Study Notes on Distribution & Supply Chain management

TOPIC I - Supply Chain Management
A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm. Traditionally, marketing, distribution, planning, manufacturing, and the purchasing organizations along the supply chain operated independently. These organizations have their own objectives and these are often conflicting. Marketing's objective of high customer service and maximum sales dollars conflict with manufacturing and distribution goals. Many manufacturing operations are designed to maximize throughout and lower costs with little consideration for the impact on inventory levels and distribution capabilities. Purchasing contracts are often negotiated with very little information beyond historical buying patterns. The result of these factors is that there is not a single, integrated plan for the organization---there were as many plans as businesses. Clearly, there is a need for a mechanism through which these different functions can be integrated together. Supply chain management is a strategy through which such an integration can be achieved. Supply chain management is typically viewed to lie between fully vertically integrated firms, where the entire material flow is owned by a single firm, and those where each channel member operates independently. Therefore coordination between the various players in the chain is key in its effective management. Cooper and Ellram [1993] compare supply chain management to a well-balanced and well-practiced relay team. Such a team is more competitive when each player knows how to be positioned for the hand-off. The relationships are the strongest between players who directly pass the baton, but the entire team needs to make a coordinated effort to win the race.

Supply chain management through Operations management Framework
Traditional Conversion methods tell us that inputs are transformed to outputs. The most important inputs are : Man  Machine  Money  MaterialsProcesses  Methods The most important methods of transformations are :-

 Assembly  Blending  Storing The most important outputs are : Tangible products and Intangible products  Direct and indirect products.

OM: Transformation Types
Transformations can be:
± ± ± ± Physical ± conversion of iron ore to steel Location ± Wheat after harvesting is transferred to warehouses Physiological ± A patient gets cured in a hospital Informational ± Challans are sent along with goods to the customer.

Characteristics of Manufacturing Environment
Increased product diversity ± Customers demand a wide range of products from the same organization. Reduced product life cycles ± Due to intense competition and rapid innovation products are replaced very fast in the market eg Pagers were replaced by mobiles. Increased awareness of the environment ± impact of products & manufacturing systems Difficulties of estimating the costs and benefits Changing social expectations

Manufacturing System Views
Closed System
± Manufacturing is seen as an internal function buffered from suppliers, customers, and other functions

Open Systems
± Manufacturing is seen as closely linked to suppliers, customers and other functions

A Closed System View
R&D Marketing

Suppliers

Finance

Manufacturing
Personnel

Customer Service Distribution & Logistics

Customers

Purchasing

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An Open System View
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Evolution From OM to Supply Chain
Over a period of time there was a migration from the Operations management point of view to the supply chain management point of view.

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OM View Closed System Manufacturer Orientation Local Optimization

Supply Chain View Open System Customer Orientation Global Optimization

Technology (hardware, software, multimedia, etc.) Local System Capabilities Enterprise System Capabilities

Changing Basis of Competition
Basis of Competition Manufacturing company versus Manufacturing company Manufacturing company and it¶s supply chain versus Manufacturing company and it¶s supply chain

Yesterday

Today

Customers
Consumers
± Pay for your company¶s final product .They are the final members of the supply chain

External customers
± Receiving outputs from your company.Anybody not employed but served by the company falls into this category.

Internal customers
± Receiving outputs from you to others within the company.The production department of a company is the internal customer of the purchase department while the marketing department is the internal customer of the production department.

‡ Logistical competency is achieved by coordinating :‡ 1) Network Design :-Number service & Geographical relationships of facilities directly affect service capabilities & cost. ‡ When a firm decides to be competent in logistics it seeks to outperform competitors in all facets of operations. 2) Information Deficiency in quality of information creates operational problems. ‡ This typically means that logistical performance is dedicated to supporting any or all marketing and manufacturing requirements in a manner that exploits delivery capability. Logistical Competency ‡ It is a relative assessment of a firm¶s capability to provide competitively superior customer service at the lowest possible customer cost.  Council of Logistics Management Logistical Mission ‡ ‡ ‡ ‡ The logistics of an enterprise is an integrated effort aimed at helping create customer value at the lowest total cost. The challenge is to balance service expectations and cost expenditures in a manner that achieves business objectives.logistics managers seek to achieve a previously agreed upon quality of customer service through state of the art operating competency. implements. and controls the efficient. the strategy is to provide superior service at a total cost below industry average. . At a strategic level . and related information from the point of origin to the point of consumption in order to meet customers¶ requirements. effective forward and reverse flow and storage of goods. Inaccuracy in order processing. Logistics exists to satisfy customer requirements by facilitating relevant manufacturing and marketing operations. .\ Logistics Management : Definition That part of supply chain management that plans. ‡ It is the process to determine the number & location of facilities to perform logistics work. Deficiency fall in two broad categories Forecasting errors. services. ‡ In short.

material handling and packaging Integral part of all other four logistic functions. Three forms of transport are private. the marketing effort can be ruined. 3. ‡ Concerns movement of finished product to customers who is the final destination of a market channel. Buying in wholesaling & retailing Material stands for inventory going into manufacturing. The process of acquisition is called as :Purchasing in manufacturing Procurement in Government circles. Inventory Requirement depends on network structure and customer service levels. The term product is used to identify inventory available for customer purchase. . ‡ ‡ ‡ ‡ ‡ ‡ Warehousing. Transportation It is the most visible cost. 4. contract and common carriage. ‡ The availability of a product is a vital part of each channel¶s marketing effort. Three factors are fundamental to transport performance : cost. sequencing. lowest total cost. warehouses or retail stores. Activities essential for logistical process are performed when goods are warehoused. product modification and assembly Inbound Logistics ‡ ‡ ‡ ‡ ‡ ‡ ‡ It is concerned with purchasing and arranging inbound movement of materials. QR(quick response) and CR(continuous replenishment) are logistical controls by application on information accuracy. transport consolidation and in some cases.Control concepts like JIT(just in time). ‡ Unless a proper assortment of products is efficiently delivered when & where it is needed. minimum inventory commitment . Objectivedesired customer service. Outbound Logistics ‡ Also called as physical distribution.parts. Examples sorting. order selection. speed and consistency.and/or finished inventory from suppliers to manufacturing or assembly plants.

