Distribution Planning

Getting your product or service from A to B as efficiently as possible.

From manufacturer to end user, all products need to be moved or distributed.

This movement, often called channels or chains of distribution, can be broken down as follows:-

• Producer to consumer.
• Producer to wholesaler to retailer to consumer.
• Producer to agent to retailer to consumer.
• Producer to agent, wholesaler, retailer and then consumer
• Producer to agent and then consumer.

The type of business, the products to be distributed and the end user will all determine the best channel of distribution for your business.

Each of these different channels of distribution have specific needs that should to be taken into account, as part of your distribution planning.

When planning your distribution needs, take the following into account ...

When to Direct Sell - Producer to Consumer

• If you manufacture or sell a product that has to be demonstrated it would be better to direct sell. As if an agent, wholesaler or retailer, cannot sell your product without intense training, then the time cost may be prohibitive and sales may suffer due to reluctance to sell products that require too much commitment.
• If you are producing a low cost item that, due to competition, needs to be sold cheaply, the high profit margins added by wholesalers or retailers can often prohibit their use and you should direct sell.
• When you want to cut-out any middlemen, who are unable, cannot or will not transport your product, then direct sell.

When to indirect sell - Producer to wholesaler or agent

• If you produce products that need to reach many customers or consumers spread over large areas, you need to use middlemen for your distribution.
• If you do not have the resources, financial or infrastructure, it would be unwise to do your own distribution.
• If you don?t think you have the knowledge to be able to manage your own distribution., you can learn.
• You must sell many low cost items or one high cost item to each customer to make distribution efficient. If your assortment of goods is too small to ensure bulk sales, your distribution will not be cost efficient.
• If you have bought a business that already has an efficient distribution system why change it You might need to tweak, based on cost analysis, but with a bit of distribution planning you will get existing systems to meet your needs.

When to use wholesalers or agents

• If you only have to deliver to wholesalers or agents then your transport costs are decreased.
• You do not have sufficient storage space on site.
• When you do not want to set up or bear the cost of direct selling yourself.
• When you want to sell in bulk and don?t want the bother of breaking down large product numbers into smaller quantities.
• when your money could be better or more profitably spent elsewhere, than on distribution expenses.

If you are going to be doing your own distribution, then your distribution planning needs time and care spent on it.

Depending on your product, your manufacturing and consumer locations, you need to choose the best quality distribution chain or even a mix of different distribution channels to suit your business and meet your needs.

In-house or Out-sourced Distribution Planning?

Now that you have decided on what you think you need in the way of distribution, you have another decision to make.

Distributing goods and services is not cheap so you will need a full understanding of any costs involved before that final decision is made.

Here is what you need to look at before deciding on whether to do your own distribution in-house or to farm it out to others.

In-house distribution - consider all these points ...

• The space required to stack, store and sort your products ready for distribution. This is always greater than the space needed if you are to outsource your distribution to an agent or wholesaler.
• You will need your own fleet of delivery vehicles as well as maintenance and repair facilities.
• Extra management staff as well as specialist and general employees will be needed.
• Often expensive specialized equipment is needed for in-house distribution. Forklifts, pallet jacks and pallets, battery chargers, vehicle maintenance equipment are all expensive and also need specialist maintenance themselves.
• Your energy costs will increase with in-house distribution. At home time all electrical equipment is plugged in to charge overnight. All this extra demand will cost you.
• Your own warehouse full of goods ready for distribution means more complicated inventory or stock control. The use of real-time checkpoint systems with your own business distribution software costs, but saves on manpower hours and closures to count stock. Automation pays here.
• If you are to do your own distribution, your distribution planning must include the use of modern technology in the following fields :-
  • Energy. As mentioned earlier, in-house distribution increases your energy costs. Timers and disconnects can substantially reduce costs here.
  • People. Labor management software sets and monitors quantity and efficiency. When using hand held RF (radio-frequency) devices all feed back is available immediately.
  • Inventory mentioned elsewhere. No more physical walking and counting of stock inventory!
  • Orders. As you remove items from stock, RF technology tracks it all.
  • Warehouse co-ordination. Increase productivity by using software to manage your forklift use, both for bringing product into inventory as well as removing inventory.

Distribution planning must include the actual nuts and bolts of the process of distribution.

This process involves knowing where your customers physically are, and so able to mark their locations on a map. How often they need a delivery as well as the type of product and quantities to be delivered.

When planning your distribution routes, where possible, make them circular as opposed to in-out routes. Dropping off product as you travel on a circular route is more cost effective than delivering on an in-out route where you deliver nothing on one way.

There is a huge amount of information and help available on distribution planning, a lot of which you should study before deciding to do your own in-house distribution.

Often small business falls into doing some distribution quite inadvertently.

A customer asks you to deliver and you agree. You put his order into the back of your auto and deliver it on your way home. Six months down the line you have bought your own truck and employed a driver to do your deliveries.

There is no planning involved here and sometimes it works, but distribution planning prior to business startup always works better.

Outsourcing Your Distribution Planning ...

Now we move onto the other option, wholly outsourcing your distribution requirements.

Before looking at handing over all the distribution of your product to outsider suppliers, on the basis of this being the easier option beware, there can be many dangers ahead if you do not plan this change well.

Before deciding to outsource, be smart and take a good look at all aspects of your delivery needs, both incoming supplies and outgoing products of the business.

Would your business be safer if you handled certain key products yourself?

• If certain deliveries to key customers need to be made at very specific times and days, can you afford to rely on an outside delivery source?
• Your type of business will tell you if you should keep some distribution in-house and outsource the rest or outsource the lot.

Whatever you decide, go with whoever is going to do it best. Good distribution planning is just as much needed when outsourcing as when you are doing your own in-house distributing.

The Outsourcing Distribution Contract ...

Before signing any distribution outsourcing contract, take a look at what needs to be done to get it right.

• Research the available contractors in your area. Ask for references and testimonials. Are their other customers happy? Do they handle your kind of product? Do this right as you will have to live with your decision, possibly even if you don?t want to. Why? Setting up costs can be high, change contractors and you need to do it all over again.
• Draw up a contract that takes everything into account. Don?t leave anything out or you will regret it. Cover in detail the type of product to be delivered, its handling, and its storage (moisture and heat).
• Project into the future; will your delivery needs always be the same? If not cover that now.
• When do you need collections and deliveries made? Remember to cover all delivery needs in detail. Do you have delivery peaks and troughs during the month or year? Has your potential contractor the means to meet your peak needs? Discuss your distribution planning needs with your potential contractor to avoid any future misunderstandings.
• How much will you pay and when will you pay?
• Who?s insurance covers the goods while in transit? Insist on insurance that covers against theft, accidental damage, tampering or total destruction from any cause whatsoever.

Your distribution planning contract must include an exit clause.

Again be specific, if your deliveries to your end-customer are late more than X percentage of the time, you can break the contract.

If costs increase above Y percent of sales you can escape. A good lawyer is a must to check your contract.

Keep up to date in the world of distribution planning and its outsourcing. Both the Institute for Supply Management and the Association of Purchasing and Inventory Control Specialists websites can help you stay up-to-date.