CHAPTER THREE:

CHANNELS OF DISTRIBUTION MANAGEMENT

LECTURER:

SHAMARIZA BINTI MAAROF

J A B ATA N P E R D A G A N G A N
POLITEKNIK NILAI
 Lesson Learning Outcome
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Students should be able :

1. Explain physical distribution channel types

2. Distribution channel structure

3. Explain outsourcing channels

 INTRODUCTION
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Physical Distribution Channel can be describe as the method and means by

which product or a group of products are physically transferred or distributed
from one channel member to another.

It also involves management of physical flows of raw materials, finished

products from the points of origin to the points of consumption to meet the
customer needs at a profit. It covers all activities in the flow of goods between
producer and consumer. For example: retail outlet, shop or factory, and also
customers house.

Another form of channel exists is called trading or transactional channel, but

this one only concerned with the non-physical aspects of transfer which is the
sequence of negotiation, the buying and selling of product, and the ownership
of the products.
 Types of Physical Distribution Channel
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There are several channel alternatives that can be used,

and a combination of these maybe incorporated within
a channel structure.

 Manufacturer-to-Retail
 Direct Deliveries
 Different Structures

The next diagram illustrates the main alternatives

channel for a single consumer product being
transferred from a manufacturer’s point to retail store.
Channel Alternative 1
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Manufacturer-to-Retail
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 Manufacturer direct to retail store
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1. Manufacturer direct to retail store – the manufacturer or

supplier delivers direct from the production point to the retail
store using its own vehicles. This channel is only used when
full vehicle load are being delivered.

2. Manufacturer via manufacturer’s distribution operation to

retail store – the manufacturer or supplier hold their products
in Central Distribution Centre (CDC) or Regional
Distribution Centre (RDC). The products are trunked (line-
hauled) in large vehicle to the sites where they are stored, and
then broken down into individual orders that are delivered to
retail stores on the supplier’s retail delivery vehicles.
 Manufacturer direct to retail store
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3. Manufacturer via retailer distribution centre to retail store –

manufacturer supply their products to National Distribution Centres
(NDCs) or RDCs, or Consolidation Centres where goods from the
various manufacturers and suppliers are consolidated and then sent
to NDC or RDC for final delivery. These centres are run by the retail
organization or by their third party contractors.

4. Manufacturer to wholesaler to retail shop – wholesalers have acted

as the intermediaries in distribution chain that provides link between
the manufacturer and the small retailer’s shop. The wholesalers
secure a price advantage by buying in bulk from manufacturers or
suppliers and use their own DCs and vehicle fleets.
 Manufacturer direct to retail store
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5. Manufacturer to cash-and-carry wholesaler to retail shop – it

consists of small independent shops collecting orders from regional
wholesalers rather than having them delivered. Many suppliers will
not deliver direct to small shops because the order quantities are very
small.

6. Manufacturer via third-party distribution service to retail store –

third party distribution service industry has grown rapidly due to the
extensive rise in distribution cost and more restrictive distribution
legislation has occurred. Thus, a number of companies have
developed a particular expertise in logistics operation. These
companies are offering general distribution services as well as
providing specialist service for one type of product.
 Manufacturer direct to retail store
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7. Manufacturer via small parcels carrier to retail shop –these

companies provides a special distribution service where the
‘product’ is considered as small parcel. The delivery normally
take place in the next-day operation.

