Distribution MGMT BIMS

Distribution Management & The Marketing Mix
The Marketing Mix

Product Place Price Promotion Distribution channels help in the place aspect of the marketing mix Distribution provides place, time and possession utility to the consumer
Example
Consumer wants to buy a tube of toothpaste Made available at a retail outlet close to her residence place Made available at 8 pm on a Tuesday evening when she wants it time She can pay for the toothpaste and take it away possession The company distribution function has made all this possible. The situation would be similar if a customer wants to buy a refrigerator or medicines or even an electric motor
Players Involved
The company and its distribution network
Direct company to consumer Company to a C&FA / distribution center to distributors to retailers Distributor to wholesaler to retailer
All these intermediaries help the process of exchange of the product or service.
What is distribution management?
Distribution Management
Management of all activities which facilitate movement and co-ordination of supply and demand in the creation of time and place utility in goods The art and science of determining requirements, acquiring them, distributing them and finally maintaining them in an operationally ready condition for their entire life.
A distribution channel
Distribution Channels Defined

Are sets of interdependent organizations involved in the process of making a product or service available for use or consumption Stern & Ansary
Whether selling products or services, marketing channel decisions play a role of strategic importance in the overall presence and success a company enjoys in the marketplace.
Distribution Channels
Are intermediaries or middlemen
Exist because producers cannot reach all their consumers Multiply reach and provide efficiency to the marketing process Facilitate smooth flow and create time, place and possession utilities Have the core competence and reach Provide contact, experience, specialisation and scales of operation
Types of Channels
Sales: motivates buyers, shares information between company and its consumers, negotiates fair bargains for consumers and finances the transactions Delivery channel meant only for physical part of the distribution Service channel performs after sales service
Channel members
Listing of Channel Members

Company own sales team C&FAs and CSAs Distributors, dealers, stockists, value-added re-sellers Agents and brokers Franchisees Electronic channels Wholesalers Retailers
C&FAs / C&SAs
C&FA: carrying and forwarding agent and C&SA: carrying and selling agent both are on contract with a company Both are transporters who work between the company and its distributors Collect products from the company, store in a central location, break bulk and despatch to distributors against indents Goods belong to the company C&SA also sells the goods on behalf of the company but remits proceeds after sale
Distributors, Dealers, Stockists, Agents

Name denotes the extent of re-distribution done by them Distributors invest in the products buy products from the company Are on commission, margins or mark-up May or may not get credit but extend credit Distributors cover the markets as per a beat plan. All others merely finance the business. Distributors could be exclusive for a company Agents bring buyer and seller together
Wholesalers
Operate out of the main markets Deal with a number of company products of their choice Are not on contract with any company Sell to other wholesalers, retailers and institutions Negotiate about 15 days credit from company distributors also provide credit to their customers Operate on high volumes and low margins
Retailers
The final contact with consumers Operate out of their shops and sell a large assortment and variety of goods Located closest to consumers Buy from company, distributors or wholesalers Highest margins in the network Provide personalised services to their customers
Industrial Products
Customers may also direct from company sales force
Producer Producer
Agent/middleman
Industrial Distributor
Industrial Distributor
Industrial Customer
Industrial Customer
Consumer Products
Retailers may also direct from company sales force
Producer Producer Producer
Distributor
Distributor
Wholesaler
Retailer
Retailer
Retailer
Customer / consumer
Customer/ Consumer
Customer/ Consumer
Patterns of Distribution
Determines the intensity of the distribution Intensity decides the service level provided Types of distribution intensity:
Intensive Selective Exclusive
Distribution Intensity
Intensive: distribution through every reasonable outlet available FMCG Selective: multiple, but not all outlets in the market pharma, frozen food Exclusive: may be only one outlet in a market - car dealers
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Intensive Distribution
Strategy is to make sure that the product is available in as many outlets as possible Preferred for consumer, pharmaceutical products and automobile spares
Selective Distribution
A few select outlets will be permitted to keep the products Outlets selected in line with the image the company wants to project Preferred for high value products
Tanishque jewelry
Keeps distribution costs lower
Exclusive Distribution
Highly selective choice of outlets may be even one outlet in an entire market Could include outlets set up by companies Titan, Bata Producer wants a close watch and control on the distribution of his products.
Channel strategy
Distribution Channel Strategy

Derived from the corporate strategy and the marketing strategy Steps for designing the distribution strategy are:
Defining customer service levels Distribution objectives and steps Structure of the network required Policy and procedure to be followed Key performance indicators Critical success factors
Customer Service Levels

Defined by the nature of the industry, the products, competition and market shares. Affordability also decides the service level It should at least match competition. Customer expectations have no limit
Distribution Objectives
Influenced by the customer expectations Defines the extent of time, place and possession utility which the customer can expect out of the channel network
Set of activities.
Set of Activities
Manner in which the company and its marketing channels go about achieving the customer service levels Some of these steps could be:
Sales forecasts Despatch plans Market coverage beat plans Journey plans for service engineers Collection of sales proceeds Carrying out promotional activities
The company also decides as to who is to perform which task Organization.
Distribution Organization
Extent of company support and outsourcing to be decided Budget for the cost of the distribution effort Select suitable channel partners C&FAs, and distributors Setting clear objectives for the partners Agree on level of financial commitments by the channel partners.
Policy and procedure..
Policy & Procedure

Define policy and implementation guidelines through Operating Manuals Policy guidelines include
Code of conduct for channel members System for redressal of complaints Any additional subsidies etc Handling institutional business Service policy for engineering products
KPIs.
Key Performance Indicators

For measurement of effectiveness. Some of these could be:
Consistent achievement of targets by product groups, periods and territories Achievement of market shares Achievement of profitability Zero complaints from customers No stock returns Ability to handle emergencies and sudden spurts in demand
Key Performance Indicators

For measurement of effectiveness. Some of these could be:
Balanced sales achievement during a period no period end skews Market coverage with ready stocks Excellent management of accounts receivables Minimize losses on account of stock-outs Minimize damages to products
CSFs
Critical Success Factors

The distribution strategy also needs the support and encouragement of top management to succeed Some of the CSFs could be:
Clear, transparent and unambiguous policy and procedure Serious commitment of the channel partners Fairness in dealings Clearly defined customer service policy High level of integrity Equitable distribution at times of shortage Timely compensation of channel partners
Channel Functions
Information gathering Consumer motivation Bargaining with suppliers Placing orders Financing Inventory management Risk bearing After sales support
Vertical Marketing System

Various parties like producers, wholesalers and retailers act as a unified system to avoid conflicts Improves operating efficiency and marketing effectiveness 3 types:
Corporate Administered Contractual
Corporate
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Corporate VMS
Combines successive stages of production and distribution under single ownership Examples:
Bata, Bombay Dyeing, Raymond Sears, Goodyear Suppliers of food items could be also their own supplying firms - like Nilgiris
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Administered
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Administered VMS
Co-ordinates distribution activities Gains market power by dominating a channel Usually true of dominant brands like GE, Kodak, Pepsi, Gillette, Coke and HLL in certain locations
Command high level of co-operation in shelf space, displays, pricing policies and promotion strategies
Contractual
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Contractual VMS
Independent producers, wholesalers and retailers operate on a contract Could take the forms of:
Wholesaler sponsored voluntary chains Retailer co-operatives Manufacturer sponsored retail or wholesale franchise Franchise organizations Service firm sponsored retail franchise
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Horizontal MS
Two or more unrelated companies join together to pool resources and exploit an emerging market opportunity
In-store banking in hotels, big stores Retail outlets in petrol bunks Coffee Day outlets in airports
Multi-channel
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Multi-channel Distribution
Company uses different channels to reach / same or different market segments
Most FMCG companies have separate networks for retail market and institutions Pharma companies may use different channels to reach doctors, chemists and hospitals
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Multi-channel Distribution
Used in situations where:
Same product but different market segments Unrelated products in same market detergents and ice creams (HLL) Size of buyers varies Geographic concentration of potential consumers varies Reach is difficult
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Distribution Channels
Take care of the following discrepancies
Spatial Temporal Breaking bulk Assortment and Financial support
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Spatial Discrepancy
The channel system helps reduce the distance between the producer and the consumer of his products.
Consumers are scattered Have to be reached cost effectively
Example: companies produce products in one location even for global needs
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Temporal Discrepancy
The channel system helps in speeding up in meeting the requirement of the consumers
Time when the product is made and when it is consumed is different Limited number of production points but hundreds of consumers
Maruti plant in Gurgaon cars and spares are available when the consumer wants
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Breaking Bulk
The channel system reduces large quantities into consumer acceptable lot sizes
Production has to be in large quantities to benefit from economies of scale Consumption is necessarily in small lot sizes
India is the ultimate example in breaking bulk you can buy one cigarette, one Anacin, one toffee etc
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Need for Assortment

