Complete Guide to a Distribution Management System

Complete Guide to a Distribution Management System

Imagine you’re a consumer goods manufacturing company, and ensuring a consistent supply to distributors is essential for meeting the retailer’s demand. Picture one of your distributor’s retailers is facing shortage for one of your product and reaching out to your distributor for replenishment, only to discover that the distributor doesn’t have enough stock available. This delay in restocking could result in empty shelves at the retailer’s store, leading to potential loss of consumers and revenue.  

Here, a Distributor Management System (DMS) comes into play when your business is facing inventory management challenges. With a Distribution Management Software, you gain the ability to efficiently monitor and forecast your stock levels, ensuring you always have enough supply on hand.  

An Online Distribution Management System also plays a crucial role for brands in providing them with accurate secondary sales visibility. This visibility allows brands to drive sales in the market and meet revenue targets. 

What is a Distribution Management System?

Now, let’s delve into understanding what exactly a Distributor Management System (DMS) entails. Essentially, it’s an ERP-like software solution that empowers companies to effectively oversee the movement of their products across multi-tier distribution channels. It is a sales automation tool that companies provide to their distributors. The distributors do their daily operations like secondary billing, credit note/debit note, inventory management, returns management, etc. through this software. Furthermore, this encompasses streamlining various business processes, including logistics, purchase, and sales order management, supply management, and van sales to execute distribution operations seamlessly. 

DMS: A Competitive Edge for FMCG Businesses

In today’s business landscape, having a robust Distribution Management Software is imperative for any organization, particularly those in the FMCG, pharmaceutical, and retail sectors, to efficiently manage their distribution channels, optimize supply chain management, and minimize the risk of stock-outs. By implementing a Distribution Management Software successfully, businesses can streamline their entire distribution process, from initial storage to final delivery, ensuring they meet their customers’ needs promptly and efficiently. 

Having a stable Online Distribution Management System can serve as a significant competitive advantage for businesses, enabling them to enhance their efficiency and reliability, thereby staying ahead of the competition.  

Now, let’s explore the myriad challenges that both distributors and brands encounter as they navigate the complex landscape of product distribution. 

Business challenges encountered by brands:

1) Managing fill rates

The ability to supply products through distributors to retailers hinges on understanding consumer demand and the availability of stock. Without access to comprehensive and up-to-date data, maintaining a balanced supply-demand ratio becomes exceedingly difficult. For example, if a brand dispatches a hundred items to a distributor and half of them remain unsold, it signals the need for strategic recalibration in the subsequent month or quarter. Access to actionable data is crucial for brands to optimize their inventory management and minimize unsold products. 

2) Secondary Sales Visibility

For brands, one of the primary challenges lies in gaining visibility into secondary sales. A secondary sale is a sale between the distributor and retailer. Since there is no way to completely gain visibility into the tertiary or consumer sale, the secondary sale is the nearest market demand value that a brand can track. Without secondary sales, a brand is simply primary sales driven which is more like a “push” style distribution. In this approach, the consumer demand and product movement in the market across geographies cannot be tracked or evaluated. 

3) Fluctuation in trade schemes

The trade scheme efficacy presents yet another obstacle for brands. These schemes are designed to incentivize retailers by making certain products more attractive through various offers such as free items or discounts. However, the success of these schemes can vary, and without visibility into their performance, brands may struggle to refine their strategies effectively. By gaining insights into distributors’ billing operations, brands can ensure that retailers are billed accurately for the schemes applied to their orders. This level of transparency enables brands to assess the effectiveness of their trade schemes and make informed decisions to enhance their impact.

4) Simplified Claims Handling

Handling claims from distributors and retailers can be difficult and take up a lot of time, often needing extra help. A standard yet flexible system for processing claims increases speed as well as transparency of the process. A distributor management system ensures efficient handling of claims. 

Key Problems in Distribution Management System

1) Complex user interfaces

Accessibility is a crucial consideration for successful Distribution Management Software adoption. User-friendly design is paramount, enabling even novice users to navigate the system seamlessly. Complex user interfaces, cumbersome navigation, and slow loading times can deter users and undermine the effectiveness of the Distribution Management System. Additionally, rural distributors who rely on mobile devices for their operations may face challenges accessing full-fledged desktop Distribution Management Software solutions. To address this issue, Distribution Management Software solutions must be designed to accommodate the needs of users across diverse settings and devices.  

2) Distribution Management Software adoption

Resistance to Distribution Management Software adoption among distributors stems from doubts about the value it offers, hesitance to share data, and concerns about transparency. Distributors may perceive Distribution Management System as brand-centric, with benefits skewed in favor of brands. Moreover, some distributors may resist transparency initiatives, preferring to maintain the status quo for their benefit. For example, distributors may exploit loopholes in trade schemes to maximize their rewards. 

3) Implementation challenges

Implementation issues pose another significant challenge for both brands and distributors. While brands may invest in advanced Distribution Management Software with all the necessary functionalities, distributors may already be using legacy systems or accounting software that they trust. Additionally, compatibility issues may arise if the new Distribution Management System cannot integrate seamlessly with existing systems.  

4) Growth Potential

Achieving scalability is a major concern, as businesses evolve, and technology trends change over time. A rigid Distribution Management Software architecture may hinder the incorporation of new features or business verticals, necessitating costly redevelopment efforts. 

Let’s now explore some of the key benefits that a Distribution Management Software brings to businesses: 

Benefits of Distribution Management Software

1) Enhanced Inventory Management

Enhanced inventory management allows businesses to keep track of their sales and stock levels in real time. By having access to this information, they can accurately assess product demand and adjust their inventory levels accordingly. For instance, if a particular item is selling quickly, they can reorder more to prevent stockouts and meet customer demand. On the other hand, if certain products are moving slowly, they can reduce their stock levels to free up capital and storage space. Additionally, businesses can analyze sales trends over time to forecast future demand and plan their inventory purchases more effectively. This proactive approach helps minimize the risk of overstocking or understocking, optimizing inventory turnover and maximizing profitability. Overall, enhanced inventory management streamlines operations, reduces costs, and improves customer satisfaction by ensuring products are available when needed.

