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Em distribution final


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Em distribution final

  1. 1. Distribution in Emerging MarketsThe Supply Chain Lab
  2. 2. Key Questions Setting up a distribution system inWhat is the split between modern and emerging markets can be atraditional trade? challenging undertaking. Below are aWhich trade channels are strategic to number of issues to consider:our business? Fragmented markets –Modern trade (e.g. ShopriteHow do channels function and supermarkets) in most African countries, with theoperate? 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. 3. Key Questions Outlet base - In most emerging markets,Do we have a good understanding of determining the outlet base can be a challengingthe potential outlet base? undertaking. Organizations need to understand both the existing and potential outlet base. A wellWhat are the regional, urban and rural defined every dealer survey (EDS) is a keydifferences in distribution? component of any successful distributor roll-out.How do products flow in the market? Territory –Organizations must build distributorWhere do the 3PLs operate in the capability and schedule joined training sessions. Acountry? 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. 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. 5. Key Questions Account development –Not all accounts are equal.How should account development be In most cases, organizations need to prioritize andmanaged? focus their attention on high value or strategic customers. They also need to determine how theyDo we understand the value and margin will split the account development activitiesof 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 sometimesHow will new systems impact on the underestimated and organizations must have aexisting warehouse? clear understanding of the cost to serve for bothWhat is the required service frequency the distributor and the company. In many cases intaking 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. 6. Key Questions Key Performance Indicators –By focusing on theWhat are the key performance drivers? key performance drivers of your business, avoidAre processes and systems well defined overextending yourself. Sometimes less is more. Include key performance measurements in yourand standardized? business planning process and evaluate on a yearlyWhat skills need to be recruited or basis whether you are using these measurementsdeveloped? to track and improve your business. There is noCan the distributor handle the level of point in tracking something just for the sake ofcomplexity in the business? tracking.How will we share information with our Processes- Always aim to eliminate non-valuedistribution 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. 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. 7Distribution in Emerging Markets
  8. 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