An over view





 

Manufacturer ------ selling directly to buyers. Manufacturer------- selling in the weekly markets. Buyers sourcing products as per needs only from above.

Retailers came into existence.

Since the requirement of customers was small, retailers stocked enough products to meet the buyer's convenience.


Second phase –status & shopping experience
 

   

Economic development lead to increase production & demand situation started tilting towards the buyer. Market Shifts to meet the buyers status and needs. Beginning of competition. Buyer started to look for ―better value for money‖. Purchase power of buyer increased. Specialized retails emerged to carter to increased needs to different segments of buyers. Better quality , premium brands , bargains , ambience etc.


Third Phase --- Back to convenience
     

Further economic boom lead to consolidation of markets. Time constrain. Buyers wanting quality, variety , convenience lead to Supermarkets Malls Superstores


Development of retail industry

Increased outlets lead to retail outlet becoming more powerful & demanding. Trade offers became a part of life. Specialties & one stop shops emerge.

 


Development of Suppliers
  

Develop new markets. Develop new buyers. Need to develop an efficient system of making the products available.

Need for development of ―intermediaries‖ --Channel Partners.


Channel Partners

are non company employees who help make the product available at the right time and right place.








Channel Partners

C&F agents (carrying and forwarding agents)

Distributors Or Stockists.


What is a -      


Stocks company products Functions like a company office. Does not have competitor products. Delivers the company products. Works as per company policy. Implement company promo. activities. Helps collect company dues.


What is a -- Distributor / Stockist
     

 

Title of goods is transferred from company to the distributor. Invoiced directly from company. Do not maintain competing lines. Can maintain non competitive products. There investment is in company’s inventory and credit to retailers. Earn form the margin given by the company. Incur cost of distribution (transportation cost), establishment cost, man power cost. Overhead cost is split by keeping stocks of more companies. Business is evaluated by return on investment. Some companies give an assured minimum return

What is a -- Whole salers

  

   

Whole salers buy from companies authorised Distributors / Stockists. Whole salers do not have any geographical exclusivity. Wholesalers do have competitive lines and products. Provide the reach that the company Distributors / Stockists do not provide. Wholesalers normally do not provide redistribution service. Sell mostly from there counter. Work on low margins. Income source is rotation.


Mother go downs / Hubs

 

Are owned and operated by the company. Used to maintain inventory of goods manufactured at factories and TPOs.


C&F – location & responsibilities

 

Located in Metros, state capitals, big cities and cater to various towns, cities in the specific area of operation. Performs duties like carrying, storing, forwarding, repacking, loading, invoicing, market returns, forwarding promotional material to field staff. Title of the good remain with the company. Supplies only to companies distributors /stockists, super stockists, sub stockists and to big retailers.


C & F - earnings

     

C & F is compensated a percentage of sales as commission for services rendered. Commission is general variable & generally decreases with the increase of sales. Man power cost is born by the C&F. Establishment cost is of the C&F. Insurance of the stocks is companies responsibility. However the cost of insurance of the infra structure is of the C&F. Incidental costs like printed stationary, postage, transportation cost for up country is cost to the company.


C&F – Benefits / Concerns
Benefits Does repacking of stocks as per the requirement of channel partners at a nominal cost. Relieves the company of capital expenditure cost. Performs functions like logistics, few commercial duties & lets the company concentrate on manufacturing, marketing & selling. Concerns Maintenance of quality and hygiene standards. Difficulty in adapting to companies vision and values. Risk of theft, pilferage and in transit loss. Rise in cost of –insurance, handling cost.

  

Distributors --- location, earnings & responsibilities

      

Located in cities, towns, villages and cater to large number of wholesalers , retailers. They further divide the quantities in smaller lots as per the requirement of their customers. Get a fixed percentage as earning. Some times get an additional incentives for driving sales. Goods title is transferred to the distributors. Need to give companies schemes to all customers. Handle market returns as per companies norms. Maintain hygienic conditions while storing. Pay to the company as per agreed terms.


Distributors -- Benefits / Concerns
   

 

Offer wider reach of companies products. Cater to customers regularly & timely. Availabilities and accessibility. Provide credit to retailers, helping company to build stock at retail level. Provide wide coverage at the time of new launch. Deploy companies visibility advertisements to retail outlets.


Distributors -- Concerns.

  

  

Indulge in price war with other distributors. Cornering additional incentives aimed for retailers. Resistance to change in ever changing market dynamics & increased competition. Unethical practices – smuggling stocks to other territories. Creating artificial shortages. Not communicating companies vision & policies to retailers, thus creating communication gap. Indulging in arm twisting of companies due to strong unions.


Super stockists

 

Generally a big retailer or semi wholesaler who gets supplies from the companies distributor. Earns by the parting of commissions done by distributor. Pays upfront. Sometimes company bears the additional commission given. Facilitates the coverage and deeper penetration of company stocks.


