Manufacturing businesses have many avenues they can pursue when it comes to expansion. Though a lot of these involve lateral movement in manufacturing itself, established manufacturing businesses can look to move into distributing their own products after they’ve made them.
This can be a smart move for businesses that are already established. However, to do it successfully there are some things you need to keep in mind.
1. Assessing Your Manufacturing Operations
To make an informed decision on expanding your manufacturing business into distribution, you need to make sure you’ve got a clear picture of its capabilities. After all, all the benefits don’t mean anything if you’ve not got capacity to begin with.
2. Distribution Strategy
It’s wrong to assume that customers who buy from you as a manufacturer will be the same as those who buy from you as a distributor. Your customer base can vary greatly depending on what you distribute and where you distribute it. This is where putting time into creating a distribution strategy is important. As far as possible, you should get to know the landscape of the product you’ll be distributing, including your competitors, target audience, and what distribution channels you’ll be using (whether it’s wholesalers, e-commerce platforms, or a combination of these). Not only will this give you a good foundation, but you may even be able to spot a gap in the market that others haven’t catered to yet.
Of course, managing your inventory is something you must deal with whether you’re working in manufacturing or distribution. But if you’re expanding your business to include both, having solid inventory management is especially crucial. Storing finished products costs more than storing the materials used to make them. Plus, you face the unique issue of stockouts. This is similar to products being out of stock, but the problem is more localised. Stockouts happen for various reasons, such as forecasting issues or counting errors. Distributors can directly intervene to solve these problems – we’ll come onto how a little later.
4. Logistics and Supply Chain Management
This is the bread and butter of every distribution business. Even if you’re ready to distribute good products to customers who want them, without a good supply chain, you won’t get anywhere – literally. Expanding into distribution and manufacturing gives you more control, but it includes extra things to consider like warehousing and transportation.
One way to ensure the strength of your supply chain is to develop relationships with key suppliers. This will mean they can work with you to plan for any potential drops in inventory levels, rather than just reacting to them when they happen. It’s also important to diversify your suppliers if you can. This reduces dependence on a single source, meaning you’re not stuck with no way to get your products out if external events impact one supplier.
5. Technology and Automation
This point feeds nicely into all the previous ones we’ve made here. If you are a business with many customers and products, it may not be practical to handle these issues manually. As such, technology can be invaluable.
All elements of your expansion will require some human oversight, but using technology can significantly lower your workload by automating many of the processes. Software can help you track inventory, stay up to date with disruptions on delivery routes, and forecast the popularity of products, to name just a few. And what’s more, it can integrate with a lot of the accounting software your business may already have. That means less time focused on setup, and more time focused on ways to grow the distribution arm of your business.
Deciding to take the leap into a new section of the industry can be nerve-wracking, no matter how much experience you have in business. But, if you do your research, form relationships with the right people, and invest in the right places early, your venture into distribution will be far more likely to find success.
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