'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
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.
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%
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
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
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
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
Over time, implementation of the concept led to the
development of 'precious relationships' as marketing
specialists got to know and understand the customers in
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
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
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
Unilever's Patrick van Hoegaerden isn't convinced that P&G will use price-cutting to carve its way into the South
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
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 ...
Advertising is a method you use to create product
awareness and seduce consumers to buy. Right?
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
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'
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.
WHAT'S NEW IN DISTRIBUTION?
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
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
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.
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.