Sub stockists
 

 

Base at a location where villagers visit for their requirements. Buys in small quantities and supply to small retailers in the vicinity. Earns a fixed commission. Gets company stocks from distributors.


Modern trade outlets

 

Organized retail outlets, stand alone super markets. Generate a huge sales volume. Due there huge potential companies have appointed distributors to cater to these outlets.


Modern trade outlets – Benefits & Concerns. Benefits

  

Generate huge volumes, hence reduce distribution cost of the company. New platform for company to display there products. Help companies to further promote there products. Better storage and dispensing conditions for products. Concerns

 

Out flow of huge margins due to huge volumes. With size – power to dictate terms, which may not be good for the company in the long term.

New Channel Development

Making products available at unconventional channels - like BPOs , Call centers, Multiplexes, Music stores, Restaurants, Coffee shops, Pubs, Lounges etc. They generate growth for the company due to impulsive behavior of the consumer.


 

     

Last and the most important part of channel. They are ‗kirana stores', general stores, chemists shops, ‗pann shops‘, etc,. They supply to the end consumer. Maintain good inventory levels. Hold stocks of competitors. Have long term relation with there customers. Offer credit. Are influential and can substitute products.


Retailers-- Benefits & Concerns

 

Offer wide availability of products. Largely unorganised and have low bargaining power. Work on low margins. Offer a platform to launch new products– availability, displays, trails by educating customers. Concerns

Expect credit and hence put pressure on the bottom line of company. High sales and distribution cost.

Whole salers
     

Channel between the distributors and retailers. Fill the gap left by distributors. Cater to small retailers who are financially weak. Buy in bulk and get better margin than retailers. Part with margins to customers and retain a part of margins. Primarily work on turn over.


Whole salers – benefits & concerns.
Benefits Facilitate better availability of reach of products. Buy in bulk , hence boost company‘s top line. Offer credit to small retailers. Fill the gap left by company distributors. Concerns

   

Indulge in price war & create disparity in the company‘s product. Poor storing and dispensing conditions.


Selection of channel partner

  

Identifying a partner. Applying selection criteria. Appointment.


Identifying a channel partner.

   

Advertisement. Field survey / Trade enquiry. Existing Dealers. Sales team recommendations.


selection criteria.
Short listing

Brands serviced.


Companies associated


Selection criteria

Essential Criteria

Investment Capacity

Area of control



Financial strength


Selection Criteria
Situational Criteria

Storage space




Sales Force


Channel commitment

The trading parties need — High level of commitment. Willing to consider each other needs. Flexibility in business operations.


Benefits of commitment

To Company

To Dealer

 

Increased sales Longer relationship. Brand building. Greater support.

Greater profitability. Social Image


Motivation of Channel Partner

Motivation schemes

Performance linked

Non –performance (relation ship)


Non Monetary

Non Monetary

Non Performance (relationship) Schemes

       

Season greetings. Personalized greetings –birthday anniversary etc. Appreciation –( verbal / letter) Invitation to H.O. Photographs Dinner Visit to shop Social visit on functions.


Relationship schemes

    

Hierarchy of the scheme on social image. History of usage of non monetary incentive. Hierarchy of channel member in the market. Company‘s image as per dealer. Hierarchy of the person in the company implementing scheme.


Performance oriented schemes

  

Identifying schemes perceived as motivators. Grouping of schemes with similar impact. Identifying the influence of schemes. Develop guidelines to improve channel commitment.


Motivator schemes
              

  

Exclusivity. Training of sales team. Market information. Joint advertisement. Involvement of target setting Shop displays. Customer education. Customer schemes. Service to channel. Soft loans. Institutional business. Return on investment. Wide range of products. New product Launch. Computerization of supply chain. Trade schemes. Settlement of complaints and claims. Information about company. Annual awards.

Grouping of schemes.

aimed at customer satisfaction.

Range of products of company.

New Products launch.

Consumer education

Sales promotion schemes.

Schemes aimed at System Orientation.
Schemes Computerization of supply chain.

Settlement of claims

Service to customer.

Inventory management

Continuous availability

Customer Complaints Information of company‘s activities.

Schemes for support

Support of partner By offering

Exclusivity of territory

Market Information -competition, -customer -reaction, -products, etc.

Assuring minimum return on investment

Alliance building schemes

Institutional business.

Best selling practices.

Sales staff training.

Involvement in target setting

Schemes aimed at Goodwill
Trade schemes in line with product cycle.

Joint Schemes.

Shop Displays / Road shows.

Soft loans

Annual rewards

Concerns of schemes.

   

Dealers / distributors to carry increased inventory Increased cost of inventory. Carry forwarding of unsold inventory. Maintain separate accounts.


Appraisal of channel members.

Sales performance.  Servicing.  Financial discipline.  Inventory maintenance.  Selling capacity.  Support to company.


Sales Performance.
 

   

Gross sales of products. Sales per product. Target achievement. New products sales. Growth rate. Local market share. Growth over last year.


 

Number of complaints handled. Speed of disposal.

Customer retention rate.


