Pros and Cons of Multi-layered Distribution System

The producers have basically two options to distribute goods to the end-users. Either the distribution can take place directly from the producer or it can be done with the help of intermediaries. Multi-layered distribution system involves hiring of intermediaries at various levels of distribution to facilitate the transfer.  The involvement of intermediaries into the distribution channel has both pros and cons.

The benefits of distributing through intermediaries include:

  • Multi-layered distribution enhances the market for producers and mass coverage becomes possible.
  •  This system adds to the convenience of both producers as well as customers. The producers are relieved of carrying inventory while customers get the convenience of buying goods from different producers under one roof.
  • Helpful for SMEs which lack resources and expertise to reach mass market.
  • Multi-layered distribution improves connectivity between the manufacturer and various C&F agents and retailers located at diverse geographical locations.
  • It helps the manufacturers to market their products with lower investments.
  • Multi-layered distribution brings economies of scale because of mass warehousing and distribution.
  • In this era of globalization, the firms are going global and it becomes essential to hire intermediaries who have knowledge of the local market.

However, the disadvantages of multi-layered distribution system cannot be ignored:

  • At every intermediary’s level, cost is added which increases the product costs.
  • Manufacturers lose direct control with the customers as they rely solely on the intermediaries.
  • Manufacturers also lose control on the quality of the delivered product because it passes through several layers of intermediaries.
  • There are operational inefficiencies if the intermediaries are more.
  • Duplication of processes at every layer takes place which leads to a fragmented distribution process.
  • There may be conflict of objectives between the manufacturer and intermediaries as they may promote the product they want, ignoring the preferences of manufacturers.

 

References

  • Aryasri, A. (2006). Economics, Accountancy and Management: For JNTU. New Delhi: Tata McGraw-Hill Publishing Company Limited.
  • Stokes & Wilson. 6th Edition. (2010). Small Business Management and entrepreneurship. South-Western Cengage Learning.

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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