1

2
3
4
5
CONCEPT OF SUPPLY CHAIN

6
 Fig. 1 FLOW CHART OF SCM OF A BISCUIT COMPANY

Wheat Farm Sugarcane

Flour Mill Sugar Mill

Wheat Salt Sugar Milk Colour Hard Fats & Emulsifier Flavour Packaging
Flour Powder Water Oil Material

BISCUIT MANUFACTURING COMPANY

Stockists

Wholesalers

Supermarket Convenience Online Tie-Ups Railway Corporate

Store Retail Tea Shops Stores Canteens

Customers

7
Fig. 2 EXAMPLE OF RELIANCE FRESH STORES
PACKAGING CHEMICAL
FARMERS MATERIAL MANUFACTURERS

COLLECTION
PROCESSING DISTRIBUTION RELIANCE
FARMERS UNITS / CUSTOMERS
UNITS CENTER FRESH STORE
CENTRES

FARMERS RELIANCE
INBOUND RELIANCE
LOGISTICS OUTBOUND
LOGISTICS

TRUCK
SUPPLIERS TRUCK
SUPPLIERS 8
Fig.3 FLOW OF PRODUCT, FUNDS & INFORMATION IN SC
M
A
D
S N I R C
U U S E U FLOW OF
P F T T S PRODUCT
A R A T
P I FLOW OF
C I O INFORMATION
L T
B L M
U FLOW OF
I U T
E E
FUNDS
R R
E R O S S
R E R
R S
S
9
Fig. 4 EXAMPLE OF BUYING HP LAPTOP FROM FLIPKART

HP LAPTOP
DISTRIBUTOR

FLIPKART
CUSTOMERS
WEBSITE
HP ASSEMBLY
PLANT

HP
SUPPLIERS

10
 Fig. 5 FLOW CHART OF SCM OF A CAR MANUFACTURING COMPANY

Mines Rubber Plantation Chemical Company

Steel Plant Rubber Plant Plastic Company

Car Car Door Exhaust Belts Hoses Seals Door Air Dashboards Air
Body Roof Panels Pipes Handles Vents Bags

CAR MANUFACTURING COMPANY

Dealers Company Showroom

Customers

11
SUPPLY CHAIN

12
 Example of Supply Chain
• Consider a customer walks into Spencer store to purchase beauty
soap. The supply chain begins with the customer and his need for the
beauty soap. The next stage of this supply chain is the Spencer retail
store where the customer visits. Spencer stocks its shelves using
inventory that may have been supplied from a finished goods
warehouse managed by Walmart or received from third party
(vendor). The vendor in turn is stocked by the manufacturer [say
Hindustan Uni Liver (HUL)]].
• The HUL manufacturing plant receives raw material form a variety of
suppliers who may themselves have been supplied by lower tier
suppliers. This forms a typical supply chain.

13
A supply chain basically has three key parts:
• i. Supply:
It focuses on the raw materials supplied to manufacturing, including
how, when, and from what location.

• ii. Manufacturing:
It focuses on converting these raw materials into finished products.

• iii. Distribution:
It focuses on ensuring that these products reach the consumers
through an organized network of distributors, warehouses, and
retailers.
14
• The supply chain management includes the process of using
materials and labour to complete a finished product that can be sold
to a customer. A supply chain management system can reduce the
cost and complexity of the manufacturing process, particularly for a
manufacturer who uses many parts.
• For example, a clothing manufacturer may first move raw materials
into production, such as fabric, zippers, and other pieces used to
make clothing. The manufacturer then incurs labor costs to run
machinery and perform other work using the materials. Once the
items are completed, they must be packaged and stored until they are
sold to a customer.

15
• An efficient supply chain management process requires reliable
suppliers. This means they produce a quality product that meets the
manufacturer’s needs, and the product is delivered on time.
• Assume, for example, that XYZ Furniture manufactures high-end
furniture, and that a supplier provides metal handles and other
attachments. The metal components need to be durable so they can
be used on the furniture for years, and the metal parts shipped to XYZ
should work as intended. The supplier must be able to fill the
manufacturer’s orders and ship metal parts to meet XYZ’s production
needs. These steps are necessary to produce a quality product that is
shipped to a customer in a timely manner.

16
 SEVEN RIGHTS OF FULFILMENT:
In the quest to provide quality service and satisfy customers, world-class companies
along the supply chain are guided by the Seven Rights of Fulfilment:
• Right Product
• Right Quantity
• Right Condition
• Right Place
• Right Time
• Right Price
• Right Customer

If the customer is able to deliver perfect order to its customers, its supply chain
performance is said to be satisfactory and vice-versa.
17
 Fig.6

Supply chain management

(SCM) is the management of
the flow of goods and services.
It includes:

• The movement and storage of

raw materials
• Work-in-process inventory
• Finished goods from point of
origin to point of
consumption

18
19
• Upstream defines everything that comes into your company from
suppliers (usually raw materials) and used by your company to
produce something. It also defines the relationship and information
flow between your company, your suppliers, and your suppliers’
suppliers

• Downstream defines everything that goes out of your company after

the production cycle. Usually goods ready to sell. It also defines the
processes required in order your produced goods reach your
customers in an efficient manner (time, cost etc.).

20
• Upstream Supply chain is defined as material that comes to an
organization from the supplier.

• Downstream Supply chain is goods or the finished product which is

supplied to customer or moves out from the organization.

21
• It depends where you are in the supply chain. A retail company supply
chain manager would think of the company’s suppliers as upstream
and its delivery operations as downstream. From a manufacturer’s
perspective, the company plants are upstream and the delivery to
customers is downstream.

22
 Fig.7 FLOW CHART OF UPSTREAM AND DOWNSTREAM SCM

RETAIL
COMPANY

MANUFACTURING DELIVERY TO
COMPANY’S SUPPLIER CUSTOMERS

MANUFACTURING
COMPANY

COMPANY DELIVERY TO
PLANTS CUSTOMERS

23
Fig. 8

24
 Vertical Integration
• Vertical Integration is a strategy whereby a company owns or controls
its suppliers, distributors or retail locations to control its value or
supply chain. Vertical integration benefits companies by allowing
them to control process, reduce cost and improve efficiencies.
However, including the significant amounts of capital investment
required.
• Netflix is a prime example of vertical integration. The company
started as a DVD rental business before moving into online streaming
of films and movies licensed from major studios. Then, Netflix
executives realized they could improve their margins by producing
their own content. Today, Netflix, uses its distribution model to
promote its original content alongside programming licensed from
studios.
25
• Companies can integrate by purchasing their suppliers to reduce
manufacturing costs. They can also invest in the retail or sales end of
the process by opening physical stores and locations to provide after-
sales service. Controlling the distribution process is another common
vertical integration strategy, meaning companies control the
warehousing and delivery of their products.