Financial discipline.

  

Outstanding to company. Frequency of defaults. Receivable from other channels.


Inventory maintenance.
 

 

Average inventory maintained. Inventory to sales ratio. Inventory turnover. Ability to stock in emergency. Off season stock.


Selling capability.
    

Technical knowledge & competence. Sales people assigned for different products. Behavior of sales persons. Technical levels of sales persons. Selling skills of sales staff.


Support to company.

    

Interest in the product. Competition from other product with the dealer. Time given to company products viz. competition. Support during sales campaign. Support for display.


Appraisal Hidden aspects.
     

Financial status Partnership issue. Family concern. Reputation. Company Variables. Social status.


Performance Vs. Action








Rewards / incentives

Start withdrawal

Willing to correct

Start withdrawal

Identify development needs

Unwilling to correct

Start withdrawal




Non controllable

Financial status

Company related issue.


Property division.

Social status.

Partnership break.


Channel Management , analysis & control

Required for company with high volume of sales & wide distribution net work. FMCG , Pharma, liquor, Consumer electronics etc.


Issues related to Channel Management system

  

Manual billing and accounting. Un willing to adapt to computerized billing procedure. Considered complicated. Need of skilled computer operator. Increased expense.


Reports from CMS
Sales All locations/Dealers Specific Location/Dealers Days reports Till date for the month.

Payment All dealers/channels Specific dealers Outstanding Over due payments

Inventory reports

Expense reports

ALL dealers/ locations

Tour expenses.

Specific dealers Direct expenses Hubs Administrative expense 59

CMS-implementation User friendly software Training of dealers


Back end integration -- ERP


Benefits of CMS

          

Data available at HO instantly. Cost effective transaction with dealers. Low communication cost. Increased sales force productivity. Better forecast accuracy. Reduced cycle time. Less late deliveries. Reactivation of dealers. Reduction in capital of dealers. Better return on investment. Analysis of secondary sales data. Daily stock and sales data for analysis. Customer complaints addressed faster-customer satisfaction.


Channel Evaluation -concept

  

Effectiveness. Efficiency. Equity.
The --- 3 E‘s


Channel evaluation -concept


Delivery of stocks to meet demand by partners

Stimulation of demand to reach the optimum level


Channel evaluation -concept
Productivity— Output generated by input used
Efficiency Productivity Profitability

Profitability – return on investment, liquidity, Sales and profits, growth potential, market share


Channel evaluation -concept

EquityChannel‘s ability serves to solve problems

Market segments

Geographically isolated customers

Slow moving products


Channel evaluation - Dimensions

Efficiency Cost of shifting goods. Cost of Storage. Cost of customer service.

Effectiveness Environment – impact of business conditions on channel. Organization – Quality of sales force.

1. 2. 3.



Market fit1. Quality of goods. 2. Quantity of goods. 3. Customer buying pattern.

Competitive fit –

Strategic fit – 1. Impact of shift on long term plans in the market segment

1. Competitive norms for product line.

Channel evaluation -concept

Beyond 3 E’s
Identify the problems & causes. What the organization should do to rectify the problem.

1. 2.


Channel Dynamics.--Advertising- sales force - Channel


Process of selling

Process of selling
Obtaining demand Servicing demand Feedback



Bulk Assortment
Storage Credit & Service Availability


Influences of Functional areas.


Sales force management

Selling Strategy

Channel management



Sales force– prospecting / promoting / educating the customer etc. Channel – Servicing the demand


Channel role
 

  

Receive orders from customers. Deliver to stock to the customer at the right place and at the right time. Store material at different distribution locations. Maintain healthy relations with customer. Receive feedback & forward to sales force.


Channel Design.
―Of all the marketing decisions, the ones regarding distribution channel are far most far- reaching. The company can revamp the promotional programme, modify the product line. But once the company has set up its distribution channels, it generally finds changing them difficult.‖


Distribution network – USHA international
 

 

Electrical shops Specialized selling points for sewing machines. Specialized air-conditioning & refrigeration dealerships. Consumer durable shops. Specialized auto components dealerships.


Network of Usha


Company show room


Special channels

Direct mail Marketing.


Retail outlets

Electrical trade

Consumer durables



Channel for Auto Lubricants

C&F Petrol pumps Stockist Exclusive dealer Work shops Multi brand dealer Retailer

76 Customer

Ideal Channel

Challenges ----


2. 3.

Channel needs to be adopted depending on target segments and positioning. Goals of channel members differ. Alternates are available.


Ideal channel

Should include
Number of channel to use. Levels in each channel. Type of intermediaries. Number of channel intermediaries at each level.

1. 2. 3.



Ideal Channel

Target group Buyer’s need Retailer’s needs Legal aspects Distribution needs Feasible alternatives

Product features

Reach Function to be preformed by the channel

Internet as a channel partner

          

Retail. Job portals. E greetings. Internet service provider. Matrimonial services. E broking. Travel. Hotels/ cars/ tours Classifieds. On line market. Mobile VAS. E gamming.

