Wholesaling and Logistics

Jeannine Flore SIGNING M.

20111956

Lecturer: Asst. Prof. Dr. Ebru Güneren

Department of Business Administration

Cyprus International University

June 2nd, 2012

[email protected]
Wholesaling and Logistics Jeannine Flore SIGNING M.

Table of contents

1. Introduction………………………………………………………………………………….....3

2. Wholesaling……………………………………………………………………………….........5
2.1 Wholesaling functions……………………………………………………………….…....5
2.2 Types of wholesalers……………………………………………………………………....5
2.3 Wholesaler Marketing Decisions…………………………………………….…………....6
2.4 Trends in Wholesaling……………………………………………………………………..7

3. Logistics……………………………………………………………………………....................7
3.1 Importance of Physical Distribution and Marketing Logistics………….………………...8
3.2 Goals of the Logistics System…..…………………………………...……..……………...8
3.3 Major Logistics Functions……………..…………………………………...……..………8
3.4 Integrated Logistics Management………………………..…………………………….…10

4. Conclusion…………………………………………………………………..……..…………10

Tables

Table 1: The Development of Logistics Management……………………………….…………….4

Table 2 Rankings of Transportation Modes (1 = Highest Rank)…………………………………..9

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Abstract
Most introductory or intermediary marketing courses present marketing from a manufacturer's
perspective, in which product distribution is treated as one of the marketing mix variables under the
complete control of the manufacturer. Product distribution is assumed by a wide range of
intermediaries through logistic systems. Wholesalers represent one such type of intermediaries.
First, this paper explains the role of wholesaler-distributors in general and specifically spells out
what they actually do for their suppliers based on the types of marketing functions they perform.
Second, it explains the concept of Logistics through its importance and functions. Research for this
report included a review of current literature on Wholesaling and Logistics management.

Keywords: Wholesaling, intermediaries, Logistics, Role of wholesalers

1. Introduction
Wholesaling and Logistics consist of many organizations bringing goods and services from the
point of production to the point of use. Wholesaling includes all activities involved in selling
goods and services to those buying for resale or business use (Kotler and Keller, 2006, p 520).
One way to study and understand wholesaling is to examine the functions that are performed by
the wholesalers. These functions include selling and promoting, buying and assortment building,
bulk-breaking, warehousing, transportation, financing, risk bearing, supplying market information,
and performing management services and providing advice for customers. Wholesalers can be
divided into numerous groups. Three primary types of wholesalers are merchant wholesalers,
agents and brokers, and manufacturer’s sales branches. Each of these general types are explained
and detailed in the following paragraphs. We conclude this first part with explanations of how
wholesalers use target market and positioning information, and make marketing mix decisions.

The development and continuing evolution of the logistics role are obvious in the last two decades
(Gundlach et al, 2006, p. 428). The Council of Supply Chain Management Professionals
(CSCMP), which is the pre-eminent professional organization for academics and practitioners in
the logistics field, formed in 1963, defined logistics management as “that part of supply chain
management that plans, implements and controls the efficient, effective forward and reverse flow
and storage of goods, services, and related information between the point of origin and the point of
consumption in order to meet customers’ requirements” (see www.cscmp.org). This definition has
resulted from numerous changes in the process to understand logistics (see Table 1). The task of
physical distribution systems is to minimize the total cost of providing a desired level of customer
services while bringing those services to the customer with the maximum amount of speed. Major
logistics functions of order processing, warehousing, inventory management, and transportation
are discussed and explored after its importance and goals. We conclude by discussing the cross-
functional teamwork within the firm and the relationships of distribution partners that are
necessary to make an effective and profitable distribution network.

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Table 1: The Development of Logistics Management

Period Development

Prior to the 1980s Logistics was primarily concerned with the outbound flow of
finished goods and services, with an emphasis on physical
distribution and warehouse management. As a managerial
activity, logistics focused on its role to support an
organization’s business strategy and to provide time and
place utility.

