In this article, we want to lay out the differences between the various product distribution models that manufacturers and consumer goods brands use to supply their products to the end customers. Each model has pros and cons, and is adopted based on the company’s unique capabilities, risk profile, culture and market assessment.
This post will review the different topics below:
- Schema on different distribution models
- Scenario 1: Direct Sales / Visits
- Scenario 2: Indirect Sales — Street vendors
- Scenario 3: Indirect Sales — Walk in sales
- Scenario 4: Indirect Sales — Direct / Van Sales
- Scenario 5: Indirect Sales — Pre Sales / Orders and Deliveries
- Scenario 6: Indirect Sales — Modern Trade
- Manufacturer / Distributor Relationship: it’s complicated
- Financial flows: credit is king
- Organisational chart to manage FMCG
- What are distribution routes and how to define them
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What is Distribution?
Distribution is the process of making a product or service available for the consumer or business user who needs it. It involves the movement of goods from the point of production to the point of consumption, and it is a critical component of the sales process. Distribution can be done directly by the producer or service provider or by using indirect channels with distributors or intermediaries.
In the context of consumer goods, distribution ensures that products are available to consumers in the right place, at the right time, and in the right quantities. This process can involve various steps, including transportation, warehousing, inventory management, and order fulfillment. Effective distribution is essential for meeting customer demand and maintaining a competitive edge in the market.
There are two primary types of distribution channels: direct and indirect. Direct distribution channels involve the producer selling directly to the consumer, often through their own retail stores or online platforms. Indirect distribution channels, on the other hand, involve intermediaries such as distributors, wholesalers, and retailers who help move the product from the producer to the consumer. Each type of distribution channel has its own advantages and challenges, and the choice of channel depends on factors such as the nature of the product, the target market, and the company’s overall distribution strategy.
Schema on different distribution channels and models
This schema aims at providing a simple to read conceptual view of the distribution models. It is important to keep in mind that there can be many hybridations based on the market realities. Understanding these hybrid models is crucial for developing an effective product distribution strategy that aligns with market realities.
For example, it happens quite often that a manufacturer decides to have both direct distribution and indirect distribution at the same time, if it wants to control the relationship with large accounts or on a specific type of products or functions like merchandising. Or there can be multiple layers of intermediaries to reach the long tail of small shops in the traditional trade, meaning that in scenario 4, you will have a sub wholesaler below the wholesaler.
But we cannot represent all the operational complexities that are witnessed on the ground in the FMCG distribution, so we have tried to make it understandable in that schema !
Who is who ?
In the context of distribution, several key players are involved in ensuring that products move efficiently from producers to consumers. Understanding the roles of these players is crucial for managing the distribution process effectively.
- Producers: These are the companies that manufacture or produce the products. They are responsible for creating goods that meet consumer needs and preferences. Producers can range from small local businesses to large multinational corporations.
- Distributors: Distributors purchase products from producers and sell them to retailers or directly to consumers. They play a vital role in the distribution network by bridging the gap between production and retail. Distributors often handle logistics, warehousing, and transportation, ensuring that products are available where and when they are needed.
- Retailers: Retailers are businesses that sell products directly to consumers. They operate physical stores, online platforms, or both. Retailers are the final link in the distribution chain, providing consumers with access to a wide range of products.
- Consumers: Consumers are the individuals or businesses that purchase and use the products. They are the end-users in the distribution process, and their preferences and buying behaviors drive demand for products.
- Intermediaries: Intermediaries, such as wholesalers, agents, and brokers, facilitate the distribution process by connecting producers with retailers and consumers. They help streamline the distribution process, making it more efficient and cost-effective.
Each of these players has a specific role in the distribution process, and their interactions determine the efficiency and effectiveness of the overall distribution network.
Sales Representative / Merchandiser.
It is a field user, he can have different roles. It depends on whether he sells or not.
First difference: selling or not ?
There are various naming for each of this role based on the organization, but the fundamental difference lies in whether he is supposed to sell directly or facilitate a sales, with pre sales directly.
