In informal terms, direct distribution often is described as eliminating the middle man. It is a distribution system in which manufacturers produce or create products and sell them directly to a business or consumer buyer. This approach often has cost savings for the business and value benefits for the customers. However, there are some drawbacks and risks.

Warehouse Management

To sell directly, you typically need your own distribution center or warehouse to hold completed inventory. This means owning or renting a building, hiring labor to manage storage, shipment and logistics, paying utilities and possibly throwing out inventory that goes bad or expires. These costs can offset or even exceed the profits you give up when you avoid the wholesale and retail steps in distribution.

Limited Expertise

A primary reason there are different providers at each step of the distribution process, including wholesale and retail, is that each type of company has its own expertise. Distributors are experts at receiving, organizing and managing inventory as well as logistics and transportation. Retailers are experts at holding inventory for customers and providing sales and service support. Manufacturers don't always have the requisite expertise to coordinate all facets of the distribution process. To use the direct distribution approach may involve greater investment than is worthwhile.

Delayed Response

Even if you quickly get products out the door when customers place orders online or on the phone, you can't get a product delivered as fast as a customer usually can get it from a local retailer. This is a competitive disadvantage because customers are notoriously in favor of instant gratification. Thus, all other factors being equal, a customer normally would opt for the local retail store versus ordering a product and waiting for you to deliver it.

Sales Requirements

Manufacturers normally have a sales staff that meets with distributors or retailers to convince them to carry the products to market. If you distribute products directly, you may require a full sales staff that sells directly to customers. This may coincide with other promotional techniques like advertising. The ongoing task of managing and paying a sales force is another element that goes beyond typical manufacturer expertise in designing, making and selling products to distributors.