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An Introduction to

Supply Chains / Logistics Networks

Distributors and Wholesalers

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Distributors and Wholesalers
Are involved in selling products to other businesses, namely:  Retailers  Merchants  Contractors  Industrial Users  Institutional Users  Commercial Users

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 Wholesaling businesses do not sell products to a significant degree to ultimate household consumers.

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 Distributors and wholesalers work on identical business models.  A distributor/wholesaler can be regarded as an intermediary that services other intermediaries.

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Confusing Terminology
 The terms “Wholesalers” and “Distributors” are often used interchangeably.

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Confusing Terminology
 The terms “Wholesalers” and “Distributors” are often used interchangeably.  However, sometimes the following distinction is made:

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a pharmaceutical wholesaler).g. sometimes the following distinction is made:  “Wholesaler” refers to a company that resells products to another intermediary (e. An Introduction to Supply Chains / 1.  However.Confusing Terminology  The terms “Wholesalers” and “Distributors” are often used interchangeably.8 of 384 .2..

2.Confusing Terminology  The terms “Wholesalers” and “Distributors” are often used interchangeably..g. “Wholesaler” refers to a company that resells products to another intermediary (e. a pharmaceutical wholesaler).9 of 384 . an MRO Distributor).  “Distributor” refers to a company that resells products to the customer (organizations) that will use the product (e.g.  However.. sometimes the following distinction is made:  In US. An Introduction to Supply Chains / 1.

An Introduction to Supply Chains / 1.2.Terminology  In US.10 of 384 . “Master Distributor” refers to a “Superwholesaler” who sells to Wholesalers/Distributors.

“Master Distributor” refers to a “Superwholesaler” who sells to Wholesalers/Distributors.Terminology  In US. An Introduction to Supply Chains / 1. Master Distributors are called Distributors or (Super) Stockists.11 of 384 .  In India.2.

 In India. An Introduction to Supply Chains / 1. “Master Distributor” refers to a “Superwholesaler” who sells to Wholesalers/Distributors.Terminology  In US.2.  Distributors of printing paper are called merchants.12 of 384 . Master Distributors are called Distributors or (Super) Stockists.

 Distributors of automotive aftermarket products are called jobbers.  Distributors of printing paper are called merchants.13 of 384 . An Introduction to Supply Chains / 1. Master Distributors are called Distributors or (Super) Stockists.Terminology  In US.2.  In India. “Master Distributor” refers to a “Superwholesaler” who sells to Wholesalers/Distributors.

An Introduction to Supply Chains / 1.Distributors (or Stockists)  Act as a one-stop shop for their customers (i. smaller traders and retailers).2..e.14 of 384 .

15 of 384 .Distributors (or Stockists)  Act as a one-stop shop for their customers (i.e. smaller traders and retailers). An Introduction to Supply Chains / 1..2.  These customers cannot afford the complexity and cost of sourcing their merchandise from the hundreds of suppliers.

smaller traders and retailers).. An Introduction to Supply Chains / 1.Distributors (or Stockists)  Act as a one-stop shop for their customers (i.e.  It’s more efficient for them to establish trading relationships with a limited number of distributors to meet most or all of their needs.2.16 of 384 .  These customers cannot afford the complexity and cost of sourcing their merchandise from the hundreds of suppliers.

2. An Introduction to Supply Chains / 1.17 of 384 .Distributors (or Stockists)  Develop the ability to provide products on demand so that their customers don’t have to carry large stocks of required merchandise.

.Distributors/Stockists:  Take title to goods (i.2. An Introduction to Supply Chains / 1.e. and thereby. they purchase goods. take legal responsibility for them)  Then. on-sell those goods to their customers (Wholesalers/Retailers).18 of 384 .

.e.19 of 384 . and thereby.2.  Distributors have the authority to set price.Distributors/Stockists:  Take title to goods (i. on-sell those goods to their customers (Wholesalers/Retailers). An Introduction to Supply Chains / 1. take legal responsibility for them)  Then. they purchase goods.

Distributors/Stockists:
 Take title to goods (i.e., they purchase goods, and thereby, take legal responsibility for them)
 Then, on-sell those goods to their customers

(Wholesalers/Retailers).  Distributors have the authority to set price.  Distributors know the identity of the next buyer in the channel, which they may or may not share with the manufacturer

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Distributors/Stockists:
 Buffer the manufacturer from fluctuations in product demand by stocking inventory

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Distributors/Stockists:
 Buffer the manufacturer from fluctuations in product demand by stocking inventory  Do much of the sales work to find and service customers

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Distributors/Stockists:
 Buffer the manufacturer from fluctuations in product demand by stocking inventory  Do much of the sales work to find and service customers  Fulfill the “time and place” function —they deliver the products when and where the wholesalers/retailers want them.

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Distributors/Stockists
 Are invoiced directly from company

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Distributors/Stockists
 Are invoiced directly from company  Do not maintain competing product lines

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Distributors/Stockists
 Are invoiced directly from company  Do not maintain competing product lines  Are given geographical exclusivity to market the company’s products (i.e., the company appoints only one distributor for a region)

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Distributors invest in the business  by stocking inventories.27 of 384 .2. and  by providing a credit period of about 10 to 15 days to the retailers. An Introduction to Supply Chains / 1.

Distributors incur expenses for:  Coverage of the region through their salespersons  Delivery to retailers  Establishment costs  Etc. An Introduction to Supply Chains / 1.28 of 384 .2.

assured of a certain minimum return on investment (ROI) by the manufacturer through subsidies An Introduction to Supply Chains / 1.29 of 384 .Distributors:  Generally stock non-competing products to get economies of scope  Are.2. in some cases.

30 of 384 .Agents versus Wholesaler-Distributors Agents Are Pure Specialists in Selling: Leave Ownership and Financing to Other Players Wholesaler-Distributors Take Ownership Handle Goods Provide Credit to the Next Stage An Introduction to Supply Chains / 1.2.

An Introduction to Supply Chains / 1.2.31 of 384 .Agents versus Wholesaler-Distributors Agents Are Pure Specialists in Selling: Leave Ownership and Financing to Other Players Agents sell but do not set the price (unless manufacturer authorizes): Manufacturer has more pricing discretion. Wholesaler-Distributors Take Ownership Handle Goods Provide Credit to the Next Stage Distributors can set the price as they like (constrained only by the market dynamics and legal requirements).

terms and conditions. prices. The manufacturer knows the customers.32 of 384 . Distributors can keep all the details to themselves.Agents versus Wholesaler-Distributors Agents Are Pure Specialists in Selling: Leave Ownership and Financing to Other Players Agents sell but do not set the price (unless manufacturer authorizes): Manufacturer has more pricing discretion. the quantities bought. Wholesaler-Distributors Take Ownership Handle Goods Provide Credit to the Next Stage Distributors can set the price as they like (constrained only by the market dynamics and legal requirements). An Introduction to Supply Chains / 1.2. etc.

33 of 384 . An Introduction to Supply Chains / 1.  The Supplier Needs to Offer a Value Proposition to Attract and Retain Distributors. The Distribution Channel Plays a Very Important Role for the Manufacturer.2.

The Value Proposition to the Distributor Is a Combination of: An Introduction to Supply Chains / 1.2.34 of 384 .

35 of 384 .2.The Value Proposition to the Distributor Is a Combination of:  Product’s customer appeal (brand equity) An Introduction to Supply Chains / 1.

36 of 384 .The Value Proposition to the Distributor Is a Combination of:  Product’s customer appeal (brand equity)  Product’s sales rate/revenues An Introduction to Supply Chains / 1.2.

The Value Proposition to the Distributor Is a Combination of:  Product’s customer appeal (brand equity)  Product’s sales rate/revenues  Margin offered to the distributor An Introduction to Supply Chains / 1.37 of 384 .2.

38 of 384 .2.The Value Proposition to the Distributor Is a Combination of:  Product’s customer appeal (brand equity)  Product’s sales rate/revenues  Margin offered to the distributor  Costs to be incurred to sell and support the product An Introduction to Supply Chains / 1.

2.The Value Proposition to the Distributor Is a Combination of:  Product’s customer appeal (brand equity)  Product’s sales rate/revenues  Margin offered to the distributor  Costs to be incurred to sell and support the product  Product’s probable life cycle An Introduction to Supply Chains / 1.39 of 384 .

2.40 of 384 .The Value Proposition to the Distributor Is a Combination of:  Product’s customer appeal (brand equity)  Product’s sales rate/revenues  Margin offered to the distributor  Costs to be incurred to sell and support the product  Product’s probable life cycle  The likely levels of product returns and warranty claims An Introduction to Supply Chains / 1.

41 of 384 .The Value Proposition to the Distributor Is a Combination of:  Product’s customer appeal (brand equity)  Product’s sales rate/revenues  Margin offered to the distributor  Costs to be incurred to sell and support the product  Product’s probable life cycle  The likely levels of product returns and warranty claims  Manufacturer’s spend on consumer and trade promotions An Introduction to Supply Chains / 1.2.

42 of 384 .The Value Proposition to the Distributor Is a Combination of:  Product’s customer appeal (brand equity)  Product’s sales rate/revenues  Margin offered to the distributor  Costs to be incurred to sell and support the product  Product’s probable life cycle  The likely levels of product returns and warranty claims  Manufacturer’s spend on consumer and trade promotions  Stocking requirements An Introduction to Supply Chains / 1.2.

43 of 384 .The Value Proposition to the Distributor Is a Combination of:  Product’s customer appeal (brand equity)  Product’s sales rate/revenues  Margin offered to the distributor  Costs to be incurred to sell and support the product  Product’s probable life cycle  The likely levels of product returns and warranty claims  Manufacturer’s spend on consumer and trade promotions  Stocking requirements  The opportunity to sell related products and services An Introduction to Supply Chains / 1.2.

2.Suppliers of lubricant oils for automobiles An Introduction to Supply Chains / 1.44 of 384 .

2.45 of 384 . such as:  Hydraulic hoists  Diagnostic computers  Storage facilities for new and drained oil suppliers An Introduction to Supply Chains / 1.Suppliers of lubricant oils for automobiles offer to the garage owners the value proposition of finance for major equipment purchases.

Manufacturers looking to sell their products through catalogue retailers: An Introduction to Supply Chains / 1.2.46 of 384 .

Manufacturers looking to sell their products through catalogue retailers:  Offer upfront funding for catalogue printing through paying for premium space and placement in their catalogue An Introduction to Supply Chains / 1.2.47 of 384 .

To Make the Distributor Carry the Full Range of Its SKUs.48 of 384 . the Supplier May: An Introduction to Supply Chains / 1.2.

the Supplier May:  Specify the inventory holding requirements in the contract An Introduction to Supply Chains / 1.To Make the Distributor Carry the Full Range of Its SKUs.49 of 384 .2.

2.50 of 384 .To Make the Distributor Carry the Full Range of Its SKUs. the Supplier May:  Specify the inventory holding requirements in the contract  Offer a fee or incentive for stocking An Introduction to Supply Chains / 1.

51 of 384 . An Introduction to Supply Chains / 1.To Make the Distributor Carry the Full Range of Its SKUs. the Supplier May:  Specify the inventory holding requirements in the contract  Offer a fee or incentive for stocking  Often. the distributor holds some inventory of a one-off SKU because the uncompensated costs of handling a back order can outweigh the costs of stocking.2.

2.52 of 384 .Functions Performed by Distributors for the Manufacturer An Introduction to Supply Chains / 1.

who in turn promote sales among end-customers) Demand Generation An Introduction to Supply Chains / 1.2.53 of 384 .Functions Performed by Distributors for the Manufacturer Demand Generation (Actively building up awareness and selling capability among wholesalers and retailers.

Functions Performed by Distributors for the Manufacturer Demand Generation  Channel Recruitment Demand Generation An Introduction to Supply Chains / 1.2.54 of 384 .

2.55 of 384 .Functions Performed by Distributors for the Manufacturer Demand Generation  Channel Recruitment  Channel Accounts and Databases Demand Generation An Introduction to Supply Chains / 1.

