Distribution

Management
by
Milind M. Shahane

2010-11

1
 Sales Management vs. Distribution
Management
Sales Management Distribution Management

Organisation Strategy
Marketing Strategy

Zero SM Effective SM
Effective DM Zero DM
e.g. Mail Order e.g. Industrial
companies Most organisations product, capital
fall in between equipment

Distribution Management 2
 Sales Management vs. Distribution
Management

Depends on the use of own salesforce and

middlemen

Sales Management
• Effective management of own sales force

Distribution Management
• Effective management of channels / middlemen
(including logistics / physical distribution)

Distribution Management 3
 Sales Management vs. Distribution
Management

Inter-dependence / relationship between SM and DM

• High degree of inter-dependence
• Marketing exchange with customers through sales
force or distribution channels or both by most
companies
• Type of sales persons / systems required by a
company depend on channel structure
– Levels of distribution channel and requirements at each
level
• Implications on
– Costs – Fixed and variable
– Degree of control
– Need of finance / resources

Distribution Management 4
 Sales Management vs. Distribution
Management

Important Issues
1) Sales Goals – Achieve through sales force or
channel or both
2) Technically complex products, less users,
competitive markets Direct Sales
3) Low Value products, many customers, wide area
Wide distribution network with many levels
4) More direct sales in financially stronger companies
5) Personal prospecting and promotion > fn (few
customers, high competition, hi value complex
products)
6) Prospecting / promotion – channel members for
low value products

Distribution Management 5
 Sales Management vs. Distribution
Management

Important Issues (contd.)

7) Sales force requirement depends on the Extent of
direct sales to end-users or first level channel
members and support required at all levels
8) Non-personal promotion increases if not enough
media available for both
9) Non-personal promotion – more to channel if
access easier by them e.g. Rural areas
10) Increased inventory – increase in seasonal /
fashion goods
11) Increased competition – increase in debtors /
receivables

Distribution Management 6
 Sales Management vs. Distribution
Management

Important Issues (contd.)

12) Increased inventory / debtors – increased margins
to cover interest costs and risks
13) Special products – feedback directly through
sales force / channel
14) Standard products – feedback from customers
through agencies
15) Market Intelligence task – more to own sales force
than to channel members

Distribution Management 7
 Sales Management vs. Distribution
Management

Own Sales Force Finance, FC, Control, VC

Channels Finance, FC, Control, VC

SM Options / alternatives
Sales Manager for both and decision based
DM on criteria

Share of SM SWOT analysis

Total Marketing Compet. practices
Task Share of DM Buyer behaviour
Channel availab.

Distribution Management 8
 Sales Management vs. Distribution
Management
Decision on Share of SM vs. DM in various areas
Task / Area Sales Management Distribution
Management
1) Sales goal / objectives % share % share

2) Prospecting

3) Personal promotion

4) Non-personal promotion

5) Inventory at various levels

6) Debtors / receivables

7) Feedback

Share will depend on a) Nature of product b) Type of middlemen

c) Customer characteristics d) Competitive situation e) Company
objectives / nature f) Environment
Distribution Management 9
 Distribution Management – Important Issues

• Structure of Channel

• Type of intermediaries

• No. of intermediaries

• Tasks for channel members

• Target setting for channel – terms and conditions

• Recruitment and selection of channel intermediaries

• Evaluation and control of members

• Motivation and development of channel

Distribution Management 10
 Distribution Management – Important Issues

Management process – Planning, Organising, Directing and

Controlling

1) Goal formulation – sales volumes, costs, inventories, debtors /

receivables, dealer support

2) Organising sales effort – Structure of channel, territories,

reporting structure, product line, logistics

3) Direct the sales effort – Stimulate and motivate channel

members – rewards and recognition, review of progress /
processes

4) Control the sales effort – Evaluate and change as required

Distribution Management 11
 Distribution Management – Generalisations

• Structure of channel – sales potential, workload, competition

level, local conditions

• Geographical territories – homogenity of products

• Product based channel – complex and many product groups

• Segment / customer based dealers – Accounts, large

customers with differing and complex needs, uniform spread
across geographic terriories

• Recruitment / training – depends on company – process for

selection, training, classroom, on job etc.

Distribution Management 12
 Distribution Management – Generalisations

• Compensation – Fixed / variable, margins, incentives /

commissions

• Supervision – help, support and motivation

• Evaluation – achievements, failures, improvement and

corrective action

• Role of Field Managers

– Sales Manager
– Regional manager
– Branch managers
– Areas managers

• Importance of field / branch operations

Distribution Management 13
 Distribution Management – Generalisations

1) Complex, hi value, hi tech products – More direct channel

2) Hi Brand preference – non-exclusive resellers are ok

3) High competition market – intensive distribution with non-

differentiated products – no USP

4) Exclusive channel – high value / premium products – strict

control by manufacturer over channel – full distribution
support with no competing products

5) Low cost items – wide distribution – time and place of

purchase are not important

Distribution Management 14
 Distribution Management – Generalisations

6) Loyalty of distributor / reseller depends purely on profits / ROI

7) Multi level channel structure – reduces excessive control

8) No. of members in each layer of channel – decided by buyer

habits of different segments / customer groups and size of
target segment / group

Distribution Management 15
 Channel Management
Decisions about channel design and
management are critical

Why?
1)Channels chosen closely affect all other
marketing decisions e.g pricing vs. choice
of channel – Premium vs. mass

2)Channel selection – long term commitment

to outside firms – cannot be changed easily
– High “Switching Costs”
Distribution Management 16
 Channel Management

Distribution System / Channel

• Key external resource
• Takes years to build
• Cannot be easily changed but can be
destroyed easily
• As important as internal resources –
Manufacturing, engineering, facilities,
personnel etc.
• Corporate commitment to outsiders – to a
set of policies and practices
• Long Term Relationships
Distribution Management 17
 Channel Management

Distribution System / Channel

• Powerful ‘inertia’ – change is difficult /
expensive
• Channel design – Choose channels with Eye
for Tomorrow as well as Today

Nature of Marketing Channels

• Trade channels / distribution channels
• Set of independent organisations involved
in process of making products and services
available for use / consumption to end / final
customers
Distribution Management 18
 Advantages of Channels

Advantages
1) Lack of financial resources to market directly by
manufacturers / producers
2) Producers would need to become middlemen for
complementary products to achieve Mass
Distribution Economies – “Distribution Economies
of Scale”
3) ROI – Typically Manufacturing ROI – 20%
Distribution ROI – 10%
• Manufacturers / producers focus on core
competencies
• Leave distribution / retailing to specialists while
they invest in product / production / brand etc.
Distribution Management 19
 Advantages of Channels

