1. Basic Channel Functions
In Module 1, we learned about how distribution innovations have enabled new foreign competition to enter
both mature and developing markets around the world and how retailers and distributors around the world
are searching for new sources of interesting new products, higher quality products and lower cost existing
products. The world is becoming a flatter playing field. In the Margin Analysis worksheet in M10
Distribution.xls we learn about distribution margins and the need to carefully analyze what value you get
for the margin you give that adds to the ultimate price of your product. In Module 5 you learned about how
important distribution channel or contact segmentation is in focusing on reaching and serving your
customers. In this module we study the supply-chain process in detail and again we discover the
importance of process innovation.
Time and again, distribution process innovation has shaped the prosperity of nations and companies. The
first major cities were sea and river ports because it was far less expensive (less than one tenth the cost).
 to move cargo by boat rather than by camel, mule or ox trains. They naturally became trade hubs, the
first major centres of trade and capitalism. And the most cleverly designed cities such as Venice and
Amsterdam were far ahead of their time in that their innovative canal systems enabled incoming ships and
barges to unload directly into a merchant’s warehouse and then directly load outgoing ships and barges that
took the cargo to other ports or up river systems. It cut handling costs, breakage, and theft by roughly half
because the cargo did not need to be loaded from boat to wagon and then wagon to warehouse in-bound,
and then warehouse to wagon and wagon to boat out-bound. These cities enabled their merchants to be far
more efficient. They were the giant Wal-Mart distribution centres of their time.
The invention of the steam engine, steamships, and railway systems greatly advanced the distribution of
agricultural products (particularly perishables) and raw materials in large quantities, thus opening up huge
markets. It led to the formation of the first large global trading corporations that replaced the government
sponsored monopolies such as the Dutch East India Company.
In distribution channels, traditional trading practices, such as “this is the way we do things here” thinking
rather than “that’s a great idea” thinking, often frustrates introducing innovation and is a serious obstacle to
change management. This is called channel evolutionary rigidity. Such cautious change can be seen best in
the recent, but long-delayed, computerization of stock-trading. What took them so long! The e-learning
systems are replacing the textbook. In turn these systems are breaking the rigidity of current textbook
distribution through university and college book stores and the associated reselling of used textbooks at
high prices. If you are reading this then you are part of an effort to break the evolutionary rigidity of text-
Over the past decade, advances in physical distributions, communications (especially via the Internet), and
other information processing technologies have radically reduced the need of some of the customary