Distribution Channel

A distribution channel is a chain of businesses or intermediaries through which a good or service passes
until it reaches the final buyer or the end consumer. Distribution channels can include wholesalers,
retailers, distributors, and even the Internet.

Channel members
Businesses involved in the distribution of products from producers to consumers are referred to as
channel members. While channel members may not be directly involved in the production of products,
they are responsible for the products when and where customers want them.

Channel members may include the following:

• Producers - Manufacturers that make products and sell them to other businesses or consumers
• Retailers—businesses that sell products directly to consumers
• Wholesalers—businesses that buy products from producers and then sell the products to other
businesses, often retailers
• Transportation companies—businesses that move products by airplane, railroad, ship, truck, pipeline, or
a combination of methods
• Warehouses—storage facilities used to store products as they move through the channel of distribution
• Agents and brokers—businesses that work to bring producers and buyers together in exchange for a fee
• Consumers—final end user of a product

Because consumers live throughout the country and around the world, they need
products at different locations. Channel members, such as wholesalers and transportation companies, can
move the product from the place where it is produced to numerous locations where it will be purchased.
Although producers manufacture products year-round, consumers may want to purchase the product only
at specific times.
For example, consumers want to buy fruits and vegetables throughout the year. To meet consumer these
products outside the growing season, supermarkets purchase fruits and vegetables from other parts of the
country.
There are many routes that a product can take before the consumer. The type of product influences the
channel of distribution chosen.

Direct and Indirect Channels

Producers sell directly to final consumers they are using direct channels.
When a direct channel is used, the producer or consumer is responsible for completing all of the
marketing functions (market planning, product and service management, distribution, pricing,
promotion, selling, marketing information management, financing, and risk management.)
Many businesses that sell products over the Internet use sales, distribution, and customer service
specialists to give customers more personalized attention.

An indirect channel involves intermediaries, or individuals and businesses.

Intermediaries include retailers, wholesalers, and indirect channel members buy the product from the
producer or other channel members to sell to consumers or other businesses.
Selection of distribution channels
Several factors must be considered when deciding upon a direct Channel or an indirect channel of
distribution. Indirect channels are typically used for the distribution of consumer products, while direct
channels are commonly used for business and industrial products.

Manufacturers often buy raw materials, equipment, and supplies that must meet technical specifications
directly from other manufacturers.
However with large domestic and international markets rely on other agents or brokers to help them sell,
distribute, and provide financing for their products, certain market conditions make direct channels of
distribution a better choice.
If there are a small number of customers or the customers are located in a small geographic area, direct
channels may be more efficient.

Multiple and Nontraditional Channels

A producer may select multiple channels of distribution to market the same product to several target
markets.
Retailers often use multiple channels of distribution by selling their products in store, online or in
catalogs.

Nontraditional channels of distribution, such as vending machines and kiosks, are becoming more
popular.
Vending machines, which were once used to sell only snacks and beverages, now have many offerings,
including t-shirts, ball caps, books, DVDs, and small electronics such as iPods.
A kiosk is a small, free-standing booth containing a computer or display screen that distributes product
information.

Supply Chain Activities

Distribution of a larger process known as supply chain management.
A supply chain includes all of the businesses involved in the flow of products. Supply chain managements
the coordination and implementation of supply chain activities in a way that maximizes customer
satisfaction.

A number of procedures and processes occur throughout the supply chain to ensure that the products are
delivered to consumers.

Purchasing Materials
In order to function, businesses need a variety of products and services
They need raw materials, component parts, and equipment to produce products.
Businesses also require services that support the production, sales, or maintenance of their products and
services.
Business-to-business marketing occurs when businesses purchase products or services from other
businesses.

Some businesses do not actually manufacture the products they sell. Instead, they purchase products for
direct resale to other customers.

Processing Orders
The order processing system involves many departments within the order processing system.
The business, including the sales department, warehouse and shipping departments, and the accounting
department. Shipping incorrect merchandise results in customer dissatisfaction.
The shipping department determines the transportation methods and costs involved in getting the package
to the customer on time.
The accounting department prepares an invoice that contains the terms of the sale, method of payment,
and cost of the products.
Customers are then notified that the order has been processed and shipped,

Managing and Controlling Inventory

Several types of information must be maintained in an inventory control system, including the types of
products in inventory, the quantity of each product on hand, and the length of time each product has been
in inventory.

Many retail businesses use a computerized point-of-sale (POS) system, which updates inventory records
as each sale occurs. As products with bar codes are scanned at the cash register, adjustments to inventory
are automatically made.

Thus, inventory managers have access to up-to-date inventory records.

