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Module 4
DISTRIBUTION MANAGEMENT AND CHANNEL DESIGN

Distribution management

• Distribution management is the process of overseeing the movement of goods from a

manufacturer or supplier to the end customer.

• It involves activities like warehousing, inventory management, packaging, and

transportation.

• To products reach the intended customers at the right time and place through chosen
distribution channels.

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Distribution Channels –why are they required

• Distribution channels are sets of interdependent organizations involved in the process of
making a product or service available for use or consumption

• Functions
• Intermediaries help organize and distribute products so that buyers get what
they need in the right quantity and variety.

• Intermediaries make buying and selling easier by following efficient and cost-
saving processes.

• Intermediaries help buyers and sellers find each other, share useful
information, and make transactions more reliable.

Activities Performed by a Typical Distribution

Channel
Sorting & Assorting:
• Collecting products from different producers and organizing them into useful assortments for
customers.
Breaking Bulk:
• Buying in large quantities from manufacturers and selling in smaller quantities to retailers or
consumers.
Storage & Warehousing:
• Storing goods in warehouses to ensure steady supply and avoid shortages.

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Transportation & Logistics:

• Moving products from factories to warehouses, retailers, or directly to customers.
Reducing Transaction Costs:
• Standardizing and simplifying buying and selling to save time and money.
Market Information & Feedback:
• Gathering customer insights and sharing feedback with manufacturers for better product
development.
Risk Taking:
• Taking responsibility for damaged, unsold, or expired goods.

Distribution channel strategy

1. Setting Distribution Objectives
• Market Coverage: Deciding whether to use intensive, selective, or exclusive distribution.
• Customer Convenience: Ensuring that products are available where and when customers
need them.
• Cost Efficiency: Optimizing logistics and minimizing distribution costs.
• Brand Positioning: Ensuring that the chosen channels align with the brand’s image (e.g.,
luxury brands use exclusive channels).
• Sales Growth: Increasing product reach to drive sales and profitability.

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2. Finalizing Channel Activities

• Product Storage & Warehousing: Deciding whether to use third-party warehouses or
company-owned distribution centers.
• Order Processing & Fulfillment: Ensuring a smooth order-to-delivery process.
• Transportation & Logistics: Selecting the best shipping partners and modes (air, sea, rail,
road).
• Retail & Online Presence: Choosing between physical stores, e-commerce, direct selling, or
a hybrid model.
• Marketing & Promotions: Aligning channel partners with promotional campaigns.

3. Organizing the Channel Activities

• Selecting Channel Partners: Choosing wholesalers, distributors, retailers, or e-
commerce platforms.
• Defining Roles & Responsibilities: Clearly outlining the duties of each partner.
• Integrating Technology: Using supply chain management (SCM) systems to track
inventory and orders.
• Ensuring Coordination: Regular communication with distributors to avoid stock
shortages or excess inventory.

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4. Developing Policy Guidelines for Day-to-Day Operations

• Pricing & Margins: Defining how pricing is structured across different channels.
• Inventory Management: Setting stock levels and replenishment policies.
• Returns & Refunds: Creating guidelines for damaged or unsold stock.
• Customer Service & Support: Ensuring after-sales support through the right
channels.
• Conflict Resolution: Addressing disputes between channel partners.

Channel Formats & Prominent Channel Systems

1. Channel Formats
(A) Direct Channel (Zero-Level)
(B) Indirect Channels.

1️⃣ One-Level Channel (Manufacturer → Retailer → Consumer)

2️⃣ Two-Level Channel (Manufacturer → Wholesaler → Retailer → Consumer)

3️⃣ Three-Level Channel (Manufacturer → Agent → Wholesaler → Retailer → Consumer)

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Prominent Channel Systems

(A) Conventional Marketing System (CMS)
• Each entity in the channel (manufacturer, wholesaler, retailer) operates independently and
maximizes its own profit.
(B) Vertical Marketing System (VMS)
All levels of the channel work together as a unified system under a dominant player.
1️⃣ Corporate VMS: The manufacturer owns the distribution channel (from production
to retail).
2️⃣ Contractual VMS: Independent firms collaborate through contracts.
3️⃣ Administered VMS:A dominant player dictates terms without ownership.
(C) Horizontal Marketing System (HMS)
• Two or more companies collaborate at the same level.
(D) Multichannel Distribution System
• Brands use multiple channels (online, offline, wholesalers) simultaneously.

