Distribution Is All About the Demand Chain, Not the Supply Chain
26th November 2014 | Julian Dent
Technology Distribution Channels author Julian Dent explains that before a product can be put in front of a customer a few rather challenging hurdles need to be overcome in the demand chain.
If you talk about “distribution”, the pictures that spring to mind for most people are of logistics, distribution centres, fleets of trucks, large warehouses and even Amazon’s drones dropping in with a package, (though possibly not for a while yet). But while these supply chain elements are all involved in distribution, they aren’t at the sharp end. Before a product can be delivered to a customer, or even just put in front of a customer, a few rather challenging hurdles first need to be overcome, in what can be termed the demand chain.
Let’s start with the customer. The customer will buy a product because it delivers superior benefits, customer experience and better value for money than the competition. But that’s almost the only time, the product's features and benefits are relevant in getting it to the customer.
Let’s move focus to the retailers or dealers or whichever entities engage with the customer. Why should they offer the product for (re)sale? Because they have high expectations of shifting the product fast for a good margin. That means they are interested in (a) the demand stimulated for the product, (b) the potential for that demand to draw more customers to the stores stocking the product, (c) the opportunity to sell other products to these customers (at the same time or later) and (d) the expectation that once sold, the product stays sold.
All that deals with shifting the product. Now they need to make a good margin, so (e) the retailers want a low price and (f) don’t expect to see other retailers or even other channels selling the product for less than they do. In addition, the retailer expects (g) a financial contribution to the cost of merchandising the product in store, on its website and in its own marketing communications, possibly (h) some extra help in persuading customers to try the product or have their questions answered (before or after the sale). And if the retailers do need to discount the product to clear it off their shelves and out of their stock rooms, they will expect (i) a rebate on the cost they originally paid for it.
Bu that’s not all. The retailer doesn’t want to tie up all its cash in inventory or, if it’s a business to business sale, in the cost of customer credit (receivables). So the retailer expects (j) a very slick supply chain that means it needs hold only the smallest quantity in product, knowing it can order in more at a moments’ notice. And it certainly doesn’t want to pay the invoice for the product for (k) the longest period possible.
Finally, retailers, and all types of dealer, want to be able to plan their business months ahead so they need (l) to know about future products, (m) promotions and programs and other demand stimulation activity planned by the product vendor, and to be able to (n) jointly plan the business with the product vendor to take maximum advantage of each other’s capabilities, assets and strengths, potentially even at (o) a strategic level.
All those elements labelled from (a) to (o) are effectively components of the product vendor’s retail channel value proposition – ensuring that the retail channel will want to take its products to market. But most product vendors don’t have the band width to deal with every retailer, so they ask distributors to take on many of these challenges on their behalf. And why would the distributor’s want do this? For many of the same reasons as (a) to (o) above replacing “retailer" with “distributor”. So now the product vendor needs to be able to articulate its distribution channel value proposition too.
This chain of value propositions, from distributor to retailer/reseller to customer is really a demand chain – ensuring that all the links in the chain demand to be involved with the product. It’s only the two (j)s in there that relate to the supply chain.
If you work for a product vendor, you might like to take that list from (a) to (o) for each link in the chain and see how well you are performing on each one (and all together). If you are really brave, you might like to review a few of the pitches and presentations your retailer (or equivalent) account managers and distributor account managers are making and see how well they are articulating your relevant strengths on that checklist…
About the author: Julian Dent is the author of Technology Distribution Channels and Distribution Channels (both published by Kogan Page). He is Chairman of VIA International, a specialist routes to market consultancy. He has over 25 years experience in distribution throughout the world, specializing in channel strategy and implementation, working at global corporate and regional levels. His clients have included Hewlett-Packard, Barclays Bank, BP, Esso, IBM, Microsoft, Nokia, Orange, Subway and Xerox.
Save 20% on Julian's books until 31/12/2014 with discount code MKTJDB