Implementing a 3rd party distribution system in emerging markets can be a challenging undertaking. Often distributors don’t have the required skills and need additional support and training in order to be successful. Below are a number of issues to consider.
Supply chain skills development – In emerging markets, distributors often lack dedicated supply chain professionals with the necessary skills. Often supply chain professionals have received no formal training. For any principal working with a distributor, it is important to conduct a skills gap analysis to determine the training recruitment needs. In emerging markets, Best in Class companies ensure distribution roll-outs are bundled together with support in terms of training, account development and business modeling. In some cases, companies also arrange joint training sessions and focus on building the distribution capability.
Network design skills – Most distributors lack the required skills required for network design and routing. Often route schedules are missing and maps are out of date. Companies can play an important role in providing the required training and support to ensure effective network design.
Distribution cost– Often, distributors fails to understand the true cost to serve. On a recent project in East Africa, I was struck by the fact that distributors are expected to cover a large territory, but most had a very poor understanding of the cost to serve and how to determine it. Putting pressure on distribution partners to reduce cost is one thing, but when service partners fail, it can have a severe effect on the whole supply chain. Often distributors lack the required skills to determine true cost to serve and need a helping hand from their principals or partners.
Financial management – A few years back we ran a project in for a consumer packaged goods company in Sri Lanka. During our assessments it became apparent that most of the distributors were going out of business due to poor cash flow and working capital management. Many distributors provided credit to smaller outlets to expand their business. The distributors lacked the required skills to keep track of debtors. When appointing a new distributor, work closely with them to ensure they have the required financial skills to manage their business.