'Even the world's fastest factory can't provide much of a competitive advantage if distribution is slow.'
- G H Beeton, managing director, Edgars Group

YOU take the greatest care to manufacture goods of superb quality. You've re-engineered your company's management structure to cut all unnecessary costs. You've motivated and empowered your employees to deliver World Class Customer Service. You've honed your organisation until it has become a lean, mean business machine. Together they don't amount to a damn.

Why not?

Because you aren't shifting merchandise. You experience one distribution channel bottleneck after another. One delivery delay after another. 'Out of stock' situations are the rule, not the exception.

You've got a knot in your supply chain management system. Something is wrong with your logistics.

So ...


WHAT IS THIS THING CALLED 'DISTRIBUTION?

'It is the sinuous, gritty and cumbersome process by which companies move materials, parts and products to customers,' writes Ronald Henkoff in Fortune  (November 28, 1994).

'In industry after industry, from cars and clothing to computers and chemicals, executives have plucked this dismal discipline off the loading dock and placed it near the top of the corporate agenda.

'Hard-pressed to knock out competitors on quality or price, companies are trying to gain the edge through their ability to deliver the right stuff in the right amount at the right time.'

In South Africa, manufacturers see well-established and comprehensive distribution systems as their first line of defence. They agree that the high costs of dealer, servicing and parts networks will inhibit foreign invaders from grabbing market share.

If your market is threatened ...


FORTIFY YOUR DISTRIBUTION CHANNELS

A company that implicitly believes in the defensive capability of a well-developed distribution system is Nissan.

The motor manufacturer already has a strong, committed distribution channel. But it plans to strengthen it over the next five years to improve customer service and make entry into the market more difficult for foreign competitors.

Nissan's channels of distribution currently serve a customer base that accounts for an estimated 18% to 19% of the market, of which fleet and corporate customers constitute 80% to 85%.


Making foreign competitors flinch

Rival manufacturer Samcor reckons the company's well- established and highly organised network of dealers, service centres and back-up services will be enough to make even the most determined foreign competitor flinch. And it will be more than a match for Hyundai. They hope.

Samcor services customers nationwide through about 300 dealers with workshops. And it has a spares inventory of about 18-million parts at the plant in Pretoria alone. Hyundai, in contrast, has to air-freight parts in from Asia at great expense. And it has no established dealer/service network.'

Although Samcor admits that dealer service hasn't been all it should have been for the last 10 years, management is taking steps to rectify flaws.

Denuded of esoteric jargon, the 'steps' involve weeding out the weakest performers in towns that have two or more Mazda dealers.


Keeping it fresh

Nestlé is another company that relies on its distribution network to blunt the ardour of market poachers. It has used these ramparts to hold off an invasion of its market by the American Mars Company.

Confectionery is an industry in which freshness of stock and retailer goodwill are of paramount importance.

Nestlé has committed a lot of money to ensure that it delivers fresh products on time. And to ensure freshness, it discourages retailers from overstocking. This of course means that distribution channels must be superb for quick re-supply.

This is where Royal Beech-Nut, which markets Mars products in South Africa, runs into trouble. It imports Mars products and must do so in sufficiently large quantities to meet demand. This means Royal Beech-Nut has to hold large stocks that face the risk of losing freshness.

So, if you accept that getting your product to point-of-sale timeously is a 'must' ...


HOW DO YOU STREAMLINE YOUR DISTRIBUTION CHANNELS?

Re-engineer them, says Hayden Franklin, chairman of Tiger Mills.

A reappraisal of 'extremely inefficient' distribution in South Africa can cut costs without sacrificing the quality of customer service. On the contrary, efficient distribution can enhance the quality of customer service.

To accelerate the speed of product along the plant-to- consumer chain, Tiger Mills is investigating the viability of the British system.

In the UK, trunking on common carriers is the norm, and distribution is extremely effective.

In South Africa, each company has its own carrier. This leads to congestion of the distribution system.

'Distribution,' Franklin says, 'has yet to reach world standards.'


The cola wars

Meanwhile, on the cola market front, ABI, bottlers and marketers of Coca-Cola, beset by competition from Pepsi-Cola and store-brand colas, faced a distribution problem that threatened to fizz over.

How did the company solve it? A volume-driven business, it set out to improve its routing and delivery systems to ensure maximum product availability. This led to the introduction of an owner/driver system whereby the company assisted drivers to purchase their own vehicles and contracted them as independents to provide delivery services for certain branches.

Coke also faced another major problem: the ongoing battle with store-brand colas for in-store shelf space. It counter- attacked by modifying its distribution system through the development of a channel marketing concept.

The company now assigns a marketing specialist to each market segment. His or her appointment hinges on an in-depth understanding of that segment and its specific needs. For example, certain stores may close during certain periods of the day. This means amending delivery times. Or different segments may require different point-of-sale pieces. A bar, for example, may want clocks, trays and glasses instead of posters.

Over time, implementation of the concept led to the development of 'precious relationships' as marketing specialists got to know and understand the customers in specific segments.

ABI also fields Marketing Impact Teams, on the surface a new upmarket name for merchandisers, to nurture these 'precious relationships'. These 'MITs', as they are called, visit retail customers and refurbish their stores. Their tasks include cleaning and repacking coolers and putting up new point-of-sale displays.

The MIT project isn't cheap. But it's likely to pay long- term dividends by improving customer relations and adding value to service. By paying attention to the needs of all retail outlets from corner cafés to chain stores, Coke hopes to boost its customer loyalty and retain its hard-to-replace in-store shelf space.

On the opposite side of the cola fence, Retail Brands InterAfrica (RBI), which supplies the base syrup for store- brand colas, accuses ABI of monopolising carbonised soft drink distribution channels.

