Vous êtes sur la page 1sur 275

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

17

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
SDM- Ch 9
Tata McGraw Hill Publishing

31

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
SDM- Ch 9
Tata McGraw Hill Publishing

Administered

32

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
SDM- Ch 9
Tata McGraw Hill Publishing

33

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
SDM- Ch 9
Tata McGraw Hill Publishing

34

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
SDM- Ch 9
Tata McGraw Hill Publishing

35

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
SDM- Ch 9
Tata McGraw Hill Publishing

36

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
SDM- Ch 9
Tata McGraw Hill Publishing

37

Distribution Channels
Take care of the following discrepancies
Spatial Temporal Breaking bulk Assortment and Financial support
SDM- Ch 9
Tata McGraw Hill Publishing

38

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
SDM- Ch 9
Tata McGraw Hill Publishing

39

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

SDM- Ch 9

Tata McGraw Hill Publishing

40

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
SDM- Ch 9
Tata McGraw Hill Publishing

41

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.
SDM- Ch 9
Tata McGraw Hill Publishing

42

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
SDM- Ch 9
Tata McGraw Hill Publishing

43

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

SDM- Ch 9

Tata McGraw Hill Publishing

44

Three Flows Recognized


Goods and Services FORWARD

BACKWARD
Payment for goods / returns

Information

BOTH WAYS

Company
SDM- Ch 9
Tata McGraw Hill Publishing

Customers
45

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?
SDM- Ch 9
Tata McGraw Hill Publishing

46

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.
SDM- Ch 9
Tata McGraw Hill Publishing

47

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

SDM- Ch 9

Tata McGraw Hill Publishing

Channel formats

48

Channel Formats
Is decided by who drives the channel system:
Producer driven Seller driven Service driven Others

SDM- Ch 9

Tata McGraw Hill Publishing

49

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
SDM- Ch 9
Tata McGraw Hill Publishing

50

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
SDM- Ch 9
Tata McGraw Hill Publishing

51

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
SDM- Ch 9
Tata McGraw Hill Publishing

52

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
SDM- Ch 9
Tata McGraw Hill Publishing

53

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
SDM- Ch 9
Tata McGraw Hill Publishing

54

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
SDM- Ch 9
Tata McGraw Hill Publishing

55

Summarize Expectations

Channel Levels
Manufacturer Manufacturer Manufacturer

Distributor/ wholesaler

Retailer

Retailer

End User

End User

End User

Zero level
SDM- Ch 9

One level
Tata McGraw Hill Publishing

Two level
56

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
SDM- Ch 9
Tata McGraw Hill Publishing

57

Chapter 10 Channel Institutions - Retailing

SDM- Ch 10

Tata McGraw Hill Publishing

58

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
Tata McGraw Hill Publishing

SDM- Ch 10

59

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

SDM- Ch 10

Tata McGraw Hill Publishing

60

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
SDM- Ch 10
Tata McGraw Hill Publishing

61

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

SDM- Ch 10

Tata McGraw Hill Publishing

62

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
SDM- Ch 10
Tata McGraw Hill Publishing

63

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

SDM- Ch 10

Tata McGraw Hill Publishing

64

How do Customers Decide on a Retailer?


Price Location Product selection Fairness in dealings Friendly sales people Specialized services provided
Tata McGraw Hill Publishing

SDM- Ch 10

65

Kinds of Retailers
Type of retailer
Specialty store Department store Supermarket Convenience store Discount store
SDM- Ch 10

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
Tata McGraw Hill Publishing

66

Kinds of Retailers
Type of retailer
Corporate chains Voluntary chain Retailer co-ops Consumer coops Franchise organisation
SDM- Ch 10

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
Tata McGraw Hill Publishing

67

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
SDM- Ch 10
Tata McGraw Hill Publishing

68

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
SDM- Ch 10
Tata McGraw Hill Publishing

69

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.
SDM- Ch 10
Tata McGraw Hill Publishing

70

The Indian Retail Scene

SDM- Ch 10

Tata McGraw Hill Publishing

71

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
SDM- Ch 10
Tata McGraw Hill Publishing

72

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.
SDM- Ch 10
Tata McGraw Hill Publishing

73

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
SDM- Ch 10
Tata McGraw Hill Publishing

74

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
SDM- Ch 10
Tata McGraw Hill Publishing

75

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
SDM- Ch 10
Tata McGraw Hill Publishing

76

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
SDM- Ch 10
Tata McGraw Hill Publishing

77

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.
SDM- Ch 10
Tata McGraw Hill Publishing

78

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
SDM- Ch 10
Tata McGraw Hill Publishing

