Distribution Management

Distribution management is the planning, organising, implementing and controlling of the flow of goods and services from producers to final consumers or users. It covers the selection and management of channel members, transportation, warehousing, inventory control, order processing and logistics so that products are available in the right place, at the right time, in the right quantity and at a reasonable cost.

Distribution coverage (market coverage) refers to the number and spread of outlets through which a firm makes its product available in a market. It is decided by the firm's strategy and the product's nature. The three main levels are:

• Intensive distribution: the product is sold through as many outlets as possible (e.g. soft drinks, biscuits).
• Selective distribution: a limited number of chosen outlets (e.g. electronics, clothing).
• Exclusive distribution: only one or very few outlets in a territory (e.g. luxury cars).

The objectives of a channel information system are to:

• Collect, store and share accurate data on sales, inventory, orders and customers among channel members.
• Improve coordination and reduce conflict between manufacturers, wholesalers and retailers.
• Speed up order processing and delivery, and reduce stock-outs and excess inventory.
• Support planning, forecasting and decision-making on pricing, promotion and channel performance.
• Monitor and evaluate channel members' performance and lower distribution costs.

Wholesalers act as the link between producers and retailers. Their main roles are to:

• Buy in bulk from manufacturers and break bulk into small lots for retailers.
• Store goods and hold inventory, reducing the producer's and retailer's storage burden.
• Provide credit and financing to retailers.
• Transport goods and ensure wide market coverage.
• Take risk (price fall, spoilage, damage), supply market information and give promotional support.

Market coverage is the number of outlets through which a firm makes its product available in a target market. It is decided by the firm's channel strategy and has three levels: intensive distribution (as many outlets as possible), selective distribution (a limited number of chosen outlets) and exclusive distribution (a single outlet in an area).

Category management is a retailing and distribution approach in which a product category (for example, soft drinks or soaps) is treated as a separate strategic business unit. The retailer and supplier jointly plan its assortment, pricing, promotion, shelf space and inventory, using sales data, to maximise the category's sales and profit and satisfy customers.

The steps in order processing are:

1. Order receipt and entry (from salesperson, phone, mail or electronic data interchange).
2. Order checking and credit verification.
3. Inventory availability check and allocation of stock.
4. Picking, packing and preparing documents (invoice, shipping papers).
5. Dispatch/transportation and delivery.
6. Billing, payment collection and updating of records.

Inventory control is the process of managing and regulating the stock of raw materials, work-in-process and finished goods so that the right quantity is available at the right time at minimum cost. It aims to avoid both stock-outs and overstocking, and uses tools such as EOQ, reorder point, safety stock, ABC analysis and just-in-time.

Channel conflict can be managed through:

• Common goals: developing shared goals such as market share, quality and customer satisfaction.
• Communication and coordination: regular meetings, information sharing and joint planning.
• Exchange of personnel and co-optation: involving members in each other's decisions, for example distributor councils.
• Clear roles, territories and incentives: fair margins, exclusive areas and discount schemes.
• Diplomacy, mediation or arbitration: a neutral third party settles serious disputes, and legal action is the last resort.

Two modes of transportation are:

• Road (truck): flexible, door-to-door service, suited to short and medium distances. It is the main mode in Nepal.
• Air: the fastest mode, suited to high-value, perishable or urgent goods, but the most costly.

Others include rail, water and pipeline.

A marketing channel is the set of interdependent organisations that make a product available for use or consumption. It plays the following roles.

• Sorting and assortment: channel members collect goods from many producers, grade them and offer a mix of products customers want.
• Breaking bulk: they buy in large lots and sell in small quantities, which makes goods affordable and convenient.
• Physical distribution: they transport and store goods, creating time and place utility.
• Financing and risk-taking: they extend credit, hold stock and bear the risk of unsold goods.
• Promotion and selling: they display, advertise and sell products, and give after-sales service.
• Information and feedback: they pass market and customer information to producers.
• Contact and negotiation: they find buyers, negotiate price and terms and complete the transfer of ownership.
• Reducing transactions: intermediaries cut the number of contacts needed between producers and consumers, which lowers cost.