Advantages
4) Middlemen have superior efficiency in
Distribution, Specialisation, EOS, wide
offering and choice
5) Transform heterogeneous supplies into
meaningful homogenous assortment
required by customers

Distribution Management 20
 Marketing Channels – Functions and flows

Functions and Flows

1) Information – Competitor, products, customers
2) Promotion – Persuasive communication to
customers
3) Negotiation – Discussion for agreement
4) Ordering – Contract – Reverse flow to producers
5) Finance – Payment / collection of funds
6) Risk – Very important
7) Payment – Banks / financial institutions
8) Physical Possession / Distribution – Storage and
movement
9) Title – Transfer of ownership
Distribution Management 21
 Marketing Channels – Functions and flows

Functions and Flows

• Flows
– Forward – Physical transfer, title, promotion
– Backward – Order, payment
– Both directions – Information, risk, finance

• Functions
– Use of scarce resources
– Performed better through specialisation
– Shiftable among channel members

• Efficiency and Effectiveness decides who does

which function between company and channel
Distribution Management 22
 Marketing Channels - Efficiency
Direct Marketing Through Channels

M1 C1 M1 C1

M2 C2 M2 D C2

M3 C3 M3 C3

9 contacts 6 contacts

Distribution Management 23
 Management of Channels
A) Design of Distribution Channels
a) Number and type of channel systems
b) Number and type of intermediaries in each system
c) Compensation to intermediaries
d) Nature of support to intermediaries

B) Selection of Channel Members

C) Improving Channel Member Capabilities

D) Working with Channel Members

• Steps in each area are

– Planning
– Implementation
– Evaluation and control
Distribution Management 24
 Channel Management
Steps in New Channel Design

1) Design Channel Structure

• Plan goals
• Organise structure
• Place, number and type of members

2) Select channel members

• Organise the selection and recruitment

3) Evaluation and Control plan

Distribution Management 25
 Channel Management
• Need to decide on
– Numbers and types of intermediaries at various levels
– Terms and conditions in each level

• Distribution
– Selective
– Intensive
– Exclusive

• Decision Criteria
– Economic
– Control
– Adaptability

Distribution Management 26
 Design of Channel
Planning Phase

• Define Need

a) New channel

b) New market

c) Improve coverage

d) Changes / replacement of members

e) Policy changes

Examples ??

Distribution Management 27
 Channel Design - Decisions
• Decision between
– “Ideal” vs. “Available”
– “Practical” vs. “Perfect”
• New start-up / small company
– Limited finances / capital
– Use Existing intermediaries
• Different channels in different segments

Distribution Management 28
 Channel Design - Decisions

• Decision between “Ideal” and “Available”

• New start-up / small company – Existing
intermediaries
• Different channels in different segments

Steps
1) Analyse customer needs – service levels / outputs
2) Establish channel objectives – constraints
3) Identify major channel alternatives
4) Evaluate channel alternatives
5) Select proper alternatives
6) Execute / Implement / Set-up channel
Distribution Management 29
 Channel Decisions - Analysis

Analysis of Customer Needs

• Buyer behaviour – what, where, why, when, how

• Customers buy – “Service Outputs / levels”

Examples
1) Lot size
2) Waiting time – Delivery period
3) Spatial convenience – Availability / Reach
4) Product variety – breadth of assortment

• Service Levels and Demand – Volume of each Service Output

• Increased Service Level – Increased Costs – Increased prices

Distribution Management 30
 Distribution Management – Overview

Channel structure, type of intermediaries,

numbers etc. will depend on

• Type of product
• Company objectives
• Market structure and type of Customers
• Middlemen available
• Competition
• Regulatory Environment

Distribution Management 31
 Channel Decisions - Objectives
Objectives / Constraints
• Objectives – Targeted service output levels
• Decide based on segments and other factors
• Minimise total channel costs

a) Product Characteristics
• Perishable – more direct
• Bulky – handling and distance
• Non-standard – sales agents with knowledge of products
• Hi value – Company sales force or exclusive / selective
channel
b) Middlemen Characteristics
• Aptitude to handle various tasks – promotion, negotiation,
storage, credit etc.

Distribution Management 32
 Channel Decisions - Objectives

Objectives / Constraints
b) Middlemen Characteristics
• Capability to invest
• Profile of intermediary
Examples
• Large distributors, specialised intermediaries,
exclusive, premium, mass

c) Competitive Characteristics
– Channels used by competitors – similar channels
– Similar retailers for particular area
Examples

Distribution Management 33
 Channel Decisions - Objectives

Objectives / Constraints
d) Company Characteristics
• Company culture, orientation, strategies
• Long term goals, mission
• Channel decisions are not easily reversible
• Depend upon
• Size of company – Larger size => Larger influence
• Financial resources – More resources => Can decide
functions to delegate
• Product mix – Higher product mix / range => Can deal with
channel more effectively / directly with customers
• Greater consistency of products => More homogenity of
channels
• Marketing strategy – Speedy delivery => Choice of stocking
points / transporters

Distribution Management 34
 Channel Decisions - Objectives

Objectives / Constraints
e) Environmental Characteristics
• Economic conditions
• Demand and cost of channels
• Legal regulations
• MRTP and other restrictions
• Development status of area
• Availability of channels / middlemen

Distribution Management 35
 Channel Management
• Dealing with
– Variety of Intermediaries
– Variety of functions
– Variety of “Middlemen” (various names)

Type of Distributors / Middlemen / Channel Members /

Intermediaries

Merchants Agents Facilitators

• Buy, take title to • Search for • Assist in distribution
and resell goods customers, of goods / services
and merchandise negotiate on behalf but neither take title
• Wholesalers, of manufacturer but or negotiate on behalf
semi-WS, no title • Transporters, C&F
retailers • Agents, sales reps, agents, advertising
brokers, agencies, WH
commission agents companies, stockists

• Combination of above intermediaries is called Channel

System
Distribution Management 36
 Marketing Channels
Number of Channels
• Channel level – each layer in chain which takes
product / service closer to customer
• Perform specific task / function in process

• No. of intermediary levels = Length of channel

Types
1) Zero levels – Direct marketing M –> C
2) One level – One intermediary M –> D / R –> C
e.g. Industrial products
3) Two levels – Two intermediaries M –> W –> R –> C
e.g. Consumer products
Distribution Management 37
 Marketing Channels

Types
4) Three levels – Multiple intermediaries

• Very few cases with Higher number of levels

• Levels > 4 are extremely rare e.g. Cigarettes

Industrial Products
• Typically 0 or 1 levels but maximum 2 levels
• Called “Distributors” or “Dealers”
e.g. Vehicles, cars, trucks etc. could have 2 levels
Others have one level

