Master of Business Administration MBA Semester 3 MK0010 Sales, Distribution and Supply Chain Management - 4 Credits Assignment Set
1 60 Marks
Q.1 Mr. Suresh Jha is a sales manager of a reputed company. He wants to explain to new sales recruits about their responsibilities as sales personnel and also make them aware about the role of sales manager. Assume you are Suresh Jha and carry out this task. Answer: Sales Personnel are the people employed to sell the goods or services (mainly of an organisation). People who are responsible for the sales of either a single product or the entire range of an organization's products can be called sales personnel. Sales personnel normally report to a sales manager. The job of sales personnel involves a number of responsibilities. It is the income producing division of a business. The salesperson is responsible for: Providing profit contribution Creating a proper image for the company and it's products/services Achieving the sales targets of the organization Satisfying the customers and participating in marketing activities He/she is responsible to the customer and society for continuing growth of the organization. He has multifarious activities, including setting goals and achieving them, building sales organizations and managing them. For example, in Eureka Forbes Pvt. Ltd. they called their sales force as sales champs (champions) as they are responsible for the direct marketing of company s products and revenue generation. Qualities of good sales personnel Sales people are the backbone of the organization because they have to face customer and interact with them. Some people say, salesmen are born salesmen, while others believe that training can help in making good salesmen. Irrespective of these opinions, good salesman has certain qualities and abilities as a result he is able to perform better than others. In this section, we will discuss qualities of a good sales person. Philip Kotler has identified two basic qualities of a good sales person namely, empathy and persuasion. Some of the qualities of a good sales person are as follows: Ability to estimate customer's needs and desires: He is alert and quickly determines what the customer wants and the best way to sell. Ambition: He likes to do a good job and is interested in getting ahead with company s goals and sales objectives. Appearance: Appearance means a lot today and the successful salesman is neat and organised. He presents himself well in person. Also, he keeps his desk books and manuals neat and ready for use. Business sense: He is quick to learn the strengths and weaknesses of the company and makes an effort to improvise on the company s strengths. Courtesy: He reveals a sincere desire to help customers and treats them as guests even when he visits their places of business. Creativeness: Imagination, vision and the ability to create ideas make your man dynamic. Enthusiasm: A salesman must radiate enthusiasm during and after the sales call. Figure sense: He should have the mathematical ability to figure and fill up order form correctly and to make the necessary reports. Flexibility: A good salesman is able to adapt himself to a variety of customers. Each contact may require a adapting the sales talk, speech habits and even appearance. Friendliness: A salesman should be able to make people like him and he must like to meet people.
Health: Good health generates energy and energy is needed to sell. Poor health prevents many salesmen from fulfilling their potentials. Integrity: A salesman must be trusted to do his job well. He cannot help but he successful when his customers trust him. Interest in his job: He likes selling and working for the company. Knowledge: In some business, sales person must also have a through knowledge of the highly specialized products or services his employer offers. In some cases, this knowledge can be gained only by years of experience. Loyalty: He must be able to impress upon his customers the idea that his company is the best in the business. Mental abilities: He has the intelligence to understand your products and those of your competitors. He must know how to use words, to understand and direct people and to remember names and faces. He should also be able to understand prospective customers and know how to act under varying conditions. Motivation: He must have more than just an interest in selling. They live in the present and not in the future. They do want power over others and prefer not to work under close supervision. Sales Manager: Role and Skills The sales manager is the most important person in a sales organization so, all activities are based on his functions and responsibilities. Following are some of the principal duties of a sales manager: Organising sales research, product research and such other research activities. Getting the best output from the sales force under him. Setting and controlling the targets, territories, sales experiences, distribution expenses, etc. Advising the company on various media, sales promotion schemes, etc. Monitoring the company's sales policies.
Sales manager as sales coordinator The sales manager performs the function of a coordinator and ensures that the other departments in the company are well informed of sales activities so that they can produce what is required, when it is required and whether the same can be produced with the existing facilities or it requires changes and so on. The sales manager also carries out coordinating work with the distribution network. Sales manager as controller Sales manager should act as per the objectives set by the organization and exercise control over his staff so that they may look for advice and may give their best efforts to bring results. He should analyze present condition of the firm, make plans for future and find ways to achieve those plans. Generating profits Sales department is responsible for the sales of the products at the best available prices in the given circumstances. Salesperson produce volume sales as per targets, and he sell the product at a price which may generate profit for the company. After all it is positive financial results that add position and power to the sales manager and bring credit to the sales department. Sales manager skills A sales manager should possess following skills: Active listening: Giving full attention to what other people are saying, taking time to understand the points being made, asking questions as appropriate, and not interrupting at inappropriate times. Speaking: Talking to others to convey information effectively. Mathematics: Using mathematics to solve problems. Time management: Managing one's own time and the time of others. Service orientation: Actively looking for ways to help people. Persuasion: Persuading others to change their minds or behavior. Social perceptiveness: Being aware of others' reactions and understanding why they react as they do. Reading comprehension: Understanding written sentences and paragraphs in work related documents.
Monitoring: Monitoring/Assessing performance of self, other individuals, or organizations to make improvements or take corrective action. Negotiation: Bringing others together and trying to reconcile differences. Q.2 Explain these terms with examples: Sales forecasting, Sales budget, sales quotas and sales territories. Answer: Sales Forecasting: Sales forecasting, according to Cundiff and Still, is an estimate of sales during a specified future period which is tied to a proposed marketing plan and which assumes a particular set of uncontrollable and competitive forces. Methods of sales forecasting The various methods of sales forecasting are: Survey method: The survey method is based on the opinion of buyers and consumers. It is useful with respect to industrial products but not as far as consumer goods are concerned. According to this method, a company first of all selects potential buyers/consumers. It then collects their opinions for forecasting. Expert opinion: According to this method, a company invites the opinions of executives and consultants who are acknowledged experts in studying sales trends. On the basis of their opinions, it forecasts future sales. This estimate is also made on the basis of past performance. However, the method suffers from the drawback of not taking into consideration changes in the future business environment. Market studies method: This method is commonly used by marketers for consumer goods. It is also known as the Market Test Method. A market test provides data about consumers and the marketing mix. Some people use this method as a market experiment method. According to this method, market experiments are conducted on changing consumer behaviour, prices, advertising expenditure, etc. Sales force opinion method: This method estimates the buyer's intentions from experienced personnel in the sales force. They can easily forecast for their respective territories. Territory-wise forecasts are consolidated at the branch level and the branch level forecasts are consolidated at thecorporate level. This method can be used only when the firm has competent high-caliber sales personnel. Statistical methods: Statistical methods are considered to be superior techniques of sales forecasting because their reliability is higher than that of other techniques. Some commonly used statistical methods are given below: Trend method: This method provides a rough trend of the forecast on the basis of past experience. It does not, however, take into account the changing environment. It is a simple method for business forecasting on the basis of past performance. Graphical method: According to this method, sales data are plotted on graph paper and a graph is drawn for a number of years. This is a simple and inexpensive method
Time series method: This method is used for long periods duly taking into account cyclical changes, seasonal variations and irregular fluctuations.