26
 Backward Integration
• Backward Integration is when a company expands backward on the
production path into manufacturing, meaning a retailer buys the
manufacturer of their product. An example might be Amazon
(AMZN), which expanded from an online retailer of books to become
a publisher with its Kindle platform.

27
 Forward Integration
• Forward Integration is when a company expands by purchasing and
controlling the direct distribution or supply of its products. A clothing
manufacturer that opens its own retail location to sell product is an
example of forward integration. Forward integration helps companies
cut out the middleman. By removing distributors that would typically
be paid to sell a company’s products, overall profitability is improved.

28
• Let us see an example. The company Intel supplies the company DELL
with processors, which are intermediate goods which are then placed
within DELL’s hardware. If Intel decided to move forward in the supply
chain, it may think of a merger or acquisition of DELL in order to own
the manufacturing portion of the industry.

29
• In practice, companies can opt for forward and backward integration
to gain a competitive advantage over competitors. This helps a
company to extend its reach in the market, helping it to get control of
the demand side, also helps the company to get control of the supply
chain.
• In general, the industry is made up of five steps in the supply chain,
which are raw materials, intermediate goods, manufacturing,
marketing and sales, and after-sales service.

• By removing the third parties, the company has ownership of the

supply and distribution processes, thus having greater control over
the flow of the products.

30
Fig. 9

31
 When to Follow Forward Integration?
• When the existing distributors, as well as the retailers, are expensive
and are not able to match up to the distribution needs of the
company.
• The absence of quality distributors in the market which helps the
company in gaining a competitive edge over the competitors;
• When the company has adequate manpower like human resources as
well as the financial advantage to meet the expenses of the
distribution channel.

32
 When to Follow Forward Integration?
• When the company has very good production facilities to satisfy the
demand of the customers. In this case, it will help in strengthening
the organization’s value chain from production to sales and support of
the products.
• When the existing retailers and distributors have a higher profit
margin, which increases the cost of the product and leads to the
higher price of the product, with the help of this integration, the
company can reduce the cost of distribution; hence the product price
will reduce thereby increasing sales.

33
 Examples of Forward Integration
• Amazon’s purchase of whole foods is one of the highest-profile
examples of forward integration strategy in the current years.
• Amazon publishes the book itself as well as provides publishing
platform for independent writers.
• It also has its transportation (Amazon Transportation Services) and
distribution, which is forward and backward integration- towards
suppliers- and forward integration because Amazon directly delivers
to the end-users.
• Similarly, DELL sells online directly to the customers, and Apple has its
own stores to reach out to the customers, which are also good
examples of such integration strategy.
34
 Top Examples of Forward Integration
Strategy
• A bicycle tire manufacturer starts manufacturing bicycles, i.e., the end
product.
• A FMCG company like Britannia builds up its own distribution network,
including regional warehouses, so that it can directly sell to the retailers
without having to go via wholesalers.
• A farmer, i.e., a producer of vegetables, directly sells his products at the
farmer’s markets.
• A manufacturing company of ski equipment opens its outlets in various ski
resorts to offer the customers a brand experience to improve its brand
image and brand recognition, along with having direct selling contact with
the customers.
• Myntra, an e-commerce company starts its own logistics service- Myntra
Logistics, to reduce costs, improve turnover time, and reach its customers
timely. 35
 Key Differences between Forward and
Backward Integration
FORWARD INTEGRATION
Here the company acquires or merger
with a distributor.
The main objective is to achieve a
larger market share.
Here the companies are looking to
expand expand their distribution or
improve the placement of their
products in the market
Gives control over the supply chain.
BACKWARD INTEGRATION
Here the company acquires or merges
with the supplier or manufacturer.
The main objective of back integration
is to achieve economies of scale.
Involves internal steps to reduce
overall dependency on suppliers and
service providers.
Gives control over purchasing power.
36
 Process of SCM

Steps undertaken by the supply chain professionals involved under the

process of SC :
1)PLAN
a) find out the best possible blueprint of how to fulfil the end
customer’s requirements.
b) identify a list of key areas such as plant location and size, warehouse
designing, IT solutions, delivery methods, transport cost models, etc.
c) main focus on profit maximization through cost minimization
and customer satisfaction.

37
2) DEVELOP
a) the emphasis is on to ascertain the most reliable of suppliers for raw
materials so that the production process is not hampered.
b) selection of a tangible system in place for the continuous
development of suppliers which would boost their efficiency as well.
c) developing a strong relationship with the suppliers of raw materials
or parts through planned meetings and continuous orientations.
d) construct a set of pricing, delivery and payment processes with the
suppliers.
e) receiving and examining shipments, transferring them to the
manufacturing facilities and authorizing supplier payments.

38
3) EXECUTE
a) well designed processes are implemented so that a perceivable
shape is given to the existing plans in the form of
manufactured product which is then scheduled for testing, packaging,
and preparation for delivery.
b) measure the quality levels, output level, and worker productivity
and overall productivity.
c) develop effective solutions to improve and enhance efficiency.

39
 PRODUCTIVITY
• Productivity is measured as the ratio of output produced to inputs
used.
• Productivity = OUTPUT/ INPUTS
• Output is the quantity of goods produced.
• Inputs are resources used in the production of output such as
land, labour, material, parts, components, accessories, machinery,
equipment, etc.

40
• HOW TO RAISE THE LEVEL OF PRODUCTIVITY:
• 1)Use of given inputs to maximize output.
• 2)Use of minimum inputs to achieve desired output.

• EFFICIENCY
• Efficiency is measured as the ratio of returns to cost.
• Efficiency = RETURNS / COST
• Higher efficiency means minimization of costs to maximize returns/profits.

41
4)DELIVER
a) deliver the product in the right quantity as per the order received , at
the right place to the distributors or retailers and at the right time as
per the delivery schedule.
b) company can either integrate forward or the company can
outsource transportation, warehousing, packaging, and ensure that the
product reaches the final customers.
c) Information should flow well between the company and distributors.
c) prepare invoice and receive payments from the distributors.

