BY

UNIT 4 –DISTRIBUTION MANAGEMENT ENVIRONMENT

supply chain distribution formats, Distribution channel structure - channel members, channel strategy, role of logistics and support in
[Link]
distribution channels. Logistics requirements of channel members. Reverse logistics, sustainable distribution
DEPARTMENT OF MANAGEMENT STUDIES

1
 Distribution Channel Structure

• The American marketing association defines a distribution

channel as the structure of intracompany organizational units
and extra company agents and dealers, Wholesale and retail,
through which a commodity, product or service is marketed. In
technical sense, a channel is a group of businesses that take
ownership title to products or facilitate exchange during the
marketing process from original owner to final buyer.

2
 supply chain distribution formats
• There are multiple supply chain distribution formats, including
distribution channels, supply chain types, and distribution
strategies
• There are three types of distribution channels:
• Direct: The manufacturer sells directly to the consumer,
without intermediaries. This can lead to a better customer
experience and higher customer satisfaction.
• Indirect: The manufacturer uses intermediaries, such as
wholesalers or retailers, to distribute the product. This can help
businesses reach a larger target market.
• Hybrid: A combination of direct and indirect methods, which
can help businesses tailor their distribution strategy to different
3
 supply chain distribution formats
• Supply chain types
• There are several types of supply chains, including:
• Linear: A traditional supply chain where each link operates
independently, with little information sharing.
• Direct: Aims to reduce the number of intermediaries between
the company and its customers.
• Collaborative: Two or more companies share resources along
the supply chain.
• Synchronized: All steps in the supply chain occur quickly and
smoothly.
• Centralized: Offers more control than decentralized supply
chains 4
 supply chain distribution formats
What are 3 methods of distribution in a supply chain?
• There are three types of distribution strategies:
• Intensive: Places products in as many retailers as possible.
• Selective: Limits product placement to a specific group of
retailers.
• Exclusive: Places products in one or very few retailers in each
geographic area.

5
 Distribution Channel Structure -Definition

• A distribution channel is as set of interdependent organizations

or intermediaries involved in the process of making a product
available for consumption. A channel directs the flow of
products from producers to customers.

6
 Generic Channels of Distribution

MANUFACTURERS AND INDUSTRIAL USERS

WHOLESALERS

FARMS and RAW MATERIALS

RETAILERS

CONSUMERS AND GOVERNMENTS

7
 Generic Channels of Distribution

• One advantage of graphing channel arrangements in a flow

diagram format is the ability to show, in a logical sequence, the
variety and positioning of institutions that participate in
ownership transfer.
• Of particular interest in figure is the range of Institutions that
products may pass through and the alternative paths they can
physically follow as they flow from original owner to final
buyer.

• For example, retail stores may purchase from all levels of

supply ranging from farmers to wholesalers. 8
 Channel Members

Zero level Manufacturer – Consumer

First Level Manufacturer- Retailer-Consumer

Second Level Manufacturer- Wholesaler-Retailer-

Consumer
Third Level Manufacturer- Wholesaler-Jobber- Retailer-
Consumer

9
Channel structure alternatives in consumer-goods distribution

10
 Channel structure alternatives in consumer-goods distribution

• Of the four channels mentioned above, the most typical for the
consumer is the wholesaler Retailer- Consumer structure.

• The channel selected by the manufacturer depends on the

characteristics of the product, the buying habits of consumer,
and the overall marketing strategy of the firm.

• On the other hand, a manufacturer with limited capital

resources and limited product line might elect to hire a broker or
an agent to sell products in consumer channels
11
 Which Companies Use Direct Distribution?
Some companies that use direct distribution include Amway, Apple,
Avon, Bowflex, Charles Schwab, L.L. Bean, Mary Kay, Peloton,
and Walmart. L.L. Bean and Peloton also use indirect distribution
to lower costs and gain more exposure.

12
 How to Select Distribution Channels for Your Product?
1. Benchmarking
First, you must look at your competitors to find the best practices they’ve adopted.
This kind of mapping is known as benchmarking. This process
involves comparing your organization’s products, services, or
processes to those of your competitors or other relevant
organizations in your industry.
The idea is to figure out the distribution strategies your
competitors use and the areas they excel and do the same. By
analyzing competitors, you can also identify any room for
improvement in your business and enhance your company’s
performance
13
 How to Select Distribution Channels for Your Product?
2. Project Review

The next step is to review the project/channel you created.

Check if there are errors and how you can optimize the processes
you’ve adopted and adapt the project to the needs and
characteristics of the type of sales you make.
One way to analyze a distribution channel is to examine customer
behavior data, sales volume, and feedback from sales teams.

