Distribution channels: strategies to optimize the supply chain
Guaranteeing maximum efficiency in distribution channels helps businesses improve their profit margins. How so? Companies can reach new consumers and markets in addition to improving the shopping experience. The result? Greater customer satisfaction and loyalty.
What are distribution channels?
Distribution channels are the means businesses employ to deliver their products to end consumers. They’re the routes or pathways through which merchandise travels from the company to the customer. As such, they’re essential for the success of any organization.
In a constantly changing market, distribution channels have become a vital part of business strategy. They determine not only how products reach customers but also how relationships with trading partners are managed along the supply chain.
These channels can take various forms, from direct-to-consumer sales to partnerships with wholesalers and retailers. Product availability — a decisive factor for customer satisfaction — depends largely on the effectiveness of distribution channels.
While the main function of these channels is to ensure streamlined deliveries, their configuration can vary according to the industry and the types of items being marketed.
What are the 4 types of distribution channels?
Distribution channels can be classified into 2 categories: direct or indirect. The choice between them hinges on several factors, e.g., industry, product type, target market, available resources, and business strategies. Some companies even use a combination of both channels to maximize their reach and distribution efficiency.
- Direct channels. Manufacturers sell products directly to end consumers without the intermediation of third parties. The advantage is that organizations can have full control over how their brand is presented and what kind of customer experience they offer.
- Indirect channels. A network of intermediaries collaborates to bridge the gap between manufacturers or suppliers to consumers, facilitating the movement of products. Intermediaries like wholesalers, retailers, or other trade partners help sell and distribute goods without the manufacturers directly engaging with the end consumers.
Indirect distribution channels can be further broken down into 2 configurations: short channels and long channels.
- Short channels involve 3 participants: the manufacturer, the retailer, and the end customer. This model is common in industries like automotive, where manufacturers sell to dealerships.
- Long channels consist of 4 stages: the manufacturer, the wholesale distributor, the retail distributor, and, ultimately, the end customer. This paradigm is found in sectors such as food and beverages, where products go through various intermediate phases before reaching consumers.
Distribution channel strategies
When it comes to distribution channels, you can apply diverse strategies to meet your objectives and satisfy customer needs. Your choice of one approach over another will depend on factors like consumer habits, product characteristics, and market organization.
- Intensive distribution: businesses that employ this strategy aim to make their merchandise available at as many points of sale as possible. It’s standard practice to apply it to fast-moving consumer goods. e.g., food and beverages. Intensive distribution calls for the involvement of numerous intermediaries to reach a broad audience.
- Exclusive distribution: in this model, a company grants exclusivity to a distributor or retailer in a specific region or geographic area. This strategy is used for luxury and high-end products where exclusivity can be a major selling point, with products distributed in a limited manner.
- Selective distribution: this involves selecting specific retailers or distributors to carry the merchandise. This approach is common in electronics, cosmetics, and fashion, where the company aims to control the brand image and distribution quality. Organizations may, for example, distribute in particular geographic regions or solely through an application.
Distribution channels and logistics
Distribution channels have a significant effect on warehouses and logistics operations. A company’s choice of strategy will impact how products are managed, stored, and delivered to customers. It can also affect supply chain efficiency and costs.
Distribution channels establish the quantity of goods to be stored. In short channels, products are transported quickly from the manufacturer to the consumer, which may require lower inventory levels. In long channels, on the other hand, where goods pass through several intermediaries, inventory levels may be higher. This calls for meticulous inventory control.
Stock management impacts warehouse organization and operations such as putaway and order processing. In short channels, where fewer products are required, storage space can be simpler. Businesses employing this strategy may equip their logistics facilities with storage systems that offer direct access to goods, like pallet racks or Movirack mobile racking. These solutions streamline product inflows and outflows at the right time and allow for visual control of items in their locations.
In long distribution channels, it’s imperative to plan storage space and operations to effectively manage products across the different supply chain stages. To maintain supply to wholesalers and retailers, companies need enough space to accommodate all their merchandise and optimize inbound and outbound processes. Automation is an ideal solution for tackling these challenges. Solutions such as the automated Pallet Shuttle leverage available warehouse space to increase capacity. At the same time, they provide continuous product movement.
Regardless of the distribution channel you choose, stock control is a fundamental process. Faced with complex supply chains and changing customer demands, more and more businesses are turning to digitalization. With warehouse management systems like Interlake Mecalux’s Easy WMS, companies can track the status of their goods and organize operations automatically to ensure their timely shipment.
Efficient distribution channels: the key to success
Distribution channels are paramount for the success of any business, as they determine how products reach end consumers. The different types of distribution channels can include direct sales to agreements with intermediaries. Choosing the optimal distribution strategy depends on factors such as the type of product you handle, your target market, and your available resources.
Your distribution channel(s) will also directly affect the way you manage your facility and logistics operations. No matter which channel you decide to implement, it’s crucial to properly plan and organize storage, inventory management, and order fulfillment and distribution. At Interlake Mecalux, we develop solutions to optimize the effectiveness of supply chain processes and meet customer demands. Get in touch to learn how to boost your logistics efficiency.