42
5) RETURN
a) defective and damaged goods are accepted back from the customers
at the retail locations and sent to the company and refunds are
initiated.
b) deal with customer queries and respond to their complaints.
b) reviewing return goods for quality purposes and managing inventory
at the retail levels.
c) deploying resources for faster pickups, quicker replacements, etc.
d) returns can include end-of-life products as well.
f) treat returns as a value enhancement measure.
43
 FEATURES OF SCM :

• Integration of Processes: SCM involves the integration of processes

from sourcing to manufacturing and to distribution across the supply
chain. This means each activity in the supply chain gets linked in an
order of its occurrence ensuring a smooth flow of products, funds and
information.
• Systematic Process: SCM involves the planning, implementing
and controlling of all processes involved in procurement of
material, transformation of materials into finished goods,
storage and movement of goods and materials, and distribution of
finished goods to the end customers.

44
• Comprehensive Scope: SCM involves physical flow of materials, parts, and
finished goods and also flow of funds and information across the supply
chain. It also includes coordination and collaboration between a number of
people such as suppliers, manufacturer, distributors, third party service
providers as well as customers.
• Focus on serving customers: SCM aims at ascertaining, understanding
and fulfilling customer requirements through proper forecasting of
customer demand, undertaking efficient production and
providing timely delivery of quality goods at competitive price along with
prompt after sale services to satisfy the existing customers and also to
expand its customer base.

45
• Sharing of Information: SCM involves a process of sharing
information flow mutually between the suppliers, manufacturers,
distributors, transporters, warehouses, in order to coordinate multiple
activities, minimize risks and costs, share rewards, and to yield a
competitive advantage in the market.
• Objectives: SCM aims at reducing costs associated
with procurement, production, transportation, inventories, distribution,
etc through forecasting, information technology and effective decision-
making techniques. The aim is to increase the profitability for all the
members in the supply chain.

46
• Efficiency: SCM encompasses evaluation of costs and benefits at
every stage of supply chain flow. This enables the supply chain
members to save their costs and allocate their savings to more high
yielding areas such as research and development and innovation and
modernization. Thus, it ensures reduced price to the customers.
• Areas of Management: SCM involves management of order
processing i.e., automating purchase order process, generating
purchase order details, tracking purchase order details and scheduling
deliveries. It also includes management of availability and tracing
of materials, spare parts, components, and finished goods. SCM looks
into asset management, inventory and warehouse management and
also logistics management.

47
• Returns and Insurance: SCM facilitates smooth and hassle-
free returns of goods in case they are damaged or defective or
supplied incorrect or extra. It also involves processing of
refunds and insurance claims smoothly.
• Co-operation: Co-operation under SCM refers to similar or
complementary activities performed by all the members of the supply
chain to produce superior mutual outcomes or singular
outcomes that are mutually expected over time. Thus, SCM involves
building long term relationships between the channel members.

48
 Definitions of SCM
• In the words of Keith Oliver, ”Supply Chain Management (SCM) is the
process of planning, implementing, and controlling the operations of
the supply chain with the purpose to satisfy customer requirements
as efficiently as possible. Supply chain management spans all
movement and storage of raw materials, work in process inventory,
and finished goods from point-of-origin to point of consumption.”

49
• APICS, the global association for supply chain management
professionals, defines supply chain management as: “the design,
planning, execution, control, and monitoring of supply chain activities
with the objective of creating net value, building a competitive
infrastructure, leveraging worldwide logistics, synchronizing supply
with demand, and measuring performance globally.”

• American Production and Inventory Control Society is an international

education organization offering certification program to advance end-
to-end supply chain management. It has merged with American
Society of Transportation and Logistics.

50
• According to Martin Christopher, “Supply Chain Management is the
management of upstream and downstream relationships with
suppliers and customers in order to deliver superior customer value
at less cost to the supply chain as a whole.”

51
• SCMA defines supply chain management (SCM) as: The process of
strategically managing flows of goods, services, finance and
knowledge, along with relationships within and among organizations,
to realize greater economic value through: Supporting enterprise
strategic objectives, Contributing to the achievement of strategic
competitiveness of the enterprise, Contributing to the enhancement
of the competitive advantage of the enterprise and Enhancing
customer satisfaction.

Supply Chain Management Association in Canada is the first supply

chain association in the world to require that all the members adhere
to a Code of Ethics under SCM.

52
 PRINCIPLES OF SCM
1)Adapt supply based on service needs of each customer:
a)since every company has a large base of customers, they need to be
segmented into smaller groups to cater better to their needs.
b) customers can be segmented on the basis of product, types of
customers, demographics of customers, trade channel, sales
volume, profitability or on the basis of service needs such as urgency of
delivery, etc.
Example: Amazon initiated a program called Amazon Prime which
offered free 2 days shipping and discounted 1 day shipping.

53
2) Customize the logistics network:
a)depending upon the service needs of the customers in a given segment the
company should tailor make the supply chain networks to fulfil those needs
separately.
b)at times the company may have to anticipate the customer’s needs and
develop a portfolio of services to cater to their needs. Different modes of
transport, delivery type, etc. can be designed and adopted.
c)prioritize the deliveries and make suitable provisions to quickly deliver
those goods that are marked as urgent.
d)company must avoid the median technique of supply chain to reach out all
customers.

54
3)Align demand planning across supply chain:
a) a single business involves many departments
like production, warehousing, sales, etc. It is of utmost necessity that
forecasting of market demand must be done at a cross functional level and
not at an individual department level only.
b)based on demand forecast and actual demand the demand data is shared
with the suppliers also called trading partners so that over inventory and
under inventory can be avoided.
c) over inventory adds to the cost and under inventory affects meeting
delivery deadlines.
d)Walmart shares its data with their suppliers and follows just -in-
time replenishment.
e) adopting SKUs i.e., stock keeping units and POS i.e., point of sales systems.
This enables managers to determine which products needs to be restocked.
When a customer buys an item at the POS, the SKU is scanned, and the POS
system automatically removes the item from the inventory.
55
4) Differentiate product closer to the customer and speed conversion in the
supply chain process:
a) customize products as per the requirements of different segments of the
customers. For example, tata tea.
b) there must be flexibility to modify, alter ,redesign the product and also
make it readily available to the end customer on time. For example, DELL.
c) company can alternatively follow standardization. For example, some
cosmetics manufacturers formulate products and choose packaging and
labelling that complies with the regulations of multiple countries in Asia.
d) standardization can drive the purchase cost down drastically due to
economies of scale and improve international business operations.

56
5) Outsource strategically:
a) having multiple players is the key to maintain a competitive
environment.
b) every business should be smart to realize that supplier’s costs are
indirectly the cost of the company and cost reduction should
be shared by the supply chain partners to lower market prices and
enhance the profit margin.
c) the core competencies should never be outsourced. Routine
activities such as transportation, warehousing, packaging, etc should be
outsourced.