For example, understanding which channels have the highest

conversion rates can help you discover areas for improvement in
the distribution process. 14
 How to Select Distribution Channels for Your Product?
3. Costs and Benefits
When we talk about distribution channels, one crucial factor is
their cost.
Always look for the best cost-benefit ratio.
Cost-benefit analysis is a way of evaluating the pros and cons of a
decision by comparing the costs involved with the potential
benefits. To calculate cost-benefit, you subtract a project’s or
decision’s total cost from the total benefits or expected returns.
There needs to be more than a vague idea of the costs to do this.
You must record all costs and analyze if the benefits of the channel
you selected are worth it.
15
 How to Select Distribution Channels for Your Product?

For example, imagine a business is considering implementing a

new software system to increase productivity. First, they would
need to estimate the cost of the software and any associated costs,
such as training and IT support.
Let’s say the total cost is $50,000. Next, it would need to calculate
the potential benefits. For example, if the new software increases
productivity by 10 percent and the average employee earns $50,000
per year, the potential benefit would be an additional $5000 per
employee yearly.
If the business has 50 employees, the total annual benefit would be
$250,000. That would make the software a worthwhile investment. 16
 How to Select Distribution Channels for Your Product?
4. Company’s Daily Routine
What are the projects, processes, and activities in your business?
You must ensure your chosen distribution channel aligns with the day-to-day
working of your company.
Otherwise, logistics problems might result in product delays and potentially
damage your customer relationship. For instance, if your chosen distribution
channel relies on a fast turnaround time for order fulfillment, ensure that
your teams and processes are set up to accommodate this schedule.

Overall, aligning your chosen distribution channel with your daily routine
and ensuring that any logistical challenges are anticipated and addressed can
help your business meet its goals and maintain positive customer
relationships.
17
 How to Select Distribution Channels for Your Product?
4. Company’s Daily Routine
What are the projects, processes, and activities in your business?
You must ensure your chosen distribution channel aligns with the day-to-day
working of your company.
Otherwise, logistics problems might result in product delays and potentially
damage your customer relationship. For instance, if your chosen distribution
channel relies on a fast turnaround time for order fulfillment, ensure that
your teams and processes are set up to accommodate this schedule.

Overall, aligning your chosen distribution channel with your daily routine
and ensuring that any logistical challenges are anticipated and addressed can
help your business meet its goals and maintain positive customer
relationships.
18
 How to Select Distribution Channels for Your Product?
5. Market Potential
Before selecting a channel, you should also consider the market potential of intermediaries.
After all, unless you choose to use direct channels, they will also be responsible for sales results.

Market participation, reputation, and performance are the three most important elements to consider.

First, look at market participation. This refers to intermediaries who are active and engaged in the market.
For example, suppose you are considering a distribution channel through a retail partner. In that case, it is
necessary to assess their presence in the market, including factors such as the number of stores they have
and their geographic reach.

Then consider the potential intermediary’s reputation. By selecting intermediaries with a good reputation
and strong brand recognition, you can more easily build trust with your target audience. Additionally, a
reputable intermediary may promote your brand and products more effectively, which can help drive sales.

Finally, look at performance. This can include factors such as track record of success, marketing
capabilities, and sales expertise. Find intermediaries with a proven track record of success who can
demonstrate their ability to market and sell products effectively.
19
 Types of Intermediaries

TYPES OF INTERMEDIARIES

Agents and
Wholesalers Commercials Retailer Brokers

20
 How to Select Distribution Channels for Your Product?
6. Logistics
Logistics refers to the process of managing the movement of goods from the point of origin to the point of
consumption, and it encompasses a wide range of activities, including transportation, storage, and delivery.

Consider logistical questions like:

1. How will the distributors/my company transport the products?

2. Is there security for when the products are in transit and/or where they are stored?
3. Where will my business store the goods? This may involve leasing or purchasing a warehouse or
working with a partner with storage capabilities.
4. What is the average delivery time? Can the distribution channels you’re looking at deliver efficiently
and cost-effectively?
Analyzing all stages of logistics is crucial to avoid problems taking goods to sales outlets and keeping the
end customer satisfied.

21
 How to Select Distribution Channels for Your Product?
[Link]
Finally, consider the location of intermediaries, whether they are resellers, retailers, wholesalers, or
distributors.

After all, your product must be sold in the region where your target audience is, especially if you supply a
specific market niche.

By finding intermediaries tailored to your product niche and with an established regional presence, you are
in a better position to reach your target market and achieve your sales goals.

22
 Factors affecting the selection of channel

• Market factors- Buyers, geographic

• Product Factors- Unit value, perishability
• Company factors-Financial resources, desire to control
channel.

