Distribution channels are the pathways that connect your products or services to your customers. They can include wholesalers, retailers, distributors, agents, brokers, or online platforms. But how do you know if your distribution channels are effective, efficient, and aligned with your business goals and customer preferences? That’s where a distribution channel audit and evaluation process comes in.

Whether you’re manufacturing cell phones, baby formula or healthcare products, product diversion within your distribution channel is a big problem today. While there is no authoritative source to accurately assess the financial exposure to affected companies, estimates are in the billions of dollars annually.

Manufacturers that offer monetary consideration (rebates, charge-backs, co-op credits, etc.) as a form of pricing through their distribution channel are most vulnerable to diversion activity.

Implementing an audit program is a major step organizations can take toward controlling diversion. However, putting a business partner on notice that it will be subject to an audit is a difficult step for manufacturers in any industry.

An audit initiative that is properly planned, communicated and executed can dispel these apprehensions. While it can be viewed as a mild annoyance, it has been our experience that the honest and compliant business partners will support such an initiative, because they too understand the threat posed by persistent product diversion. The non-compliant distributors are a threat to the entire distribution system as they are costing manufacturers millions in unwarranted and unearned discounts and rebates and could increase their exposure to product liability lawsuits.