57
6)Develop a supply chain technology strategy that supports multiple levels of
decision making:
a)the information system in use must be such that it not only captures the
data pertaining to the supply chain management process but also translates
them into actionable and useful insights. These insights must help
the business to better their practices and operations on real time basis.
b) a detailed report with all the information that flows in and out of the
business but provides no real output is not desirable by any
business manager (BPR- Business Process Reengineering)
c)internet applications and advanced systems should make the procedures
easier and speed up the supply chain management process by reducing time,
effort, and cost through automated electronic transactions, invoices and
payment records.
d) eliminate tasks that do not provide the customer with value.
e) identify the areas of innovations and the kind of technology needed for its
implementation.
58
7) Adopt channel-spanning performance measures to achieve collective
success in reaching the end user effectively:
a) no business can determine their success or identify new
opportunities for betterment until and unless their performance is
regularly monitored and measured.
b) every supply chain management needs to have its assessment card
highlighting the achievement of its goals and targets.
c)identify the area of expertise and scope for further utilization of these
expertise to the overall advancement of the supply chain management
process.

59
 Supply chain management strategies:

1)Customer Centric Strategy:

a) An effective SCM strategy should begin with the forecasts of
customer requirements and end with the fulfilment of the same.
b) The entire network of SCM should strive towards minimization of
costs at every stage of the chain and also offer competitive price to the
end users in order to expand their market share.
c) The SCM professionals should ensure that the right product is
delivered to the customers at the right time.

60
d) The SCM should treat returns as an integral part of its strategy which
means there must be a prompt system of accepting back defective and
damaged goods and quick processing of refunds to the customers.
e) SCM should ensure providing information to the customers about
the product and any changes initiated by the company in terms of
product development and post-sale product support.
f) SCM professionals should adopt multiple ways to obtain customer
feedback through phone surveys, or a feedback form sent through
email, or may establish a complaint system as this can enable the
company to identify areas which require improvements.

61
2)Employee Centric Strategy:
a) Company should recruit professionals like designers,
engineers, researchers, managers with communication skills, ethics,
and people having superior knowledge and experience in the area of
supplier relationship management, total cost analysis, purchasing
strategies, distribution management strategies, etc.
b) All these professionals and employees and workers belonging to
different departments should be motivated and trained to work
together with dedication and handle the entire network of supply
chain.
c) Infact, company should treat their employees and
professionals as their internal customers as “behaviour breeds
behaviour” and happy staff leads to happy external customers.

62
d) Employees should be held accountable for setting and achieving
customer service goals.
e) There should be a system for acknowledging and
rewarding employees for demonstrating exceptional customer service.
f) Employees should be trained to deal with customers patiently and
professionally and possess excellent communication skills and superior
knowledge of the company products.
g) The top level management should work in close coordination with all
the employees down the hierarchy and collaborate with
the professionals to set and achieve common goals such as cost cutting,
profit maximization, product development, new markets, global reach.

63
3)Production Centric Strategy:
a)based on forecasts of customer demand the company should plan its
production which could be adopting standardization or customization
of products which in turn depends on cost and service analysis.
b)the production department should procure the required resources
with careful planning and transform the materials and parts into
finished goods.
c)the department should monitor its performance based on plans set in
order to identify and correct discrepancies, if any, in terms of quantity,
quality, costs, wastages, etc.

64
d)the department should make use of the right technology to produce the
goods and also continuously aim at innovations in product development and
services.
e)company can decide to outsource its manufacturing process based on cost
returns analysis and degree of specialization available and necessitated.
f)special focus should be placed on measuring and enhancing overall levels
of productivity and efficiency through minimization of wastages, breakages,
and accidents.
g)company should have resilience in its operations to meet contingencies like
staff absences, delayed machine maintenance, (subcontract
arrangements) to avoid late deliveries, overtime duties, poor quality of
output, unnecessary costs, etc.
h)company should use TQM , quality circles, and other quality control
techniques to ensure qualitative output.

65
4)Supplier Centric Strategy:
a)company should select the most reliable team of suppliers(Just-In -
Time suppliers) and having selected them must market test them
regularly in terms of their performance and also test the quality of
materials and parts and then accordingly revise their decisions.

b)company should consider shifting to those suppliers that are close to

the manufacturing units in order to save transport and warehouse
costs.

66
c)access to unified data model across the business operations can
provide visibility to the planners to decide from where to source their
requirements effectively and satisfy their customers.
d)company should adopt continuous supply model to refill the stock
non-stop by constant follow-up with the suppliers.
e)in the refilling process ,many shipments can be involved causing
supply chain breakdown and therefore a very close coordination can be
required between the procurement process and the production
process.

67
f)company can adopt the assembly model where in different parts are
gathered from various places and assembled to manufacture the main
product.
g)company should very carefully study its need for material and parts
and also undertake the cost benefit analysis and decide between the
selection of domestic suppliers and overseas suppliers.
h)company should balance between supply chain cost and
performance towards the customers, for example for some customers
high customer service is important and are willing to pay for that
whereas for some others price matters.
i)company should organize frequent meetings, discussions and
negotiations with the suppliers to update them of the company goals
and requirements and also motivate them to enhance their efficiencies
in terms of quality, quantity, costs, lead time, delivery schedules.
j)company should choose between inhouse supply and outsourcing of
supply depending on cost benefit analysis to maximise its profitability.
68
5)Inventory and Warehouse Centric Strategy:
a)inventory is the key factor of success of a supply chain and it is found
in warehouse, shop floors, transport vehicles, retail stores ,etc. and
therefore it requires a close check to control costs.
b)company should anticipate its inventory needs carefully through ABC
analysis to avoid over stocking and under stocking as both have adverse
effects on cost and performance.
Example, a company planning the manufacture of raincoats just before
the rainy season or crackers before Diwali.
c)company should undertake decoupling of inventories as it acts as a
shock absorber for varying work rates and machine breakdowns or
failures.

69
d)company should maintain safety stock or buffer stock to tide over
demand fluctuations and procurement time.
e)company should integrate IT solutions to maintain adequate records
of inventories to overcome thefts, wastes and leakages of inventories.
These records also help in timely replenishment of stocks to achieve
‘available to promise’ performance.
f)company should ensure that the inventory records correspond with
the physical stockholdings through periodic audits.
g)company should also decide about the number and type of
warehouses (private, public, contract) needed and the location of
warehouses depending upon the desired level of customer service and
distance between supply source and final destination.
h)company should consider special warehousing facilities like cold
storage, product conditioning , etc to suit its needs and to maintain the
quality of material and finished goods.
70
i)company should undertake cost benefit analysis before deciding to
own warehouses or outsource the same.
j)the stock kept in the warehouse should be insured sufficiently.
k)company should hold negotiations with the warehouse firms to share
risks and minimize costs.
l)company should integrate and maintain a tracking software system
like barcodes to get details of stock held.
m)company should maintain a rapport with the warehousing
companies to avail continuity in their services in times of excess
demand in the market.

