�CHAPTER – 10�����������������CHAPTER – 13�DISTRIBUTION DECISIONS��

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• THE PHYSICAL DISTRIBUTION - INTRODUCTION MEANING OF PHYSICAL DISTRIBUTION COMPONENTS OF PHYSICAL DISTRIBUTION
• CHANNELS OF DISTRIBUTION - MEANING OF CHANNELS OF DISTRIBUTION, FUNCTIONS OF CHANNELS OF DISTRIBUTION , TYPES OF CHANNELS OF DISTRIBUTION , SELECTION OF DISTRIBUTION CHANNELS, DISTRIBUTION POLICIES AND STRATEGIES, CHANNEL MANAGEMENT.

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PHYSICAL DISTRIBUTION�

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MEANING

Physical distribution is the set of activities concerned with efficient movement of finished goods from the end of the production operation to the consumer.

DEFINITIONS

1. Philip Kotler, “Physical distribution involves planning, implementing, and controlling the physical flows of materials and final goods from points of origin to points of use to meet customer needs at a profit”.

2. William Stanton, “Physical distribution consists of all the activities covered with moving the right amount of the right products to the right place at the right time.”

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OBJECTIVES OF PHYSICAL DISTRIBUTION�

1. To improve customer service
2. To reduce distribution cost
3. To create time, place and possession utilities
4. To stabilize prices
5. To control shipping costs
6. To Enhance Sales
7. To Facilitate Continuous Production
8. To achieve economy
9. To Reduce Damage
10. To Increase Competitiveness
11. To lower Idle Stocks
12. Increased market share

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COMPONENTS OF PHYSICAL DISTRIBUTION�

A. ORDER PROCESSING: Order processing is the term used to identify the collective tasks associated with fulfilling an order for goods or services placed by a customer.

B. STORAGE AND WAREHOUSING: Storage is marketing activity that involves holding and preserving the products from the time of production to the time of sale. Warehousing includes all activities required in the storing of products between the time they are manufactured and the time they are transported to the customer.

C. TRANSPORTATION: Transportation is one of the core components of distribution system. All the goods are not utilized at the place of production. They require some kind of transportation to create ‘Place’ utility. It is transport that makes possible large scale production and mass distribution of commodities.

D. INVENTORY MANAGEMENT: Inventory management is the overseeing and controlling of the ordering, storage and use of components that a company will use in the production of the items it will sell as well as the overseeing and controlling of quantities of finished products for sale.

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INVENTORY CONTROL�

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OBJECTIVES

(i) To minimise capital investment in inventory by eliminating excessive stocks;

(ii) To ensure availability of needed inventory for uninterrupted production and for meeting consumer demand;

(iii) To provide a scientific basis for planning of inventory needs;

(iv) To tiding over the demand fluctuations by maintaining reasonable safety stock;

(v) To minimise risk of loss due to obsolescence, deterioration, etc,

(vi)To maintain necessary records for protecting against thefts, wastes leakages of inventories and to decide timely replenishment of stocks.

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TECHNIQUES OF INVENTORY CONTROL�

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1. SETTING UP OF VARIOUS STOCK LEVELS:

To avoid over-stocking and under stocking of materials, the management has to decide about the maximum level, minimum level, re-order level, danger level and average level of materials to be kept in the store.

2. PREPARATION OF INVENTORY BUDGETS

Organisations having huge material requirement normally prepare purchase budgets. The purchase budget should be prepared well in advance.

3. MAINTAINING PERPETUAL INVENTORY SYSTEM

This is another technique to exercise control over inventory. It is also known as automatic inventory system. The basic objective of this system is to make available details about the quantity and value of stock of each item at all times.

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4. ESTABLISHING PROPER PURCHASE PROCEDURES

A proper purchase procedure has to be established and adopted to ensure necessary inventory control.

(a) Purchase Requisition , (b) Inviting Quotations , (c) Schedule of Quotations , (d) Approving the supplier , (e) Purchase Order.