Distribution Management 38
 Marketing Channels
Backward Channels
• Set-up for reverse flow of goods C –> M
• Use of same trade channels most of the time
• Often for Used / Re-cycled goods

1) Redemption Centers
2) Trash Collection Specialists
3) Recycling centres
4) Brokers
5) Used Return centres
6) Middlemen e.g Raddiwala, trash dealers

Distribution Management 39
 Marketing Channels
Channels in Service Sectors / Other Areas

• Education - Franchisees, Institutes

• Health Services – Franchisees, agents

• Hospitals

• Social Services - Agents

• Persons - Agents

Distribution Management 40
 Marketing Channels
Channels in Service Sectors / Other Areas

6) Events – Brokers, Event managers, agents, distributors

7) Hotels – Franchisees, Agents

8) Resturants - Franchisees

Distribution Management 41
 Channel Decisions - Alternatives
Identify Major Channel Alternatives
a) Types of business intermediaries
b) Number of intermediaries
c) Terms and mutual responsibilities of each channel member /
participant – describe channel alternatives

d) Type of intermediaries
• Search for new channels
– Innovation
– Difficulty / problems with existing channels
• Examples
1) Manufacturer of testing equipment
• Alternatives
– Company sales force – expand
– Agents – add agents in new areas
– Industrial distributors – find and appoint distributors

Distribution Management 42
 Channel Decisions - Alternatives

a) Type of intermediaries
• Examples
2) Manufacturer of Consumer Electronics – Car radios
• Alternatives
– OEM market
– Auto dealers
– Retail dealers for automobile spare parts
– Mail order

Distribution Management 43
 Channel Decisions - Alternatives

b) Number of intermediaries – 3 strategies possible

1) Intensive Distribution
2) Exclusive Distribution
3) Selective Distribution

1) Intensive Distribution
• Many outlets as wide as possible
• Should not become counter productive
• Examples – FMCG, consumer goods, cigarettes

Distribution Management 44
 Channel Decisions - Alternatives

b) Number of intermediaries – 3 strategies possible

2) Exclusive distribution
• No competing product lines
• More aggressive – informed selling
• Control over channel intermediaries policies on
price, promotion, product
• Examples
– Automobiles
– Batteries
– Tractors
– Textiles / garments
– Fast food

Distribution Management 45
 Channel Decisions - Alternatives
b) Number of intermediaries – 3 strategies possible
3) Selective distribution
• More than one but not all types of intermediaries used
• Limit the costs and efforts for company
• Develop good relations with few channel members
• More control but less cost than intensive strategy
• Sale through selective outlets
• Used by service industry products / services
• Examples
– Garments / clothing
– Consumer durables
– Watches
– Perfumes
– Cosmetics
– Shoes
Distribution Management 46
 Channel Decisions - Alternatives
c) Terms and Responsibilities of Channel Members
• “Trade Relations Mix” Elements
1) Price policies
– List prices / discount structures

2) Terms and conditions of sale

– Payment terms, guarantees / warranty

3) Territorial rights
– Exclusive territory – sales to whose account
– Infringement policies / penalties

4) Mutual services and responsibilities

– Should be well defined and understood
Distribution Management 47
 Channel Decisions - Evaluation

Evaluation of Channel Alternatives

• Criteria for evaluation
a) Economic
b) Control
c) Adaptability

1) Economic
• Sales achieved vs. Costs
• Trade-off between sales, quality, aggression vs.
Costs and efficiencies
• Own sales force vs. Agents
• Agents vs. Distributors
Distribution Management 48
 Channel Decisions - Evaluation

2) Control
• Level of “Influence on Channel”
• Effective promotion
• Deployment of resources
• More investment
• Management attention and time

3) Adaptability
• Flexibility to change in line with future needs
• Change for more effectiveness
• Adaptability of channel members

Distribution Management 49
 Channel Design
Planning phase
a) Identify Alternatives

i) Structural Alternatives
• Channel structure most critical – others follow
• Factors driving structure
– Buyer behaviour
– Competition
– Channel member availability
– Government regulations
• Assessment of own vs. external advantages
• Assessment of distribution / allocation of marketing tasks
between own and channel system
• Decide level upto which company will be involved

Distribution Management 50
 Channel Design
Planning phase
a) Identify Alternatives

ii) Number and type of intermediaries

• Service requirements
• Geographic spread required by company

iii) Compensation
• Adequate compensation – margins
• Fixed and variable components – commissions

iv) Support
• Assistance in advertising / promotion

Examples ??

Distribution Management 51
 Channel Design
Planning phase

b) Criteria for Evaluation of Alternatives

1) Identify Criteria
i) Economic
– Effectiveness – Achieving sales objectives
– Efficiencies – Cost of sales, ROI
ii) Control
• Amount of control required by company
iii) Adaptability
• Flexibility for modification

2) Approaches for Evaluation

• Matrix / table – evaluation on each criteria
• Simulation model

Distribution Management 52
 Channel Design
Planning phase

c) Evaluation of Alternatives
1) Weighted factor method
• Weightage for each criteria and evaluate alternatives on each

2) Hierarchical Preference Model

• List criteria in descending order of importance
• Set cut-off limits value above which alternatives are
acceptable

Distribution Management 53
 Implementation of Channels
Implementation Phase

1) Management Approval
• Support from other departments / functions
– Within sales and marketing
– Other functions
• Time schedule for implementation of system

2) Actual Selection Process

• Time frame and adherence to same

Distribution Management 54
 Selection of Channel Members
Implementation Phase

1) Find out / identify interested parties

• Own sales organisation – sales force, managers
• Through existing channel members
• Direct enquiries
• Directories / Yellow pages
• Advertisements
• Competitor channel members
• Similar products channel members

2) Evolve Suitable Criteria for Selection of members

• No fixed or standard criteria
• Varies for product type, company objectives, type of channel,
competitive factors, environment

Distribution Management 55
 Selection of Channel Members
Implementation Phase

2) Evolve Suitable Criteria for Selection of members

• Coverage strength – product lines handled
– Complementary
– Compatible
– Competitor
– Examples?
• Ability to perform various tasks
– Prospecting
– Negotiation
– Promotion
– Examples
• Sales strength
– Number of persons
– Level of persons

Distribution Management 56
 Selection of Channel Members
Implementation Phase

2) Evolve Suitable Criteria for Selection of members

• Financial Strength
– Ability to invest
– Ability to extend credit
• Inventory / warehousing facilities – availability and locations
• Management ability and succession
– Large company vs. SMEs / Proprietor companies
– Availability of successors / competent personnel
• Reputation with customers in local area
• Attitude – favorable

3) Collect Information / Methods for final selection

• Check / verify information given by parties
• Background check
Distribution Management 57
 Selection of Channel Members
Implementation Phase

