Getting past challenges in managing distributionplace

February 14, 2010
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Have you ever wondered what it takes to make sure products are in the store when you want to purchase them? Probably not. What most consumers are concerned about is whether the products are available when they want to purchase them, period. Unless you are in a business that makes it all happen or you take a marketing class, you are unaware of the decisions and work that is entailed behind the scenes.

Distribution is one of the four elements of a marketing mix that makes products available to us. There can be a number of organizations involved in the process, each passing the product down the chain to the next before it finally reaches the consumer or end-user. The product begins with a manufacturer that sells to wholesalers, retailers and finally to consumers, thus establishing a distribution channel.

These channels may not be restricted to physical products alone. They may be just as important for moving a service from producer to consumer in certain sectors. Hotels, for example, may sell their services (rooms) directly or through travel agents, airlines, tour operators, etc.

In the 1980s, the term “supply chain management” was developed to express the need to integrate the key business processes. The primary objective of SCM is to fulfill customer demands through the most efficient use of resources, including distribution capacity, inventory and labor. In theory, it seeks to match demand with supply with minimal inventory. Various aspects of optimizing the supply chain include relationships with suppliers to eliminate bottlenecks, sourcing strategically to strike a balance between lowest material cost and transportation, implementing Just In Time techniques to optimize manufacturing flow, maintaining the right mix (Product, Price, Promo & Place/Distribution) and location of factories and warehouses to serve customer markets, and using vehicle routing analysis, programming and traditional logistics optimization to maximize the efficiency of the distribution side.

Many of the exchanges encountered by the companies in the chain are between different companies that seek to maximize their revenue within their sphere of interest. They work as a team for a win-win relationship. This type of marketing is referred to as B2B or Business to Business — and it is big business. Companies are concerned with delivery and order fulfillment, production flexibility, warranty and returns processing costs, inventory and asset turns and other factors in evaluating the overall effective performance of a supply chain.

Transportation modes include air, rail, water, truck, FedEx and UPS, to mention the major ones. In the last 40 years, technology and intermodal containers have brought dramatic changes in business practices, reduction in transit times and lower real costs of transportation, and have contributed to faster speed and better service. There is also the Office of Freight Management and Operations, which promotes deployment of technology and the adoption of best practices to facilitate the smooth flow of goods on the nation’s transportation system and across borders.

A wholesale food distributor is a good choice to examine. These companies supply food items to retailers and large institutional customers. They work from a warehouse and must organize their customers’ as well as their consumers’ demands in a way that not only meets today’s but tomorrow’s challenges. As the aggregator of demand, they need to be able to offer value-added service to enhance their customers’ experience with them. There are several of these companies in Grand Rapids.

Local firm H.T. Hackney is the fourth-largest convenience wholesaler in the country with a corporate office in Knoxville, Tenn. The company has created partnerships with a number of manufacturers including Hershey’s, P&G, Kraft and Kellogg’s. Grand Rapids is home to one of Hackney’s largest distribution centers. The company started in 1891 with a commitment that has been kept for over 100 years: a promise of providing fine products with integrity and superior service.

“A successful business is built on customer satisfaction,” states the company’s flyer. Hackney realizes it must provide its customers — the retail stores — everything they need to be successful in today’s competitive market. The company’s customers include more than 30,000 retailers, 25,000 products with a distribution network covering 21 states.

Locally, Hackney services 1,200 convenient stores, 225 drug stores and 280 grocery stores. Products include 14,000 SKUs for cigarettes, tobacco, candy, health and beauty, juice, lunchmeat, paper products. Hackney’s commitment to customer service begins when an order is placed, to filling that order, to loading and on-time delivery. Each distribution center provides its customers with a maximum service commitment, pricing is competitive, and “no hidden fees” is a promise. It also offers customized invoices and order books.

Hackney provides many services including: Planograms to analyze a store’s current product mix and layout, full color visual shelf plans to maximize store efficiency and product movement, a monthly Monday Saver Package, which provides promotional and new item introductions, a Customer Rebate Accrual Program for item tracking, five annual food shows to evaluate new products, technology, merchandising techniques and equipment. Hackney’s Quality Time meetings bring manufacturers and retailers together for business reviews, new product introductions, promotions and merchandising. Hackney’s has a Customer Access System, a PC-based program that customers have access to retrieve valuable and timely information, search for new items, item inventory levels and sales reports, and maintain custom books and custom billing categories.

Bill Hillman, general manager of the Grand Rapids distribution center, said the territory coverage for this facility includes Michigan, Indiana and northern Ohio. One of the questions I asked was: How does Hackney differentiate? He stated a number of points: 1) Hackney is the first in marketing new programs, which cost less for retailers; 2) the company is aggressive in establishing new business markets; 3) it is highly promotional, offering promos every month, and advertising materials are always available; 4) convenience stores are offered promotions; 5) salespeople order for the store, which means they are the experts; 6) customers state that it is the best in offering information and facts. The technology that Hackney utilizes is state-of-the art: handheld computers that offer information regarding products that are on hand, and deals available. The company is decentralized and believes in utilizing strong managers.

When asked if the economy has affected the company’s performance, Hillman said sales are up 6 to 7 percent; the Grand Rapids facility is up 12 percent. The plan the company follows is based on the goal of 100 new accounts in 100 days. The results? 90 new accounts in 100 days. That spells success considering all the factors the business is challenged with during these difficult economic times: gas prices, taxes, labor costs.


Maria Landon is an affiliate professor in the marketing department of the Seidman College of Business, Grand Valley State University.

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