Lesson 1: What is distribution?

What comes to mind when you hear the word distribution?

Transporting goods from where they are made to where they are consumed?
Having distributors and wholesalers who sell your products?
Storing products properly in warehouses?
A mix of all of these?

Well, it is none of the above.

Distribution is about the decisions and the actions that distribute inventory, to ensure availability at the point of sale or the point of consumption.

When is it really distribution?

The need for distribution arises only when there are several entities to be served from the same inventory. If you had one child and one roti, you would simply give it to the child: no distribution decision there. With more than one child and one roti, you would have to decide how to share it. That sharing is distribution.

Test yourself on three situations.

An auto-parts supplier has promised availability, in its customer’s warehouse, of some parts made only for that one customer. Is this distribution?

Yes, because there is a warehouse
No: there is only one entity to serve, so no decision about how to share the inventory
Yes, because availability is promised

With a single customer for these items, there is no decision about dividing the stock among several entities. It isn’t distribution.

A textile company makes the same fabric for many customers, but only against each customer’s confirmed order. Is this distribution?

Yes, because there are many customers
Yes, because the product is the same
No: it only makes what has been ordered, so there is no decision about distributing stock

Every piece is made for a specific order. Nothing is waiting to be shared out, so there is no distribution decision.

A company sells many items from stock to other businesses, not to consumers. Is this distribution?

Yes: it must decide how much of its stock goes to whom
No, because it’s business-to-business
No, because there are no retailers

Whenever stock is held for several customers, someone decides how much each one gets. B2B or not, that is distribution.

The decisions of distribution

So distribution is about decisions such as:

How much inventory to stock at each warehouse location.
How much of each product to allocate across depots and distributors, day to day.
The priority of dispatch to the various stocking points in the supply chain.

What about logistics, warehousing and channel partners? They matter, but they are support functions: they turn the distribution decisions into action.

When is a sale really made?

Picture a typical supply chain: a plant, a distribution layer (warehouses, depots, distributors), retailers, and the consumer. Goods change hands three times before anyone uses them:

Primary sales: plant to distributor.
Secondary sales: distributor to retailer.
Tertiary sales, or offtake: retailer to consumer.

Most companies book revenue at primary sales, when goods leave the plant. When has the supply chain actually sold something?

At primary sales, when the invoice is raised
At secondary sales, when the retailer buys
Only when the consumer buys

Until a consumer buys, goods have only moved from one shelf to another, and money from one balance sheet to another. A company can “sell” a lot at primary level and still find it stuck in the channel. Much of what goes wrong in distribution comes from managing primary sales instead of consumer offtake.

Check your understanding

Answer all five. Get four right to complete the lesson.

1. Distribution is about…

Trucks and transport
The decisions and actions that distribute inventory to ensure availability where it’s bought
Hiring distributors
Warehouse layout

Transport, storage and channel partners support those decisions.

2. The need for distribution arises when…

There is a warehouse
Products are expensive
Orders are confirmed in advance
Several entities must be served from the same inventory

One child and one roti: no decision. Several children: distribution.

3. Which is a distribution decision?

How much of each product to send to each depot today
Which truck brand to buy
The colour of the warehouse
The salesperson’s incentive plan

Allocation across locations is the heart of distribution.

4. Logistics, warehousing and channel partners are…

The whole of distribution
Unnecessary
Support functions that turn distribution decisions into action
A kind of forecast

They execute; distribution decides.

5. Tertiary sales, or offtake, are sales…

From plant to distributor
From retailer to consumer
From distributor to retailer
Between two plants

That is the sale that really counts.