Why Distribution Management is Important?

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Importance of Distribution Management

Distribution management is a business challenge that needs to be effectively tackled to ensure proper growth.

Raw materials being delivered earlier than required and getting damaged, or finished products arriving too late to fulfil consumer demand – both are potentially disastrous for business.

To manage distribution successfully, you have to have a robust strategy backed by real-time data and efficiently handle the different elements involved.

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What Is Distribution Management?

Distribution management refers to the process of supervising the movement of raw materials or finished products from the vendor to the manufacturer, from there to the wholesaler, then to the retailer, and finally, to the end-user.

Several processes and activities like managing the raw materials supplier, warehousing, logistics, supply chain, packaging, inventory, etc.

It is a critical element of the business cycle, especially for wholesale dealers and distributors.

For any business, the speed at which they can turn their goods over determines their profitability.

The importance of distribution management can be understood from the fact that if implemented properly, it can help businesses stay competitive and deliver customer satisfaction.

Understanding Distribution Management

Understanding Distribution Management

The ability of a business to attract customers and be profitable depends significantly on how well they manage distribution.

To be successful in this activity, it is imperative that the whole distribution process is managed with precision.

This is especially true of larger corporations with numerous suppliers.

Effective management of distribution in such cases can only be achieved when they automate processes through the implementation of distribution management software.

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Distribution management today is not merely about moving your products from one point to another.

You need to collect and share important information that will help in the identification of growth opportunities in the market and help you stay competitive.

Tech-savvy companies use distribution forces to gather market intelligence which allows them to evaluate their competitiveness.

There are two types of distribution management: sales or commercial distribution, and logistics or physical distribution.

Numerous functions are involved in distribution, including but not limited to – inventory management, customer service, warehouse planning, receiving, handling, and managing materials, information sharing, and more.

The goal of distribution management is to attain the most efficient delivery of raw materials, finished products, and work-in-progress (partially finished goods) to the correct place and in time, in the right condition.

The planning of physical distribution must be aligned with the overarching channel strategy.

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Who/What Is a Distributor?

An individual or business that engages in the supply of products in bulk to retailers or other businesses who sell to the end-usersare called distributors.

Let’s see a few examples:

  • A distributor of rice supplies to restaurants, grocery stores, and supermarkets.
  • A distributor of shirts supplies to departmental stores, and retailers
  • A distributor of health drinks and energy bars supplies to gyms, health clubs, supermarkets, and pharmacies.

What Is a Distribution Network and What Are the Benefits?

A connected group of transportation systems and storage services is referred to as a distribution system.

It is developed in line with a distribution strategy created to ensure the movement of goods from a manufacturer through various agents, till it reaches the ultimate buyer.

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Distribution vs. Logistics

Distribution vs. Logistics

While both distribution and logistics deal with efficient movement and delivery of goods, there is a major difference.

Distribution management is only a part of the larger logistics management activity.

Logistics deals with the precise planning and various activities that aim to supply and transport goods effectively.

Bulk shipping and management, supply management, fleet management, delivery routing, security, temperature controls, warehouse, tracking shipments, etc. are the various activities involved in logistics or physical distribution.

On the other hand, distribution management is a system within logistics that is focused on fulfilling orders through distribution channels.

The channels mean the agents and other entities that a product goes through from its point of origin till it reaches the end-user.

Independent or third-party distributors, retailers, wholesalers, and e-commerce sites are some examples of distribution channels.

Commercial or consumer packaging, fulfilling orders, and shipping them are processes involved in distribution.

The importance of distribution in supply chain management is due to the fact that it deals with getting goods to the end-user or buyer in time, and with minimal waste.

This means that it directly impacts your profits.

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What Are the Elements of Distribution Management?

This is simply referring to the steps involved in sending the product from the manufacturer through various entities to the eventual consumer.

Typically, this includes:

  • Logistics
  • Supply chain
  • Purchase order and invoicing system
  • CRM
  • Vendor management
  • Warehouse management system
  • Transportation management

Advantages of Distribution Management

Advantages of Distribution Management

We have read in the previous paragraphs that distribution management offers numerous benefits to businesses when effectively implemented.

These include waste reduction, lower costs, and increased customer satisfaction.

Let us examine the benefits in detail:

1. Increased Customer Convenience

When you implement a sophisticated management system, you make it simple and convenient for your customers to shop.

Without an efficient system, customers would not get most of what they wanted in a single store, and would have to go to multiple stores – and this would be very bothersome indeed.

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2. Better Organization

Without a proper supply chain and distribution management system, retail stores may get products in bulk directly from the manufacturers, and it will be almost impossible for them to store that much quantity.