During the 1980s The industry globalization and transportation deregulation

led to the expansion of logistics beyond outbound flows to
include recognition of materials management and physical
distribution as important elements. In 1986, CLM (now
CSCMP) defined logistics as “the process of planning,
implementing, and controlling the efficient, cost-effective
flow and storage of raw materials, in-process inventory,
finished goods, and related information flow from point of
origin to point of consumption for the purpose of
conforming to customer requirements” (see www.clm1.org).

During the 1990s Logistics was defined as “the process of strategically

managing the procurement, movement and storage of
materials, parts and finished inventory and related
information flow through the organisation and its marketing
channels”. The definition was changed as a result of
accelerated market changes due to shrinking product
lifecycles, demand for customisation, responsiveness to
demand, and increased reliance on information”
(Christopher, 1998).

During the 2000s These years experienced further changes as to how logistics
is defined. Development in international trade, supply chain
management, technology and business process re-
engineering generated a need to re-evaluate the logistics
concept. As a result, in 2001, it was defined as “that part of
supply chain process that plans, implements, and controls the
efficient, effective flow and storage of goods, services and
related information from the point of origin to the point of
consumption in order to meet customers’ requirements”.

* Adapted from Gundlach, G. T., Bolumole, Y. A., Eltantawy, R. A. and Frankel, R. (2006), The
Changing Landscape of Supply Chain Management, Marketing Channels of Distribution,
Logistics and Purchasing, Journal of Business and Industrial Marketing, Vol.21/7, 428-438.

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2. Wholesaling
We call wholesalers those firms engaged primarily in wholesaling activity. Wholesalers buy
mostly from producers and sell mostly to retailers, industrial consumers, and other wholesalers
(Kotler & Armstrong, 2005, p. 386). This part covers wholesaling functions, types of wholesalers,
wholesaler marketing decisions and the trends in wholesaling.

2.1 Wholesaling functions

In general, distributors perform numerous marketing and managerial tasks on behalf of their
suppliers at a much higher level of efficiency and effectiveness than if these tasks were performed
by manufacturers themselves (Tamilia & Charlebois, 2009, p. 2) According to Kotler & Keller
(2006), in general, wholesalers are used when they are efficient in performing one or more of the
following functions (p. 520)

Selling and promoting: wholesalers help other members of the channel reach other
channel members.

Buying and assortment building: they save their customers much work by building
assortments for them to choose from.

Bulk-breaking: they break large lots into small quantities as a service for their
customers.

Warehousing: they hold inventories thereby reducing their customers’ risk.

Transportation: they provide quick delivery.

Financing: they finance inventories for their customers thereby moving the risk away
from the manufacturers. Customers do not always have all the necessary funds to purchase
a product (Tamilia & Charlebois, 2009, p. 2)

Risk-bearing: they absorb risk by taking title to the goods they possess.

Market information: they give information about market conditions to customers.

Management services and advice: they help their customers with the training function
and show them how to attractively display merchandise, promote merchandise, and
establish inventory control systems.

2.2 Types of wholesalers

Wholesalers fall into three major groups (Kotler and Armstrong, 2005, p. 386): merchant
wholesalers, brokers and agents, and manufacturer’s sales branches and offices.
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Merchant wholesalers: They are independently owned businesses that take title to the
merchandise they handle. Two broad types include:
• Full-service wholesalers who provide a full set of services, such as carrying
stock, using a sales force, offering credit, making deliveries, and providing
management assistance. They include wholesale merchants, industrial distributors)
• Limited-service wholesalers who offer only limited services to their suppliers
and customers. They include cash-and-carry wholesalers, truck wholesalers, etc.

Brokers and agents: They form the next set of wholesale groups.
• A broker is a wholesaler who does not take title to goods and whose function is
to bring buyers and sellers together and assist in negotiation.
• An agent is a wholesaler who represents buyers or sellers on a more permanent
basis, performs only a few functions, and do not take title to goods. A
common type of agent is the manufacturer’s agent (manufacturer’s representative)
and accounts for 11 percent of all total wholesale volume.