The channel system helps aggregate a range of products for the benefit of the consumer it could be made by one company or several of them.
For the same product, it could be a variety of brands and pack sizes
MICO makes fuel injection equipment, spark plugs etc in different plants but its dealer will sell the entire range.
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Financial Support
The channel system provides critical working capital to its customers by extending credit. Some channel members like stockists and wholesalers finance the business of their customers.
Medical diagnostic equipment to hospitals
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Channel Flows
Forward flow company to its customers goods and services Backward flow customers to the company payment for the goods. Returned goods. Flows both ways - information
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Three Flows Recognized

Goods and Services FORWARD
BACKWARD
Payment for goods / returns
Information
BOTH WAYS
Company
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Customers
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The Five Channel Flows

Physical flow of goods Title flow of goods (negotiation, ownership and risk sharing also) Payment flows (financing and payment) Information flow (about goods, orders placed and orders executed) Promotion flows
Who is responsible?
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Channel Flows
Some channel member/s have to perform them There is a cost associated with each flow If a channel member is discontinued, the flow has to be performed by another All flows and transactions can be effective only with timely, accurate and correct information The channel flow is ideally to be handled by the most competent channel member who can deliver best service at the lowest cost.
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Degree of Involvement
Manufacturer C&FA or Distribution Center Physical Title Information Payment Order processing Distributor, dealers Physical Title / ownership Information Payment Order placement Negotiation Risk sharing Promotions Wholesaler or retailer Physical Title / ownership Information Payment Order placement Negotiation Risk sharing Promotions
Physical Title / ownership Information Risk sharing Promotions
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Channel formats
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Channel Formats
Is decided by who drives the channel system:
Producer driven Seller driven Service driven Others
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Producer Driven
This is the effort of the manufacturer to reach the product to his consumers. Examples:
Company owned retail outlets petrol, Bata, Reliance mobiles Licensed outlets KMF Consignment selling agents Franchisees Brokers Vending machines Company contracted distributors
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Seller Driven
Use of existing channels to reach the largest number of end users
Existing wholesalers and retailers Modern retail formats Specialty stores Shoppers Stop Discount stores Subhiksha Pheriwalas
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Service Driven
These are the people who facilitate the distribution
Transporters and freight forwarders Providers of warehouse space C&F agents 3P Logistics service providers Couriers
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Other formats
Multi-level marketing systems Amway, Modicare, Tupperware, Herbalife Co-operative societies Telephone kiosks TV home shopping Catalogue marketing The internet Exhibitions, fairs and trade shows Data base marketing
Channel levels
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Channel Levels
Zero level if the product or service is provided to the end user directly by the company.
Used mostly by companies delivering service like health, education, banking (also known as service channels)
One level consists of one intermediary Two level consists of two intermediaries and is the most common for FMCG products
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Service Channel
Companies establish their own unique channels to deliver services like health, education, banking, insurance etc
Hundreds of bank branches to be close to prospects Banks may also recruit independent agents to get customers to walk in Consulting or IT firm uses one team for Biz Development and another for execution Musician or magician may use mass media, events or web sites to reach customers
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Summarize Expectations
Channel Levels
Manufacturer Manufacturer Manufacturer
Distributor/ wholesaler
Retailer
Retailer
End User
End User
End User
Zero level
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One level
Two level
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Key Learnings
Marketing channels are responsible for flows physical possession, title, payments, information and promotion covered by forward, backward and flows both ways Each channel partner has a different role in supporting customer service through suitable channel flows Number of categories operating in a channel system define the channel levels as one, two etc
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Chapter 10 Channel Institutions - Retailing
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Learning Objectives
Understand what retailing is all about Global retail scene and trends Indian retail scene and trends Types of retailers Trade and retail formats, trading area Retail management strategies and operations Measuring retail performance Franchising and e-tailing FDI in retail in India
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What is Retailing?
Any business entity selling to consumers directly is retailing in a shop, in person, by mail, on the internet, telephone or a vending machine Retail also has a life cycle newer forms of retail come to replace the older ones the corner grocer may change to a supermarket Includes all activities involved in selling or renting products or services to consumers for their home or personal consumption
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Retailing
Term retail derived from French word retaillier meaning to break bulk Characteristics:
Order sizes tend to be small but many Caters to a wide variety of customers. Keeps a large assortment of goods Lot of buying in the outlet is impulse- inventory management is critical Selling personnel and displays are important elements of the selling process Strengths in availability and visibility Targeted customer mix decides the marketing mix of the retailer
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Retailing
Retail stores are independent of the producers not attached to any of them A survey shows that only 35% of supermarket purchases are preplanned. The rest are impulse- greatly influenced by quality of the merchandising efforts
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Functions of Retailers
Marketing functions to provide consumers a wide variety Helps create time, place and possession utilities May add form utility (alteration of a trouser bought by a customer) Helps create an image for the products he sells
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Functions of Retailers
Add value through:
Additional services extended store timings, credit, home delivery Personnel to identify and solve customer problems Location in a bazaar to facilitate comparison shopping
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How do Customers Decide on a Retailer?

Price Location Product selection Fairness in dealings Friendly sales people Specialized services provided
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Kinds of Retailers
Type of retailer
Specialty store Department store Supermarket Convenience store Discount store
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Characteristics
Narrow product line with deep assortment apparel, furniture, books Several product line in different departments Shoppers Stop, Big Bazaar Large, low-cost, low-margin, high volume, self-service operation with a wide offering Small stores in residential areas, open long hours all days of the week limited variety of fast moving products like groceries, food Standard merchandise sold at lower prices for low margins - Subhiksha
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Kinds of Retailers
Type of retailer
Corporate chains Voluntary chain Retailer co-ops Consumer coops Franchise organisation
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Characteristics
More outlets owned and controlled by one firm Globus Wholesaler sponsored group of independent retailers Independent retailers with centralized buying operations and common promotions Co-op societies of groups of consumers operating their own stores farmers, industrial workers etc Contractual arrangement between the producer and retailers selling products exclusively Kemp Toys
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Retailing Scene - Global

Well organised in most developing countries Global biz worth about $ 6.6 trillion Retail market size is $2325 bln in the US and $ 280 bln in India. Organised retail is 85% in the US and about 5% in India. China 20% Taiwan 80% Retail sector is part of the service sector and if organised, is a major contributor to a countrys GDP
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Retailing Scene - Global

High potential for generating employment 2 mln retail outlets in the US employ about 22 mln people Retail sector contributes significantly to the growth of the economy Organised retail is becoming powerful over its suppliers (who may also be big corporates) Producers of goods taking action to protect their turf
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Retailers Strengths
Choice of merchandise is their prerogative put pressure on producer suppliers Many new products on offer. Can charge penalty if products do not do well New developments in IT help them run operations optimally and keep track of loyal customers. Also helps them identify profitable store locations.
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The Indian Retail Scene
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Salient Features
Estimated over 12 mln retail outlets with most of them in the unorganized sector 10 outlets per 1000 population Average per capita space 2 sq ft compared to 15 sq ft in the US Organized retail is estimated between 4 to 7% but growing fast
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Organized Retail
Growing trends attracting global players Some of them like Wal Mart and Tesco have already created buying hubs here. In Jan 2006, GOI has permitted FDI upto 51% in single brand retail outlets Well known brands like Marks & Spencer, Reebok, Levis, Adidas, Nike, Reebok, McDonalds, KFC, Swarowski are already in India.
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Organized Retail - Features

Sponsored by companies or corporate groups Large formats like supermarkets, department stores and now hypermarkets Right ambience to make shopping a pleasure Use latest technology for customer care and supply chain management. Large employment potential Effectively manage operating costs Offer consumers value for money
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Retailing Trends - India

Consumer wants more benefits without additional costs Rising income levels cheap no longer works, but value for money Explosion of communication channels influences choices of products Increased literacy has made consumer more conscious of his bargaining power Growing number of urban nuclear families
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Retailing Trends - India

Influence of retailer increasing assortment plus other facilities offered Rural consumers want the same things and as their urban counterparts and are willing to pay for it Better organized supply chains to cater to a large number of outlets in different locations Improved infrastructure helping the consumers Bigger volumes help in economies of scale
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FDI in Retail in India