Inc. Supply Chain: Definition Supply chain is a network of interconnected organizations or organizational entities developed with the goal of getting the right product to the right place at the right time W Figure 13. components and work in process inventory. The primary logistic responsibility of manufacturing is to participate in formulating a master production schedule and to arrange for timely availability of materials.Inventory Management Focus.Manufacturing Support ‡ ‡ ‡ ‡ It concentrates on managing work in process inventory as it flows between stages of manufacturing. 13-13 History of Supply Chain Management 1960¶s . The overall concern of manufacturing support is not how production occurs but rather what. Cost Control .6 ± The hain a anufacturing any © 2004 Prentice-Hall. when & where products will be manufactured. The separating of manufacturing support from from outbound & inbound logistics provides opportunity for specialization & improved efficiency.

war is out of any manager¶s control ± Local politics.SCM . warehousing. ± Breakdowns of machines and vehicles is a common occurence ± Weather. natural catastrophe.³Integrated´ Purchasing.Operations Planning 1980¶s . JIT .MRP & BOM . border issues cannot be controlled by any manager. information management. sourcing raw materials and parts.ERP .MRPII. Logistics 1990¶s . Synchronized & Collaborative Extended Network Why Is SCM Difficult? Uncertainty is inherent to every supply chain ± Travel times can never be predicted with surety. Manufacturing. distribution and delivery to customers Supply Chain: Flows (1) The following flows have to be managed in a supply chain: ± Materials ± Information ± Cash . labor conditions. Order Entry 2000¶s .Optimized ³Value Network´ with Real-Time Decision Support.Materials Management. Financials. manufacturing and assembly. from the supplier¶s supplier to the customer¶s customer ± Efforts include managing supply and demand. The complexity of the problem to globally optimize a supply chain is significant ± Minimize internal costs ± Minimize uncertainty ± Deal with remaining uncertainty Supply Chain: Scope Supply chain encompasses every effort involved in producing and delivering a final product.1970¶s .

suppliers All stages may not be present in all supply chains (e. directly or indirectly. finance. but also includes movement of information. Information. suppliers. Inc. retailers. the supply chain includes all functions involved in fulfilling a customer request (product development. Order information. marketing.Supply Chain: Flows (2) Material. distributors. Recycling. customer service) Customer is an integral part of the supply chain Includes movement of products from suppliers to manufacturers to distributors. customers Within each company. retailers. Invoicing Suppliers Manufacturers Distributors Customers After-sales support. transporters. distribution.g. funds. operations. in fulfilling a customer request Includes manufacturers. manufacturers. 1-18 Supply Chain: Elements Supply chain consists of elements internal and external to the company These elements range from material producers to the customers All supply chain elements must be appropriately integrated for a company to be able to effectively compete in chosen markets What is a Supply Chain? All stages involved. and products in both directions Typical supply chain stages: customers. warehouses. no retailer or distributor for Dell) The Objective of a Supply Chain Maximize overall value created .. Payments © 2004 Prentice-Hall.

and information sharing procedures among the members of the supply chain. assembly. But a limit is often reached beyond which further effort to shorten lead times are futile. etc.higher levels of inventory. Products are no longer produced and consumed within the same geographical area. less dependable forecasts as these have to be made earlier. and therefore it also changes the requirements within supply chain management. the consequences of longer lead times will often be. and often do. Logistics is essentially a framework that creates a single plan for flow of products and information through a business. .) Supply chain profitability is total profit to be shared across all stages of the supply chain Supply chain success should be measured by total supply chain profitability. greater difficulties to adjust to order changes. transportation. or funds between stages of the supply chain Supply chain management is the management of flows between and among supply chain stages to maximize total supply chain profitability ‡ How does Logistics differ from SCM? ‡ ‡ ‡ ‡ Logistics management is primarily concerned with optimizing flows within the organization. We will dwell on the issue of coordination in the next section. i. and organization itself. products. especially in international supply chains. not profits at an individual stage Sources of supply chain revenue: the customer Sources of supply chain cost: flows of information. Supply chain builds upon this framework and seeks to achieve linkage and coordination between processes of other entities in the pipeline i. Globalization of supply chain Through the past decades we have seen an increasing rate of globalization of the economy and thereby also of supply chains. This simply means to reconsider the strategic level decisions priorly made. suppliers and customers.e. storage. components. Supply chain management deals with integration of all partners in the value chain. Another approach is to restructure the supply chain. A third approach is changing coordination: The order.e. Even the different parts of a product may.reduced production flexibility.Supply chain value: difference between what the final product is worth to the customer and the effort the supply chain expends in filling the customer¶s request Value is correlated to supply chain profitability (difference between revenue generated from the customer and the overall cost across the supply chain) Supply chain incurs costs (information. The evident answer to the problem of longer lead times is to speed up the supply chain. This again affects the effectiveness of computer systems employed in the supply chain. come from all over the world. A longer supply chain will often involve longer order to delivery lead times. This creates longer and more complex supply chains. procurement. forecasting.

Local companies are thereby forced to respond by improving their manufacturing practices and supply chain management. production limitations. These decisions should be determined by an optimization routine that considers production costs. etc. and sourcing points is the natural first step in creating a supply chain. and will have a considerable impact on revenue. and increased flexibility through reduced lead times. stocking points. and location of these are determined. and there are both strategic and operational elements in each of these decision areas. These are closely linked to the corporate strategy (they sometimes {\it are} the corporate strategy). distribution costs. Harrison and Trafton [1995] for a thorough discussion of these aspects. Yet again we see how industry focuses on the issues of ‡ inventory management and flexibility to maintain high levels of customer satisfaction. As the term implies. and guide supply chain policies from a design perspective. 2) production. Location Decisions The geographic placement of production facilities. taxes. or operations 3) inventory. they also have implications on an operational level. strategic decisions are made typically over a longer time horizon. Supply Chain Decisions We classify the decisions for supply chain management into two broad categories -strategic and operational.Globalization also brings foreign competition into markets that traditionally were local. and focus on activities over a day-to-day basis. among others. and level of service. There are four major decision areas in supply chain management: 1) location. and 4) transportation (distribution). so are the possible paths by which the product flows through to the final customer. (See Arntzen. These decisions are of great significance to a firm since they represent the basic strategy for accessing customer markets. On the other hand. operational decisions are short term. Once the size. cost.) Although location decisions are primarily strategic. Brown. Attempts have focused. local content. . The location of facilities involves a commitment of resources to a long-term plan. duties and duty drawback. number. tariffs. on reduction of inventory levels. The effort in these type of decisions is to effectively and efficiently manage the product flow in the "strategically" planned supply chain.