56 of 384 .2.Functions Performed by Distributors for the Manufacturer Demand Generation  Channel Recruitment  Channel Accounts and Databases  Marketing Fund Deployment Demand Generation An Introduction to Supply Chains / 1.

57 of 384 .Functions Performed by Distributors for the Manufacturer Demand Generation     Channel Recruitment Channel Accounts and Databases Marketing Fund Deployment Special Pricing Management Demand Generation An Introduction to Supply Chains / 1.2.

2.58 of 384 .Functions Performed by Distributors for the Manufacturer Demand Generation      Channel Recruitment Channel Accounts and Databases Marketing Fund Deployment Special Pricing Management Teleweb Outbound and Inbound Sales Demand Generation An Introduction to Supply Chains / 1.

59 of 384 .2.Functions Performed by Distributors for the Manufacturer Demand Generation      Channel Recruitment Channel Accounts and Databases Marketing Fund Deployment Special Pricing Management Teleweb Outbound and Inbound Sales  Regular Marketing Mailings Demand Generation An Introduction to Supply Chains / 1.

60 of 384 . to a dealer’s sales team) Demand Generation An Introduction to Supply Chains / 1.2.Functions Performed by Distributors for the Manufacturer Demand Generation      Channel Recruitment Channel Accounts and Databases Marketing Fund Deployment Special Pricing Management Teleweb Outbound and Inbound Sales  Regular Marketing Mailings  “SPIFF” Sales Promotions (Sales Promotion Incentive For Funds offered by mfr.

to a dealer’s sales team) Demand Generation  Channel Conferences An Introduction to Supply Chains / 1.61 of 384 .2.Functions Performed by Distributors for the Manufacturer Demand Generation      Channel Recruitment Channel Accounts and Databases Marketing Fund Deployment Special Pricing Management Teleweb Outbound and Inbound Sales  Regular Marketing Mailings  “SPIFF” Sales Promotions (Sales Promotion Incentive For Funds offered by mfr.

to a dealer’s sales team) Demand Generation  Channel Conferences  Channel Training An Introduction to Supply Chains / 1.62 of 384 .2.Functions Performed by Distributors for the Manufacturer Demand Generation      Channel Recruitment Channel Accounts and Databases Marketing Fund Deployment Special Pricing Management Teleweb Outbound and Inbound Sales  Regular Marketing Mailings  “SPIFF” Sales Promotions (Sales Promotion Incentive For Funds offered by mfr.

63 of 384 .2. to a dealer’s sales team) Demand Generation  Channel Conferences  Channel Training  Channel Financing through Credit Provision An Introduction to Supply Chains / 1.Functions Performed by Distributors for the Manufacturer Demand Generation      Channel Recruitment Channel Accounts and Databases Marketing Fund Deployment Special Pricing Management Teleweb Outbound and Inbound Sales  Regular Marketing Mailings  “SPIFF” Sales Promotions (Sales Promotion Incentive For Funds offered by mfr.

2.64 of 384 . to a dealer’s sales team) Demand Generation  Channel Conferences  Channel Training  Channel Financing through Credit Provision  In-Market Product Management An Introduction to Supply Chains / 1.Functions Performed by Distributors for the Manufacturer Demand Generation      Channel Recruitment Channel Accounts and Databases Marketing Fund Deployment Special Pricing Management Teleweb Outbound and Inbound Sales  Regular Marketing Mailings  “SPIFF” Sales Promotions (Sales Promotion Incentive For Funds offered by mfr.

2. to a dealer’s sales team) Demand Generation  Channel Conferences  Channel Training  Channel Financing through Credit Provision  In-Market Product Management  Frontline Technical Support An Introduction to Supply Chains / 1.65 of 384 .Functions Performed by Distributors for the Manufacturer Demand Generation      Channel Recruitment Channel Accounts and Databases Marketing Fund Deployment Special Pricing Management Teleweb Outbound and Inbound Sales  Regular Marketing Mailings  “SPIFF” Sales Promotions (Sales Promotion Incentive For Funds offered by mfr.

Functions Performed by Distributors for the Manufacturer Supply Fulfillment An Introduction to Supply Chains / 1.2.66 of 384 .

2.Functions Performed by Distributors for the Manufacturer Supply Fulfillment  Bulk Breaking An Introduction to Supply Chains / 1.67 of 384 .

2.68 of 384 .Functions Performed by Distributors for the Manufacturer Supply Fulfillment  Bulk Breaking  Outbound Logistics An Introduction to Supply Chains / 1.

Functions Performed by Distributors for the Manufacturer Supply Fulfillment  Bulk Breaking  Outbound Logistics  Reverse Logistics An Introduction to Supply Chains / 1.2.69 of 384 .

Functions Performed by Distributors for the Manufacturer Supply Fulfillment     Bulk Breaking Outbound Logistics Reverse Logistics Channel Credit Risk An Introduction to Supply Chains / 1.2.70 of 384 .

71 of 384 .Functions Performed by Distributors for the Manufacturer Market Information An Introduction to Supply Chains / 1.2.

2.72 of 384 .Functions Performed by Distributors for the Manufacturer Market Information  Sales Out Reporting An Introduction to Supply Chains / 1.

Functions Performed by Distributors for the Manufacturer Market Information  Sales Out Reporting  Channel Intelligence An Introduction to Supply Chains / 1.2.73 of 384 .

Functions Performed by Distributors for the Manufacturer Market Information  Sales Out Reporting  Channel Intelligence  Suppliers pay for good information about their distributors’ sales through margins or discounts. An Introduction to Supply Chains / 1.74 of 384 .2.

Functions Performed by Distributors for the Manufacturer Outsourced Services (Serving as an Outsourced Front Office Representing the Supplier in a Territory Providing Warranty and Technical Support to Final Tier or Even End-Customers) An Introduction to Supply Chains / 1.2.75 of 384 .

2.Functions Performed by Distributors for the Manufacturer Outsourced Services  Warranty Management An Introduction to Supply Chains / 1.76 of 384 .

2.Functions Performed by Distributors for the Manufacturer Outsourced Services  Warranty Management  Post-Sales Technical Support An Introduction to Supply Chains / 1.77 of 384 .

2.Functions Performed by Distributors for the Manufacturer Outsourced Services     Warranty Management Post-Sales Technical Support Trademark registration and protection … An Introduction to Supply Chains / 1.78 of 384 .

Services Offered by Distributors to Its Customers (that is.79 of 384 . to Wholesalers and Retailers) An Introduction to Supply Chains / 1.2.

80 of 384 . to Wholesalers and Retailers) Core Offering  Acting as One-Stop Shop for the Required Range and Availability Optional Services  Sourcing of New Products. or from New Suppliers An Introduction to Supply Chains / 1.Services Offered by Distributors to Its Customers (that is.2.

2. to Wholesalers and Retailers) (continued) Core Offering  Bulk Breaking (to Quantities Nearer that Required by the End-Customer) Optional Services An Introduction to Supply Chains / 1.Services Offered by Distributors to Its Customers (that is.81 of 384 .

Services Offered by Distributors to Its Customers (that is.82 of 384 . to Wholesalers and Retailers) (continued) Core Offering  Bulk Breaking (to Quantities Nearer that Required by the End-Customer) Optional Services  Consignment Stocking An Introduction to Supply Chains / 1.2.

to Wholesalers and Retailers) (continued) Core Offering  Bulk Breaking (to Quantities Nearer that Required by the End-Customer) Optional Services  Consignment Stocking (Supplier places goods at customer location.83 of 384 .Services Offered by Distributors to Its Customers (that is. but the ownership is transferred and payments made only when the goods are used or sold) An Introduction to Supply Chains / 1.2.

Services Offered by Distributors to Its Customers (that is. An Introduction to Supply Chains / 1.84 of 384 .2. to Wholesalers and Retailers) (continued) Core Offering  Bulk Breaking (to Quantities Nearer that Required by the End-Customer) Optional Services  Consignment Stocking (Supplier places goods at customer location. but the ownership is transferred and payments made only when the goods are used or sold)  Often used to finance market expansion and penetration and to fill shelves and block access to competition.

 Repackaging An Introduction to Supply Chains / 1. but the ownership is transferred and payments made only when the goods are used or sold)  Often used to finance market expansion and penetration and to fill shelves and block access to competition.85 of 384 . to Wholesalers and Retailers) (continued) Core Offering  Bulk Breaking (to Quantities Nearer that Required by the End-Customer) Optional Services  Consignment Stocking (Supplier places goods at customer location.2.Services Offered by Distributors to Its Customers (that is.

to Wholesalers and Retailers) (continued) Core Offering  Providing Credit Optional Services  Providing Extended Credit. Project Finance An Introduction to Supply Chains / 1.2.Services Offered by Distributors to Its Customers (that is.86 of 384 .

to Wholesalers and Retailers) (continued) Core Offering  Providing Credit  First-Level (Pre-Sales) Technical Support Optional Services  Providing Extended Credit. Project Finance  Second-Level (Post-Sales) Technical Support  Technical Training An Introduction to Supply Chains / 1.Services Offered by Distributors to Its Customers (that is.2.87 of 384 .

for Wholesalers and Retailers) (continued) Core Offering  Providing Logistics Services (Making Delivery Arrangements) Optional Services An Introduction to Supply Chains / 1.2.Services Offered by Distributors to Its Customers (that is.88 of 384 .

2. for Wholesalers and Retailers) (continued) Core Offering  Providing Logistics Services (Making Delivery Arrangements) Optional Services  Drop Shipment to Ultimate Customers on Behalf of the Final Tier An Introduction to Supply Chains / 1.89 of 384 .Services Offered by Distributors to Its Customers (that is.

90 of 384 .Services Offered by Distributors to Its Customers (that is. and even invoicing are made to appear from the final-tier player. An Introduction to Supply Chains / 1. packaging. for Wholesalers and Retailers) (continued) Core Offering  Providing Logistics Services (Making Delivery Arrangements) Optional Services  Drop Shipment to Ultimate Customers on Behalf of the Final Tier  Often. delivery notes.2.

 Savings resulting from reduced logistics can be shared between the distributor. and even invoicing are made to appear from the final-tier player. and the customer.2. delivery notes. An Introduction to Supply Chains / 1.Services Offered by Distributors to Its Customers (that is. for Wholesalers and Retailers) (continued) Core Offering  Providing Logistics Services (Making Delivery Arrangements) Optional Services  Drop Shipment to Ultimate Customers on Behalf of the Final Tier  Often. packaging.91 of 384 . the final-tier player.

for Wholesalers and Retailers) (continued) Core Offering  Order Consolidation Optional Services An Introduction to Supply Chains / 1.2.92 of 384 .Services Offered by Distributors to Its Customers (that is.

93 of 384 .2.Services Offered by Distributors to Its Customers (that is. for Wholesalers and Retailers) (continued) Core Offering  Order Consolidation (Waiting until an entire order of different products from different suppliers is ready to ship to reduce delivery costs) Optional Services An Introduction to Supply Chains / 1.

for Wholesalers and Retailers) (continued) Core Offering  Order Consolidation (Waiting until an entire order of different products from different suppliers is ready to ship to reduce delivery costs) Optional Services  Project Management (Coordinating the supply of several suppliers and shipping to multiple locations) An Introduction to Supply Chains / 1.Services Offered by Distributors to Its Customers (that is.94 of 384 .2.

Services Offered by Distributors to Its Customers (that is.95 of 384 .2. for Wholesalers and Retailers) (continued) Core Offering  Order Consolidation (Waiting until an entire order of different products from different suppliers is ready to ship to reduce delivery costs)  Product Information Collateral Optional Services  Project Management (Coordinating the supply of several suppliers and shipping to multiple locations)  Providing Marketing Services An Introduction to Supply Chains / 1.

96 of 384 .Alternative Distribution Models  Value-Added Distributors  Broadline Distributors  Fulfillment Distributors An Introduction to Supply Chains / 1.2.

2.97 of 384 .Alternative Distribution Models  Value-Added Distributors (Focus on Marketing)  Broadline Distributors (Routine Marketing & Efficiency)  Fulfillment Distributors (Focus on Very High Efficiency) An Introduction to Supply Chains / 1.