MNC players showing interest to operate in India Resistance from the existing players So far only cash-and-carry permitted Franchisees also allowed KFC, Tag Heuer, Swatch, McDonalds Jan 2006, 51% FDI permitted in single brand businesses:
All products should be under the same brand name Same brands should be sold internationally Branding at the time of manufacturing itself
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Trade / Retail Format

Range of goods and customer service dimensions determine the format. Elements distinguish between stores and include:
Store ambience. (Kemp Fort) Saving in time for shopping interiors of practical design reduce time for search and pick-up of goods Location Physical characteristics external appearance, arrangement of goods
All these are parts of the positioning strategy and influence the footfalls to the store.
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Categories of Shoppers (1)

Identified by Cook & Walters Task focused shopper visits the store to buy specific things he has planned for
Convenience, minimum time, easily accessible goods, pleasing store format Grocery shopping is an example
Leisure shopper more interested in the ambience and environment

Has plenty of time, wants to have a good time while shopping Lifestyle stores are examples
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Category of Shoppers (2)

Convenience goods (low value): probable gain from shopping and making comparisons is small compared to the time, effort and mental discomfort required in the search toothpaste Shopping goods (high value): gain is large refrigerator Specialty goods: clearly distinguished by brand preferences Maruti Zen car or TagHeuer watch
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Trading area
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Trading Area
Catchment area from where most of the customers of a retail store come
Corner grocery store caters to the locality in which it is situated Discount stores have a wider area. Subhiksha locations for consumers in 2 km radius Specialty stores have a much wider trading area MTR, Shoppers Stop etc
Trading area increases with the size of the store and the variety it offers
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Retail Strategy
Positioning of the retailer Merchandising Customer service Customer communication
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Positioning Strategy
Wide range with a high value add Lifestyle brand of stores Limited range but a high value add Tanishque jewelry store Limited range with a limited value add Bata stores Wide range of goods but a limited value add a Food World outlet
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Merchandising
A set of activities involved in acquiring goods and services and making them available at the places, times and prices and the quantity that enable a retailer to reach his goals The most critical function in retail Directly effects the revenue and profitability of the store Also takes into account the assortment of goods and their quality
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Customer Service Strategy

Developed to create stickiness in customers Personal data collected using IT including purchasing practices and preferences Customer loyalty programs planned Create customer delight Location strategy to give competitive advantage Understanding the buying profile of the customers
Communication
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Customer Communication
The manner in which the retailer makes himself known to his customers. Has two parts to it:
The messages which the retailer sends to his customers and prospects The word of mouth support which satisfied customers give to the retailer by talking to others
Retailer communicates about:

Announcing the opening of a store Promotions running in the store Additional facilities introduced by the stores
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Pricing Strategy
Premium and indicating high value Reasonable pricing with good value Low pricing but high value for money All strategies are focused on giving value to the customer
Product differentiation.
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Product Differentiation
Feature exclusive national brands not available in competing retailers unlikely Exclusivity of products specialty stores Mostly private labels Westside Feature, big, specially planned merchandising events Kemp Fashion sows Introduce new products before competition -again unlikely
Performance measures
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Retail Performance Measures

Gross margin return on inventory investment GMROI
Gross margin multiplied by ratio of sales to inventory (50%*4= 200%)
Gross margin per full time equivalent employee Gross margin per square foot
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Franchising
Franchisor is the firm which wants to sell its goods or services Franchisee is the firm or group that are willing to sell the products or services on behalf of the franchisor
The first party gives advice and help to the second to find good locations, blue prints for a store, financial, marketing and management assistance
Franchisor benefits
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Benefits to Franchisor
Faster expansion Local franchisee pays lower advertising rates than a national firm Owners motivated to work more hours than mere employees Local taxes and licenses are responsibility of franchisees
Franchisee benefits
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Benefits to Franchisee
Quick recognition among potential customers Management training provided by principal Principal may buy ingredients and supplies and sell to franchisee at lower prices Financial assistance Promotional aids, in-store displays etc
Electronic channels
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Retailing on the Internet

Unlimited assortment Items may not be on hold someone has to deliver the product delays No product touch or feel More info makes the customer a better shopper Comparison shopping possible Consumer has to plan purchases ahead No need to handle cash payment can be on-line Shopping is 24X7
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E-tailing Issues
Logistics support to selling Payment gateway Customer product returns Conflicts with Brick &Mortar overcome by selling separate products
FDI in retail.
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Key Learnings
Any business selling / renting a product or service to a consumer is retailing A consumer selects a retailer based on price, location, merchandise selection, fairness in dealings, helpful sales people and other services Organized retail is growing strong and negotiating better terms from producer suppliers In India, upto 51% foreign investment is permitted in single brand businesses
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Key Learnings
Format defines the physical features of the store and its service Trading area is the catchment area from where the customers of store come from Retail strategy is built on positioning, product offerings, merchandising and communication Retail performance is measured by utilisation of space, inventory and manpower E-tailing is buying goods on the Internet
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Chapter 11 Channel Institutions - Wholesaling
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Learning Objectives
Understand functions of a wholesaler Understand various classes of wholesalers Major wholesaling decisions Benefits and limitations of wholesalers Understand about a distributor in more detail Trends in wholesaling practices
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Need for Wholesalers

Widespread economy consumers can only reached by thousands of retailers (except for consumer durables and industrial products) Reaching these retailers by a company directly is not possible (except for consumer durables and industrial products) Hence the need for wholesalers in two forms:
Well established free-lance wholesalers Contracted distributors, stockists and agents
Characteristics.
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Characteristics of Wholesalers
Operate on large volumes but with chosen group of products
Food, grocery, pharma or automobile spares etc
The company itself, contracted parties or free lancers, can operate as wholesalers Mostly B2B business trade and institutions Wholesaler could also be a retailer in rural markets W/s sells to other retailers and also to consumers
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Characteristics of Wholesalers
Sell physical inputs or products tangible goods ( Ws in some service industries) Optimise results, maximise service (effectiveness) and minimise operating costs (efficiency) Buy goods for resale, keep inventory, take risks of price changes, negotiate terms, procure orders, deliver and extend credit.
Definition
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Definition
Wholesaling is concerned with the activities of those persons or establishments that sell to retailers and other merchants and / or industrial, institutional and commercial users but do not sell in large amounts to consumers US Bureau of Census
Delivering value
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Delivering Value
Keep goods accessible to customers instantly At times, get together to bargain for better terms Pass on benefits or incentives to their customers Have a wide trading area
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Functions
Difference with Retailers

Not too worried about location, ambience or promotions prefer to be in the main market Deal with other businessmen and not consumers Deal with a specific group of products only Much larger trading area Much larger transactions with suppliers and customers Believe in low margins but high volumes.
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Functions of Wholesalers
Varies in degree between free-lance, company distributors and stockists / agents Sales and promotion of chosen company products Buying the assortment of goods Breaking bulk to suit customer requirements Storage and protection of goods till sold
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Functions of Wholesalers
Grading and packing of commodities Transportation of goods to customers Financing the buying of customers Bearing the risks associated with the business Collecting and disseminating market information to both suppliers and customers
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Types of Wholesalers
Full service: stocking, selling, offering credit, delivery and business assistance (company distributors, wholesale merchants) Limited service: range of service is limited (examples include Metro C&C, mail order) Merchant w/s: independent businesses Brokers and agents: bring buyer and seller together do not take possession of goods Others: agri business, auction companies etc
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Limitations of Wholesalers
Some of them do not give complete information to suppliers for selfish reasons Cannot be relied on to do equitable distribution At times, do not want company and customers to meet Tend to hoard goods and influence pricing Consumers have no say in pricing or quality in a w/s dominated system
Major decisions
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Major Wholesaling Decisions

