Chapter 2:

Components of
Distribution
Management
1
 Lesson Learning Outcome

 Define the term distributor

 Describe the characteristics of the whole distributor

 Product acquisition
 Product movement
 Product transaction

 The role of distribution function

 Describe the various types of wholesale distributor

 Identify the need for wholesale distribution

 Describe the elements of physical distribution flow management

 Incoming materials and information
 Outgoing products and information

 Determine the importance of transportation in distribution

 INTRODUCTION

 Distributor can be defined as a person or firm that engaged in

the general distribution or marketing of some article or
class of goods.

 A business that not manufacture its own product, but purchases

and resells these product.

 A wholesaler who have exclusive rights to market, within a

given territory, the goods of a manufacturer or company.

 A person that distributes or serve to move the products from

manufacturers to market.

 A distributors normally operates from business to business,

unlike the retailers.
 The characteristics of
whole distributor

 Product acquisition
• Describe distributors as acquiring products in a finished or semi-
finished goods from either a manufacturer or through another distributor
in the supply channel.
• These products are then processes to a finished goods or sold as-is to
other level for resale or to be consumed in the production process.
• These functions can be performed by independent channel intermediaries
or by the distribution facilities or manufacturing companies .

 Product movement
• The central activity of a distributor is the management of product
delivery.
• Delivery encompasses those activities necessary to satisfy the utilities of
time, place, and possession by ensuring that the right product is available
to the customer at the right time and place.
• The distributor must maintain a structure of central, branch and field
warehouses that are geographically located to achieve optimum customer
service based on marketing analysis.
 The characteristics of
whole distributor

 Product transaction
• Distributors can be characterized as selling products in bulk
quantities for the purpose of re-sale or business use.
• Downstream businesses will sell these product to other distributors
or retailers who will sell them directly to the end customer, or
manufacturers who will consume the materials/components in the
production process.
• This characteristics can best be seen when contrasted with retailing
where retailers selling through a wide variety of outlets such as
department stores, specialty stores, supermarkets, etc.

The three functional characteristics describe a distributor come very close to the
formal definition of wholesaling as formulated by the U.S. Bureau of the
Census.
 The role of distributor function

 sellingand promoting
 buying and building product assortments
 bulk breaking
 value-added processing
 transportation
 warehousing
 sequencing
 merchandizing
 marketing information
Product Assortment
The role of Distribution Centre And
Warehouses
To hold the inventory that is produced from long
production runs.
To hold inventory and decouple demand requirement from
production capabilities.
To hold inventory to enable large seasonal demands to be
catered for more economically.
To hold inventory to help provide good customer service.
To enable cost trade-offs with the transport system by
allowing full vehicle loads to be used.
To facilitate order assembly.
Wholesale Trade
 Wholesale trade involves obtaining products at
prices below retail value and then selling them
to retail establishments, which then mark up the
prices.
Types of wholesale distributors
 merchant wholesalers
 brokers and agents
 manufacturers’ and retailers’ branches and offices
 exporting and importing distributors
 miscellaneous distributors
 durable and nondurable goods distributors
 What is a Wholesale
Distributor?

A real Certified Wholesale Distributor is a company who handles the wholesale shipments for the
manufacturer of a product (or in some cases is the product manufacturer). They have a warehouse,
distribution center and ship products directly to the Retailer (or to the customer if they deal in drop
shipping).

Certified Wholesale Distributors are who you, the Retailer, want to work with directly. They are the
only type of supplier that offers true wholesale prices because they ARE the real wholesale supplier.

Real Certified Wholesale Distributors are connected directly with the Manufacturer of the products
they warehouse and distribute. The Manufacturer knows who they are and ship bulk quantities of the
products they create to them. It's the job of a Wholesale Distributor to "distribute" or ship products to
either Retail stores or directly to the customer if they provide drop shipping for the retailer.
(1) Merchant Wholesalers
 A merchant is a business person who trades in commodities
produced by others, in order to earn a profit. 

 A  merchant  wholesalers are independent enterprises that buy

finished products from producers and other wholesalers and sell to
companies for resale or manufacturing consumption.

 Some merchant wholesalers only organize the movement of goods

rather than move the goods themselves.

 These wholesalers buy and sell goods to retail establishments for a

profit. 
Can be divided into two (2) types:
Full Service Wholesalers - offer widest possible range of
functions. Categorized as:
1. General Merchandise - wide mix (unrelated), limited depth.
2. Limited Line - only few products but an extensive assortment.
3. Specialty Line - narrowest range of products.
4. Rack Jobbers - are specialty line that own and maintain display racks,
take back unsold products.