and quality control measures at a production facility. It is strategic in the sense that top management sets goals. these decisions have a big impact on the revenues. and DC's to customer markets.the determination of the optimal levels of order quantities and reorder points. and which plants to produce them in. These are closely linked to the inventory decisions. operating efficiently makes good economic sense. However. costs and customer service levels of the firm. They can also be in-process between locations. Transportation Decisions The mode choice aspect of these decisions are the more strategic ones. Since holding of inventories can cost anywhere between 20 to 40 percent of their value. at each stocking location. scheduling production on machines. reliable. Operational decisions focus on detailed production scheduling. Other considerations include workload balancing. Since transportation is more than 30 percent of the logistics costs. since the best choice of mode is often found by tradingoff the cost of using the particular mode of transport with the indirect cost of inventory associated with that mode. While air shipments may be fast. Inventories exist at every stage of the supply chain as either raw materials. Meanwhile shipping by sea or rail may be much cheaper. Inventory Decisions These refer to means by which inventories are managed. Their primary purpose to buffer against any uncertainty that might exist in the supply chain. but they necessitate holding relatively large amounts of inventory to buffer against the inherent uncertainty associated with them. plants to DC's. Another critical issue is the capacity of the manufacturing facilities--and this largely depends the degree of vertical integration within the firm. These include deployment strategies (push versus pull). semi-finished or finished goods. since they are primary determinants of customer service levels. These decisions assume the existence of the facilities. and equipment maintenance. Therefore customer service levels. they are expensive. As before. their efficient management is critical in supply chain operations. These decisions include the construction of the master production schedules. and warrant lesser safety stocks. and geographic location play vital roles in such decisions. These levels are critical. Process View of a Supply Chain . Shipment sizes (consolidated bulk shipments versus Lot-for-Lot). most researchers have approached the management of inventory from an operational perspective. but determine the exact path(s) through which a product flows to and from these facilities. allocation of suppliers to plants. routing and scheduling of equipment are key in effective management of the firm's transport strategy.Production Decisions The strategic decisions include what products to produce. and setting safety stock levels. control policies --.

each performed at the interfaces between two successive supply chain stages Push/pull view: processes in a supply chain are divided into two categories depending on whether they are executed in response to a customer order (pull) or in anticipation of a customer order (push) Cycle View of Supply Chains Customer Customer  rder Cycle Retailer Replenishment Cycle Distributor Manufacturing Cycle Manufacturer Procurement Cycle Supplier © 2004 Prentice-Hall. Inc.Cycle view: processes in a supply chain are divided into a series of cycles. Customer Order Cycle Involves all processes directly involved in receiving and filling the customer¶s order Customer arrival Customer order entry Customer order fulfillment Customer order receiving . 1-31 Cycle View of a Supply Chain Each cycle occurs at the interface between two successive stages Customer order cycle (customer-retailer) Replenishment cycle (retailer-distributor) Manufacturing cycle (distributor-manufacturer) Procurement cycle (manufacturer-supplier) Figure (see previous power point) Cycle view clearly defines processes involved and the owners of each process. Specifies the roles and responsibilities of each member and the desired outcome of each process.

retailer. retailer. or customer Procurement Cycle All processes necessary to ensure that materials are available for manufacturing to occur according to schedule Manufacturer orders components from suppliers to replenish component inventories However. or customer Production scheduling Manufacturing and shipping Receiving at the distributor.Replenishment Cycle All processes involved in replenishing retailer inventories (retailer is now the customer) Retail order trigger Retail order entry Retail order fulfillment Retail order receiving Manufacturing Cycle All processes involved in replenishing distributor (or retailer) inventory Order arrival from the distributor. component orders can be determined precisely from production schedules (different from retailer/distributor orders that are based on uncertain customer demand) Important that suppliers be linked to the manufacturer¶s production schedule Push/Pull View of Supply Chain Processes Supply chain processes fall into one of two categories depending on the timing of their execution relative to customer demand Pull: execution is initiated in response to a customer order (reactive) Push: execution is initiated in anticipation of customer orders (speculative) Push/pull boundary separates push processes from pull processes Push/Pull View of Supply Chain Processes Useful in considering strategic decisions relating to supply chain design ± more global view of how supply chain processes relate to customer orders Can combine the push/pull and cycle views The relative proportion of push and pull processes can have an impact on supply chain performance .

Distribution Management Management of all activities which facilitate movement & coordination of supply and demand in the creation of time and place utility in the goods. All these intermediaries help in the process of exchange of goods. Types of Distribution Channels 1) Sales Channel ± It motivates buyers.negotiates fair bargain for its consumers and finances the transactions.experience & scales of operations. . place & possession utilities.TOPIC ± II Physical Distribution Physical distribution is the movement of right product to the right customer at the right time.implementing and controlling the physical flow of materials & final goods from point of origin to point of use to meet customer requirements at a profit.shares information between company & its consumers. 3) Facilitate smooth flow and create time.at right place and at the right price.specialization. acquiring them. Reasons why distribution channels are required is :1)Producers cannot reach all their consumers 2)It multiplies reach and provides efficiency to the marketing process. 2) Delivery Channel ± Takes care of the physical part of the transaction. Distributor to wholesaler to customer. The aim of physical distribution is to manage supply chains from suppliers to the ultimate users. and finally maintaining them in an operationally ready condition for their entire life. 4)They posess core competence 5)They can provide contacts. distributing them. 3) Service Channel ± It performs the after sales functions. It involves planning. Distribution Channels Distribution channels can be defined as sets of interdependent organizations involved in the process of making a product or service available for use or consumption. The main players involved are the company & its distribution network which is made up of :Direct company to consumer Company to CFA/distributors to retailers to customers. It is basically the art and science of determining requirements.

Channel members are selected based on following considerations:‡ Nature of the product ‡ Extent of market coverage ‡ The speed of demand ‡ Company policies ‡ Existing distribution pattern & competition ‡ Availability of suitable persons in the area.  Product considerations: ‡ ‡ ‡  Company considerations: ‡ . lot size. No. of customers low.Criteria for selecting Channel members. Technical nature of product ± Highly technical products require direct distribution. Low market concentration ± Indirect distribution channel : high cost of reaching directly. product availability. ‡ Reputation & business standing. ‡ Financial capacity ‡ Marketing skill ‡ Experience ‡ Capacity & capability  Market considerations: ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Type of market ± Different distribution channels are used to reach different types of markets. Direct distribution economical when either size or total volume of business is large. lower lot size. Unit value ± Direct distribution possible when unit value is high. More the need for customer service : lower deliver time. Desire for channel control ± Producers wanting more control over their products¶ distribution establish direct distribution. direct distribution possible Geographic concentration of the market ± Direct distribution practical when there is high concentration of customers in few geographical areas.No. lower product availability ± Indirect distribution channel more desirable. High market concentration ± Direct distribution channel : low cost of serving market. Customer service level: 3 sub-factors ± delivery time. of potential customers . Perishability ± Low shelf life products have to be sold through short distribution channels.

