Distribution Planning

and Control

Dr. Khaled EL Sakty

Introduction
• Distributors are key factors in most marketing systems.
• They are organizations that buy products from hundreds of manufacturers
and resell them to their customers.
• They sell standard products and financial benefits.
• Distributors usually specialize in a class of products, such as electronics,
foodstuffs, pharmaceuticals, clothing.
• They usually provide faster delivery, and better terms and conditions than the
manufacturer.
• Distributors are usually the largest channel organizations.
• Many distributors are national, with several warehouses and sales offices.
1. DEFINING THE DISRIBUTION FUNCTION

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• It is important to separate the term distributor from the term distribution.
• Distributor refers to the channel entities that act as intermediaries between
manufacturers and end-use customers.
• Distribution refers to a process and not a channel entity.

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• The key points of the definitions are:

1. Distribution is a set of activities performed by various entities associated

with the movement of finished goods from producer to the customer.
2. Distribution includes the functions performed by inbound and outbound
activities.
3. Distribution processes include the structuring of communications networks
4. Distribution often involves the use of field warehouses that make channel
inventory management and delivery to the customer more efficient.

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2. DISRIBUTION SYSTEMS

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Distribution Systems

Direct distribution Centralized distribution

Echelon-delivery based
Decentralised distribution
distribution

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 Echelon-delivery
Direct distribution
based distribution

• Manufacturer retains close • Products are available to

control over product. the customer on an on-
demand basis.
• The expense of operating
channel warehouses is • With minimal delivery
avoided. times.
• Market-place information is • High cost of running and
quickly made available. stocking the echelon
channel.
• Distribution cost is high due
to multiple location
delivery.

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Centralised Decentralised
distribution distribution

• Fewer channel warehouses. • Increased costs to support

• Contain minimal safety channel warehouses.
stocks. • Warehouses must bear the
• Reduced operating cost of local safety stocks.
overheads.
• Transportation costs
• Economies of scale. increase.
• Decreased inbound • Total system costs increase.
transportation costs.
• Targeted service levels.
• Minimizing total system
cost.

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National Distributors Regional Distributors

• They are large businesses with annual sales running into • They are medium-sized businesses.
the billions of dollars.
• Regional Distributors have fewer customers and
• Many of them are public corporations. represent fewer product lines than National Distributors.
• Their executives are primarily Bureaucrats, far removed • Their executives work more closely with their customers
from day-to-day operations. and with their suppliers than do their counterparts at
• Operating decisions are influenced by pressures from National Distributors.
a handful of their largest suppliers and customers. • However, Regional Distributors often receive less-
• The rest of their suppliers and customers must accept favorable pricing and less technical support from the
their policies and procedures for conducting business. largest manufacturers because their volume of business
is relatively low.
• As a result, they are more approachable to the less
well-established manufacturers.
Levels of channel structures

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3. Basic Distribution Formats

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Distribution Formats

Processed Based Market Based Channel Based

Processed Based Model Market Based Model
• The manufacturer operates as a single value-added • It is concerned with managing a limited set of functions
delivery. across a multidivisional or a multiple-enterprise channel.
• the objective of this strategy is to achieve optimal • The object is to execute joint product shipments to
efficiencies and productivities by directly managing customers originating across the enterprise or to
production and distribution functions as a single facilitate sales and coordination by a single-order
integrated system. invoice.

Channel Based Model

• A manufacturer seeks to manage the distribution

process by forming alliances with wholesalers and
retailers.
• Enterprises that employ this strategy typically have large
amounts of finished goods in the channel.

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Alternative Distribution Channel Formats

Merchant Wholesaler Distribution Retail

Channel Formats Formats

Manufacturer-Based Distribution Service

Channel Formats Channel Formats

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 Buyer-Initiated Miscellaneous Channel
Formats Formats

Exporting and e-Business Formats

Importing Channel
Formats

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4. The Role of Distribution
Channel

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Distribution channels are formed to solve three critical distribution problems:

Functional Reduced complexity Specialization

performance
Functional Performance
• Increasing the efficiency of time
• Increasing the efficiency of place utility
• Increasing the efficiency of delivery utility
• Product availability
• Functions of exchange and fulfillment
• Facilitate the flow of products, services, and information

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Reduced Complexity
• An intermediary can substantially reduce the number of transactions,
information, and product flows between producers and customers.

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• Channel intermediaries assist in the routinization of business functions and product sorting.
• Routinization refers to the establishment of policies and procedures that provide channel members
with common goals, channel arrangements, and expectations
• Sorting is defined as a group of activities associated with transforming products and product
quantities acquired from producers into the assortments and lot sizes demanded by the
marketplace.
• The “sorting” process can be broken down into four primary functions:
1. Sorting out. This process is defined as separating a heterogeneous group of products, often
acquired from multiple suppliers, into homogeneous subgroups.
2. Accumulation. the channel intermediary combines homogeneous stocks of products into
larger groups of supply.
3. Allocation. This form of sorting breaks down large lots of products into smaller lots for sale.
4. Assorting. distributors mix similar or functionally related items into assortments to meet
customer demand.

