The process of making a product available for purchase in a market. The distribution process involves the transportation, packaging, and delivery of products. A distributor is an entity purchasing, storing, and selling products. Distributors are usually working in supply chains handling products after they are manufactured and before they reach retailers and/or consumers.
Distribution business models, or distribution channels, refer to how products are distributed from the manufacturer to the consumer. There are several types of distribution business models.
Direct distribution from manufacturer to consumer can be viewed as the simplest form of distribution because it does not rely on intermediaries between a company and its end customer. E-commerce and third-party logistics are enabling technologies for direct-to-consumer distribution strategies.
An example of direct-to-consumer business is the online mattress market (consisting of companies like Casper, 8Sleep, and others).
Distribution models which rely on retailers are a form of indirect distribution, because the manufacturer is not selling goods directly to the end customer. Retailers can be brick-and-mortar stores or e-commerce businesses.
Traditional car dealerships are an example of retailers which purchase inventory directly from the manufacturer
Distribution models which rely on wholesalers and retailers are even more indirect, and is typically seen in the trade for commodity goods. Wholesalers purchase goods from the manufacturer for the cost of production plus a profit margin for the manufacturer. Retailers in turn purchase goods from wholesalers at the wholesale price (which includes a profit margin for the wholesaler), and the retailer marks up the goods to the final retail price suggested by the manufacturer (MSRP).
Certain product categories or types of business may require transactions to be brokered by an agent or representative of a wholesale distributor. Agents may be required if purchase patterns are irregular or if delivery of the goods may require special logistics arrangements. Part of the job of agents, which typically are paid a commission or brokerage fee for their services, is to manage relationships with their clients.
An example of such an wholesaler-agent-customer relationship is the alcoholic beverage industry's relationship with restaurants, which typically order new inventory through sales representatives at wholesale distributors.
Intensive distribution is a type of distribution seeking to penetrate markets and sell products at as many locations as possible. There is no limit on the number of stores or locations the products are distributed to. Intensive distribution models make manufacturers have less flexibility with the pricing of their products compared to selective and exclusive distribution models.
Selective distribution is a type of distribution seeking to only sell products at specific locations that are selling products with good market fit towards a specific kind of consumer. Selective distribution allows manufacturers sell products at a more flexible price point to consumers compared to intensive distribution models because they have more control over branding and customer targeting. Manufacturers using a selective distribution model limit the number of locations their products are sold at in a specific area.
Exclusive distribution is a type of distribution seeking to sell products at a limited amount of stores in specific locations. This method of distribution gives manufacturers the most control over branding and customer targeting when compared to intensive and selective distribution models. Exclusive distribution models are used by manufacturers selling products with a high degree of branding associated with them because exclusive distribution allows them to maintain their brands image and and product exclusivity.
Just-in-time (JIT) distribution refers to a distribution strategy which delivers goods or materials to the customer when the customer needs it. It's a distribution strategy which can result in lower carrying costs and reduced inventory overhead, but it is predicated on predictability of supply and demand, and reliability of supply chain and logistics infrastructure.
Just-in-time distribution often involves goods or materials with short shelf-life (such as fresh flowers or live seafood) or viable usage windows (such as certain chemicals or goods which require storage at very cold temperatures). Drop shipping is a form of just-in-time distribution.
In order to facilitate just-in-time distribution, all components of the supply chain – from manufacturing to warehousing to logistics – must be fast, accurate, and efficient.
- Speed. Rapid turnaround of goods leads to higher overall throughput in a distribution system.
- Accuracy. In order to facilitate just-in-time distribution, the distributor must be able to effectively estimate demand and quantify the amount of time spent on each part of the distribution process. This includes developing a comprehensive understanding of lead times, time spent transitioning goods between facilities, and the time it takes to transport and deliver the goods or materials to the end customer.
- Efficiency. Just-in-time distribution requires that all parts of the supply chain and distribution network work together in concert. Software can provide a coordination layer for these operations. Maintaining a record of the chain of custody can be achieved by using various traceability methods and technologies like bar codes, QR codes, and inventory tracking software.
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