A time series may be defined as a collection of magnitudes belonging to different time periods, of some variable or composite variables, such as production of steel, per capita income, gross national product, price of tobacco, or index of industrial production. Ya-uin-chou The Time Series Method shows the future trends of sales.
Regression analysis: This branch of statistical theory is popularly used on the principles of sciences. It helps determine the relationship among various variables. According to Ya-uin-chou, Regression analysis attempts at establishing the nature of the relationship between variables, that is, to study the functional relationship between the variables and thereby provide a mechanism for prediction, or forecasting.
Sales Budget A sales budget is a financial plan depicting how resources should best be allocated to achieve the forecasted sales. The purpose of sales budgeting is to plan for and control the expenditure of resources (money, material, people and facilities) necessary to achieve the desired sales objectives. Sales forecast and sales budget are therefore intimately related as much as that if the sales budget is inadequate, the sales forecast will not be achieved or if the sales forecast is increased the sales budget must be increased accordingly. Sales budget by relating sales obtained and resources deployed also acts as a means for evaluating sales planning and sales effort.
The table above is self explanatory and points out to both the favourable and unfavourable variance. The analysis of the factors causing variance enables the sales manager to quickly spot potential problem areas or better plan for unexpected outcomes such as higher than budget sales. Sales Quotas Quotas are guides for what needs to be done and a means of evaluating how well they have been done. A sales quota refers to an expected routine assignment to sales units, such as territory, districts and branches, etc. Sales quotas are also assigned to individual salespeople over a particular time period and are used to plan, control and evaluate the selling activities of a company. Sales control is facilitated by setting quotas to use in appraising the performances of sales force. They are tactical in nature and are thus derived from the sales force strategic objectives. Types of sales quotas A sales organization can set many types of quotas. The most common quotas are shown in the Figure.
Sales volume quotas
Sales volume quotas include sales in rupees or product unit objectives for a specific period of time. For example, New East India Ltd. calculates sales in rupees whereas Bajaj Motors calculates sales as number of cars sold. Sales targets are set for the year for sales force so their aim is to sell throughout the year to achieve the total sales objective. The yearly total volume quota is then set for shorter time periods, such as three months, six months and nine months .The sales volume quotas can be set in the following areas:
Table below is an example of M/s South India Ltd. shows sales volume quotas for Bangalore territory. Table : Sales Volume Quota of M/s South India Ltd for Bangalore
Profit quotas Profit quotas are particularly useful in multi product companies where different products contribute to varying levels of profits. It creates opportunities for the salesperson to make optimum use of time. Table example shows a situation in which a salesperson optimally balances his time between high and low profit yielding products.
Expense quotas Expense quotas are related to selling costs within reasonable limits. Some companies set quotas for expenses linked to different levels of sales attained by their sales force. Salespeople may receive an expense budget that is a percentage of the territory s sales volume. The salesperson must spend only this amount as expenditure. Activity quotas These quotas set objectives for job-related duties useful for attaining salespeople s performance targets. Activity quotas are required to make the sales force perform other activities which have long-term implications on the goodwill of the firm. A sales organization must set a target level of performance for salespersons.
A sales territory comprises of a group of customers or a geographical area assigned to a sales unit. The territory may or may not have geographic boundaries. A sales territory represents a group of customer accounts, an industry, a market or a specific geographical area. Territory management includes the market potential, number of customer accounts, the firms experience and market share in the territory, the capability of the salesperson assigned and the frequency of sales calls made. The Figure below outlines the activities of territory management.
A company can develop and use sales territories for various reasons. Some of the reasons are as follows: To obtain entire coverage of the market To establish a salesperson s responsibility To evaluate performance To improve customer relations To reduce sales expenses To allow better matching of salesperson to customer
Q.3 What are the different ways through which sales force of an organisation can be compensated? Mention their merits and demerits. Answers: Various Modes of Compensating the Sales Force are as under: Salary A straight salary payroll is set amount of money based upon hour or days worked. Deductions for provident fund, income taxes and other fringe benefits are fixed and the work of accounting is reduced. The security of salary is a strong factor in lowering turnover in a salesforce. Applicability of salary method This method is commonly used by: Highly seasonal industries High-tech industries Trade salespeople Route salespeople Missionary and educational salesmen Group selling Straight commission Paying a commission is a variable expense rather than a fixed one. A straight commission pay plan has many advantages. Straight commission is adopted by the performance-oriented firm that pay sales person for their achievement. In this each person is paid a percentage of their sales. It is desirable for a company suffering from a severe cash shortage since the commission need not be paid until proceeds are received from a sale. Flexible
commission rates can be a strong incentive and many organizations are successful because the sales force enjoys a liberal commission schedule. For example, sales agents working for various insurance companies are paid commission on the basis of policies received. 3.7.3 Target commission A straight commission is paid on sales volume. On a fixed commission base, a fixed percentage of sales volume is paid to the sales force. Other plans call for increase in rate as volume increases. A fixed rate commission is easy to figure and administer. If the rate is 2 per cent, it stays at that percentage whether the salesperson sells goods worth Rs. 40,000 or Rs. 4,00,000. A progressive commission rate accomplishes a major objective of most companies: it provides a constant incentive to the sales force to do better. The following example explains this:
If a salesperson s quota is Rs. 80,000, he would earn Rs. 2,000 if he achieved that target exactly a composite rate of 2.5 per cent. For example, Smith Kline Beecham is using this method in their worldwide selling. Bonus Paying bonus is a method that a company adopts to reward special contribution and as an incentive to superior performance. Sales research has indicated that more than 50 per cent companies paying bonuses pay them annually, one-fourth pay quarterly and the balance pay half-yearly to earn bonuses, salespeople must work wholeheartedly for the entire year. Fringe benefits Fringe benefits have become a fascinating subject and an item of considerable expense to organizations. The costs of fringes can be as high as 30 per cent of direct compensation expense depending on what benefits are offered and whether a portion of the expense is shared with the employee. Salary plus commission Companies may also pay employees and others a combination of salary as well as commissions. This plan is called combination or mixed plan. Apart from the salaries paid, the employees may be eligible for a fixed percentage of commission upon achievement of fixed target of sales or profits or performance objectives. Now-a-days, most of the corporate sectors follow this practice. This is also termed as variable component of compensation. Profit sharing Profit sharing is again a novel concept now-a-days. This can be paid through payment of cash or through ESOPS. The structuring of wages may be done in such a way that, it attracts competitiveness and improved productivity. Profit sharing can also be in the form of deferred compensation at the time of retirement. At the time of retirement the employees may be paid a lump sum or retiral benefits.
