Channels of Distribution
Intermediaries are another name for channel members, wholesalers, retailers, warehousing, shipping, receiving, distributors, jobbers and any other term associated with bringing the product to the market. Understanding the total channel of distribution for any product may be complicated. It’s one thing to recognize that they exist and that they seek payment for the services that they perform, it’s much harder to bargain with them to keep costs under control.
Channel members often wield significant control over how your product gets to the consumer. Much of the leverage these channel members hold comes from tradition, experience, common practice and/or imposed rules and regulations. Sometimes these hurdles are there simply to wring money out of the production and distribution process, but mostly a channel member provides a needed service for the charges that are imposed. Local, State and Federal rules, regulations and laws often support the channel members making it difficult to bypass or exclude them from the distribution process. When they have these ordained regulations on their side they command payment for services that the business would much rather exclude or handle in more efficient ways.
To have an effective business plan you must know the ins and outs of the channel members that are involved in the distribution of your products. The only way to fully understand how your channel members operate is to have dealt with them directly. If you do not have this experience it is highly recommended that you have a resource that can navigate this on your behalf or can guide you as you enter this on your own.
Some of these new regulations are changing how agriculture products are harvested, stored and processed before they get to the consumer. Home canning and home meat processing has always been a very common practice. Local farm stands have often sold canned or processed jams, jellies or cured meat products. Today these products must be processed in a licensed kitchen. Any food processing is closely controlled and regulated. Employees are covered by workmen’s comp insurance and OSHA safety regulations.
Mistakes in the distribution of your products can be costly, time consuming and can obligate you to fees or commissions that limit your options. The reader of your business plan should have high confidence that you understand your channel members and have a realistic plan to effectively use them to your advantage.