71
6)Packaging Centric Strategy:
a)company should either own its inhouse packaging unit or outsource the
same depending upon its cost benefit analysis.
b)company should make use of environmentally friendly packaging
material for meeting up the international standards and also consider quality
control requirements of both the domestic and overseas markets.
Example: colour of packaging also plays an important role in supply chain.
c)company should carefully design its packaging to act as silent salesman in
order to facilitate the sale of its products.
d)company should design separate type of packaging for consumer goods
and industrial goods as packaging for industrial goods is more so for
protection and preservation whereas consumer goods packaging is meant
for protection, preservation, easy handling and storage and communication.

72
e)company should include apportionment in its packaging to reach
out the untapped customers.
f)company should continuously research and develop innovative packaging
such as milk in tetra packs adding to the shelf life of the product, soft drinks
in pet bottles of ranging from very small to large size bottles, etc.
g)company should also ensure labelling on its packaging as it allows the
customers to identify the product from the competitors, to give important
information to the customers about ingredients used, weight and size of the
product, instructions and uses, expiry date, price, etc.

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7)Transport Centric Strategy:
a)it is another logistic activity besides warehousing which creates place and
time utility and is needed at various stages of SCM such as to move raw materials
from suppliers to the manufacturer, work in progress within the plant, finished
goods from plant to the distributors and to the final customers.
b)company should plan and decide either to operates its own inbound and
outbound transport network or outsource the same depending upon the
availability of operators and the mode of transport required for different set of
cargo.
c)company should consider the cost involved in transportation, speed,
safety, reliability of time schedules, number of locations to serve, etc.
d)company should carefully choose between the shipping companies evaluating
their service performance and charges.
e)choice of transportation should ensure availability of materials and products at
the right place in the right quantity in order to earn customer loyalty.
f) company should plan and choose the most efficient transportation mode in the
event of global supply chain and also study the legalities of trade in
outside countries which is to remain competitive in the international markets.
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8)Technology Centric Strategy:
a)company should design, develop and adopt IT solutions to handle its
supply chain.
b)company should make use of internet in the areas of research,
procurement, order processing, transportation, material handling, inventory
and warehousing, distribution, packaging, vendor relationships, flow of
funds, flow of information, flow of products, providing customer services.
c)company should practice e-marketing, e-procurement, e-logistics, e-
fulfilment, ERP, BPR , and other IT related infrastructure in supply chain
management.

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 CONCLUSION:

Frequent review of supply chain by the companies and adapting their

supply chain to support dynamic changing business realities is a
challenge which companies have to equip themselves to deal with to
survive and sustain and grow in a competitive global environment.

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 ABC ANALYSIS:

• ABC analysis is an inventory categorization technique to manage

inventory costs.
• ABC analysis suggests that inventories of an organization are not of
equal value.
• ABC analysis provides a mechanism for identifying items that will
have a significant impact on overall inventory cost , while also
providing a mechanism for identifying different categories of stock
that will require different controls.

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• It divides inventory into three categories:
1)A- Item Inventories :
a)Constitute 70 % in value only 10% in quantity.
b)Such items require strict control such as Economic Order Quantity and
budgeting.
c)Company should negotiate with the suppliers of these items to reduce
payment, offer free shipping or share risks, and thereby minimize the cost
involved.

2)B- Item Inventories :

a)Constitute 20% in value and 20% in quantity.
b)Such items require need base control.
c)Companies should stock them in moderate quantities.

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3)C- Item Inventories:
a)Constitutes 10% in value and 70% in quantity.
b)Such items require little control.
c)Companies should stock them in sufficient quantities.

ABC analysis enables the management to Control by Exception which is

that the managers can identify and focus only on those inventory items
which are important and thereby save their managerial time and
energy and cost.

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• EXAMPLE:
• ABC Analysis In Inventory Management.
• Lisa has a business of sweaters and overtime; her business has
achieved tremendous success. Lisa, in search for varieties and
additions to her sweater inventory has filled in 180 types of sweaters
instead of 50 types. She now realises that this business is seasonal,
and she has already invested a lot. After a thorough research on how
the problem mentioned above can be streamlined, Lisa implemented
the ABC inventory categorization in her business model. She was able
to allow her business to visualize those areas wherein more profit was
expected.
• Now, as Lisa already had too many options so she had to organize into
three categories: Category A, Category B and Category C, depending
on their price, demand, etc
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• Category A: The sweaters that fall under this category are the ones
that are most important to the company. They can either be the ones
that are generating the most revenue, or the ones falling under the
hottest trend for the season.
• Category B: These sweaters are essential to the company, but not as
much as the ones in category A. A smaller market or lesser
comparative demand are some of the reasons. For example,
Christmas sweaters are mostly sold during the season and not very
much before or after that. But yes, during the seasons, the sales do
go up. Lisa can neither neglect such sweaters, nor can she make up
the profit when not in season. Hence Category B.
• Category C: This category includes the products that are neither in
category A nor Category B. Lisa does not wish to put in more effort to
sell of these sweaters as they are not of high value to the company.
Odd sizing, colour combination, patterns can be the possible
reasons for Lisa to put these sweaters in category C.
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 Supply Chain Management
v/s Logistics
• The council of supply chain management professionals states that logistics
is a part of the supply chain process that plans, implements and controls
the efficient flow and reverse flow and storage of goods, services and
related information between the point of origin and the point of
consumption in order to meet customers requirements
• Logistics is that part of supply chain which is basically concerned with
efficient transport and storage of materials, parts and the finished goods.
• Types of Logistics:
• In house Logistics: Some manufacturers, wholesalers and retailers have
their own in house Logistic functions

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• Logistics Service Providers: This company handles shipping, inventory,
warehousing, packaging and security functions for shipments
• Third Party Logistics: These are specialists offering special facilities like cold
storage warehousing and other modes of freight by air, rail or road.
• Reverse Logistics: It includes arranging return of goods to manufacturers
from customers in case of defective goods. In short, logistics is a limited,
distinct part of a larger, collaborative supply chain network.
• Green Logistics: It includes attempts to measure and minimise the
environmental/ecological impact of logistics activities such as Zara using
organic cotton and biodiesel vehicles
• E.g.: - Use of electric vehicles, biodiesel vehicles ,reuse of durable
packaging in case of mineral water, gas cylinders ,etc., size charts by
clothing stores online, Flip Kart fitting each order in reasonable size boxes.