Q.4 a) What is direct marketing and relationship marketing? Give examples. Answers: Relationship Marketing The term relationship marketing was first coined in America in the early 1980s. Although it has no single, agreed meaning, most definitions have common factors defined in the dictionary of marketing terms of American Marketing Association (1995), Relationship Marketing is marketing with the conscious aim to develop and manage a long-term and/or trusting relationship with customers, distributors, suppliers, or other parties in the marketing environment . The building and management of relationship with customers has always been a key approach to marketing practices and some companies habitually market on a relationship basis without consciously calling it that.
However, use of the term relationship marketing suggests that deliberate efforts are being made to retain customers, provide effective communication with them and use different approaches to marketing that are: Based on development of two way communication between suppliers and customers Affordable by technology Usually guided by highly technical analysis of customer purchasing and profitability. The building of a good personal relationship with the customer is usually integral to small business management and the example of the owner of a small corner shop is often used to illustrate the essence of relationship marketing. The small shopkeeper has direct knowledge of all regular customers and becomes familiar with their needs and their likes and dislikes. This enables the shopkeeper to provide services tailored to individual needs, planned on the basis of known customer requirements. Over time, a bond of loyalty is likely to develop between shopkeeper and regular customer. The three types of customers identified are: Lost-for-Good Customers: The lost-for-good customer makes a series of purchases over time, faces high costs in switching to a new supplier, and views the commitment to a particular supplier as relatively permanent. The buyer adopts this position because switching costs are high. For example, airlines are unlikely to change lightly the type of aircraft which they purchase. Even at a more mundane level, an organization will have some reluctance in changing its office automation systems because of the costs and disruption that ensues. Always-a-share Customer: At the other end of the customer behaviour spectrum, lies the always-a-share customer who purchases regularly, has little loyalty to a particular supplier, and can switch easily from one vendor to another. Both parties recognize such relationships as short-term. For example, if an Indian firm wishes to send a package by courier to England, it is unlikely to attach any special importance as to which courier operator it last used, but instead obtain quotations from a number of equally acceptable operators. Table 4.1 summarises the typical characteristics of customers at the end point of the account behaviour spectrum: lost-for-good and alwaysa-share customers.
Intermediate Type: Most of the customers belong to this category. Wide range of factors like the characteristics of the product, category, the customer s pattern of product usage and the actions of the customer and the supplier affect the relationships. Such relationships are more applicable for organizational buyers than consumer products, where regular buying is a norm. Direct Marketing Direct marketing is nothing but getting the message through, directly. The Direct Marketing Association (USA) defined it as an interactive system of marketing which uses one or more advertising media to affect a measurable response and/or transaction at any location. In the above definition, we identify some key words, which differentiate Direct Marketing (DM) from other marketing communications disciplines. These key words are: Interactive: One-to-one communication or interaction between the marketer and the prospect/customer. One or more advertising media: A combination of media used to synergize. Often more effective than any single medium.
Measurable response: Possible to measure response quite accurately. Transaction at any location: May take place by phone, at a kiosk, by mail or by personal visit. Direct marketing, direct mail, mail order, directs response advertising: Many relate Direct Marketing to a medium (Direct Mail) or a technique (Direct Response Advertising) or a channel of distribution (Mail Order). In fact DM is all the three, and much more. Direct Response Advertising in any medium, including mail, is that which offers a measurable response and/or transaction at any location. It is any advertising used to sell directly to customers. Direct Mail is a medium through which a pre-defined and pre-determined number of selected consumers are addressed through mail. Using computers, letters are easily personalized to make the maximum impact on the person receiving it. This medium becomes very effective in respect of selectivity of consumers, timings and the ability of the customer to respond using coupons or pre-paid reply envelopes. Mail Order is a method of selling that relies on Direct Response Advertising to affect a measurable response and/or transaction by mail, telephone or other interactive media. Mail Order usually means the sale of products or services to a customer or to industrial users by means of catalog or Direct Response Advertising.
b) Give a short note on value chain analysis. Answer: The value chain, is a concept from business management that stresses on Competitive Advantage: Creating and Sustaining Superior Performance. Firm Level A value chain is a chain of activities for a firm operating in a specific industry. The business unit is the appropriate level for construction of a value chain, not the divisional level or corporate level. Products pass through all activities of the chain in order, and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of the independent activity's value. It is important not to mix the concept of the value chain with the costs occurring throughout the activities. A diamond cutter, as a profession, can be used to illustrate the difference of cost and the value chain. The cutting activity may have a low cost, but the activity adds much of the value to the end product, since a rough diamond is significantly less valuable than a cut diamond. Typically, the described value chain and the documentation of processes, assessment and auditing of adherence to the process routines are at the core of the quality certification of the business, e.g. ISO 9001. Requirements of value chain Coordination and collaboration; Investment in information technology; Changes in organizational processes; Committed leadership; Flexible jobs and adaptable, capable employees; A supportive organizational culture and attitudes; Flintstone Example: Without the dinosaur, Fred couldn't complete his daily tasks quickly. This was because the dinosaurs had more strength than poor Freddy, therefore, making the process more efficient, which added value to the final result. Activities The value chain categorizes the generic value-adding activities of an organization. The "primary activities" include: inbound logistics, operations (production), outbound logistics, marketing and sales (demand), and services (maintenance). The "support activities" include: administrative infrastructure management, human resource
management, technology (R&D), and procurement. The costs and value drivers are identified for each value activity. Industry Level An industry value chain is a physical representation of the various processes that are involved in producing goods (and services), starting with raw materials and ending with the delivered product (also known as the supply chain). It is based on the notion of value-added at the link (read: stage of production) level. The sum total of link-level value-added yields total value. The French Physiocrat's Tableau économique is one of the earliest examples of a value chain. Wasilly Leontief's Input-Output tables, published in the 1950s, provide estimates of the relative importance of each individual link in industry-level value-chains for the U.S. economy.