98 of 384 .2.Alternative Distribution Models Aspect Value-Added Distributors Broadline Distributors Fulfillment Distributors Focused Products whose distribution is on limited: Very few or only one distributor for reasons of:  Small Market  New Supplier  New Technology An Introduction to Supply Chains / 1.

99 of 384 .2.Alternative Distribution Models Aspect Value-Added Distributors Broadline Distributors Providing mainstream market coverage (in terms of product range and market coverage) Fulfillment Distributors Focused Products whose distribution is on limited: Very few or only one distributor for reasons of:  Small Market  New Supplier  New Technology An Introduction to Supply Chains / 1.

and convenience.100 of 384 . availability.” Sales are driven by price.Alternative Distribution Models Aspect Value-Added Distributors Broadline Distributors Providing mainstream market coverage (in terms of product range and market coverage) Fulfillment Distributors Little or no marketing or sales promotion required: Products are “bought” rather than “sold.  Commodities  After-Market Products (Spares and Consumables) Focused Products whose distribution is on limited: Very few or only one distributor for reasons of:  Small Market  New Supplier  New Technology An Introduction to Supply Chains / 1.2.

2.Alternative Distribution Models Aspect Value-Added Distributors Broadline Distributors Fulfillment Distributors Supplier Is The distributor to be Looking for very proactive in recruiting and developing the often specialist final-tier players An Introduction to Supply Chains / 1.101 of 384 .

Alternative Distribution Models Aspect Value-Added Distributors Broadline Distributors Coverage of most or all of the desired channels Fulfillment Distributors Supplier Is The distributor to be Looking for very proactive in recruiting and developing the often specialist final-tier players An Introduction to Supply Chains / 1.2.102 of 384 .

Alternative Distribution Models Aspect Value-Added Distributors Broadline Distributors Coverage of most or all of the desired channels Fulfillment Distributors Logistics engines to deliver the product.2. An Introduction to Supply Chains / 1.  The supplier does Supplier Is The distributor to be Looking for very proactive in recruiting and developing the often specialist final-tier players all the brand building activities.103 of 384 .

Alternative Distribution Models Aspect Value-Added Distributors Broadline Distributors Fulfillment Distributors Distributors’ Market Development Core through Proactive Sales Offering and Marketing.2.104 of 384 . including:  Extensive training for the final-tier channel players.  Co-selling  Extensive pre-sales technical support An Introduction to Supply Chains / 1.

mailers.105 of 384 .Alternative Distribution Models Aspect Value-Added Distributors Broadline Distributors Wide Market Access through established trading relationships and with longstanding marketing tools (catalogues.  Co-selling  Extensive pre-sales technical support An Introduction to Supply Chains / 1. including:  Extensive training for the final-tier channel players.2.) Fulfillment Distributors Distributors’ Market Development Core through Proactive Sales Offering and Marketing. etc. websites.

106 of 384 ..Alternative Distribution Models Aspect Value-Added Distributors Broadline Distributors Fulfillment Distributors Distributors’ Market Development Core through Proactive Sales Offering and Marketing. including:  Extensive training for the final-tier channel players. FedEx and UPS) with longexcept that they also standing manage inventory and bear credit risk. mailers.) An Introduction to Supply Chains / 1.  Co-selling  Extensive pre-sales technical support Wide Market Low Cost Sales and Access through Distribution established  Act similar to pure trading logistics companies relationships and (e. etc. marketing tools (catalogues.g.2. websites.

2.107 of 384 . Broadline Distributors Fulfillment Distributors An Introduction to Supply Chains / 1.Alternative Distribution Models Aspect Distributor Invests Value-Added Distributors In fully mastering the product from a technical and marketing perspective.

108 of 384 .2.Alternative Distribution Models Aspect Distributor Invests Value-Added Distributors Broadline Distributors Fulfillment Distributors In fully mastering the Mainly in fixed product from a technical costs and standard and marketing perspective. marketing tools. An Introduction to Supply Chains / 1.

Alternative Distribution Models Aspect Distributor Invests Value-Added Distributors Broadline Distributors Fulfillment Distributors In fully mastering the Mainly in fixed In efficient product from a technical costs and standard logistics and marketing perspective.109 of 384 .2. marketing tools. infrastructure An Introduction to Supply Chains / 1.

110 of 384 .2.Alternative Distribution Models Aspect Margins Value-Added Distributors High Margins to compensate for the investments made and low initial sales Broadline Distributors Fulfillment Distributors An Introduction to Supply Chains / 1.

etc.) An Introduction to Supply Chains / 1.Alternative Distribution Models Aspect Margins Value-Added Distributors High Margins to compensate for the investments made and low initial sales Broadline Distributors Fulfillment Distributors Lower Margins due to availability of several distributors.2.111 of 384 .  Suppliers pay separately for placement in the marketing tools (in catalogues. mailers. websites.

Alternative Distribution Models Aspect Margins Value-Added Distributors High Margins to compensate for the investments made and low initial sales Broadline Distributors Fulfillment Distributors Lower Margins due to availability of several distributors. etc. (in catalogues.2.) An Introduction to Supply Chains / 1.112 of 384 . or A Fee per Transaction as the cost of distribution  Suppliers pay tends to be the same separately for placement in the regardless of the selling marketing tools price. mailers. websites. Very Low Trading Margins.

2.Wholesalers An Introduction to Supply Chains / 1.113 of 384 .

Wholesalers  Are independently owned and operated firms that buy and sell products to which they have taken ownership An Introduction to Supply Chains / 1.2.114 of 384 .

115 of 384 .2.Wholesalers  Are independently owned and operated firms that buy and sell products to which they have taken ownership  Perform similar functions as distributors albeit on a smaller scale but larger scope An Introduction to Supply Chains / 1.

2.116 of 384 .Wholesalers  Are independently owned and operated firms that buy and sell products to which they have taken ownership  Perform similar functions as distributors albeit on a smaller scale but larger scope  Provide better “reach” and larger assortment by selling to outlets not covered by the distributors/stockists An Introduction to Supply Chains / 1.

and reship goods An Introduction to Supply Chains / 1.2.Wholesalers  Are independently owned and operated firms that buy and sell products to which they have taken ownership  Perform similar functions as distributors albeit on a smaller scale but larger scope  Provide better “reach” and larger assortment by selling to outlets not covered by the distributors/stockists  Generally operate one or more warehouses to receive. inventory.117 of 384 .

Wholesalers An Introduction to Supply Chains / 1.118 of 384 .2.

take risk. thus. and physical possession of goods) An Introduction to Supply Chains / 1.119 of 384 .2.Wholesalers  Buy the goods from the manufacturers/distributors/stockists (and. legal title.

120 of 384 . legal title. take risk.2.Wholesalers  Buy the goods from the manufacturers/distributors/stockists (and. and physical possession of goods)  Hold large stocks and break-bulk into retail packs An Introduction to Supply Chains / 1. thus.

121 of 384 . take risk.Wholesalers  Buy the goods from the manufacturers/distributors/stockists (and. thus. legal title.2. and physical possession of goods)  Hold large stocks and break-bulk into retail packs  On-sell to the retailers An Introduction to Supply Chains / 1.

take risk. thus. and physical possession of goods)  Hold large stocks and break-bulk into retail packs  On-sell to the retailers  Provide retailers with credit facilities and delivery services An Introduction to Supply Chains / 1.Wholesalers  Buy the goods from the manufacturers/distributors/stockists (and.122 of 384 . legal title.2.

Wholesalers An Introduction to Supply Chains / 1.123 of 384 .2.

that is. the manufacturers/distributors may sell their goods through multiple wholesalers in a region An Introduction to Supply Chains / 1.Wholesalers  Are not allowed geographical exclusivity.124 of 384 .2.

2. that is. the manufacturers/distributors may sell their goods through multiple wholesalers in a region  Are likely to carry competing products An Introduction to Supply Chains / 1.125 of 384 .Wholesalers  Are not allowed geographical exclusivity.

2. that is. the manufacturers/distributors may sell their goods through multiple wholesalers in a region  Are likely to carry competing products  Work on low.126 of 384 .Wholesalers  Are not allowed geographical exclusivity. variable margin An Introduction to Supply Chains / 1.

127 of 384 .Cash-and-Carry Wholesalers (B2B Retailers) An Introduction to Supply Chains / 1.2.

An Introduction to Supply Chains / 1.2. select and pick merchandise. Hoteliers. SMEs) come to store.Cash-and-Carry Wholesalers  Retailers/Business People (Caterers. pay in cash and carry the merchandise themselves.128 of 384 .

Hoteliers.Cash-and-Carry Wholesalers  Retailers/Business People (Caterers. select and pick merchandise. An Introduction to Supply Chains / 1.2. pay in cash and carry the merchandise themselves. SMEs) come to store.129 of 384 .  Cash-and-Carry Wholesalers save costs of providing credit and delivering products.

 Part of the savings are transferred to the retailers. SMEs) come to store.130 of 384 . An Introduction to Supply Chains / 1.  Cash-and-Carry Wholesalers save costs of providing credit and delivering products. pay in cash and carry the merchandise themselves.Cash-and-Carry Wholesalers  Retailers/Business People (Caterers.2. Hoteliers. select and pick merchandise.

etc. offering better prices An Introduction to Supply Chains / 1. agricultural cooperatives.131 of 384 .2.Cash-and-Carry Wholesalers  Buy directly from producers. manufacturers.

2.Cash-and-Carry Wholesalers  Buy directly from producers. e. caterers.132 of 384 . manufacturers. retailers. offering better prices  Sell directly to business customers for cash. agricultural cooperatives. An Introduction to Supply Chains / 1. SMEs. etc.. in large volumes. hoteliers.g. traders. etc.

hoteliers. SMEs. agricultural cooperatives. caterers. and transporting the merchandise. etc. in large volumes. offering better prices  Sell directly to business customers for cash. etc. traders. e.Cash-and-Carry Wholesalers  Buy directly from producers.2. picking. An Introduction to Supply Chains / 1. retailers.. manufacturers.  Operate from no-frills stores where no assistance is offered to the customers in selecting.133 of 384 .g.

e.Cash-and-Carry Wholesalers  Buy directly from producers. An Introduction to Supply Chains / 1..2. agricultural cooperatives. efficient logistics. SMEs. traders. etc.g. hoteliers. etc. caterers.  Offer substantial price advantage and agility to the business customers through disintermediation. and self service.  Operate from no-frills stores where no assistance is offered to the customers in selecting. retailers. offering better prices  Sell directly to business customers for cash.134 of 384 . and transporting the merchandise. manufacturers. picking. in large volumes.

An Introduction to Supply Chains / 1.135 of 384 . etc.Other Benefits Offered by Cash & Carry Wholesalers  Efficient and Effective Supply Chains that Follow Global Best Practices. such as:  Just-in-Time Inventory Management  Use of Retail Information Systems  Using GPS for Vehicle Tracking  Using Cold Storage.2.

2.136 of 384 . etc.Other Benefits Offered by Cash & Carry Wholesalers  Efficient and Effective Supply Chains that Follow Global Best Practices.  Wide Assortment for Small Retailers under One Roof at Competitive Prices An Introduction to Supply Chains / 1. such as:  Just-in-Time Inventory Management  Use of Retail Information Systems  Using GPS for Vehicle Tracking  Using Cold Storage.

137 of 384 . etc.  Wide Assortment for Small Retailers under One Roof at Competitive Prices  Providing Better Distribution Facilities to Farmers and SMEs An Introduction to Supply Chains / 1.2.Other Benefits Offered by Cash & Carry Wholesalers  Efficient and Effective Supply Chains that Follow Global Best Practices. such as:  Just-in-Time Inventory Management  Use of Retail Information Systems  Using GPS for Vehicle Tracking  Using Cold Storage.

Hyderabad.2.000+ SKUs)  Shoprite of South Africa Other Entrants  Walmart-Bharti  Tata Group’s Trent with Tesco of UK  Future Group An Introduction to Supply Chains / 1. carry 18.Cash and Carry Wholesalers in India  Metro AG of Germany (Stores in Bangalore. Mumbai. and Ludhiana. Kolkata.138 of 384 .