Limited Service Merchant Wholesalers - only provide some

marketing functions.
1. Cash and Carry wholesaler - customers pay and furnish their own
transportation, No credit.
2. Truck Wholesalers - Operate rolling warehouses and sell a limited
line of products directly from their trucks to their customers. Follow
regular routes, primarily perishable products.
3. Drop Shippers (desk jobbers) - take title, negotiate sales but do not
take possession.
4. Mail Order Wholesalers - use catalogues instead of sales force to sell.
(2) Brokers And Agents
Agents
Never take ownership of the inventory
Negotiate purchases and expedite sales
Offer an extremely limited number of service
Act as middlemen, that bring buyers and sellers together
Compensated with commission, facilitate the process of buying and selling.
Agents represent buyers and sellers on a permanent basis

Brokers
Brokers represent buyers and sellers on a temporary basis
They generally specialize by product lines or customer types
Assisting in price, products, and delivery negotiation
Paid by party who hiring them. Normally Compensated with commission
Negotiate exchanges - perform the fewest intermediary functions. Assume no
risk
(2) Brokers And Agents (continued)
Types:

Manufacturers Agent - over half of all agents. Represent two or more sellers and offer
customers complete lines. Handle non- competing (complementary) products. Written
agreements.

Selling Agent - doing marketing and sales function either all specified line or
manufacturers entire output. Perform every wholesaling activity except taking title of the
product. Have significant influence over prices, buying terms and condition of sale.
Normally found in such industries such as textiles, industrial machinery and equipment,
chemicals and metals.

Commission Merchant/Commission Houses - focus primarily on the selling task.

Receive goods on consignment from local sellers and negotiate sales in large central
markets.

Auction Companies - provide storage for inspection. Sales made to the highest bidder.

Purchasing Agent - A product expert who obtain for the customer the best goods and
prices available, and provide consultative services. Have long term relationship with their
customer, often purchasing, receiving, inspecting, warehousing and shipping goods to
customers based on agreement with company buyers.
(3) Manufacturer’s and Retailer’s Branches & Offices

 Consists of manufacturers or retailers who perform

the functions of sales and distribution themselves
without the assistance of an independent wholesaler.

 Operate either as wholly owned and operated

divisions of a manufacturing or retailing company or
as independent businesses belonging to a large, multi-
company corporation
(3) Manufacturer’s and Retailer’s Branches & Offices(continued)

Manufacturer channel format can be described as below:

Factory Direct – product is shipped and serviced directly from the

manufacturer’s warehouse

Sales Branches and Offices – manufacturers who distribute their own products
through sales offices or channel warehouses. Sales Offices never hold inventory
but responsible for marketing, pricing, promotion and customer service. In
contrast, Channel Warehouses hold stock and target to satisfy local marketplace
delivery and services requirements.

Manufacturer’s-Owned Full-service Wholesale Distributor – an acquired

wholesale distribution company serving the parent’s markets. It connects link
between a company’s manufacturing and distribution operations. When demand
warrants, these companies will also distribute products of other manufacturers.
Examples can be found in clothing and apparel industries.
(3) Manufacturer’s and Retailer’s Branches & Offices(continued)

Manufacturer’s Outlets – these stores are actually retail outlets located in

high-density markets such as designer clothing. Provide easy access to
branded consumer products.

License – a manufacturer contracts with an independent retailer or

distributor, granting product and marketing function exclusivity for a
specific period of time. This distribution method is often used for
products in the development stages of life cycles.
(3) Manufacturer’s and Retailer’s Branches & Offices(continued)

Retailer channel format can be described as below:

(4) Exporting and Importing Distributors
 Companies that specialize in international distribution

 They develop and maintain their own international supply channels, compete
with foreign sales offices and warehouses. Others may choose to engage global
trade by using an international distributor

 Various types of international distributor are described below:

 International trading company – they perform many functions. Among them are the
purchasing and selling of goods, arrangement of logistics services between exporter
and importer, financing currency conversion and rate fluctuations, consulting
advise and other marketing and logistics issues.

 Export Merchants - they act as a form of international wholesaler. They purchase

goods from local manufacturers and then pack and ship them to distribution points
in foreign markets.
(4) Exporting and Importing Distributors (continued)
 Resident Buyers - large international firms will often locate their own buyers directly in an
exporting country. Their responsibility is to locate, purchase and ship goods back to their
home country or to company distribution facilities across the globe.

 Export Commission House – performs the same function as resident buyer except that the
buyer is not a company employee. Might be a contracted agent empowered to negotiate, buy
and ship products located in foreign markets. The agent will receive a commission by the
foreign buyer.

 Allied Manufacturer – Firms will export and import products by using a foreign business
partner. Both companies will negotiate to “piggyback” their products through the
international channel. Both firms can improve market share by presenting foreign markets
with extended product lines or achieve high logistics utilization.

 Export Management Company – Acts as a product line or foreign market specialist, who
represents that export for one or a group of noncompeting manufacturers and/or distributors.
(5) Miscellaneous Distributors
A specialize distributors that found in certain
sector like agricultural assemblers, petroleum
bulk plants and terminals, and auction companies.
(6) Durable and Non-durable Goods Distributors
 Categorised by the types of goods that they sell.