Significance The value chain framework quickly made its way to the forefront of management thought as a powerful analysis tool for strategic planning. The simpler concept of value streams, a cross-functional process which was developed over the next decade, had some success in the early 1990s. The value-chain concept has been extended beyond individual firms. It can apply to whole supply chains and distribution networks. The delivery of a mix of products and services to the end customer will mobilize different economic factors, each managing its own value chain. The industry wide synchronized interactions of those local value chains create an extended value chain, sometimes global in extent. Porter terms this larger interconnected system of value chains the "value system." A value system includes the value chains of a firm's supplier (and their suppliers all the way back), the firm itself, the firm distribution channels, and the firm's buyers (and presumably extended to the buyers of their products, and so on). Capturing the value generated along the chain is the new approach taken by many management strategists. For example, a manufacturer might require its parts suppliers to be located nearby its assembly plant to minimize the cost of transportation. By exploiting the upstream and downstream information flowing along the value chain, the firms may try to bypass the intermediaries creating new business models, or in other ways create improvements in its value system. Value chain analysis has also been successfully used in large Petrochemical Plant Maintenance Organizations to show how Work Selection, Work Planning, Work Scheduling and finally Work Execution can (when considered as elements of chains) help drive Lean approaches to Maintenance. The Maintenance Value Chain approach is
particularly successful when used as a tool for helping Change Management as it is seen as more user friendly than other business process tools. Value chain analysis has also been employed in the development sector as a means of identifying poverty reduction strategies by upgrading along the value chain. Although commonly associated with export-oriented trade, development practitioners have begun to highlight the importance of developing national and intra-regional chains in addition to international ones. SCOR: The Supply-Chain Council, a global trade consortium in operation with over 700 member companies, governmental, academic, and consulting groups participating in the last 10 years, manages the Supply-Chain Operations Reference (SCOR), the de facto universal reference model for Supply Chain including Planning, Procurement, Manufacturing, Order Management, Logistics, Returns, and Retail; Product and Service Design including Design Planning, Research, Prototyping, Integration, Launch and Revision, and Sales including CRM, Service Support, Sales, and Contract Management which are congruent to the Porter framework. The SCOR framework has been adopted by hundreds of companies as well as national entities as a standard for business excellence, and the US DOD has adopted the newly-launched Design-Chain Operations Reference (DCOR) framework for product design as a standard to use for managing their development processes. In addition to process elements, these reference frameworks also maintain a vast database of standard process metrics aligned to the Porter model, as well as a large and constantly researched database of prescriptive universal best practices for process execution. Q.5 a) Explain the meaning of distribution channels. What are its objectives? Answers: Distribution Channel and its Objectives Channel of distribution is a path traced in the direct or indirect transfer of the title to a product as it moves from a producer to ultimate consumers or industrial users . EW Cundiff and RS Still The course taken in the transfer of the title to a commodity constitutes its channel of distribution. It is the route taken by the title to a product in its passage from its first owner, an agricultural producer, or a manufacturer, as the case may be, to the last owner, the ultimate consumer or the business user. Beckman and Others A channel of distribution or marketing channel is a structure of intra-company organisation, units and intracompany agents and dealers, wholesalers and retailers through which a commodity product or service is marketed . American Marketing Association The various objectives of channel of distribution are: To ensure availability of products at the point of sale To build channel members loyalty To stimulate channel members to put greater selling efforts To develop managerial efficiency in channel organisation To identify your organisation at the buyer level To have an efficient and effective distribution system, to make your products and services available readily, regularly, equitably and in a fresh form.
b) Differentiate between pull strategy and push strategy of supply chain.
Answer: The business terms push and pull originated in the logistic and supply chain management, but are also widely used in marketing. A push-pull-system in business describes the movement of a product or information between two subjects. On markets the consumers usually "pulls" the goods or information they demand for their needs, while the offerers or suppliers "pushes" them toward the consumers. In logistic chains or supply chains the stages are operating normally both in push- and pull-manner. Push production is based on forecast demand and pull production is based on actual or consumed demand. The interface between these stages is called the push-pull boundary or decoupling point. Push strategy Another meaning of the push strategy in marketing can be found in the communication between seller and buyer. In dependence of the used medium, the communication can be either interactive or non-interactive. For example, if the seller makes his promotion by television or radio, it's not possible for the buyer to interact with. On the other hand, if the communication is made by phone or internet, the buyer has possibilities to interact with the seller. In the first case information is just "pushed" toward the buyer, while in the second case it is possible for the buyer to demand the needed information according to his requirements. Applied to that portion of the supply chain where demand uncertainty is relatively small Production & distribution decisions are based on long term forecasts Based on past orders received from retailer s warehouse (may lead to Bullwhip effect) Inability to meet changing demand patterns Large and variable production batches Unacceptable service levels Excessive inventories due to the need for large safety stocks less expenditure on advertising than pull strategy Pull strategy In a marketing "pull" system the consumer requests the product and "pulls" it through the delivery channel. An example of this is the car manufacturing company Ford Australia. Ford Australia only produces cars when they have been ordered by the customers.