Internet as a partner – S.W.O.T.
 1. 2. 3. 4. 5. 6.

Strengths Better inventory management. Convenience. Complete variety display. Customization. Better database. Helps in information search.


1. High delivery cost
2. High waiting time. 3. Lower penetration of internet. 4. Additional logistics chain


1. Well suited niche marketing. 2. Can hasten the process of purchase.


1. Channel conflict.

2. Low acceptance of internet for payments.
3. Shopping experience is denied. 4. No trial facility

Conventional channel vs. Internet

1. 2.

Inability to maximize price. Inability to take advantage of shortage due lack of market intelligence. Lack of visibility of market price. New buyer identification difficult. High communication cost. High sale process.


Prices of product are higher due to bidding. E-selling bring buyers for all market on one platform. Market facing shortage will have highest biding. Auction provides complete market price visibility. Shorter buyers search. Reduce communication cost. Lower inventories .increased sales frequency. Lower process time for sale.


3. 4. 5.



4. 5. 6.



Channel Levels:
 

Length of a channel: No. of intermediaries b/n producer & final consumer Zero Level:  Manufacturer Consumers  Eg: Eureka Forbes, Reader‘s Digest One Level:  Manufacturer Retailer Consumer  Eg: Maruti Suzuki dealers Two Level:  Manufacturer Wholesaler Retailer Consumer  Eg: FMCG, White goods Three Level:  Manufacturer Dist. Wholesaler Retailer Consumer.  Eg: FMCG, White goods

Channel Dynamics:

Vertical Marketing Systems: (VMS)

Producers, Wholesalers, Retailers etc. acting as a unified system

Horizontal Marketing Systems: (HMS)  Two or more unrelated companies come together to exploit emerging marketing opportunity

Eg: Banks & Car manufacturers‘ tie-ups

Multi Channel Marketing Systems/Dual Marketing  Firms using two or more marketing channels to reach its customers

Eg: Sale of airline tickets online as well as through agents


Channel Conflict & its management

  

Can happen at any stage in the channel management. Requires immediate attention. Generally arises when the channel & company differ.


Types of conflict

Multi channel conflict.– Channel compete amongst them self's. Leads to decline of both channels. Horizontal channel conflict.– When two or more partners compete. Leads to dilution of brand image.


Indications of channel conflict
 1. 2. 3.

Internal indicators. Low channel productivity. Deterioration of channel relationship. Poor customer service. External Indicators Low customer satisfaction. Reduction in support of product line. De-emphasis on brand. Competition for sale in the same geographical area.

 1. 2. 3. 4.


Areas of conflict --  

Multi point contact with institutional buyers. – (Rep / Retailers) Direct contact of wholesalers & retailers with consumer. Direct contact of wholesaler & retailer with C&F / Depot.


Identify the areas of Conflict
  

Channels competing with each other. Channels serving the same customer. Deteriorating profits of a channel member is leading to encroachment. Will decline of channel harm the manufacturer?

Use decision making practice to solve channel conflict.


Conflict situations
 1.

 1.


Horizontal conflict Conflict due to Multi brands outlets, exclusive showrooms, company showrooms i.e.-- same merchandise available in all stores. no exclusivity of territory of retailers. Vertical conflict Internet sales are conflicting with all channels. Company is selling directly to customers. Customer satisfaction Customers want high quality with competing price. Customer not shifting shop due to price difference.

 1.



How to resolve channel conflict???



Conflict & Channel Efficiency
Does conflict decrease efficiency? Can conflict increase efficiency?

How does conflict affect channel efficiency?

Does conflict have any affect?


Effects of Channel Conflicts
1. 2. 3.

Negative Effect No Effect or Positive Effect ….


Effects of Channel Conflict

1. Negative Effect: Reduced Efficiency

As the level of conflict increases,

Channel efficiency declines


Effects of Channel Conflict
2.No Effect: Efficiency Remains Constant

Exists in channels characterized by high level of dependency among members Channel efficiency is not affected


Effects of Channel Conflict

3. Positive Effect: Efficiency Increased

Conflict might drive for either or both members to reappraise their policies Channel efficiency increases


Managing Channel Conflict
Detecting conflict Appraising the effect of conflict

Managing Conflict

Resolving conflict


Detecting Channel Conflict
Regularly survey other members’ perceptions of firm’s performance


Perform marketing channel audit


Form distributors’ advisory councils or channel members’ committees


 1. 2. 3. 4. 5. 6.

Types Rail Road. Air. Water. Door to door service. Courier.


Transportation Modes
Cost-effective for shipping bulk products,

Low cost for shipping bulky, low-value, non perishable goods, slowest form.

Most important carrier for consumer goods, flexible.

High cost, ideal when speed is needed or distant markets have to be reached

Carry petroleum based products, very low cost, requires little energy.