Which markets to operate in Manpower to employ What products to sell Pricing decisions / Promotional support Credit and collections Image and customer perception Warehouse location and design Inventory Control
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Favourable Factors
Companies have limitations in market / outlet coverage. Wholesalers are required to fill the gaps Hundreds of small companies who cannot afford to set up distribution networks need to depend on wholesalers In food grains, fruits and vegetables hardly any organised distribution network. Wholesalers help move goods from farm gate to consumers
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Favourable Factors
Big companies also need wholesalers to get big volumes W/s extend credit to customers. Companies cannot match this Retailers have to visit w/s markets to buy food grains, cereals and pulses buy a lot more.
Unfavourable
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Unfavourable Factors
Companies coverage focus on retailers and institutions through their distributors Using modern retail formats as wholesalers More outlets like Metro C&C being encouraged Enforcing strict price control so that w/s do not sell below company prices.
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Distributor
Is a wholesaler nominated by a company to exclusively re-distribute the company products to its customers in a designated territory. He does not deal in competitors products. Does not sell from his premises. Extends credit selectively.
A redistribution stockist for HLL A distributor for Philips lighting division A distributor for L&T engineering division
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Dealer
Role similar to a distributor but
May not have a clearly defined territory and may sell both in the market and from his shop May deal with competitive products also Extends credit selectively. Dealers in industrial products may have better defined roles.
Examples:
Dealer for an edible oil company A dealer for garment brands
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Stockist
May be working for a company with a designated territory but does not redistribute the stocks. Sells from his premises. Extends credit selectively.
A stockist for paper products A stockist for automobile spares
Re-distribution is visiting customer premises to sell products

Managing distributors.
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Managing Distributors
The principles are similar across industry verticals. FMCG is the most complex. Has the capacity to maximise sales and market shares. Has to ensure buying goods from the company and re-distribution to the trade
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Why necessary?.
Managing Distributors
Distributor responsibilities include:
Buying adequate quantities by Stock Keeping Unit (SKU) for redistribution Ensuring full market coverage of all customers in the territory assigned to him Help finance the operations pays for the goods upfront but extends credit to his customers Maintaining inventory of company products adequate at all times to service the market Assist company in its promotional efforts
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Need for Distributors

Under three circumstances:
For entering a new town For additional coverage in the same town For replacing an existing distributor
For entering a new town, assess the potential for business to decide:
If the town can sustain a full fledged distributor The number of distributors required
Starts with a town profile of potential, number of customers to be serviced and the competition.
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Cost of servicing
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Cost of Servicing
Cost benefit of using distributors to be assessed
Logistics cost of serving the market The number of customers to be covered by category wholesalers, retailers, institutions Frequency of visits to markets and outlets Sales revenue estimate from each visit Markets to be covered with ready stocks or order booking for later delivery Likely collections during each visit gives an idea of the credit requirements
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Expectations
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Expectations from a Distributor

To be stated at the start of the relationship Helps get the right kind of distributor also
Achieving sales targets volume, value and packs Financial commitment on inventory and credit Investment in infrastructure space, vehicles Manpower front line and back office Distribution effort market and outlet coverage as per a beat plan with productive calls Developing new markets and new accounts Managing key accounts and institutional business
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Merchandising and displays in the market Secondary sales efforts and tracking critical for fmcg and pharma (secondary sales is sales from the distributor to the outlets in the market) Effectively handling promotions and schemes initiated by the company Managing damaged stocks
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Organising and participation in promotional events Assist company in making a success of launching new products and packs Handling consumer quality complaints Handling statutory requirements on behalf of the company Payments and remittances promptly to the company
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Key Learnings
Wholesalers are required to reach hundreds of customers and retailers Wholesaler business is usually B2B Wholesalers can be free-lance or appointed by companies like distributors Company distributors are bound by strict operating norms Future of wholesalers in India still seems favourable
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Chapter 12 Designing Channel Systems
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Learning Objectives
Understanding customer needs to define channel objectives Channel design factors, components, issues, steps and process Method of evaluating various channel alternatives How channel partners are: selected, trained and kept motivated Principles of vertical integration and electronic channels
Channel design factors.
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Channel Design Factors

Product mix and nature of the product Width and depth of market / outlet coverage planned Long term commitments to channel partners Level of customer service planned Cost affordable on the channel system Channel control requirements of the company
Steps.
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Channel Design Steps

Define customer needs Clarify channel objectives Look at alternative systems which can meet these objectives Estimate cost of operating the channel system Evaluate available alternatives Finalise the ideal system
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Customer needs.
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Customer Needs
Lot size most convenient pack size which the consumer can buy at a time Waiting time time elapsed between the desire to buy the product and the time when he can actually buy it should be almost zero Variety choice of products, brands, packs Place utility choice of buying where he wants. For a consumer product it has to be at a location closest to his residence
Components
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Channel Design Components

Revenue generation or the commercial part Physical delivery of the goods or services the logistics part The service part to take care of aftersales support Each part of the system is likely to be handled by a different entity.
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Design issues.
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Channel Design Issues

Activities required and who will perform Activities relationship to service levels Number of channel members required and the relationship between categories Roles, responsibilities, remuneration and appraisal of performance of channel members
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Channel Design Process

Similar to any other marketing task
Segmentation
Positioning
Focus
Development
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Segmentation
Putting customers in similar clusters based on their needs
Doctors who prescribe medicines Chemists who dispense medicines Hospitals and nursing homes who use them
Each segment has a different need to be serviced by the channel Gives an idea to the sales manager as to the kind of channel members he should be planning for.
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Positioning
Defines the channel element required to service each of the segments
The sales manager decides the channel partner who is ideal to meet the expectations of the segments. The number of each category of intermediary is also decided based on the number of customers to be serviced in each segment. The service objectives and flows for each channel partner are also frozen
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Focus
It may not be possible to meet the needs of all segments cost and practicality considerations (the managerial talent available for instance) The sales manager has to firmly decide which of the segments he will service The competitive scenario also helps in this decision
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Development
At this stage the channel system is being put in place to achieve the objectives Select the best of the alternatives
Comparison with the most successful competitor could be a good benchmark
Channel partners of competitors may be willing to share best practices of their principals For modifying an existing channel, the gap between the ideal and the existing is to be identified for remedial action.
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Channel Objectives
Defines what the channel system is supposed to do to support customer service. Customer needs could include:
Lot size convenience Minimum waiting time Variety and assortment Place utility
The product characteristics and the market profile also impact the objectives. Competition could also affect the objectives
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Channel Alternatives
Are planned after deciding the customer segments to be serviced and the levels of service
Business intermediaries currently available like C&FAs, distributors, dealers, agents wholesalers and retailers. The number and type of intermediaries required Developing new channel types Roles of each channel member
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Evaluation of Major Alternatives

Cost of operations Ability to manage and control Adaptability Range and volume to be handled
Criteria for evaluation
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Evaluation Critieria
Cost:
If existing sales force can be expanded cost effectively, this is the best alternative Cost of alternatives at different volumes can only be estimated for comparison System with the lowest cost is preferred
Adaptability the channel should be flexible to handle different types of markets and changes in the market conditions Volume and range to be handled Capable even when business grows or expands
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Evaluation Criteria
Ability to manage and control:
Distribution network being an extended arm of the company, the channel partners have some obligations Operating guidelines specify these rules The channel system should help the company enforce these rules fairly to all channel partners Some of the operating rules are
Company trains channel personnel and provides proper product literature

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Selecting Channel Partners

Getting good channel partners is a difficult part of doing business Some of the methods employed to select channel partners are:
Sales people identify prospects and talk to them Press advertising (industrial goods) Existing channel partners can give good references Competitors channel members for reference, not poaching
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Selection Criteria
Qualitative: willingness, confidence in company products, willingness to abide by company rules, building company image, innovativeness etc Quantitative: financial status, infrastructure, location, present businesses, customer relationships, market standing etc
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Training Channel Members

Starts from the time of recruitment Channel member owner and his staff Market views channel member as part of the company he has to behave in a like manner hence training assumes significance Training could be on the job field training or classroom training Training is an ongoing process.
Subjects..
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Subjects for Training

Field training on how the markets are to be worked to achieve sales, collect payments and ensure the right kind of merchandising Class room training on company products, competition and how to tackle it to gain market shares Special meetings for new product launches Submitting reports and maintaining records Statutory compliance
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Subjects for Training

Care of company products Technical specifications and answering FAQs of customers For technical and industrial products recognition of specs, installation procedure, repair and maintenance and effective demonstrations Servicing of automobiles and other engineering products
Motivation.
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Motivating Channel Members

Ambitious volume and growth targets continuous motivation required to achieve Motivation includes:
Capacity building programs Training Promotions support Marketing research support Working with company personnel Incentives
power
146
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French & Raven
Power of Motivation
Reward positive support Coercion- threat of punitive action Referent positive effects of association Legitimate enforcing a contract Expert support of special knowledge Support additional benefits for performers Competition pitting against peers
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Role of ROI..
Channel Members Evaluation

