channels of distribution

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Supply Chain ManagementCHANNELS OF DISTRIBUTION

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Session Objectives To enable the learner to understand: Channels of distribution

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Channels of Distribution“It consists of one or more organizations or individuals who participate in the flow of goods, services, information , and finances from the point of origin or production to the final point of consumption.”The channel comprises of variety of intermediary firms - distributors , wholesalers , retailers, transportation providers & brokers.Creates time and place utilities of the product for customer satisfaction.Logistics network should be aligned with the distribution channel of the firm.Distribution channel is the place of transaction for the firm’s products .Ensures smooth movement of products to make it available at distribution outlets as and when they are required by the customer.

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Distribution Channel Structure

A= Agent

C = Consumer/Customer

M = Manufacturer

R = Retailer

W = Wholesaler

M C

M R C

M W R C

M A W R C

(two level)

(three level)

(four level)

(five level)

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Channel members

The marketing channel structure consists of a variety of intermediaries performing the distribution task, which differs in terms of financial involvement, relationship with the manufacturer , and functions performed.

Wholesaler

• Collect orders from retailers / institutional customers & operate large volumes• Prefer freight consolidation for lower per unit transportation charges & work on economies of scale.

Retailers

• Last link in the distribution network before the product reaches the end users. • Buy the materials in smaller quantities due to limited financial capacity on credit from the wholesaler or against cash.

Selling agents

• Appointed on a contractual basis for selling the company’s products to the clients in lieu of an sales organization. • Deployed for the collection of outstanding payments from clients , organizing loans & offering credit facilities to clients.

Dealers/stockists

• Carry stocks of the company’s products on a consignment sales basis.• Have a full fledged marketing setting up with backup facilities of warehousing .• Exclusive dealers do not deal with products of competitors.

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Channel Strategy “The design of a logistical programme serving a given channel structure depends on the channel strategy of the enterprise.”

Channel breadthMarketing strategyLength of the channel

The degree of control on

intermediaries

Backup supply

efficiency

Effectiveness of the channel

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Logistics and Marketing Channels

Logistical channel Marketing channel

Supplier

Manufacturer

Distribution centre

Retail store

Transportation

Transportation

Transportation

Customer

E- Procurement

National account sales

Wholesaler/Distributor

Retail customer

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A B

Insource Outsource

1 2 3 4 5 6

Integrated Fulfilment

Dedicated Fulfilment

Outsourced Fulfilment

Drop- shipped Fulfilment

Store Fulfilment

Flow- Through Fulfilment

Current Retail DC

Dedicated DC

Third –party DC

Supplier/Manufacturer Retail Store Current

Retail DC

Parcel CarrierDelivery, Parcel

Carrier or Pick-up Retail Store

Consumer

Direct – to – customer (DTC )fulfilment

Call Centre Options

Physical Fulfilment Models

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Illustration of Integrated Fulfilment

Manufacturer Distribution Centre

Picking Picking

Retailer Distribution Centre

Retail Store Consumer

ConsumerTruckload

Case

Each/ Individual

Retailers operates one distribution network to service both a ‘brick – and - mortar’ and ‘clicks – and - mortar’ channels. Low start up costs. Example: Shoppers Stop

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Illustration of Dedicated Fulfilment


Picking

Picking


Retail Store Consumer

Consumer


Retailer has both a store and an Internet presence but with two separate distribution networks.Example: Malabar Golds and Diamonds

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Illustration of Drop – Shipped Fulfilment



Retail Store “A”

Retail Store “B”

Retail Store “C”

Picking Picking

Consumer

Consumer

Consumer

LTL

The manufacturer delivers its product directly to a retailer’s store bypassing the retailer’s distribution network.

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Illustration of Store Fulfilment

Picking Picking Picking


Retail StoreRetailer Distribution Centre Consumer

The order is placed through Internet site.The order is sent to the nearest retail store where it is picked & put aside for the customer to pick up.The retailer must have real- time visibility to in-store inventories in order to satisfy the Internet Order.

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Let’s summarize In the current scenario , organizations are considering a number of distribution channel alternatives.

Effective management of the various choices requires coordination and integration of marketing, logistics and finance within the firm , as well as , coordination of overall channel – wide activities across the organizations in the channel.

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Questions, Comments, Suggestions?

Peea P. Bal

channels of distribution

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