‡ Attitude of middlemen towards Producer¶s policies ± If middlemen are unwilling to join a producer¶s channel because of disagreement on policies. Financially weak Co. ‡ One Tier: Producer Retailer Consumer. industrial products. Inexperienced Companies would appoint Marketing Agent. ‡ 2 Tier: Producer Distributor Retailer Consumer.It lowers the distribution costs. would go in for direct distribution.D/C. ‡ 3 & 4 tier ± Smaller/unbranded FMCG.  Tiers of distribution channel: ‡ More widely dispersed the customers ± Greater the tiers. ‡ Zero tier & 1 tier ± Specialised products.consumer goods and automobile spares. branded FMCG. ‡ 3 Tier: Prod Super Dist/Con. Services provided by seller ± Highly promoted products would have wider retail coverage. so alternate channels would have to be considered.A Dist Ret Cons. consumer durables.s appoint middlemen. Selecting type of Channel  Tiers of distribution channel: ‡ Zero Tier: Producer Consumer. Distributor/Stockist. ‡ 4 Tier: Prod Mktg Agt S. branded garments. Wholesaler/Semi-wholesaler.Highly selective choice of outlets. ‡ Intensity of Distribution ‡ Intensive ± Distribution through every reasonable outlet in the market. Selective .Agt Distr Ret Cons. Low ± Indirect distribution channel. Financial resources ± Financially strong Co. Availability of Working Capital: High ± Direct distribution channel.Strategy is to make sure that bthe product is available in as many outlets as possible. C&F Agent/Consignee Agent/ Super Distributor. Lies midway between extensive and exclusive distribution. ‡ 2 Tier ± Consumer durables.It is preferred for pharmaceuticals. Exclusive ± Distribution through a single outlet in the market. technologically advanced products. then the producer has fewer options. ‡ Availability of desired middlemen .Producer desires a close watch on his products and services.‡ Ability of Management ± Marketing experience and ability influences channel decisions .Preferred for high value products like Tanishq jewellery.Distribution through multiple.The middlemen desired by a Producer may not be available. ‡ ‡ Types of Intermediaries ‡ ‡ ‡ ‡ Marketing Agent.  Company considerations: ‡ ‡ ‡ ‡  Middlemen considerations: Services provided by middlemen ± Middlemen must provide the service which the producers are unable to provide. . but not all outlets.

In turn distributes stocks to area level retailers.  Marketing Agent ‡ Provides full function sales and local promotion support to Producer. Consignee Agent buys stock on ³F´ Form. Identification of Channel Partners  ‡ ‡ ‡ ‡ ‡ Prospecting for Agents/Distributors Advertisements ± Newspapers/T. Chemists & Druggist. If stocks purchased. Income from commission on sales. Functions of intermediaries ‡ ‡ Physical possession function: Hold and distribute stocks. Basically provides warehousing and stock delivery facility in state where he is based.  Consignee Agent/ Super Distributor ‡ Functionally both are same. Cover local market in absence of Producer¶s salesmen. Pan Bidi Shop.‡ Retailer ± General Merchant. Stocks received could be purchased or on ³stock transfer´ basis. otherwise could be on cost plus basis. ‡ Information function: Provide feedback information on Producer¶s and competitive products and activities. Grocer. Holds Producer¶s stock. etc. .  Terms of business with other Cos. Producer deploys own sales force. Food Products Store. Cooperative Stores. Super Distributor buys stock on ³C´ Form by paying full CST. Retail function: Buy in large quantities and sell in small quantities. ‡ Financing function: Could buy on advance or COD terms from Producers and sell on credit to retailers. References from friends and acquaintances. Both hold stocks bought from Producer and distribute it to area level distributors ‡ Income from commission on sales. salesman.V/Cable.  C & F Agent ‡ Acts on behalf of the Producer. Reference from tertiary sources ± Banks. References from sales staff of other Companies.S. Word of mouth publicity through retail trade References from retail trade. Suppliers. Supply retail orders booked by Co. Distributes stock to market level distributors. Dept. ‡ Selection of Channel Partners  Criteria of selection for Agents/Distributors ‡ Management strength ‡ Financial standing:±  Whether overtrading. Receives income on cost plus basis Is appointed to avoid payment of L. Producer does not employ own sales force.T. ‡ Promotion function: Help in carrying out local promotion activities. Store. ‡ Identification of Channel Partners Purchases stock from CA/SD/C&FA or directly from Co. then income is on basis of commission on sales. Exclusive Outlet.

Eg :. turnover.  Delivery vehicles: mechanised ± 3. number and expertise. and prospective appointee also agrees with terms. ‡ ‡ ‡ ‡ ‡ ‡ ‡ . etc. numbers and expertise. an Appointment letter is then issued by the Co. space. It combines successive stages of poduction and distribution under single ownership. Both sides agreeing. of years in business.Century & Pidilite. There are three types of VMS :A) Corporate system.  Salesmen. Channel Dynamics ‡ ‡ Vertical Marketing system In a Conventional marketing channel both producer and channel members are independent of each otherwhile in a VMS producer and channel members are unified. Other businesses. Reputation of other Agencies handled. salesman who does initial appraisal and also discusses Co.A bakery like Monginis & Merwaan produces & dustributes own bakery items.VMS produces economics of scale through their size and elimination of duplicated services. then a second appraisal is carried out by a superior officer. Appointment of Intermediaries ‡ ‡ ‡ Prospective appointees contacted by Co.One channel member owns the others or franchises them or has so much power that they all cooperate. terms and conditions.4 wheelers._ Colgate & Pepsi & Coke get unusual cooperation from channel members wrt shelf space. Willingness to work. security. B) Administered System :It coordinates successive stages of Production & distribution not through common ownership but through size & power of brands. location.‡ ‡ ‡ ‡ ‡ ‡ ‡  Terms of business with retail trade Infrastructure:±  Office set up: location. If initial appraisal is positive. No. Reputation/goodwill. etc. Companies having stores at factory gates like Raymonds. computers.  Godown: Space. Fills up Appraisal Form. Manpower  Office staff. telephone/fax. manual. Market coverage and relations. Eg.

while another dealer is offering Rs 800/-. owners and interest groups who help shape goals and strategies. Eg Coco cola's partner Parle marketing own brand. B)Horizontal Channel conflict ‡ Conflict between members at the same channel level within the channel. ultimately creating conflict. Causes of channel conflicts ‡ ‡ Goal incompatibility ± Though channel members share the common goal of maximising their joint effectiveness. pricing and advertising. Multichannel Marketing System When a single company uses two or more marketing channel to reach one or more marketing segments. Multichannel conflicts ‡ Manufacturer establishes two or more channels that compete with each other in selling to the same market. Each has its own employees. If no interdependence exists.eg one dealer of Samsung offering discount of 1200/.to provide common or same facilities etc to prevent competition within the same channel. This incompatibility may be the underlying cause of stress. there would be no basis for conflict. Horizontal marketing system Readiness of two or more non related companies to put together resources or programs to exploit an emerging marketing opportunity. some of which may not be totally compatible with those of other channel members. ‡ . Mutual dependence creates the basis for conflict. each is a separate legal entity. Differs from horizontal in that it occurs among dissimilar institutions. ‡C) Intertype Occurs amongst different intermediaries at the same level in a channel. ‡ ‡ Channel Conflicts ‡ Channel conflict occurs whenever channel members have distinctly different opinions or perceptions about distribution channel affairs. There are three types of conflicts :- ‡ ‡ ‡ A)Vertical Channel Conflict:Conflict between company and dealer about type of service pattern.‡ ‡ C) Contractual :The channel members enter into informal contract with retailers to use common name.

