CHAPTER 4 DISTRIBUTION CHANNEL IN SUPPLY CHAIN
Distribution • Activities and processes required to move a product from the producer to
Channel the consumer.
• Included in the channel are the intermediaries that involved in this
movement in any capacity.
• Intermediaries = third party company, which act as wholesaler,
transporters, retailers and provide warehouse facilities.
Types of Distribution Channels
Direct In this channel, the product is sent directly from the manufacturer to the
customer. This is an example of a business that may either own all of its
distribution channels or only sell through one store. There are other ways to sell
directly to the customer, like through the internet or in person. One good thing
about this approach is that the company has full control over the product, how
it looks at all stages, and how the user feels about it.
Indirect In this method, a business will sell a product to a customer through a third party.
The business might sell to a wholesaler, who then sends the goods to stores. Each
middleman will get a cut of the profits, which could make the price of the product
go up. This channel could be important for big companies that sell to a lot of small
stores.
Dual distribution In this channel, a business may sell directly and indirectly. It may be sold
directly to the customer or through middlemen. These channels may help you
reach more customers but could cause conflict. Users may have different
experiences, and the product and related service may get a bad reputation for
inconsistency.
Reverse Channels People can send a product to the producer through most non-traditional channels.
What makes this method different from the others is the reverse flow. One
example of this is when a person recycles and makes money from it.
Types of Intermediaries (3rd Party)
Agents As a representative for the producer, the agent is a separate entity that works
(Independent with the user. The agent never actually owns the product; instead, they get paid
identity) in commissions and fees for their services.
Wholesaler They actually buy a lot of goods from a producer and store them in warehouses.
(Independent The goods are then sold for more money when they are bought in smaller amounts.
Identity) Wholesalers don't usually sell to end users directly. Most of the time, their
customers are other middlemen, like a store.
Distributors Will only carry products from a single brand or company. A distributor may have
a close relationship with the producer.
Retailers Wholesalers and distributors will sell the products that they have acquired to the
retailer at a profit. Retailers will then stock the goods and sell them to the ultimate
end user at a profit.
Functions of Channels
• No matter if the people who make a product and the people who buy it are in the same
neighbourhood or thousands of miles away, the main goal of all channels of distribution
is to connect them. That which gets a product into the hands of the customer most
quickly and easily is called the channel of distribution. The channel is made up of
different organisations that make exchange and transaction possible.
Three types of institutions in channels:
- The person who makes the product, like a craftsman, manufacturer, farmer, or
someone else who works in the extractive industry.
- The person or group using the product, such as an individual, a family, a
business, an institution, or the government
- Some middlemen at the store and/or wholesale level
There are three main things that a channel does. Not every member of the channel does the
same thing. These are the functions:
• Transactional functions: buying, selling, and taking on risk
• Assembling, storing, sorting, and transporting are all logistical tasks.
• Helping roles: maintenance and service after the sale, financing, sharing information,
and leading or coordinating channels
• For the flow of goods and title to the customer and payment back to the producer to
work, these functions are needed.
Supply Chain Distribution Channel
Size Broad Narrow
Main Focus Begin with raw materials and Bringing together partners who
delves deeply into production can efficiently deliver the right
processes and inventory marketing mix (4P’s) to the
management. customer in order to maximize
value.
Objectives To optimize how products are Emphasize a stronger market
supplied. More internally view of the customer
focused. expectation and competitive
dynamics in marketplace.
Point of View from a • Specialist in • Are part of marketing
marketer delivering goods. mix.
• Identity most efficient • Viewed as on element
delivery partner of marketing mix in
conjunction with
product, price and
promotion