Web sites have products available, used especially for services. 100

Routes of Goods

Air terminal Container terminal
bulk goods


Goods at shippers
sea sea


Freight forwarder warehouse

land land

railway truck

May change transportation modes

Freight forwarder warehouse

Goods at consignees



While distribution channel moves responsibility and information through the chain. Logistics covers the physical movement of goods.


Importance of logistics

  

Logistics amounts to > 10% of the cost of goods. It impacts the quality of goods. Facilitates marketing (ease in handling, storage, meets statuary requirements. Economics in manufacturing can be increased by time and location shifts. E.g. food industry--


Principle of logistics
 

    

Larger the load—lesser the cost. Effective logistics requires total cost to be considered. Packed good to be carried for effective transportation & to reduce the cost. ( Container in rail & road transport.) Improvement in Weight : Bulk ratio. Higher the value : weight ratio TPT. Cost will be higher. Vertical storage. Optimum storage space utilization. Shortest route may not be most economical route.


Functions of logistics.

 

   

Packing & unpacking. Breaking bulk. Handling & collection of delivery material. Documentation & transfer of ownership / insurance. Transportation. Warehousing and storage. Route planning.


Distribution & logistics.

The distribution system moves the responsibility and information through the chain. Logistics system comprises of handling, storage, transportation, documentation, physical movement of goods.


Logistic process

The stimulus to logistic process is the customer order.
What is required Delivery

Product, specification

When required

Quantity & packing

Whom to ship & destination

Special features*

Mode of shipment

Price to be charged


Mode of payment

Whether (cost +Insurance +Freight) Whether Free at a particular point Discounts and taxes to be charged.

Inspection report

Letter of credit

Excise pass

Documents thru bank Advance payment 107 Or credit

Shipping documents

Inputs for logistics


Product to be:Material handling facilities container / carrier
1. Packed 2. Marked 3. Certified for shipping

The activities of Logistics

   

Handling Storage Transportation Documentation Demurrage


Output of logistics — end result

Product delivered

At the right place

At the right time

In good condition


The Supply Chain of a Manufacturing Company


Logistics Integration for Customer Satisfaction, Distribution Cost, Control and Customer Service


Customer Satisfaction


Logistics Integration for Customer Satisfaction

Leads to customer satisfaction through superior customer service. Organizational objectives of P [Productivity],Q [Quality],C [Cost],D [Delivery],E [Employee Morale],F [Flexibility],S [Safety],H [Health],E [Environment] are set to meet customer expectations of Q,C,D. Q, C, S, H, E are parts of must be quality that a customer expects. Logistics addresses D, F objectives which lead to customer satisfaction through superior customer service


How logistics lead to customer satisfaction?

Rapid response

Logistics should ensure that the supplier is able to respond to the change in the demand very fast. Entire production should change from traditional push system to pull system to facilitate rapid response. IT helps management in producing and delivering goods when the consumer needs them. This results into reduction of inventory and exposes all operational deficiencies.


Minimum variance

Logistics is expected to minimize events like delays due to obstacles in information flow, traffic snarls, acts of god, wrong dispatches, damage in transit, thereby minimize and improve on OTD or On Time Delivery If the quality of product fails logistics will have to ship the product out of customers premises and repeat the logistics operation again. This adds to costs and customer dissatisfaction. Hence logistics should contribute to TQM initiative of management.




a) b)

Life cycle support- Logistics function is expected to provide life cycle support to the product after sale. This includes After sales service Reverse logistics or Product recall



After sales service: the service support needed by the product once it is sold during its life cycle

      

Reverse logistics or Product recall as a result of
Rigid quality standards [critical in case of contaminated products which can cause environmental hazard] Transit damage [leaking containers containing hazardous material] Product expiration dating Rigid laws prohibiting unscientific disposal of items associated with product [packaging] Rigid laws making recycling mandatory Erroneous order processing by supplier Reverse logistics is an important component of logistics planning


Distribution costs

Analysis of distribution cost may be made on the following lines: Product or Product lines Individual customers or Group of customers Channels of distribution Salesmen Geographical area or territories Terms of sales Order sizes

 

 


Elements of Total cost in Physical Distribution Systems
Total Distribution Cost TDC = TC + FC + CC + IC + HC + PC + MC


TC Transport Cost (Substantial Fixed Cost element)
     

Capacity to match volumes Centralised Distribution Route Planning Optimal Schedules Use of software Railways, Airways ,Seaway cost


FC – Facility Cost

 

Warehousing, capital cost and running cost related to infrastructure and internal systems to store and pick up stocks Use of Information Systems, Electronic Data Interchange Warehouse Management System like radio links. Reduction in wage bill – Refer to HR


CC – Communication Cost

Cost associated with communication through the chain. These are administrative costs

IC – Inventory Cost

Direct capital cost for goods purchased and Opportunity cost for carrying inventory. These are cost associated with maintenance and replenishment of inventory


HC – Handling Cost

Cost associated with Damage, Pilferage, Deterioration of stocks

PC – Packaging Cost

Repacking, shrink wrapping, pallets, boxes, containers, tapes, labels etc


MC – Management Cost

– Cost associated Management of the chain. Ranging from security system to storage conditions to HR, Finance and almost everything where managerial input is needed


Control and Customer Service


Definition of Customer Service
 

Customer service is the fulfillment process, the process to meet consumer demand as a whole. The process includes records requests manually or electronically, payment, selection of goods, delivery and provision of goods, as well as providing service to users of goods, also regulates the handling of goods returned to the consumer at the time of complaint. Customer service is a process for providing significant value added benefit to the supply chain in a cost-effective way.