One party helps the other achieve its goals without being worried about its own goals. Relationships are not of much importance. ‡ 2) Through noise and distortion Different Perceptions of Reality ± Conflict occurs when different channel members differ in methods of achieving mutual goals or have different solutions to a mutual problem. Can result from big-business and smallbusiness perceptions of the appropriate role of management. Aggression Also known as a competitive or selfish style. As there is no serious effort on getting anything done. May generate matching feelings in the receiver. The dominating channel partner (may be the principal) dictates terms to the others. Long term could be detrimental to the system. Emphasis is on full co-operation and flexibility in approach. Can only work with small and not so serious conflicts. conflict can result from different perceptions of the facts. Communication Breakdown ± Often is the reason for channel conflict. can result in exploitation 4) Compromise Obviously both sides have to give up something to meet mid way. 3) Accommodation A situation of complete surrender. Could occur in 2 ways: ‡ 1) When a firm fails to exchange vital information with other channel members. Managing channel conflict The different methods of resolving conflicts are :Avoidance They are used by weak channel members where problem is postponed or discussion avoided. Conflict also arises when there is lack of agreement concerning appropriate domain of members. Incompatibility develops within channel arrangements as roles and methods of operation change. Role and Domain Incongruency ± Changes in specification of position or poorly defined roles may cause conflict. . If not handled properly. Even when they have a strong desire to cooperate. It means being concerned about one¶s own goals without any thought for the others.conflict is avoided. Ideological Differences ± Are similar to those resulting from differences in perceived roles and expected behaviours.‡ ‡ ‡ ‡ ‡ ‡ ‡ Position.

Out of 5. the brand that sells more is the one that reaches the highest number of customer. Sensitive information may have to be shared Distribution equity Any distribution system normally takes into account the four cost parameters:Cost of reaching markets Cost of servicing them Cost of shelf space Cost of merchandising Why did coco cola purchase Parle brands at Rs 120 crores? Why did Heinz purchase Glaxo at Rs 210 crores? Why did BBLIL capture Cadbury's ice creams Dollops & Kwality at Rs 75 crores? The logical answer is to create distribution equity.languages differ at every 500 km distance . Hence only fast moving items will be stocked. Retail space is growing at a slower rate than number of brands .13 million outlets . In India where climate . 5) Collaboration Also known as a problem solving approach Tries to maximize the benefit to both parties while solving the dispute. Hence new product launcher must own his channels initially. whereas retail space increased only by 8 % Distributors measure performance of brands on the basis of ³Turn over per square feet". ‡ ‡ ‡ How to create Distribution equity? ‡ Use IT to slash wastage at every point. Why distribution equity is more important than brand equity? ‡ ‡ In a product & price parity situation . Divert stocks to where it is required rather than referring to the factory if stocks do not move from certain godowns.brand loyalty is not going to help to tackle above aspects.life style .In last 5 years washing powder brands have increased by 200 %. If Brand equity means brands preference . distribution equity means preferring own distribution system.Used often in the earlier two stages.packed goods by 100 %.Such people can be motivated through meetings with top people in the organization. Most ideal style of conflict resolution ± a win-win approach Requires a lot of time and effort to succeed. ‡ Provide techno commercial training to retailers which provides confidence in them to achieve targets. ‡ Cultivate relationship beyond short term business interests with retailers as he is your ultimate salesman as you cannot be present at the procurement point. .HLL itself owns 3 million outlets and hence commands high distribution cum brand equity.

Frequent breakdowns as it is a delicate equipment. . Normally installed in densely populated areas like railway stations. Use of selective and intensive distribution must be tactical to yiels maximum benefit on case to case basis. Use of selling environment as a product differentiator. Shortage of coins.cinemas. Mainly used for low value consumer non durables like soft drinks. Disadvantages :Requires frequent stocking as vending machines in crowded areas will be frequently used.newspapers. Public awareness is not adequate about machine utility and hence full utilization is not done. Go to rural markets which is untouched and contribute 40 % to national markets. Advantages of Vending machines :Fully automatic 24 hrs shopping is possible Self service Unhandled merchandise. Initial heavy capital expenditure is required.‡ Own road carriers or hire courier services for better control over transport and improve efficiencies. ‡ ‡ ‡ ‡ New channel members Vending machines Mail orders Vending machines ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ One of the major inventions after the second world war. cigarette etc.offices etc ATM is a great example of a vending machine Unpopular in India Cheap labor available in plenty hence preferred over machines for distribution purpose. High pilferage Merchandise cannot be returned.

Since market views channel member always as part of the company ± he has to behave in a like manner ± hence training assumes significance` Training could be on the job. installation procedure.‡ Expensive channel as prices are 10 ± 20 % higher than other channels. Mail orders This method of distribution uses ³mails´ for the distribution purpose ‡ Advantages :‡ High selectivity of target customers.competition and how to tackle it to gain market shares` Special meetings for new product launches` Submitting reports and maintaining records`Statutory compliance Care of company products Technical specifications and answering FAQs ofcustomers `For technical and industrial products ± recognition ofspecs. Mail orders ‡ ‡ ‡ ‡ Disadvantages :High commission to middle men. and also competitors. Latest marketing strategies adopted by Co. bj f T i i g Field training on how the markets are to be worked to achieve sales. Training Channel Members Channel members have to be trained at the start from recruitment onwards and also from time to time regarding: Company policies and products. ‡ Flexibility in purchase decisions ‡ Measuring effectiveness of system is much easier. collect payments and ensure the right kind of merchandising` Class room training on company products. repair and maintenanceand effective demonstrations `Servicing of automobiles and other engineeringproducts  Training Methods . Changes in the environment. Training has to be given to the Channel member owner and his staff too. Training is an ongoing process. field training or classroom training. ‡ Personalized communication possible. Poor after sales by middle men Reluctance of middle men due to lack of info of track record of product.

A Producer has to exert power to motivate the members to take into consideration a macro perspective and work together. Non-monetary Coercion (negative reinforcement).  Training sessions: ‡ Provide a platform to the parties involved to communicate and understand each others point of view.‡ If just one or two distributors are being appointed at the time. ‡ Makes the intermediary feel valued. legitimate. ‡ If more are being appointed at the same time. M iv i g Motivation includes: `Capacity building programs `Training` Promotions support` Marketing research support` Working with company personnel` incentives lM b Ambitious volume and growth targets ± continuous motivation required to achieve Motivation is a continuous activity. However. A Producer uses power to elicit cooperation: coercive. Power is an essential ingredient required to motivate and direct efforts of nonidentical organisations and individuals. then the training is provided by senior Company personnel at the place of business. ‡ A forum where a manufacturer can understand the needs of the dealers and gather information about the market. expert and referent. ‡ Combined with a holiday package are used as reward motivators by the Cos. 2 types of motivation: Monetary ± Reward motivator (positive reinforcement). reward. then a separate training session is organised by the Company. Expert knowledge. Identification basis Legitimate power motivator Monetary motivators: . Power is the ability of Producer or a channel member to get another channel member to do what otherwise they would not have done. ultimate motivator is the creation of an atmosphere of mutual trust that understands the mutual goals of network partnerships.