139 of 384 .Case Study METRO Cash and Carry India An Introduction to Supply Chains / 1.2.

140 of 384 .2.Management Holding Company: METRO Cash & Carry International GmbH Duesseldorf. Germany Founded in 1964 An Introduction to Supply Chains / 1.

METRO’s Mission Statement: "METRO is a Cash & Carry self-service wholesaler for businesses and professionals. An Introduction to Supply Chains / 1.141 of 384 . METRO provides quality products and business solutions at the lowest possible prices".2.

142 of 384 .Metro International Has Presence in 30 Countries with METRO and MAKRO Cash & Carry stores at 544 locations.2. An Introduction to Supply Chains / 1.

METRO Locations around the World (as on 26-Feb-2007) Country Austria Belgium Bulgaria China Croatia Czech Republic No.2. of outlets 12 9 8 34 6 12 Year of Market Entry 1971 1970 1999 1996 2001 1997 An Introduction to Supply Chains / 1.143 of 384 .

144 of 384 .METRO Locations around the World (as on 26-Feb-2007) (continued) Country Denmark France Germany Greece Hungary No. of outlets 4 86 120 7 13 Year of Market Entry 1971 1971 1964 1992 1994 An Introduction to Supply Chains / 1.2.

145 of 384 .2. of outlets 5 (in 2007) 47 3 3 6 16 Year of Market Entry 2003 1972 2002 2004 1991 1968 An Introduction to Supply Chains / 1.METRO Locations around the World (as on 26-Feb-2007) (continued) Country India Italy Japan Moldavia Morocco Netherlands No.

of outlets 25 10 23 31 5 5 Year of Market Entry 1994 1990 1996 2001 2005 2000 An Introduction to Supply Chains / 1.METRO Locations around the World (as on 26-Feb-2007) (continued) Country Poland Portugal Romania Russia Serbia Slovakia No.2.146 of 384 .

of outlets 34 10 13 33 7 Year of Market Entry 1972 1990 2003 1971 2002 An Introduction to Supply Chains / 1.METRO Locations around the World (as on 26-Feb-2007) (continued) Country Spain Turkey Ukraine United Kingdom Vietnam No.147 of 384 .2.

2.METRO India Has Invested about 1. Bhandup West) An Introduction to Supply Chains / 1.000 crore in India in its Six Outlets located at:  Bangalore (Yeshwantpur and Kanakapura Road)  Hyderabad (Moosapet and Uppal)  Kolkata (East Jadavpur)  Mumbai (LBS Road.148 of 384 .

2. Ludhiana.METRO India Has Invested about 1.  One outlet has already started in  Mumbai (LBS Road.000 crore in India in its Six Outlets located at:  Bangalore (Yeshwantpur and Kanakapura Road)  Hyderabad (Moosapet and Uppal)  Kolkata (East Jadavpur) Metro was planning to add a couple of stores in Punjab in 2011.149 of 384 . Bhandup West) Bhatian. An Introduction to Supply Chains / 1.

150 of 384 .2.Assortment: Total 18.000 SKUs An Introduction to Supply Chains / 1.

2.Over 8000 Food Items  Dairy. Wines & Spirits (Availability Dependent on the Local Legal Requirements)  Detergents & Cleaning Materials  Health & Beauty  Dried Fruits and Nuts  Tobacco An Introduction to Supply Chains / 1.151 of 384 . Frozen & Bakery  Fresh Fish & Sea Foods  Meat  General Grocery  Confectionary  Beverages.

Aluminium Ladders. Artificial Flowers. Candles. etc)  Home Textiles / Ladieswear / Menswear / Childrenwear  Sports / Toys / Luggage / Shoes / Leather Goods An Introduction to Supply Chains / 1.152 of 384 . Arts & Crafts. Furniture.000 Non-Food Items  Office Equipment  Media/Accessories (Audio Video)  Home Electrics / Improvement  Household  Home Decoration / Seasonal (Gifts.Over 10.2.

2. Belts and Other Accessories) Office Products An Introduction to Supply Chains / 1. Shoes.In Addition. MERTO Offers Following Private Labels For All Categories of Products Products for Hotels.153 of 384 . Restaurants and Caterers Lambertazzi: Leather Products (Luggage.

Air-Conditioners. Tablecloths. Pillows) Household Appliances (Washing Machines.) Sports Goods Apparels Household Products An Introduction to Supply Chains / 1. Vacuum Cleaners.2.154 of 384 . etc.Tarrington House: Home Textiles (Towels. Bed Linen.

155 of 384 .METRO’s India Specific Modifications Implemented in Their Recent Outlet (in Uppal.2. Hyderabad) An Introduction to Supply Chains / 1.

Hyderabad)  Smaller Size Outlets (about 3. m as against 6400 sq.156 of 384 .2. m of older outlets) An Introduction to Supply Chains / 1.800 sq.METRO’s India Specific Modifications Implemented in Their Recent Outlet (in Uppal.

METRO’s India Specific Modifications Implemented in Their Recent Outlet (in Uppal. Hyderabad)  Smaller Size Outlets (about 3.2. m of older outlets)  Lesser Number of SKUs (stocking only those items that have certain level of demand) An Introduction to Supply Chains / 1.157 of 384 . m as against 6400 sq.800 sq.

2. m) outside the store for Selling to Fruits.METRO’s India Specific Modifications Implemented in Their Recent Outlet (in Uppal. REstaurants. Vegetables. and CAtering An Introduction to Supply Chains / 1. and HORECA* Customers in the Early Hours *HORECA: HOtels. and Commodity wholesalers. Hyderabad)  Smaller Size Outlets (about 3. m as against 6400 sq.158 of 384 . m of older outlets)  Lesser Number of SKUs (stocking only those items that have certain level of demand)  Open Mandi Area (400 sq.800 sq.

and it’s also difficult as against 6400 sq. with trolleys.Mr Rajeev Managing Director. and CAtering An Introduction to Supply Chains / 1. that have certain level of demand) METRO Cash & Carry India  Open Mandi Area (400 sq. mandi concept Implemented in Their Recent Outlet used to theHyderabad) and find it intimidating to come into the store m  Smaller Size Outlets (about 3. Vegetables.  Lesser Number of SKUs (stocking only those items Bakshi . m) outside the store for Selling to Fruits.2. m of older outlets) to load them into trucks outside the building. REstaurants.They (the target customers) are METRO’s India Specific Modifications more (in Uppal.159 of 384 .800 sq. and Commodity wholesalers. and HORECA* Customers in the Early Hours *HORECA: HOtels.

 METRO has also partnered with transport operator (Relogistics) to offer various delivery solutions at competitive rates that retailers can avail of at the delivery counter at METRO distribution centers.160 of 384 . An Introduction to Supply Chains / 1.2.

METRO has also set up dedicated supply channels for hotels and restaurants for supply on national basis. An Introduction to Supply Chains / 1.2.161 of 384 .  Has signed contracts with hotel chains (e.. Taj and Oberoi).g.

An Introduction to Supply Chains / 1.162 of 384 . METRO is also planning tie-ups with large FMCGs for distribution deals.2.

An Introduction to Supply Chains / 1.2.Metro India Is Going for Increased Local Sourcing.163 of 384 .

2. Metro has helped local brands. such as:  Milky Mist Paneer.  Earlier. An Introduction to Supply Chains / 1. and  Maunag Non Veg (supplier of processed meet).164 of 384 .  Govardhan (Go Cheese) Foods.Metro India Is Going for Increased Local Sourcing.

 Govardhan (Go Cheese) Foods. and  Maunag Non Veg (supplier of processed meet).  Mero’s new outlet in Punjab is helping the local supplier Basant Ice Creams.Metro India Is Going for Increased Local Sourcing.165 of 384 . Metro has helped local brands. An Introduction to Supply Chains / 1.  Earlier.2. such as:  Milky Mist Paneer.

An Introduction to Supply Chains / 1.  It now intends to source more and more products from small local manufacturers. Metro sources 80 percent of products from large manufacturers.166 of 384 .2. Currently.

One Reason for Local Sourcing  Several India-specific products. such as cookware. An Introduction to Supply Chains / 1. furniture and molded plastic products are either only manufactured in India or are more cost and time effective to source locally.167 of 384 . crockery and cutlery.2.

2.Only People with Any of the Following Business License Can Buy from Metro:  Value Added Tax Registration (VAT)  Central Sales Tax  Excise License Continued on the Next Page An Introduction to Supply Chains / 1.168 of 384 .

Only People with Any of the Following Business License Can Buy from Metro:  Service/ Professional Tax.169 of 384 . Detective Agencies Forex Dealers Pawn Brokers Doctors (Only practicing Doctors with their own clinic/nursing home can be registered) Continued on the Next Page An Introduction to Supply Chains / 1. Except:          Individual Lawyers Chartered Accountants Real Estate Agents Phone Booth Operators Cable Operators Architects.2.

Only People with Any of the Following Business License Can Buy from Metro:  Shops & Establishments Registration (Labor License)  Health/Trade (Corporation) License  Liquor License  Food License (PFA)  Drug License Continued on the Next Page An Introduction to Supply Chains / 1.170 of 384 .2.

Only People with Any of the Following Business License Can Buy from Metro:  Weight & Measures License  Government Fair Price Shop  Kerosene License  Registrar of Cooperative Societies  Gas agency License Continued on the Next Page An Introduction to Supply Chains / 1.2.171 of 384 .

Only People with Any of the Following Business License Can Buy from Metro:  Electricity Board Contractor License  Small Scale Industries License  Licenses Issued by Reserve Bank of India.2. Agro Seeds)  Entertainment License An Introduction to Supply Chains / 1.172 of 384 .  License Issued Under Essential Commodities Act (selling Pesticides.

2.The buyers have to first present their business license and photo ID to get a METRO Card: An Introduction to Supply Chains / 1.173 of 384 .

2.Vertical Integration of Wholesaler-Distributors An Introduction to Supply Chains / 1.174 of 384 .

2.175 of 384 . performed by:  Manufacturers (through Forward Integration)  Retailers (through Backward Integration) An Introduction to Supply Chains / 1.Vertical Integration of Wholesaler-Distributors The functions and activities of Wholesaler-Distributors can be. and often are.

176 of 384 .Manufacturer’s Sales Offices and Sales Branches Perform  Certain Sales & Marketing Functions  Wholesaling Operations An Introduction to Supply Chains / 1.2.

Manufacturer’s Sales Offices and Sales Branches Perform  Certain Sales & Marketing Functions  Wholesaling Operations However.177 of 384 . These Locations:  Do not take physical possession of inventory  May work with independent wholesaler-distributors An Introduction to Supply Chains / 1.2.

178 of 384 .Large Retail Chains often perform the functions of wholesale distribution through their:  Central Purchase Offices  Retail/Regional Distribution Centers  Cross Docks An Introduction to Supply Chains / 1.2.

Increasingly.179 of 384 .2. some of the functions and activities of Wholesaler-Distributors are also being performed by:  Third-Party Logistics Providers (3PLs) An Introduction to Supply Chains / 1.

some of the functions and activities of Wholesaler-Distributors are also being performed by:  Third-Party Logistics Providers (3PLs)  Value-Added Warehousing Companies An Introduction to Supply Chains / 1.180 of 384 .2.Increasingly.

181 of 384 .Increasingly. These Service Providers Generally:  Do not take title (legal possession) for the products An Introduction to Supply Chains / 1.2. some of the functions and activities of Wholesaler-Distributors are also being performed by:  Third-Party Logistics Providers (3PLs)  Value-Added Warehousing Companies However.

fee-for-service basis (rather than markup) An Introduction to Supply Chains / 1. some of the functions and activities of Wholesaler-Distributors are also being performed by:  Third-Party Logistics Providers (3PLs)  Value-Added Warehousing Companies However.182 of 384 . These Service Providers Generally:  Do not take title (legal possession) for the products  Charge their customers on an activity-based.Increasingly.2.

183 of 384 .Wholesalers Add Value By: An Introduction to Supply Chains / 1.2.

