What is Distribution Management?
Distribution management refers to the process of planning, implementing, and controlling the movement of goods and services from the manufacturer or supplier to the end customer. It involves managing the entire distribution network, including transportation, warehousing, inventory management, and order fulfillment.
Table of Content
- 1 What is Distribution Management?
- 2 Meaning of Distribution
- 3 Elements of Distribution
- 4 Importance of a Distribution Strategy
- 5 Advantages of Distribution Management
- 6 Distribution Management Strategies
Distribution can be simply understood as a process of the flow of the goods from the point where it is produced to the point where it is to be delivered, i.e. the end user. Designing a distribution network is a complex process which involves crucial analysis on different parameters. There is no one type of distribution network that suits all the industries.
The distribution network is designed keeping in view the type of product, technology available, macroeconomic factors, political factors etc. Every organisation needs to design a network to suit its own needs.
Meaning of Distribution
The term ‘logistics’ refers to the planning and processes that go into the efficient supply and delivery of products. Supply management, bulk and shipping packing, temperature controls, security, fleet management, delivery routing, shipment tracking, and warehousing are all examples of logistics activities and processes.
Distribution is a logistics management system that focuses on order fulfilment across distribution networks. A distribution channel is a series of agents and organisations through which a product or service passes on to origin to a customer. A distribution network is a network of storage facilities and transportation systems that are linked together.
The role played by networks in the distribution management is elaborated as follows:
- Balances supply and demand for products: A robust distribution network helps assemble and supply the necessary goods to the point of requirement.
- Protects against risk arising out of uncertainty: Widespread distribution facilities can protect the inventory against forecasting errors, disruptions in supply and fluctuations in demand.
- Economy of scale: Distribution network supports the manufacturing operations in reducing its costs by ensuring long-production runs.
- Key driver of overall profitability: The network affects not only the supply chain costs, but also the end consumer directly.
Elements of Distribution
The various elements of a physical distribution system are:
Customer service is a predetermined level of customer satisfaction that a shopping intends to offer. Retailers cannot get a competitive edge over their competitors without developing and enforcing “customer service standards.” 95% of purchases are delivered within 5 hours of receipt, and 100% are delivered within 24 hours, according to a customer service guideline.
Retailers who maintain better service standards pay the price of having a larger inventory or spending money on a faster means of transportation.
Customer service levels may be improved by following certain steps:
- By maintaining constant product availability.
- By lowering the time between placement of an order and receiving it.
- By offering adequate training to transportation salespeople and personnel.
Order processing, also known as order fulfilment, is the act of handling client and order information into a computer system in order to generate invoices for pickup inside a distribution centre (which might be a warehouse or a retail shop). The primary concept is to deliver orders according to the preferences of consumers in terms of location and schedule. As a result, as soon as an order is placed, action should be made, and the client should get prompt confirmation of the order’s receipt and specific delivery time.
Computers are employed to monitor a customer’s credit rating, stock levels, and delivery promptness in today’s high-tech environment so that management can get an accurate image of distribution status. Accuracy, as well as techniques aimed to reduce (shorten) the order processing cycle, is critical to successful order processing. The work of order processing begins when a client places an order over the phone, in person, or by fax or email.
Inventory management is an important part of a retailer’s physical distribution system. It comprises money spent on inventory, and the possibility of the items becoming obsolete as time passes. Marketing executives promote big inventories to avoid stock outs in a retail firm, but finance executives urge inventory reduction.
As a result, businesses should strive to keep their inventory levels as low as possible while still providing 100% customer service. Companies that sell a wide range of products find it difficult to stock all of the goods that a consumer would purchase in big numbers. Fast-moving products are subjected to a high level of customer care, whereas slow-moving or low-demand commodities are subjected to a far lower level of service.
Experts in inventory control have devised a variety of techniques that might assist merchants in properly managing inventory. The Economic Order Quantity (EOQ) model is a frequently utilised technique. Aside from that, ABC analysis is used all around the world.