3) Collect Information / Methods for final selection

• Selection Methods
– Interviews
– Presentation
– Trial Periods
• Final decision making
– Which level decides

4) Wooing the Prospects

• Assess the prospects on various criteria
• Generate interest in the parties – share information
– Product
– Market size
– Company plans

Distribution Management 58
 Selection of Channel Members
Implementation Phase

4) Wooing the Prospects

• Generate interest in the parties – share information
– Facilities
– Support provided
– Profit margins
– Volumes expected
– Training provided
• Study of potential / market area by prospects

5) Channel Selection
• Decision based on criteria and effectiveness
• Decide exact nature of channel
– Number and type of intermediaries
Distribution Management 59
 Selection of Channel Members
Implementation Phase

5) Channel Selection
• Decide exact nature of channel
– Location and territories
– Terms and conditions of contract
– Qualifications and capabilities
• Finalise and document Channel Policies

6) Implement / Set-up the Channel

• Invite applications from suitable candidates
• Search for suitable members who fulfill criteria for
qualifications in each area
• Identify and shortlist suitable candidates / firms
• Discuss / meet / interview with candidates / firms
Distribution Management 60
 Selection of Channel Members
Implementation Phase

6) Implement / Set-up the Channel

• Scrutinize / Investigate – “Due Diligence” check
– Credit worthiness
– Capabilities
– Influence
– Position
– Background / reputation
• Prepare formal assessment report on the candidates
• Finalise selection in each area
• Finalisation of agreement with channel member
• Give LOI and set-up time to selected party – 2-3 months
• Investments in training, showroom, stocking etc.

Distribution Management 61
 Selection of Channel Members
Implementation Phase

6) Implement / Set-up the Channel

• Channel member own interest and involvement are critical
• Should do own independent study of the market / product
• Find out if viable attractive business proposition
• Difficulties in finding the “right” candidates
• Long time taken for set-up

Distribution Management 62
 Examples

1) Camera Manufacturer

• Possible process for selection of channel and members

• Alternatives
– Photo studio outlets
– Camera retail shops
– Electronic stores
– Electronic items retail chains – Vijay Sales, Sony Mony
– General stores
– Department stores / chains
– Malls
• Difficulties in attracting stores to carry camera line

Distribution Management 63
 Examples

2) Small food producers

• Possible process for selection of channel and members

• Alternatives
– Grocery Stores
– Kirana stores
– General retailers
– Super markets
– Food retailing chains
– Small shops
– Neighbourhood stores
• Wholesalers / Distributors for above
• Difficulties in attracting stores to carry food line

Distribution Management 64
 Examples

3) Mobile Phone Companies

• Possible process for selection of channel and members

• Alternatives
– Exclusive distributors / dealers / outlets – Nokia
– Special mobile phone stores
– Large department stores
– Electronic items retailers
– Electronic item retail chains – Croma, Vijay Sales
– Mobile phone OEMs
– Phone company outlets – Reliance, Airtel, BPL, Hutch, Tata
• Wholesalers / Distributors / C&F agents for above
• Difficulties in attracting stores to carry phone instruments

Distribution Management 65
 Examples

4) Clothing Line Companies

• Possible process for selection of channel and members

• Alternatives
– Exclusive retail show rooms – Pantaloon, Mango, Excalibur
– Large department stores
– Department store chains
– Malls
– Franchisee outlets
– Clothing retailers
• Wholesalers / Distributors / C&F agents for above
• Difficulties in attracting stores to carry clothes line

Distribution Management 66
 Channel Management
Steps in Existing Channel Management
1) Manage existing channel
• Goals – market share, volumes, cost
• Inventory levels
• Debtors / receivables
• Feedback
• Promotion
2) Organise channel effort
3) Direct channel effort
– Plan
– Organise
– Direct
– Control
4) Control channel effort
– Reward
– Motivate
Distribution Management 67
 Channel Management
• Need to manage channel after selection
• Training, motivation, evaluation and control
• Assess middlemen for performance improvement
– Number of years
– Profit record
– Sales growth
– Solvency
– Reputation
– Co-operativeness
– Quality of sales force
– Location of
• Store
• Offices
• Showroom
• Workshop

Distribution Management 68
 Motivation of Channel Members
• Continuous job of company to motivate channel

• Improve channel performance through providing

– Training
– Rewards / Incentives
– Supervision
– Encouragement

• Understand channel needs – information collection

• Approaches to handle distributor / trade relations

1) Cooperation
– Use carrot and stick approach
– Positive motivators
• Special deals

Distribution Management 69
 Motivation of Channel Members
1) Cooperation
– Positive motivators
• Higher margins
• Sales contests
• Premiums / Discounts
• Share of advertising
– Negative sanctions
• Reduce margins
• Late delivery
• Higher prices
• Debit Notes
• Reduce credit period
• Termination
– Approaches may not fully understand middleman’s needs
– Not fully involved in channel member’s business

Distribution Management 70
 Motivation of Channel Members
2) Partnership
– Form long lasting partnerships
– Closely involve in distributor policies / business
– Clear direction / expectations from each other
– Compensation linked to achievement of various objectives laid
down and not just sales targets
• Inventory level
• Service efficiency
• Debtor management
• Record keeping
• Product mix

3) Distribution Programming
– Most advanced / sophisticated
– Build planned, professionally managed Vertical Marketing
Systems (VMS) which take care of needs of both company and
channel members

Distribution Management 71
 Motivation of Channel Members
3) Distribution Programming
– Separate department for Dealer development, Distributor
Relations Planning
– Study needs and build programs for each distributor to operate
optimally
– Maximise ROI for distributors
– Plan for
• Inventory goals
• Training needs
• Advertising
• Promotions
– Distributors become important links in entire system – not just to
get goods from manufacturers
• Multi-level calls
• Distributor Screening Committee
• Distributor Retreats
• Distributor Surveys
• Dealer / Distributor Account Managers (DAM)

Distribution Management 72
 Dealer Development
• Neglected area in most companies
• Capabilities of dealers – finance, handle sales tasks
effectively
• Influence dealer practices, processes
• Develop managerial capabilities – especially weak links

• Need
– Re-alignment of tasks
– Change in dealer management – succession planning,
separations

• Process
a) Identify dealers who need development { Dealer
b) Identify development needs { Evaluation

Distribution Management 73
 Dealer Development
• Process
c) Prepare time bound development plan } Company Inputs
d) Implement development plan } Dealer Interest
e) Evaluate and take Corrective action } Convincing

• Areas for Development Needs

a) Buying and selling techniques – Training programs
b) Management of working capital
c) Management of staff and office
d) Promotion planning
e) Service Management
f) Service Skills