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 ERP (Enterprise Resource Planning)
• It is a business process management software that integrates and automates
many of the business activities including most of the back office functions. An
ERP system is a wide computer-based information system that stores information
about an organisation like its employees, products, suppliers, customers,
manufacturing facilities, financial and marketing departments.
• Example:
• Without ERP, a customer places an order, that order begins with an order taker
creating a paper-based journey from sales to billing to shipping. Frequently,
company employees have to re-enter data about that order at various steps. This
inefficiency leads to time delays, input errors and higher labour costs. A fully
integrated ERP system allows all departments access to the order and coordinates
the process at each step along the way.

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• Role of ERP in SCM: -
• ERP helps to create job scheduling after production starts, all records for
machine and labour are created and updated.
• Supervisors can know which resources are being consumed and they can
plan product delivery dates.
• Several manual tasks like communicating with vendors and suppliers and
keeping track of the communication can be easily automated with ERP.
• ERP software can also create invoices that have to be sent to the suppliers,
distributors, customers, etc.
• ERP ensures that the retailers keep a total control of cost of storage and
meet customer demand as well.

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 Importance of SCM:

1)Creates Employment:
a) There are multiple activities involved in the supply chain of a
company such as research, procurement, designing, production,
transportation, material handling, inventory and warehousing,
insurance, packaging, labelling, distribution, marketing and sales,
banking, etc.
b) These above activities provide employment to a number of people
including supply chain professionals, managers, and workers thereby
generating employment opportunities in both domestic and foreign
countries as the case be.

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2) Improves the Standard of Living:
a) Since supply chain management creates employment for a large
number of people in the economy and also facilitates exchange of
inputs and output, it contributes to the flow of money between
different entities generating purchasing power.
b) The flow of funds moves from the customers to the source of origin
from where the supply chain begins and this in turn enables different
organisations to provide different jobs to skilled and unskilled
people and improves their standard of living.

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3)Enhances Economic Growth:
a) Supply chain management facilitates production, distribution and
consumption of goods and services in the domestic and overseas
economies which can promote higher productivity and efficiency in
well planned organisations.
b) Large scale operations and focus on qualitative operations, higher
productivity and higher efficiency are main indicators of achieving
economic growth.

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4)Minimisation of Costs:
a) A well-planned supply chain aims at controlling costs involved at
different stages such as availing economies of large scale buying of
materials and parts from the suppliers, reducing wastages and
breakages at the manufacturing phase, inventory control, minimising
transportation cost, warehousing cost, use of right packaging,
eliminating unnecessary distributors, use of IT solutions enabling saving
time and cost in processing and having access to information, etc.
b) The constant efforts to control costs under supply chain
management helps to maximise profitability of companies.

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5)Enhances Customer Value:
a) Supply chain management begins with research and development
and moves to innovation and modernisation based on the needs and
expectations of the end users in the chain. The supply chain
professionals through their constant efforts to minimise costs offer
competitive price to the customers.
b) The supply chain managers strive to reach the customers with the
right quality of product and prompt post sale services such as repairs,
replacements, refunds, etc. SCM helps in reaching out the
customers with innovative goods and services.

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6)Use of Technology:
a) With advancement in technology, supply chain professionals are
involved in using internet and many other technically advanced
concepts such as e-marketing, e-procurement, e-logistics, e-fulfilment,
ERP, etc and this ensures economising time and costs in different
supply chain activities.
b) Use of IT related infrastructure facilitates a very effective flow of
information between different supply chain members and also rational
decision making at the company level in order to deliver goods and
services to the final customers.

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7)Improves Human Welfare:
a) Supply chain involves a number of people such as suppliers,
manufacturers, workers, managers, distributors, retailers, transporters,
warehouse keepers, researchers, engineers, designers and many more
professionals. All these not only get employment but also learn and
acquire a lot of knowledge being a part of the supply chain and this
contributes to their development.
b) The most important of all the people in the supply chain are the final
customers as their every need and want is fulfilled through supply
chain. And also supply chain offers competitive price to them by cutting
costs wherever it is possible in the supply chain.

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8)Optimising Operations:
a) supply chain management is a highly detailed system used by small
and large organizations alike to get products to customers through
optimum utilization of all the resources namely human, financial,
technical and physical.
b)a well organised supply chain management system ensures
optimizing operations through specialisations.

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9)Improves Financial Position:
a) SCM helps the company to insert profit leverage and provides scope
for growth, expansion and diversification to the firms which helps to
face challenges in the global markets.
b) Supply chain includes asset management of companies and this
ensures lower fixed costs such as cost of plants,
machinery, warehouses, vehicles, etc.

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10)Reduces Operating Costs:
a) SCM enables the distributors and the retailers to quickly distribute
costly and perishable products to customers and thus avoid the costs of
holding inventories.
b) Reliable delivery of materials to assembly plants helps the firm to
overcome delays in manufacturing and facilitates cost reduction.

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11)Promotes Globalisation:
a) going global through supply chain facilitates entry into new markets,
enables access to new technologies through foreign collaborations.
b) firms can take advantage of lower production costs and
outsource non-core activities in order to generate large scale
efficiencies.

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 Barriers and Limitations of SCM:
1)Strategic Barriers:
a) unclear organisation goals.
b) lack of top management commitment and support.
c)lack of awareness about SCM.
d)short-term decision-making perspective.
e) lack of resource allocation.

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2)Cultural Barrier:
a) unwillingness to implement supply chain practice.
b) unwillingness to share information among the supply chain
members.
c)mistrust among employees within the company and among supply
chain partners.

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3) Organizational Barriers:
a) lack of proper organisational structure.
b) lack of performance measurement system.
c)lack of coordination at the horizontal levels.
d)lack of incentives.
e) resistance to change.
f) lack of management skills.
g) lack of awareness about the environmental issues.

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4)Technological Barriers:
a) lack of research and development.
b) lack of funds.
c)lack of research personnel.
d)lack of awareness of global changes in terms of technology.
e) poor quality of information flow.
f) high cost of adopting technology.

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5)Relationship Barriers:
a) poor relations between channel members like suppliers, distributors,
retailers, logistics, etc.
b) lack of trust and cooperation.
c)absence of meetings and discussions and also provision of incentives.
d)unprofessional attitude of suppliers, dealers, retailers and producers.

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6)Global barriers:
a) presence of volatile conditions.
b) widespread locations.
c)multiple rules and restrictions.
d)high costs of research and operations.
e) cut-throat competition.
f) too many challenges involved with too many complications.
g) lack of cooperation from global channels of supply.
h) diverse requirements and expectations of channel members.