5. INVENTORY TURNOVER RATIOS

These are calculated to minimise the inventory by the use of the following formula:

Inventory Turnover Ratio

= Cost of goods consumed/sold during the period/Average inventory held during the period

6. ABC ANALYSIS

The emphasis of ABC analysis technique is that the management should concentrate its energy in controlling those items that mostly affect the organisational objects. Manufacturing concerns find it useful to group the materials into three classes on the basis of investment involved.In order to exercise effective control over materials, A.B.C.

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E. MARKET LOGISTICS

Philip Kotler, “Market logistics involves planning, implementing and controlling the physical flows of materials and final goods from points of origin to pints of use to meet customer requirement at profit.”

OBJECTIVES OF MARKETING LOGISTICS

1. Improving customer service
2. Rapid Response
3. Reduce total distribution costs
4. Generating additional sales
5. Life-Cycle support
6. Movement consolidation

F. OTHER COMPONENTS.�

(1) MATERIAL MANAGEMENT

Material management is an approach for planning, organizing, and controlling all those activities principally concerned with the flow of materials into an organisation.

(2) CUSTOMER SERVICE

Customer service is the percentage of orders that are filled in time

(3) COMMUNICATION

It is a process of passing information and understanding from one person to another. This includes the information system which should link producers, intermediaries, and customers.

(4) ORGANISATION STRUCTURE

The person in charge of the physical distribution should co-ordinate all Activities into an effective system to provide the desired customer service in the most efficient manner.

CHANNELS OF DISTRIBUTION�

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DEFINITION

Philip Kotler, “ A set of independent organisations involved in the process of making a product or service available for use or consumption.

William J. Stanton, “ A channel of distribution for a product is the route taken by title to the goods as they move from the producer to the ultimate customers or industrial users.

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FUNCTIONS OF CHANNELS OF DISTRIBUTION/ INTERMEDIARIES�

I. FUNCTIONS TO THE PRODUCERS

(1) Transporting/ Physical movement of goods

(2) Concentration on Production

(3) Information link

(4) Promotion

(5) Processing Activities

(6) Negotiating

(7) Ordering and financing

(8) Risk Bearing

(9) Economy

II. FUNCTIONS TO THE CONSUMERS

1. Credit facility/ financing

2. Better Selection

3.Educating the consumers

4 .Easy Accessibility

5. After sale Services

(6) Time utility

(7) Transfer of title of goods

(8) Connecting link

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�TYPES OF DISTRIBUTION CHANNELS�

• CONVENTIONAL CHANNELS:

Conventional channels categories the channels of distribution as

1. DIRECT and 2. INDIRECT

1. DIRECT CHANNELS OF DISTRIBUTION: A direct channel of distribution is the one where the company sells the goods directly to the consumers without the help of the middlemen.

Direct channels can be:

• Distribution from the factory gate.
• Distribution through retail stores.
• Distribution through sales man
• Online- Marketing i.e. selling through the websites.

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INDIRECT CHANNELS OF DISTRIBUTION

2. Indirect channels include-

1. One level channel

Manufacturer to Retailer to Consumer

Manufacturer to Wholesaler to Customer

2. Two level channel

Manufacturer -wholesaler- retailer- consumer

3. Three level channel

Manufacturer - agent – wholesaler – Consumer

4. Four level channel or multilevel channel

Company – Number of middlemen – consumers.

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• NON CONVENTIONAL CHANNELS :

The non conventional channels of distribution are

1. Vertical Channel

A vertical marketing system (VMS) is a distribution channel structure in which producers, wholesalers, and retailers act as a unified system.

2. Horizontal Channel

Horizontal marketing system is a distribution channel arrangement whereby two or more organizations at the same level join together to pursue marketing opportunities.

MARKETING INTERMEDIARIES�

1. WHOLESALERS

Wholesalers purchase product in bulk and store it until they can resell it.

FUNCTIONS OF WHOLESALERS

1. Buying and Assembling
2. Warehousing
3. Grading and Packaging
4. Transportation
5. Financing
6. Risk Bearing
7. Providing Marketing Information
8. Dispersion of Goods

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2. RETAILERS

The retailer is the one whose business is to sell the goods to the ultimate consumers.

