquors to wholesalers.
Retailer.
Goods are distributed from manufacturer or wholesaler to retailers. For example, bigname designer clothing and accessories are distributed to higher end retailingchains such as Neiman Marcus, Nordstrom and Macy’s.
Distributor.
This channel moves goods from the source or manufacturer to an authorizeddistributor. For example, a Ford factory distributes various Ford makes and modelsto authorized Ford dealerships for sale to consumers or company fleets.
Ecommerce.
This is the newest and most disruptive distribution channel wherein goods andservices are represented virtually online and then distributed directly to thebuyer. Ecommerce as a fourth channel has led to rapid changes and makes distributorsrethink their traditional strategies.
What Are the Elements of Distribution Management?
The elements of distribution management systems are the steps involved in getting the productfrom the manufacturer to the end customer and can include: supply chain, blockchain,logistics, a purchase order and invoicing system, vendor relationship management (VRM), customer relationship management (CRM), an inventory managementsystem (IMS), a warehouse management system (WMS) anda transportation management system(TMS).