Channel Design
• Channel design refers to the process of structuring the
path through which goods and services move from the
producer to the end customer.

• It involves deciding the type, number, and roles of

intermediaries such as wholesalers, distributors, retailers,
and agents to ensure efficient product delivery.

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• Market dimension
• Market geography
• Market Size
• Market density
• Market Behavior
• Understanding the needs
and wants of the target
market

• Product Dimension • Company Dimensions

• The nature of the product • Size

• Bulk and weight • Financial Capacity
• Perishability
• Managerial Expertise
• Unit value
• Objective and Strategies
• Technical versus non
technical
• Newness

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• Intermediary Dimensions • Environment Dimension

• External factors-PESTEL
• Relationships, power
dynamics, and conflicts
among channel members.
• Availability
• Cost
• Services

Channel Cost-Benefit Analysis

Costs of Distribution Channels
• Fixed Costs: Warehousing, logistics infrastructure, channel setup,
technology.
• Variable Costs: Commissions, discounts, marketing support,
transportation.
• Operational Costs: Inventory holding, order processing, after-sales
support.
• Channel Partner Costs: Margins, incentives, training, compliance
expenses.

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Capturing Customer Requirements(Service output

demand framework)
• It involves designing the level of service ---- what customers expect from
a distribution channel when they buy a product.

• Different products and customer groups require different levels of service,

and businesses must design their channels accordingly.

• Service output delivery templet

S.No Service dimension Service output delivered

1 Bulk –breaking dividing large quantities of products into smaller,

more manageable units for retailers or consumers.
2 Spatial Convenience products are available close to where customers
need them, reducing their travel effort.

3 Waiting time how quickly a customer can get the product after
placing an order or visiting a store.
4 Assortment offering a variety of products at a single location to
meet diverse consumer needs.

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Conceiving the Channel Flows in Distribution

• Channel flows refer to the movement of products, information, money, and services
between manufacturers, intermediaries, and customers in a distribution channel.

• Understanding these flows helps businesses design an effective distribution strategy that
balances cost, efficiency, and customer satisfaction.

Key Types of Channel Flows

1.Physical Flow (Product Flow)
• Movement of goods from manufacturer to –channel partners- end
consumer.
• Reverse logistics for returns and repairs.
2.Ownership Flow
• Transfer of ownership rights across intermediaries.
3.Payment Flow (Financial Flow)
• Involves credit terms, commissions, and payment processing fees.

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4. Information Flow
• Exchange of order details, inventory levels, and sales data
among channel members.
5. Promotion Flow
• Advertising, sales promotions, and personal selling
6. Negotiation Flow
• pricing, delivery terms, and contracts.

7. Risk Flow
• Managing risks related to demand fluctuations,
stock obsolescence, and damages in transit.
8. Service Flow
• Pre-sales and post-sales support, including
installation, maintenance, and customer service.

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Logistic Planning
• Areas of Logistic planning :
• Customer Service levels
• Facility Planning
• Inventory Management
• Transportation Decisions
• https://trportalnew.inservices.tatamotors.com/

Triangle of Logistics Decision Making

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Inventory management
• It ensures that the right products are available at the right time, in the right
quantity, and at the right cost.

• Efficient inventory management helps businesses reduce waste, minimize

storage costs, and improve customer satisfaction.

Metric Focus Area Formula Measures Example

Fill Rate Total quantity (Units shipped ÷ Overall product 90 out of 100 units of Brooke
fulfilled Units ordered) × availability Bond tea delivered = 90% Fill
100 Rate

Line Fill Individual product (Order lines Availability of 4 out of 5 variety of Brooke
Rate lines fulfilled ÷ Total different SKUs bond tea fulfilled = 80% Line
order lines) × 100 Fill Rate

Order Fill Complete customer (Orders fulfilled Percentage of 40 out of 50 HUL Various
Rate orders completely ÷ Total fully fulfilled products shipped in full = 80%
orders) × 100 orders Order Fill Rate

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Transportation decision

1. Mode Selection: Choosing appropriate transportation modes

(road, rail, air, or waterways) based on cost, speed, and
reliability(possibility of damage).
2. Route Optimization: Determining efficient routes to minimize
transit times and costs.
3. Carrier Management: Collaborating with reliable carriers to ensure
timely deliveries.

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