Sales training for employees. Tougher operational norms. Easier payment terms. as it can act as a demotivator. Sales force compensation/incentive schemes. Sales promotion counsel. Expert knowledge provides the Producer with knowledge leverage to manipulate behaviour of the intermediary. Identification basis ± Whenever dealer prides himself with dealing with a certain Producer.Reward motivator ± Based on channel member¶s belief that the other party has an ability to give something of value to him. when a member expects punishment for his failure to comply with the wishes of the former party. Tools include: Managerial counselling. It is usually used as a referent power ± avoiding a channel member from behaving in a manner which could be detrimental to the goodwill of the Producer. Reward motivators: Granting larger margins. Functional discount schemes. Advice on sources of items not stocked by intermediaries. Non monetary motivators: Coercive power ± Refers to power of one intermediary over another. Withdrawal of rewards previously granted. Higher promotional activities/allowances. This can be used as a motivator by those Producers who have earned a high degree of customer loyalty. Should be adopted only when all other tools fail to bring about the desired changes in the channel member. Known as positive reinforcement as reward is used to motivate the individual to repeat the behaviour. Legitimate power motivator ± When a Producer uses its agreements to modulate the behaviour of a channel partner. Main tools are: Reduction in margins. Expert knowledge ± When a channel member perceives Producer to have some specialised knowledge. Granting exclusive territories or large individual accounts. Opposite of reward motivators. Lower inventory holding norms. this results in referent power for the Producer. it is called legitimate power. it results in Producer having control over the intermediary. Slowing down of supplies. This reward will be available to him only if he adheres to the wishes of the other party. . Faster settlement of claims.

productivity. `Specific targets on periodical basis are set. who will do it and at what cost `Derive ideal channel structure and compare with existing to know gaps by evaluating based onstandard parameters relating to effectiveness andefficiency` Action to bridge the gaps and put modified channelsystem into place `Define key performance indicators . `Targets on volume and outlet productivity could be for a week or a month` Targets relating to increasing market shares or total outlet coverage could be for 6 months` Different weightages could be given for each of the parameters for evaluation The performance appraisal is open and transparent Steps for Modifying Networks Service level desired and willing to deliver` Activities required to deliver service level. Treatment of damaged and returned goods Co-operation in promotional and training programmes. attending to servicing requests etc Evaluation is an on-going exercise. Adherence to payment norms. etc. No surprises. `If the ROI is more. as requirements may change over period of time. coverage. retraining`and motivating. additional tasks are given` If the ROI is less.lM b Ev l i Effectiveness of the distribution channel determines the success of the company` Company would like its channel partners to perform at the highest standards possible` Need to constantly evaluate performance on sales targets. Maintenance of average inventory levels. In extreme cases it may result in termination. nature of competition. Constant evaluation and fine tuning required to keep up with of changes in market place. Producers should also evaluate coherence between product and channels. the company may provide additionalsupport Post evaluation tasks include counseling. inventory holdings. ROI M Leading FMCG companies feel that an ROI of 30% for a distributor is healthy and is a fair indication that he is performing well. Performance Evaluation On pre-agreed tasks only. Evaluation Criteria: Achievement of targeted sales and growth generated.

expert.coercion. `There are basically 5 types of power bases ±reward. `Both the channel member and the principal can have influence on each other. `2 more can be considered in Indian context assupportandcompetition. `The power equations between them keep them working together. `Results from interdependence within the channel system. referenceandlegitimacy. `In a coordinated channel:`Interests of all channel members are protected` Actions of all are in line with overall objectives Flows are streamlined to desired customer serviceobjectives Channel co-ordination is an on-going effort` . `Company exerts power on the distributor to get its coverage and revenues `Distributor has enough influence on his customers and this is critical for the company also `Weaker partners do get exploited ± ancillary units Channel Coordination Channel system is well coordinated if each member understands his role correctly and performs it to help the system achieve its customer service objectives.l Efficiency Effectiveness Flexibility Consistency Reliability Integrity i U f l Channel members are dependent on each other. It is not a one-sided equation. `Extent of dependence defines the power base which is appropriate ³Power´ B es) of Motiv tion Reward±incentives for good performance Coercion`±threat of punishment for non-performance Referent`±benefit of sheer association with a strong company Legitimate`± arising out ofa contract Expert`±specialized knowledge Support`±additional benefits for better performers only Competition`±createdbetween channel partners Counterv iling Power Balances the power exerted by one channel member.

Use of Information `Planning: sales forecasts or distributor indents `Control: expenses against budget `There is always a cost of collecting information. . products. channels.TOPIC ± III Channel Information Systems CIS is Channel Information Systems CIS is the orderly flow of pertinent operational data both internally and between channel members. the data provider will hesitate to give the information. modifying and interpreting the data by the user ± comparison of sales between periods `Storage: keeping the information intact till it is needed `Use: application of information for management decision making ± sales data of the last 6 months to forecast the sales of the next month. for use as a basis of decision making in specified responsibility areas of channel management `CIS is of primary use of sales managers. pricing. sales volume. value etc `Operations data ± facts and figures `Also based on assumptions. operations. competition. promotions.` If data collected is not used properly. decision making or control `Based on subjects ± consumers. anticipated occurrences± forecasts relating to the channel system Information Process `Collection: acquiring and placing raw data ± monthly sales by each territory `Processing: analyzing data to get meaning out of it ±arranging. Information Can help tap market opportunities `Provides an alert against competition` Helps spot trends ± favourable or otherwise` Helps develop action plans for growth` Gives feedback on consumer needs dvantages `Useful in marketing planning ± helps improve quality of marketing decisions Classifi ation of Information `Based on the use made of it by marketing ± planning.