Effectiveness of the distribution channel determines the success of the company Company would like its channel partners to perform at the highest standards possible Need to constantly evaluate performance on sales targets, coverage, productivity, inventory holdings, attending to servicing requests etc
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ROI as a Measure
Leading FMCG companies feel that an ROI of 30% for a distributor is healthy and is a fair indication that he is performing well.
If the ROI is more, additional tasks are given If the ROI is less, the company may provide additional support
Post evaluation tasks include counseling, retraining and motivating. In extreme cases it may result in termination.
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Performance Evaluation
On pre-agreed tasks only. No surprises. Specific targets on periodical basis are set.
Targets on volume and outlet productivity could be for a week or a month Targets relating to increasing market shares or total outlet coverage could be for 6 months Different weightages could be given for each of the parameters for evaluation
The performance appraisal is open and transparent

Modifying a network..
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Steps for Modifying Networks

Service level desired and willing to deliver Activities required to deliver service level, who will do it and at what cost Derive ideal channel structure and compare with existing to know gaps by evaluating based on standard parameters relating to effectiveness and efficiency Action to bridge the gaps and put modified channel system into place Define key performance indicators
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Channel Comparison Factors

Efficiency Effectiveness Scalability Flexibility
Consistency
Reliability Integrity
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Non-store Retailing
Selling door-to-door Vending machines Tele-shopping networks Selling through catalogs Other forms of direct selling Electronic channels
Electronic channels
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Retailing on the Internet

Unlimited assortment Items may not be on hold No product touch or feel More information makes the customer a better shopper Comparison shopping possible Consumer has to plan purchases ahead No need to handle cash payment can be on-line Shopping is 24X7
Vertical integration.
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Vertical Integration
This means owning the channel. The company does the work of production, branding and distribution. Downstream integration means the producer of the goods also does the distribution Eureka Forbes, Bata
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Vertical Integration
Upstream integration means the seller also produces the goods private labels of modern retailers. If the organization does the work of production, branding and distribution, it is said to be vertically integrated. Vertical Integration provides better control over the distribution function
Outsourcing..
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Outsourcing Distribution
Is the most prevalent situation as:
The reach is better The cost may be lower The company can exploit the core competence of its channel partners, which is distribution
Vertical integration is a choice which will become long term and cannot be easily changed once the resources have been committed. However, direct distribution (owning the channel) is still the best solution for intensive distribution.
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Key Learnings
The nature of distribution channels required in different situations is based on a number of factors Channel design takes into account all the service deliverables required by customers Intensity of distribution determines the number of intermediaries required Distribution can be in-house (vertical integration) or out-sourced Channel design alternatives are assessed primarily on effectiveness and efficiency
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Key Learnings
Channel alternatives are evaluated on cost, ability to control, adaptability and capability to handle range and volume. Training of channel partners can be in the class room or on the job and is a continuous process Motivating channel partners can be done using different power equations There are different formats of non-store retailing like catalogues, internet etc Electronic channels are used to sell products to consumers directly
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Chapter 14 Channel Information Systems
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Learning Objectives
Understand importance of information systems for management of channels Elements of channel information systems How information systems are used to impact channel service objectives Performance measures for channels Understand principles of channel implementation
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CIS Purpose
CIS is Channel Information Systems CIS is the orderly flow of pertinent operational data both internally and between channel members, for use as a basis of decision making in specified responsibility areas of channel management CIS is of primary use of sales managers.
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Information - Advantages
Useful in marketing planning helps improve quality of marketing decisions Can help tap market opportunities Provides an alert against competition Helps spot trends favourable or otherwise Helps develop action plans for growth Gives feedback on consumer needs
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Classification of Information
Based on the use made of it by marketing planning, operations, decision making or control Based on subjects consumers, products, competition, channels, promotions, pricing, sales volume, value etc Operations data facts and figures Also based on assumptions, anticipated occurrences forecasts relating to the channel system
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Information Process
COLLECTION
PROCESSING
STORAGE
USE
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Information Process
Collection: acquiring and placing raw data monthly sales by each territory Processing: analyzing data to get meaning out of it arranging, modifying and interpreting the data by the user comparison of sales between periods Storage: keeping the information intact till it is needed Use: application of information for management decision making sales data of the last 6 months to forecast the sales of the next month.
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Development.
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Developing a Channel MIS

Decide what information is required
Organize information in a manner suitable for interpretation and action
Decide who will use the information when and for what purpose
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Use of Information
Planning: sales forecasts or distributor indents Control: expenses against budget There is always a cost of collecting information. If data collected is not used properly, the data provider will hesitate to give the information. The channel MIS works at the sales operational level. It has very little strategic intent.
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Sources of Data
Reports (oral and written) and records of channel members, sales people Letters, statements and market research Any other info collected by the sales people and the channel members from the market External sources like business publications, magazines, newspapers, trade journals. In a dedicated channel system the collection of info is well streamlined in the JC meeting With use of IT enabled systems collection and processing has become simpler.
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A Good Channel MIS

Integrated system to handle all regular data Useful decision support system Reflects the style of the marketing organization User friendly and user oriented Convincing to the providers of the info as to its purpose Be cost effective Not need for verification from other sources Be fast and totally reliable
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Element Importance
In a good channel MIS, it is necessary to define upfront for each element of the MIS, the following:
Purpose of the info Source of the info Action possible Impact on customer service
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Example
Competition Tracking
Purpose Source Action possible Impact on service Plan day to day corrective action to protect market shares and shelf space Trade, channel partners and sales people Spot action while in the market and taken by channel partners or sales people Timely action to provide better support to the trade and retain their goodwill
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Channel Performance Evaluation
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Evaluation Criteria
Channel system can be evaluated on how well it provides time, place and possession utilities Formal channel evaluation only with contracted channel members Independent wholesalers and retailers may not accept any evaluation by a company Periodicity of evaluation and parameters like achieving targets market coverage etc agreed with channel partners.
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Distributor Evaluation
Once a month by the sales people on the performance of the previous month on all agreed criteria Criteria varies with the category of channel member, nature of the product and the nature of customers.
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Evaluation
Each of the primary criteria can be given a weightage and performance scores worked
Criteria Weightage %-X Criteria score (1 to 10) - Y Weighted score X*Y
Sales target achievement Inventory management Selling resources Market coverage Back office support
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3.50
15 15 10 10
8 7 8 6
1.20 1.05 0.80 0.60

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Tata McGraw Hill Publishing Overall performance score 7.15
Evaluation
Each of the primary criterion can be broken down into it components and also rated.
Criterion Primary sales Secondary sales Achievement of secondary sales target Sales growth by period Market share achievement Sales target achievement Performance SDM Ch 14 score Weightage %-X Score 1 to 10 - Y Weighted score X*Y
15 50 20 10 5
8 7 7 8 6
1.20 3.50 1.40 0.80 0.30 7.20

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Evaluation Overall Rankings

Channel member Overall performance score Ranking
A B C
7.39 7.20 7.15
1 2 3
D
E
6.89
6.56
4
5
F
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5.60
6
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Overall Rankings - Action

Bottom 20% to be warned to improve performance Top scorers have potential to give more business to the company to be encouraged Consistent poor performance will entail dismissal
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Implementation Principles
More relevant where member is bound by a contract. Wholesalers and retailers are involved in the implementation to the extent that the company wants to cover them with its product presence. The most critical issue in implementation is the intensity of distribution desired. This is more relevant to FMCG, pharma kind of products and not so much for consumer durables or industrial products
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Influencing Factors
Intense distribution allows consumer to shop where he likes for the product Intensive distribution increases sales good companies insist on retail distribution intensity Selective or exclusive distribution may result in loss of sales opportunities Channel members feel widely distributed product must be a fast seller. Equitable efforts are required in selling all brands and packs of the same company
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Influencing Factors
Intensive distribution is more expensive and requires more supervision For consumer electronics or durables intensive distribution may result in freeriding situations Channel members prefer selective distribution the company should give the products only to them
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Influencing Factors
If a brand has a strong consumer franchise, no outlet can ignore it HLL brands distribution becomes intensive Channel partner or reseller also has a choice on what he wants to stock and sell If the product category is important and competition is severe, selectivity is a costly option
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Implementing Rules
Low value goods: cigarettes, soaps, shampoos intensive distribution fmcg kind of low investment but mass based. High value goods: electronic goods or consumer durables buyer makes comparisons across outlets selective Specialty goods: Mont Blanc pen or Tag Heuer watches exclusive distribution.
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Intensive - Factors
Influence of channel principal decreases with intensity Channel members competitors also have same products Higher quality positioning does not match higher intensity Depends on the target market Takes into account the importance of the market and prevailing competition more intense the competition, more the intensity of distribution
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Selective - Factors
Can cut costs but may prove inadequate lower selling expenses, higher promotional allocations, larger transactions, more accurate forecasting of demand Channel members margins may be better Better influence over channel members Manufacturer attracts more aspirants Suitable for new product or testing the market
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Key Learnings
Channel information systems is to collect and analyse data about operations of channels CIS uses methods and sources to collect, process, store and use pertinent information for decision making Steps for development of a CIS are: decide info required, organize info in a suitable manner and decide users with purpose A CIS can include all elements of interest to sales managers to operate better
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Key Learnings
The channel evaluation system checks as to how well the system reaches the products or services to customers Channel implementation is guided by the intensity of the distribution required For products with a large consumer base, intensive distribution is preferred Under specific circumstances, selective or exclusive distribution has advantages.
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Chapter 13 Channel Management
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Learning Objectives
Understand how and why channel conflicts occur Look at ways of managing conflict Channel practices followed to resolve conflicts Principles of channel management Various parameters on channel policy Way in which services use marketing channels
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Channel Management
Is in three broad phases:
Use of power bases Identifying and resolving channel conflicts Channel co-ordination
Use of power.
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Use of Power Bases

