Setting up an effective distribution system in emerging markets requires considering many factors, such as fragmented markets with both modern and traditional trade, developing a clear channel strategy tailored to each market, and gaining an understanding of the potential outlet base including regional differences. It is also important to select distributors based on key criteria, define roles and processes, understand the true cost to serve, and establish key performance indicators to track success.

1. Distribution in Emerging Markets
The Supply Chain Lab

2. Key Questions Setting up a distribution system in
What is the split between modern and emerging markets can be a
traditional trade?
challenging undertaking. Below are a
Which trade channels are strategic to
number of issues to consider:
our business?
Fragmented markets –Modern trade (e.g. Shoprite
How do channels function and
supermarkets) in most African countries, with the
operate?
exception of South Africa and Kenya, is still in the
very early stages of development. The
contribution is in the single digits. Reaching large
numbers of traditional outlets (e.g. Mom & Pop,
Dukas, Sooks) is a difficult and costly business.
Channel strategy - Organizations must map out a
clear channel strategy and identify which channel
the selected distributor will service. A poorly
defined channel strategy can severely damage any
distributor roll-out. One size does not fit all.
Distribution in Emerging Markets 2

3. Key Questions Outlet base - In most emerging markets,
Do we have a good understanding of determining the outlet base can be a challenging
the potential outlet base? undertaking. Organizations need to understand
both the existing and potential outlet base. A well
What are the regional, urban and rural
defined every dealer survey (EDS) is a key
differences in distribution?
component of any successful distributor roll-out.
How do products flow in the market?
Territory –Organizations must build distributor
Where do the 3PLs operate in the capability and schedule joined training sessions. A
country? detailed territory maps and a clear understanding
of the outlet density and regional differences, are
also important.
Product flow & reasons for purchase –Often small
groceries purchase product directly from the
wholesale channel. In some cases they might
purchase certain stock keeping units from modern
trade (e.g. consumer goods Thailand). The
wholesaler is often in close proximity to these
outlets (2-5km radius). They provide a basket of
goods, and in some cases credit, if they have a
good relationship with the small grocery.
3rd Party Logistics –3PLs often cover the major
roads well. However, in emerging markets they
normally have a limited footprint in rural areas and
secondary roads. Organizations need to consider
how they will service these areas.
Distribution in Emerging Markets 3

4. Key Questions Selection criteria – Many distributors fail because
critical components of the selection criteria are
What are the key components of a
overlooked. The selection criteria will likely include
successful distribution partnership?
important components such as capital, infrastructure,
What is the frequency of
warehousing, transportation and required
product replenishment and reasons organizational structure.
for the frequency? Service – Assess the service and delivery for each
Are roles well defined? channel and the service partners they work with.
Review the key issues with service and delivery and
map out the distribution models employed.
Role definition –It is important to review the
organizational structure and how the company will
support the distributor. Ensure that each profile (e.g.
salesperson) has a clear understanding of his or her
role.
Distribution in Emerging Markets 4

5. Key Questions Account development –Not all accounts are equal.
How should account development be In most cases, organizations need to prioritize and
managed? focus their attention on high value or strategic
customers. They also need to determine how they
Do we understand the value and margin
will split the account development activities
of partner in the system?
between the company and the distributor.
What is the true cost to serve?
Cost to serve – The true cost to serve is sometimes
How will new systems impact on the underestimated and organizations must have a
existing warehouse? clear understanding of the cost to serve for both
What is the required service frequency the distributor and the company. In many cases in
taking into consideration cash flow? emerging markets, financial cost centers provide
limited data and financial modeling is essential to
determine the true cost to serve. Many distributors
fail because the remuneration is set too low and
not adjusted for inflation on a periodic basis.
Warehouse –The warehouse function is sometimes
overlooked when a company implements a new
route-to-market system. Organizations need to
anticipate how the new system will impact on the
warehouse function and what changes need to
take place.
Stockholding –Outlets in emerging markets often
have limited cash flow and, in some cases, limited
space to stock product. Review the required
service frequency and the need for micro supply
depots or wholesalers.
Distribution in Emerging Markets 5

6. Key Questions Key Performance Indicators –By focusing on the
What are the key performance drivers? key performance drivers of your business, avoid
Are processes and systems well defined overextending yourself. Sometimes less is more.
Include key performance measurements in your
and standardized?
business planning process and evaluate on a yearly
What skills need to be recruited or
basis whether you are using these measurements
developed?
to track and improve your business. There is no
Can the distributor handle the level of point in tracking something just for the sake of
complexity in the business? tracking.
How will we share information with our Processes- Always aim to eliminate non-value
distribution partners? adding activities where possible. Standard
Operating Procedures (SOPs) simplify your business
procedures and help to ensure the same quality in
all operations.
Skills – Emerging market operations often lack
critical skills. It is dangerous to make assumptions
about what people can and can not do. For any
principal working with a distributor, conduct a skills
gap analysis to determine the training recruitment
needs.
Complexity –In many cases distributors that
distribute all SKUs to all channels fail. Always aim
to reduce the complexity in the business.
Collaboration –Too often critical information is
only available at distributor level and not shared
with the company. Also consider the role that can
technology play in information sharing.
Distribution in Emerging Markets 6

7. Key Questions Appropriate technology –Evaluate mid tech solutions
and identify the “appropriate technology” for your
What technology is required?
operation. Don’t overdo it.
What is our timeframe for success?
Patience–Ensure you have management buy-in. A
Which regulatory issues do we need
Route-to-Market roll-out requires patience and a
to consider? continuous improvement mindset. Small incremental
What are the culture issues we need changes can sometimes go a long way.
to consider? Legal issues –It is also important to understand if there
Are you taking the necessary steps to are any regional regulations impacting transportation
and supply depots.
adapt to change?
Culture – Take time to understand culture issues and
don’t assume anything. Change your thinking when
working in other markets.
Take note of the evolution –Too often supply chains in
emerging markets evolve without any strategic plan.
Modern trade and retailing are expanding and middle
class consumers shopping patterns are
changing. Consider how these changes in the market
will affect your business. 7
Distribution in Emerging Markets

8. ABOUT THE AUTHOR
Tielman Nieuwoudt is Principal of The Supply Chain
Lab and has extensive supply chain and operational
experience, covering more than twenty-five
emerging market economies in Asia and Africa
The Supply Chain is a group of supply chain
improvement specialists with a focus on emerging
markets. The Supply Chain Lab provides factory to
village supply chain solutions.
www.thesupplychainlab.com