• Dealer Account Manager (DAM) or Dealer Development

Manager (DDM) normally handles various tasks as above

Distribution Management 74
 Dealer Development

• Successful development programs – seriousness,

involvement from all concerned in company

• Spirit of working in partnership not competition

Attitudes

• Respect for boundaries – draw a line – too much

intrusion into dealer affairs

• Careful and tactful approach required

Distribution Management 75
 Dealer Planning

• Dealer planning to achieve sales objectives

– Setting sales goals
– Planning Territory coverage – Dealer and company sales
persons
– Dealer and company promotions
– Collection of market feedback information

• Sales Targets / Territories

– Past sales records / data
– Company expected sales
– Market potential
– Dealer capability and motivation

Distribution Management 76
 Dealer Planning

• Dealer Communication

– Written communication
• Circulars
• Email
• Messages
• Websites
– Dealer conferences
– Personal discussions

– Appropriate target levels – stretch targets

– Role of DAM / DDM and sales force is critical

Distribution Management 77
 Dealer Evaluation

1) Types / Frequency

2) Criteria / Parameters for Evaluation

3) Evaluation Reports

4) Involvement

Distribution Management 78
 Dealer Evaluation

1) Types / Frequency
a) Short term
– Monthly / Quarterly
– Review and evaluate on 1-2 critical parameters

b) Long term
– Annual
– Evaluate on all parameters

c) Dealer Audits
– Annual
– Comprehensive evaluation in all areas and many aspects

Distribution Management 79
 Dealer Evaluation

2) Criteria / Parameters for evaluation

a) Sales Performance
– Sales vs. targets
– Sales vs. competition
– Market share

b) Payments
– Company outstandings
– Customer outstandings

c) Market Coverage
– Call frequency
– Adherence to Contact plans

Distribution Management 80
 Dealer Evaluation

2) Criteria / Parameters for evaluation

d) Financial Status
– Working capital
– Solvency

e) Growth prospects
– Keeping pace with market
– New areas / segments

f) Attitude
– Cooperation levels
– Flexibility
– Adaptability

Distribution Management 81
 Dealer Evaluation

2) Criteria / Parameters for evaluation

g) Feedback
– Quality of feedback
– Number of inputs / reports on
• Product
• Competition
• Market trends
• Other conditions

h) Financial Returns
– ROI / ROCE
– Profitability of dealers

Distribution Management 82
 Dealer Evaluation

3) Evaluation Reports
a) Reports from Sales Force

b) Reports from DAM / DDM

c) Distributor Score Card

– Annual Evaluation Report
– Comprehensive evaluation on various criteria / parameters

d) Dealer Audit Reports

– Internal Audit
– On all operations / processes of dealer

Distribution Management 83
 Dealer Evaluation

4) Involvement

a) Sales force

b) DAM / DDM

c) Top management

d) Internal Audit

Distribution Management 84
 Evaluation of Channel Members
• Periodical evaluation of Dealer / Distributor
Performance
• Annual Dealer Rating
• Quarterly Dealer Review
• Annual Dealer Audit
• Annual Assessment Report

• Evaluation on many performance parameters

– Sales quotas
– Inventory Levels
– Debtors
– Service Levels
– Customer satisfaction
– Quality / quantity of sales / service force
Distribution Management 85
 Evaluation of Channel Members

• Evaluation on many performance parameters

– Level of systems

• Performance Improvement Plans (PIP)

• Improvement plans for under achieving / non-
performing middlemen
• Evaluation forms basis of Control and Modification
of Channel

Distribution Management 86
 Examples / Case Studies

1) Electrical Industry
• Products like motors, pumps, switches,
switchgears, fans, transformers, lamps etc.
• Companies like Crompton Greaves, Siemens, L&T,
Bharat Bijlee
• 2 tier structure – Main dealers and sub-dealers
• Classify dealers into categories based on size – A
to D
• Sales force supports dealers for
– Training
– Seminars
– Locate sub-dealers
– Customers
Distribution Management 87
 Examples / Case Studies
1) Electrical Industry
• Dealer conferences
• Demonstration of tasks
• Service mechanic training in factory
• Share promotion programs
• Conferences for users – Wiremen, Electrical
contractors

2) Paint Industry
• Variety of SKUs
• Large companies in organised sector – Asian
Paints, Nerolac, Berger, ICI
• Many companies in unorganised sector
Distribution Management 88
 Examples / Case Studies

2) Paint Industry
• 2 tier structure – Dealers and sub-dealers
• Support from sales force of company
– Training
– Schemes
– Technical inputs
– Mixing and shades

• Dealer Conferences / meetings

• Dealer contests
• Meetings with customers

Distribution Management 89
 Dealer Cooperation / Channel Support

1) Price Concessions
a) Discount Structure
– Trade - Free goods
– Quantity - Freight absorption
– Cash - Advertising allowances

b) Discount Substitutes
– Display materials - Training
– Inventory Control - Technical assistance
– Program - Consulting service
– Catalogues - Demonstration expenses
– Sales literature

Distribution Management 90
 Dealer Cooperation / Channel Support
2) Financial Assistance
a) Conventional Landing Arrangements
– Term loans - Account receivable finance
– Accounts payables - Lease guarantees
– Creditors - Installment financing
– Bills of exchange

b) Extended Dating
– Post dated cheques - Seasonal finance

3) Protective Provisions
a) Price Protection
– Pre-worked goods - Pricing agreements
– Fair trading

Distribution Management 91
 Dealer Cooperation / Channel Support

3) Protective Provisions
b) Inventory Protection
– Consignment stocks / sales - Memo sales
– Liberal returns allowances - Rebate programs
– Reorder guarantees
– Support for events / exhibitions

c) Territorial Protection
– Possible in Selective / Exclusive type of distribution
– Order specific / case specific exclusiveness

• Examples ??
• Maruti, Voltas, Caterpillar
Distribution Management 92
 Examples of Cooperation / Support
• Contests for sales persons
• Allowances for warehousing
• Free goods / samples
• Demonstrations
• Payment support for shelf / aisle displays
• Installation costs for goods on shelves / aisles
• Prizes to buyers
• Sales / service training
• POP display contests
• Renovation / repair / interior decoration costs
• Cost sharing for new location / new store
• Cost sharing for promotions and exhibitions
• Goods return policies
Distribution Management 93
 Conflict / Competition in Channels

• Need for cooperation, coordination and support

between channel members
• Conflict is common in channels
• Conflict arises when individual members try to
maximise their own advantage – profit, sales,
power etc. at cost of other members

Reasons
1) Incompatible goals between manufacturer and
channel members
– Maximise sales vs. maximising profits
– Maximise coverage vs. minimising costs
– Additional resources vs. ROI
Distribution Management 94
 Conflict / Competition in Channels

Reasons
2) Unclear roles and rights
– Overlapping roles / responsibilities
– Overlapping areas / territories
– E.g Credit periods, payment terms

3) Differences in Perception
– Different views and ideas on customers, markets etc.

