The product’s path from the producer to the end customer

Many paths lead to the end customer

Two critical issues in a company’s distribution strategy are the sales channel’s design and the institutions that are involved. A company must address the question of whether a product should be delivered directly to the customer or whether it is better to use a distributor. Organization of an appropriate logistics channel is another issue that arises in this area. From a business point of view, it can make sense to have total control over the logistics channel. Or to have a shipping company assume responsibility for the organization. At the moment, changes in the area of data processing are causing a major shift in distribution strategy - bringing end customers and producers even more closely together.

The sales channel and its institutions

In determining the channel of distribution for products, a company must decide whether the products will be delivered directly to the end customer or whether other companies like retail businesses acting as sales agents are to be used. The question of how sales are to be organized must be addressed as well - by a company’s own sales agents, such as members of the management and traveling representatives, or by third-party sales agents like commercial representatives and brokers. In this context, channels of distribution and sales forces are combined under the term “sales channel” [1]. In selecting a sales channel, a company decides which marketing tasks it will perform on its own and which will be delegated to independent marketing partners [2].

Distribution logistics and sales channel

A close relationship between distribution logistics Distribution logistics and sales outlets results from the fact that the sales-outlet decision determines the number of points of receipt that are to be served by the logistics system - e.g., few wholesalers or many retailers [2].

Distribution logistics and field sales

A close link may be created between the sales force and distribution logistics Distribution logistics , e.g., when the members of the sales force assume logistics functions related to order processing. If, for example, they are assigned the job of order taking and transmittal, they play an important role at the beginning of the order-processing work and trigger the flow of information.
Distribution logistics Distribution logistics has various types of flow. In general terms, a distinction can be drawn between the physical flow of goods - the so-called logistics channel - and the flow of ownership or the flow of rights to goods - the so-called contracting channel. In the process, it is not necessary for all types of flow to pass through the same groups - as the graphic below illustrates [2].

Flow of rights and goods within a sales channel

Retailers and manufacturers as partners

The members of a sales channel Sales channel must coordinate their logistics systems for the distribution of goods. To prevent shortages, integrated information systems are set up in the context of efficient consumer-response Efficient consumer response - or ECR - programs.
Based on retailing’s merchandise management systems and scanner cash registers, sales and point-of-sales-data Point of sale are reported to the retailer’s central warehouse and then are passed to the manufacturer along with inventory data. As a result, the manufacturer has an overview of the sales and inventory of his products and can continuously modify his sales projections and production.
An important module of ECR Efficient consumer response is the continuous replenishment program Continuous replenishment program (CRP). In this program, the manufacturer assumes responsibility for the retailer’s supply availability by handling inventory management in the central warehouse.
ECR Efficient consumer response requires manufacturers and retailers to work closely together. It must coordinate the data-processing systems, and the deliveries must be worked out by both partners. In addition, joint teams between retailers and manufacturers must be formed. These teams will handle logistics issues and develop joint marketing strategies, e.g., product introductions and sales promotions.
Both sides profit from this partnership. The manufacturers receive improved information, can base their production levels on demand, strengthen customer loyalty and have a larger say about sales promotion activities. Retailers, in turn, can lower their warehousing costs and capacities, and profit from optimized availability of products [2].