It includes all operations related to the storage of products from the moment they are acquired and the time they are delivered to the client once the order is received. This role includes receiving product, breaking it down into bulk, storing it and loading it for distribution to clients according to their preferences. Distribution centres serve as a central/middle site for speedy transfer of products to retail outlets, whereas storage warehouses typically maintain items for lengthy periods.
The physical distribution of products and services necessitates the use of transportation. The transportation mode allows channel participants such as manufacturers, distributors, and retailers to deliver products and services to clients at their point of purchase or at their doorstep.
Transportation contributes to about 25-40% of overall distribution expenditures in terms of cost. Quick and timely delivery, security of goods during transit and proper handling results in customer satisfaction.
Importance of a Distribution Strategy
Distribution is typically an under appreciated aspect of strategy, despite the fact that it is usually a key component of a winning approach. The phrase “distribution” in the business sector refers to the routes, procedures, and processes used to convey goods and services from their point of manufacturing, production, or development to their final end-users.
When the words “distribution” and “strategy” are combined, the issue becomes: how can distribution be used as a component or variable in a company’s overall business and marketing strategy?
Here is how these forms distribution can play a key role in strategy:
Open New Markets
Opening a new channel of distribution or expanding distribution into new geographic areas can provide access to a company’s products or services to new groups or categories of customers.
For example, a coffee company that only sells its products in supermarkets can decide to purchase its own trucks and create an office coffee delivery service to transport coffee to employees’ offices. Alternatively, the coffee company may build its own coffee shops or expand its distribution network.
Speed Up Delivery
Sometimes the benefit of distributing a product or service more rapidly is enough to warrant a new distribution method. A new distribution approach might emerge if speed of delivery is paired with a direct-to-consumer business model.
If a new distribution system or enhanced logistics can considerably lower costs and increase profit margins, that distribution strategy may be worthwhile to pursue. For example, if a shop has a high-cost than the retail-store distribution system, it might be able to save money by transferring portion of its sales to an online distribution system.
If retail out-of-stocks are a significant issue in a certain sector or product category, a new distribution strategy may be required. An issue with out-of-stocks must often be addressed with one eye on marketing and promotional activities and the other on supply chain and logistics.
What appears to be a logistical issue might actually be a marketing issue (i.e., consumer promotions might be causing the out-of-stock problem).
If a small business with limited resources develops an enticing new product but is unable to get it on the market in retail stores, it might approach a big retailer and offer to distribute the product only in that retailer’s stores.
While this method restricts the upside potential of a new product by limiting distribution options, it may be a good strategy for a small business (limited distribution is better than no distribution). A version of this method is to offer the new product under an exclusive brand name/private label to each retail chain.
Burnish a Brand Image
The sorts of stores in which a product is sold can influence and reinforce a consumer’s perception of that brand. A premium company, for example, may option to be distributed only through upmarket, high-end retail outlets. A mass-market brand, on the other hand, can seek distribution through every channel and in every nook and corny of the economy.
Block a Competitor
If a manufacturer learns that a large rival is preparing to significantly grow its online presence and direct-to consumer commercial activity, the manufacturer may aggressively develop its own direct-to-consumer channel of distribution as a deterrent to the competitor’s operations.
Advantages of Distribution Management
Distribution management reduces waste in a variety of ways, from reduced spoilage to lower storage expenses, because items and supplies may be distributed when required (‘just in time’ inventory), rather than retained in larger quantities (‘just in case’ inventory).
Reduced shipping costs and faster delivery to consumers are two benefits of distribution management. It also makes things simpler for purchasers by allowing ‘one-stop shopping’ and other conveniences and rewards, such as customer loyalty rewards programmes.
Distribution Management Strategies
There are three distribution management strategies at the strategic level:
- Mass: The mass strategy aims to distribute to the mass market, e.g. to those who sell to general consumers anywhere.
- Selective: The selective method tries to distribute to a limited number of retailers, such as pharmacies, hair salons, and highend department shops.
- Exclusive: The exclusive distribution approach tries to reach a small number of people. Manufacturers of Ford automobiles, for example, sell exclusively to authorised Ford dealerships, while Gucci-brand items are only sold to a select group of luxury goods stores.