4) Level of independence
– May want more autonomy over decisions
– May want to enter other business areas
– E.g. Competitor lines, adjacent product lines, new areas

Distribution Management 95
 Conflict / Competition in Channels

Types of conflict
1) Horizontal
• Between individual firms at the same level
• Dominant member intervention – Channel Captain

2) Vertical
• Between members at different levels
• Conflict of interest

Resolution Mechanisms
1) Channel captain leadership

Distribution Management 96
 Conflict / Competition in Channels

Resolution Mechanisms
2) Superordinate goals
• Common goal or threat to survival

3) Joint work
• Meetings
• Advisory councils

4) Mediation and Arbitration

• Final step if others do not work

Distribution Management 97
 Conflict / Competition in Channels

Channel Competition

1) Horizontal
• Between channel members targeting same
segments

2) Inter-channel
• Between 2 competing channels – happens in multi-
channel systems

Examples ??
• Voltas, Nokia, FMCG
Distribution Management 98
 Channel Modification

• Dynamic System – changes needed for

performance improvement
• Change to meet
– Changed market conditions
– Changing buyer behaviour
– PLC stage
– New competition
– New innovations
– Changed strategies

• Examples ??

Distribution Management 99
 Channels with PLC

Growth
Stage
Hi- vol
Mass
Channels
Maturity
Stage
Mass Decline
Sales Stage
Low Cost
Channels Low Cost
Introduct Low Channels
ory Stage Service
Levels Min
Exclusive Service
Channels Levels

Time
Distribution Management 100
 Examples
1) Consumer Durables / Household Appliances

• Traditional Channel
– Franchised dealers

• Emerging / New channels / Distribution Changes

– Discount stores
– Private labels
– Large Department Stores
– Builders / Developers
– Direct door to door selling
– Mail Order
– Telephone / TV sales
– Internet sales
– Rural markets

Distribution Management 101

 Examples
2) Personal Products

• Traditional Channel
– Wholesalers
– Retailers

• Emerging / New channels / Distribution Changes

– Discount retail chains
– Large Department Stores
– Personal product chains - Boots
– Direct door to door selling
– Mail Order
– Telephone / TV sales
– Internet sales
– Rural markets
– Multi level selling
– Beauty Parlours / centres
Distribution Management 102
 Channel Modification
Possible Changes
1) Add / drop individual Channel Members
2) Add / drop particular Market Channels
3) Develop totally new / alternate channel for goods
and services

• Adding / dropping needs Incremental Analysis

• Effect of changes on company sales / profits as a
whole
• Costs will increase in short run for most changes
• Revising entire channel strategy – new / alternate is
most difficult and costly
• Need to change marketing mix has large impact

Distribution Management 103

 Emerging Channel Systems

1) Vertical Marketing Systems (VMS)

2) Horizontal Marketing Systems (HMS)

3) Multi-Level / Channel Marketing Systems

VMS
• Set of intermediaries (WS, Retailers etc.) which act as a
unified system

• Examples??
• Soft drink industry – Bottlers and distribution chain – Pepsi
• Fast food industry – Franchisee system – McDonalds
• Automobile industry – Dealer network
Distribution Management 104
 Emerging Channel Systems

Vertical Marketing Conventional Marketing

Systems (VMS) Systems (CMS)
• Unified System • Each member act
• One channel member independently
owns / franchises • Each member is a
others separate business entity
• Work towards • Each one seeks to
maximising profits for maximise own profits at
whole system the expense of the total
• Central control over system
network to achieve • Distributed control –
operating economies individual members have
the advantage
Distribution Management 105
 Emerging Channel Systems

Types of VMS

1) Corporate VMS

• Single Ownership of various stages

• High Control over channel
• Examples
– Coca-Cola
– Sears
– Westside
– Shoppers Stop
– Tanishq (partial)

Distribution Management 106

 Emerging Channel Systems

Types of VMS

2) Administered VMS

• Coordinate successive stages in channel

• Dominance of one party / OEM
• Typically applies to strong brands
• Examples
– Kodak
– HUL
– P&G
– Maruti
– Tata Motors

Distribution Management 107

 Emerging Channel Systems

Types of VMS

3) Contractual VMS

• Independent firms integrate together through contracts

• Coordinate to reduce costs

a) Wholesaler chains
• Standardise practices for economies

b) Retailer Cooperatives
• Power of economies of scale
• Examples
– Sahakari Bhandar
– Apna Bazar

Distribution Management 108

 Emerging Channel Systems

Types of VMS

3) Contractual VMS
c) Franchise Organisations

i) Wholesale Franchises
– Soft drink bottlers

ii) Retail Franchises

– Automobile dealers
– Phone dealers
– Consumer durable dealers
– Household appliances
– Furniture
– Jewellery
– Watches

Distribution Management 109

 Emerging Channel Systems

Types of VMS

3) Contractual VMS
c) Franchise Organisations

iii) Service Franchises

– Fast food outlets
– Telephone companies
– Financial Service outlets
– Car repair garage chains
– Insurance brokers
– Authorised service centers

Distribution Management 110

 Emerging Channel Systems

Horizontal Marketing Systems (HMS)

• Association for marketing between 2 non-related companies

• Each company may lack the resources / know-how to go
alone
• Symbiotic Marketing – exploit distribution synergies

• Examples
– Godrej – P&G – Soaps and detergents
– Godrej – GE – Consumer durables
– Coca-Cola – HUL (Lipton) – Vending machines
– Banks – Telephone companies – ATM networks
– Maruti – Insurance companies – Auto dealers
– Voltas – Siemens – Consumer product distributors

Distribution Management 111

 Multi-Channel Marketing Systems

Multi-channel systems
• Use of 2 or more channels to reach one or more customer
segments
• Aim to increase by adding each new channel
– Sales volumes
– Reach
• Need to be careful in adding channel system
– Risk of alienating existing channels
– May be counter-productive – competition between channel
systems affects sales – benefits competitors
• Examples
– Financial Services – ICICI Bank, HDFC
– Consumer Durables – Nokia, Voltas, Samsung, Titan
– FMCG – HUL, P&G, Dabur
– Electrical items – Crompton Greaves, Phillips

Distribution Management 112

 Examples

1) Financial Services – Banking, insurance, mutual funds, loans

High Insurance Private Banking

Personal Banking
Housing Loans

Branches Agents
Distribution
Value Add Internet
ATM

Loans
Phone Banking

Low
Mutual Funds
Commodity Product Complexity Customised
Distribution Management 113
 Examples

