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What Is a Distribution Model?

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  • Written By: Osmand Vitez
  • Edited By: PJP Schroeder
  • Last Modified Date: 03 September 2016
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    Conjecture Corporation
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A distribution model is a method companies use to send products from the point of origination to the final selling point. A classic model includes at least three different parties: the manufacturer of goods, distributer or warehouse, and retail store, which represents the final selling point. Over time, the distribution model may experience changes that shift the responsibility of these parties. These models — also called supply chains in some cases — can add costs or additional problems to normal business activities. Changing the distribution style or method can help a company achieve better results both in profitability and brand reputation.

Many problems can exist with a distribution model, regardless of the length, style, or parties involved in the system. The chief problem in this model is the simple fact that each party acts for its own benevolence. For example, the manufacturer focuses on the production of goods at the lowest cost possible. Shipping or distribution costs must also be kept at a minimum in order for the company to achieve maximum profitability. The wholesaler or distributor attempts to make the manufacturer pay high prices for moving goods to retailers as this intermediary desires profits for its own activities.

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The use of a short distribution model typically costs less and results in shorter downtime when a retailer experiences a stock out. For example, a manufacturer that produces an item in high demand must have a distribution model that can supply retailers frequently in order to maximize sales. Paying a premium for this type of distribution service may not be a problem as profits from copious sales of highly demanded products offset the costs for distribution. In some cases, a large company may be able to create its own distribution service by developing a distributorship that can send goods to retailers. This model can result in a company having frequent interaction with customers due to the short supply chain.

Retailers are also important in the distribution model for a manufacturer. Sending goods to the wrong retailers can result in customers who do not want to shop these particular stores for specific goods. For example, small retailers that do not have many locations in a given regional area means a customer needs to drive farther to purchase goods. Additionally, selling goods in an international market requires the proper use of a distribution model. Creating relationships with the right partners can help a company establish strong ties in the local market.

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