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 to be successful. Below are some issues to consider when working with distributors in more challenging environments.
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 company working with a distributor, it is essential to conduct a skills gap analysis to determine the training recruitment needs.
Successful companies ensure distribution roll-outs are bundled together with support in terms of training, account development and business modelling. In some cases, companies also arrange joint training sessions and focus on building distribution capability.
Network design & distribution cost
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 Often route schedules are missing, and maps are out of date.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.
Often distributors lack the required skills to determine the true cost to serve and need a helping hand from their principals or partners.
On a recent project in East Africa, I was struck by the fact that distributors are expected to cover a vast 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.
When appointing a new distributor, work closely with them to ensure they have the required financial skills to manage their business.
A few years back, we ran a project in for a consumer packaged goods company in Sri Lanka. During our assessment, 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, but lacked the required skills to keep track of debtors.
Working with any new distributor provides challenges in any market. However, in emerging markets, distributors often need a lot more support with their system and skills development.
As distributors in Ethiopia we face challenges managing credits to small shop owners. Most of these businesses don’t have relationships with banks or institutions that can hold them accountable. Pressuring distributors to the point where they get too deep into credit sales can be damaging to the business.
Good point. Seen many distributors go out of business because of credit.