How to Build a Game Changing Distribution Network in India

Margesh Rai

24 May, 2024

Foreign Investors in India are often worried about the fact that India is a large marketplace to reach through a single distribution network. For developing a distribution network in India, India should be treated as having four different zones of the supply chain. However, this treatment makes it strategically difficult for foreign businesses to build structured relationships with distributors and vendors in India. In this blog, we will discuss the best practices and the challenges in developing a distribution network in India.

Best Practices for Developing a Distribution Network in India

1. Assessing the Strength of Different Distribution Networks: Assessing which distribution network will reach out to your target consumer effectively is a function of population concentration, geography and local customs. You will have to rely on a local distribution agency that is handling these challenges and can deploy local agents where required.
2. Selecting a Partner: While selecting a partner, you should keep in mind that their goals align with your strategic goals. The prospective partner should demonstrate financial stability over a significant period in the immediate past. The prospective partner should own a respectable clientele and have experience in handling go-to-market strategies without unnecessary delays in fulfilment.
3. Adapting to Changes: Consumer preference is dynamic, and it changes with the change in environment. Thus, you and your partner must be ready to change track, shift channels, use multiple vendors and make quick decisions.
4. Be Ethical to Run a Sustainable Business: You have to ensure that the distribution commitment and standards are strictly followed across the business entity. Apply only legally enforceable contracts and feasible commitments. Only then can you transfer best practices seamlessly and build your reputation in India?

Steps for Building Successful Distribution Networks

1. Entry Strategy: Considering an all-India distribution network in India is an objective of almost every business, but you need to start with one state to achieve that. Deciding your home state is one of the most critical decisions. You have to keep your best foot forward. You will have to explore the hidden potentials in the market around you. 
2. Market First – Product Next: Some markets have more potential than others. If a product is positioned in a high-end market, then its target will be upmarket. Based on your product, you must select the target market. To choose a target market, you must do market research, select a market, and search for distribution partners.
3. Distributor is not your customer: Distributors are not customers. You have to nurture, guide and hand-hold them in the initial days to build a relationship. A good distributor is a win-win situation for the business, as your success is based on the distributor’s success.
4. Fair Distribution Agreement: The legal agreement between you and your distributor should strike a balance between both of your interests. The contract should not be unilateral, or you might lose your distributor to your competitor.
5. Distributor Needs Marketing Support: A product sells based on the level of marketing. Big companies build brand equity through advertisements, promotions, etc. The distributors take advantage of the brand equity to sell the products to the retailers.
6. Supply Chain Strategy: The cost of transportation increases as the distribution network expands. To cut down additional supply chain expenses, one needs to aggregate operations and appoint more intermediaries in terms of super stockiest and C&F Agents. It is not an immediate concern for manufacturers who have just joined the distribution operation, but it should be kept in mind while appointing distributors. Distribution in a contagious area is important from the beginning, and the target market should be selected keeping in mind the supply chain operation in mind.
7. Decide whether to go for a dealer, distributor, wholesaler, or a mix: A distribution network comprises several independent businesses that align with the manufacturing company or importer to distribute its products from the source to the ultimate customer. Based on the purpose, the alignment could be in several ways. A manufacturer or importer has to decide which model suits their purpose best.

In a wholesale model, the wholesaler buys products from manufacturers or importers and sells them to downstream retailers. The manufacturers have very little control over the ultimate consumers or market segments. In this model, the manufacturers enjoy deep reach but do not have direct contact with consumers. In the distributor model, the distributor just acts as an extension of the manufacturer and operates exclusively within a specified territory. Further, there is a cross between wholesalers and retailers under the dealership model. It is a sort of high-end retailer directly operating under the manufacturer.

Challenges Faced in a Distribution Network

A few common challenges faced by companies in a distribution network are as follows:

1. Inaccurate Stock Management: Manually managing inventory in a business can be laborious and inefficient. It also restricts the ability to modify orders resulting in a tedious return and refund process. In case of a lack of a digital record of the inventory, it becomes difficult for the stakeholders to take decisions towards restocking. A comprehensive digital distribution system can help stakeholders optimize time and focus on enhancing their business operations.
2. Manipulation in Trade Schemes: Matching the changing consumer demands and ensuring loyalty is essential in today’s competitive world. One such marketing approach is below-the-line, where no direct customer is impacted, but anyone can manipulate the controlling parameters without the end consumer’s knowledge. Manipulating cost estimates and misrepresenting transactions in accounting records is a regular event in marketing teams. Agencies inflate invoices, and employees enjoy the benefit in the form of gifts. A proactive system is required to counter this challenge and divert marketing spending toward acquiring consumer rights.
3. Dependency on the Reports: The FMCG industry depends on reports. The growth of the FMCG industry largely depends on the speed and accuracy of the reports. The data available to executives play a crucial role in making the right business decisions. The existing manual and monotonous procedures decrease productivity. The DMS System ¹ is a self-service system that generates customizable reports on a real-time basis. It also enables stakeholders to access updated information across categories, products, and regions.

Conclusion

Formulating a distribution network is a tedious job. It needs expert assistance and thoughtful planning. The success of a product relies on its distribution network. Distribution networks can be a potential game changer for a business. Enterslice can support you in formulating a full-proof distribution network for your business.

FAQs

Read Our Article: Understanding the Complexities of India’s Retail and Distribution Industry

1. https://en.wikipedia.org/wiki/Document_management_system