Note that the difference can be subtle, as most likely a merchandiser type of role seeing a lack of stock will most likely, or should at least, call the distributor in charge to make sure the retailer is supplied. But he won't book the sell himself.
Typically merchandisers might focus on modern trade / key accounts, where the sales is done directly to the shop but through an order given at the group level.
Second difference: employed by the brand or the distributor (or the wholesaler)
A sales representative can be directly employed by the brand or by the distributor. Sometimes the two can exist at the same time, if the manufacturer wants to control the sales relationship in a specific trade channel, say the modern trade, or for large accounts, like wholesalers, or on a specific type of products.
A merchandiser is more often employed by the brands, as it is used to identify new retailers, check the quality of the presence in store, collect merchandising KPIs. Whereas the distributor is usually more focused on pure selling, which give commissions. But it might be that the distributor has to report some merchandising KPIs to the brand who gave him the distribution mandate, in which case the sales representatives might also double down as merchandisers to collect such data points and prove their activity in the trade.
A sales representative or a merchandiser is employed with a contract, he has a fixed pay and targets, on a daily, weekly or monthly basis to earn a variable pay.
To understand what is expected from a merchandiser in the modern trade, read our case study on how SEB Kenya used FieldPro to record the interactions in the shops.
Van / Tricycle
This is a type of vehicle the sales representative might use to stock the goods he is going to sell to the retailers.
It can either be a small van as in the picture below or a motorised tricycle. In French it is called VPM, which stands for Vendeur Promoteur Motorisé. Typically these sales are done as direct sales in cash and focus more on small shops / neighborhood stores. A Van moving will be expected to visit at least 30 stores a day.
End customer
At the very end of the chain the individual purchasing the product to consume it.
Auditor
His role will be to perform proper retail audits, assessing the following dimensions in the shop:
- Product Presence
- Branding Presence
- Planogram compliance
- Expiry date of the products
He might not be a staff of the company, and is more often managed by external agencies as part of mystery visit programs.
Brand Ambassador / Promotor
His role is to come temporarily in addition to the existing sales organisation for specific Bottom the Line / Market eduction campaigns, typically to help sensitize customers for the launch of a new product, destock, sell directly, etc. He will focus on a limited range of SKUs.
Street vendor
A freelancer worker, not salaried or working as per a contract, usually coming for daily work. He takes products on credit in the morning to the distributor and returns them at the end of the day. During the day, he roams the street to sell directly to the end customers.
Delivery truck
A large truck in charge of fulfilling the orders taken on the field and supplying large accounts like sub distributors, wholesalers or modern trade (supermarkets) with the products.
Supermarket / Modern Trade
Everything not considered as traditional trade, typically a well organized retail space, like a supermarket or a hypermarket which belongs to a chain of shops.
For a more in depth view on the differences between modern and traditional trade, read this article.
Retailer / Traditional Trade
This refers to all the small shops qualified as informal, while they might not all be so. Typically in this category falls small shops, convenience store, neighborhood stoor, mom and pop store, groceries, kiosks, etc. To understand better what they entail, read this article.
Distributor
A private company mandated by the manufacturer to distribute the products in the market. It can also be called a channel partner, an agent, a franchisee or an aggregator. There can in fact be several levels of distributors or differentiations between distributors. You can find wordings, such as master distributor, super distributor, key distributor, etc to differentiate them from the smaller distributors.
Wholesaler
A private company with no direct contract with the manufacturer but who has the purchasing power to stock large quantities of the products and who can passively supply smaller retailers. He will not invest in a dedicated sales force, but retailers can come over to him to purchase.
There can even be in the market sub wholesalers, or “semi grossistes” in French, whose roles is to resell to the long tail of small traditional trade shops. It can also be called a stockist.
Its purpose is essentially to supply the long of retailers that will never get serviced directly by the sales representatives or if one retailer has an urgent need to restock, and is willing to close his shop to go and buy.
Manufacturer
A usually privately owned company who produces the goods or services to be sold on the market under one or several brands. There can be several scenarios:
- Multinational with no local branch. In which case the distributor also plays the role of an importer.