Manufacturer’s sales branches and offices: This involves wholesaling by sellers or

buyers themselves rather than through independent wholesalers. These branches or
offices account for about 31 percent of all wholesale volume.

2.3 Wholesaler Marketing Decisions

Wholesaler-distributors have faced mounting pressures in recent years from new sources of
competition, demanding customers, new technologies, and more direct-buying programs by large
industrial, institutional, and retail buyers (Kotler & Keller, 2006, p. 521). As a result, they have
had to take a fresh look at the marketing strategies (Kotler & Armstrong, 2005, p. 390). Their
marketing decisions include choices of target market, positioning, and the marketing mix
decisions.

Target Market and Positioning Decisions

Wholesalers must define their target markets; they can do it by examining and
classifying: Size of customer (only large retailers), type of customer (convenience food
stores only), need for service (customers who need credit) or other means.

Marketing Mix Decisions

Wholesalers must decide on a variety of issues concerning the marketing mix.

• Product and service assortment: The wholesaler’s product is its

assortment. They also have to think about the services which count most in
building strong customer relationships.

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• Price: Price decision is very important. Wholesalers usually mark up the cost
of goods by a standard percentage. Many times they have to cut this margin to
win new customers and in turn ask suppliers for price breaks to free up capital.
• Promotion: Promotion decision is difficult because, in general, wholesalers are
not promotion-minded. The need to develop an overall promotion strategy and
make greater use of supplier promotion materials and programs is always present
• Place: Place decision involves a determination about where and how the
wholesaler wants to operate. There is a trend toward automation in the
wholesaling industry to meet rising costs. Most wholesalers are using the
computer to make their operations more efficient.

2.4 Trends in Wholesaling

As the wholesaling industry moves into the twenty-first century, it faces

considerable challenges (Kotler & Armstrong, 2005, p. 418).

Fierce resistance to price increases and the winnowing out of suppliers

who are not adding value based on cost and quality

Progressive wholesalers constantly watch for better ways to meet the changing
needs of their suppliers and target customers.

They recognize that the only reason for their existence comes from increasing the
efficiency and effectiveness of the entire marketing channel.

The distinction between large retailers and large wholesalers continues to blur.
Many retailers now operate wholesale functions and many wholesalers are setting up
their own retailing operations.

Wholesalers will continue to increase the services they provide to retailers: retail
pricing, cooperative advertizing, accounting services, etc.

Because of shrinking domestic markets, wholesalers are beginning to go global.

3. Logistics
“Logistics” refers to the inbound and outbound flow and storage of goods, services, and
information within and between organizations (Gundlach et al, 2006, p. 432). Logistics
effectiveness will have a major impact on both the consumer’s satisfaction and company costs.
This last part explains the importance of Marketing Logistics, its goals, its major functions and
Integrated Logistics Management.

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3.1 Importance of Physical Distribution and Marketing Logistics

Marketing logistics involves not only outbound distribution (moving products from the factory to
resellers and ultimately to customers) but also inbound distribution (moving products and
materials from suppliers to the factory) and reverse distribution (moving broken, unwanted, or
excess products returned by consumers or resellers). That is, it involves entire supply chain
management (Kotler & Armstrong, 2005, p. 379). CSCMP defined supply chain management as
“encompasses the planning and management of all activities involved in sourcing and
procurement, conversion and all logistics management activities. Importantly, it also includes
coordination and collaboration with channel partners, which can be suppliers, intermediaries,
third-party service providers, and customers. In essence, supply chain management integrates
supply and demand management within and across companies” (see www.cscmp.org) There is
greater emphasis on logistics because:

Customer service and satisfaction have become the cornerstones of marketing

strategy. Companies can attract more customers by giving better service or lower
prices through better physical distribution.

Logistics is a major cost element. Elements of logistics are remarkably expensive, if not
controlled effectively (Fernie & Sparks, 2009). Poor physical distribution decisions result
in high costs. Improvements in physical distribution efficiency can yield
tremendous cost savings for both the company and its customers (Kotler &
Armstrong, 2001, p. 453).

The explosion in product variety has created a need for improved logistics.