2) Improved Secondary Sales Visibility

Improved secondary sales visibility refers to the ability of businesses to track sales made by distributors, other stockists or channel partners as part of the downstream supply chain. By monitoring these secondary sales, companies can better understand customer preferences and buying patterns, helping them tailor their sales strategies accordingly. For example, if a particular product is selling well in certain regions or through specific channel partners, the company can allocate more resources to promote that product in those areas. This insight enables businesses to make informed decisions about inventory management, marketing campaigns, and product development, ultimately leading to increased sales and customer satisfaction. 

3) Stock replenishment

It’s common knowledge that FMCG companies must carefully manage stock levels at various points like distributors, retailers, and stockists. With a Distributor Management System (DMS) providing precise insights into stock levels, expiry dates, batch numbers, and returns at distributor points, you receive alerts ahead of time. This allows for early planning of replenishment compared to traditional methods. 

4) Order Management

A distributor management system allows distributors to convert orders coming from retailers through different sources such as Salesforce automation (SFA), retailer app, telephonic orders, manual orders, counter sales, etc. A Distribution Management Software allows for orders to be converted into invoices along with scheme application as per company pricing norms. Multiple orders can be converted into a single invoice and a single order into multiple invoices. A Distribution Management Software also allows distributors to place primary orders with the company and further do the GRN upon primary sale invoicing done by the company. 

5) Enhanced payment collection

The Distribution Management Software makes it easy to create many invoices quickly and digitally. It also shows any outstanding and receivables, so distributors can keep track account-wise. Plus, some automatic reminders can be set up to help with payment collection. 

6) Promotions and pricing

Setting the right prices and promotions can be tough for many companies, but Distribution Management System supports automating this. To make sure your promotions and prices match your supply chain, you need effective software like a DMS which can integrate with your master data and help you in creating scheme definitions. Plus, with an advanced distributor order management platform, suppliers can get regular reports on product lines, channel partner performance, scheme utilization, and marketplace trends. Using these reports, businesses can manage trade marketing, prices, and schemes. They should also set realistic goals to motivate distributors and sales teams to do their best. 

7) Returns management

Making sure products reach their destination is crucial in the supply chain. This involves constant communication between sales teams, distributors, warehouses, and retailers. Distributor management software helps with this by coordinating deliveries and returns efficiently. It has advanced features to schedule deliveries and handle return requests smoothly.

8) Easy management of distributor claims

Distributors can raise claims from the Distributor Management itself. A Distribution Management Software can generate claims that can be reviewed by the distributor and raised against the company. The company can further process these claims. This entire process happens digitally in a seamless and integrated mannerThis process also ensures transparency of claims between both parties. A faster and more accurate claim settlement process helps in strengthening the overall relationship between the company and its channel partners. 

9) Better ROI (Returns on Investment)

When a Distributor Management System is implemented effectively, it can bring various cost-saving benefits. For instance, it empowers brands to optimize the inventory levels at distributor points more effectively, thus avoiding excessive storage costs and reducing carrying expenses. Optimized investment in inventory from the distributor side in inventory leads to a better ROI ratio. 

In essence, a well-implemented Distribution Management Software has a positive impact on businesses, offering a myriad of benefits that ultimately translate into improved efficiency, reduced costs, enhanced customer satisfaction and higher sales. 

Stepping forward

Distribution management trends are constantly evolving patterns shaped by end-user behavior and other stakeholders. It’s crucial to monitor current and future trends to anticipate changes in the industry. 

Let’s explore some of these trends: 

Trends in Distribution Management

1) Data-Driven Approach

Growth and improvement in distribution management depend on acquiring and utilizing accurate data. Data-oriented organizations can detect and address vulnerabilities early, enhancing existing processes and laying a strong foundation for the future. Tools providing data insights on top of the transactional data from a Distribution Management Software in various formats are on the rise, enabling better decision-making and risk management. 

2) Scalability and Flexibility

A DMS is relevant across brands and industry sectors. However, every industry has its own unique set of business practices and protocols. A Distribution Management Software that is configurable and customizable and can result in a better fit to the business practices of a company has more chances of succeeding. A Distribution Management Software must also be scalable to allow companies to increase their user base as per their needs without compromising on performance. 

3) Modular Design

Modular software designs offer flexibility by allowing independent functions, enabling companies to choose and pick functional modules according to their requirements. This simplicity combined with precision provides users with greater control and efficiency. 

4) SaaS Adoption

Many companies are opting for Software as a Service (SaaS) solutions due to their scalability, ease of maintenance, and regular updates. Timely updates ensure platform relevance and responsiveness to market demands, offering relief from concerns about obsolescence and business continuity. 

Wrapping up

In an FMCG/CPG company, every product undergoes a journey through various stages before it reaches the hands of the consumer. Once the product is fully prepared, it embarks on the final leg of the journey, making its way to the customer through a network involving wholesalers and retailers. This critical process of product distribution is managed by the Distribution Management System (DMS), automating many steps between the product movement from company to distributor and distributor to retailer. 

A Distribution Management Software plays an important role in a CPG brand’s goal of having a robust distribution strategy in place. Distribution Management System supports crucial business goals such as product availability, inventory management, scheme management, secondary sales visibility, and fill-rate tracking becoming a catalyst for growth. 

It empowers sales teams right from the field up to the National Sales Manager to have visibility and control on sales operations.