- Multinational with a local branch
- Local manufacturer
Our description also applies to companies providing services, such as mobile network operators, banks offering agency banking services, etc.
Sales type
Primary sales are sales from the manufacturer to the distributor. Tracked by an ERP system.
Secondary sales are sales from the distributor to the retailer / wholesaler. Tracked by an SFA system like FieldPro.
Tertiary sales are sales from the retailers to the end customers. Not tracked.
It is key to measure the secondary sales, as they might not be equal to primary sales, and give you an indication on your product performance or necessary action:
- if primary sales are bigger than secondary sales, it means the distributor struggles to sell the products in the market, he piles up stock, and will reduce his next order.
- if on the contrary demand from the market (secondary sales) is higher than supply, it means there is out of stock situation in the stores, and there is a risk that customers move to another brand. The manufacturer needs to align its production and sales to distributor accordingly.
Hierarchy level
By that concept we mean the way a manufacturer will structure its distribution in terms of geographical levels, often following administrative boundaries such as regions, departments, cities, etc. There can be many levels depending on the size of the market and wording for each level, that are custom to each company. Such as: area, zone, region, branch, cluster, sector, district, etc.
That means that the schema basically applies only for the lowest hierarchy level and must be replicated by the number of distributor at this stage and the number of instances of that lowest levels. The purpose of this hierarchical structure is to have at least one distributor / team per the lowest hierarchy level.
Scenario 1: Direct Distribution / Store visit
IIn this situation, the manufacturer is in direct control of the supply chain to the shops. The benefit is that there is a direct flow of information and feedback from the market, and that the manufacturers can plan well for their distribution.
In some cases, manufacturers may opt for exclusive distribution to maintain control over specific products or key accounts, ensuring that only selected partners can sell their products in designated areas.
The consequence though is that the manufacturer becomes heavily involved in the logistics of the distribution: purchasing a fleet of delivery vehicles, managing sales forces, etc. It means the company not only focuses on the production part, but also a lot on the operational challenges of route to market.
This type of set up is chosen by the manufacturer that wants to stay in close relationship with certain types of key accounts, such as modern trade, or to control the sales of specific products, that require a more sophisticated logistic, say frozen products, or to manage merchandisers, or trade developers in charge of recruiting new points of sales or training new agents. The manufacturer will assess that the indirect distribution staff is not capable of managing such responsibility because they are focused on sales only.
Scenario 2: Indirect Distribution — Vendor Sales
In this type of indirect distribution, the end sales to the customer is done not through a physical structure of a shop, but through a crowd of street vendors. The benefit of such sales is that you don't wait for the customer to find your product, but you go and find the customer where he is. It is very active distribution scheme, almost door to door, which requires a strong operational process to be able to manage independent daily vendors at a large scale. Distributors will provide the products on credit to the vendors, and check what they bring back in the evening.
It also helps if your product is not well known and requires some customer education, such as mobile money or a solar panel. Other situation are products that customers consume on the go such as frozen dairy products of Fan Milk.
Fan Milk West Africa is a company that has excelled in implementing this distribution model for what is called the “outdoor” business. Read our case study to know more about how it works, and how digitization through FieldPro has helped to better engage with the vendors.
Scenario 3: Indirect Distribution — Walk in Sales
In this scenario, a manufacturer uses an indirect distribution channel to sell its products to consumers. The manufacturer sells its products to a distributor, who then sells them to a retailer. The retailer then sells the products to consumers who walk into the store. This type of distribution channel is commonly used for products that require a high level of customer service or support.
Walk-in sales are particularly effective for products that consumers prefer to see, touch, or try before purchasing. This method allows retailers to provide personalized service, answer customer questions, and offer product demonstrations. It also enables retailers to build relationships with their customers, fostering loyalty and repeat business.
One of the main advantages of walk-in sales is the ability to provide immediate product availability. Consumers can purchase products on the spot without waiting for delivery, which is especially important for urgent or impulse purchases. Additionally, walk-in sales allow retailers to manage their inventory more effectively, as they can quickly respond to changes in consumer demand.