Improvements in information technology have created opportunities for major

gains in distribution efficiency.

a. Goals of the Logistics System

Some companies state their objective as getting the right goods to the right places at the right time
for the least cost (Kotler & Keller, 2006, p. 525). While this objective is noteworthy, it is difficult
to achieve. The goal of the marketing logistics system should be to provide a targeted level of
customer service at the least cost (Kotler & Armstrong, 2005, p. 381). To do this, objectives must
be set. Managing the logistics mix in an integrated supply chain while aiming to balance cost and
service requirements are the essential elements of logistics management (Fernie and Sparks,
2009).

3.3 Major Logistics Functions

The major logistics functions include the following:

Order processing: Physical distribution begins with a customer order. Once

received, they must be quickly and accurately processed. Everyone benefits when
this system works well. Today, orders may be submitted by mail, telephone,
salespeople or via computer or electronic data interchange (EDI).
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Warehousing: A storage function is needed because production and

consumption levels rarely match. A company must decide how many and what
types of warehouses it needs, and where they will be located.
• A storage warehouse stores goods for moderate to long periods.
• A distribution center is a large, highly automated warehouse designed to
receive goods from various plants and suppliers, take orders, fill them
efficiently, and deliver goods to customers as quickly as possible. (Kotler &
Armstrong, 2001, p. 455).

Inventory management: Inventory is a physical resource that a firm holds in stork

with the intent to sell or to transform (raw materials, semi-finished goods, finished goods,
etc). Inventory decisions involve knowing when and how much to order. The goal
is to maintain the delicate balance between carrying too much and too little to avoid
overstocks which can lead to inventory-carrying costs and stock-outs which can
entail customer dissatisfaction. Being aware of consumer demands and
requirements is vital (Fernie & Sparks, 2009). Under a just-in-time system, only a
small amount of inventory is carried, but quick re-order turnaround is essential.
Though sometimes complicated, the JIT system can save needed resources.

Transportation: The choice of transportation carriers affects the pricing of

products, delivery performance, and condition of the goods when they arrive. All of
these will affect customer satisfaction. Five basic choices are rail, water, truck,
pipeline and air. In choosing a transportation mode for a product, shippers consider
as many as five criteria, as shown in Table 2 (Kotler & Armstrong, 1999, p. 377).

Table 2: Rankings of Transportation Modes (1 = Highest Rank)

SPEED DEPENDABILITY CAPABILITY

AVAILABILITY COST
Mode (door-to-door (meeting chedules (Ability to handle
(n° of geographic points served) (per ton-mile)
delivery time) on time) various products)

Rail 3 4 2 2 3

Water 4 5 1 4 1

Truck 2 2 3 1 4

Pipeline 5 1 5 5 2

Air 1 3 4 3 5

Source: P. Kotler & G. Armstrong (1999)

Therefore, it is preferable to choose the air mode if a shipper considers the speed, or
by water if the consideration is the cost.

Shippers are increasingly combining two transportation modes thanks to

containerization. Containerization consists of putting goods in boxes or trailers that
are easy to transfer between two transportation modes (Kotler & Armstrong, 1999,
p. 377). Piggyback (rail and trucks), fishyback (water and trucks), trainship (water
and rail), and airtruck (air and truck).

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4.3 Integrated Logistics Management

Integrated logistics management is the logistics concept that emphasizes teamwork, both inside
the company and among all the marketing channel organizations, to maximize the performance of
the entire distribution system (Kotler & Armstrong, 2001, p. 457).

Cross-Functional Teamwork inside the company: In most companies,

responsibility for various logistics activities is assigned to many different functional
units. The goal should be to harmonize all the decisions to improve customer service and
reduce costs. In some companies a new department, a department of logistics, has been
formed.

Building channel Partnerships: Since the success of each channel member somewhat
depends on other channel members, the members of the channel must be willing to work
with one another to insure maximum effectiveness.
• One attempt to do this is the creation of cross-functional, cross-company teams.
• Others use shared projects as means of improving performance.
• Information-sharing and continuous inventory replenishment systems also help
to alleviate problems.
• The result to the above actions may be to create response-based distribution
systems, which are thought to be superior to anticipatory-based distribution
systems. The response-based system is customer triggered and therefore, based on
a closeness to customer.

