Distribution management, also known as channel management, refers to the efficient coordination of products or services from manufacturers to end consumers.
As an e-commerce seller, understanding this strategy is crucial for comprehending supply chain operations and optimizing the e-commerce procurement process.
Three participatory roles in channel management
Channel management involves managing and coordinating various entities or intermediaries:
Wholesalers buy products directly from manufacturers and sell them in bulk at lower prices to retailers or distributors. They mainly focus on product sourcing. For instance, 80% of suppliers on Alibaba are trading companies, they buy products directly from manufacturers and can be regarded as wholesalers.
Distributors buy products from manufacturers or wholesalers and sell them to retailers or final consumers. They focus more on marketing and sales, have a wider sales network, and push products to a wider consumer.
For example, Walmart wholesales products from many manufacturers and brands and distributes these products to its retail stores. It is a typical distributor.
Retailers sell products directly to end consumers. They can be physical brick-and-mortar stores or online e-commerce platforms. Retailers play a crucial role in marketing, merchandising, and making products available to customers.
How does distribution management work for e-commerce?
The main goal of distribution management for e-commerce is to ensure smooth and efficient order fulfillment and timely delivery. Its main components usually include:
For e-commerce businesses that work with multiple suppliers or drop shippers, distribution management involves coordinating with suppliers to ensure timely product availability and order fulfillment.
E-commerce businesses need to track inventory levels to avoid running out of stock or overstocking. A distribution management system helps in real-time monitoring of inventory levels and automatically updates inventory as orders are placed and fulfilled.
Order Processing and Fulfillment
For small-scale e-commerce sellers, in order to focus more on core business aspects such as product development and marketing, they often outsource their logistics services to 3PL.
When customers place orders, the sellers notify these 3PLs to handle the orders. Then these companies carry out order picking and packaging at their warehouses or fulfillment centers.
Shipping and Delivery
Once the order is packed and ready, the logistics providers arrange the most appropriate shipping method to deliver the product to the customer’s address. Customers are typically provided with real-time tracking information to monitor shipment status.
E-commerce businesses can sell through various online channels such as websites, online marketplaces (e.g. Amazon), and social media platforms. A distribution management system helps to integrate and manage inventory, orders, and fulfillment across these different channels.
Distribution vs. Logistics
The difference lies in that distribution involves the process of delivering products from manufacturers to end consumers. Its focus is on marketing, sales, and product delivery.
On the other hand, logistics is more about managing and coordinating the transportation, storage, and distribution processes of goods within the supply chain.
Five types of distribution management
Distribution strategies can be divided into different types. Each type of channel offers distinct opportunities for businesses.
Selecting the most suitable distribution management solutions depends on a comprehensive assessment of various factors, including product attributes, target market, distribution costs, and competitive environments.
The manufacturer or producer sells products directly to consumers without involving any intermediaries. This strategy is often used by small businesses and niche products.
In indirect distribution, products pass through one or more intermediaries before reaching the end consumers. These intermediaries may include wholesalers, retailers, or distributors.
Small e-commerce sellers and startups tend to adopt indirect distribution solutions. Because their order quantity is usually small and can not reach the manufacturer’s MOQ. They will choose to buy from wholesalers for their small orders.
Exclusive distribution involves granting exclusive rights to one distributor to sell a product in a specific geographic area or market segment. This strategy is often used for high-end products or monopoly products. An example of exclusive distribution is Apple and Samsung solely authorizing AT&T to be the distributor to end users.
Selective distribution involves selling products through a limited number of carefully selected retail outlets or distributors. It gives manufacturers more control over their brand image and product availability. For example, PUMA and Nike cooperate with some high-end department stores to attract consumers who pursue high quality and style.
Intensive distribution aims to sell products to as many retail outlets as possible to maximize market coverage. This strategy is often used in fast-moving consumer goods and products with a wide range of consumption needs, such as daily necessities, food, beverages, etc.
This is the choice of most e-commerce sellers. But due to the universality of the product, you may need to consider doing some differentiation, such as doing your private-label products to improve competitiveness.
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