By M.Makhijani, K.Malia, & P.Vyas

Distribution has always been accorded the back-seat, be it in companies or at B-schools. India's sheer size, coupled with its regional diversities and unique retailing networks-from weekly haats to shopping malls-makes distribution a Herculean task. Given this, it is hardly surprising that India spends 13 per cent of her GDP on logistics. Yet, although professionalism has pervaded the corporate office, it has yet to reach the channels.

In many instances, companies look at distributors as outsiders. This has resulted in ineffective systems and channel conflicts. Manufacturers are concerned with consumption-behavior, but their channel partners are concerned with buyer-behaviour. They are not loyal to a particular brand, but to the product that draws the customer.

Today, value does not mean just value for money; it also means perceived benefits. The point is that these benefits are, essentially, perceptual, and will differ from customer to customer. The total cost of ownership reflects all the costs associated with the relationship-not just the price of the product. Hence, the customer's cost of carrying inventory, ordering, and other transactions all form part of this total cost concept. That's why logistics management provides a powerful means of enhancing customer value.

With the entry of the transnationals, many companies have either collapsed or entered into joint ventures. The removal of capital controls will lead to globalisation in its purest form, where the old rules of survival will no longer work. In fact, a company's future will be based on 2 parameters: brand equity and distribution equity. Although companies with high brand equity and high distribution equity will be extremely powerful, there will be few players in this area. To be strong on both parameters will require significant resources in terms of finance as well as time. Most of the transnationals who have entered India will possess strong brand equity, but would not have had the time to build a strong network. On the other hand, there will be a few local players who will possess strong networks. Rather than investing money in building brands, the Indian company should serve exclusively as a distribution house.

At the beginning of the next millennium, companies such as Marico are doing this to some extent. However, more exclusive distribution houses will emerge as we move through this millennium. These companies will lease out their distribution services to other companies, especially transnationals. Just as companies compete for product marketshares, there will a time when they will struggle for distribution marketshares. Globalisation will force Indian companies to shift from cost-based pricing to target-pricing.

Organisations will, however, have to weigh the pros and cons before opting for third-party logistics-one of the solutions for companies heading towards the chain costing principle. Inherent in it is the assumption that the channel-intermediary adds value commensurate with the margins at that stage. The distributor can provide a range of services not by being a seller of products, but by flipping the paradigm, and being a buyer for his customers. He can negotiate on their behalf.

On another front, the future is reverting to the past, with the system of mass production moving towards customisation, which involves segmentation at its finest. In the traditional distribution chain, retailers sell products that manufacturers conceive and wholesalers supply. It is a linear, left-to-right progression, in which the consumer stands passively at the receiving end of the chain. But, to survive in hyper-competitive markets, companies will have to create chains based on the customer's needs.

By far, the biggest challenge in managing logistics strategically lies in developing target segments of customers that can be served profitably by catering to them through distinct rationalised logistics pipelines, which will prove a critical competitive advantage in the future. There are 5 stages for developing logistically-distinct methods for serving specific customer segments :

• Segmenting customers on the basis of their needs, preferences, psychographic, or demographic profiles.
• Establishing appropriate and differential standards of service for different segments.
• Tailoring, or desegregating, and reforming the existing logistics pipelines to effectively cater to newly-defined segments.
• Exploiting the economies of scale among differentiated logistics pipelines.
• Sustaining multi-functional co-operation for creating an integrated reporting system.

With the emergence of the Net comes the possibility of the implementation of the Virtual Supply Chain (VCS). A VCS can be seamlessly integrated across suppliers, distributors, and customers, providing real-time on-line information and transparency across the chain.

The preferred medium of transportation in India has been roads. This is primarily because of cheap diesel. However, this very medium is also responsible for air-pollution. With an increasing focus on environmental issues, businesses will have to develop new systems of transportation which find favour with environmmentally conscious customers, and at the same time, do not dramatically increase the costs of delivering products. Systems will have to be capable of handling huge amounts of waste generated by industries as well as consumers, as well as handle customer-returns.

For that, the logistics departments of companies will have to maintain tracking systems capable of locating a product in the distribution system. Not surprisingly, the overall system objective in reverse-distribution has to be cost-minimisation and minimal service-disruption.

M. Makhijani, K. Malia, & P. Vyas are second-year 
MBA students at the Narsee Monjee Institute

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