`The channel MIS works at the sales operational level. It has very little strategic intent.Plan day to day corrective action to protect market shares and shelf space Source :. Sources of Data `Reports (oral and written) and records of channel members.Trade. statements and market research `Any other info collected by the sales people and thechannel members from the market`External sources like business publications.newspapers.Spot action while in the market and taken by possible channel partners or sales people Impact on Timely action to provide better support to the service trade and retain their goodwill . magazines. `In a dedicated channel system the collection of info is well streamlined ± in the JC meeting `With use of IT enabled systems collection and processing has become simpler. the following: `Purpose of the info `Source of the info `Action possible `Impact on customer service Competition Tracking Purpose :. A Good Channel MIS« `Integrated system to handle all regular data `Useful decision support system` reflects the style of the marketing organization `User friendly and user oriented` Convincing to the providers of the info as to its purpose` Be cost effective` Not need for verification from other sources `Be fast and totally reliable Element Importance `In a good channel MIS. it is necessary to define upfront for each element of the MIS. sales people`Letters. channel partners and sales people Action:. trade journals.

raw material.reduce shipping. WIP and Finished goods. gauge and fixtures etc. In India 9 to 12 months of sales quantity lies in the form of Inventory [R/M. strike. which lies in stock without participating in value adding process. raw material. though it is called an asset. it is a big liability Reluctance to scrap useless inventory on time is one of the reasons why we carry huge stocks Inventory is biggest source of waste Functions of Inventory Inventory serves as a buffer between:`Supply and demand Fulfill urgent customer demands by supplying finished goods Supplies requirements for an operation and the output from the previous operation is stored as inventory for further operations. set up and clerical costs ± also called cycle stock Categories of Inventory `Transportation ± pipeline or movement inventories ±to cover the time needed to move from one point to another ± factory to distribution point for example `Hedge ± for materials where prices are volatile `Maintenance. WIP. tools and tackles. In our country inventory is always viewed as asset . unpredictable fluctuations in supply and demand and lead time ± to prevent disruption in operations.TOPIC ± IV INVENTORY Inventory is an unused asset. in fact. promotioninal activities etc `Fluctuation (safety) ± to cover random. Bought out parts and Finished goods] as against a few days in Japan and a month in the US and Europe If we look around in our facilities we find stocks lying unused for years catching dust and rust in the form of plant and equipment. lubricants. bought out parts. spare parts. deliveries etc `Lot-size ± to take advantage of quantity discounts. Supplies parts and materials to begin an operation . Unused equipment. Categories of Inventory `Anticipation ± built in anticipation of future demand during ± peak season. WIP and Finished goods.consumables etc Types of Inventory . consumables. repair and operating supplies (MRO) ±to support M and O ± spare parts.

.The valuation depends on the manner in which fixed overhead costs are treated. Types of Classification ABC category ± most common for all It is an inventory categorization technique used in material management. (which is named after principles dictated by Pareto). Retail inventory: retailers stock variety of products to satisfy demand.from manufacturer to distributor. Location inventory: inventory at a fixed location Pipeline Inventory :It is inventory that is in the process of moving from one location in the supply chain to another. repairs and operating supplies. It consists of inventory movement from supplier to manufacturer. Products with seasonal demand. products to satisfy assorted. ABC analysis divides on-hand inventory into three classifications on the basis of volume in money terms. (Annual Rupee Volume of an Item) = (Its Annual Demand) x (Its Cost per unit) It is also known as Pareto analysis. But they push the volume backwards to wholesalers and reduce the depth of risk although the risk is wide MRO: Maintenance. As the product line expands risk of retailers increases and the risk becomes wider and deeper. The idea is to focus resources on the critical few and not on the trivial many. 2) components 3) WIP :-Inventory in between processing stages is called as work in process. F/G ± This is the inventory of the salable product made & duly packed which is ready to be sold to customer Wholesale inventory: Wholesalers stock large quantities and sell in small quantities to retailers. It consists of orders that have been placed but not yet received.Manufacturing: 1) Raw materials ± The valuation of raw materials inventory depends on the cost of acquiring raw materials & the pricing of RM issued for production.from distributor to retailer & from retailer to customer. small and urgent needs of retailers are stocked.

The items under this analysis are classified into three groups: F (fast moving).high. foreign source ±procurement / Spares VED ± vital.Class A items are those on which the annual dollar volume is high. HML . S (slow moving) and N (non-moving). non-moving. dead ±spare parts Is based on the consumption figures of the items. They represent 15-25% of total dollar value. but they account for only 15% of total inventory items. Class B items are those on which annual dollar volume is medium. low ± similar FSND ± fast moving. ordinary. difficult. and Non-moving items which are not being consumed. essential. the last date of receipt or the last date of issue whichever is later is taken into account and the period. They represent only the 5% of total dollar volume. Class C items are low dollar volume items. slow moving. They represent 70-80% of total inventory costs. desirable ± spare parts / FG` SOS ± seasonal. easy to obtain ± procurement /Spares GOLF ± govt. and they account for 30% of total inventory items on the average. SDE ± scarce. off-seasonal ± commodity BENEFITS OF INVENTORY CONTROL Ensures an adequate supply of materials Minimizes inventory costs Facilitates purchasing economies Eliminates duplication in ordering Better utilization of available stocks Provides a check against the loss of materials Facilitates cost accounting activities Enables management in cost comparison Locates & disposes inactive & obsolete store items Consistent & reliable basis for financial statements . To conduct the analysis. usually in terms of number of months. medium. Helps Identify active items which require to be reviewed regularly Surplus items whose stocks are higher than their rate of consumption. local. but they include as many as 5060% of total inventory items. that has elapsed since the last movement is recorded.

Direct ordering from manufacturers becomes prohibitively expensive due to high cost of transporting small shipments. Due to above. For implementing JIT and stockless production strategies warehousing becomes an integral part of entire value chain. materials are purchased and transported to the supply warehouse and then distributed to manufacturing plants as and when needed. work methods. Seasonal products continue to require warehousing. products were handpicked and placed on the wagons and these wagons were pushed out of shipping area. human resources were used extensively and no consideration was given to efficiency utilization. . manufacturing needs to supported by highly dependable delivery. this is possible only by having strategically located warehouses. On the receipt of the customer orders. or material handling. As the labour was inexpensive. With the improved techniques of forecasting and production scheduling the need to build up inventory was considerably reduced Also. This necessitates the need for warehousing to provide timely and economical inventory assortments. Typically. Inspite of poor efficiency. In context of retailing. though different products were stored in the same warehouse it was difficult to identify the merchandise with respect to a particular order. the warehouse becomes a support unit for retailing. companies producing products at multiple locations. The stocks can be held at a central warehouse thereby reducing the need to maintain inventory at each assembly plant. the department stores face the necessity of stocking an increased variety of products and are unable to order in sufficient quantities from a single supplier to enjoy the benefits of consolidated shipment. warehouses continued to provide a necessary bridge between production and marketing. efficient warehousing becomes a method for reducing material and parts storage and handling costs while optimizing production. As the basic objective of JIT is to reduce work-in-process inventory. The overall need to store materials to support manufacturing has been reduced. the warehouses received merchandise by rail or road and the materials were moved manually to a storage area within the warehouse and piled up on the floor in stacks manually. Using consolidated shipments. In context of manufacturing. A fully integrated warehouse is a vital extension of manufacturing.TOPIC ± V Warehousing Warehousing is a place to store inventory as well as it is a facility for switching the inventory. In a country as large as India. At wholesale level. delays during manufacturing process reduced as the production became more coordinated.

