“Channels of distribution” is the term used to describe the processes through which a product or service is brought to market, from the initial extraction of the raw materials to actual consumer purchase.

The distribution chain for manufacturing businesses usually begins with the raw material inputs purchased from a source that precedes the manufacturer in the channel.  What follows production by the manufacturer is a chain that moves the product(s) from the manufacturing facility to market. A manufacturer may rely on a wholesaler, or other means of distribution, to keep inventories of it’s product(s) and deliver the goods either to retailers or direct to customers. On the other hand, a manufacturing business that involves itself directly in other levels of the distribution channel (for example, a blue jeans manufacturer that decides to open it’s own retail stores to sell the products it makes) is said to be practicing vertical integration.

Sometimes, there are links in the distribution chain that precede the wholesaler (such as a manufacturer) so a distribution chain for a wholesale business might involve three steps: Wholesaler to retailer to customer and four entities: Manufacturer to wholesaler, wholesaler to retailer, retailer to customer.  There might even be more steps in the process.  For example, a customer might shop at a retail clothing store that depends on a wholesaler, who depends on manufacturers, who in turn depends on textile mills for raw materials.  

Your business may have several different channels of distribution in place.  For example, a lumberyard might cut some of it’s own wood to sell, but it might also buy some from a raw materials supplier.  By the same token, a seafood restaurant might catch and clean some of it’s own fish, but it would add a channel of distribution if it chose to purchase some fish from a supplier.  Similarly, a toy wholesaler may sell several products directly to the public, but it may also sell some to retail outlets.

In your business plan, include any channels of distribution that your business is currently using or will use in the future.  Be specific in the description of each channel.  Remember to consider all options such as purchase from wholesaler, purchase from manufacturer, purchase from imports, etc.  On the selling side, remember to consider channels such as vending machines, sale to other retailers, export, multilevel marketing, etc.