Department of Marketing & Decision Sciences

Part 5 – Distribution

Wholesaling and Physical Distribution

 Department of Marketing & Decision Sciences

Wholesaling

- Wholesaling is the sale, and all activities directly

related to the sale, of goods and services to
businesses and other organizations for
- resale,
- use in producing other goods or services, or
- operating an organization
- Thus wholesaling includes sales by any firm to any
customer except an ultimate consumer who is
buying for personal, nonbusiness use
 Department of Marketing & Decision Sciences

Wholesaling - Economic Justification

- Most manufacturers are small and specialized: Therefore

they do not have the capital to maintain a sales force to contact
the many retailers or final users that are or could be their
customers
- Even for large manufacturers some products or lines generate
such a small volume of sales that it would not be cost-
effective to establish a sales force to sell them
- At the other end of the distribution channel, most retailers and
final users buy in small quantities and have limited
knowledge of the market and sources of supply
- Thus there is often a gap between the seller and the
buyer
- A wholesaler can fill this gap by providing services of value
to manufacturers and/or retailers
 Department of Marketing & Decision Sciences

The Economy of Transactions in Wholesaling

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Types of Wholesaling Middleman

- Merchant wholesaler
- Agent wholesaling middleman
- Manufacturer’s sales facility
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Physical Distribution - Nature and Importance

- Physical distribution: Moving tangible products

through distribution channels
- Physical distribution (or logistics) consists of all
activities involved in moving the right amount of the
right products to the right place at the right time
- In the past years, the surge of e-commerce has
underscored the importance of physical distribution
 the challenge relates to fulfillment, which entails
having the merchandise that is ordered by a
customer in stock and then packing and shipping
it in an efficient, timely manner
 Department of Marketing & Decision Sciences

Physical Distribution - Supply Chain Management

- SCM represents a total system perspective of distribution, combining

distribution channels and physical distribution
- The core of SCM is coordinated logistics
- With SCM individual logistics activities are brought together in a unified
way - more and more, the Internet is being used to allow supply chain
members to monitor (real time) key factors such as the status of orders
and inventory levels
- Integral to effective SCM is the total cost concept: A company should
determine the set of activities that produces the best relationship
between costs and profits for the entire physical distribution system
- The key point is that physical distribution should be viewed as a
total system, with all related costs being analyzed
- As part of SCM, some companies are contracting out, or
outsourcing, all or part their physical distribution function
 Department of Marketing & Decision Sciences

Tasks in Physical Distribution Management

- Physical distribution refers to the actual physical flow of
products
- In contrast, physical distribution management is the
development and operation of processes resulting in the
effective and efficient physical flow of products
- Effective physical distribution management requires
careful attention to five interrelated activities:
- Order processing
- Inventory control
- Inventory location and warehousing
- Materials handling
- Transportation
 Department of Marketing & Decision Sciences

Tasks in Physical Distribution Management

1. Order Processing
- The starting point in a physical distribution system is order
processing, which is a set of procedures for receiving,
handling, and filling orders promptly and accurately
- Electronic data interchange (EDI):
- Between customer and supplier orders, invoices, and
other business functions are transmitted by computer
- Originally, EDI required a direct computer link between
supplier and customer, now it is being conducted via the
Internet
- EDI can trim the cost of order processing significantly,
which in turn may reduce purchase prices
 Department of Marketing & Decision Sciences

Tasks in Physical Distribution Management

2. Inventory Control
- The goal of inventory control is to satisfy the order-
fulfillment expectations of customers while minimizing
both the investment and fluctuations in inventories
- Just-in-Time:
- JIT combines inventory control, purchasing, and
production scheduling
- Applying JIT, a firm buys in small quantities that arrive
just in time for production and then it produces in
quantities just in time for sale
 Department of Marketing & Decision Sciences

Tasks in Physical Distribution Management

2. Inventory Control (continued)
- Just-in-Time:
- …
- Benefits of JIT are:
- Dramatic cost savings
- Shortened and more flexible and reliable production and
delivery schedules
- Quick responses to quality problems
- Market-Response Systems:
- The central promise is that those who intend to consume a
product should activate a process to produce and deliver
replacement items
- In this way, a product is pulled through a channel on the
basis of demand
 Department of Marketing & Decision Sciences

Tasks in Physical Distribution Management

3. Inventory Location and Warehousing
- Management must make critical decisions about the
size, location, and transportation of inventories
- These areas are interrelated, often in complex ways
- One key consideration in managing inventories is
warehousing, which embraces a range of
functions, such as assembling, dividing, and
storing products and preparing them for
reshipping
 Department of Marketing & Decision Sciences

Tasks in Physical Distribution Management

4. Materials Handling
- Selecting the proper equipment to physically
handle products, including the warehouse building
itself, is the materials handling subsystem of
physical distribution management
- Equipment that is well matched to the task can
minimize losses from breakage, spoilage, and theft
- Efficient equipment can reduce handling costs as
well as time required for handling
 Department of Marketing & Decision Sciences

Tasks in Physical Distribution Management

5. Transportation
- Management must decide on both the mode of
transportation and the particular carriers
- The leading modes of transportation are railroads,
trucks, pipelines, water vessels, and airplanes
- Using two or more modes of transportation to move
freight is termed intermodal transportation; this
approach is intended to seize the advantages of
multiple forms of transportation