Distribution Management: Definition, Advantages & Strategies
- What Is Distribution Management?
- What Is a Distributor?
- Why Is Distribution Management Important?
- What Is a Distribution Network and What Are the Benefits?
- Advantages of Distribution Management
- Distribution Management Challenges
- 5 Factors That Influence Distribution Management
- 3 Distribution Management Strategies
- Choosing a Distribution Management System
- What Are the 4 Channels of Distribution?
Distribution management has long been a business challenge. Raw goods can arrive too early and go bad before they are used. Or, finished products can arrive too late, allowing a competitor to seize the lion’s portion of market share.
Effective distribution is so crucial that sub-discipline practices became an integral part of supply chain and inventory management, such as just-in-time inventory. Overall, successful distribution involves many moving parts and methods requiring a strong distribution management strategy fueled by real-time information.
What Is Distribution Management?
Distribution management is the process used to oversee the movement of goods from supplier to manufacturer to wholesaler or retailer and finally to the end consumer. Numerous activities and 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 sell directly to consumers. Take, for example, a wholesale liquor distributor that supplies alcohol to restaurants, grocery stores and liquor stores.
Other examples include a produce distributor that supplies lettuce, tomatoes and other produce to restaurants; and a pharmaceutical distributor that supplies a variety of prescription-controlled drugs to pharmacies.
Distribution vs. Logistics
Logistics refers to the detailed planning and processes involved with the effective supply and transportation of goods. Logistics includes activities and processes such as supply management, bulk and shipping packaging, temperature controls, security, fleet management, delivery routing, shipment tracking and warehousing. It is perhaps easiest to think of logistics as physical distribution.
Distribution is a management system within logistics that is focused on order fulfillment throughout distribution channels. A distribution channel is the chain of agents and entities that a product or service moves through on its way from its point of origin to a consumer. Examples of distribution channels include ecommerce websites, wholesalers, retailers and 3rd party or independent distributors. Distribution includes activities and processes such as consumer 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 getting goods to the buyer in a timely fashion and with the least amount of waste. Therefore, it has a 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 from manufacturer to wholesalers, retailers or buyers.
Advantages of Distribution Management
Besides delivering higher profits, distribution management eliminates waste in a number of ways, ranging from reduced spoilage to reduced warehousing costs since products and goods can be delivered as needed (“just in time” inventory) rather than stored in bigger 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” and other conveniences and rewards, such as customer loyalty rewards programs.
Distribution Management Challenges
Distribution challenges can arise from a variety of disruptions. Natural disruptions include severe weather events, raw material shortages (e.g. bad crop years), pest damages, and epidemics or pandemics. Human disruptions include riots, protests, wars and strikes.
Transportation disruptions include transport vehicle disrepair, maintenance downtimes and accidents, as well as delayed flights and restrictive or new transportation regulations such as those regularly seen in trucking.
Economic challenges include recessions, depressions, sudden drops or increases in consumer or market demands, new or changes in fees or compliance costs, changes in currency exchange values 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 essence to prevent the loss,
- Buyer purchasing habits – peaks and troughs in purchasing habits can influence distribution patterns and therefore varying distribution needs that can be predicted,
- Buyer requirements — e.g. changes in a retailer’s or manufacturer’s just-in-time inventory demands,
- Product mix forecasting – optimal product mixes vary according to seasons and weather or other factors and
- Truckload optimization – relies on logistics and fleet management software to ensure every 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:
The mass strategy aims to distribute to the mass market, e.g. to those who sell to general consumers anywhere.
The selective strategy aims to distribute to a select group of sellers, e.g. only to certain types of manufacturers or retail sectors such as pharmacies, hair salons, and high-end department stores.
The exclusive strategy aims to distribute to a highly limited group. For example, the manufacturers of Ford vehicles sell only to authorized Ford dealerships, and producers of Gucci-brand goods only sell to a narrow slice of luxury goods retailers.
Choosing a Distribution Management System
Choosing the right distribution management system for your organization depends a great deal on your organization’s distribution goals and challenges and the distribution models and channels your company uses. But as a general rule, companies should evaluate:
- Ease of integration and compatibility with legacy systems.
- Scalability and elasticity
- Data management and analytics, including real-time data streaming and ecosystem data-sharing
- Adaptability, whether the system is agile enough to accommodate the rapid changes needed to overcome obstacles or seize new opportunities
What Are the 4 Channels of Distribution?
There were historically three distribution channels:
Goods are distributed from manufacturers to wholesalers in this channel. For example, liquor distillers distribute their brands of liquors to wholesalers.
Goods are distributed from manufacturer or wholesaler to retailers. For example, big-name designer clothing and accessories are distributed to higher-end retail chains such as Neiman Marcus, Nordstrom and Macy’s.
This channel moves goods from the source or manufacturer to an authorized distributor. For example, a Ford factory distributes various Ford makes and models to authorized Ford dealerships for sale to consumers or company fleets.
This is the newest and most disruptive distribution channel wherein goods and services are represented virtually online and then distributed directly to the buyer. Ecommerce as a fourth channel has led to rapid changes and made distributors rethink their traditional strategies.
The elements of distribution management systems are the steps involved in getting the product from the manufacturer to the end customer and can include: supply chain, blockchain, logistics, purchase order and invoicing system, vendor relationship management (VRM), customer relationship management(CRM) an inventory management system(IMS), a warehouse management system(WMS) and a transportation management system (TMS).