79

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
SDM- Ch 10
Tata McGraw Hill Publishing

Trading area

80

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
SDM- Ch 10
Tata McGraw Hill Publishing

81

Retail Strategy
Positioning of the retailer Merchandising Customer service Customer communication

SDM- Ch 10

Tata McGraw Hill Publishing

82

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
SDM- Ch 10
Tata McGraw Hill Publishing

83

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
SDM- Ch 10
Tata McGraw Hill Publishing

84

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
SDM- Ch 10
Tata McGraw Hill Publishing

85

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
SDM- Ch 10
Tata McGraw Hill Publishing

86

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.
SDM- Ch 10
Tata McGraw Hill Publishing

87

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
SDM- Ch 10
Tata McGraw Hill Publishing

88

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
SDM- Ch 10
Tata McGraw Hill Publishing

89

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
SDM- Ch 10
Tata McGraw Hill Publishing

90

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
SDM- Ch 10
Tata McGraw Hill Publishing

91

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
SDM- Ch 10
Tata McGraw Hill Publishing

92

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
SDM- Ch 10
Tata McGraw Hill Publishing

93

E-tailing Issues
Logistics support to selling Payment gateway Customer product returns Conflicts with Brick &Mortar overcome by selling separate products

FDI in retail.
SDM- Ch 10
Tata McGraw Hill Publishing

94

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
SDM- Ch 10
Tata McGraw Hill Publishing

95

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
SDM- Ch 10
Tata McGraw Hill Publishing

96

Chapter 11 Channel Institutions - Wholesaling

SDM- Ch 11

Tata McGraw Hill Publishing

97

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
SDM- Ch 11
Tata McGraw Hill Publishing

98

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.
SDM- Ch 11
Tata McGraw Hill Publishing

99

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
SDM- Ch 11
Tata McGraw Hill Publishing

100

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
SDM- Ch 11
Tata McGraw Hill Publishing

101

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
SDM- Ch 11
Tata McGraw Hill Publishing

102

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
SDM- Ch 11
Tata McGraw Hill Publishing

103

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.
SDM- Ch 11
Tata McGraw Hill Publishing

104

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

SDM- Ch 11

Tata McGraw Hill Publishing

105

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
SDM- Ch 11
Tata McGraw Hill Publishing

106

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
SDM- Ch 11
Tata McGraw Hill Publishing

107

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
SDM- Ch 11
Tata McGraw Hill Publishing

108

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
Tata McGraw Hill Publishing

SDM- Ch 11

109

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
SDM- Ch 11
Tata McGraw Hill Publishing

110

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
SDM- Ch 11
Tata McGraw Hill Publishing

111

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.
SDM- Ch 11
Tata McGraw Hill Publishing

112

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
SDM- Ch 11
Tata McGraw Hill Publishing

113

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
SDM- Ch 11
Tata McGraw Hill Publishing

114

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.
SDM- Ch 11
Tata McGraw Hill Publishing

115

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

SDM- Ch 11

Tata McGraw Hill Publishing

116

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

SDM- Ch 11

Tata McGraw Hill Publishing

117

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.
SDM- Ch 11
Tata McGraw Hill Publishing

Cost of servicing

118

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
SDM- Ch 11
Tata McGraw Hill Publishing

Expectations

119

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
SDM- Ch 11
Tata McGraw Hill Publishing

120

Expectations from a Distributor


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
SDM- Ch 11
Tata McGraw Hill Publishing

121

Expectations from a Distributor


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
SDM- Ch 11
Tata McGraw Hill Publishing

122

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
SDM- Ch 11
Tata McGraw Hill Publishing

123

Chapter 12 Designing Channel Systems

SDM- Ch 12

Tata McGraw Hill Publishing

124

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.
SDM- Ch 12
Tata McGraw Hill Publishing

125

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.
SDM- Ch 12
Tata McGraw Hill Publishing

126

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
SDM- Ch 12
Tata McGraw Hill Publishing

Customer needs.
127

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
SDM- Ch 12
Tata McGraw Hill Publishing

128

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.
SDM- Ch 12
Tata McGraw Hill Publishing

Design issues.