condition and disposition of items being stored `Distribution warehousing relates mainly to FG Reasons for Warehousing Maintain source of supply Achieve production economies Support customer service policies Achieve transportation economies Meet changing market conditions Take advantage of Quantity Purchase discounts and forward Reasons for Warehousing Overcome time and space buys differentials Least Logistics cost for a desired Support JIT programs of suppliers level of customer service and customers Provide customers with the right mix of products at all times Temporary storage of materials to be disposed or re-cycled. Recently. sometimes storage becomes inevitable. warehouses have been able to increase productivity due to effective use of Information Technology. though an effective distribution system should not have the necessity of inventory for an excessive length of time. A single firm may use consolidation warehousing or a number of firms may join together and hire the consolidation service. Realization of lowest possible transportation rate. Purpose of Warehousing To provide desired level of customer service at the lowest possible total cost `It is that part of the firm¶s logistics system that stores products (RM. WIP. Reduction of congestion at a customer¶s receiving dock.In context of outbound logistics. FG) at and between point of origin and point of consumption and provides info to management on the status. Packing Materials. . warehouses have made possible the direct shipment of mixed/ assorted products to the customers thereby enhancing the service capabilities. Combines the logistical flow of small shipments to a specific market area. Acting as a switching facility Provision of economic and service benefits. Manufacturing plants can use warehouse as a forward stock location or as sorting and assembly facility. Role of Warehousing Provision of strategic storage.

.Mix products from multiple facilities for shipment to a single customer Break-bulk from material received from factory and distribute it further down the line. depots or distribution centers `Macro location strategies: `Market positioned `Production positioned `Intermediately positioned Warehouses as Distribution Centers `Warehouse are designed to speed the flow of goods and avoid unnecessary costs `It Speeds bulk-breaking to avoid inventory carrying costs It helps to centralize control and co-ordination of logistics activities `Products can also be cross-docked (one vehicle to another) Market Positioned Warehouses are located nearest to the final customer The Factors which influence this are: Order cycle time Transportation costs Sensitivity of the product Order size Levels of customer service offered Production Positioned `Warehouses are located close to the production facilities or supply sources `Not the same level of customer service as the earlier one `Serve as points of aggregation / collection for products made in a number of plants `Factors influencing are: `Perishability of raw materials `Number of products in the product mix `Assortments ordered by customers `Transport consolidation rates ex. Used more as a µflow-thru¶ point than as a µhoarding¶point Distribution Warehousing `The objective is to set up a network of warehouses closest to the customer locations to service markets better and minimise cost `Could be C&FA s.

finished products. It is associated with every step of our life. Generally. it supports trade and industry in carrying raw materials to the place of production and distributing finished products for consumption. transporters carry raw material. from one place to another. So it removes the distance barrier. we.Intermediate Positioned `Mid point locations between the final customer and the producer `High customer service levels possible even if products made in number of units `Other macro approaches look at cost minimisation or cost and demand elements to maximise profitability Transportation Transport is the activity that facilitates physical movement of goods as well as individuals from one place to another. Individuals or business firms that engage themselves in such activities are called transporters. equipment andpersonnel The Selection Criteria of mode of transport . etc. Without transport. as well as business units cannot move a single step. Very important in the Logistics function: Movement across space or distance adds value to products Transportation provides time and place utility Role of transportation includes: `Provides opportunity for growth under competitive conditions `Deeper penetration into markets `Wider distribution means greater demand `Can influence product prices favorably Transportation Principles Continuous flow Optimise unit of cargo ± stackability Maximum vehicle unit ± capacity utilization Adaptation of vehicle unit to volume and nature of traffic Standardisation Compatibility of unit load equipment Minimum of dead weight to total weight Maximum utilization of capital. In business. People move freely throughout the world because of transport. Now-a-days goods produced at one place are readily available at distant places. passengers.

carrier. air. ease or difficulty of handling and liability `Market related: competition. . traffic in and out of themarket.`Sixth one is use of Ropeways Customer Service Factors Consistency. government regulations. seasonality of movements and impact oncustomer service `Five prominent modes:`Road. stowability. Disadvantages of rail transport `Uneconomical for small shipments and short distances `Not suitable for remote stations `Costly terminal handling facilities `Inflexible time schedules It involves heavy losses of life as well as goods in case of accident. best practice benchmarking Cost Factors `Can be product related or market related. `Product related: density. It is relatively faster than road transport. dependability `Transit time `Coverage ± door-to-door for example `Flexibility in handling a range of products `Loss and damage performance `Additional services provided Advantages of Rail Transport `Economy± more so for goods over long distances `Efficiency of energy `Reliability± not affected by weather conditions It is a convenient mode of transport for travelling long distances.Environmental analysis: shipper. location of markets. public influence Deciding objectives Selecting mode` Select transport type within the mode` Define functions of transport Evaluation and control ± customer perception /satisfaction.Government regulations. rail. It is suitable for carrying heavy goods in large quantities over long distances. water and pipeline.

operate day and night `Less capital costs ± for own fleet + immunity from industrial action `Fast turn-around ± if articulated units like tractors and trailers are used `Minimum delays Disadvantages of Road transport Susceptibility to weather and road conditions ± inspite of the best protection `Unsuitability for heavy loads ± rail transport more economical for bulk loads `Unsuitability for long distances Air Transport Advantages `Faster mode `Reduction in cost particularly inventory `Broad service range` Increasing capabilities Air Transport Disadvantages High cost `Weather affects flight conditions `Limitations on heavy consignments In case of accidents. Water Transport Advantages Mass movement of bulk Lowest freight cost Preferred for long haul of low value commodities Water Transport Disadvantages Not for quick transit Suitable for certain types of commodities only TOPIC VI .Advantages of Road transport `Through movement ± direct from consignor to consignee. no trans shipment `Flexibility ± routes and loading routines can be easily altered. it results in heavy losses of goods. property and life.DISTRIBUTION COST .

CONTROL Physical istribution Cost Direct costs Transportation cost Inventory cost Warehousing cost Material handling cost Indirect costs Cost of capital Cost of transport equipment Cost of material handling equipment O erheads Salaries & ages Administrative expenses ACTIVITY BASED COSTING The basic purpose of activity based costing is to give managers a better perspective of total costs associated with the performance of a specific activity. .

COMPONENTS OF DISTRIBUTION COSTS Inventory carrying costs Warehousing costs Production or supply costs Channels of distribution costs Transportation costs Material handling costs Packaging costs Customer service Costs Communication & Data Processing Cost THE TOTAL COST APPROACH TO DISTRIBUTION COST Number Type Location Will affect both service & costs Warehousing Inventory Carrying Insurance Occupancy Pilferage losses Inventory taxes This group cost may range from 10 to 30 per cent of inventory value Inventory Obsolescence Model changes Style changes Perish ability Important cost for companies .

Production or supply alternatives Cost concessions Channels of distribution The decision on hich plant should serve hich customers must give eight not only to transportation but also to supply and production cost. A significant part of distribution entailing cost on Transportation movement of goods which keep changing because of various factors. The choice of distribution channels profoundly affects its physical distribution facilities and the resultant costs. Communication & data processing . Distribution decisions can affect costs otherwise incurred by suppliers and customers.

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