However, this distribution channel also presents challenges. Retailers must maintain adequate stock levels to meet customer demand, which requires efficient inventory management and forecasting. They also need to invest in staff training to ensure that employees can provide high-quality customer service and support.
Overall, walk-in sales are a valuable component of an indirect distribution strategy, offering benefits for both retailers and consumers.
Scenario 4: Indirect Distribution — Direct / Van Sales
In this scenario, the distributor relies on a dedicated field force to go and sell directly to the retailers.
In this situation, the distributor usually defines routes for the sales representatives to follow, i.e. a list of shops to be visited during the day by sector.
Route planning is a complicated topic that we will address in a dedicated article.
In the case of direct / van sales, the products are carried directly onto a vehicle so that they can be sold directly to the retailers.
That creates a risk of theft, and as such it implies a reconciliation is done with the warehouse between:
- Products loaded in the morning
- Products returned to the warehouse
- Payment evidence
Note that in some cases, the sales representative goes for several days on a tour to serve the retailers at the very last mile.
Scenario 5: Indirect Distribution — PreSales / Orders and deliveries
This section draws on the process where the goods are not sold directly to the retailers, but through a process of logging an order, and then a subsequent delivery.
There are two options for the retailer to place the order:
- Through the sales coming to visit the retailer, in what we call “pre sales”.
- Through a phone call, WhatsApp message or a dedicated mobile app
In the absence of a proper SFA system, the order will be captured manually on a log book, such as what can be seen on the picture. The purpose of an SFA is to properly register the order to ease the work of the back office, and through an integration with the ERP, manage all the financial processes associated with it.
After logging the order, the back office will check against the credit limit of the client, to see if the amount of outstanding debt is not above a certain threshold, and then prepare the fulfillment of the order and print a corresponding invoice for the customer.
Then a document is prepared listing all the orders to be delivered and the goods to be loaded on the delivery van, it can be called a “shipment” or a “loading authority”. It is signed off by the store manager.
The next day, the delivery truck will go and deliver the goods ordered to all the clients, give them the invoice and bring back a carbon copy. At the time of delivery, there can be goods returned if they are damaged.
Upon delivery, the customer can pay using various means : Mobile Money Pay Bill, cash, cheque, bank transfer. Sales team will go from customer to customer during the day, and will then bank the cash collected to avoid theft. They report manually the cash management through a dedicated form, such as the one below.
Scenario 6: Indirect Distribution — Modern Trade
As a reminder, modern trade refers to supermarkets and the likes. It is a well structured retail environment, that is part of chain. So there are more processes related to managing the visits and sales.
Here is an example of a sales representative visiting a supermarket and performing at the same time a stock check and noting what needs to be ordered.
For the store check, he might have to fill another retail audit form, on paper to report all the stock present.
For the sales process, the next step would be the supermarket to issue a Purchase Order to the manufacturer, and then gets the goods delivered by a delivery truck.
Manufacturer / Distributor relationship: it’s complicated…
Indirect distribution presents the benefit of allowing the manufacturer to focus on the production and marketing, and give the hard operational work of distribution to a dedicated entity. If this model is chosen, it is a long term relationship that is strategic and requires to be well thought, and monitored to be successful. Note that there can be an asymmetry of information between the two parties, and the interests might be misaligned. The relationship will be formalized through a proper legal agreement, which will cover the following dimensions.
What does Exclusivity mean in this type of consumer goods distribution?
If the distributor is exclusive, it means that:
- the manufacturer does not allow the distributor to store and sell any other directly competing products than his
- The manufacturer grants an exclusive right for the distributor to sell on a particular territory, assuring him that he won’t contract other distributors there.
While it presents the advantage of having a focus from the distributor, in practice it can only work if :
- the manufacturer has a large enough size to represent an interesting value proposition for the distributor.