2.184 of 384 .Wholesalers Add Value By:  Providing Time and Place Utility An Introduction to Supply Chains / 1.

2.Wholesalers Add Value By:  Providing Time and Place Utility  Promoting product to their prospects An Introduction to Supply Chains / 1.185 of 384 .

2.186 of 384 .Wholesalers Add Value By:  Providing Time and Place Utility  Promoting product to their prospects  Negotiating transactions An Introduction to Supply Chains / 1.

Wholesalers Add Value By:  Providing Time and Place Utility  Promoting product to their prospects  Negotiating transactions  Processing orders. making deliveries. picking and assembling shipments.187 of 384 .2. and handling payments An Introduction to Supply Chains / 1.

picking and assembling shipments. making deliveries. and handling payments  Providing financing to suppliers and to the customer (through credit) An Introduction to Supply Chains / 1.2.Wholesalers Add Value By:  Providing Time and Place Utility  Promoting product to their prospects  Negotiating transactions  Processing orders.188 of 384 .

picking and assembling shipments.2. making deliveries.189 of 384 .Wholesalers Add Value By:  Providing Time and Place Utility  Promoting product to their prospects  Negotiating transactions  Processing orders. and handling payments  Providing financing to suppliers and to the customer (through credit)  Absorbing some of the risk of the customers/suppliers An Introduction to Supply Chains / 1.

Wholesalers Add Value By:  Providing Time and Place Utility  Promoting product to their prospects  Negotiating transactions  Processing orders.190 of 384 . picking and assembling shipments. and handling payments  Providing financing to suppliers and to the customer (through credit)  Absorbing some of the risk of the customers/suppliers  Providing buffers to both the suppliers and customers An Introduction to Supply Chains / 1. making deliveries.2.

191 of 384 . and using information about buyers. and products to encourage transactions An Introduction to Supply Chains / 1.2. processing. suppliers.Wholesalers Add Value By:  Gathering.

they remain indispensible for certain idiosyncratic transactions. and products to encourage transactions  Even in the information age. processing. which involve a great deal of tacit knowledge that is difficult to codify and transmit.Wholesalers Add Value By:  Gathering. An Introduction to Supply Chains / 1. suppliers.2. and using information about buyers.192 of 384 .

193 of 384 .2.Wholesalers Add Value By:  Filtering the product offering by suggesting appropriate choices and reducing the customer’s information overload An Introduction to Supply Chains / 1.

2. An Introduction to Supply Chains / 1.194 of 384 . unknowing collaborators) to suggest only the best solutions to the prospect’s needs.Wholesalers Add Value By:  Filtering the product offering by suggesting appropriate choices and reducing the customer’s information overload  Collaborative Filtering: using information about the preferences and choices of (the wholesaler’s) other customers (invisible.

Wholesalers Add Value By:  Creating an efficient infrastructure to exploit economies of scope and scale An Introduction to Supply Chains / 1.2.195 of 384 .

Wholesalers Add Value By:  Creating an efficient infrastructure to exploit economies of scope and scale  Effectively.196 of 384 . sharing their infrastructure with both the upstream suppliers and downstream customers to smoothen the flows An Introduction to Supply Chains / 1.2.

2. An Introduction to Supply Chains / 1. sharing their infrastructure with both the upstream suppliers and downstream customers to smoothen the flows  Due to specialization of flows and economies of scope and scale.197 of 384 .Wholesalers Add Value By:  Creating an efficient infrastructure to exploit economies of scope and scale  Effectively. the wholesalers can compete even with the manufacturer on price.

Wholesalers Add Value By:  Preparing Kits An Introduction to Supply Chains / 1.198 of 384 .2.

Wholesalers Add Value By:  Preparing Kits  Assembling to order An Introduction to Supply Chains / 1.2.199 of 384 .

2.Wholesalers Add Value By:  Preparing Kits  Assembling to order  Customizing products by permitting postponement An Introduction to Supply Chains / 1.200 of 384 .

201 of 384 .Wholesalers Add Value By:  Preparing Kits  Assembling to order  Customizing products by permitting postponement  Adding proprietary complements An Introduction to Supply Chains / 1.2.

2.Wholesalers Add Value By:  Preparing Kits  Assembling to order  Customizing products by permitting postponement  Adding proprietary complements  Designing new products from components by uniting their knowledge of supplier inputs with customer needs An Introduction to Supply Chains / 1.202 of 384 .

203 of 384 . Total US Sales of Wholesaler-Distributors (2003) = $ 2.9 trillion An Introduction to Supply Chains / 1.2.An Overview of the Wholesaling Sector (US) Sector Services Manufacturing Retailing Wholesaling Contribution to the Private GDP of US in 2003 52% 15% 8% 7% Independent wholesaling accounts for 5% of the jobs in US.

 The total number of individual member firms is more than 400.204 of 384 .2.000. An Introduction to Supply Chains / 1.The US wholesale distribution industry is represented by: National Association of Wholesaler-Distributors (NAW)  NAW is a federation of 97 national wholesale distribution line-of-trade associations.

Distributor/Wholesaler Business Model An Introduction to Supply Chains / 1.205 of 384 .2.

2.206 of 384 .Distributor/Wholesaler Business Model Distributors/Wholesalers Need to Offer Higher In-Stock Availability of the Best Range of Products While Striving to: An Introduction to Supply Chains / 1.

2.207 of 384 .Distributor/Wholesaler Business Model Distributors/Wholesalers Need to Offer Higher In-Stock Availability of the Best Range of Products While Striving to:  Get higher margins An Introduction to Supply Chains / 1.

2.208 of 384 .Distributor/Wholesaler Business Model Distributors/Wholesalers Need to Offer Higher In-Stock Availability of the Best Range of Products While Striving to:  Get higher margins  Reduce working capital An Introduction to Supply Chains / 1.

209 of 384 .2.Distributor/Wholesaler Business Model Distributors/Wholesalers Need to Offer Higher In-Stock Availability of the Best Range of Products While Striving to:  Get higher margins  Reduce working capital  Achieve higher productivity (asset efficiency) An Introduction to Supply Chains / 1.

2.Key Activities  Margin Management  Working Capital Management  Productivity Management An Introduction to Supply Chains / 1.210 of 384 .

211 of 384 .2.Margin Management An Introduction to Supply Chains / 1.

212 of 384 .2.Margin Management  A Measure of Distributor’s Value Added An Introduction to Supply Chains / 1.

213 of 384 .Margin Management  A Measure of Distributor’s Value Added Gross Margin % = (Sales – Cost of Sales) * 100 / Sales An Introduction to Supply Chains / 1.2.

Margin Management  A Measure of Distributor’s Value Added Gross Margin % = (Sales – Cost of Sales) * 100 / Sales Mark-up % = (Sales – Cost of Sales) * 100 / Cost of Sales An Introduction to Supply Chains / 1.214 of 384 .2.

Margin Management  A Measure of Distributor’s Value Added Gross Margin % = (Sales – Cost of Sales) * 100 / Sales Mark-up % = (Sales – Cost of Sales) * 100 / Cost of Sales For distributors and wholesalers.2. profit is a very small number between two very big numbers (Sales – Cost of Sales) An Introduction to Supply Chains / 1.215 of 384 .

Gross Margin does not indicate the profitability of different SKUs or customers An Introduction to Supply Chains / 1.216 of 384 .2.

Gross Margin does not indicate the profitability of different SKUs or customers as it does not account for the following costs: An Introduction to Supply Chains / 1.217 of 384 .2.

Gross Margin does not indicate the profitability of different SKUs or customers as it does not account for the following costs:  Marketing-Driven Costs (Relationship Management. Loyalty Programs) An Introduction to Supply Chains / 1. Allowances.2.218 of 384 .

Discounts/Rebates. Sales Cycle Times and Conversion Rates. Promotions.219 of 384 . Allowances. Sales Person Time Required.Gross Margin does not indicate the profitability of different SKUs or customers as it does not account for the following costs:  Marketing-Driven Costs (Relationship Management.2. Sales Channel Used) An Introduction to Supply Chains / 1. Loyalty Programs)  Sales-Driven Costs (Pre-sales support.

2. Order Size) An Introduction to Supply Chains / 1.Gross Margin does not indicate the profitability of different SKUs or customers as it does not account for the following costs (continued):  Transaction-Driven Costs (Order Complexity.220 of 384 .

221 of 384 . Reverse Logistics) An Introduction to Supply Chains / 1. Order Size)  Logistics-Driven Costs (Ship-to Points.2. Special Handling.Gross Margin does not indicate the profitability of different SKUs or customers as it does not account for the following costs (continued):  Transaction-Driven Costs (Order Complexity.

2. Special Handling.222 of 384 .Gross Margin does not indicate the profitability of different SKUs or customers as it does not account for the following costs (continued):  Transaction-Driven Costs (Order Complexity. Reverse Logistics)  Inventory-Driven Costs (Inventory Levels and Product Mix Required) An Introduction to Supply Chains / 1. Order Size)  Logistics-Driven Costs (Ship-to Points.

Reverse Logistics)  Inventory-Driven Costs (Inventory Levels and Product Mix Required)  Finance-Driven Costs (Credit Limits and Periods.2. Special Handling. Order Size)  Logistics-Driven Costs (Ship-to Points.Gross Margin does not indicate the profitability of different SKUs or customers as it does not account for the following costs (continued):  Transaction-Driven Costs (Order Complexity. Invoice Settlement) An Introduction to Supply Chains / 1.223 of 384 .

224 of 384 .A Better Measure to Analyze Profitability of Individual Products/SKU or Customer Is: An Introduction to Supply Chains / 1.2.

2.225 of 384 .A Better Measure to Analyze Profitability of Individual Products/SKU or Customer Is: Contribution Margin % = (Sales – Cost of Sales – Variable Costs) * 100 / Sales An Introduction to Supply Chains / 1.

2.226 of 384 .A Better Measure to Analyze Profitability of Individual Products/SKU or Customer Is: Contribution Margin % = (Sales – Cost of Sales – Variable Costs) * 100 / Sales [Contribution margin offered by the SKU/Customer = Gross Margin – Cost to Serve the SKU or Customer] An Introduction to Supply Chains / 1.

2.227 of 384 .Distributor’s Overall Profitability An Introduction to Supply Chains / 1.

228 of 384 .Distributor’s Overall Profitability Operating Margin % = (Sales – Cost of Sales – Overhead Costs) * 100 / Sales An Introduction to Supply Chains / 1.2.

229 of 384 .Interest) * 100 / Sales An Introduction to Supply Chains / 1.Distributor’s Overall Profitability Operating Margin % = (Sales – Cost of Sales – Overhead Costs) * 100 / Sales Net Margin % = (Sales – Cost of Sales – Overhead Costs .2.

2.230 of 384 .Distributors’ Profits can be severely hit by:  Products that need to be written down due to poor sales  A few bad debts An Introduction to Supply Chains / 1.

231 of 384 . An Introduction to Supply Chains / 1. Percentage Margins can be misleading as what matters to the distributor is the total margins earned (Sales – Cost of Sales).2.

232 of 384 .Most Distributors/Wholesalers Use a Portfolio-Pricing Approach to Blend: An Introduction to Supply Chains / 1.2.

Most Distributors/Wholesalers Use a Portfolio-Pricing Approach to Blend:  Fast-turning. low-margin products An Introduction to Supply Chains / 1.233 of 384 .2.

2.Most Distributors/Wholesalers Use a Portfolio-Pricing Approach to Blend:  Fast-turning.234 of 384 . low-margin products  Slower-turning but higher-margin products An Introduction to Supply Chains / 1.