Applied to that portion of the supply chain where demand uncertainty is high Production and distribution are demand driven No inventory, response to specific orders Point of sale (POS) data comes in handy when shared with supply chain partners Decrease in lead time
Difficult to implement With a push-based supply chain, products are pushed through the channel, from the production side up to the retailer. The manufacturer sets production at a level in accord with historical ordering patterns from retailers. It takes longer for a push-based supply chain to respond to changes in demand, which can result in overstocking or bottlenecks and delays (the bullwhip effect), unacceptable service levels and product obsolescence. In a pull-based supply chain, procurement, production and distribution are demand-driven rather than to forecast. However, a pull strategy does not always require make-to-order production. Toyota Motors Manufacturing is frequently used as an example of pull production, yet do not typically produce to order. They follow the "supermarket model" where limited inventory is kept on hand and is replenished as it is consumed. In Toyota's case, Kanban cards are used to signal the need to replenish inventory. A supply chain is almost always a combination of both push and pull, where the interface between the push-based stages and the pull-based stages is sometimes known as the push pull boundary. However, because of the subtle difference between pull production and make-to-order production a more accurate name for this may be the decoupling point. An example of this would be Dell's build to order supply chain. Inventory levels of individual components are determined by forecasting general demand, but final assembly is in response to a specific customer request. The decoupling point would then be at the beginning of the assembly line. Q.6 . Discuss the importance of logistics and its role in economy of a country. Answers: Logistics is not a new area of marketing management. It has been around since the beginning of civilisation. It describes the entire process of materials and products moving into, through and out of the company. The actual work of logistics is supportive in nature. It involves the integration of transportation, inventory, warehousing, materials handling, packaging and information technology. Logistics helps the inflow of materials into the manufacturing process. It also helps in the distribution of products to consumers through various marketing channels. Hence, logistical support is a must for marketing and manufacturing operations, and materials handling cannot be avoided in the performance of logistics. Logistical management includes the design and administration of systems to control the flow of material, work-inprocess and finished inventory to support business unit strategy. The transportation system is the physical link connecting a company with the customers, raw material suppliers, plants, ware houses and distribution channel members. It s interesting to note that all these elements of logistic system are fixed points, transportation is the connecting medium. (A fixed point is that point in a logistic system where some activities temporarily halt the flow of goods). The better is the performance and efficiency of transportation system the better will be organisational performance in terms of cost and customer s satisfaction. Knowledge of logistics and transportation is fundamental to the operations of any business. Transportation adds value to the goods by providing time and place utility, by ensuring availability of items when they are needed, & where they are needed. For most companies there is a geographical spread between the source and market of goods produced because of economies of scale and mass production, specialization of labour, infrastructural facilities, transportation is the connecting link. Its explains the following.
Explain functional areas of logistics Discuss logistical integration Identify various modes of transportation
Explain the importance of warehousing
Importance in an economy. Logistics is in important component of GDP Logistics plays a key role in the economy in two significant ways. First, logistics is one of the major expenditures for businesses, thereby affecting and being affected by other economic activities. In the United States, for example, logistics contributed approximately 10.3 percent of GDI in 1996. U.S. industry spent approximately $451 billion on transportation of freight and about $311 billion on warehousing, storage and carrying inventory. These and other logistics expenses added up to about $797 billion. Second, logistics supports the movement and flow of many economic transactions; it is an important activity in facilitating the sale of virtually all goods and services. To understand this role from a systems perspective, consider that if goods do not arrive on time, customers cannot buy them. If goods do not arrive in the proper place, or in the proper condition, no sale can be made. Thus, all economic activity throughout the supply chain will suffer. One of the fundamental ways that logistics adds value is by creating utility. From an economic standpoint, utility represents the value or usefulness that an item or service has in fulfilling a want or need. There are four types of utility: form, possession, lime, and place. The later two, time and place utility, are intimately supported by logistics. While form and possession utility are not specifically related to logistics, neither would be possible without getting the right items needed for consumption or production to the right place at the right time and in the right condition at the right cost. These ''five rights of logistics" credited to K. Grosvenor Plowman, are the essence of the two utilities provided by logistics: time and place utility.
Master of Business Administration-MBA Semester 3 MK0010 Sales, Distribution and Supply Chain Management - 4 Credits Assignment Set 2 60 Marks Q.1 Discuss the types of distribution channels and decisions involving channel strategies. Answers: Channels of Distribution Meaning and Role When a manufacturer, in order to deliver his goods and services to his final consumers, utilizes a set of extracorporate institutions to affect this distribution, he uses, what is called, a channel of distribution. Distribution channels or intermediaries can be viewed as a set of interdependent organizations involved in the process of making a product or service available for use or consumption. It should be clear at the very outset and recognized that not only do marketing channels satisfy demand by supplying goods and services at the right time and place, quantity and price; they also stimulate demand through the promotional activities of the channel members. A channel of distribution therefore should be seen as a network that creates value for the consumer by generating possession, time and place utilities. 6.3 Types of Channels Because of the wide variety of channel arrangements that exist, it is difficult to generalize the structure of channels across all industries. However, distribution channels are usually of two types: Direct Marketing Channel (or Zero Level) Indirect Marketing Channel. Direct marketing channel (or zero level)
This type of channel has no intermediaries. In this distribution system, the goods go from the producer directly to the consumer, e.g., Eureka Forbes. Indirect marketing channel This may further be classified into the following categories: One-level Channel: In this type of channel there is only one intermediary between producer and consumer. This intermediary may be a retailer or a distributor. If the intermediary is a distributor, this type of channel is used for speciality products like washing machines, refrigerators or industrial products. Two-level Channel: This type of channel has two intermediaries, namely, wholesaler/distributor and retailer. Three-level Channel: This type of channel has three intermediaries, namely, distributor, wholesaler and retailer. This pattern is also used for convenience products. Four-level Channel: This type of channel has four intermediaries, namely, agent, distributor, wholesaler and retailer. This channel is similar to the previous two. This type of channel is used for consumer durable products also. In addition to the above mentioned channels, some different types of channels are also possible. The use or selection of a channel also depends upon the product under consideration. Distribution channels of different types also depend on the nature of product and services. Therefore, we can say that for different products, there are different types of channels. Channel Strategy Decisions Marketing managers face two sets of decisions when considering marketing channels. The first set leads to a selection of one or more channels. The second set deals with the selection criteria and examines the three levels of distribution. The final step is plan finalization. Channel selection criteria Selecting marketing channels can be a complicated process, particularly if part of the channel is outside the producer s direct control. In addition, there is no endless supply of available intermediaries sitting around waiting for producers to give them a call. The elements that managers examine as they define channel strategies can be grouped into market factors, product factors and producer factors. Market factors Analysing and understanding the target market is the first step in selecting marketing channels. There are several factors that an analysis of the market should explore, ranging from customers to the types of competitors: Customer preference: The channel which is most preferred by customers. Organisational customers: Organisational customers frequently have buying habits that are different from those of other consumers. Geography: Customer location is another important factor determining the type of channel to be used. Competitors: Often a good channel choice is one that has been overlooked or avoided by competitors. In some cases, the marketer may try to duplicate his competitor s channel in order to have his products replace that of a competitor s. Nature and availability of intermediaries: A question that arises very often in the channel decision is Are there enough of the right kinds of intermediaries to build the desired channel? We need to find intermediaries that can handle the products capably and provide adequate service to final customers. For new entrants, it is better to find the best available intermediaries in the market. Product factors Even products that end up at the same retail location may need different intermediaries earlier in the channel.