- The manufacturer can control what is sold in each territory, otherwise the distributor might complain that there is dumping from other distributors, destroying its profitability, and causing him to stop investing in the distribution.
In practice, non exclusive relationships are more operationally viable and demanding in terms of control. There are two potential drawbacks however to keep in mind:
- the distributor might not be focused on pushing the manufacturer brand, especially if the share of business is below a certain threshold
- Any investment from the manufacturer to the distributor in the form of the deployment of a sales force automation software, field force training, etc. might benefit the other manufacturers being sold, which can be frustrating
Credit limits and repayment terms
When running a beauty contest to choose a distributor, one of the most important factor is its financial strength, meaning the amount of capital he can devote to this distribution business in the form of either proper investment in fixed assets, such as a warehouse, shops, sales vehicles, etc and working capital to purchase stock.
That being said, the distributor will benefit from the bank of a revolving credit line to cover the purchase of goods, typically on a 30 days basis. A bad surprise can come from the manufacturer when it realizes that the distributor that had pledged to commit a lot of financial resources to the business actually has pulled out the money after getting the distribution mandate. It can be because:
- He does not perceive a sufficient return on investment on the distribution business, and as such wants to employ its capital to a more profitable allocation
- He has losses in other parts of his financial portfolio that he needs to cover
- He does not have strong enough operational capacity to manage a larger business size. While the owner might be of good faith, he himself also faces agency challenges, whereby his staff might fraud him on the cash reconciliation or else. Typically in the absence of well trained staff or proper information systems, the distributor might prefer to stay at a small, manageable scale, rather than expanding too much and blowing up. Practically that means, managing for example no more than 500 retailers, and not taking over half the country.
As companies, distributors are often business men with stakes in various businesses, and as such, it is not rare to find them losing focus, or making default.
That scenario can have a large impact on the manufacturer, on top of the financial loss, if it has not invested in a SFA system, that allows him to know all the customers / retailers, to give it to another distributor.
Margins
The distributor purchases the product with a front margin, a discount on their price. If the commission is at 10%, you purchase at 100, something you can resell at 110. The front margin will depend on the speed at which the products rotate. Its purpose is to cover the logistics costs.
The manufacturer can also determine a back margin for the distributor based on certain quantitative and qualitative criteria. Ideally the front margin should be lower than the back margin. For the case of mobile operators for examples, the back margin will be set based on these parameters:
- Quantitative such as volume purchased over the period of time,
- Qualitative such as the new client acquired, the number of active agents, the revenue generated on the territory, respect of the territory boundaries, etc
If the commissions are only set on primary, there is a risk of dumping, where the distributor will purchase a lot and resell outside his territory the products, sometimes at a loss, killing the value proposition that the other distributors are supposed to make.
These margin parameters need to be formalized on a monthly or quarterly basis through a letter that is signed by both parties.
Brands and product categories to be sold
The contract will explicit what is the distributor entitled to sell or not, and at what prices. Distributors can be picked based on their specialization in a type of trade channel, such as HoReCas (Hotel, Restaurant, Café), or because they have some specific logistics. The manufacturer therefore has the flexibility to adjust what each distributor can supply in the market, also based on the geographic location.
Territories definition and how to develop it
The contract might specify the exact territory he is authorized to sell into, which leads to these considerations:
- Enforcing that implies the brand actually is able to control it..While it is easy for electronic products such as credit airtime, it is much more difficult for physical products, unless you use a SFA system where each sales recorded is geo tagged with the GPS. Sales could even be blocked if the sales man is outside his territory.
- What you want to avoid is the “dumping / bulk selling” behavior, whereby a distributor to hit his purchase target with the manufacturer and get a back margin commission will get rid of the products to wholesaler in another territory of his, that is already saturated. Some distributors might even sell at a loss these products because they know they will make money on the overall purchase target margin. That has a the consequence of killing the value proposition for the other distributors in the territories where there is dumping, as they have to compete against products sold at a lower margin to wholesalers/retailers, meaning that they are not able to supply their usual customers in the territory. That can lead to a destructive price war and a toxic ecosystem. All in all, seeing dumping evidence should lead to formal warning to the offendor distributor and eventually termination of contract.
