Home » SCMAP Perspective » A Look at Network Marketing Companies’ Supply Chain
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For today’s guest columnist we welcome back Norman H. Adriano. Norman has been in supply chain management for more than 25 years. An Industrial Engineer, he has held various executive management positions in multinational and local companies in the Philippines. He is a two-term past President of the Supply Chain Management Association of the Philippines (from 1995 to 1996). He can be reached via norman.adriano@gmail.com. – Ed Sanchez, Executive Director

 

Some of us may not have encountered yet how the supply chain of network marketing companies works. Let me discuss the features based on my first-hand experience as a former employee of one and as a current independent distributor of another.

 

Traditional Supply Chain

The traditional way of distributing products to the end consumer is a long and tedious process. The finished products from a manufacturer pass through layers of middlemen (wholesaler, retailer, jobbers) before they land into the hands of the consumer. This distribution process takes time and accumulates costs along the supply chain before the products reach the people that matter the most: the end consumer. It is the end consumer that has to pay for all the costs accumulated by the product on its way to his hands.

 

How the Network Marketing Companies Do It

The network marketing companies do a shortcut of the distribution process. After the products leave the manufacturer, they go to Independent Distributors who sell these products direct to the end consumer. Actually, most of the time, it is the Independent Distributor who picks up the products from the manufacturer’s office or depot.

 

The Supply Chain is Very Short

The supply chain is short because there is only one middleman, which is the independent distributor. Because the number of players in the middle of the distribution process is significantly reduced, distribution costs are significantly reduced. The ‘savings’ realized are passed on as discount to the Independent Distributor. This ‘discount’ is the source of earning or profit of the Independent Distributor.

The end consumer is the ultimate winner because the products he purchases are affordably priced. The Independent Distributor is also happy because the profit he earns from selling the products are much more compared to, say, the interest his money will earn if he puts it in a bank. At the end of the day, everybody is happy along the supply chain.

 

The Supply Chain is Uncomplicated

Because the supply chain is uncomplicated, service levels are usually high and frustration levels (when distributors can’t get their products because they are out of stock) are very low.

 

Of course the usual problems encountered, especially upstream of the supply chain, are still there: demand forecasting, procurement lead times and raw material availability are just some of them.

 

The balancing act between the supply and demand management has always been the challenge in any supply chain management endeavor. They will stay for a long time, I guess, until such time we can accurately predict the future. And until such time, the companies who have earned some mastery over its supply chain will always turn out to be the most successful in its industry.

 

They are the ones who will retain the most number of loyal end consumers.

 

Address inquiries and comments to Ed Sanchez at tel. 671-8670, fax 671-4793, cell 0918-914-1689, or email secretariat@scmap.org. For more information please go to SCMAP website www.scmap.org

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