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Specialisation

• Many channels contain intermediaries that specialize in one or more of the

elements of distribution, such as cross-docking or transportation.
• Specialisation aims to increase the velocity of goods and value-added
services.
• By reducing costs associated with selling, sorting, transporting, carrying
inventory, warehousing, order processing, and credit.

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5. CHANNEL SERVICE OUTPUTS

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Distribution channels exist because they perform
four critical service outputs.
 Spatial convenience

Bulk-breaking

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 Product variety

Length of waiting and delivery time

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OTHER FUNCTIONS OF DISTRIBUTION CHANNELS

1. Selling and promoting 9. Risk

2. Postponement
10. Negotiations
3. Transportation
11. Ordering Flow
4. Warehousing
5. Sequencing 12. Payment Flow
6. Merchandising 13. Financing
7. Marketing information 14. Information services
8. Product possession
15. Management Services and Consulting
6. Distribution Channel Inventory Flow

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• The decision to stock inventory at any particular channel echelon is a serious
management decision.
• It must be carefully considered by cost and service trade-off analysis.
• Management methods such as:
Lean
make-to-order production
structure of the channel warehouse system
outsourcing of operations, and
other factors.

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Channel Inventory Flow

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Inventory and Demand Flows

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7. Designing Channel Networks

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Defining Channel Network
• A channel network is “an interconnection of organizations which relate to each
other through upstream or downstream linkages between the different processes
and activities that produce value in the form of products and services to the
ultimate customer.
• There are several characteristic features of a channel network:
Channel networks usually consist only of a company’s first-tier suppliers and
customers.
A company rarely forms network relationships with suppliers and customers
beyond the first tier.
Channel members perceive their relationships as established on a long-term
basis.
The cooperative, often collaborative, relationships that exist are perceived by
channel members as an essential component of their continued success in the
marketplace.

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Exploring Channel Network System
• When crafting a network channel, strategists have a choice of four types of
systems.
Transaction-based A limited channel A federated network Partnerships and alliances
systems system
• minimal-to-no • businesses only • mutual • integrate core
dependency between engage with other • dependencies competencies and
channel trading firms to capture a resources
• Partners • marketplace
opportunity
• a unique event • best selling price • Collaborative • improve
• and short delivery relationships among performance, cost
time channel members effectiveness, and
competitiveness
• non-repeated • Each firm
• Transaction • stands alone
• expensive durable
goods, such as
machinery 34
Basic Channel Network Structures

Channel dyads

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Channel network alignment structure

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 Channels Network Channels Network
Drivers Consideration

• Customer service • Facility role

• Relocation • Efficiency
• Flexibility • Responsiveness
• Product diversification • Facility location
• Rationalisation • Capacity allocation
• Decentralisation • Costs

Channel network design process

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 Three Distribution Channel Attributes
• Market penetration intensity • Distribution integrative intensity
• How many echelons deep in the • How much control a company seeks
delivery network producers or over downstream customer-facing
intermediaries must go to deliver delivery echelons.
goods to the customer.

• Distribution intensity
• The number of intermediaries needed to bring products to the end-customer.
• Four strategies:
1. Single source distribution; a producer performs all distribution activities
2. Intensive distribution; a company seeks to utilize a broad and deep distribution network to reach
many customers
3. Limited distribution (exclusive dealing, exclusive distribution); limit the number of intermediaries
4. Selective distribution; selective intermediaries

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8. Channel Positioning:
DC Design Options

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1. Producer Storage with
Direct Delivery

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2. Producer Storage with
Drop Ship

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3. Producer with Extended
Channel Networks

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4. Aggregator with Extended
Channel Network

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5. Aggregator with e-Business
Network

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Comparing Channel Network Options
9. Channel Selection

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• Selection process is to maximize customer responsiveness while optimizing
company profits and lowering operations costs.

Customer responsiveness vs. channel costs Cost elements of channel facilities

Four-step Selection Process

Facility selection Modeling choices Assembling the Confirming the

issues network network

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22 SELECTION ISSUES
1. corporate objectives
2. customer service-level 11. proximity to
competitors
3. global economic
conditions 12. proximity to suppliers
and customers
4. country-level political
stability 13. facility cost and size
5. government regulations 14. availability and
accessibility of
6. location of markets transportation modes
7. exchange rates and 19. • cost and availability
15. proximity to highway of utilities
currency risks systems
20. • government
8. local cultural 16. communications incentives
infrastructure
9. climate 21. • community
17. local taxes and fees resources (police,
10. • labor availability, costs,
wages, and union 18. environmental fire, public
strength regulations transportation, and
affordable, housing)
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10. Methods for Locating Channel
Network Facilities

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Factor-rating method Center of Gravity Location Break-Even Least-Cost-Per-Lane
Method Analysis Problem

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