Distribution Channel Structure

The channel structure refers to the group of channel members to whom a set of distribution tasks has been allocated. The channel structure plays a vital role in the physical distribution of products. It primarily facilitates product flow from the manufacturer to the end consumer through a hierar­chy of channel members. The typical distribution channel for the consumer goods company is a multilevel structure, while a company manufacturing capital goods may sell its products directly to the user without involving any channel member. Depending on the product and other marketing variables, the manufacturing company opts for or designs a particular structure that fits into its marketing philosophy and policy. But the major considerations are the cost of distribution, wider coverage and maximum market penetration. The most common channel structures being adopted by manufacturers are shown in Figure 11.2.

The consumer goods companies have a long and dense channel structure, because the end cus­tomers are very large in number and spread over a wide geographical area (Figure 11.3). Due to this the unit price of the product is low and the frequency of purchase is high. Under these circumstances, the manufacturer prefers to have more outlets for product distribution to meet customer needs.

The industrial machinery manufacturer prefers to deal directly with the customer because of product complexities, high unit price and both pre and after-sales service requirements. In such circumstances, the manufacturer may sometimes appoint an agent to strike a deal. In all the above cases, each channel member has been allocated certain distribution tasks (see Table 11.1) and has different roles to play. The width and depth of the risk at each level is different and depends on the financial involvement and control over the next lower level.

The channel structure facilitates product flow from the manufacturer to the end customer. However, the physical movement of the product is taken care of by logistics. The addition of place and time utility to the product is not possible without the close coordination between channel tasks and logistics operations.

Information flow in the channel structure is two-directional. The manufacturer sends infor­mation on the order status, material availability, shipping dates, transportation mode, payments due and so on, while channel members send information on customer requirements, sale fore­cast, warranty claims, competition activities, requirements scheduling and so forth. For move­ment of goods from the manufacturer to the channel members, the logistics department acts as the traffic cop in the supply chain. Logistics activities such as order registration, order process­ing, inventory planning, order picking, packaging and transportation require a continuous flow of information to service channel members for making the ordered material available to them in the required quantity at the right time. In fact, the information flow in the channel structure is the basic input to logistics to activate the material flow from the manufacturer to the customer via channel members.

The channel structure facilitates the transfer of ownership of goods as these are passed from the manufacturer to the customers. Communication for advertising, sales promotion, exhibitions and personal selling is part of the information flow through the channel structure. The timely flow of funds from channel members to the manufacturer is important to keep the operation going.

Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.