23
 Channel Strategy

• In a channel situation, the combined capabilities of primary

and specialized participants should achieve a basic requirement
called assortment.
• The primary objective of a distribution channel is to create
value by generating acceptable form, possession time, and
place.
• Assortment is the channel process that results in the above
attributes, In order to design an effective channel, it is essential
that the requirement related to each attribute be specified.

24
 Channel Strategy

• Logistical operations are the primary source of achieving time

and place in a channel arrangement. Through the provision of
value added services, logistics can also make significant
contributions to facilitating the correct form and conditions
that most satisfy possession.

25
Channel Structure alternatives in consumer-goods distribution

Primary Participants
Manufacturers Wholesalers
Agriculture Retailers
Mining Agents
Specialized Participants
Functional Specialists Support Specialists
Transportation Financial
Warehouse Informational
Assembly Advertising
Fulfilment Insurance
Sequencing Advisory/Research
Merchandising Arrangers

26
 Design of Distribution Channel

Design of Distribution Channel

1 2 3 4

Identify major Evaluate

Analyze Establish channel
channel alternatives. major channel
customer needs Objectives Alternatives.

27
 Functions of Distribution Channel

• Gather Information
• Reach agreements on price and terms
• Assume Risks
• Provide for storage
• Acquire funds to finance inventories. Design of distribution
channels requires a well organized method for designing
channels that satisfy customers and overcome competition.
There are 4 choices .

28
 4 Choice of Distribution Channel

[Link] the type of

channel

[Link] the [Link] determine the

4 Choice of Distribution Channel intensity of
distribution function
distribution

[Link] specific
members of the channel. 29
Role of Logistics And Support In Distribution Channels

30
 Role Of Logistics And Support In Distribution Channels

• Response time: It refers to the amount of time it takes for a

customer to receive an order.

• Product Variety: It is the number of products or configurations

that are offered by the Distribution network.

• Product availability: It is the probability of having a product in

stock when a customer order arrives.

• Customer Experience: It is the ease with which customers place

and receive orders and the extent to which it is customized. 31
 Role Of Logistics And Support In Distribution Channels

• Time to market: It is the time it takes to bring a new product to

the market.

• Order Visibility: It is the ability of customers to track their

orders from placing the orders to till delivery.

• Return ability: It is the ease with which a customer can return.

Unsatisfactory merchandise and the ability of the network to
handle such returns.

32
 Logistics Requirements Of Channel Members

• Channel members, sometimes called intermediaries or

middlemen, work together to complete the various tasks it takes
to get a product from production through to sale. While a
producer could decide to market and sell products directly to
consumers, usually they use channel members to make the
process more efficient.

33
Logistics Requirements Of Channel Members

34
35
 Definition of reverse logistics
• Reverse logistics is the movement of goods “upstream” through
a supply chain, to return them from the end customer back to a
retailer or manufacturer.

• One of the most common examples which all e-commerce

businesses will be familiar with is product returns. Online
consumers returning a product to the retailer because it is
damaged – or simply because they have changed their mind –
would be defined as reverse logistics.

• Reverse logistics also covers the recycling, repurposing,

repairing and resale of products.. 36
37
 Advantages of efficient reverse logistics
•Improved brand image: firstly, because the customer perceives that they are buying from a company with an
excellent management and response capacity. And, secondly, because if the material or the product returned
becomes part of a recycling or reuse chain, the users will perceive a respect for and commitment to the
environment that is increasingly valued.
•Strict stock control: reverse logistics will require greater deployment of resources to ensure agile and clear
inventory control, but this more stringent planning and control requirement will possibly result in less margin for
error and unnecessary costs.
•Better customer service:a broader, faster response capacity will help the company to be better valued, thus
capturing more customers and helping to retain current ones.
•Source of valued information:reverse logistics will help the company to understand and know better the
customer, but also to have more and better information on the product that it sells. The return provides
information which may prove valuable if the following is analysed: what type of product is returned more
frequently (if several are marketed), why, what aspects can be improved about the product, what part of the
process fails (the customer does not receive what they expected, the packaging is defective, the product arrives in
poor condition, the delivery times are longer than desired...)

38
 When Is Reverse Logistics Used?

• Organizations use reverse logistics when goods move from their

destination back through the supply chain to the seller and potentially
back to the suppliers. The goal is to regain value from the product or
dispose of it. Worldwide, returns are worth almost a trillion dollars
annually(opens in a new tab) and have become increasingly common
with the growth of ecommerce.

