IngentaConnect Distribution channel re-engineering

Abstract:

In this article, the concept of distribution channel re-engineering stands for a restructuring of distribution activities where the physical distribution and sales functions are organizationally separated from each other. The objective of the re-engineering process is primarily to reach dramatic improvements in operational efficiency. Our study indicates improvements in the distribution process in terms of: (1) economies of scale; (2) specialization and increased expertise; and (3) coordination and control. Altogether, the competitive outcomes of distribution channel re-engineering can be dramatic improvements both in cost efficiency and customer services. Modern information technology is the necessary vehicle both for a successful organizational separation of functions, including an efficient coordination between functions, and at the same time a closer integration within each function.

Distribution channel re-engineering is probably the most important key to a successful restructuring of distribution channels of standardized products on the European market. In a case study of a multinational tool manufacturer, the improvements in terms of decreased costs and increased customer services have been remarkable. Traditional distribution structures, building chains of warehouses from factories through central warehouses to national warehouses at the sales company level, have been replaced with distribution structures of centralized warehousing to one single distribution centre and also of centralized administration from sales companies to one single administrative centre covering the European market.

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Distribution channel re-engineering - organizational separation of the distribution and sales functions in the European market