Most Distributors/Wholesalers Use a Portfolio-Pricing Approach to Blend:
 Fast-turning, low-margin products  Slower-turning but higher-margin products  Lower Margins on price-benchmarking items (e.g., laptops)

An Introduction to Supply Chains / 1.2.235 of 384

Most Distributors/Wholesalers Use a Portfolio-Pricing Approach to Blend:
 Fast-turning, low-margin products  Slower-turning but higher-margin products  Lower Margins on price-benchmarking items (e.g., laptops)  Higher margins on products that are not price-benchmarking items (e.g., carrying cases for laptops)

An Introduction to Supply Chains / 1.2.236 of 384

Most Distributors/Wholesalers make Distributors often more money margin on carrying Use a Portfolio-Pricing Approach to Blend: cases
 Fast-turning, low-margin products
than on laptops because:

 Slower-turning but higher-margin products  Lower Margins on price-benchmarking items (e.g., laptops)  Higher margins on products that are not price-benchmarking items (e.g., carrying cases for laptops)

An Introduction to Supply Chains / 1.2.237 of 384

Most Distributors/Wholesalers make Distributors often more money margin on carrying Use a Portfolio-Pricing Approach to Blend: cases
 Fast-turning, low-margin products
than on laptops because:
 Customers benchmark laptop price and not the carrying case  Slower-turning but higher-margin products price

 Lower Margins on price-benchmarking items (e.g., laptops)  Higher margins on products that are not price-benchmarking items (e.g., carrying cases for laptops)

An Introduction to Supply Chains / 1.2.238 of 384

Most Distributors/Wholesalers make Distributors often more money margin on carrying Use a Portfolio-Pricing Approach to Blend: cases
 Fast-turning, low-margin products
than on laptops because:
 Customers benchmark laptop price and not the products  Slower-turning but higher-margin carrying case price  Laptops become  Lower Margins on price-benchmarkingobsolete and need items under-pricing but carrying cases don’t. (e.g., laptops)

 Higher margins on products that are not price-benchmarking items (e.g., carrying cases for laptops)

An Introduction to Supply Chains / 1.2.239 of 384

Distributors/Wholesalers Can Gain Much by Experimenting with Price Changes and Finding out:

An Introduction to Supply Chains / 1.2.240 of 384

Distributors/Wholesalers Can Gain Much by Experimenting with Price Changes and Finding out:  Safe products and SKUs that can bear price increases (increase and sustain higher prices)

An Introduction to Supply Chains / 1.2.241 of 384

Distributors/Wholesalers Can Gain Much by Experimenting with Price Changes and Finding out:  Safe products and SKUs that can bear price increases (increase and sustain higher prices)  Risky products and SKUs that are adversely affected by price increases (roll back prices immediately)

An Introduction to Supply Chains / 1.2.242 of 384

Working Capital Management

An Introduction to Supply Chains / 1.2.243 of 384

Working Capital Management
Working Capital = Cost of Inventories + Accounts Receivable – Accounts Payable

An Introduction to Supply Chains / 1.2.244 of 384

An Introduction to Supply Chains / 1.Working Capital Management Working Capital = Cost of Inventories + Accounts Receivable – Accounts Payable  Too little working capital results in stock-outs or inability to pay suppliers in time.245 of 384 .2.

Working Capital Management Working Capital = Cost of Inventories + Accounts Receivable – Accounts Payable  Too little working capital results in stock-outs or inability to pay suppliers in time.2. An Introduction to Supply Chains / 1.246 of 384 .  Too much working capital results in reduced profits due to higher cost of capital.

2. Overtrading often causes distributors to get into trouble as they need more working capital to grow their business.247 of 384 . An Introduction to Supply Chains / 1.

248 of 384 .Individual Measures of Working Capital Management An Introduction to Supply Chains / 1.2.

249 of 384 .Individual Measures of Working Capital Management Days Payable Outstanding (DPO) = (Accounts Payable / Annual Cost of Sales) * 365 Days An Introduction to Supply Chains / 1.2.

2.250 of 384 .Individual Measures of Working Capital Management Days Payable Outstanding (DPO) = (Accounts Payable / Annual Cost of Sales) * 365 Days Days Inventory Outstanding (DIO) = (Inventory Cost / Annual Cost of Sales) * 365 Days An Introduction to Supply Chains / 1.

2.251 of 384 .Individual Measures of Working Capital Management Days Payable Outstanding (DPO) = (Accounts Payable / Annual Cost of Sales) * 365 Days Days Inventory Outstanding (DIO) = (Inventory Cost / Annual Cost of Sales) * 365 Days Days Sales Outstanding (DSO) = (Accounts Receivable / Annual Sales) * 365 Days An Introduction to Supply Chains / 1.

Combined Measure of Working Capital Management An Introduction to Supply Chains / 1.252 of 384 .2.

253 of 384 .Combined Measure of Working Capital Management Working Capital Turn = (365 Days / Working Capital Days) An Introduction to Supply Chains / 1.2.

254 of 384 .Combined Measure of Working Capital Management Working Capital Turn = (365 Days / Working Capital Days) Where: Working Capital Days = DPO + DIO + DSO An Introduction to Supply Chains / 1.2.

255 of 384 . the Distributors May Have to: An Introduction to Supply Chains / 1.To Increase Working Capital.2.

2.256 of 384 . the Distributors May Have to:  Retain more profits An Introduction to Supply Chains / 1.To Increase Working Capital.

257 of 384 .2.To Increase Working Capital. the Distributors May Have to:  Retain more profits  Borrow more An Introduction to Supply Chains / 1.

258 of 384 .To Increase Working Capital. the Distributors May Have to:  Retain more profits  Borrow more  Ask shareholders to invest more capital An Introduction to Supply Chains / 1.2.

To Increase Working Capital.259 of 384 . the Distributors May Have to:  Retain more profits  Borrow more  Ask shareholders to invest more capital  Accelerate cash-to-cash cycle An Introduction to Supply Chains / 1.2.

the Distributors May Have to:  Retain more profits  Borrow more  Ask shareholders to invest more capital  Accelerate cash-to-cash cycle through:  Tightening customer credit (and face reduced sales) An Introduction to Supply Chains / 1.To Increase Working Capital.2.260 of 384 .

the Distributors May Have to:  Retain more profits  Borrow more  Ask shareholders to invest more capital  Accelerate cash-to-cash cycle through:  Tightening customer credit (and face reduced sales)  Reducing stocking levels (leading to reduced service levels/lost sales) An Introduction to Supply Chains / 1.261 of 384 .To Increase Working Capital.2.

the Distributors May Have to:  Retain more profits  Borrow more  Ask shareholders to invest more capital  Accelerate cash-to-cash cycle through:  Tightening customer credit (and face reduced sales)  Reducing stocking levels (leading to reduced service levels/lost sales)  Asking suppliers to extend credit terms/limits (face supplier reluctance/reduced margins) An Introduction to Supply Chains / 1.To Increase Working Capital.262 of 384 .2.

An Introduction to Supply Chains / 1. Distributors are also vulnerable to offers from suppliers’ sales people to take extra stock for an additional discount near the end of a quarter.263 of 384 .2.

2.  The cost advantage is invariably passed on to the retailers as the deal is offered to all the distributors in the market.264 of 384 . Distributors are also vulnerable to offers from suppliers’ sales people to take extra stock for an additional discount near the end of a quarter. An Introduction to Supply Chains / 1.

2.  The cost advantage is invariably passed on to the retailers as the deal is offered to all the distributors in the market.265 of 384 . the distributors cannot afford to be out of line with the market as the retailers’ shelves will be filled by the discounted merchandise offered by other distributors. An Introduction to Supply Chains / 1.  Yet. Distributors are also vulnerable to offers from suppliers’ sales people to take extra stock for an additional discount near the end of a quarter.

2.Productivity Measures An Introduction to Supply Chains / 1.266 of 384 .

2.267 of 384 .Productivity Measures that Combine Both the Profitability and Inventory Aspects: An Introduction to Supply Chains / 1.

268 of 384 .Productivity Measures that Combine Both the Profitability and Inventory Aspects: Gross Margin Return on Inventory Investment (GMROII) = Gross Profit/Inventory An Introduction to Supply Chains / 1.2.

Productivity Measures that Combine Both the Profitability and Inventory Aspects: Gross Margin Return on Inventory Investment (GMROII) = Gross Profit/Inventory = (Gross Profit/Sales) * (Sales/Inventory) An Introduction to Supply Chains / 1.2.269 of 384 .

Productivity Measures that Combine Both the Profitability and Inventory Aspects: Gross Margin Return on Inventory Investment (GMROII) = Gross Profit/Inventory = (Gross Profit/Sales) * (Sales/Inventory) = ‘Earn’ * ‘Turn’ An Introduction to Supply Chains / 1.270 of 384 .2.

271 of 384 .Productivity Measures that Combine Both the Profitability and Inventory Aspects: Contribution Margin Return on Inventory Investment (CMROII) = Contribution Profit/Inventory = (Contribution Profit/Sales) * (Sales/Inventory) = ‘Earn’ * ‘Turn’ An Introduction to Supply Chains / 1.2.

Productivity Measures that Combine Both the Profitability and Working Capital Aspects: Gross Margin Return on Working Capital (GMROWC) = Gross Profit/Working Capital = (Gross Profit/Sales) * (Sales/Working Capital) = ‘Earn’ * ‘Turn’ An Introduction to Supply Chains / 1.272 of 384 .2.

2.273 of 384 .Productivity Measures that Combine Both the Profitability and Working Capital Aspects: Contribution Margin Return on Working Capital (CMROWC) = Contribution Profit/Working Capital = (Contribution Profit/Sales) * (Sales/Working Capital) = ‘Earn’ * ‘Turn’ An Introduction to Supply Chains / 1.

274 of 384 .Need for the Distribution Channel  SMEs need distributors as it’s not economical for them to have their own distribution channel.2. An Introduction to Supply Chains / 1.

 Large companies prefer to focus on their core competency and outsource distribution to gain the advantages of low cost and flexibility. An Introduction to Supply Chains / 1.275 of 384 .2.Need for the Distribution Channel  SMEs need distributors as it’s not economical for them to have their own distribution channel.

An Introduction to Supply Chains / 1.276 of 384 .2.  Large companies prefer to focus on their core competency and outsource distribution to gain the advantages of low cost and flexibility.  Members of the distribution channel break the buying/selling process into manageable tasks each performed by a specialist firm on a large scale.Need for the Distribution Channel  SMEs need distributors as it’s not economical for them to have their own distribution channel.

Need for the Distribution Channel  SMEs need distributors as it’s not economical for them to have their own distribution channel.  Members of the distribution channel break the buying/selling process into manageable tasks each performed by a specialist firm on a large scale.  Distributors act as buffers between the manufacturer and the retailers/customers. An Introduction to Supply Chains / 1.2.277 of 384 .  Large companies prefer to focus on their core competency and outsource distribution to gain the advantages of low cost and flexibility.

278 of 384 .2.Retailing An Introduction to Supply Chains / 1.

An Introduction to Supply Chains / 1.Retailing  Retailing consists of the activities involved in selling goods and services to the ultimate consumer for personal/private consumption.2.279 of 384 .

Retailing  Retailing consists of the activities involved in selling goods and services to the ultimate consumer for personal/private consumption. An Introduction to Supply Chains / 1.2.280 of 384 .  The buying motive for a retail sale is always personal or family satisfaction stemming from the final consumption of the item being purchased.

Retailers  Stock inventory and sell in smaller quantities to the general public. An Introduction to Supply Chains / 1.2.281 of 384 .

282 of 384 .Retailers  Stock inventory and sell in smaller quantities to the general public. An Introduction to Supply Chains / 1.2.  Closely track the preferences and demands of their customers.

Retailers  Stock inventory and sell in smaller quantities to the general public. Tele-sales.  Closely track the preferences and demands of their customers. *Mail Order.2.283 of 384 .  Include both store and nonstore* retailers. Online. and Direct Selling An Introduction to Supply Chains / 1.

Retailers: An Introduction to Supply Chains / 1.2.284 of 384 .

285 of 384 .2. An Introduction to Supply Chains / 1.Retailers:  Select the Best Location.

product selection.Retailers:  Select the Best Location. service.  Often use some combination of price. and convenience as primary draw to attract customers.286 of 384 .2. An Introduction to Supply Chains / 1.

service.287 of 384 . product selection. refining its messaging and targeting as they learn more about their catchment area. and convenience as primary draw to attract customers. An Introduction to Supply Chains / 1.Retailers:  Select the Best Location.2.  Often use some combination of price.  Build up customer base through aggressive advertising and promotions.