Logistics management is the part of supply chain management that plans, implements and controls the efficient flow and storage of goods, services and information from the point of origin to the point of consumption. Supply chain management (SCM) is wider: it integrates all organisations and activities from suppliers to the final customer.

Retailers are the last link in the channel and sell directly to final consumers. Their key contributions are:

• Assortment and convenience: they offer a variety of products from many suppliers in one place, near the customer.
• Breaking bulk: they buy in large quantities and sell in small units.
• Holding inventory: they stock goods so consumers can buy when needed, which reduces the manufacturer's inventory cost.
• Financing: they offer credit to customers and pay suppliers, which supports cash flow.
• Promotion and selling: they use displays, personal selling, sales promotion and advertising to stimulate demand.
• Market information: they pass customer preferences, complaints and competitor activity back to manufacturers.
• Services: they provide delivery, installation, repair, warranty and return services.
• Risk-taking: they bear the risk of damage, theft, obsolescence and changing demand.

Material handling is the movement, protection and control of materials within a plant, warehouse or distribution centre. Its main methods are:

• Manual handling: workers carry, lift and move goods using hand trucks and trolleys. It suits small volumes and is cheap but slow.
• Mechanical handling: equipment such as forklifts, cranes, hoists, pallet jacks and conveyors move heavy and bulk goods quickly and safely.
• Automated handling: automated storage and retrieval systems (AS/RS), automated guided vehicles (AGVs) and robots, computer-controlled. They suit high volumes and are accurate, but need heavy investment.
• Unitisation: goods are grouped into one load using pallets, containers or stretch wrapping, which cuts the number of handling operations.
• Bulk handling: pipelines, silos and bulk conveyors move liquids, grains and similar loose materials.

Channel planning is done through these steps:

1. Analyse customer needs and service-output levels: lot size, waiting time, convenience, variety and service support.
2. Set channel objectives and constraints: target service levels at the lowest cost, considering product, company, intermediary, competitor and environmental limits.
3. Identify major channel alternatives: the type and number of intermediaries and the responsibilities of each member.
4. Evaluate the alternatives: against economic, control and adaptability criteria.
5. Select channel members: recruit intermediaries on their sales ability, finances, reputation and fit.
6. Motivate and train members: provide margins, support and training.
7. Evaluate performance and modify the channel: review sales, inventory, service and conflict, and change the design when needed.

E-marketing uses the internet and digital technologies to promote and sell products. Direct marketing uses direct channels (mail, telephone, catalogues, TV) to reach individual customers and get a direct response, without intermediaries.

Example: a Facebook or Daraz ad campaign with online ordering is e-marketing. A bank sending brochures by post, or a company calling customers to sell insurance, is direct marketing.

The government sector shapes distribution management in several ways.

• Policy and regulation: it makes laws on trade, competition, consumer protection, weights and measures, and product quality. In Nepal these include the Consumer Protection Act and the Competition Promotion and Market Protection Act.
• Infrastructure: it builds roads, bridges, airports, dry ports and warehouses, which lower distribution costs.
• Price and supply control: it fixes or monitors prices of essential goods and prevents hoarding and black marketing.
• Public distribution: state bodies such as Nepal Food Corporation and Salt Trading Corporation distribute essential goods, especially to remote areas.
• Taxation and customs: VAT, excise and customs duties affect the cost and flow of goods.
• Licensing, standards and safety: it registers traders, sets quality standards (Nepal Bureau of Standards and Metrology) and inspects food and medicines.
• Support and promotion: it provides subsidies, credit, training and export facilitation to traders and cooperatives.

A supply chain links suppliers, manufacturers, wholesalers, retailers and customers. Five flows move through it, in both directions, and they must be coordinated for the chain to work well.

1. Product (physical) flow The movement of goods from suppliers to manufacturers to distributors to customers. It is forward, and there is also a reverse flow for returns, repairs, recycling and defective items. It includes transport, warehousing and material handling.

2. Information flow The exchange of orders, forecasts, inventory levels, delivery schedules, sales data and status updates among members. It runs both ways and is supported by ERP, EDI, barcodes and the internet. Good information flow reduces the bullwhip effect (demand distortion up the chain).

