How to Set Up a Product Distribution Network

Given all the details that a company has to attend to in order to design, develop, test, brand and market a product, it’s not surprising that many businesses don’t put a lot of thought into their product distribution network. That is, until they’re actually ready to start selling units.

Creating an effective distribution channel strategy is, in many respects, just as important as creating a marketable product. In fact, you can succeed at the latter but still fail as a business if you don’t have the former!

What Is a Product Distribution Network?

A product distribution network is the collection of resources and entities that form the path your products take to your markets. You can think of it as the other end of the supply chain. You might use a direct distribution network strategy (in which customers get a product directly from you) or an indirect distribution network strategy (in which customers buy your product through intermediaries like a retailer with which you have a distribution agreement).

Sometimes you’ll hear product distribution networks referred to as channels of distribution. Whatever you call them, your business must have a clearly defined distribution process or your products will sit on the shelf gathering dust.

The Starting Line: Warehousing and Distribution

Few companies can take products right off the assembly line, package them and send them off to customers. A certain amount of inventory has to be produced and stored to ensure that customer orders can be met consistently and without delay. As a result, having onsite warehousing capacity or an outsourced warehousing and distribution provider is an essential part of any distribution process.

Securing this capacity is just the beginning, of course. From there, you have to develop your distribution network strategy.

Steps for Building a Distribution Network

In order to create an efficient and cost-effective product distribution network, you need to take these steps:

1. Carefully consider your customers. If you run a business, you’re always thinking about your customers to some degree. But in developing your distribution channel strategy, you’ve really got to get inside the head of a typically buyer. Why do they buy our product? Where do they buy our product? Is the final consumer looking for expertise from someone who’s intimately familiar with our offerings, or are they happy to just pull a product off the shelf and drop it into their cart? What really matters to your customer base in this purchase experience? The answers to these and related questions help you in the second step.
2. Research potential channels of distribution. If you’re using a direct distribution network strategy, you may only have to evaluate shipping options. But for an indirect distribution network, you’ll need to take a close look at the different channels of distribution. These include distributors, wholesalers (sometimes combined as distributor/wholesalers), retail stores and agents. A number of factors go into which channel or channels you choose—the geographic areas you serve, the reach of your sales teams, your desired profit margins, etc. But ultimately, you need to decide on who will help you get your product to market. Obviously, this step is even more challenging if you intend to have a global distribution network.
3. Establish relationships and reach agreements with intermediaries. Once you decide on the path(s) your products will take, you need to connect with these intermediaries and establish a business relationship. That includes signing agreements with them.
4. Track your results and perform distribution network optimization. It’s critical that you be able to determine how well each of your distribution channels is performing so that you can conduct what’s called distribution network optimization. In that process, you shift volumes from one channel to another as needed to achieve the best results. In doing this, you should consider many factors. For example, one channel may get product from origin to destination faster, but another may enable you to distribute product more cost-effectively. You need to think about both what’s important to your customers and to your bottom line. And this is a process that must take place regularly. Any shift in consumer preferences, transportation costs, etc. may mean you need to reoptimize.
5. Consider expanding your distribution network. You might want to start by creating a modest distribution network initially and then growing it later by adding new distribution processes, additional distribution centers and so forth.

Start or Grow Your Product Distribution Network with the Experts

At NewStream Enterprises, LLC, we’re a pivotal part of the warehousing and distribution strategy for many great companies. They rely on our expertise both in distribution networks and the supply chains that ensure those networks always have product available.

Before you create or expand your product distribution network, contact us to see how our expertise can be your competitive advantage.