How to Build Supply Chain: Set-up a Distribution Channel?

Supply Chain: Set-up a Distribution Channel

(Step 13 of our how to set-up new business quide)

You have set-up your business and conducting marketing & promotion so consumer starts to purchase them. But if your products/services are not available at location or portal where your proposed customer is going to purchase it then your marketing & promotional strategy and activities are waste. So you need to set-up your business channel/supply chain that helps to add value to your business and helps to deliver product/service to customer at accurate time on desired place.
At business plan, we have write-up about our proposed distribution channel. Here we will discuss about distribution channel/supply chain in detail.

What is Distribution Channel/Supply Chain?

Distribution Channel is a way to deliver a product/service at location where its end consumer is going to buy it. Distribution channel is chain of businesses that handle product/services. Distribution channel is also known as supply chain. Distribution channel is business model dependent and may vary industry to industry or business to business.

Distribution channel can be divided into two forms:
  • Direct Distribution Channel
  • Indirect Distribution Channel

Direct Distribution Channel: 

When an end consumer purchases goods/services directly from the manufacturer or company is known as direct distribution channel. It may be directly through sales force or online.

Indirect distribution Channel: 

When an end consumer get goods/services through traditional distribution channel i.e. from retailer or wholesaler is known as indirect distribution channel.

A traditional distribution channel is like
  • Manufacturer
  • Distributor/Wholesaler/Stockist
  • Retailer
  • Actual Consumer

Further businesses can alter its distribution channel as per their need. Businesses may remove distributor or wholesaler or stockiest or retailer as per their need and make it customize as per requirement.

For setting up a distribution channel, you need to check following things:
  • Who is end user? (Vary according to your industry, in case of pharmaceutical industry, patients are end user but you need to make it available at chemist/pharmacies to sell, not general stores. So you should evaluate the end user.
  • Potential distribution intermediaries (Direct selling to end consumers or indirect selling through distributors, wholesaler, retailers etc)
  • How can you narrow your distribution channel without effecting customer’s experience?

How to choose a good distribution channel for Business?

Selection of a distribution channel/supply chain is based upon company’s mission, proposed and business strategy. Not all type of distribution types work for every business. You have to specify your business needs before selecting your distribution network. Whether you are doing B2B or B2C, you may deliver your products to your customer by both ways i.e. direct selling and indirect selling.

Factors affecting selection of distribution channel:

1. Customer prospective: Where your proposed customer is available and prefers to buy i.e. online or offline. How can you easily reach to your customers? Minimum time required for delivery of goods/services to end user etc. Whether your end user requires personalized service or you need to educate your end user about product before they purchase it.

2. Market prospective: How your competitors are distributing their products? Whether you are going to sell to business or customer? What is your business model B2B or B2C or B2I2C etc? How can you minimize cost of your distribution channel without effecting user experience?

Part of Distribution Channel:

You may set-up distribution channel by considering above factors. You can distribute through single or two or more of distribution partners given below:
  • Agents or Franchisee
  • Online Website/App
  • Distributors and Wholesalers
  • Retailers
  • Value Added Resellers

Agents or Franchisee: 

You may add agents or franchisee in your distribution channel. Agents are the marketing intermediaries who work as commission basis to sell your products (won’t stock goods or invest money) or find distributors or franchisee for you where as Franchisees are the marketing partners who sell, stock, market and promote your products on basis commission basis or on profit margin basis.

Online Website/App: 

If you want to sell your products/services online directly to your customers then you can sell through either building your own website or app, or through any other existing online selling portal. In that case that online website or app will work as your distribution channel.

Distributors and Wholesalers: 

Distributors and Wholesalers (similar terms stockiest, sub stockiest, CnF etc) are the business intermediaries who purchases products at bulk and distribute/sell to retailers or customers by taking own margins. Some distributors also work as marketing partners and sell products along with distribution where as some distributors only work as distributing partner and only work to distribute product and collect payment, and business sell through own sales team.

Retailers: 

Retailers are the business intermediaries who purchases products from distributor or wholesaler and sell it to end user.

Value added Resellers: 

Value added resellers are generally those intermediaries who purchase products and make a customize pack with other products, and sell it to the customer.

Steps to prepare a distribution channel for business?

1. First step is to evaluate which distribution channel or combination of distribution channels is useful for your business
2. Now you need to identify which distribution partners you can involve into your distribution channel
3. Narrow your distribution channel by removing unnecessary distribution partners and try to keep as less number of distribution partners. More businesses will involve in distribution, less profit margin will your business get. That’s the reason CnF is avoided by many businesses now a days. Businesses try to keep only wholesaler or distributor to supply directly to retailers to minimize distribution cost.
4. Research and improve your distribution channel. As you find what’s working for you and what’s not working for you, you can improve your distribution channel.

Conclusion:

Distribution channel works like veins and arteries of body (Business). Distribution channel manage to reach product/services to end user and send back payment to manufacturer/company after collection. Distribution channel is equally important as promotion, marketing and other works of business.

Hope above information is helpful to you…

Other Steps:


Keywords: what are the 4 channels of distribution, distribution channel strategy, importance of distribution channels, distribution plan example, alternative channels of distribution, online distribution channels, types of distribution channels ppt, b2b distribution channels

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