129

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
SDM- Ch 12
Tata McGraw Hill Publishing

130

Channel Design Process


Similar to any other marketing task

Segmentation

Positioning

Focus

Development
SDM- Ch 12
Tata McGraw Hill Publishing

131

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.
SDM- Ch 12
Tata McGraw Hill Publishing

132

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
SDM- Ch 12
Tata McGraw Hill Publishing

133

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
SDM- Ch 12
Tata McGraw Hill Publishing

134

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.
SDM- Ch 12
Tata McGraw Hill Publishing

135

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
SDM- Ch 12
Tata McGraw Hill Publishing

136

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
SDM- Ch 12
Tata McGraw Hill Publishing

137

Evaluation of Major Alternatives


Cost of operations Ability to manage and control Adaptability Range and volume to be handled
Criteria for evaluation
SDM- Ch 12
Tata McGraw Hill Publishing

138

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
SDM- Ch 12
Tata McGraw Hill Publishing

139

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


SDM- Ch 12
Tata McGraw Hill Publishing

140

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
SDM- Ch 12
Tata McGraw Hill Publishing

141

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
SDM- Ch 12
Tata McGraw Hill Publishing

142

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..
SDM- Ch 12
Tata McGraw Hill Publishing

143

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
SDM- Ch 12
Tata McGraw Hill Publishing

144

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.
SDM- Ch 12
Tata McGraw Hill Publishing

145

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
Tata McGraw Hill Publishing

power
146

SDM- Ch 12

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
Tata McGraw Hill Publishing

SDM- Ch 12

147

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
SDM- Ch 12
Tata McGraw Hill Publishing

148

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.
SDM- Ch 12
Tata McGraw Hill Publishing

149

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..
SDM- Ch 12
Tata McGraw Hill Publishing

150

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
SDM- Ch 12
Tata McGraw Hill Publishing

151

Channel Comparison Factors


Efficiency Effectiveness Scalability Flexibility

Consistency
Reliability Integrity
SDM- Ch 12
Tata McGraw Hill Publishing

152

Non-store Retailing
Selling door-to-door Vending machines Tele-shopping networks Selling through catalogs Other forms of direct selling Electronic channels
Electronic channels
SDM- Ch 12
Tata McGraw Hill Publishing

153

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.
SDM- Ch 12
Tata McGraw Hill Publishing

154

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

SDM- Ch 12

Tata McGraw Hill Publishing

155

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..
SDM- Ch 12
Tata McGraw Hill Publishing

156

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.
SDM- Ch 12
Tata McGraw Hill Publishing

157

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
SDM- Ch 12
Tata McGraw Hill Publishing

158

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
SDM- Ch 12
Tata McGraw Hill Publishing

159

Chapter 14 Channel Information Systems

SDM Ch 14

Tata McGraw Hill Publishing

160

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
SDM Ch 14
Tata McGraw Hill Publishing

161

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.

SDM Ch 14

Tata McGraw Hill Publishing

162

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
SDM Ch 14
Tata McGraw Hill Publishing

163

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
SDM Ch 14
Tata McGraw Hill Publishing

164

Information Process
COLLECTION

PROCESSING

STORAGE

USE
SDM Ch 14
Tata McGraw Hill Publishing

165

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.
SDM Ch 14

Development.
Tata McGraw Hill Publishing

166

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

SDM Ch 14

Tata McGraw Hill Publishing

167

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.
SDM Ch 14
Tata McGraw Hill Publishing

168

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.
SDM Ch 14
Tata McGraw Hill Publishing

169

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
SDM Ch 14
Tata McGraw Hill Publishing

170

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
SDM Ch 14
Tata McGraw Hill Publishing

171

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

SDM Ch 14

Tata McGraw Hill Publishing

172

Channel Performance Evaluation

SDM Ch 14

Tata McGraw Hill Publishing

173

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.
SDM Ch 14
Tata McGraw Hill Publishing

174

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.

SDM Ch 14

Tata McGraw Hill Publishing

175

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
SDM Ch 14

50

3.50

15 15 10 10

8 7 8 6

1.20 1.05 0.80 0.60


176

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
Tata McGraw Hill Publishing

8 7 7 8 6

1.20 3.50 1.40 0.80 0.30 7.20


177

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
SDM Ch 14

5.60
Tata McGraw Hill Publishing

6
178

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
SDM Ch 14
Tata McGraw Hill Publishing

179

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
SDM Ch 14
Tata McGraw Hill Publishing

180

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
SDM Ch 14
Tata McGraw Hill Publishing

181

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
SDM Ch 14
Tata McGraw Hill Publishing

182

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
SDM Ch 14
Tata McGraw Hill Publishing

183

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.
SDM Ch 14
Tata McGraw Hill Publishing

184

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
SDM Ch 14
Tata McGraw Hill Publishing

185

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
SDM Ch 14
Tata McGraw Hill Publishing

186

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
SDM Ch 14
Tata McGraw Hill Publishing

187

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.
SDM Ch 14
Tata McGraw Hill Publishing