Almost every store in the country has a Coca-Cola fridge or cooler, and store owners are almost bound to stock Coke. It therefore seems logical that the best way to compete against Coke and defeat the distribution problem is by inducing retailers to stock RBI products.

According to the rationale, if the company allowed its products to assume the retailer's identity, the retailer ended up with his own store-brand cola.

The best way of achieving this is to let the product assume the retailer's identity, which he tends to push more than the branded product. Examples such as Woolworths Cola and Pick 'n Pay Cola immediately spring to mind.


P&G forces upgrade

The spectre of Proctor & Gamble (P&G) running rampant in the market has forced Unilever to rethink its distribution policy.

Unilever's Patrick van Hoegaerden isn't convinced that P&G will use price-cutting to carve its way into the South African market.

So, while price-cutting isn't a major threat, customer service is.

Because Unilever dominated the market during the protected apartheid era, it became 'slothful, arrogant, slow-moving and generally tough with the trade'.

The dawn of a new environment that promises fiercer competition has forced the company to become more responsive to its customers' needs. So it has adopted a concept known as 'integration logistics' to improve the quality of customer service. This involves the used of sophisticated information technology to integrate the in-bound part of the supply chain to the customer end.

Unilever's goal: to build and maintain closer relationships with its customers. And the company's new business strategy priority: to subdue profit-making in favour of service on which 'our long-term survival rests'.

And if you have the logistics in place...


HOW DO YOU PROTECT YOUR CHANNELS OF DISTRIBUTION?

Don't follow Kellogg's example. If you do, you stand to lose precious in-store shelf space to an on-the-ball competitor.

Grant Leech admits that retailers don't exactly fall over themselves to congratulate the company for the exceptional quality of its service.

Indeed, retailers may cut Kellogg's shelf space and give it to foreign competitors in retaliation for service that  -  to put it mildly  -  has never reached the dizzy heights.

But retailers won't take such action lightly. Or so Kellogg's believes.

Shelf space in South Africa is limited. Retailers will have to decide whether new brands will sell before they stock them in place of proven performers like Kellogg's.

Kellogg's cock-of-the-hoop attitude in this regard may well pave the way for a more accommodating competitor with the financial power to muscle its way into the South African market.

How to ...


'BUY' DISTRIBUTION

Advertising is a method you use to create product awareness and seduce consumers to buy. Right?

Not always. B Schrieber, of BIC, reckons you should use it initially to 'buy' distribution rather than build product awareness. Because if you don't, the invaders will.

'If you break a solely consumer-focused advertising campaign before organising distribution,' he argues, 'people will go into the store to get the product. If it isn't there, they'll buy a rival product and strengthen the opposition.'

And if you're already established when the threat comes, how do you protect your position in the market?

Do what BIC intends doing - step up your advertising by 50% or even 100% to persuade retailers to buy your product.

Then, when the competition arrives, so the theory goes, dealers will already be overstocked with your products.' The result: no space for the invaders' merchandise.

BIC will also splurge on acquiring and tying up key point- of-sale locations like till points. This will force competitive products that get in on to the slow off-take back shelves.

Royal Beech-Nut buys distribution by investing large sums of money in in-store 'hot spots'. It strikes special deals with high traffic retail outlets like Shoprite-Checkers and Pick 'n Pay to get as much stock into the stores as possible, working on the stock pressure theory - the more you stock, the more you're likely to sell.

If your sales graph dips because the shelves are bare ...


OVERCOME 'OUT OF STOCK' SITUATIONS

Carlton Paper claims it never runs into 'out of stock' situations.

Why?

Because distribution, traditionally the 'poor sister of production and financing', is run by a sales director. He's the man or woman who is responsible for customer service. Almost by definition, a sales director will pull out all the stops to keep his customers happy. To do this, he will ensure a smooth, uninterrupted flow of product from the factory to tempt consumers at point-of-sale.

So ....


WHAT'S NEW IN DISTRIBUTION?

Centralisation.

That's right, centralisation.

While the world's most progressive companies are restructuring, re-engineering, rightsizing and flattening their management structures, they're centralising their distribution operations.

Many multinationals, like computer giant Compaq, now ship stock to a central warehouse facility from where it's distributed to wholesalers, agents and dealers throughout the world.

The company also insists that its suppliers use a central depot from which it can draw components as and when required.

Distribution fundis claim that while the centralisation concept leads to an increase in freight costs, it reduces the cost of warehousing and saves time.

In addition, it reduces 'inventory overload'  -  the amount of capital unnecessarily tied up in inventory at manufacturing and point-of-sale sites.

But ... 


DISTRIBUTION CAN'T EXIST IN A VACUUM

Strictly speaking, distribution is an integral part of the marketing process -  the strategy you employ to get goods from your plant into the hands of consumers. It's a link in a chain of events that has to be carefully managed to ensure the survival of your business in an era in which relentless competition will be the name of the game.

Prev   Next

  Authors Note
    Introduction
     
1. Protection Gets the Bullet
     
2. Perceive the Threat
     
3. Define the 'Get In' Strategy
     
4. A Quick Backward Glance-1
     
5. The Importance of Pricing
     
6. Vital Ingredients: Products and Productivity
     
7. Customer Service: On the Backburner
     
8. A Quick Backward Glance-2
     
9. Preventative Strategies: Price and Service Quality
     
10. Preventative Strategies: The Ramparts of Distribution
     
11. Preventative Strategies: Management - to restructure?
     
12. Preventative Strategies: Market Aggressively to Win
     
13. A Quick Backward Glance-3
     
14. In Conclusion
     
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