Three basic problems of exchange must be resolved by the overall distribution processes. The first is basic need to match specialized production with specific demand. In matching process resolves discrepancy of quantity, assortment, and search during the distribution process. The second problem is one of spatial discrepancy, which involves the transportation of goods from to location of production to location of consumption. The third problem is to reconcile supply with demand when they occur at different times.
These basic exchange problems are resolved by the overall distribution process. The manner by which distribution arrangements resolve these inherent problems represents the core of channel theory. In this article the key processes of sorting, spatial closure, and temporal closure are reviewed. Each process is fundamental to high level distribution.
Specialization and competition for differential advantage creates a wide range of products and services. Manufacturers and producers supply large quantities of unique products that are demanded by other producers of intermediary businesses and consumers in combination. Each buying unit seeks a unique assortment of goods. The process of reconciling discrepancies in quantity and assortment is sorting. The quantity of an individual product demanded for a specific assortment is typically much less than the quantity manufactured. Furthermore, specialized production tends to be geographically concentrated. In contrast, demand is typically scattered in time and location.
Sorting is the distribution process used to overcome discrepancy of assortments and reduce required searching. The sorting process was first described by Hovde and more fully developed by Alderson. Sorting consists of four basic activities (1) standardization (2) accumulation, (3) allocation, and (4) assortment
Standardization is the task of collecting uniform products from alternative suppliers. The idea of standardization evolved from agriculture, where grains and fruits needed to be sorted by quality grade. In an industrial context, standardization consists of grading manufactured goods. Businesses specializing in standardization typically concentrate in specific products. Thus, they often function as the standardization specialists for a specific industry.
Accumulation: Because of the vast geography of many producing areas and the dispersion of buying units, it is necessary to match supply and demand. From a practical viewpoint, no individual business can control the entire supply of any product. Accumulation consists of assembling standard products into large quantities. Accumulation is typically performed geographically closer to demand than is standardization. For example, standardization of the state of Washington’s apples will typically occur near the orchards, while accumulation will usually be performed in major markets by product and fruit wholesalers. One purpose of accumulation is to reduce transportation cost. Transportation cost reduction results from moving quantities in truckloads to the accumulating business rather than shipping many small amounts long distances directly to retailers.
Allocation is the development of adequate suppliers to satisfy the demand of numerous customers. Allocation results in a broad choice of individual goods that have similar or related end use. For example, tools, house-wares, and building materials, may be purchased from the same wholesaler. Similarly carpets, drapes, and future can often be purchased from a single source. Allocation represents the general wholesale stage of the distribution process.
Assortment: The last stage in sorting activity is the assembly of specific gods into a customized order. A department store, for example, must offer a product assortment that appeal to specific clientele. Department store buyers must arrange an overall merchandise assortment consisting of men’s and women’s clothing, appliances, hardware furniture and so forth. With assorting a retailer achieves a customized selection of merchandise designed to satisfy its specific customers.