288 of 384 .Retailers Draw the Customers: An Introduction to Supply Chains / 1.2.

Retailers Draw the Customers:  in through attractive window displays or good visibility of their most attractive products An Introduction to Supply Chains / 1.289 of 384 .2.

Retailers Draw the Customers:  in through attractive window displays or good visibility of their most attractive products  further in and around the store by smart layout and merchandising to increase the ‘basket’ size An Introduction to Supply Chains / 1.290 of 384 .2.

2. the complete polo gear. or all the items for a Chinese/Italian/Mexican meal) An Introduction to Supply Chains / 1.291 of 384 .g.Retailers Draw the Customers:  in through attractive window displays or good visibility of their most attractive products  further in and around the store by smart layout and merchandising to increase the ‘basket’ size  Retailers are increasingly grouping items together in ‘solutions’ rather than simply by categories (e.

292 of 384 . An Introduction to Supply Chains / 1.2.Customer Cost and Convenience (Services Demanded) Are the Most Important Factor for Success in Retailing.

Ordering through Telephone.Customer Convenience Comprises of:  Access (Spatial) Convenience (Convenient Location. Parking Facilities. e-Mail. or the Internet) An Introduction to Supply Chains / 1.293 of 384 . Longer Hours of Operation.2.

Intelligent Outlet Design and Layout. Longer Hours of Operation. e-Mail. and Signage) An Introduction to Supply Chains / 1. Parking Facilities.2. Package. Product Displays.Customer Convenience Comprises of:  Access (Spatial) Convenience (Convenient Location. Ordering through Telephone. Interactive Systems. or the Internet)  Search Convenience (Product Focus. Knowledgeable Staff.294 of 384 .

Intelligent Outlet Design and Layout. Interactive Systems. Ordering through Telephone. Knowledgeable Staff.2.Customer Convenience Comprises of:  Access (Spatial) Convenience (Convenient Location. Package. and Signage)  Possession Convenience (Ready Availability of Merchandise) An Introduction to Supply Chains / 1. Parking Facilities.295 of 384 . Product Displays. Longer Hours of Operation. or the Internet)  Search Convenience (Product Focus. e-Mail.

or the Internet)  Search Convenience (Product Focus.Customer Convenience Comprises of:  Access (Spatial) Convenience (Convenient Location. e-Mail. and Signage)  Possession Convenience (Ready Availability of Merchandise)  Transaction Convenience (Fast Billing & Delivery) An Introduction to Supply Chains / 1. Ordering through Telephone. Knowledgeable Staff. Longer Hours of Operation. Package. Product Displays. Interactive Systems. Parking Facilities. Intelligent Outlet Design and Layout.296 of 384 .2.

Other Dimensions of Store-Based Retailers’ Value Proposition An Introduction to Supply Chains / 1.297 of 384 .2.

298 of 384 .2.Other Dimensions of Store-Based Retailers’ Value Proposition  Product Choice and Comparison An Introduction to Supply Chains / 1.

2.299 of 384 .Other Dimensions of Store-Based Retailers’ Value Proposition  Product Choice and Comparison  Touch and Feel An Introduction to Supply Chains / 1.

Other Dimensions of Store-Based Retailers’ Value Proposition  Product Choice and Comparison  Touch and Feel  Trial An Introduction to Supply Chains / 1.2.300 of 384 .

2.Other Dimensions of Store-Based Retailers’ Value Proposition  Product Choice and Comparison  Touch and Feel  Trial  Advice An Introduction to Supply Chains / 1.301 of 384 .

2.Other Dimensions of Store-Based Retailers’ Value Proposition  Product Choice and Comparison  Touch and Feel  Trial  Advice  Confidence through Physical Presence in Backup or Ability to Return An Introduction to Supply Chains / 1.302 of 384 .

303 of 384 .. Image.) An Introduction to Supply Chains / 1. Indulgence.g.Other Dimensions of Store-Based Retailers’ Value Proposition  Product Choice and Comparison  Touch and Feel  Trial  Advice  Confidence through Physical Presence in Backup or Ability to Return  “Experiencing” of Some Intangible Dimensions (e. etc. Entertainment.2.

2.304 of 384 .Retailing Has Increasingly Become a Science An Introduction to Supply Chains / 1.

2.Retailing Has Increasingly Become a Science  Software tools are used to support decision making for: An Introduction to Supply Chains / 1.305 of 384 .

Retailing Has Increasingly Become a Science  Software tools are used to support decision making for:  Site Selection An Introduction to Supply Chains / 1.2.306 of 384 .

Flavors. etc.2.307 of 384 .Retailing Has Increasingly Become a Science  Software tools are used to support decision making for:  Site Selection  Ranging: Product Variety and Assortment (Depth: Brands.) An Introduction to Supply Chains / 1. Sizes. Colors.

)  Planograming (Arrangement of Products in Shelves) An Introduction to Supply Chains / 1. Sizes.Retailing Has Increasingly Become a Science  Software tools are used to support decision making for:  Site Selection  Ranging: Product Variety and Assortment (Depth: Brands.308 of 384 .2. etc. Flavors. Colors.

2. Sizes. etc. Colors. An Introduction to Supply Chains / 1. and special odors pumped through the air conditioner are now chosen based on research into consumer responses. background music.Retailing Has Increasingly Become a Science  Software tools are used to support decision making for:  Site Selection  Ranging: Product Variety and Assortment (Depth: Brands. Flavors. lighting.)  Planograming (Arrangement of Products in Shelves)  Even colors.309 of 384 .

2.Store-Based Retailers Are Demanding: An Introduction to Supply Chains / 1.310 of 384 .

Store-Based Retailers Are Demanding:  Higher margins An Introduction to Supply Chains / 1.2.311 of 384 .

Store-Based Retailers Are Demanding:  Higher margins  The right to return non-moving. slow-moving products An Introduction to Supply Chains / 1.312 of 384 .2.

313 of 384 . slow-moving products  Listing fees (to include a product in their store) An Introduction to Supply Chains / 1.Store-Based Retailers Are Demanding:  Higher margins  The right to return non-moving.2.

slow-moving products  Listing fees (to include a product in their store)  Special payments for putting products in prominent positions and high traffic areas An Introduction to Supply Chains / 1.314 of 384 .2.Store-Based Retailers Are Demanding:  Higher margins  The right to return non-moving.

2.315 of 384 . slow-moving products  Listing fees (to include a product in their store)  Special payments for putting products in prominent positions and high traffic areas  Marketing fees (for including products in their promotions) An Introduction to Supply Chains / 1.Store-Based Retailers Are Demanding:  Higher margins  The right to return non-moving.

An Introduction to Supply Chains / 1. etc.2.Store-Based Retailers Are Demanding:  Higher margins  The right to return non-moving. slow-moving products  Listing fees (to include a product in their store)  Special payments for putting products in prominent positions and high traffic areas  Marketing fees (for including products in their promotions)  Fines for erroneous or delayed deliveries.316 of 384 .

317 of 384 .2.Retail Positioning Strategy An Introduction to Supply Chains / 1.

2. An Introduction to Supply Chains / 1.318 of 384 .Retail Positioning Strategy Retailers have to make choices about (a) the cost-side characteristics and (b) demand-side characteristics of their business to position their retail outlet in the market.

319 of 384 .Cost Side Charcteristics X Demand Side Characteristics (Services Offered) An Introduction to Supply Chains / 1.2.

2.320 of 384 .Cost Side Charcteristics  Margin  Inventory Turnover Demand Side Characteristics (Services Offered) X An Introduction to Supply Chains / 1.

321 of 384 .2.Cost Side Charcteristics  Margin  Inventory Turnover Demand Side Characteristics (Services Offered)  Bulk Breaking X  Spatial Convenience  Waiting and Delivery Time  Product Variety  Customer Service An Introduction to Supply Chains / 1.

2.322 of 384 .Lowering the cost need not always mean lower levels of all consumer service outputs: An Introduction to Supply Chains / 1.

An Introduction to Supply Chains / 1.2.Lowering the cost need not always mean lower levels of all consumer service outputs:  Wall-Mart and Home Depot provide high product variety and moderate wait/delivery times at lowest prices.323 of 384 .

 Zara. offers up-to-date assortments and quick delivery of the hottest new styles at lower prices.Lowering the cost need not always mean lower levels of all consumer service outputs:  Wall-Mart and Home Depot provide high product variety and moderate wait/delivery times at lowest prices. An Introduction to Supply Chains / 1. the fashion-forward clothing retailer.324 of 384 .2.

An Introduction to Supply Chains / 1.2.325 of 384 .The choice of positioning depends on management’s perceptions of organization’s best chance for achieving its financial target.

326 of 384 .Strategic Profit Model (SPM) of Retail Business An Introduction to Supply Chains / 1.2.

Strategic Profit Model (SPM) of Retail Business Financial Performance Measure from Owners’ Point of View? An Introduction to Supply Chains / 1.2.327 of 384 .

Strategic Profit Model (SPM) of Retail Business Return on Net Worth An Introduction to Supply Chains / 1.2.328 of 384 .

2.Strategic Profit Model (SPM) of Retail Business Return on Net Worth = Net Profit Net Worth An Introduction to Supply Chains / 1.329 of 384 .

Strategic Profit Model (SPM) of Retail Business Return on Net Worth = Net Profit Net Worth = Net Profit Net Sales * Net Sales * Total Assets Total Assets Net Worth An Introduction to Supply Chains / 1.2.330 of 384 .

331 of 384 .2.Strategic Profit Model (SPM) of Retail Business Return on Net Worth = Net Profit Net Worth = Net Profit Net Sales * Net Sales * Total Assets Total Assets Net Worth * Asset Turnover * Financial Leverage (or Equity Multiplier) = Profit Margin An Introduction to Supply Chains / 1.

Margin Management  High prices increase margins but reduce asset turnover. and vice versa.2. An Introduction to Supply Chains / 1.332 of 384 .

Margin Management  High prices increase margins but reduce asset turnover.  High service levels  Reduce margins due to increased costs  Increase margins by allowing higher prices  Higher prices reduce inventory turnover An Introduction to Supply Chains / 1.2.333 of 384 . and vice versa.

 Efficient supply chains increase margins but require higher turnover (requiring lower margins). An Introduction to Supply Chains / 1.334 of 384 .2.

which.2. in turn.335 of 384 . Responsive supply chains increase service levels but also increase costs. requires higher prices to be charged (leading to lower asset turnover). An Introduction to Supply Chains / 1.

2.Strategic Profit Model (SPM) of Retail Business Return on Net Worth = Net Profit Net Worth = Net Profit Net Sales * Net Sales * Total Assets Total Assets Net Worth * Asset Turnover * Financial Leverage (or Equity Multiplier) = Profit Margin An Introduction to Supply Chains / 1.336 of 384 .

2.337 of 384 . An Introduction to Supply Chains / 1. and vice versa. Higher profit margin invariably results in lower turnover.

and vice versa.2.338 of 384 .  So how can a retailer maximize the product: (Profit Margin * Asset Turnover)? An Introduction to Supply Chains / 1. Higher profit margin invariably results in lower turnover.

2.Strategic Profit Model (SPM) of Retail Business Return on Net Worth = Net Profit Net Worth = Net Profit Net Sales * Net Sales * Total Assets Total Assets Net Worth * Asset Turnover * Financial Leverage (or Equity Multiplier) = Profit Margin An Introduction to Supply Chains / 1.339 of 384 .

If of Retail Business segment the target customer Strategic Profit Model (SPM) prefers higher services and is ready to pay for them: Return on Net Worth = Net Profit Net Worth = Net Profit Net Sales * Net Sales * Total Assets Total Assets Net Worth * Asset Turnover * Financial Leverage (or Equity Multiplier) = Profit Margin An Introduction to Supply Chains / 1.2.340 of 384 .

341 of 384 . * Net Sales * Total Assets Total Assets Net Worth * Asset Turnover * Financial Leverage (or Equity Multiplier) = Profit Margin An Introduction to Supply Chains / 1.If of Retail Business segment the target customer Strategic Profit Model (SPM) prefers higher services and is ready to pay for them: Return on Net Worth = Net Profit Net Worth = Net Profit Net Sales  Increasing margins while offering more services will increase the overall return.2.