Logistics planning in customer service





Effect on Service Sales
Service Improvement
Improvement: •Volume • Price • Reputation

Increased Market Share

Increased Profit

Effect on Customer Service - Increasing customer loyalty - Maintain good relations with customers by creating customer satisfaction. - The cost of maintaining existing customers is cheaper than getting new customers (6X fold cost)


 

Pre-transaction elements: customer service factors that arise prior to the actual transaction taking place Transaction elements: the elements directly related to the physical transaction and are those that are most commonly concerned with distribution and logistics. Post-transaction elements: these involve those elements that occur after the delivery has taken place


Pre-transaction elements
Is the determination of customer service strategies to be implemented, provide a written record of customer service policies. For example, specify how the item is sent after the order is received, set the procedure returns (back order), and method of delivery so customers know what services will be obtained.
  

   

written customer service policy; accessibility of order personnel; single order contact point; organizational structure; method of ordering; order size constraints; system flexibility; transaction elements.

Transaction elements
Is a determination concerning the implementation of the strategy delivery of goods / products to the consumer. This element is a direct result of the delivery of goods to customers, manage inventory levels, and selecting means of transport.
   

   

order cycle time (cycle time from orders / d order received) order preparation; inventory availability; delivery alternatives; delivery time; delivery reliability; delivery of complete order; condition of goods; order status information.

Post-transaction elements
Determination procedure is performed services to support products manufactured on the market. For example, to protect consumers from defective products, providing returns, guarantees reinstatement, warrants, and listening to consumer complaints.
    

 

availability of spares; call-out time; invoicing procedures; invoicing accuracy; product tracing/warranty; returns policy; customer complaints and procedures; claims procedures.

of Customer service




Time – usually order fulfilment cycle time; Dependability – guaranteed fixed delivery times of accurate, undamaged orders; Communications – ease of order taking, and queries response; Flexibility – the ability to recognize and respond to a customer's changing needs.



Service quality is a measure of the extent to which the customer is experiencing the level of service that he or she is expecting. Service quality is that it is the match between what the customer expects and what the customer experiences.

Perceived Performanc e x 100 Service quality = Desired Expectatio ns



The Increased Importance of Logistics
• • • • • A Reduction in Economic Regulation Recognition by Prominent Non-Logisticians Technological Advances The Growing Power of Retailers Globalization of Trade

Three objectives of logistics strategy:
• Cost reduction (variable costs) • Capital reduction (investment, fixed costs) • Service Improvement (may be at odds with the above two objectives).

Components of logistics management :
Inputs into logistics

Management actions Implementation Control
Outputs of logistics

Natural resources (land, facilities, and equipments)

Logistics management Suppliers Raw In-process materials inventory Finished goods

Marketing orientation (competitive advantage) Time and place utility Efficient movement to customer

Human resources

Logistics Activities •Customer Service •Demand forecasting •Distribution communications •Inventory control •Material handling •Order Processing •Parts and service support •Plant and warehouse site selection •Procurement •Packaging •Return goods handling •Salvage and scrap disposal •Traffic and transportation •Warehousing and

Financial resources

Information resources

Proprietary asset


Logistics activities can be divided into three categories:

Production Storage Transportation
The term ―Resource‖ applies to all of the factors of production, including materials (e.g., Iron, fabric, parts), equipment (e.g., machines or vehicles), energy (e.g., oil, coal, electricity) and labor.

PRODUCTION: Fundamental logistics questions are: (1) when should a resource be produced; and (2) where should a resource be produced. The ―when‖ question includes the topics of aggregate resource planning, and production scheduling. The ―where‖ question includes the topics of facility location and production allocation. Some of the important production questions are: (a) What outside source should be used to supply a part?

(b) Where should a new facility be built?
(c) When should a facility produce different items, taking into account: • Seasonal demand patterns?

• •

Demand uncertainty?
Cost of operating single, double, triple shifts? Labor costs?

(d) When should a firm use two or more sources for a part?

INVENTORY: Fundamental logistics questions are (1) when should a resource (material, machine or labor) be put in inventory and taken out of inventory; and (2) where should a resource be stored. The ―when‖ question includes the general topics of economic-orderquantity models, safety stock models and seasonal models, and specialized topics of fleet management, and personnel planning. The ―where‖ questions includes the topic of inventory echelons. Some of the important inventory questions are: (a) How much does it cost to store resources in inventory? (b) How much ―safety stock‖ should be carried in inventory to prevent against running out of a resource? (c) How much inventory should be carried in order to smooth out seasonal variations in demand? (d) Where should replacement parts be stored in multi-echelon inventory system? 143

TRANSPORTATION: Fundamental logistics are: (1) where should resources be moved to, and by what mode and route; (2) when should resources be moved.