3. Lower Costs

By streamlining all your processes, you stand to save a great deal of money as you won’t have to shell out extra money for urgent deliveries.

With a proper system in place, you will have whatever you need in time.

4. Fewer Errors

With a robust distribution management system in place, you can significantly reduce delivery errors.

You will also be able to get more clarity on the products that have to be delivered.

With a proper distribution management system, the chain of supply is much smoother.

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5. Accuracy

When you have an advanced distribution management system, you can order exactly how much quantity of an item you need for a specific period.

This helps to ensure that you don’t miss any sales opportunities and are able to offer your customers their favorite products.

6. Simpler Inventory Monitoring

Monitoring and managing your inventory becomes a breeze with the right distribution management system as everything is properly accounted for.

Every inventory item that is delivered and shipped out is accounted for, giving you an exact inventory count.

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Challenges in Distribution Management

There can be multiple disruptions in distribution management, caused by various factors.

  • War, protests, strikes, and riots are human factors.
  • Epidemics, natural disasters like floods, shortage of raw material, and pest damage are natural causes.
  • Vehicle breakdown, delayed flights, restrictive transport regulations, maintenance downtime, etc. are transportation challenges.
  • Sudden fluctuation in customer or market demands, recession, payment issues, changes in values of currency exchange, change in fees, licenses, and so on are economic challenges.
  • Quality control issues, packaging problems, and product recalls are product disruptions.
  • Product returns, change in the shipping address, and order changes are customer disruptions.

Factors That Influence Distribution Management

Factors That Influence Distribution Management

Buying Habits

You must consider the purchase habits of customers as the rises and dips in sales influence distribution patterns.

Tracking them can help you plan appropriately.

Unit Perishability

Time is crucial when you are dealing with perishable products like medicines and food products.

Even the slightest delay in timing can cause your stock to get damaged and unsellable, leading to financial loss.

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Buyer Requirements

A manufacturer’s or retailer’s demand is subject to change and can impact your distribution.

Transport Optimization

You must make the most of every delivery; this means ensuring that your trucks are loaded to their maximum capacity and that they are on the most efficient routes for delivery.

Seasonal Forecasting

Certain products sell better at specific times of the year; for example, air-conditioners are likely to sell more before summer sets in.

You need to consider what product mix will be optimal.

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Distribution Management Strategies

There are three main strategies of distribution management:

  • Exclusive: This strategy targets a very limited group. Let’s take the example of high-end luxury cars. Only a handful of retailers will keep these cars in their showrooms
  • Selective: This strategy targets distribution to a select group of sellers. For example, premium cosmetics are sold only to premium department stores, salons, and pharmacies.
  • Mass: This kind of distribution targets the mass market – to general consumers everywhere.

What Are the Channels of Distribution?

Channels of Distribution

Wholesaler

Most goods are shipped by manufacturers to wholesalers; as we read previously, pharmaceutical companies distribute medicines to pharma wholesalers.

Retailer

Products are sent from the wholesaler, and sometimes the manufacturers, to the retailers.

For example, clothes are distributed to clothing chains and departmental stores.

Distributor

This entity transports products from the manufacturer to an authorized distributor.

Let’s take the example of a Toyota factory that distributes Toyota cars of different models to authorized Toyota dealerships.

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Ecommerce

This is the latest distribution channel, where products and services are displayed online in virtual stores, and shipped (distributed) directly to the buyer.

The emergence of this channel has brought in sea changes, leading distributors to innovate and shift from conventional strategies and methods.

Key Takeaways

Let us quickly recap the importance of distribution management:

  • It helps in supply chain management – from vendors to manufacturers to the end consumer, and includes inventory, logistics, warehousing, and packaging
  • Implementing a proper distribution management system is critical for a company’s business growth and long-term existence
  • Everything can be easily organized with robust distribution management
  • When done properly, distribution management helps minimize errors, reduce cost, and save time.
  • Effective distribution management helps improve customer service and ensure customer satisfaction.

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Choosing a Distribution Management System

It is vital that you select the appropriate distribution management system for your organization.

Of course, this depends to a great extent on the goals and challenges of your company, and the channels and models of distribution it uses.

However, there are a few common factors to bear in mind:

  • The system should be compatible with legacy systems and be easily integrated
  • It should be flexible and scalable
  • It should provide good security
  • Preferably cloud-based
  • The system should provide real-time streaming of data, data management, and analytics, and make it easy to share data
  • Agility and adaptability, to make it capable of accommodating the quick changes required to resolve challenges and take advantage of new opportunities.

Tranquil ERP is a robust system that ticks all the above boxes. Do schedule a demo with us, and we will show you how it can benefit your business. We are happy to answer all your queries.