188

Chapter 13 Channel Management

SDM- Ch 13

Tata McGraw Hill Publishing

189

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
SDM- Ch 13
Tata McGraw Hill Publishing

190

Channel Management
Is in three broad phases:
Use of power bases Identifying and resolving channel conflicts Channel co-ordination

Use of power.
SDM- Ch 13
Tata McGraw Hill Publishing

191

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
SDM- Ch 13
Tata McGraw Hill Publishing

192

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.
SDM- Ch 13
Tata McGraw Hill Publishing

193

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
SDM- Ch 13
Tata McGraw Hill Publishing

194

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
SDM- Ch 13
Tata McGraw Hill Publishing

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


SDM- Ch 13
Tata McGraw Hill Publishing

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
SDM- Ch 13
Tata McGraw Hill Publishing

197

Channel Conflict
CONFLICT

GOAL

DOMAIN

PERCEPTION

SDM- Ch 13

Tata McGraw Hill Publishing

198

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
SDM- Ch 13
Tata McGraw Hill Publishing

199

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.
SDM- Ch 13
Tata McGraw Hill Publishing

200

Four Stages
LATENT

PERCEIVED

FELT

MANIFEST Each stage is progressively more severe than the earlier one Tata McGraw Hill Publishing

SDM- Ch 13

201

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
SDM- Ch 13
Tata McGraw Hill Publishing

202

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
SDM- Ch 13
Tata McGraw Hill Publishing

203

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

SDM- Ch 13

Tata McGraw Hill Publishing

204

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.
SDM- Ch 13
Tata McGraw Hill Publishing

205

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


SDM- Ch 13
Tata McGraw Hill Publishing

206

Conflict Resolution Styles


Avoidance Aggression Accommodation Compromise Collaboration Least effort and results
SDM- Ch 13
Tata McGraw Hill Publishing

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.
SDM- Ch 13
Tata McGraw Hill Publishing

208

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.

SDM- Ch 13

Tata McGraw Hill Publishing

209

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
SDM- Ch 13
Tata McGraw Hill Publishing

210

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.

SDM- Ch 13

Tata McGraw Hill Publishing

211

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

SDM- Ch 13

Tata McGraw Hill Publishing

212

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:
SDM- Ch 13
Tata McGraw Hill Publishing

213

Channel Policies
Markets to be covered Customer coverage Pricing Product portfolio to be handled Selection, termination of channel members Ownership of the channel
SDM- Ch 13
Tata McGraw Hill Publishing

214

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
SDM- Ch 13
Tata McGraw Hill Publishing

215

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.
SDM- Ch 13
Tata McGraw Hill Publishing

216

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


SDM- Ch 13
Tata McGraw Hill Publishing

217

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
SDM- Ch 13
Tata McGraw Hill Publishing

218

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.

SDM- Ch 13

Tata McGraw Hill Publishing

219

Chapter 15 Market Logistics & Supply Chain Management

SDM Ch 15

Tata McGraw Hill Publishing

220

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
SDM Ch 15
Tata McGraw Hill Publishing

221

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
SDM Ch 15
Tata McGraw Hill Publishing

222

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
SDM Ch 15
Tata McGraw Hill Publishing

223

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
SDM Ch 15
Tata McGraw Hill Publishing

224

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
Tata McGraw Hill Publishing

SDM Ch 15

225

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

SDM Ch 15

Tata McGraw Hill Publishing

226

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

SDM Ch 15

Tata McGraw Hill Publishing

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.
SDM Ch 15
Tata McGraw Hill Publishing

228

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

SDM Ch 15

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

230

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

SDM Ch 15

Tata McGraw Hill Publishing

231 Alling & Tyndall

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


SDM Ch 15
Tata McGraw Hill Publishing

232

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
Tata McGraw Hill Publishing

Innovative supply chain:


SDM Ch 15

233

Supply Chain Integration


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

SDM Ch 15

Tata McGraw Hill Publishing

234

Supply Chain Integration


Customer Analysis Order Fulfillment Purchasing/Supplier Partnering

Storage & Transportation

Integrated Supply Chain Management

Inventory Management and control

Manufacturing/ Re-manufacturing/ Assembly


SDM Ch 15

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
SDM Ch 15
Tata McGraw Hill Publishing

236

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 !
SDM Ch 15
Tata McGraw Hill Publishing

237

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
SDM Ch 15
Tata McGraw Hill Publishing

238

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
SDM Ch 15
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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

Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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

Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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

Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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.
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

263

Advantages of Rail
Economy more so for goods over long distances Efficiency of energy Reliability not affected by weather conditions

SDM Ch 15

Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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.
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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

Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

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
Tata McGraw Hill Publishing

275