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7)Customer Barriers:
a) large customer base making segmentation tedious.
b) challenges involved in delivering right product in right quantity of
right quality at the right time at the right place at the right price.
c)fast changing customer needs, preferences and expectations both in
terms of goods and services.
d)customer disloyalty due to tendency to switch preferences towards
rival brands.
e) shorter product life cycle.

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8)Financial Barriers:
a) difficulty in trading off between cost and profitability.
b) inability to raise funds.
c)inadequate banking facilities.
d)instability of business.
e) political barriers.

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9)Procurement Barriers:
a) lack of forecasts and no focus on reliability.
b) unplanned procurement order.
c)unskilled purchase personnel.
d)lack of cooperation and collaboration among the purchase team
members.
e)low budget.
f)late payments and defaults.

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10)Production Barriers:
a) lack of materials and work in progress.
b) unskilled and untrained workers.
c)frequent machine breakdowns, wastages and accidents.
d)inefficient repairs, replacements and maintenance of plant and
machinery.
e) high cost of manufacturing.
f) poor labour management relations.

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11)Inventory Barriers:
a) overstocking and understocking of materials and components.
b) ineffective material handling causing damages and breakages.
c)discrepancy in inventory records and actual stock holdings.
d)unsafe inventory holdings.
e) inappropriate warehousing designs.
f) unnecessary high costs of inventory holding and warehousing.
g) lack of use of technology.

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12)Transport Barriers:
a) poor selection of modes of transport.
b) high cost of transport.
c)lack of coordination between connecting modes of transport.
d)poor tracking system.
e) poor quality of roads and highways.
f) slow speed of shipments.
g) frequent accidents and delays in delivery.
h)excessive documentation and taxes.

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 Evolution of Supply Chain Management:

1)Creation Era:
a) In 1900 Supply chain concept was earlier identified more as logistics.
b) In 1911 Fredrick Taylor who wrote “The Principles of Scientific
Management” and is also considered the father of industrial
engineering focused on steps to improve manual loading and unloading
processes.
c)In 1940s during World War II the study of military logistics was
initiated due to growing complexities in supplying the military requirements
of essentials and arms. From here began the supply chain engineering.
d)In 1940s the focus of logistics study was also on the use of automation, to
improve labour intensive processes of handling materials and use of space
management.

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2)Integration Era:
a) In 1950s the focus shifted to transport management focusing on
containers used in ships, trains and trucks.
b) In 1960s EDI systems (Electronic Data Interchange) was developed which
led to coordination between warehousing, inventory handling and
transportation.
c)In 1970s much attention was paid to physical distribution and academic
research and education followed this concept.
d)In 1980s many research centres were established like the
Material Handling Research Centre, the Computational Optimisation Centre,
etc.
e) The rise of personal computers created a flood of new technology
including improvements in logistics and material handling mechanization.
f) Companies started investing in trained professionals and this initiated
integration of inbound, outbound, and reverse flows of products, services
and information.

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3)Globalisation Era:
a) In 1990s ERP (Enterprise Resource Planning) was developed to
integrate the multiple data base that existed in most of the
companies and in their associated concerns.
b) A new software called as Advanced Planning and Scheduling was
introduced.

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4)Specialisation Era:
a) With the implementation of new LPG policy many functions such as
transportation, storage and inventory, planning and development,
performance management were integrated.
b) Strategies were designed to ensure flexibility in supply chain
operations and ensure quick delivery of results.

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 Supply Chain Intermediaries:
Distribution channels move products and services from businesses to
consumers and also to other businesses.
The channels of distribution consist of a set of interdependent
organizations such as wholesalers, retailers, and sales agents involved
in making goods and services for consumption. They are the real
tangible systems of interconnected sources and destinations which
products pass on their way to final consumers.

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 Types of Channel Intermediaries:

1)Agent:
a) An intermediary who is authorised to act for a principal in order
to facilitate exchange.
b) They do not take title to goods but put simply buyers and sellers
together.
c)Agents are typically paid a commission by the principal.
d)Example, travel agents are paid a commission for each booking made
with an airline or hotel.

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2)Jobber:
a) A special type of wholesaler who operates on a small scale and sells
only to retailers or institutions.
b) Example, rack jobbers are small independent wholesalers who
operate from a truck, supplying convenience stores with snacks and
beverages on a regular basis.

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3) Wholesaler:
a) A merchant intermediary who sells chiefly to retailers, other
merchants, or industrial and commercial users.
b) They take ownership of goods in bulk and store the products in their
own warehouse till the goods are resold in bulk to the next level
intermediaries such as semi-wholesalers or retailers like Apna Bazaar
for a price.
c)The transactions are B2B (Business to Business)

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4) Distributors:
a) Their function is similar to wholesaler that is they take ownership
of the product, store it, and sell it to the retailers for profit.
b) They sell only one company’s product unlike wholesalers.
c)They maintain close relations with the manufacturing company.

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5) Retailers:
a) A merchant intermediary who sells directly to the end users or final
customers.
b) They buy and sell in relatively smaller quantities.
c)It is the final link in the channel of distribution.
d)They can range from hypermarkets and supermarkets to small,
independent grocery and confectionary stores.
e) The transactions are B2C (Business to Customer)
f) It includes online retails such as Flipkart, Ebay, Amazon, etc.

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 Channel Design:

A) Channel design for Industrial goods:

1) Producer to Industrial Consumer:
a) This is a direct channel for industrial users also known as zero channel of
distribution.
b) This is meant for expensive industrial goods like heavy machines and
equipment, big generators, ships, buses, planes,
c) Since the product affects the operations of the buyer; the producer and
customer maintain close relationship.
d)Direct selling can include one on one demonstrations, internet sales, etc.:
e) The number of customers is low and the goods are costly.

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2) Producer to Industrial distributor to Industrial User:
a) Only one level intermediary remains between the producer and
user.
b) The distributor brings the enquiries, order, and checks the stock
levels and also does follow-up.
c)Examples of goods are less costly office materials, equipment,
operational supplies, construction materials, spare parts, etc.

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3)Producer to Agent to Industrial User:
a) The agents do not take rights and ownership of the goods.
b) They get commission on the basis of quantity that they sell.
c)The service of agents is used to introduce new goods in the market.
d)The agent may be selling a range of products for a number of
industrial producers.

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4)Producer to Agent to Industrial Distributor to all Industrial User:
a) This is the longest channel used for industrial distribution.
b) Producer’s agent contacts several industrial distributors and
industrial distributors sell the goods to industrial users.
c)It is commonly used for selling operating supplies, small spare parts
and other industrial goods that need massive distribution.
d)In such case the industrial producer generally provides warehouse
facilities.
e) This type of channel is used when industrial customers require goods
urgently.