2) Computer Companies – Laptops, Desktops, Printers, Servers,

Standard software, IT Systems, IT Services

High IT Systems
IT Services

Dealers

Agents
Distribution
Value Add Special Retailers Servers

Laptops
Electronic stores
Desktops
Printers
Low

Commodity Product Complexity Customised

Distribution Management 114
 Channel Roles
Roles
1) Insiders
• Preferred access – top rung

2) Strivers
• Less preference – second rung

3) Complementors
• Serve smaller / niche segments
• Not main part of channel

4) Transients
• Enter channel for specific opportunities

5) Outside Innovators
• Parallel network – grey market operators / grey channel
Distribution Management 115
 Types of Merchants
1) Wholesalers

• Selling goods and services to those who buy for

resale or business use – retailers, other traders

Characteristics
• Do not pay attention to promotion, environment,
location etc.
• Larger value purchases – bulk transactions
• Cover a large area
• Government regulations / taxes may be different

Distribution Management 116

 Types of Merchants
1) Wholesalers
Advantages
• Bring efficiencies to selling process
• Assist small organisations in selling
• Specialist role on selling so that manufacturers can
focus on production
• Bring economies of scale
• Give / make assortment of products
• Important link between manufacturers and retailers

Functions
a) Selling – Push products / services
Distribution Management 117
 Types of Merchants
1) Wholesalers
Functions
b) Promotion – Pass on schemes
c) Bulk breaking – eg. steel, wires
d) Assortment building – wide range – FMCG
e) Warehousing – Intermediate storage
f) Transportation – Quicker delivery
g) Financing – Credit to retailers
h) Risk bearing – Damage, loss, theft, spoilage,
obsolescence
i) Market Information – Competition activities, price
trends
j) Management Services – Technical services, layouts

Distribution Management 118

 Types of Merchants
Types of Wholesalers

1) Merchants

2) Brokers / Agents

3) Manufacturers offices / branches

4) Miscellanous wholesalers

Distribution Management 119

 Types of Merchants
Types of Wholesalers
• Merchants
• Take title to goods / services handled
• Various types - Jobbers, Distributors, Dealers

a) Full Service
• Undertake all functions – Credit, stocking, service,
delivery, selling etc.
• Examples
i) Wholesale Merchants – FMCG, Clothing, Textiles
a) General Merchandisers
– Handle many product lines
– Eg. Variety of clothes, Variety of FMCG products

Distribution Management 120

 Types of Merchants
Types of Wholesalers
a) Full Service
i) Wholesale Merchants – FMCG, Clothing, Textiles
b) General Line
– Take on 1-2 product lines
– E.g. Men’s clothing, personal products

c) Speciality Line
– Take on part of product line
– E.g. Suitings, Creams

ii) Industrial Distributors

a) Broad line – Variety of pumps, motors, other equipment
b) General line – Pumps only
c) Speciality line – Water or industrial pumps only
Distribution Management 121
 Types of Merchants
Types of Wholesalers
b) Limited Service
• Take on few functions only
• Various types – Cash and carry, Truckers, drop
shippers, rack jobbers, cooperatives

2) Brokers and agents

• Play role of “Facilitators”
• Do not take title to goods
• Undertake few functions only
• Facilitate contact between buyers and sellers
• Payment on commission basis – 2 to 5%
Distribution Management 122
 Types of Merchants
Types of Wholesalers
2) Brokers and agents
a) Brokers
• Payment limited to case to case basis
• Eg. Real estate, stock brokers

b) Agents
• More permanent arrangement
• May have payment on regular basis
• Types
– Manufacturers representatives – handle more than one
– Selling agents – exclusive
– Purchasing agents – appointed by buyers
– Commission merchants – take physical possession
Distribution Management 123
 Types of Merchants
Marketing Decisions for Wholesalers
• Target market
• Which retailers / stores to target
2) Product treatment
• Width of line to carry
• Variety of functions / services to undertake
3) Price
• Commissions vs. costs
• Margins earned and ROI
4) Promotion
• Personal selling
5) Place
• Location – low rent areas
Distribution Management 124
 Types of Merchants
2) Retailers

• Sell goods and services directly to end consumers /

customers / end users

Types
1) Store retailers

2) Non-store retailers

3) Other retailers

4) Retail organisations
Distribution Management 125
 Types of Merchants
Retailers
• Store retailers - types
a) Speciality stores
– Few lines but deep assortment
– E.g. Mobile shops, Camera shops

b) Department stores
– Many product lines
– E.g. Westside, Shoppers Stop

c) Super Markets
– Many product lines – large stores and chains
– E.g. Big Bazaar, Walmart, Reliance Retail

Distribution Management 126

 Types of Merchants
Retailers
• Store retailers – types
d) Convenience Stores
– Well located – convenient
– Few FMCG type lines
– E.g. 7-11, Boots, Petrol pump stores

e) Super stores
– Large stores for particular product lines
– E.g. Vijay Stores, Sony-Mony, Croma

f) Discount Stores
– Limited / broad product lines
– Low prices, limited service
– E.g. Subhiksha, Dollar Stores
Distribution Management 127
 Types of Merchants
Retailers
• Store retailers – types
g) Warehouse stores
– Large stores with large size packs
– E.g Metro Cash and Carry

h) Showrooms
– Franchise outlets
– Company brand promotion
– E.g. Titan, Tanishq, Samsung, Sony

Service / Facilities / Assistance

a) Self service
b) Limited Assistance / facilities
c) Full assistance / facilities / service
Distribution Management 128
 Types of Merchants
Retailers
2) Non-Store retailers – types
a) Mail order catalogues
b) Direct mail
c) Telemarketing
d) TV marketing
e) Internet retailing
f) E-shopping

3) Other retailers
a) Direct selling – Door to door
– Multi-level marketing
b) Through Machines
– Automated Vending Machines
– ATMs
Distribution Management 129
 Types of Merchants
Retailers
4) Retail Organisations – types

a) Corporate chains – Croma, Westside, Vijay Stores

b) Voluntary chains – NGOs, Trusts
c) Retailer cooperatives – Farmer’s cooperatives,
Amul, Mother Dairy
d) Consumer cooperatives – Sahakari Bhandar, Apna
Bazaar
e) Franchisees – Fast food
f) Merchandising Conglomerates - Voltas

Distribution Management 130

 Types of Merchants
Marketing Decisions for Retailers
1) Target market
– Which consumers? Who are the buyers?
2) Product Assortment
– Which product lines / products to take on?
3) Pricing
– Margins, ROI
4) Services / facilities
– What level of services / facilities to provide?
5) Store formats / layouts
– Convenience, premium, discount
6) Promotion
– How to reach consumers?
– Print media, in-store promotions, POPs
– Campaigns, schemes, discount coupons / sales
Distribution Management 131
 Types of Merchants
Marketing Decisions for Retailers
7) Place
– Location is most important decision
– Where to locate?
– Residential areas, Suburbs / downtown / city areas, CBDs,
city outskirts, metropolitan area, rural / semi-urban areas,
railway stations, bus depots etc.

