IMPACT OF DISTRIBUTION NETWORK OF FAST MOVING CONSUMER GOODS

1.1 Introduction

A distribution network design of fast-moving consumer goods ensures distribution of products in an effective manner by giving maximum customers’ satisfaction and minimum distribution cost. The distribution network design is very important in optimizing the supply chain performance and cost. There are different distribution policies that a company may have to select from, and consequently, the company should plan its resources and should select a planning horizon based on its choice. Distribution of fast-moving consumer goods (FMCG) is one of the fastest growing industries in developed countries. Most developed countries FMCG manufacturers distribute their products all over the country.

As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.

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1.2 Background of Study

In recent years, multinational corporations have increased their investment in physical plants, information technology and staff training with a view to improving their operational performance. The consumer goods sector is a major part of the manufacturing sector in Nigeria. And like all other manufacturers, the consumer goods industry is characterized by low valued added production. Multinational companies operating in this industry hardly add value because they import concentrates from their parent companies, which they convert into finished products with minimal value added.

In fact distributors and wholesalers account for over 50% of total sales within the industry (Lead Capital, July 2009). Their dominance is as a result of fragmentation nature at the retail end of the market. The retail end lacked adequate supermarket and glossary stores. They mainly compose of roadside kiosks, stores and small sized restaurants, whose sales volumes are generally low. Distribution to the retail market is hampered by huge investments required for delivery trucks coupled with the general bad road network. Consumer goods industry in Nigeria is highly fragmented with the presence of multinationals, domestic and foreign companies.

The prime place of distribution program in planning the project objectives of consumer goods manufacturing firms in Nigeria cannot be overemphasized. The economy of any nation depends to a great extent on the production and distribution of finished goods and services with distribution as the pivot of the operations. Products must therefore be delivered to buyers when and where they need them and at a reasonable cost. In performing the delivery function, goods and their titles are known to pass through certain paths or routes from the producer to the consumer. These routes are variously called distribution channels or trade channels.

Over the years, distribution channels have been widely discussed in the marketing literature by academics, professionals and other agents of marketing including manufacturing firms and products distribution agencies especially on factors relating to costs of distribution of products. Distribution costs could have significant financial burden that may impact on the profits of manufacturing firms and by implications on the economy of a nation such as Nigeria. Many business concerns fail to achieve set objectives despite producing very high quality goods because they do not accord distribution, the importance it deserves.

According to Uduji and Nnabuko (2011: 99), global marketing channels are becoming more important to companies seeking growth abroad. Regrettably, even though issues associated with distribution have become central to the growth and well-being of firms, industries and society in general, the education and research activities devoted to this “place element” of the marketing mix are sparse.

Distribution network design in supply chain helps in determining the least cost in the distribution of products (which could be raw materials, semi-finished goods or finished goods) between echelon of supply chain such that demand at warehouses and capacity at the plants are satisfied. Distribution refers to the movement and storage of products between different stages and every pair of supply chain stage has a distribution network. Raw materials are shipped to manufacturers from the suppliers while finished goods are shipped from the manufacturer to the distribution centres and then to the customers (Chopra et al., 2007).

Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Impact of Distribution Network of Fast Moving Consumer Goods.

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1.3 Statement of Problems

Investigation revealed that the challenge faced by an FMCG supply chain is to establish efficient and successful patterns of distribution to the supply chain members. It is common for large international companies to form alliances with Nigeria companies to repackage and/or market their products in Nigeria. This lowers the risk of market entry as well as enables the international company to benefit from the existing marketing and distribution capabilities of the Nigerian company.

In integrated lot sizing and distribution problems, the companies are concerned with minimising the total cost incurred in distributing the products by determining, for each period in the planning horizon, the quantity produced at each entity, the quantity shipped from each entity and to which customer, the quantity stored at each entity and which types of vehicles are to be used in each link for each period.

The distribution network design problem involves facility location, warehousing, transportation and inventory decisions. The lot size also affects the problem. This problem is called the integrated lot sizing and distribution problem. The research would not only measure these effects but also consider each effect in a bid to proffer a sustainable solution to the problem stated.

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1.4 Aim and Objectives of Study

The aim of the study is to examine the Impact of Distribution Network of Fast Moving Consumer Goods (FMCG). In achieving this aim, the following specific objectives were laid out as follows:

1. To determine the effect of distribution network channel on customer satisfaction;
2. To determine the joint effect of fast moving consumer goods elements on customer satisfaction;
3. To find out the most relevant channel of distributing goods for an organization manufacturing companies.
4. To ascertain the various means of distributing goods of an organization; and
5. To evaluate the distribution of goods through direct shipment and the use of intermediate shipment for distribution of products from plant to depots.

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1.5 Research Questions

The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:

• Does the most relevant channel of distributing goods for an organization manufacturing companies?
• Does joint effect of fast moving consumer goods elements enhance customer satisfaction?
• What are the various means of distributing goods of an organization?
• What is the effect of distribution network channel on customer satisfaction?
• To what extent distribution of goods through direct shipment and the use of intermediate shipment for distribution of products from plant to depots promote customer satisfaction?

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1.6 Research Hypothesis

In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.

Hypothesis One

• H0: Fast moving consumer goods distribution network have no significant effect on customer satisfaction.
• H1: Fast moving consumer goods distribution network have a significant effect on customer satisfaction.

Hypothesis Two

• H0: There is no significant contribution of distribution network channel on customer satisfaction.
• H1: There is a significant contribution of distribution network channel on customer satisfaction.

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1.7 Significance of Study

The study would help companies in developing strategies or maybe performing an overhaul in the customer relationship management approaches being used. It would also be significant to the customer in appreciating customer relationship management with the suggestions it recommends and also in attaining satisfaction.

Furthermore, employees and people who are involved in the system that manages customer relationship would be able to understand better the needs of the customer in regards to satisfaction and proffer sustainable solutions.

This study will also be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.

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1.8 Scope of Study

The scope of the research is focused on the Impact of Distribution Network of Fast Moving Consumer Goods in Nigeria.

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1.9 Limitations of the Study

During the course of this study, many things militated against its completion, some of which are:

1. Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
2. Establishment Policies: Establishment policies posed a serious limitation as most staffs are not ready to release information needed for this project work. There were lots of information needed from the staffs of this establishment to enhance the study which took them time to release or they did not release at all for security purposes, hence the scope was reduced.
3. Research material: availability of research material is a major setback to the scope of the study.
4. Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
5. Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

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1.10 Definition of Terms

Supply: To provide, give, sell, or make available something that is wanted or needed by somebody or something.

Distribution: The handing out or delivery of things to a number of people.

Customer: This is a person who patronizes a business or shop, buying its products and possibly engaging in further dealings.

Customer Satisfaction: This relates to the measure in which customer’s expectation of a business product is realized or surpassed.