Channel system has a set of players:
Not equally motivated to implement the ideal channel design Whose expectations from the system differ
Use of the 5 power bases brings diverse channel partners in line for effective implementation
5 power bases are: reward, coercion, legitimate, expert and referent (French & Raven) Two more power bases in the Indian context are support and competition
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Use of Channel Power

Channel members are dependent on each other. The power equations between them keep them working together. There are basically 5 types of power bases reward, coercion, expert, reference and legitimacy. 2 more can be considered as support and competition. Extent of dependence defines the power base which is appropriate.
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French & Raven
Power of Motivation
Reward incentives for good performance Coercion threat of punishment for nonperformance Referent benefit of sheer association with a strong company Legitimate arising out of a contract Expert specialized knowledge Support additional benefits for better performers only Competition created between channel partners Countervailing power
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Countervailing Power
Balances the power exerted by one channel member. It is not a one-sided equation. Both the channel member and the principal can have influence on each other. Results from interdependence within the channel system.
Company exerts power on the distributor to get its coverage and revenues Distributor has enough influence on his customers and this is critical for the company also Weaker partners do get exploited ancillary units
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Co-ordination
195
Channel Co-ordination
Channel system is well co-ordinated if each member understands his role correctly and performs it to help the system achieve its customer service objectives. In a co-ordinated channel:
Interests of all channel members are protected Actions of all are in line with overall objectives Flows are streamlined to desired customer service objectives
Channel co-ordination is an on-going effort

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Conflict.
196
Channel Conflicts
Conflict is generated when actions of any channel member come in the way of the system achieving its objectives Three broad categories of channel conflict are:
Goal conflict understanding of objectives by various channel members is different Domain conflict understand responsibilities and authority differently Perception conflict reading of the market place is different and proposed actions vary
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Channel Conflict
CONFLICT
GOAL
DOMAIN
PERCEPTION
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Channel Conflict
Situation of discord or disagreement between partners in the same channel system has negative connotations and is driven more by feelings than facts Conflict is part of any social system getting disparate entities to work together as in a channel system is also one such social unit If any member feels that another is working in a manner as to affect him, conflict results
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Conflicts Result From

Each channel member wanting to pursue his own goals Each wants to retain his independence There are limited resources which all of them want to utilise in achieving their goals Features of conflicts:
Initially latent and does not affect the working Is not normally possible to detect till it becomes disruptive
Four stages.
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Four Stages
LATENT
PERCEIVED
FELT
MANIFEST Each stage is progressively more severe than the earlier one Tata McGraw Hill Publishing
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Types of Conflicts
Latent Conflict:
Some amount of discord exists but does not affect the working or delivery of customer service objectives. Disagreement could be on roles, expectations, perceptions, communication.
Perceived Conflict:
Discords become noticeable channel partners are aware of the opposition. Channel members take the situation in their stride and go about their normal business No cause for worry but the opposition has to be recognized
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Types of Conflicts
Felt Conflict:
Reaching the stage of worry, concern and alarm. Also known as affective conflict. Parties are trying to outsmart each other. Causes could be economical or personal Needs to be managed effectively and not allowed to escalate.
Manifest Conflict:
Reflects open antagonistic behaviour of channel partners. Confrontation results. Initiatives taken are openly opposed affecting the performance of the channel system. May require outside intervention to resolve
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Reasons for Channel Conflict

Roles not defined properly Allocation of scarce resources between members seem unfair to some Differences in perception of the business environment
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Reasons for Channel Conflict

Future expectations not likely to materialize Decision domain disagreements who has to decide on what (key account pricing) Channel members do not agree on objectives Misunderstanding or mis-interpretation of routine business communication
Resolving.
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Resolving Conflicts
A 4 Stage Process
Understanding nature and intensity
Tracing the source of the conflict
Understand the impact of the conflict
Strategy and plan of action for resolution

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Conflict Resolution Styles

Avoidance Aggression Accommodation Compromise Collaboration Least effort and results
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Styles are a combination of assertiveness and co-operation.
Maximum effort and Best results

Kenneth W Thomas
207
Avoidance
Used by weak channel members. Problem is postponed or discussion avoided. Relationships are not of much importance. As there is no serious effort on getting anything done, conflict is avoided.
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Aggression
Also known as a competitive or selfish style. It means being concerned about ones own goals without any thought for the others. The dominating channel partner (may be the principal) dictates terms to the others. Long term could be detrimental to the system.
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Accommodation
A situation of complete surrender. One party helps the other achieve its goals without being worried about its own goals. Emphasis is on full co-operation and flexibility in approach. May generate matching feelings in the receiver. If not handled properly, can result in exploitation
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Compromise
Obviously both sides have to give up something to meet mid way. Can only work with small and not so serious conflicts. Used often in the earlier two stages.
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Collaboration
Also known as a problem solving approach Tries to maximize the benefit to both parties while solving the dispute. Most ideal style of conflict resolution a winwin approach Requires a lot of time and effort to succeed. Sensitive information may have to be shared
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Channel Policies
Defines how the channel is required to operate. Normally framed by the channel principal to guide the operations of the channel system If not framed properly could prove the starting point of channel conflicts. Some subjects of channel policies could be as seen in the next slide:
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Channel Policies
Markets to be covered Customer coverage Pricing Product portfolio to be handled Selection, termination of channel members Ownership of the channel
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The Services Sector

Twice the size of the manufacturing sector Services offered are to be in line with customer demand Services have to be presented in an appealing manner to sustain customers. Needs specialized channels which understand the characteristics of service delivery
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5 Characteristics of Services
They are intangible can only be felt. No visual features like size, style. They are inseparable from their service providers a 3P cannot deliver They cannot be standardized custom made and delivered Customers are involved to a great degree define the services They are perishable cannot be stored for delivery later. Salvage value of an unsold service is zero.
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Channels Used
Shorter channels than for products Some channels used are:
Direct from service provider to user Agents or brokers to bring buyer and seller together Franchisees or contractors Electronic channels
High degree of customization is provided

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Key Learnings
Channel management is done by: use of power bases, identifying and resolving channel conflicts and co-ordination Channel conflicts could occur due to: goal conflicts, domain conflicts and perception conflicts Channel conflicts pass thru the 4 stages of latent, perceived, felt and manifest. Conflicts are avoided with the use of power bases of rewards, coercion, expertise, legitimacy and reference. There are 5 styles of conflict resolution: avoidance, aggression, accommodation, compromise and collaboration
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Key Learnings
Channel conflicts are resolved by joint membership of associations, exchanging personnel or arbitration Channel management involves the four steps of planning, organisation structure, control of the channels and measuring performance for continuous improvement Services are distinguished by 5 characteristics of being intangible, inseparable from service providers, cannot be standardised, customers are involved in service delivery and are perishable. Distribution channels should take these into account.
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Chapter 15 Market Logistics & Supply Chain Management
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Learning Objectives
Principles of materials management, logistics and supply chain management Logistics interface with other functions Inventory management principles and systems Warehousing management fundamentals Transportation management practices How IT enables the logistics function Understand about the performance measurement of the logistics function
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Materials Management
Materials forms the largest single cost item in most manufacturing companies needs to be carefully managed Materials management function includes planning and control, purchasing and stores and inventory control Materials management is the precursor to logistics and supply chain management
Logistics
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Logistics Defined
Logistics means having the right thing, at the right place, at the right time The procurement, maintenance, distribution and replacement of personnel and materials Websters Dictionary The science of planning, organizing and managing activities that provide goods or services Logistics World, 1997
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Logistics
Functions: planning, procurement, transportation, supply and maintenance Processes: requirements determination, acquisition, distribution and conservation Business: science of planning, design and support of business operations of procurement, purchasing, inventory, warehousing, distribution, transportation, customer support, financial and human resources
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Scope of Logistics
Choice of markets Procurement Plant location and layout Inventory management Location and management of warehouses Choices of carriers, mode of transport Packaging decisions Relevant to all enterprises: manufacturing, Government, Institutions, service organisations
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Components of LOG Management