Retail Measures
• Number of footfalls
• % traffic generated
• Number of purchases / traffic
• Return on shelf space
• Return on retail area
• Product turns
Distribution Management 132
 Retail Life Cycles (RLC)

Departme
nt stores
Traditional
stores
Small
Volume stores

Super
markets

Time
Distribution Management 133
 Types of Merchants
Changes in Retail Landscape
• Need for strong “Differentiation”
• Continuous evaluation and change required
• High rate of retail obsolescence / stagnation

Trends / Important Points

• New concepts evolving all the time
• Increasing competition
• Shorter Retail Life Cycles (RLCs)
• Increase in non-store retailing
• Polarity of positioning
• One stop shop being redefined – Malls
• Growth of VMS
• Portfolio approach required – which products?
• Increasing use of IT and automation in Retail – Smart
technologies in retail e.g. RFID, bar coding, forecasting
systems, inventory / ordering systems
Distribution Management 134
 Physical Distribution
Sales / Order Execution Process

Order Customer
Distrib- Proc. Service
Ution
Prog.

Inventory Packag- Plant WH Outbound

Shipping Field WH
Sales Prodn. Mgmt. ing Storage Transport
forecast Plnng.

Receiving
Material Mat.
Procur.

Inbound
Transport

Distribution Management 135

 Physical Distribution

Location
Analysis
Customer Transport-
Service ion

Order Physical Material

Processing Distribution Handling

Ware IT / Logistics
Packaging Information
Housing
Inventory
Control
System

Distribution Management 136

 Physical Distribution
• Planning, controlling and implementation of physical
flow of material from production place to customer’s
place

• Getting the Right Goods in the Right Places at the

Right Time at the Right Cost

• Involves a series of “Trade-Offs”

– Inventory carrying costs vs. Delivery periods
– Speed vs. cost
– Service levels vs. stocking costs
– Transport cost / mode vs. speed of delivery

Distribution Management 137

 Physical Distribution
• Key Factors for decision making
– Cost
– Service level - availability
– Time - delivery

• Need to minimise / optimise the costs

• Generally neglected in most companies

• Few companies have excelled in this and have

reaped the benefits

• Examples – Dell Computers, Asian Paints, Gujarat

Ambuja
Distribution Management 138
 Physical Distribution

Physical Distribution
Activities
Transportation Production Activities
Material Handling Production Planning
Inventory Control Manufacturing
Marketing Warehousing Quality Assurance
Physical Distribution
Interface
Service Levels Physical Distribution
Order Processing Production Interface
Packaging Location
Distribution Channels Material Processing
Scheduling

Marketing
Activities
MR, Pricing
Promotion

Distribution Management 139

 Physical Distribution
Elements of Physical Distribution

1) Transportation – 46% Cost Distribution in Various

Activities
1) Warehousing – 26%

2) Receiving / Shipping – 6%

3) Packaging – 5%

4) Administration – 4%

5) Order Processing – 3%

Distribution Management 140

 Physical Distribution
1) Transportation

• Trade-off between Speed of transportation vs. Cost

• Safety vs. Delivery period

Elements
a) Types of transportation
b) Time period / speed of delivery
c) Cost
d) Availability

Distribution Management 141

 Physical Distribution
a) Types of transportation
• Railways
• Bulk goods
• Commodities

Advantages
• Low cost
• Bulk handling

Disadvantages
• Speed of delivery / time required
• High Infrastructure creation – tracks, railway sidings, wagons
• Administrative delays

Distribution Management 142

 Physical Distribution
a) Types of transportation
2) Roads
• Used by majority of goods at present
• For all types of goods including small consignments

Advantages
• Flexibility
• Speed of delivery
• Least infrastructure creation / cost
• High accessibility

Disadvantages
• Higher cost
• Administrative delays / road rules
• Poor road conditions

Distribution Management 143

 Physical Distribution
a) Types of transportation
3) Air
• Small consignments – light weight items
• Perishable goods – flowers, fruits
• High value costly items

Advantages
• Speed of delivery
• Safety / least transit damage

Disadvantages
• High cost
• High infrastructure need
Distribution Management 144
 Physical Distribution
a) Types of transportation
4) Water
i) Inland – Rivers / waterways
ii) Outside – Sea based

• Bulk handling
• Used for all type of goods over large distances

Advantages
• Low cost
• Handle all types of goods
• Containerisation – modular handling
• Movement across the world – global trade

Disdvantages
• High infrastructure need – ships, ports, jetties
• High time – speed of delivery least
Distribution Management 145
 Physical Distribution
a) Types of transportation
5) Pipelines

• Bulk liquids / gases – oil, petroleum products, CNG,

LPG

Advantages
• Speed of movement
• Higher safety – reduced accidents

Disadvantages
• High infrastructure need – pipeline construction
• Sophisticated controls needed
Distribution Management 146
 Physical Distribution
a) Types of transportation
6) Multi-modal

• Combination of above modes

• Boosted by Containerisation
• Container transport / handling are critical

Advantages
• Optimum combination of modes to ensure speed of delivery
and lower costs
• Utilise positive points of each mode

Disadvantages
• High degree of intervention and control needed
• Planning, control and tracking are crtitical

Distribution Management 147

 Physical Distribution
b) Inventory Control

• Service levels
Cost Total Cost
• Lead times
• Stock out costs
• Safety stock
• Obsolescence Inventory
Carrying Cost
• EOQ concept
• Optimum inventory Procurement
Cost
• ABC analysis
• VED analysis EOQ Order
Quantity
• Reorder levels
Distribution Management 148
 Physical Distribution
c) Material Handling

• Variety of MH equipment – forklifts, cranes, hoists, tackles

• Loading / unloading arrangements / activities – dock levellers
• Weighing
• Measurement of quantities

d) Packaging

• Type of material
• Size
• Cost
• Pack design
– Branding
– Awareness
– Attraction
• Durability

Distribution Management 149

 Physical Distribution
e) Warehousing

• Location – optimum to serve markets

• Size
• Safety of stocks
• Type of WH
– Bonded
– Cold Storages
– Agricultural / silos
• WH management

f) Service Levels / Locational Analysis

• Need for service
• Response time
• Availability %
• Cost
Distribution Management 150