• The objectives of reverse logistics are to recoup value and ensure repeat
customers. Less than 10% of in-store purchases are returned, compared
to at least 30%(opens in a new tab) of items ordered online. Savvy
companies use reverse logistics to build customer loyalty and repeat
business and to minimize losses related to returns.
39
 Steps to Good Reverse Logistics
• Process the Return
The return process starts when the consumer signals they want to return a product. This step
should include return authorization and identify the product’s condition. This process also
involves scheduling return shipments, approving refunds and replacing faulty goods.
• Deal with Returns
Once a returned product arrives at your location or centralized processing center, inspect it and
determine its return category. (Note: If you have optimized reverse logistics, you should know
where the product should go before it arrives.) Sort products into the disposition options: fix,
resell as new, resell as a return, recycle, scrap or refurbish.
• Keep Returns Moving
Reduce your daily waste by sending repairable items to the repair department.
• Repair
After reviewing the returned item/equipment and determining whether it can be repaired, move
it to the repair area. If not possible, sell any sellable parts.
• Recycle
Any parts or products that you cannot fix, reuse or resell should be sent to the area for
40
recycling.
41
 Reverse Logistics Examples
• Some big brands are also turning to reverse logistics to address
waste. Proctor & Gamble, PepsiCo, and Unilever are shifting to
reusable packaging(opens in a new tab) that consumers can
return. The companies will clean and use the containers again.
Transportation and logistics are evolving for these companies and
will pick-up the packaging when they drop off products.

• Some companies, such as GE Healthcare and Cisco, specialize in

refurbishing, repairing and remanufacturing defective or out-of-
date goods for consumers. Cisco remanufactures goods such as
phones, routers and switches. GE Healthcare remanufactures
imaging devices and ultrasound machines. 42
 Reverse Logistics Examples

• Clothing brand Patagonia has a “Worn Wear” scheme8 which

accepts used Patagonia clothing (if it is in good condition) from
customers. These items are then resold by the brand, whilst the
customer is given credit towards future Patagonia purchases. The
aim is to keep used items
• out of landfill.

43
 Types of Reverse Logistics
[Link] management: This process deals with product returns from customers or avoiding returns in the first place. These
activities should be fast, controllable, visible and straightforward. Customers judge a company on its return flow and re-return
policies. A re-return is the return of an item a second time. Often, these returns trigger the extended return policies, such as
offering store credit. For example, a customer buys a returned product on clearance, takes it home and discovers it broken. The
store policy would not normally accept the return, but it does allow for a store credit for the faulty product. A re-return can also
occur when a vendor rejects the return and gives it back to the purchaser without a refund. This scenario could happen with
custom-made items.

[Link] policy and procedure (RPP): The policies about returns that a company shares with customers is its RPP. These
policies should be visible and consistent. Employees should also adhere to them.

[Link] or refurbishment: Another type of reverse logistics management includes remanufacturing, refurbishing
and reconditioning. These activities repair, rebuild and rework products. Companies recover interchangeable, reusable parts or
materials from other products, also known as the cannibalization of parts. Reconditioning involves taking apart, cleaning and
reassembling products.

[Link] management: This type of reverse logistics focuses on reuse of packing materials to reduce waste and the
disposal.
44
 Types of Reverse Logistics
5. Unsold goods: Reverse logistics for unsold goods handles returns from retailers to manufacturers or distributors. These types
of returns can be due to poor sales, inventory obsolescence or a delivery refusal.

[Link]-of-life (EOL): When a product is EOL, it is no longer useful or does not work. The product may no longer meet a
customer's needs or be replaced by a newer, better version. Manufacturers often recycle or dispose of products that are end-of-
life. These goods can create environmental challenges for manufacturers and countries.

[Link] failure: With failed deliveries, drivers return products to sorting centers. From there, the sorting centers return the
products to their point of origin. While rare, some sorting centers may have the staff available to identify why a delivery failed,
correct the problem and resend.

[Link] and leasing: When a piece of equipment comes to the end of its lease or rental contract, the company that owns the
product can remarket, recycle or redeploy it.

[Link] and maintenance: In some product agreements, customers and companies maintain equipment or repair it if issues
arise. In some cases, the company sells damaged returned products to another consumer after repair.

45
 sustainability in Distribution

Sustainable distribution refers to the macroeconomic allocation of

objects that are distributed (goods, services, rights, fees and
information) while integrating sustainability issues without
compromising conventional purposes that distribution must fulfill .

46
 What is the notion of sustainability in distribution management?

Sustainable distribution refers to any means of transportation /

hauling of goods between vendor and purchaser with lowest
possible impact on the ecological and social environment, and
includes the whole distribution process from storage, order
processing and picking, packaging, improved vehicle loadings.

47
 How can distribution be more sustainable?

To create a sustainable and environment-friendly distribution

strategy for a new store, you would focus on optimizing logistics to
reduce carbon emissions, such as using electric or hybrid delivery
vehicles and planning efficient delivery routes. Sourcing products
locally can minimize transportation distances.

48
 Examples of sustainable distribution

The agriculture segment of the BayWa Group is a great example of

a a green distributor.

49