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A distribution model involves the manufacturer, distributor/warehouse, and retail store. Changes in the model can affect costs and business operations. The main problem is that each party acts out of its own interest. Shorter deployment models can result in higher profits. Resellers are important for manufacturers, and building relationships with the right partners is crucial for international markets.
A distribution model is a method used by companies to send products from the point of origin to the final point of sale. A classic model comprises at least three different parts: the manufacturer of goods, the distributor or warehouse, and the retail store, which is the final point of sale. Over time, the distribution model may undergo changes that shift the responsibility of these parties. These models – also called supply chains in some cases – can add extra cost or hassle to normal business operations. Changing the style or method of distribution can help a business perform better both in terms of profitability and brand reputation.
There can be many problems with a deployment model, regardless of the length, style, or parties involved in the system. The main problem with this model is the simple fact that each side acts out of its own goodwill. For example, the manufacturer focuses on producing goods at the lowest possible cost. Shipping or distribution costs must also be minimized for the business to achieve maximum profitability. The wholesaler or distributor attempts to charge the manufacturer high prices for moving goods to retailers as this middleman wants profits for their businesses.
Using a short deployment model typically costs less and results in shorter downtime in the event of a retailer running out. For example, a manufacturer producing an item in high demand must have a distribution model that can supply resellers frequently in order to maximize sales. Paying a premium for this type of distribution service may not be a problem as the profits from large sales of in-demand products offset the costs of distribution. In some cases, a large company may be able to build its own distribution service by developing a distributor that can ship goods to retailers. This model can cause a business to have frequent customer interactions due to the short supply chain.
Resellers are also important in the distribution model for a manufacturer. Sending goods to the wrong retailers can result in customers not wanting to purchase these particular stores for specific products. For example, small retailers that don’t have many locations in a given regional area mean a customer has to go further afield to buy goods. Furthermore, selling goods in an international market requires the correct use of a distribution model. Building relationships with the right partners can help a business establish strong ties in the local market.
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