342 of 384 .2.If the target customer Strategic Profit Model (SPM) of Retail Business segment Return on Net Worth = Net Profit Net Worth = Net Profit Net Sales * Net Sales * Total Assets Total Assets Net Worth prefers lower prices and is ready to compromise on services: = Profit Margin * Asset Turnover * Financial Leverage (or Equity Multiplier) An Introduction to Supply Chains / 1.

* Net Sales * Total Assets Total Assets Net Worth * Asset Turnover * Financial Leverage (or Equity Multiplier) = Profit Margin An Introduction to Supply Chains / 1.343 of 384 .2.If the target customer Strategic Profit Model (SPM) of Retail Business segment Return on Net Worth = Net Profit Net Worth = Net Profit Net Sales prefers lower prices and is ready to compromise on services:  Decreasing margins while offering less number of services will increase the overall return.

the Retailers: An Introduction to Supply Chains / 1.344 of 384 .To Reduce Investment (and. Get the Benefits Similar to Those of Increased Financial Leverage).2. thus.

345 of 384 . thus.2. the Retailers:  Go for leased outlets An Introduction to Supply Chains / 1.To Reduce Investment (and. Get the Benefits Similar to Those of Increased Financial Leverage).

the Retailers:  Go for leased outlets  Go for large outlets located in non-prime locations/outside cities filled with consignment inventory An Introduction to Supply Chains / 1. Get the Benefits Similar to Those of Increased Financial Leverage).2.To Reduce Investment (and. thus.346 of 384 .

thus.To Reduce Investment (and.2. the Retailers:  Go for leased outlets  Go for large outlets located in non-prime locations/outside cities filled with consignment inventory  Outsource logistics An Introduction to Supply Chains / 1.347 of 384 . Get the Benefits Similar to Those of Increased Financial Leverage).

Strategic Profit Model (SPM) of Retail Business Return on Net Worth = Net Profit Net Worth = Net Profit Net Sales * Net Sales * Total Assets Total Assets Net Worth * Asset Turnover * Financial Leverage (or Equity Multiplier) = Profit Margin An Introduction to Supply Chains / 1.348 of 384 .2.

349 of 384 .2. The retailers essentially make trade-offs between customer cost and customer convenience (levels of services offered) An Introduction to Supply Chains / 1.

01 3.83 2.32 1.52 3.75 2.36 5.85 2.58 RONW % 19.50 1.14 Asset Turnover 2.14 Financial Leverage 1.69 2.91 24.14 2.70 20.2. Best Buy Wal-Mart J C Penny Home Depot Staples Net Profit Margin % 5. Inc.81 17.350 of 384 .59 5.Strategic Profit Model of Selected Retailers Retailer The Gap.28 3.42 An Introduction to Supply Chains / 1.39 1.53 2.38 19.49 31.68 5.

351 of 384 .2.Classification of Retailers based on ownership and scale  Very Large International Chain Store  Large National Chain Store  Small Regional Chain Store  Independent Retailer  Franchisee An Introduction to Supply Chains / 1.

352 of 384 .2.Classification of Retailers Based on Pricing Philosophy  Full-Price Retailers (Upscale Departmental and Specialty Stores)  Discount Department Stores/ Discounters An Introduction to Supply Chains / 1.

353 of 384 .  Co-branded credit cards  On-site alterations  Liberal return policies  Etc. An Introduction to Supply Chains / 1.2. such as.Full-Price Retailers (Upscale Specialty Stores) offer  a unique line of products  high levels of service/convenience.

354 of 384 .2.Discount Department Stores/Discounters  Offer low prices and wide (but usually shallow) product selection  Expect customers to self-serve themselves An Introduction to Supply Chains / 1.

2.355 of 384 . An Introduction to Supply Chains / 1.Types of Discounters  Factory Outlets  Dollar Stores  Fast Food Restaurants  Warehouse Membership Clubs  Consignment Stores  Etc.

Consignment Supplier places goods at a customer location (such as a plant. payment is made only after the goods are used or sold. or a retail outlet) without receiving payment. The traditional meaning of consignment: A shipment that is handled by a common carrier An Introduction to Supply Chains / 1.2.356 of 384 .

Pay-on-Use:

Payment process is initiated by product consumption, that is, on withdrawal of product from inventory.

An Introduction to Supply Chains / 1.2.357 of 384

 Although the term “wholesale” is often used to describe Discounters (as in “Wholesale Clubs”), discounters are retailers, not wholesalers.

An Introduction to Supply Chains / 1.2.358 of 384

Classification of Retailers Based on Product Assortment
 Departmental Stores
 Offer very broad and very deep product assortment  Create elaborate store layout and presentation  Offer comprehensive services  Avoid price competition

Example: Globus, Pantaloons, Shopper’s Stop, Westside, Marks & Spencers
An Introduction to Supply Chains / 1.2.359 of 384

Classification of Retailers Based on Product Assortment (continued)  Supermarkets/Hypermarkets Offer:
 Broad and moderately deep product assortment  Low prices  Moderate services

Examples: Carrefour, Tesco plc, Foodbazar, etc.

An Introduction to Supply Chains / 1.2.360 of 384

Classification of Retailers Based on Product Assortment (continued)  Superstores, Mass Merchandisers Offer:
 Very broad but shallow product assortment  Low prices  Very few services

Examples: Wal-Mart, Tesco Extra, etc.

An Introduction to Supply Chains / 1.2.361 of 384

Classification of Retailers Based on Product Assortment (continued)  Limited Line Retailers / Specialty Stores Offer:
 narrow but very deep product assortment  High/moderate prices  Few to many services

Examples:
Bicycle Shops, Sports Stores, Crossword, Planet-M, etc.

An Introduction to Supply Chains / 1.2.362 of 384

Classification of Retailers Based on Product Assortment (continued)  Limited Line Retailers / Specialty Stores
 Category Killers

An Introduction to Supply Chains / 1.2.363 of 384

and Average Service Levels/Self-Service An Introduction to Supply Chains / 1.364 of 384 .2. Low Prices.Classification of Retailers Based on Product Assortment (continued)  Limited Line Retailers / Specialty Stores  Category Killers Offer: Extensive Range of a Particular Category.

Low Prices.Classification of Retailers Based on Product Assortment (continued)  Limited Line Retailers / Specialty Stores  Category Killers Offer: Extensive Range of a Particular Category.2.365 of 384 . and Average Service Levels/Self-Service Examples:     Toys-R-Us Ikea Home Furnishing Staples Office Supplies B&Q Hardware An Introduction to Supply Chains / 1.

2.Retail Performance Measures An Introduction to Supply Chains / 1.366 of 384 .

Retail Performance Measures  Average Store Size An Introduction to Supply Chains / 1.2.367 of 384 .

2.368 of 384 .Retail Performance Measures  Average Store Size  Sales per Store An Introduction to Supply Chains / 1.

369 of 384 .2.Retail Performance Measures  Average Store Size  Sales per Store  Sales per Square Foot An Introduction to Supply Chains / 1.

370 of 384 .2.Retail Performance Measures  Average Store Size  Sales per Store  Sales per Square Foot  Gross Margin % = (Sales – Cost of Sales) * 100 / Sales An Introduction to Supply Chains / 1.

Retail Performance Measures  Average Store Size  Sales per Store  Sales per Square Foot  Gross Margin % = (Sales – Cost of Sales) * 100 / Sales  Mark-up % = (Sales – Cost of Sales) * 100 / Cost of Sales An Introduction to Supply Chains / 1.371 of 384 .2.

2.Direct Product Profitability (DPP) An Introduction to Supply Chains / 1.372 of 384 .

373 of 384 . Logistics.Direct Product Costs (e.2..g.Direct Product Profitability (DPP) = Gross Margin . Store. and Marketing Costs) An Introduction to Supply Chains / 1. Transaction.

High DPP Sleepers imulate movement Advertize pgrade shelf positioning rovide additional facings Winners dvertize and promote ggressive display Increase traffic flow Maintain shelf stock Low DPP Losers e shelf allocation rease price Discontinue Traffic Builders educe direct product costs ncrease price owngrade shelf positioning ffer less promotion Low Sales Volume High Sales Volume An Introduction to Supply Chains / 1.2.374 of 384 .

375 of 384 .High DPP Winners Advertize and promote Aggressive display ncrease traffic flow Maintain shelf stock Low DPP Traffic Builders duce direct product costs Increase price Downgrade shelf positioning Offer less promotion Low Sales Volume High Sales Volume An Introduction to Supply Chains / 1.2.

High DPP Winners  Advertize and promote  Display Aggressively  Increase traffic flow  Maintain shelf stock Low DPP Traffic Builders duce direct product costs Increase price Downgrade shelf positioning Offer less promotion Low Sales Volume High Sales Volume An Introduction to Supply Chains / 1.376 of 384 .2.

High DPP Sleepers Stimulate movement Advertize Upgrade shelf positioning Provide additional facings Winners Advertize and promote Aggressive display Increase traffic flow Maintain shelf stock Low DPP Losers Reduce shelf allocation Increase price Discontinue Traffic Builders Reduce direct product costs Increase price Downgrade shelf positioning Offer less promotion Low Sales Volume High Sales Volume An Introduction to Supply Chains / 1.377 of 384 .2.

378 of 384 .2.High DPP Sleepers Stimulate movement Advertize Upgrade shelf positioning Provide additional facings Winners Advertize and promote Aggressive display Increase traffic flow Maintain shelf stock Low DPP Losers Reduce shelf allocation Increase price Discontinue Traffic Builders  Reduce direct product costs  Increase price  Downgrade shelf positioning  Offer less promotion Low Sales Volume High Sales Volume An Introduction to Supply Chains / 1.

379 of 384 .2.High DPP Sleepers Stimulate movement Advertize Upgrade shelf positioning Provide additional facings Winners Advertize and promote Aggressive display Increase traffic flow Maintain shelf stock Low DPP Losers Reduce shelf allocation Increase price Discontinue Traffic Builders Reduce direct product costs ncrease price Downgrade shelf positioning Offer less promotion Low Sales Volume High Sales Volume An Introduction to Supply Chains / 1.

380 of 384 .High DPP Sleepers Stimulate movement Advertize Upgrade shelf positioning Provide additional facings Winners Advertize and promote Aggressive display Increase traffic flow Maintain shelf stock Low DPP Losers  Reduce shelf allocation  Increase price  Discontinue Traffic Builders Reduce direct product costs ncrease price Downgrade shelf positioning Offer less promotion Low Sales Volume High Sales Volume An Introduction to Supply Chains / 1.2.

2.High DPP Sleepers Stimulate movement Advertize Upgrade shelf positioning Provide additional facings Winners Advertize and promote Aggressive display ncrease traffic flow Maintain shelf stock Low DPP Losers Reduce shelf allocation Increase price Discontinue Traffic Builders Reduce direct product costs Increase price Downgrade shelf positioning Offer less promotion Low Sales Volume High Sales Volume An Introduction to Supply Chains / 1.381 of 384 .

High DPP Sleepers  Stimulate movement  Advertize  Upgrade shelf positioning  Provide additional facings Winners Advertize and promote Aggressive display ncrease traffic flow Maintain shelf stock Low DPP Losers Reduce shelf allocation Increase price Discontinue Traffic Builders Reduce direct product costs Increase price Downgrade shelf positioning Offer less promotion Low Sales Volume High Sales Volume An Introduction to Supply Chains / 1.382 of 384 .2.

383 of 384 .2.High DPP Sleepers  Stimulate movement  Advertize  Upgrade shelf positioning  Provide additional facings Winners  Advertize and promote  Aggressive display  Increase traffic flow  Maintain shelf stock Low DPP Losers  Reduce shelf allocation  Increase price  Discontinue Traffic Builders  Reduce direct product costs  Increase price  Downgrade shelf positioning  Offer less promotion Low Sales Volume High Sales Volume An Introduction to Supply Chains / 1.

THE END An Introduction to Supply Chains / 1.384 of 384 .2.