Multi-layer distribution system in India

Supply chain management is a vital business function in today’s hyper-competitive corporate arena. Supply chain management has emerged as a mean to earn a competitive advantage. It is one of the reasons why firms all across the globe are trying to build their marketing strategies based on it. However, companies in India still stand far behind their foreign counterparts in the logistics aspect. Diverse geography, extreme climates, poor infrastructure, lesser utilization of Information Technology (IT), complex taxation and high documentation requirements make it difficult for Indian logistics firms to survive in global competition. The logistics costs are very high in India and one of the reasons being the multi-layer distribution system is prevalent in the country.

Multi-layer distribution system

A multi-layer distribution system is one where the transfer of final goods from manufacturer to customers takes place through multiple intermediaries. There is an indirect transfer of goods through intermediaries at various sales levels. The distribution in a multi-layer distribution system takes place as follows:

Fig 1: Multi-layer distribution system

Fig 1: Multi-layer distribution system

The manufacturer transports the finished stock to the central warehouse from where it is picked up by the C&F agents or stockiest. These are the intermediaries who manage stock in bulk. From these agents, the stock is supplied to the retailers who are the final link between a manufacturer and the customers. At all these various stages, the intermediaries are paid commissions which add to the costs of the final products. This is why the firms try to minimize the number of intermediaries throughout the sales channel in order to save costs and enhance efficiency. The recent buzz of organized retailing is an effort in the direction of reducing the levels of the multi-layer distribution system.

References

Ankita Agarwal

Analyst at Project Guru
Ankita is working with the editorial board of Project Guru as a Research Analyst and Writer. With Masters in Commerce and Business Studies, Ankita learned much of what she knows about management through experience. She has previously worked in various financial institutions like Birla Global, HDFC Ltd. and Citi Financial. She is self-motivated and writes for the Knowledge Tank section of Project Guru. She has authored more than 80 articles so far in Human Resources Management, Strategic Management, Finance and Marketing. She likes to pen her thoughts about the latest issues gripping these areas across the world.

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2 Comments.

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