3. Financial flow The movement of money, in the opposite direction to goods. It covers payments, credit terms, invoices, consignment and payment schedules.

4. Ownership (title) flow The transfer of legal ownership of goods from one member to the next as they pass through the chain, along with the associated risk.

5. Promotion flow The flow of advertising, personal selling, sales promotion and publicity from the manufacturer to intermediaries and on to consumers. Members often share the cost.

Other flows sometimes added

• Negotiation flow: two-way bargaining over price, quantity and terms.
• Risk flow: the passing of risk of loss or damage.
• Payment and financing flow: the credit offered by members to each other.

Importance of managing the flows: the chain avoids delays, stock-outs and excess stock, reduces cost and improves customer service. For example, when a retailer's point-of-sale data (information) reaches the supplier at once, the supplier can send goods (product flow) in time, and payment (financial flow) follows on agreed terms.

Channel power is the ability of one channel member to influence the decisions and behaviour of another member. French and Raven's classification gives five main sources.

1. Reward power The ability to give benefits such as higher margins, discounts, bonuses, exclusive territories, credit and promotional support. It works when members value the rewards, but expectation of rewards can become costly.

2. Coercive power The ability to punish through threats such as cutting supply, delaying delivery, withdrawing the dealership, reducing margins or charging penalties. It gets quick compliance but can cause resentment and conflict, so it is used carefully.

3. Legitimate power Power from a legal or contractual right to direct others. Franchise agreements, dealership contracts and ownership give the franchisor or owner the right to set policies, and the other party accepts an obligation to comply.

4. Referent power Power from members' wish to identify with and be associated with a strong, well-known firm. A prestigious brand such as Coca-Cola or Samsung attracts intermediaries who accept its terms for the sake of the association.

5. Expert power Power from superior knowledge, skills and experience, such as market knowledge, technology, training and management know-how. Members depend on the expert firm for advice, which gives it influence.

6. Information power (added by some authors) Control of valuable information, such as market data and customer lists, that others need.

Classification: reward, expert, referent and information power are generally regarded as non-coercive (mediated) sources, which promote cooperation. Coercive power is non-mediated and tends to increase conflict.

Conclusion: channel leaders gain most by relying on non-coercive sources, since they build long-term trust and cooperation, whereas coercion produces short-term compliance.

Nepal's distribution system faces many problems, which raise costs and limit market reach.

1. Difficult geography and weak infrastructure Hills, mountains and monsoon floods and landslides often block roads. Many rural areas have no all-weather roads, so goods reach them slowly and at high cost.

2. High transportation cost Dependence on road transport, poor vehicles and fuel costs make freight expensive. Air transport is used for remote districts and is very costly.

3. Dependence on India and transit problems Heavy dependence on imports through Indian ports and border points leads to delays, strikes, bandhs and blockades (for example, the 2015 blockade), which cause shortages.

4. Weak storage and warehousing Few modern warehouses and cold chains exist, so perishable goods and agricultural products spoil, and stock is poorly managed.

5. Many intermediaries and a fragmented structure Long channels with many small traders raise margins and retail prices. Producers get low prices while consumers pay more.

6. Black marketing, hoarding and syndicates Traders and transport syndicates create artificial shortages and fix prices, especially for essentials like sugar, fuel and rice.

7. Weak use of technology and information Limited use of IT, barcoding, tracking and e-commerce makes inventory and order management inefficient.

8. Small market size and scattered demand Low purchasing power and scattered settlements make distribution to remote areas unprofitable.

9. Limited finance and trained manpower Small distributors lack capital, and few people have logistics and supply chain skills.

10. Weak regulation and quality control Weak enforcement of standards leads to adulterated and expired goods in the market and to unhealthy competition.

Suggestions: build more roads and dry ports, develop warehouses and cold storage, improve trade agreements and transit, adopt digital tools, strengthen market monitoring and encourage cooperatives and direct farmer-to-market links.

Channel design means deciding the structure of the channel: its length, the number of intermediaries and the types of intermediaries. It can be examined under the following headings.