Life Cycle: A product category s stage in the life cycle can be an important factor in selecting a channel and channels may have to be adjusted over time. Customers require less support once the product has established itself. Complexity: Some products are so complicated and require so much support that producers need to stay closely involved. This indicates either a direct sales force or a limited number of highly qualified intermediaries. Scientific equipments, jet aircrafts, nuclear reactors, pharmaceuticals and computers are products whose complexity affects the way in which they are marketed. Value: The value of the product also affects its distribution channel choices. Items with low cost and high volume are usually distributed through large, well-established distribution networks such as grocery wholesalers. Size and Weight: A product with significant size and weight can face restricted distribution channel options, particularly if it is also of low value. Consumer Perceptions: The perceptions customers have of products and producers also play a role in channel decision making. Other Product Factors: Depending on the product in question, other factors may enter into the decision as well. Some of these include whether a product is fragile or perishable and whether or not it requires significant customer satisfaction.
Q.2 Classify the various distribution costs in proper categories. How would you allocate an analyse distribution costs? Answers: Types of Distribution Cost The major physical distribution cost elements include transportation cost, inventory cost, warehouse cost, material cost, packaging cost and customer service cost. Transportation costs Transportation cost contributes a significant cost on the overall cost of physical distribution. The major transportation costs include railways cost; road transport cost; airway cost and seaway cost. Railway Cost: Railway costs can be classified into fixed cost and operating cost. Fixed costs are large, sunk, irreversible, risky, technology dependent, scale influencing, environment influencing and so on. Operating costs include maintenance of track, upkeep of rolling stock, repairs of buildings, renovation of facilities, fuel and lubricant cost, salary and wages, administrative cost, etc. Road Transport Cost: Freight rate refers to charges levied on the user for carrying and handling his cargo by the carrier. Freight rate in road transport is generally fixed on the basis of cost of service rules. Freight rate should be based on the cost of service. Cost of Airways: Cost of airways includes capita cost and operating cost. Capital cost includes the huge cost which is involved in airport construction with all modern radar equipments, metrological devices cost, the runway cost, cost of air traffic control tower, etc. Operating cost includes grounds expenses and flying expenses. Cost of Seaways: The two major components of this are Fixed cost and operating. Operating cost includes motive power, salary and wages, office costs, advertising and promotion costs, repairs and maintenance costs, electricity, etc. Fixed cost includes vessels and port buildings, loading and unloading equipments, light houses, cost of port land, etc. Inventory cost This the second most important cost having a direct contribution to the overall cost of physical distribution. There are three kinds of costs, namely ordering cost, cost of materials and carrying cost involved in inventory cost. Ordering cost includes cost of stationery, postage, telegram, etc. in placing an order. Cost of materials is the purchase price plus transport and insurance during transit and taxes, if any. Carrying cost includes space cost, storage cost, insurance, taxes, theft and pilferage, wastage and loss etc. Warehouse cost
The costs of maintaining a warehouse building are largely fixed and independent of the amount of stock it holds or the amount of handling required. These fixed costs include land, building cost, administrative cost, material handling, insurance and taxes. There are not many variable costs at warehouses. Material cost The cost of material handling includes the cost of protective packaging, the costs of material handling equipment and of goods damaged in handling. The most important cost is that of labor associated with packing, loading and unloading the inventory. Packaging cost Packaging cost is influenced by mode of transport and material handling equipments. On the other hand, the selection of a particular mode of transport determines the characteristics of packaging. Customer service cost A producer or a supplier cannot always ensure the availability of goods whenever the customers demand them. It may increase the inventory carrying costs; in some cases, this cost may even be prohibitive. Allocation of Distribution Costs As you have already learned that the distribution costs are usually common to several functions and there is no easily measurable and assignable output. Also, standards of performance are much difficult to set and, therefore, distribution overheads are similar to manufacturing costs which could be identified with the product, division, unit, etc. Some important bases of allocation of selling and distribution costs to products and customers are given below.
Analysis of Distribution Costs
Selling and distribution costs can be analysed in a variety of ways, depending upon the needs and desires of management. If profit is to be maximised, sales efforts should be directed towards the most profitable of products and customers through the most economic channels of distribution. The analysis of distribution costs can be discussed on the following lines: Product or products lines Individual customers or groups of customers Channels of distribution Salesmen Geographical area or territories Terms of sales Order sizes.
Productivity Aspects and Logistics Management The following ratios are suggested by the Asian Productivity Organisation (APO) for physical and financial productivity measures:
Q.3 What are the types of warehousing generally seen and what is their benefits? Answers: Warehousing Warehousing is important to the firms since it improves service and reduces cost. Improvements in service are gained through rapid response to customer request (time utility), which is a primary factor leading to increased sales. Warehouse should be established only when it renders service or cost advantage, it s a firm s overall effort gain time and place utility. A warehouse plays an important role in the physical distribution system; it is used to make the best possible arrangement for keeping the goods for some time till they are sent to the final destination. The given below are the key features of warehouses:
A warehouse is a godown or storage space where a firm stores or holds raw material, semi finished goods or the finished goods A warehouse is a location with proper facilities where shipments are received from a factory or production centre, broken down, reassembled, and shipped to the customers as per their orders Warehouse helps to create the time utility for raw material Warehousing is a labour-intensive process Advantages The warehouse provides the following main advantages Reduces distribution costs Is easily accessible to the customers or is located near the market, resulting in better and finer distribution A warehouse with packaging or labelling capability allows postponement of final production until actual demand is known. For example, vegetables can be processed and canned in "Brights" at the manufacturer Warehousing helps in seasonal storage of goods. For example, lawn furniture and toys are produced year-round and primarily sold during a very short marketing period A distribution warehouse is used to stock product combination in anticipation of customer orders A warehouse helps to represent multiple products from the manufacturer. For example a manufacturer supplying JIT components would stock products so that It could be offered to the customers as and when required Types of warehouses The warehouses can be classified into two categories: Public warehouse: These are those which can be used by the public at large. They are constructed by government agencies and corporate houses to meet the needs of a particular type of goods. Businessmen can rent out the space which they need from the warehouse owners, who keep the goods stocked properly at the required temperature and deliver back the goods when they are demanded by the owner of the goods. Private warehouse: These facilities are created by individuals or companies to meet their requirements. If they have extra space available, they let it out to others also. Many private warehouses are quite modern, systematic, strategically located in areas where goods are safe from the safety point of view. Q.4 Explain vertical, horizontal and multi-channel marketing systems with its features and benefits. Answers: Vertical Marketing System Vertical marketing systems are professionally managed and centrally coordinated marketing channels designed to achieve channel economies and maximum marketing impact. A vertical marketing system joins the producers, wholesalers, and retailers in the production and distribution of products. Vertical marketing systems such as franchising and exclusive distribution rights permitted marketers to extend their representation beyond their own corporate limits to reach final customers. Features of vertical marketing system The given below are the key features of vertical marketing system: Vertical marketing systems are often used by business to lower the cost of producing a product Vertical marketing system is helpful to control the production of the product Vertical marketing system can be used by both small and large businesses Vertical marketing systems generally come in three forms Types of vertical marketing system Major types of vertical marketing systems are: 1. Corporate 2. Contractual
3. Administered Corporate Vertical marketing System: Corporate vertical marketing system means the combination of successive stages of production and distribution under a single ownership. These types of marketing systems can develop via either forward integration or backward integration. Contractual Marketing System: Under a contractual vertical marketing system, independent production and distribution firms integrate their efforts on a contractual basis to obtain greater functional economies and marketing impact than they could achieve alone. Contractual systems are the most popular among the three types of vertical marketing systems, accounting for about 40% of all retail sales. Administered Marketing System: Administered vertical marketing systems achieve coordination at successive stages of production and distribution by the size and influence of one channel member rather than through ownership.