- Be careful about defining the territories boundaries. Everyone must be clear on where they stop. It is usually easier if they match existing administrative / political boundaries, so that field users have some knowledge on where they can go and not go. It might not be the best in terms of sales optimization, but the benefit of intimate knowledge is high.
In defining the territories, the distributor has essentially a portfolio of customers / retailers to serve. It might be that he brings his own knowledge of the area, and his customers, or that the manufacturer already has done some mapping and provide him with the portfolio to serve. That option is better as it means the manufacturer has compiled a key asset with the database of the retailers, and does not depend on the distributor to sell the products. For best practices on how to identify the retailers, see our blog post.
In a scientific distribution mindset, the next step would be to have routes designed by territories. That further frames the action of the distributor which does not have to think on how to start selling the product. That means the manufacturer has compiled a list of optimal circuits for each sales representative to follow, based on the segmentation of shops, the ideal visit frequency, dynamic criteria such as their sales, etc.
Finally, the distributor might also be expected to run some trade marketing activities to develop the territory, recruit new outlets, and customers. That can take the form of conducting Bottom the Line / street marketing activities, with promoters in the markets engaging with customers, promotional events, sponsoring, etc based on what is relevant for the business. Distributors might actually get some commission / budget from the manufacturer that are supposed to be allocated to that. In practice, manufacturers can find out that the money is not used for that purpose and must prepare the activities themselves to have the distributor pay for it or do it..
For an example of trade marketing activities which require customer education, you can read our case study on how promoters of Vodacom Mozambique used FieldPro to record the customers sensitized about the mobile money M-Pesa service.
Distributor review and assessment
As mentioned above, there must be an attractive business case for the distributor in running this business. On the manufacturer side, what matters is to make sure, there is no “easy money” to be done by the distributor that sells products already well established in the market and does not do his share of investments or does not develop his territory.
That implies running frequent reviews of the distributor capabilities on these dimensions:
- Sales assets in place: facilities, vehicles, motorbikes, trucks, etc
- Level of training of the sales force
- How is the sales force paid ? Do they have incentives?
- Is there enough sales force ?
- How are the visits planned ? What is the frequency of visits?
- Compliance with security standards
- Compliance with warehousing standards, critical for food products.
- And any other criteria seemed relevant..
Enforcing this agreement and as a whole managing the relationship is a full role that needs to be done on the side of the manufacturer.
Control on the Sales Force
One benefit for the brand is to outsource the contracting of the sales force to the distributor. In practice, some brands who are more involved operationally will directly manage these field force, even though they are paid by the distributor or by an outsourcing agency.
Different distributor roles
Choosing a distributor is a very difficult task. What helps is to clarify what is expected from it. Is it just trading with the ability to import goods in the country through the customs and then be destocked by others? Or should he actively manage the end to end distribution ? There are various hybrid models, where the distributor is more or less actively involved. Whether a company needs to embark on direct or indirect distribution depends on several factors.
The consultancy Boston Consulting Group has published an interesting framework for comparing the different options: Drawing a Route to Market for Multinationals in AfricaThere are plenty of reasons for companies to be intrigued by the consumer economies of Africa, and they can be summed…www.bcg.com
To quote the BCG article, 4 main types of distributors can be differentiated
“Pure traders offer the basics: stock points and logistics capabilities. They have good access to capital and often trade significant volumes, but they don’t help develop the market. Suppliers can find themselves in a power battle with these companies, many of which have strong market positions.
Large established distributors are typically the go-to organizations for MNCs entering a new market. They represent a large basket of brands and have significant capabilities and capital backing, but they do not devote particular attention to each individual brand in their portfolio. They are most likely to focus on what sells.
Small but focused distributors handle a limited number of brands. These distributors can be a good alternative if the supplier has capacity to grow and develop a brand with them, because they are often highly motivated. On the downside, they have limited access to capital and infrastructure and frequently require significant support.
