Distribution strategies in
supply chain management
Distribution strategies are critical in supply chain management
because they determine how a company will get its products or
services to customers. A company’s distribution strategy will
ultimately depend on its goals, resources, and target market.
Direct Distribution Strategy:
Direct distribution strategy is a method of delivering goods or services
from a producer or manufacturer directly to the end-user or customer
without any intermediaries. This means that the producer or
manufacturer is responsible for all aspects of the distribution process,
from inventory management to order fulfillment and delivery.
Here are some examples of direct distribution:
1. Farmer’s Market: Farmers sell their produce directly to consumers
at a local farmer’s market. This eliminates the need for
intermediaries such as wholesalers or retailers.
2. Online Retailers: Online retailers like Amazon and Alibaba sell
products directly to consumers, eliminating the need for brick-and-
mortar stores.
3. Door-to-door Sales: Companies such as Avon and Amway use
direct distribution by having sales representatives sell products
directly to consumers in their homes.
4. Company-Owned Stores: Some companies, such as Apple and
Nike, have their own stores where they sell their products directly
to consumers.
5. Catalog Sales: Companies such as LL Bean and Lands’ End sell
products directly to consumers through catalogs, bypassing
traditional retail channels.
6. Direct Mail: Companies such as Harry & David and Omaha Steaks
sell products directly to consumers through direct mail campaigns.
7. Multi-Level Marketing: Companies such as Herbalife and Mary Kay
use a direct distribution model where sales representatives earn
commissions on the products they sell and on the sales made by
those they recruit into the business.
Indirect Distribution Strategy:
An indirect distribution strategy is a business approach that involves
selling products or services through intermediaries, such as
wholesalers, distributors, agents, or retailers, rather than directly to
end-users or customers.
In this strategy, a manufacturer or producer sells its products to
intermediaries who then sell them to end-users or customers. The
intermediaries manage the products’ marketing, storage, distribution,
and sales, earning a profit margin on each sale.
Indirect distribution can benefit businesses that do not have the
resources or expertise to handle all aspects of distribution and sales. It
allows them to focus on product development and production while
leveraging the expertise and resources of intermediaries to reach a
wider audience.
Some advantages of an indirect distribution strategy include the
following:
Increased market reach: Working with intermediaries can help
businesses reach a more extensive customer base than they could
reach on their own.
Reduced costs: Businesses can save on costs associated with
marketing, distribution, and sales by working with intermediaries.
Access to expertise: Intermediaries often have specialized
knowledge and experience in specific markets or industries,
benefiting businesses looking to expand into new markets.
Reduced risk: Intermediaries can help businesses mitigate risks
associated with inventory management, payment processing, and
other aspects of distribution and sales.
However, indirect distribution also has some disadvantages, such as:
Less control: Businesses have less control over how their products
are marketed and sold when working with intermediaries.
Lower profit margins: Intermediaries take a portion of the revenue
generated from sales, which can reduce profit margins for
businesses.
Potential conflicts: Intermediaries may have different priorities and
goals than the business they represent, leading to disputes and
disagreements.
Dependency: Businesses that rely heavily on intermediaries may
become dependent on them, making it difficult to switch to a
different distribution strategy in the future.
Overall, an indirect distribution strategy can be an effective way for
businesses to expand their market reach and reduce distribution
costs. However, it is important for businesses to carefully consider the
pros and cons of this approach before implementing it.
Here are some examples of indirect distribution:
1. Wholesale Distribution: A manufacturer of electronics products
sells its products to a distributor or wholesaler who, in turn, sells
the products to retailers.
2. Retail Distribution: A shoe manufacturer sells its products to
retailers who, in turn, sell the products to end consumers.
3. Agent Distribution: A company hires an agent to sell its products
on its behalf, who then takes a commission on each sale made.
4. Franchising: A company grants franchisees the right to use its
brand and business model to sell products or services.
5. Online Marketplaces: Companies like Amazon and eBay provide
online marketplaces for sellers to list their products, reaching a
large number of consumers without the need for physical retail
space.
6. Brokers: Companies acting as intermediaries between buyers and
sellers, such as real estate or insurance brokers.
7. Exporting: A company may sell its products to a distributor or
agent in another country who will then sell the products to
consumers in that country.
Hybrid Distribution Strategy:
A hybrid distribution strategy combines elements of direct and indirect
distribution. This strategy can be helpful for companies that want to
have some control over the customer experience while also
leveraging the reach and expertise of intermediaries.
Hybrid distribution strategies are marketing plans that involve using a
combination of multiple distribution channels to reach customers. In
today’s competitive business environment, companies often use a
combination of online and offline channels to sell their products or
services to customers. Hybrid distribution strategies help companies
to reach a wider audience and meet the needs of their customers in
different ways.
Some examples of hybrid distribution strategies
include:
1. Online and offline retail: Many retailers have a physical presence
as well as an online store. Customers can browse products in-store
and make purchases online, or vice versa.
2. Direct-to-consumer (DTC) and retail partnerships: DTC companies
can partner with retailers to sell their products in-store. This allows
DTC companies to reach customers who prefer to shop in person
while maintaining their online presence.
3. Subscription and traditional retail: Subscription-based companies
can sell their products through traditional retail channels, such as
supermarkets or specialty stores. This allows customers to try the
product before committing to a subscription.
4. Social media and retail: Social media platforms can be leveraged
to promote products and direct customers to online or offline retail
channels. Customers can discover products through social media
and then purchase them through their preferred channel.
Hybrid distribution strategies can give companies flexibility and help
them adapt to changing market conditions. By leveraging multiple
channels, companies can increase reach and provide a better
customer experience
Importance of Distribution Strategy:
A distribution strategy is crucial in supply chain management because it ensures that products reach
customers in the right quantity, at the right time, and in the right condition.
1. Customer Satisfaction: Timely and reliable delivery is key to meeting customer expectations
and fostering loyalty.
2. Cost Control: A well-planned distribution strategy can help reduce transportation and storage
costs by optimizing routes and inventory levels.
3. Flexibility: It allows a company to adapt to market changes or disruptions by choosing the right
distribution channels and partners.
4. Competitive Advantage: Efficient distribution can differentiate a company from competitors,
making its products more accessible and appealing to customers.
5. Risk Management: By diversifying distribution methods and locations, companies can better
handle disruptions like natural disasters or political instability.
6. Revenue growth: Effective distribution increases sales by making products more accessible to
customers.