Benefits of vertical marketing system Vertical marketing system is beneficial to reduce product costs or gain more control over other parts of the product supply chain. An example of a company that could benefit from gaining more control over supply chain might include a fast food chain that expands overseas into a country with generally poor food-handling practices. To ensure food safety, the fast food retailer might buy and setup a bread-making factory or food-processing facility in the country rather than hiring a wholesaler to make pre-prepared food for the business. Because the fast food company has more control over its own facility, it can ensure that its food safety and production procedures are correctly carried out. Horizontal and Multi-channel Marketing System Because services are intangible, there is no need to worry about storage, transportation, and the other functions of physical distribution. Examples include insurance agents, stockbrokers, and travel agents. Horizontal marketing systems A horizontal marketing system means the channel arrangement in which two or more companies join together at one level to take the advantages of a new marketing opportunity. Under horizontal marketing system, companies can combine their financial, production, or marketing resources to accomplish more than any one company could alone. Companies can join forces with competitors or non-competitors. For example: McDonald s places express versions of its restaurants in Wal-Mart stores. McDonald s benefits from Wal-Mart s considerable store traffic, while Wal-Mart keeps hungry shoppers from having to go elsewhere to eat. Multi-channel distribution systems
A multi-channel marketing system is an arrangement whereby a firm reaches different buyers by employing two or more different types of channels for the same basic product. This is also called a hybrid marketing channel. Multichannel distribution systems offer many advantages to companies facing large and complex markets. With each new channel, the company expands its sales and market coverage and gains opportunities to tailor its products to the specific needs of diverse customers. Q.5 Evaluate the various inventory reduction and cycle reduction strategies applicable in supply chain management. How does JIT help in this case? Answers: Cycle Reduction Strategies Reduction in cycle time is based on three factors: Processes Information Decision making If supply chain management is viewed as a series of processes, then those processes being performed faster will reduce cycle time, with the associated benefits. Another important source of reduction of cycle time is faster provision of information. The utilization of faster, more efficient forms of order transmission use of the Internet, for example, can significantly reduce the time needed to complete the transaction. Also, the use of contemporary information technology is becoming increasingly attractive, as technology costs have been declining significantly. Timely, accurate information about sales, orders, inventory levels, transportation service, and so on, leads to shorter cycle times and also reduces uncertainty about what is happening which leads to lower inventory levels by reducing the need for safety stock. The final factor in reducing cycle time is decision making. In some organizations, this is the most important of the three factors. The critical issue is to empower individuals to make decisions relevant to their areas of expertise and responsibility. Inventory Reduction Strategies Managing inventory levels can be a delicate balancing act. You must maintain adequate inventory to meet customer needs, but not carry so much that it creates cash flow problems. The challenge then becomes finding a way to reduce inventory without hindering customer service. Improving supply chain management is the only way to get a handle on smart inventory reduction strategies. Examine and eliminate inefficiencies in the business processes from the customer order through the delivery of goods in an effort to reduce the supply lead times as much as possible. Audit inventory records, and refine the system so that the data accurately reflects current inventory levels. You can't improve what you don't measure. Work with your suppliers and develop more favorable terms that will allow you to better manage your cash outflow, and create a more efficient purchasing process. Eliminate excess and obsolete inventory to free up space and cash. Make inventory reduction a company-wide goal and every department should be aware of ways that they can support the challenge. Consolidate your product offerings to reduce the need to have such a variety of inventory on hand. One of the most important of these inventory reduction strategies is, knowing your industry, your market and your customers. The more intimate knowledge you have about your target demographic what drives them to purchase? When are they most likely to purchase? Why might they be cutting back on purchasing? The more you can refine your business process and make your supply chain more agile, responsive and efficient. Inventory is the largest single asset that most companies have. Unfortunately, it consumes space, gets damaged, and sometimes becomes obsolete. Yet for most companies, inventory is a necessary component of the business cycle and must be carefully managed. Some important inventory reduction techniques are:
Reduce lead times for product replenishment The most effective way for businesses to reduce inventory is by reducing the supply lead time. Lead time can be defined as the time it takes from when you first determine a need for a product until it arrives on your doorstep. If lead time was zero, inventory could be zero. Imagine how simple business would be if lead time was zero and orders were filled instantly. A customer could walk through your door, order whatever they want, and walk out happy with no delay. There would be no warehouse space, no order follow-up, no inventory counting, no forecasting, no product damage, no obsolete inventory, fewer employees, less risk of theft, and less cost overall. Obviously this is not possible, but the shorter the lead times, the less complex our inventory management will be. Note that lead time can be separated into three components: review time, manufacture time and transit time. Rank your inventory items Most business operations involve many inventory items. It is not appropriate to give the same attention to each item. To establish the appropriate degree of control, use an ABC classification scheme to divide inventory items into three categories based on sales volumes: high dollar volume (A), moderate dollar volume (B) and low dollar volume (C). Eliminate obsolete stock Don t be a collector. Many business owners have difficulty throwing away products they paid good money for. But holding on to obsolete products just burns up even more cash. Rid your company of obsolete stock promptly, and use the cash and space you save for something more profitable. To eliminate obsolete stock, create a red tag program to identify old inventory. Tag old inventory with large red stickers. Note on the sticker the date tagged, person doing the tagging and a review date. Move these products into a quarantined area of your warehouse. Red tagging of obsolete items is something that originated with Japanese automakers. Examples such as Toyota s Red Tag sales events are common. These companies are just moving out old stock to make room for newer, more profitable inventories. Many companies empower employees to red tag items themselves. Red tagging works for anything in your warehouse, not just consumable inventories. Understand your customers Many businesses carry excess inventory because they don t understand the needs of their customers. Does your customer really need the entire order right away? Perhaps supplying half of the order this week and half next week will be adequate or even preferred by your customer. Some companies give volume discounts to their customers for large orders. Is this really beneficial for your company? Build-to-order manufacturers might benefit from large orders by reducing setup costs, but stocking manufacturers, dealers or wholesalers may require less inventory if they ship smaller orders more frequently. Whatever the case, understanding your customer s needs is fundamental to your inventory management success. Reduce your Stock Keeping Units Consumers today have more choices and are less patient. Gone are the days of four TV channels and telephones with busy signals. Today, gratification is instant. For example, if you don t want to wait for the 10 news, no problem, just watch it on satellite in a different time zone. Better yet, record it on TiVo, watch it any time and skip the commercials. With cell phones, ipods, e-mail and FedEx, consumers these days can get what they want, when they want it. As a result, consumer demand for instant gratification is forcing companies to be more flexible in what they offer. Proliferation of SKU numbers is the unfortunate consequence. Garage door companies are carrying a much wider variety of products than ever before. One way to counteract this problem is by using a technique called delayed differentiation. Q.6 a) Distinguish wholesaler and retailer.