Input
Natural Resources (land, facilities Equipment) HR Finance Information
Logistics Activities
Customer service Demand forecasting Distribution Communications Inventory control Materials handling Order processing Parts and service support Plants and warehouse selection Procurement Packaging Return goods handling Salvage and scrap disposal Traffic and transportation Warehouse and storage
Output
Marketing Orientation (competitive Advantage) Time and Place utility Efficient move to customer
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Links and Flows

General material flow/ service flow Information flow Information flow
Customers customer
Customer
Lead Firm
Supplier
Suppliers supplier
General cash flow Outbound / Downstream logistics Inbound / Upstream logistics
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Source: ICFAI227
Logistics and Marketing

Interface on:
Product design and pricing Customer service policies Sales forecasts and order processing Inventory policies and location of warehouses Channels of distribution and despatch planning Transportation to reach products to customers
Production wants larger production runs to minimise time spent on set up changes on the machines. Marketing wants smaller runs of a variety of products.
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Source: Michael Porter
The Value Chain

S U P P P O R T
Company Infrastructure
Organisation, people, methods

Systems & technology Procurement
margin
Inbound Operations logistics
Outbound Marketing logistics & sales
Service
margin
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Tata McGraw Hill Publishing Primary activities
229
Logistics Plan Outline

Internal analysis (current position)
Organisation Human resources Transportation Relations with internal customers Quality of product Quality of Service
External / situation analysis

Competitor logistics performance Trends External environment / economy Public, private and contract warehouse Public, private and contract carriage Tata McGraw Hill Publishing SDM Ch 15
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Principles of Logistics Excellence
Strategic Link logistics to corporate strategy Organise comprehensively Use the power of information Emphasise human resources Form strategic alliances
Operational Focus on financial performance Target optimum service levels Manage the details Leveraging logistics volumes Measure and react to performance
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Logistics Focus Areas

Customer service related Packaging Order processing Spare parts and service support After sales Customer service support Demand forecasting Distribution communications Return goods handling Operations related Plant and warehouse site location Procurement Inventory control Materials handling Salvage and scrap disposal Traffic and transportation Warehousing and storage
Logistics may be confined to the company whereas SCM extends beyond

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Supply Chain Management

Business context:
Globalization of the market place Advances in technology Increasingly demanding, informed customer base Purchase decisions on dimensions of quality, price and time
To meet customer driven challenges To reduce costs Improve service levels Enhance speed to market
Innovative supply chain:

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Supply Chain Integration

Optimising the supply chain requires supplier and customer involvement to integrate processes, policies, systems, database and strategies between diverse trading partners
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Supply Chain Integration

Customer Analysis Order Fulfillment Purchasing/Supplier Partnering
Storage & Transportation
Integrated Supply Chain Management
Inventory Management and control
Manufacturing/ Re-manufacturing/ Assembly

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Demand & Lead Time Management
Materials Tata McGraw Hill Publishing Management
Inventory management
235
Why Carry Inventory?

Support production requirements Support operational requirements Maximize customer service ensure availability when needed protect against uncertainty Hedge against marketplace uncertainty Take advantage of order quantity discounts
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Functions of Inventory
Inventory serves as a buffer between:
Supply and demand Customer demand and finished goods Requirements for an operation and the output from the previous operation Parts and materials to begin an operation and the suppliers of the materials
The shock absorber of business !
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Factors Which Drive Inventory

Target service level parameters Lot sizing practices Safety stock and safety time conventions Volume discounts and purchase arrangements Seasonal build up needs
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Categories of Inventory
Anticipation built in anticipation of future demand peak season, strike, promotion Fluctuation (safety) to cover random, unpredictable fluctuations in supply and demand and lead time to prevent disruption in operations, deliveries etc Lot-size to take advantage of quantity discounts, reduce shipping, set up and clerical costs also called cycle stock
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239
Categories of Inventory
Transportation pipeline or movement inventories to cover the time needed to move from one point to another factory to distribution point for example Hedge for materials where prices are volatile Maintenance, repair and operating supplies (MRO) to support M and O spare parts, lubricants, consumables etc
SDM Ch 15
240
Types of Inventory
Obvious.
Raw materials Work-in-process Finished goods of primary concern to marketing Maintenance, repair and operating (MRO) supplies In-transit, pipeline
Performance measures
SDM Ch 15
241
Performance Measures
Inventory turns = Annual cost of goods sold /average inventory in value Days of sales = inventory on hand / average daily sales
SDM Ch 15
242
Types of Inventory Systems

Pure Inventory when and how much to order. RM procurement. Simple manufacturing operations Production Inventory finite production rates. Demand fluctuation. Products compete for manufacturing capacity Production distribution Inventory compete for production capacity. Geographic placement of inventory for best service of demand
SDM Ch 15
243
Types of Classification
ABC category most common for all HML - high, medium, low - similar FSND fast moving, slow moving, nonmoving, dead spare parts / FG SDE scarce, difficult, easy to obtain procurement / Spares GOLF govt, ordinary, local, foreign source procurement / Spares VED vital, essential, desirable spare parts / FG SOS seasonal, off-seasonal - commodity
SDM Ch 15
244
ABC Inventory Analysis

Based on Paretos law:
A 20% items worth 80% of value B 30% items worth 15% of value C about 50% items account for 5% of the usage
Classify items based on the above criteria Apply degree of control in proportion to the importance of the group
SDM Ch 15
245
Inventory Related Costs

Unit costs basic value of the item carried Ordering costs generating and sending a material release, transport, any other acquisition costs Carrying costs capital, storage, obsolescence Stock-out costs Quality costs non-conforming goods Other costs duties, tooling, exchange rate differences etc
SDM Ch 15
246
Approaches for Controlling Inventory

Continuous review:
Safety stocks and forecasting methods Excess and obsolete inventory
Part simplification and re-design On-site supplier managed inventory Use of supply chain inventory management systems, Materials Requirement Planning, Distribution Requirement Planning etc Automated inventory tracking systems Supplier buyer cycle-time reduction
Warehouse management
SDM Ch 15
247
Stores Management Objectives

Providing efficient service to users Reduce cost of carrying goods Providing correct, updated stock figures Controlling inventory Preventing damage to or obsolescence of materials Achieve all of the above with good housekeeping
SDM Ch 15
248
Functions
Warehouses
Material handling
Customer service
Information transfer
Storage function
Receive goods Identify goods Sort goods Despatch to storage Hold inventory Recall, select goods Marshal the shipment Despatch the shipment Prepare records and advices
SDM Ch 15
Temporary
Permanent
249
Purpose of Warehousing
To provide desired level of customer service at the lowest possible total cost It is that part of the firms logistics system that stores products (RM, Packing Materials, WIP, FG) at and between point of origin and point of consumption and provides info to management on the status, condition and disposition of items being stored Distribution warehousing relates mainly to FG
SDM Ch 15
250
Reasons for Warehousing

