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Key Distribution Issues in Emerging Markets
Fragmented markets – What is the balance between modern and traditional trade? Modern trade (e.g. Shoprite supermarkets) in most African countries, with the exception of South Africa and Kenya, is still in the very early stages of development. The contribution is in the low single digits. Reaching large numbers of traditional outlets (e.g. Mom & Pop, Dukas, Sooks) is a difficult and costly business.
Channel strategy – How do channels function and operate? Companies 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.
Outlet base – Are traditional and non-traditional channels well defined? In most emerging markets, determining the outlet base can be a challenging undertaking. Companies need to understand both the existing and potential outlet base. A well defined every dealer survey (EDS) is a key component of any successful distributor roll-out.
Territory – Is the territory well defined and does the distributor have the ability to service the territory? Companies must build distributor capability and schedule joined training sessions. Companies must also ensure they have detailed territory maps and a clear understanding of the outlet density.
Regional differences – What are the regional, urban and rural differences in distribution?
Product flow & reasons for purchase – How do products flow in the market? 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 -Where do the 3PLs operate in the country? 3PLs often cover the major roads well. However, in emerging markets they normally have a limited footprint in rural areas.
Selection criteria – What are the key components of a successful distribution partnership? Many distributors fail because critical components of the selection criteria are overlooked. The selection criteria will likely include important components such as capital, infrastructure, warehousing, transportation and required organizational structure.
Service – Assess the service and delivery for each channel and the service partners they work with. Review the key issues with service and delivery and map out the distribution models employed.
Customer service frequency – What is the frequency of product replenishment and reasons for the frequency?
Role definition – What are the company and the distributor are responsible for? 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.
Account development – How should account development be managed? This a critical component of any distributor operation. Not all accounts are equal. In most cases, companies need to prioritize and focus their attention on high value or strategic customers. Companies also need to determine how they will split the account development activities between the company and the distributor.
Value chain – Do we understand the value and margin of partner in the system?
Cost to serve – What is the true cost to serve? The true cost to serve is sometimes underestimated and companies must have a clear understanding of the cost to serve for both the distributor and the company. In many cases in 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.
Low cost distribution – What local distribution solutions exist in the market that can be leveraged? Often small groceries are situated in congested areas, with narrow gravel roads where trucks can’t enter. In these markets you might find pushcarts, trolleys or motorbikes (e.g. Vietnam). Tapping into their distribution structure can lower cost and increase product availability. Some consumer goods companies have also successfully managed to organize these lower cost distribution models and make it work for their operations and product portfolio.
Warehouse -How will new systems impact on the existing warehouse? The warehouse function is sometimes overlooked when a company implements a new route-to-market system. Companies need to anticipate how the new system will impact on the warehouse function and what changes need to take place.
Stockholding – What is the required service frequency? 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.
Key Performance Indicators – What are the key performance drivers? By focusing on the key performance drivers of your business, avoid overextending yourself. Sometimes less is more. Include key performance measurements in your business planning process and evaluate on a yearly basis whether you are using these measurements to track and improve your business. There is no point in tracking something just for the sake of tracking.
Processes- Are processes and systems well defined and standardized? Always aim to eliminate non-value adding activities where possible. Standard Operating Procedures (SOPs) simplify your business procedures and help to ensure the same quality in all operations.
Skills – What skills need to be recruited or developed? 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 – Can the distributor handle the level of complexity in the business? In many cases distributors that distribute all SKUs to all channels fail. Always aim to reduce the complexity in the business.
Collaboration – How will the distributor share information with the company? 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.
Appropriate technology – What technology is necessary? Evaluate mid tech solutions and identify the “appropriate technology” for your operation. Don’t overdo it.
Patience– How much time do you have? Ensure you have management buy-in. A Route-to-Market roll-out requires patience and a continuous improvement mindset. Small incremental changes can sometimes go a long way.
Legal issues – Are there are any legal issues with transporting your product category? It is also important to understand if there are any regional regulations impacting transportation and supply depots.
Culture – What are the culture issues? Take time to understand culture issues and don’t assume anything. Change your thinking when working in other markets.
Take note of the evolution – Are you taking the necessary steps to adapt to change? 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.
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