Distribution Network — Basics

A distribution network is a set of interdependent organizations engaged in making goods and services available to customers. It includes primary channel partners such as wholesalers, distributors, retailers, agents and brokers who form the pipeline or link between manufacturers and customers. It also involves ancillary channel members who provide generic facilities such as transportation (logistics), financing, storage, promotion, and other such services. These primary and ancillary intermediaries make the flow of goods to target customers efficient and cost-effective.

Distribution channels vary from one class of goods to another, and channel strategies too can differ from manufacturer to manufacturer.

The FMCG (Fast Moving Consumer Goods) distribution network in particular is vast and intricate, often encompassing a conventional channel structure as illustrated in Exhibit 31.1. As explained in Chapter 29, Retail Tracking, the retail universe consists of both the upper (modern) and lower (traditional) trade segments. The trade formats span a wide spectrum, ranging from basic to advanced retailing concepts, including emerging trends like virtual shopping. Chapter 32, Category Management, provides detailed descriptions of the predominant FMCG trade formats found in the industry.

The pipeline characteristics vary depending on the nature of the product and the size of the market. Markets covering large geographies such as India, Indonesia and China have extensive and elaborate distribution networks.

Products like bread that have a short shelf life require distribution networks that can cater for daily deliveries to retail outlets. Other products like pasteurized milk and fresh foods require cool chain distribution, whereas ice creams and frozen foods require cold chain distribution.

A soft drink like Coca-Cola is distributed in a very large number of stores, including food and beverage outlets, as well as several indoor and outdoor locations, facilitated by vending machines. On the other hand, premium quality, niche and exclusive products like gourmet foods or luxury personal care brands are only distributed in select outlets.