Distribution Channel Design and Management

Abstract

Logistics has two dimensions. One involves the management of the physical infrastructure involved in moving raw materials into the production process and finished goods from the end of the production line through to the end user. But there is also another vital dimension which should be designed before any physical activity takes place, i.e. the development of the commercial/transactional arrangements involved in accessing target markets. Distribution channels usually involve several parties — intermediaries in a vertical sequence of transactions, all of which are required to ‘add value’ if they are to survive. In essence, the ‘transactions channel’ decision is a ‘make or buy’ decision: if the channel tasks can be performed cost-effectively by the producer then the role of an intermediary becomes irrelevant and the intermediary is omitted from the channel structure. Channel design and management follows a structured approach, using criteria which evaluates optional channel structures during which alignment (compatibility), trade-offs and channel relationships are considered. Increasingly, the role of logistics service companies is included in the decision process, particularly when they are a dominant element within the supply chain.