A. Types by length (levels)

• Zero-level (direct) channel: manufacturer to consumer, through own stores, door-to-door selling, mail order or the internet. It gives full control and direct feedback but needs heavy resources.
• One-level channel: manufacturer, retailer, consumer. It is common for large retailers and for durable goods such as cars.
• Two-level channel: manufacturer, wholesaler, retailer, consumer. It is the usual form for convenience goods and suits wide markets, but adds margins.
• Three-level channel: manufacturer, agent, wholesaler, retailer, consumer. It is used for broad, scattered markets and small manufacturers.

B. Types by intensity of distribution (width)

• Intensive distribution: the product is sold in as many outlets as possible (soap, biscuits, cigarettes). It gives the greatest exposure and convenience, but less control and a lower brand image.
• Selective distribution: a limited number of qualified outlets (electronics, clothing). It gives a balance of coverage and control, and good dealer support.
• Exclusive distribution: one dealer per territory (luxury cars, premium watches). It gives high control and prestige, but limited coverage and heavy dependence on the dealer.

C. Types by relationship

• Conventional channel: independent members, loosely linked, each seeking its own profit. It is flexible but conflict-prone.
• Vertical marketing system (VMS): a coordinated system, which may be corporate (common ownership), contractual (franchising, wholesaler-sponsored chains) or administered (led by a powerful member).
• Horizontal marketing system: firms at the same level join to exploit an opportunity.
• Multichannel (hybrid) system: several channels serve different segments, for example both retail and online sales.

Critical evaluation Short channels give control, speed and higher margins but need capital and manpower. Long channels give wide coverage at lower cost, but the producer loses control and prices are raised by added margins. The best design depends on the product (perishable, technical, standardised), the market (size, concentration), the company's resources and objectives, and competitors' choices. Firms should review their design regularly, as technology and customers change.

(a) Role of IT in logistics management (Wal-Mart)

IT is the backbone of Wal-Mart's logistics.

• Point-of-sale data capture: every scan at the register sends sales data to headquarters by satellite link, so management knows what is selling in real time.
• Automated inventory management: the Inventory Management System calculates the rate of sales, adjusts for seasonal and promotional factors, and places replenishment orders automatically with distribution centres and vendors. This avoids stock-outs and overstocking.
• Coordination of the network: linked systems coordinate more than 85,000 suppliers, 103 distribution centres and thousands of stores, and handle over 100 million items a day.
• Lower cost and faster service: accurate information cuts inventory and handling costs, which supports low prices.
• Customisation: data allows each store's assortment to match regional demand.

(b) Evaluation of Wal-Mart's distribution strategies

Strengths:

• The hub-and-spoke network of 103 large distribution centres places every store within a day's drive of a centre, so replenishment is fast and economies of scale are gained.
• A direct link with suppliers and vendor partners shortens the channel and lowers cost.
• Information-driven replenishment keeps the right goods on the shelf.
• Strategy and logistics support the low-price mission.

Weaknesses and limits:

• Heavy investment in centres and IT is needed and cannot easily be copied or changed.
• Dependence on one system and on a few big centres is a risk if there is a disruption.
• Pressure on suppliers for low prices may strain relationships.

Overall, the strategy is well suited to its low-price positioning and is a major source of competitive advantage.

(c) Is Wal-Mart the king of store logistics?

Yes, largely. It moves huge volumes accurately, keeps prices low, stocks the right goods at the right time, and its system is widely studied. Its scale, technology and distribution network are hard for rivals to match, which supports the claim in the case. Still, "king" is relative: competitors such as Amazon and Target also have strong logistics, and Wal-Mart must keep investing in e-commerce and technology to hold its lead.

(d) Benefits to suppliers from the information system

• Access to its databases to analyse customers' buying behaviour, helping them plan production, product mix and promotions.
• Better demand forecasts from up-to-date sales data, so they can plan production and delivery and cut inventory costs.
• Automatic replenishment orders, giving a steady, predictable flow of business.
• Fewer stock-outs and lost sales, since goods are replenished quickly.
• Closer partnership and collaboration with the retailer, which raises sales volume.