 Durable goods can be defined as products that are designed to

last for an extended period of time without rapid deterioration or
obsolescence. Examples: motor vehicles and automotive parts
and supplies, electrical goods, metals and minerals, etc.

 Non-durable goods can be defined as products that are

consumed or must be consumed quickly or that deteriorate
rapidly. Examples apparel and footwear, groceries and processed
foods, raw farm products and materials.
Understanding the wholesale distribution industry:-

 Wholesale distributors are one of the three primary

facilitators in the SCM process.

 The function of a distributors often misidentified

because it is sit in the middle between manufacturers
and retailers.

 There are some manufacturers and retailers engage in

more elaborate distribution activities.
The Need For Wholesale Distribution
 The focus is to increase the efficiency of time, place and
delivery utilities.

 The intermediaries can reduce the number of transaction

between producers and customers, as illustrated in figure.

 The usage of second tier intermediaries also can increase the

distribution efficiency.

 Intermediaries also consolidate flows of information and

products through the supply network channels.
 The creation of distribution arrangements can also decrease
overall channel complexity in other areas.

 Channel intermediaries also assists in routinization of business

functions and product sorting.

 Routinization refers to the policies and procedures that provide

channel members and new entrants with common goals, channel
arrangements, and expectations, and structures channel exchange
mechanisms to facilitate transactional efficiencies.

 Sorting refers to a group of activities associated with

transforming products and product quantities acquired from
producers into the assortments and lot sizes demanded by the
market place.
 Sorting can be broken down into four primary functions:
The Elements of Physical Distribution
Flow Management
 Most companies divide the physical flow of goods through the
firm into two separate but related phases.

 The first one is managing the flow of product and information

into the enterprise and called Materials Management.

 The secondly is concerned with the flow of products and

information out of enterprise and is called Physical
Distribution.

 As this two management cycles combines in continuous flow,

they constitutes the logistics function.
 Incoming materials and information
 It consists of activities that associated with the planning and
control of all inbound materials (finished goods, materials and
component parts) into the enterprise.

 The major sub functions are briefly described as follows:

1. Material Planning and Control – to plan for inventory both in the short and long
term of the enterprise. Goal of this function is to develop marketing and sales
forecasts into detailed production and finished goods requirement, to project resource
requirements associated with capital, manpower, materials and physical plant and to
perform strategic simulation to validate overall enterprise goals.

2. Purchasing – Activities associated with the procurement of raw materials,

components and finished goods. It includes value analysis, supplier selection, price
and delivery negotiation, purchase orders and etc.
Incoming Materials and information (Continued..)
3. Receiving - it involves the actual physical receipt of purchased
material into the firm. Such activities includes physical shipment
verification, receiving inspection of goods, claims and
documentation completion.

4. Warehousing and Storage - these functions are concerned with

the physical management of materials, components, finished
goods and MRO items. Such activities such as issuing and
accepting material returns, maintaining the physical accuracy of
the inventory, etc.

5. Materials Handling - This function consists of two activities.

First, it involves analyzing, designing and improving the
processes that related with physical movement of inventory.
Second, concerned with the actual physical movement of
products to and from storage areas to the points where they will
be used.
Outgoing products and information
 This function can be defined as the management of the storage and
movement of finished goods originating from the supply source, and
concluding with delivery to customer.

 The objective is to provide superior customer service, optimizing total

distribution costs, minimizing finished goods inventories, minimizing
the order processing cycle and providing costs effective transportation.

 The major sub-functions of physical distribution consist of the

following:

1. Order processing - responsible for the timely, accurate, and efficient

processing of customer orders into the firm, which is order entry,
inventory allocation and picking, and order confirmation and shipping.
Outgoing products and information
(Continued..)
2. Warehousing – the purpose of warehousing is to satisfy the
discrepancies that arise between inventory availability and the time and
place requirements of the marketplace. The goal of warehousing is to
have inventory available for customer sale at the least possible cost.
Storage warehouses are used to house unsold or promotion goods for
medium to long periods of time.

3. Finished Goods Management - Finished goods management- The

control of finished goods inventories covers a wide range of activities
from managing stocking level and order picking, to interbranch
warehouse transfer, and customer order shipment.

4. Material Handling and Packaging - consists of such activities as

containerization, vehicle loading, hazardous product handling and
packaging.
Outgoing products and information
(Continued..)

5. Shipping – the main functions of shipping consist of customer

order packing, vehicle loading, order confirmation and shipment
documentation.

6. Transportation – It is one of the most costly part of the business.

Distributor have the option of using five methods of transport:
motor carrier, railroads, pipelines, water and aircraft. The goals of
transportation are to provide continuous flow of product through
the supply channel, optimize vehicle capacities and loading
equipment during shipment, provide speedy and timely delivery,
and minimize shipment damage and theft.
The Importance of Transportation in
Distribution
to provide continuous flow of product through the
supply channel
optimize vehicle capacities and loading equipment
during shipment
provide speedy and timely delivery
minimize shipment damage and theft
To satisfy customer needs