The ―where‖ question includes the topics of terminal location, vehicle routing, and shortest path methods and network flow allocation.
The ―when‖ question includes the topic of distribution rules. Some of the important questions are: (a) When should shipment be sent through terminals, and when should shipment be sent direct? (b) Which, and how many, terminals should shipments be sent through? (c) What are the best vehicle routes? (d) When should a vehicle be dispatched over a route?

Logistics - Science of managing (controlling) the movement and storage of goods (or people) from acquisition to consumption. Goods: Raw Materials  Final products, and everything in between. Logistics for services & people similar to goods logistics. Ex. Police, fire, ambulance, passenger airlines, taxi cabs, etc. Movement Storage = Transportation (between locations). = Inventory, Warehousing (at locations).

Difference between acquisition and consumption is a matter of space and time. Focus: Best way to overcome space and time that separates acquisition and consumption. NOTE: Logistics does not deal with Technology of Production, such as the design of machines and vehicles and the design of finished products. 145

Five Business Systems - Tightly Interconnected Within The Organization
Management Systems Strategic
Decisions Product Design Decisions Process Design Decisions

Measurement Decisions

Product Decisions Price Decisions Place (How, where, how much)

Promotion Decisions Production Capacity Decisions Production Scheduling Decisions

Engineering Systems

Reward Decisions

Logistics Systems



Marketing Systems

Inventory Decisions

Transportation Decisions

Sourcing Decisions

Shop Floor Decisions


Manufacturing Systems


Activities and Logistics Decisions
rate and contract negotiation mode and service selection routing and scheduling

Customer Service
determining customer wants determining customer response to service changes

finished goods policies supply scheduling short term forecasting

Materials Handling
equipment selection equipment replacement order picking procedures

private vs. public space determination warehouse configuration Stock layout and dock design stock placement Cross-docking

Packaging design Order Processing
order procedure determination

Production Scheduling
aggregate production quantities sequencing and timing of production runs

Facility Location
determining location, number and size of facilities allocating demand to facilities


Logistics Planning

Decide what, when, how in three levels:
 

Strategic – long range > 1 year Tactical - < 1 year horizon Operational – frequently on hourly or daily basis
Examples of Decisions Strategic #Facilities, size, location Mode Tactical Inventory positioning Operational Routing

Type Location


Seasonal Service Replenishment Mix Qty and timing Priority rules for customers Expediting orders

Order Processing Selecting order entry system (CS)

The Logistics (Strategic) Planning Triangle

Strategy/Control system? How much? Where?

Which mode? Which carrier? Which route? Shipment size and frequency?

Where?, How many? What size? 149 Allocation?

Transport Fundamentals
Most important component of logistics cost. Usually 1/3 - 2/3 of total cost.

Transport involves  equipment (trucks, planes, trains, boats, pipeline),  people (drivers, loaders & un-loaders), and  decisions (routing, timing, quantities, equipment size, transport mode). When deciding the transport mode for a given product there are several things to consider:  Mode price  Transit time and variability (reliability)  Potential for loss or damage.
NOTE: In developing countries we often find it necessary to locate production close to both markets and resources, while in countries with developed distribution systems people can live in places far from production and resources.

Single-mode Service Choices and Issues
Air •Rapidly growing segment of transportation industry •Lightweight, small items [Products: Perishable and time sensitive goods: Flowers, produce, electronics, mail, emergency shipments, documents, etc.] •Quick, reliable, expensive •Often combined with trucking operations Rail •Low cost, high-volume [Products: Heavy industry, minerals, chemicals, agricultural products, autos, etc.] •Improving flexibility •intermodal service Truck •Most used mode •Flexible, small loads [Products: Medium and light manufacturing, food, clothing, all retail goods] 152 •Trucks can go door-to-door as opposed to planes and trains

Water •One of oldest means of transport •Low-cost, high-volume, slow •Bulky, heavy and/or large items (Products: Nonperishable bulk cargo - Liquids, minerals, grain, petroleum, lumber, etc )] •Standardized shipping containers improve service •Combined with trucking & rail for complete systems •International trade

Pipeline •Primarily for oil & refined oil products •Slurry lines carry coal or kaolin •High capital investment •Low operating costs •Can cross difficult terrain •Highly reliable; Low product losses

Transport Cost Characteristics

Rail  High fixed costs, low variable costs  High volumes result in lower per unit (variable) costs Highway  Lower fixed costs (don’t need to own or maintain roads)  Higher unit costs than rail due to lower capacity per truck  Terminal expenses and line-haul expenses Water  High terminal (port) costs and high equipment costs (both fixed)  Very low unit costs Air  Substantial fixed costs  Variable costs depend highly on distance traveled Pipeline  Highest proportion of fixed cost of any mode due to pipeline ownership and maintenance and extremely low variable costs

Vehicle Routing:
- Separate single origin and destination:
Once we have selected a transport mode and have goods that need to go from point A to point B, we must decide how to route a vehicle (or vehicles) from point A to point B. Given a map of all of our route choices between A and B we can create a network representing these choices The problem then reduces to the problem of finding the shortest path in the network from point A to B. This is a well solved problem that can use Dijkstra’s Algorithm for quick solution of small to medium (several thousand nodes) sized problems.