Third-Party Logistics: More than 90 percent of U.S. businesses perform their own
logistics functions. However, a growing number of firms now outsource their logistics to
third-party logistics providers such as Ryder Systems, UPS, or FedEx. These companies
perform any or all of the logistics functions for their clients. Reasons to use a third-party
logistics company would include:
• These providers can often get the products out quicker and cheaper than the
company’s own system.
• Outsourcing logistics frees a company to focus more intensely on its core
business.
• Integrated logistics companies understand increasingly complex logistics
environments.

5. Conclusion
Wholesaling and Logistics Management have become important aspects of the way Products are
distributed from the point of production to the point of use. This paper has first outlined the
functions performing by wholesalers, the types of wholesalers, their marketing decisions.
Secondly, it has explained the concept of Logistics through its importance, goals and major
functions.

Wholesaling includes all the activities involved in selling goods or services to those who are
buying for the purpose of resale or for business use. The functions performing by wholesalers
include Selling and promoting, Buying and assortment building, Bulk-breaking, Warehousing,
Transportation, Financing, Risk-bearing, Market information, Management services and advice.
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Wholesalers fall into three groups. First, merchant wholesalers who take title of the goods. They
include full-service wholesalers and limited-service wholesalers. Second, brokers and agents who
don’t take title of the goods but are paid a commission for their help. Finally, manufacturer’s sales
branches and offices are wholesaling operations conducted by nonwholesalers to bypass
wholesalers. The wholesaler marketing decisions are about his target markets, product assortment
and services, price, promotion and place.

Logistics management involves planning, implementing and controlling the physical flow of
materials, final goods and related information from points of origin to points of consumption to
meet customer requirements at a profit. it is important because customer service and satisfaction
have become the cornerstones of marketing strategy, it is a major cost element, the explosion in
product variety has created a need for improved logistics and Improvements in information
technology have created opportunities for major gains in distribution efficiency. Although some
companies state their objective as providing maximum customer service at the least cost, logistics
system goal should be to provide a targeted level of customer service at the least cost. To do this,
it should perform functions such as order processing, Warehousing, inventory and transportation
efficiently.

To be cost-effective, companies should carefully perform the above activities. If efficiently

performed, this set of activities can substantially reduce the environmental costs of distribution
and entail tremendous profit. Given the different disadvantages (stock-outs, overstocks,
dissatisfaction of customer, increasing of costs, etc) that inefficiency in these activities can entail,
each company should follow them rigorously.

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References
Fernie, J. & Sparks, L. (2009) Logistics & Retail Management: emerging issues and challenges in
the retail supply chain, 3rd Edition, London: Kogan Page

Gundlach, G. T., Bolumole, Y. A., Eltantawy, R. A. & Frankel, R. (2006), The changing
landscape of supply chain management, marketing channels of distribution, logistics and
purchasing. Journal of Business and Industrial Marketing, Vol. 21, N° 7, 428-438, Retrieved
from http://www.emeraldinsight.com

Kotler, P. & Keller, K. L. (2006) Marketing Management, 12th edition, New Jersey: Prentice Hall

Kotler, P. & Armstrong, G. (2005) Marketing: An Introduction, 7th edition, New Jersey: Prentice
Hall

Kotler, P. & Armstrong, G. (2001) Principles of Marketing, 9th edition, New Jersey: Prentice-Hall

Kotler, P. & Armstrong, G. (1999) Principles of Marketing, 8th edition, New Jersey: Prentice-Hall

Kotler, P. & Armstrong, G. (2005) Principles of Marketing, 11th edition, New Jersey: Prentice Hall

Tamilia, R. & Charlebois, S. (2009) Wholesaling, the role of the middleman and marketing costs:
some forgotten concepts in marketing thought. Journal of Management Research Vol. 1, No. 2:
E5, Retrieved from http://www.macrothink.org

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