Niche distributors focus on certain types of products or channels, such as hotels and cafeterias. They are not likely to move significant volumes, but they do have strong networks in their dedicated channels. Many suppliers use niche distributors along with other types of distribution to build coverage and visibility across channels.”
Distribution Strategy
A distribution strategy is a plan for how a company will distribute its products to consumers. It involves identifying the target market, selecting the appropriate distribution channels, and managing the distribution process. A well-designed distribution strategy can help a company to increase its sales, reduce its costs, and improve its customer satisfaction.
The first step in developing a distribution strategy is to identify the target market. This involves understanding the needs and preferences of the consumers who are most likely to purchase the product. By defining the target market, a company can tailor its distribution efforts to reach the right audience effectively.
Next, the company must select the appropriate distribution channels. This decision depends on various factors, including the nature of the product, the target market, and the company’s overall business objectives. Some products may be best suited for direct distribution channels, while others may benefit from indirect channels involving distributors, wholesalers, and retailers.
Managing the distribution process is another critical component of a distribution strategy. This involves coordinating logistics, inventory management, order fulfillment, and customer service to ensure that products are delivered to consumers efficiently and cost-effectively. Effective supply chain management and the use of technology, such as Sales Force Automation (SFA) systems, can enhance the distribution process and improve overall performance.
A well-executed distribution strategy can provide several benefits, including increased market reach, improved customer satisfaction, and reduced operational costs. By carefully planning and managing their distribution efforts, companies can achieve a competitive advantage and drive business growth.
Distribution Channels in the Digital Era
The digital era has transformed the way businesses distribute their products. With the rise of e-commerce, companies can now sell their products directly to consumers through online channels. This has created new opportunities for businesses to reach a wider audience and to reduce their distribution costs. However, it has also created new challenges, such as managing online inventory and providing customer support.
E-commerce platforms allow businesses to bypass traditional distribution channels and connect directly with consumers. This direct distribution channel can lead to significant cost savings, as companies no longer need to rely on intermediaries such as distributors and retailers. Additionally, online sales enable businesses to gather valuable data on consumer behavior, preferences, and purchasing patterns, which can inform marketing and product development strategies.
However, the shift to digital distribution also presents challenges. Managing online inventory requires sophisticated supply chain operations to ensure that products are available and delivered promptly. Companies must invest in robust e-commerce platforms, secure payment systems, and efficient logistics to meet customer expectations. Providing customer support in the digital era also requires new approaches, such as live chat, social media engagement, and comprehensive FAQ sections.
To succeed in the digital era, businesses need to develop a distribution strategy that takes into account the changing needs of their customers and the evolving nature of the distribution landscape. This may involve adopting multiple distribution channels, combining online and offline sales, and leveraging technology to enhance the distribution process. By staying agile and responsive to market trends, companies can capitalize on the opportunities presented by digital distribution and achieve long-term success.
In conclusion, the digital era has revolutionized distribution channels, offering both opportunities and challenges for businesses. By developing a comprehensive distribution strategy that addresses these changes, companies can enhance their supply chain management, improve customer satisfaction, and drive business growth.
How is data tracked on all these interactions. Understanding the difference between an ERP and a DMS / SFA system
The movement of goods and cash between the distributor and the manufacturer will be captured through the Enterprise Resource Planning (ERP) system. That means that each distributor has an account and is properly registered.
The challenge of the ERP is that it is often complicated to configure and manage, and not suited for the needs of the distribution. Distributors therefore manage all their back office operations with artisanal tools and lack control on their business. Typical ERPs systems used by manufacturers or distributors are the following: SAGE, Microsoft Navision, Xero, Syspro, etc. Measured from the point of view of the manufacturer, the sell in data refers to the sales of the manufacturer to the distributor, but the sell out refers to the sales out of the distributors, which typically are not tracked by the ERP.
The Sales Force Automation will track all the flows below the distributor, connecting these stakeholders, van sales, sales rep and retailers. A key benefit of a SFA system like FieldPro is to enable to generate the invoices to the retailers digitally thanks to the information captured on the application, and then print them through Bluetooth printers.