Vehicle Routing:
- Multiple Origin and Destination Points
Suppose we have multiple sources and multiple destinations, that each destination requires some integer number of truckloads, and that none of the sources have capacity restrictions [No Capacity Restriction].

In this case we can simply apply the transportation method of linear programming to determine the assignment of sources to destinations.
Sources Destinations


Vehicle Routing:
- Coincident Origin and Destination: The TSP

If a vehicle must deliver to more than two customers, we must decide the order in which we will visit those customers so as to minimize the total cost of making the delivery. We first suppose that any time that we make a delivery to customers we are able to make use of only a single vehicle, i.e., that vehicle capacity of our only truck is never an issue. In this case, we need to dispatch a single vehicle from our depot to n - 1 customers, with the vehicle returning to the depot following its final delivery. This is the well-known Traveling Salesman Problem (TSP). The TSP has been well studied and solved for problem instances involving thousands of nodes. We can formulate the TSP as follows:


Questions about the TSP

 

Given a problem with n nodes, how many distinct feasible tours exist? How many arcs will the network have? How many xij variables will we have? How could we quantify the number of subtour elimination constraints? The complexity of the TSP has led to several heuristic or approximate methods for finding good feasible solutions. The simplest solution we might think of is that of the nearest neighbor.


Vehicle Routing: TSP, inventory routing, and vehicle routing
• Traveling Salesman Problem (TSP): salesman visits n cities at minimum cost • vehicle routing problem (VRP): m vehicles with capacity to deliver to n customers who have volume requirement, time windows, etc. • Inventory Routing: m vehicle to delivery to n customer with time windows, vehicle and storage capacity constraints, and unspecified amount to be delivered. • Points to remember: 1. Load points closest together on the same truck 2. Build routes starting with points farther from depot first 3. Fill the largest vehicle to capacity first 4. Routes should not cross 5. Form teardrop pattern routes. 6. Plan pickups during deliveries, not after all deliveries have been made. 159

Vehicle Routing

Find best vehicle route(s) to serve a set of orders from customers. Best route may be
  

minimum cost, minimum distance, or minimum travel time. Delivery from depot to customer. Pickup at customer and return to depot. Pickup at one place and deliver to another place.

Orders may be
 


Logistics – contribution to corporate goals

Revenues :: Positioning of stocks in locations – for reliable & swift delivery for higher sales revenue. Expenses :: Cost incurring activities viz- transportation warehousing and inventory- to be considered in totality. Capital investment :: for improved customer satisfaction and lower logistics cost


Core components for integration

To achieve channel integration management must design and implement a logistics system which coordinates with the components of the entire system, so as to give a given level of customer service, at the enquired cost.


Core components ….
     

Development of customer standards Selection of transportation modes. Optimal number & location of warehouses. Inventory & control procedures. Production scheduling. Order processing and information system.


JIT - just in time logistics system
     

Purchasing Transportation. Warehousing. Inventory control. Production. Quality control.


Distribution cost
       

Time for which the inventory is held in transit. The space required. Ware housing cost. Transportation cost. Labour cost. Documentation cost ( Specially for international trade) Damage & Claim In bound & out bound logistics.


Allocation of Physical Distribution Expenditures


Cost control – A managements perspective
 

Difficult to control – issues involved. Higher cost passed to customer. ( where freight & insurance is charged extra) Major cost improvement comes from technology than managements action. Cost reductions – not visible. Value additions can be done in:1. Reduction in delivery time. 2. Less errors , damages and losses. 3. Better packing, merchandising, training.

4. More effective attention to problems, maintenance, spare parts requirements and service


Channel Integration
 

Channel integration is not vertical integration, requiring ownership. It is streamlining physical and information flow by re-engineering the distribution process. It is achieved through range of information and telecommunication technologies.


Linking sales & distribution

Sales management and distribution can not exist /operate / perform without each other. To achieve sales revenue , sales growth, sales management plans strategies and action plan. The distribution management executes these plans.


Sales management—  Strategy for effective coverage of markets & outlets.

 

Strategy to handle customer complaints

Distribution management--Follow up call plan. Make customer call productive. Use multi channel approach Prompt action at customer interface level. If problem persists-involve senior sales & service people.
Coordination of distribution channels Responsibility with distribution channel. Expenses shared between company & intermediaries.

Planning of local advertisement and sales promotion.

 


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