The Flow Of Goods Through Distribution Channels
( Originally Published 1939 )
ALTHOUGH THE primitive market dealt in many of the necessities of life, it was not the place to which most people went to obtain those necessities. People generally still lived on farms or in small isolated villages. The family was generally a self-supporting unit supplying most of its own needs from its own labor. Only the surpluses were sold to traders or bartered in the market place. In modern America, however, as an almost universal rule, we go to the market place for almost everything we need; whereas, in our capacity as producers, we produce nothing but surplus. If we are engaged in the textile industry, for instance, either as employers or employees, it is not for the purpose of supplying ourselves with cloth. Individually we might be able to turn our hands to a number of things, but there is only one thing we can do with a textile mill, and that is to make textiles for the market.
The ancient market place, therefore, has grown into a vast and complex system of modern distribution. Without it, we could not enjoy the advantages of mass production, for every one of the specialized products of modern industry must be sold and resold, sometimes many times, in raw, unfinished, or finished form, before it finally reaches the ultimate consumer. Since this study aims to measure and appraise methods and costs of distributing goods in the United States, it is important first to show the size of the task of commodity distribution as a whole and the diversity of channels through which goods move from their primary sources through processing and fabrication to their final destination.
At one end goods enter the economic system in the form of the crude products of agriculture, mining, forestry, and fishing, or as imports from abroad. Distribution begins as soon as these commodities leave the farms, mines, and forests, or the ports of entry, and continues at every stage of their movement through the system which finally delivers them in finished form and at the desired time and place to the millions of consumers and consuming institutions in the United States. Some of these primary products move directly from their source to the consumers, but this is exceptional. Ordinarily even fresh foodstuffs, coal, imported articles, and other products ready for consumption move first through the hands of intermediary or wholesale dealers and retail stores before they reach consumers. Raw materials destined for manufacture may move direct from primary sources to the factories, but here too the services of intermediary dealers are usually required.
Similar complexity and diversity characterize the distribution of semi-finished and finished manufactured products. Semi-finished manufactures may be sold and delivered directly from one factory to another or may go through wholesale channels. Factory-made goods in finished form may be sold and delivered directly to consumers or consuming institutions, or directly to retail stores; but the great bulk of such products enters wholesale channels where further sales and resales may take place before it goes through retail channels to consumers. Obviously distribution is far from being the straight-line transfer from farmer to manufacturer to wholesaler to retailer to consumer which it is sometimes considered to be. True, a large part of the, distributive task is of this sort. But the work of the middleman in distributing raw materials and semi-finished products commences long before manufacturing begins and reappears repeatedly between various processing, fabrication and assembly operations performed in different factories.