FUNCTIONS OF RETAILERS

1. Buying and Assembling
2. Warehousing or Storing
3. Selling
4. Credit Facilities
5. Risk Bearing
6. Grading and Packing
7. Collection and Supply of Market Information
8. Helps In Introducing New Products
9. Window Display and Advertising
10. Services Performed By Retailers

3. AGENTS AND BROKERS�

Agents and brokers sell products or product services for a commission, or a percentage of the sales price or product revenue.

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The types of Agent Middlemen are –

1. Commission Agents
2. Brokers
3. Factors
4. Auctioneers
5. Selling Agents
6. Forwarding and clearing agents

4. DISTRIBUTORS�

Distributors are generally privately owned and operated companies, selected by manufacturers, that buy product for resale to retailers, similar to wholesalers.

The functions of a distributor

• The distributor, however, has both storage space and the resources to purchase product in quantity, as well as the equipment and personnel necessary to sort and package it in small orders
• Good communication between the distributor and customer ensures an unbroken supply chain, and helps the distributor manage his own warehouse inventory, to ensure timely material turnover and hence no dead stock or stock outs.
• An important benefit provided by the distributors to end-users is financing and credit, essential to both small and large businesses, particularly during down cycles
• Another function of the distributor is assuming of the responsibility for product quality.
• The distributor is knowledgeable about all of his suppliers' products, and can offer technical advice and training to his customers, to help them make the right material choices.
• The suppliers benefit as well, using use that intelligence to forecast demand or develop new products based on the distributor's widespread customer base.

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SELECTION OF DISTRIBUTION CHANNELS/ INTERMEDIARIES�

FACTORS AFFECTING THE CHANNEL OF DISTRIBUTION

• THE NATURE OF THE PRODUCT

(a) Perishable products

(b) Size and weight of product

(c) Unit value of a product

(d) Standardisation

(e) Technical Nature of Products

(f) Product Lines

• THE NATURE OF THE MARKET

(a) Consumer or industrial market

(b) Number of prospective buyers

(c) Size of the order

(d) Geographic concentration of market

(e) Buying habits of customers

• THE NATURE OF MIDDLEMEN

(a) Cost of distribution of goods

(b) Availability of desired middlemen

(c) Unsuitable marketing policies for middlemen

(d) Services provided by middlemen

(e) Ensuring greater volume of sales:

(f) Reputation and financial soundness

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• THE NATURE AND SIZE OF MANUFACTURING UNIT

(a) Manufacturer Reputation and Financial Stability

(b) Ability and Experience of the Undertaking

(c) Desire for Control of Channel

(d) Services Provided By the Manufacturers

• GOVERNMENT REGULATION AND POLICIES
• COMPETITION

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CHANNEL MANAGEMENT�

1. Selecting intermediaries
1. The Selection Process
2. Three steps are involved: 1. Finding prospective channel members 2. Applying selection criteria to determine the suitability of prospective channel members 3. Securing the prospective channel members as actual channel members
3. Motivating intermediary:
4. Motivating the intermediaries to achieve better performance should start with understanding the intermediary’s needs, perceptions and position.
5. Controlling channel conflicts:
6. Channel conflicts occur when one member of the distribution channel perceives that some other member is preventing the first member from achieving its goals. Marketers should periodically take on surveys of intermediaries or conduct discussions with them to evaluate the areas or sources of conflicts.

• Evaluating channel members:
• Marketers need to evaluate the performance of each channel member occasionally. An evaluation is helpful to know which intermediaries are achieving what kind of results.
• Training of Channel Members
• It is very important for the company to provide proper training to the channel members as to how to perform the various business activities effectively.

CHANNEL CONFLICT�

The channel conflict arises when the channel partners such as manufacturers, wholesalers, distributors, retailers, etc. compete against each other for the common sale with the same brand.

Types of Channel Conflict

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CAUSES OF CHANNEL CONFLICT�

1. Incompatable goals

2. Unclear roles

3. Different perceptions

4. Dominance of manufacturer over the intermediaries

5. Lack of communication

MANAGING THE CHANNEL CONFLICT

1. Subordinate goals

2. Exchange of employees

3. Trade associations

4. Co-potation

5. Diplomacy, Mediation and Arbitration

6. Legal resource

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