Warehousing and Shipping

Many businesses need to store their products until the buyer wants or needs them, or they simply may
have excess product that needs to be stored. Businesses also may need to store the raw materials or
components that are used in the production of products. Computerized systems automate the warehousing
process.
Scanners track bar codes on products that are entering and leaving the warehouse.

Managing Supply Chain Risks

To prevent supply chain disruptions, all potential risks must be identified. Supply chains face many risks
involving safety, security, distribution, and inventory control. Safety risks apply to products, buildings,
equipment, employees, and customers.
Procedures must be established to reduce the risk of damage or injury when shipping products from one
location to another.

International Markets
Imports are products and services purchased from another country, while exports are products and
services sold to another country. One of the biggest challenges faced by importers is understanding the
international trade laws in other countries.
Businesses may have to obtain permits, licenses, and registrations for imported products.
Some countries may set quotas, which are limits on the amount of a product that can be imported into a
country.

Outsourcing is becoming an important part of the Distribution process. This occurs the manufacturer or
supplier hires a third party (another company) to perform specific supply chain management functions,
such as order processing, warehousing, or shipping. By relying on third-party companies for their
expertise in specific areas, businesses can increase overall efficiency and customer service and lower the
cost of providing the services to customers.

Digital Distribution
Some products can be distributed electronically through the Internet or a satellite transmission. For
businesses, it covers distribution costs and provides access to more potential customers.

Moving the Product

Logistics is the physical distribution process that involves transporting, storing, and delivering products
throughout the supply chain.
This requires careful planning to ensure products are moved through the distribution channel efficiently.

Modes of Transportation
Logistics planning must determine the best method pf transportation for moving products from the
producer to consumers. The most common forms of transportation for product distribution include
railroads, trucks, airplanes, ships/boats, and pipelines.

Many products reach their final destination through the use of a combination of transportation methods.

Railroads
Heavy, bulky items can be transported by railroad. Raw materials, industrial equipment,
and large quantities of consumer products are often shipped by rail.
The cost of shipping by rail is reasonable for large quantities but more .expensive for only one or a few
carloads of a product.

To accommodate this, manufacturers can use a piggyback service by packing products into large
containers or truck trailers, which are then shipped on flatbed rail cars.

Trucks Flexibility and low cost are common reasons businesses use trucks to transport products.
The rising cost of fuel has a major impact on the trucking industry. The increased costs of transportation
associated with higher fuel costs are passed on to consumers in the form of higher prices for products.

Airplanes
Small items can be transported on commercial flights, and large items or large quantities of items can be
transported on cargo planes. Although the cost of transportation by air is high, other cost savings can be
realized. The speedy delivery may reduce the need for product storage and handling.

Ships and Boats

The growth of international trade has increased the transportation of products by ship or boat. The
biggest drawback for transporting products by ship is the time it take
It could take several weeks for a product to arrive at its destination, Products can be damaged by weather
or other conditions while on the trip.

Barges and other cargo-handling boats travel on lakes and large rivers and move raw materials (coal,
grain, cement, and other bulky, non-perishable items).

Pipelines
Gas, oil, and water that must be moved over long distances are transported through pipelines. Building
and maintaining a pipeline is expensive. Once the pipeline is in operation, however, it is an inexpensive
way to move large quantities of a product from one location to another.

Transportation Consideration
Factors to consider when selecting the mode of transportation include the following:

Cost - The amount charged to move a product from one location to another
Travel time - The amount of time it takes for a product to arrive at its destination after leaving the
shipper's location (includes the time for pickup, delivery, handling, and transit)
Reliability - The transporter's record of making on-time deliveries in acceptable condition
Capability -The ability of the transporter to move specific kinds of products, such as
those requiring refrigeration or other special handling
Accessibility -The ability of the transporter to access specific routes
Traceability-The ease the location of a shipment can be tracked

Product Storage, Handling, and packaging

Warehouses
Large amounts of raw materials or finished products vary often
stored in warehouses until they can be used or sold. Other businesses may choose to rent public
warehouses because they need only limited storage space for limited periods of time as for seasonal
inventory.

Distribution Centers
Large retailers like use distribution centers to move products efficiently to thousands of stores located
throughout the country. A distribution center is a large facility that offers a variety of supply chain
services to help move a product to the marketplace more efficiently. While the main function of a
warehouse is storage, a distribution center offers other services in addition to storage, including order
processing and fulfillment, packaging and labeling, and shipping and receiving.

Packaging
Although product packages are designed to help promote products they are also designed to help protect
the product as it moves through the channel of distribution. More companies are packaging products in
cans, bottles, and plastic containers that can be recycled. The type of product and the quantity of the
product are factors when choosing a packaging method for shipping. Shipping a small quantity of a
product by truck across town will require different packaging than shipping a large quantity of the same
product around the world.