Is direct distribution of the full market possible?
Why is it that even though many companies realise that there is significant sales loss because they are not available in the huge number of small outlets, they still do not try for direct distribution of the full market? Is it really possible? Why is it that the industry conventionally uses weighted distribution & incremental growth and accepts incomplete distribution? Can using numeric distribution be a better and more progressive metric? Find answers to all these questions in this discussion with Puneet Kulraj. For more information on how to achieve 100% direct distribution without increasing inventory visit: https://www.vectorconsulting.in/research-publications/consumer-goods-and-retail/100-availability-with-less-than-half-the-inventory/
|Shubham Agarwal :||Hello and welcome to the Counterpoint Podcast. I’m Shubham Agarwal. We’re discussing about if direct retail coverage of the whole country, or also known as numeric distribution is viable or not. We have with us Puneet Kulraj, director at the Vector Consulting Group, who describes why is it that even though many companies realize there is significant sales loss because they are not available in huge numbers of small outlets. He also tells us why years of doing weighted distribution and incremental growth in coverage makes companies believe incomplete distribution is unchangeable, and it’s a fact that they have to accept. But before we dive into the discussion, let me quickly define what is weighted and numeric distribution. Really. So weighted distribution is actually the percentage of the total sales volumes that comes from the served outlet. Let’s take an example to clear it up. You have ten outlets in a beat. Now, out of these ten outlets, if your product is present in four outlets, then the numeric distribution is 40%. If four outlets contribute, say, 75% of your total sales, then in that case the weighted distribution would be 75%. On the other hand, numeric distribution is basically the number or the percentage of outlets where company’s product is present or the outlets that have at least one SKU of a product. Example, how many outlets a company’s products are available at is measured by numeric distribution. Now, numeric distribution gives you an idea of the reach of distribution, while weighted distribution gives you an idea of the quality of distribution. But then which metric is better and gives a true reflection of reality? Let us understand more on that with Puneet. So Puneet, why do companies prefer to talk about weighted distribution rather than the numeric distribution?|
|Puneet Kulraj :||It is very amusing when you see companies contradicting themselves in public forums. In the lofty vision and mission statements that they have written on their walls. They will expound about customer delight, customer satisfaction, serving customers all across the length and breadth of our great nation. And in the same breadth they will expound so strongly on the merits of weighted distribution visa v Numeric Distribution. In panel discussion after panel discussion, in statements made to the Pink Papers in broadcast on the business channels, managers gamely try to justify their approach of weighted distribution visa v Numeric Distribution. If we examine it from first principles, it is very hard to find fault with numeric distribution. It simply means that of all the retail outlets which are present in the country, how many of them are directly served by the company or its distributors. The more this number, the better it is for the company because each retail outlet has it’s set of unique customers, also known as footfalls by the industry. If a company’s goods are not present in a retail outlet, it simply means that it has zero chances of selling to those customers who are walking into that retail outlet, and therefore the company has lost potential sales.|
|Shubham Agarwal :||Interesting. So could you simplify for us what is weighted distribution? And more importantly, why do companies justify it.|
|Puneet Kulraj :||If you see weighted distribution is merely a sophisticated explanation of inadequate or incomplete coverage of the market by the company. What the managers do is that they rank the retail outlets in descending order of volume of business that they do and they make themselves feel happy that if they are doing good justice to some of the top few outlets. Then they must be serving majority of the customers in that market well.|
|Shubham Agarwal :||But isn’t that incomplete as in It’s not complete distribution, right? Why do companies then boast of such a distribution strategy?|
|Puneet Kulraj :||It is because they find full direct distribution simply unviable. Years of doing weighted distribution and incremental growth in coverage, makes them believe that this is the industry norm and this is how the way the world is. What they fail to see is that their supply chains which are configured on forecast based push mechanism, simply make it impossible for them to cover each and every retail outlet in the country and thereby they end up losing potential sales of all the customers that can be served.|
|Shubham Agarwal :||So Puneet we have always implemented consumption based pull distribution strategies across our clients. How has your experience been with these implementations?|
|Puneet Kulraj :||We take immense pride in the fact that each and every one of our clients has by far the best direct retail coverage in their industry. Once they have configured their supply chain from forecast base push to consumption based pull, they realize the value that they have and they quickly move forward and sign win win partnerships with their channel partners. Using this unique capability, they are able to reach out to more and more smaller and smaller retail outlets and serve them with the widest range possible. The fact that this is a viable model is underlined by the industry leading ROI that these distributors or channel partners enjoy and the best CAGR that our clients enjoy in their industry.|
|Shubham Agarwal :||Great. This is wonderful Puneet. Thank you so much for your time and for all the listeners we would love to hear from you. Your thoughts, comments or questions if you have any. You can write to us on our social media handles or our website. The link is in the details. Until next time, this is Shubham signing off. Bye.|
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