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B) Channel Design for Consumer Goods:
1)Producer to Consumer:
a) This is also called as direct channel or zero level channel.
b) The product is sold directly from producer to final consumer through
personal selling, direct mail, phone selling, internet, etc.
c)There is absence of intermediary or middlemen.
d)When the goods are costly or the number of consumers is low, the
producers themselves sell their products directly to the consumers.
d)It is used to minimise the distribution cost.
e) Examples are perishable goods like milk, ghee, yogurt,
Tupperware, Amway, Oriflame, Aqua guard, etc.

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2)Producer to Retailer to Consumer:
a) Retailers are the only middlemen in this channel design.
b) The producer eliminates the agents and wholesalers from the
channel design.
c)Big retail stores such as departmental stores, super markets, like Big
Bazaar, D-Mart, etc having bulk buying capacity both in terms of
finance and storage buy directly from producers at discounted prices.

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3)Producer to Wholesaler to Retailer to Consumers:
a) This is the traditional channel of distribution.
b) The producer sells the product to the wholesaler in a large quantity.
c)The wholesaler sells the goods to the retailer in small quantity.
d)This channel is relatively long in distribution system.
e) This channel is used for distributing foodstuffs, medicines and many
other consumer goods.
f) This channel is suitable for the products, which need to be supplied
to scattered markets and consumers.

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4)Producer to Agent to Wholesaler to Retailer:
a) This is the longest channel of distribution of consumer goods.
b) In this, three middlemen are used to supply goods to the final consumers.
c)Generally this channel is used for selling agro-products, clothes, footwear,
etc.
d)This is used to enter foreign markets through the agents who receives
commission on sales and also it helps the producer as it is not possible for
every company to invest in setting up sales and distribution infrastructure. It
can be also used in domestic market.
e) This channel is costly and takes long time to reach the end user.

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C)Channel Design at the Service Level:
1)Service Provider to Consumer or Industrialist Consumer
a) There is a close relationship between the supplier provider and the
user as the service flow happens to be direct.
b) The service provider operates from different outlets to reach out to
the end user.
c)Professionals like Doctors, Advocates, Teachers, Auditors, hair
stylist, etc opt for this channel.

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2)Service Provider to Agent to Consumer to Industrial Consumer:
a) In case of geographical distance between the service provider
and the user, this channel is used.
b) It is also used when the service provider cannot afford to establish
its sales team.
c)Banks and financial institutions sell their services by using a database
of potential customers.

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3)Service Provider through Internet to
consumer or Industrial consumer:
a) Many services like music, banking services, consulting, counselling,
etc are distributed via internet.
b) It is basically for services which can be downloaded and for
informative products such as e-tickets.

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 Factors Determining Selection of Suitable
channel Design:
1)Nature of Consumer:
a) The consumer habits and preferences should be considered before
selecting a channel, for example if consumers view films or shows on over
the top content platforms like Netflix or Hotstar then it would be
remunerative to release the film or series through that digital channel.
b) The selection of channel can depend upon the geographical location of
the consumers (for personal services like hair salon, grocery products)
their quantity of purchases (wholesalers in case
of large quantities) repeats purchases (retailers for frequent purchases)

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c)Direct channel can be selected by the producer in case of heavy
goods to reach the industrial users.
d)Retail grocery(local)stores can be selected for low-income group
consumers for buying daily essentials.
e) For high income group consumers buying branded and designed
products the company can open its own showrooms or label stores.

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2)Cost:
a) Low-cost goods function best at low-cost retail outlets like essential goods
and perishable goods.
b) Direct selling eliminates the cost of intermediaries between the producer
and the user and can be chosen for goods that require personal selling like
mobile phones, cars, computers, laptop, etc.
c) cost of activities such as transportation, warehousing, insurance,
inventory, etc can be very significant while making channel design for any
product.
d) Company should undertake cost returns analysis and evaluate the returns
on investments arising out of different channels such as commission
involved, risks involved, delivery speed, etc.

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3)Product and Brand:
a) Heavy goods, perishable goods, precious items, are best distributed
through direct selling.
b) Durable goods, light goods and goods bought in bulk quantities can be
sold through middlemen involved in the channel design like agents,
wholesalers, retailers.
c)A high end good sold on a low-cost distribution channel can affect its sales
adversely, for example a premium coffee machine manufacturer may not
want to be stocked at a discount retailer as it will lower the brand’s power in
the eyes of the consumer.
d)For introduction of new products buyers will seek information and
company should go for a speciality product or direct sales.

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4)Localisation:
a) Large scale markets involve more levels of distributors whereas small scale
markets have direct selling.
b) Segmented markets have multiple channels and niche market prefers
direct selling.
c) Industrial markets have more of direct selling and consumer goods market
have wholesalers and retailers involved as there are large number of buyers
involved.
d) When the target customers are scattered in the market then a longer
channel is used and for customers concentrated in a market, shorter
channels are used.

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5)Nature of Business:
a) The size of a company depends upon its financial strength and companies
having strong financial and large customer base can go for a longer
distribution unless they prefer to control the entire distribution process.
b) Companies can go for selective distribution which is to select from among
the available outlets rather than use all of the outlets. This may increase the
sales at reduced distribution costs and bring forth co-operation from the
dealers.
c) Companies can choose to go for exclusive distribution granting sole selling
rights for a product in a certain territory to a middleman under a contractual
agreement.
d) Where the company has experienced marketing team and reputation, it
can set up its own sales team.

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6)Nature of Middlemen:
a) The manufacturer must select those middlemen who provide the best
marketing services like storage, transportation, credit and packing.
b) The company should study the financial stability and reputation of the
middleman who are capable of reaching out to a large customer base and
also make prompt payments to the company.
c) The company should select distributors in close proximity to minimise the
costs.
d) The company must check the ability of the middlemen to provide after
sales services and feedback.

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7)Nature of External Environment:
a) The government policies should be considered in channel selection
as there can be certain restrictions on the distribution of certain
products like wine, cigarettes, etc.
b) The choice of channels is also influenced by the economic conditions
in the economy such as during recession, companies might prefer a
longer channel but at a low cost. During prosperity company can open
its own showrooms.
c)The company should study the fiscal structure in a given economy as
there can be indirect taxes levied by the government on the
distribution on certain products.

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8)Competition:
a) Every company should keep a check on the channels and the channel
design selected by their competitors and avoid using the same channel
network.
b) Different companies producing similar products may employ the
same channels due to economical cost but may have to focus on
providing incentives and maintaining relationships with the channels of
distribution.

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