8. Manufacturer via broker to retail store – Sometimes can be a

trading channel and not a physical distribution channel. A broker
is similar to wholesaler and acts as intermediary between
manufacturer and retailer. Broker always focus on marketing of
product rather than with physical distribution. Thus, the broker
may use a 3PL distributors, or it may have its own warehouse
and delivery system.
 Group Activities
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Identify at least two (2) local companies that can be considered as

the manufacturer and middleman for the followings:
Example: Manufacturer direct to retail store
Manufacturer Dutch Lady (Milk) Retail Store

1. Manufacturer direct to retail store

2. Manufacturer via manufacturer’s distribution operation to retail store
3. Manufacturer via retailer distribution centre to retail store
4. Manufacturer to wholesaler to retail shop
5. Manufacturer to cash-and-carry wholesaler to retail shop
6. Manufacturer via third-party distribution service to retail store
7. Manufacturer via small parcels carrier to retail shop
8. Manufacturer via broker to retail store
Channel Alternative 2
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Direct Deliveries
 Channel alternative: direct deliveries
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There are additional channels for industrial product

and for the delivery of some consumer products that
do not fit within the structure of the diagram because
they bypass the retail store.

This also can be called as Business to Consumer

(B2C)
 Channel alternative: direct deliveries
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1. Mail order – the use of mail order or catalogue

shopping, the customer place an order by catalogue and
the goods later being delivered by post or parcel carrier.

2. Factory direct to home – it can occur by direct selling

methods such as newspaper advertising. Also commonly
used for one-off products that specially made and do not
need to be stocked in a warehouse to provide a
particular level of service to the customer.
 Channel alternative: direct deliveries
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3. Internet and shopping from home – shopping from home via

internet, a common means of buying product. Initial physical
distribution were used by mail order operations – by post and
parcel carrier. Internet shopping has led to the introduction of
specialist home delivery distribution operation. Even now
there is a possibility to distribute some product direct from
computer to the computer such as music, software and films.

4. Factory to factory/business to business (B2B) – it includes all

the movement of industrial product. This may cover raw
materials, components, part-assembled products, etc.
Channel Alternative 3
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Different Structures
Channel Alternative : Different Structure
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 Channel Alternative : Different Structure
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 It can be seen from the list of alternative channels

that the channel structure can differ very markedly
from one company to another. The main different
are:

 The types of intermediaries (as shown above)

 The number of level of intermediaries (how many company handle the

product)

 The intensity of distribution of each level (for example: are all or just
selective intermediaries used at the different level?)
 Channel Alternative : Different Structure
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 An individual company may have many different product

and many different types of customers, therefore a
company will use a number of different channels within its
distribution operation.

 This, together with the large number of variable factors and

elements possible within a channel structure, makes it
difficult to summarize effectively.

 The figure above give a fair representation of a typical

single-channel structure.
 Channel Objective
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Channel objective might differ from one company to

another, but there are some objective that are relevant and
should be considered for its distribution planning process.

1. To make the product readily available to the market

consumers at which it is aimed – to ensure that the
product is at the right type of outlet or retail store. The company
must identify the correct marketplace to be choose.
 Channel Objective
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2. To enhance the prospect of sales being made – to get good

position and display in the store, and to gain the active support of
the retail salesperson. The product should be ‘visible, accessible,
and attractively displayed’. The channel choice is affected by this
objective in number of ways:

 Does the deliverer arrange the merchandise in the shop?

 Are special display used?
 Does the product need to be installed, demonstrated, or
explain?
 Is there a special promotion of the product
 Channel Objective
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3. To achieve co-operation with regard to any relevant

distribution factors - this factors maybe from the
supplier’s or the receiver’s point of view, and include
minimum order sizes, unit loads types, product handling
characteristics, material handling aids, delivery access
(e.g: vehicle size) and delivery time constraint.
 Channel Objective
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4. To achieve a given level of service – a specified level of

service should be established, measured and maintained.
The buying decision of a customer could be affected by
the performance of service level and it may effect the
subsequent buying decisions.

5. To minimize logistics and total costs – the selected

channel will reflect a certain cost, and this cost must be
assessed accordingly in relation to the type of product
offered and the level of service required.
 Channel objective
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6. To receive fast and accurate feedback of information –

a good flow of relevant information is essential for the
provision and maintenance of an efficient distribution
service.
 It will include sales trends, inventory levels, damage reports,
service levels, cost monitoring and etc.
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