A distribution channel is a path on a way through which goods and services move until it reaches the consumer. Distribution channels are of different length. Some of the distribution channels can be short such as direct transactions from the producer to the consumer while others can be long involving many other intermediaries like retailers, distributors or wholesalers, agents among others. Distribution systems where the goods or services reaches the consumer without any middleman are called direct distribution, while in cases where the goods or services leave the producer but passes through intermediaries before reaching the consumer are called indirect systems. Distribution can also be said to be business-to-business distribution when one business interacts with another to carry out commercial business or can be business-to-consumer distribution when the producer transacts with the consumer (Krause 2007, pp 528-545).
There are many challenges that face distribution channels. Some of these problems are major while others are minor. Examples of the significant operational challenges faced by these distribution channels include market regulations for different goods and services, the effects of labor conditions for various markets in the world, the cost of managing the various distribution channels among many others. Every business organization should work to understand and have a way to regulate or curb these problems for the smooth business operation. Failure to have an established strategy to handle these challenges will reduce the profitability of the organization and therefore reduce organization’s competitive advantage (Partridge, 2010).
Cost as a challenge faced by distribution channel
Many business groups have come to a realization that most of the traditional distribution channels are not working for them, mostly because these channels have become so costly to the companies. In addition, these traditional approaches have added very little value to the business enterprise. Therefore, they neither meet most of the needs of the customers nor handle the manufacturer’s needs and expectations. This reduces the business profitability and reduces its competitive advantage of these business organizations (Baird et al. 2011).
Reduction of the distribution channel cost is an important aspect of consideration for every business organization. They should, therefore, look for ways to achieve this. Organizations should be vigilant enough to identify and innovatively use the possible available channel options that are cost effective to the business group (Gartner 2013a). Use of the traditional distribution channel approaches has become obsolete, and an organization which does not explore new innovative options for the channel distribution is likely to lose its competitive advantage. It is, therefore, clear that every manufacture needs a fresh new template guide to lead them through exploring of the available distribution channel options (Dittmann 2012).
Many business organizations have been presented with distribution channels coming as complete distribution channel packages. Businesses, therefore, have options to choose the package that seems appropriate to them in consideration of the firm situational factors. The options can be direct sales to the consumers, use of manufacturer’s representatives in the distribution channel, use of wholesalers and distributors, and even the retailers among others (Sweeney 2011, pp 30-48). Every package operates in a different way, and therefore business organizations always evaluate the most appropriate package depending on the context of the operation, the industry itself, the situation among other factors. There have been little possibilities for the organizations to make changes in the existing distribution channel packages. This has therefore made business organizations to consider traditional approaches perfect and have not made enough efforts to understand and evaluate the distribution channel costs and value derived out of it (Stock & Boyer 2009, pp 690–711).
The best way to evaluate the cost and value brought to the business organization by any distribution channel option is through a keen identification of the activities done by a given particular channel, find out the costs of performing activities and then comparing those actions with the values and needs of the consumer (Bradley 2013, pp 1005–1022). This will, therefore, help the manufacturers to be able to compare the kind of activities performed by an individual channel, the amount of cost incurred and see the value derived out of it. With this evaluation, the manufacturers will be able to identify the best channels that are efficient and cost effective o the organizations.
How to reduce cost of distribution channels
Every organization that wants to get more profit will always try to cut down the costs. Cost reduction in distribution channels lies around quality and process improvement. This is the only sure way of reducing the expenses incurred in the distribution process (Lawson 2008, pp 446-460). Every business organization’s management should not view their company to be composed of organization units or solid entities like marketing unit or sales unit etc., but rather the management should narrow down up to the level of identifying the various activities performed by each unit. This is an inevitable and crucial step in quality and process improvement (Nike 2013).
Given the fact that organization’s management only gets packages of distribution channels available for them to choose from, identification and analysis of each activity performed by various specific units in an organization is a crucial aspect of consideration. This is because it brings an understanding of the best distribution channel to use regarding efficiency, cost-effectiveness, and value derived from the channel. This, in turn, becomes very useful for the organizations to choose the best channel to use for distribution in a cost-effective way (Coyle 2013).
Narrowing down from the organization’s subunits means that the organization’s management establishes all the activities performed by each unit in the distribution. This will help them to come to an understanding of what is done on the ground and also be able to identify the specific party responsible for performing each particular activity. With this understanding, the company will be able to compare the value derived from each specific activity in comparison to the cost incurred for those activities. With so doing, the company will be able to reduce these costs by smoothening the existing process through narrowing down to the events and making appropriate changes and improvement on what is done or making changes to the party that does each of the particular activity (Institute for Supply Management 2010).
A change for improvement in distribution channel process entails the use of innovative ways to replace or improve the various specific activities performed. Use of these creative options will consequently bring an improvement change concerning quality and process. At the moment, most organizations are applying technology in their operation process to improve the process and reduce the distribution channel costs (Gartner 2013b). With the changing world, technology has always been the best option to be integrated into process improvement. It brings efficiency, and also saves reasonable costs as a distribution channel. Organizations should, therefore, embrace technology in the distribution channel process to save on the costs of distribution (Cudahy 2012).
As a recommendation, the business organization should venture more into the use of technology to improve their distribution process. With the advent of technology, a business can now make more use of text messaging, emails, push notifications, websites among other technologies to smoothen the distribution channel process. E-commerce also plays a significant role in improving business efficiency and cost reduction in channel distribution. Customers can make orders and payments online from wherever they are. These technology integration possibilities, therefore, shows how technology can significantly reduce the costs. Every business organization can, therefore, look into ways of incorporating technology in operation to lower costs in channel distribution and therefore improve on organization's profit income.
In conclusion, every organization should manage well its logistic and supply chain to ensure that there are no losses incurred in this process. The organizations should understand its operational challenges associated with the channel distribution used. Cost as a problem in channel distribution should be handled effectively. Organizations should look into ways of cost reduction in channel distribution. The basic approach to cost reduction, in this case, is through choosing the right distribution channel depending on the situational factors. In additional to this, organizations should also work out to reduce costs through breaking down channel distribution units into activities and then handling each activity to ensure that the value derived out of each merges with the cost incurred for the particular activity else it is changed. The right application of these concepts can greatly improve the channel distribution process and therefore bring success to the organization.
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