Service related
Maintain source of supply Support customer service policies Meet changing market conditions Overcome time and space differentials Support JIT programs of suppliers and customers Provide customers with the right mix of products at all times Temporary storage of materials to be disposed or re-cycled
SDM Ch 15
Cost related
Achieve production economies Achieve transportation economies Take advantage of Quantity Purchase discounts and forward buys Least Logistics cost for a desired level of customer service
251
Warehouses
Support manufacturing Mix products from multiple facilities for shipment to a single customer Break-bulk Aggregate Used more as a flow-thru point than as a hoarding point
SDM Ch 15
252
Distribution Warehousing
The objective is to set up a network of warehouses closest to the customer locations to service markets better and minimise cost Could be C&FA s, depots or distribution centers Macro location strategies:
Market positioned Production positioned Intermediately positioned
SDM Ch 15
253
Distribution Center
Warehouse designed to speed the flow of goods and avoid unnecessary costs Speeds bulk-breaking to avoid inventory carrying costs Helps to centralise control and coordination of logistics activities Products can also be cross-docked (one vehicle to another)
Market positioned..
SDM Ch 15
254
Market Positioned
Warehouses located nearest to the final customer Factors influencing are:
Order cycle time Transportation costs Sensitivity of the product Order size Levels of customer service offered
Production positioned.
SDM Ch 15
255
In between
Production Positioned
Warehouses located close to the production facilities or supply sources Not the same level of customer service as the earlier one Serve as points of aggregation / collection for products made in a number of plants Factors influencing are:
Perishability of raw materials Number of products in the product mix Assortments ordered by customers Transport consolidation rates ex; FTL
SDM Ch 15
256
Intermediate Positioned
Mid point locations between the final customer and the producer High customer service levels possible even if products made in number of units
Other macro approaches look at cost minimisation or cost and demand elements to maximise profitability
Transportation management.
SDM Ch 15
257
Transportation
Very important in the Logistics function:
Movement across space or distance adds value to products Transportation provides time and place utility
Role of transportation includes:

Provides opportunity for growth under competitive conditions Deeper penetration into markets Wider distribution means greater demand Can influence product prices favourably
SDM Ch 15
Principles.
258
Transportation Principles
Continuous flow Optimise unit of cargo - stackability Maximum vehicle unit capacity utilization Adaptation of vehicle unit to volume and nature of traffic Standardisation Compatibility of unit load equipment Minimum of dead weight to total weight Maximum utilization of capital, equipment and personnel
SDM Ch 15
Process.
259
The Selection Criteria

Environmental analysis: shipper, carrier, government regulations, public influence Deciding objectives Selecting mode Select transport type within the mode Define functions of transport Evaluation and control customer perception / satisfaction, best practice benchmarking
SDM Ch 15
260
Cost Factors
Can be product related or market related. Product related: density, stowability, ease or difficulty of handling and liability Market related: competition, location of markets, Government regulations, traffic in and out of the market, seasonality of movements and impact on customer service Five prominent modes:
Road, rail, air, water and pipeline. Sixth one is use of Ropeways
SDM Ch 15
261
Customer Service Factors

Consistency, dependability Transit time Coverage door-to-door for example Flexibility in handling a range of products Loss and damage performance Additional services provided
Reverse logistics
SDM Ch 15
262
Comparison of modes
Reverse Logistics
Movement of goods from the market or customer back to the company The need:
Increased awareness of the environment Stringent legislation For some it is part of the business Profitability of dealing with scrap, surplus
Surplus, obsolescence can result due to:

Over optimistic sales forecasts, change in product specs, errors in estimating material usage, losses in processing or overbuying based on incentives
SDM Ch 15
263
Advantages of Rail
Economy more so for goods over long distances Efficiency of energy Reliability not affected by weather conditions
SDM Ch 15
264
Disadvantages
Uneconomical for small shipments and short distances Not suitable for remote stations Costly terminal handling facilities Inflexible time schedules
Road transport..
SDM Ch 15
265
Road Freight Advantages

Through movement direct from consignor to consignee, no transshipment Flexibility routes and loading routines can be easily altered, operate day and night Less capital costs for own fleet + immunity from industrial action Fast turn-around if articulated units like tractors and trailers are used Minimum delays
SDM Ch 15
266
Disadvantages
Susceptibility to weather and road conditions in spite of the best protection Unsuitability for heavy loads rail transport more economical for bulk loads Unsuitability for long distances again the rail telescopic rates are more favourable
Air transport.
SDM Ch 15
267
Air Transport Advantages

Faster mode Reduction in cost particularly inventory Broad service range Increasing capabilities Disadvantages:
High cost Weather affects flight conditions Limitations on heavy consignments
SDM Ch 15
Water transport268
Water Transport
Advantages:
Mass movement of bulk Lowest freight cost Preferred for long haul of low value commodities
Disadvantages:
Not for quick transit Suitable for certain types on commodities only
Pipeline.
SDM Ch 15
269
Pipeline Movement
Advantages:
Reliable, continuous, all weather transport Low energy consumption hence low cost Low maintenance and operating costs Underground, no space problem Can traverse difficult terrain Minimal transit losses Operation round the clock, safe Economies of scale double the throughput for only 30% additional cost
Ropeways.
Disadvantage is in the investment cost

SDM Ch 15 270
Ropeways
Advantages:
In hilly or inaccessible areas Long and circuitous routes with streams / deep valleys For commodities capable of movement in ropeway buckets Short haulages of less than 50 kms Areas where other carriers are uneconomical
Disadvantages:
Heavy investments Limitations on size and quantity of haul
How to decide on the right carrier?
SDM Ch 15
271
Carrier Selection
Traffic Related
Length of haul Consignment weight Dimensions Value Urgency Regularity of shipment Fragility Toxicity Perishability Type of packing Special handling required
SDM Ch 15
Shipper related
Size of firm Investment priorities Marketing strategy Network of production and distribution Availability of rail sidings Stockholding policy Management structure System of carrier evaluation
Service related
Speed (transit time) Reliability Cost Customer relationship Geographical coverage Accessibility Availability of special vehicles / equipment Monitoring of goods Unitisation Ancillary services bulk breaking, storage
272
Chart of Relative Merits

Parameter Weight age Rail Road Air Water Pipe line Rope way
Speed
Versatility Reliability Availability Continuity of service Distribution cost Total score Overall ranking
SDM Ch 15
30
10 20 10 10 20 10 10
5
6 6 7 6 4 5.4 2
6
8 8 8 7 5 6.7 1
8
5 5 5 5 6 5.1 4
4
6 5 6 5 6 5.1 5
3
3 7 3 8 7 5.1 5
3
2 4 2 3 8 4.0 6
273
Key Learnings
Support to customer service has evolved from materials management to logistics and to supply chain management Production and marketing are the two internal customers of Logistics Logistics also has a direct impact on the financials of a company Three important functions of logistics are inventory management, warehousing and transportation
SDM Ch 15
274
Key Learnings
Inventory directly supports customer service but also adds to the cost and has to be managed carefully Warehousing provides the place utility and works as a balance between production and meeting customer needs Transportation supports the place and time utility and uses different modes to reach the products to the consumer Modern day supply chains integrate the operations of a firm, its suppliers and customers
SDM Ch 15
275

Distribution MGMT BIMS

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Distribution MGMT BIMS

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Distribution Management & The Marketing Mix

The Marketing Mix

Distribution Channels Defined

Listing of Channel Members

Distributors, Dealers, Stockists, Agents

Keeps distribution costs lower

Distribution Channel Strategy

Customer Service Levels

The company also decides as to who is to perform which task Organization.

Policy & Procedure

Key Performance Indicators

Key Performance Indicators

Critical Success Factors

Vertical Marketing System

Tata McGraw Hill Publishing

Need for Assortment

Tata McGraw Hill Publishing

Three Flows Recognized

The Five Channel Flows

Physical Title / ownership Information Risk sharing Promotions

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Tata McGraw Hill Publishing

Chapter 10 Channel Institutions - Retailing

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Tata McGraw Hill Publishing

Tata McGraw Hill Publishing

Tata McGraw Hill Publishing

How do Customers Decide on a Retailer?

Retailing Scene - Global

Retailing Scene - Global

The Indian Retail Scene

Tata McGraw Hill Publishing

Organized Retail - Features

Retailing Trends - India

Retailing Trends - India

FDI in Retail in India

Trade / Retail Format

Categories of Shoppers (1)

Leisure shopper more interested in the ambience and environment

Category of Shoppers (2)

Tata McGraw Hill Publishing

Customer Service Strategy

Retailer communicates about:

Retail Performance Measures

Retailing on the Internet

Chapter 11 Channel Institutions - Wholesaling

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Need for Wholesalers

Difference with Retailers

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Major Wholesaling Decisions

Re-distribution is visiting customer premises to sell products

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Tata McGraw Hill Publishing

Need for Distributors

Expectations from a Distributor

Expectations from a Distributor

Expectations from a Distributor

Chapter 12 Designing Channel Systems

Tata McGraw Hill Publishing

Channel Design Factors

Channel Design Steps