To have an idea of what KPIs can be tracked with a SFA system such as FieldPro, read our blog post.
A Distribution Management System can cover the same scope as a sales force automation software, but will most likely focus on these areas:
- Distributor Stock Management
- Secondary Order Management (Secondary sales being the sales from the distributor to the retailer/wholesaler)
- Invoicing and payments
Financial flows: credit is king
When examining these, it is obvious that credit is an essential part in the process.
From manufacturer to distributor:
- Revolving credit offered by a commercial bank using the distribution mandate and manufacturer as a guarantee
- Credit terms shown on the contract, usually 30 days payment
From distributor to retailer:
By default, the distributor will not allow the retailers he serves to pay him on credit, because that adds an extra risk of loss and effort to recover the credit. One needs to keep in mind that retailers and distributors are independent actors, so a retailer can take products and disappear. The means of paying instantly are the following: cash, cheque, mobile money, bank transfer
Again, the distributor risks to incur losses if his staff collect money and run away with it. Therefore they try to favor safer options such as cheque or mobile money payments. The benefit of a SFA system is to have a real time reconciliation between the payments received and the goods delivered reducing the amount of time spent on such checks.
Credit. The distributor can extend credit to the retailer if he has some kind of personal relationship with him, or if they belong to the same “community”, giving him some sort of leverage or confidence that the retailer will not run away with the money. That good faith “confidence” among communities, based on ethnic or religious lines, is a very interesting cultural feature that can explain the success of some in otherwise challenging environments. There is now some momentum around providing credit to retailers based on their supply data, captured by a SFA system and leveraging digital identity, as the start-up Gravity is doing.
From retailer to customer
As most traditional retailers same similar goods, they might want to differentiate themselves by enabling their customers to purchase on credit, even small pieces of product. They will then keep track of who owes what in book like on the picture below.
Organisational chart to manage a FMCG Distribution
In the schema below, we try to give an overview of what can be an organisational structure well suited to manage the distribution flow highlighted above. Of course, there can be variations in reality but it gives a simplified understanding.
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At the top is the sales director or National Sales Manager, which oversees the nationwide implementation of the road to market organisation, then typically under him, manager in charge of a hierarchy level, say a regional manager, then managers in charge of lower hierarchy levels, etc.
At the lowest level, a distribution manager will have the control on the sales force and of the distributor in his area. Note that this manager can have two types of field force under him:
- The ones paid and contracted by the manufacturer
- The ones paid and contracted by the distributor, that he actually manages to ensure they deliver what they are supposed to do.
Among his key responsibilities are:
- Managing the field force, training, checking performance, etc
- Identifying new retailers,
- Planning the journey plans
The field force under him will be specialized according to several parameters:
- The categories of products they sell. For example a beverage manufacturer might split the sales force in charge of the water and the ones in charge of soft drinks. Or a dairy company might differentiate how to handle frozen products and non frozen.
- The type of trade channel, typically differentiating the ones handling traditional trade from the ones who visit modern trade, as it is a different type of interaction
- Their scope of work. Merchandisers roles is focused on the quality of the execution, in terms of product presence against the competitors, branding visibility, new retailers identification, and in general more qualitative assessment, while the field sales are focused on selling as fast as possible and might not pay enough attention to the relationship with the retailer or just have enough time to report information through for example a comprehensive store check.
The different roles of the field force will depend on the level, for example it makes sense to have a dedicated modern trade team in the capital city, but not in rural areas.
What are distribution routes and how to manage them
Distribution routes are a concept used to group together retailers that need to visited during the same visit of the field users, whatever his role, sales or merchandising.
Routes can also be called circuits, journey plan, beat plan, etc.
There are different ways to determine the routes:
- Top down. By the manager assigning routes to the field user
- Bottom up. With the field user defining his schedule of outlets to visit, and the manager validating them
If you want to hear more about FieldPro can help you in managing your distribution processes more efficiently, get in touch on sales@optimetriks.com or on our website !
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