Answer: Wholesalers and retailers are the two important types of middlemen forming a part of the distribution channels. They act as an intermediary link between the manufacturers and the consumers of goods. They specialise in providing a wide range of services for both the producers as well as the consumers. They reduce the amount of efforts required by the manufacturer in distributing his product to the final consumers and provide a vast market coverage to his products. They greatly increase the efficiency of exchange and lead to reduction in total cost of distribution of products. They provide ready delivery of goods to the consumers at places convenient and accessible to them. They also provide aftersale services and handle consumer grievances. They also act as a communication channel by providing information about the products to the consumers,on one hand, and the consumer feedback to the producers on the other hand. Wholesalers Wholesaler may be defined as the middlemen who operates between the producers (from whom they purchase goods) and the retailers (to whom they sell goods). Wholesaler refers to any individual or business firm selling goods in relatively large quantities to buyers(retailers) other than the ultimate consumers. Thus the manufacturers who sell their products directly to retailers may also be regarded as wholesalers. The specialised knowledge and skill of wholesalers increases the efficiency of the distribution network. The wholesalers provide important services and solve the problems of both the manufacturers and the retailers. Services provided by the wholesalers to the manufacturers:They place orders for the product in advance on the basis of expectations regarding the demand for the product. This enables the manufacturer to plan his production and secure the economies of scale. They may also provide transportation facility by carrying goods from producers to godowns and then to retailers. They perform advertising and sales promotion activities and also employ expert sales representatives for the purpose. They provide financial accommodation to manufacturers in the form of cash payments for goods purchased from them as well as provide credit to them. They keep the manufacturers updated on the changes in customers' habits, tastes, preferences and fashion. They also play an important role in fixation of the final prices of the goods. Services provided by the wholesalers to the retailers:They act as the retailers 'buying agent' and saves them from the trouble of searching out and assembling goods from several manufacturers. They inform the retailers about the new products, its uses and changes in their prices. They also assist the retailers in advertising and selling of the products. They provide financial assistance to retailers, sell goods on credit to retailers and thus help them to operate with small working capital. A wholesaler being the ware-house keeper of the market, they protect the retailers from the risk of loss arising from holding large stocks of the product. They may also sort out different grades of products according to quality and pack the goods into small lots for the retailers. Retailers Retailing refers to all the transactions which involve sale of goods or services to the ultimate consumers. A retailer is a middleman who procures goods from the wholesalers and sell it to the final consumers. They form a vital link in the channel of distribution of products because without him, neither the products would sell to distant places nor would it be possible for consumers to buy goods of their choice in shops located nearby. They have a much stronger personal relationship with the consumers and deal directly with the people of varied tastes and temperaments. They form the last link in the chain of distribution and give the final selling price to the product.
The retailers provide important services and solve the problems of the manufacturers and wholesalers on one hand and the consumers on the other hand. Services provided by the retailers to the wholesalers and manufacturers:They provide selling outlets to wholesalers and manufacturers. They save the manufacturers from the inconvenience and expenses of selling the goods in small lots to a large number of consumers. They communicate the needs and desires of consumers to the manufacturers. They may also arrange for transportation of goods from the wholesalers' godowns to the ultimate consumers. They may also perform storage function by keeping stocks of goods. Services provided by the retailers to the consumers:They anticipate the needs of consumers and accordingly assemble goods of different varieties. Thus they satisfy their demands and provide them a wide choice of goods. They sort out goods supplied by the wholesalers and keep them in convenient packages for the benefit of the consumers. They even act as an advisor and guide to the consumers by bringing new products to their notice and educating them about its diverse uses. They keep the consumers informed about the changing trends in the market about the different varieties of products. They also provide other services to the consumers such as free home delivery, aftersale services,credit facility,etc. b) Give a brief note on WCSCM. Answer: World Class Supply Chain Management (WCSCM) World-class denotes to be able to sustain oneself, in this competitive market and at the same time make profits in the long run. For profit, a company got to sell its product at a cost higher than its costs, and at the same time offer its product through the supply chain at the competitive market place with a value for money. In actuality, world class denotes being able to provide the better value than the competition without going broke. WCSCM is a process that is value centric, and therefore all the processes like development, sourcing, movement, production and distribution of products and services are centered on value generating paradigm. It is an ongoing process from buying a product to buying a solution on a long-term basis. WCSCM can be conceptualized under three basic dimensions: Enrichment of Customers: Represents varying degrees of collaboration and interaction in defining products, services and concepts. Recognition of Company by the Customers: Quality speaks, and reduction in fixed price to shared risks and recognition. A Linkage between Suppliers, Company and Customers: Represents linked networks of workstations, shared databases, tools and facilities. In order to meet the challenges of globalization, economies that are liberal will require restructuring their operating policies and a complete reformulation of the systems to eliminate wastes and create a value base. Value for money is becoming a strategic necessity in this competitive world, i.e. high quality at reasonable prices at the appropriate time. But, for the manufacturer the realities like increase in costs of labor and energy continue to pressurize them. They have to realize this aspect and identify what and how to do it, by servicing the existing customers, dealings with suppliers, opening new channels for newer customers, reduction in costs and adding to value added services.