A Study on Physical Distribution Activities of

Shwe Me Company Limited

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Supervised byDaw Swe Swe OoLecturerDepartment of Management StudiesYangon Institute of Economics

Presented byHla WynnRoll No. 82EMBA 8th Batch

Presentation Outline

Rationale of the Study

Objectives of the Study

Scope and Limitation of the Study

Research Methodology

Organization of the Paper

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1.1 Rationale of the Study

Myanmar is an industrial based agricultural country having natural resources

and places for the infrastructure development. For the country, it needs to supply the

construction materials for the construction sides, so it is essential for the supply side.

There are increasingly extended requirements for the construction to facilitate the

growing population.

Shwe Me Company Limited (SM) is one of the major cement and

construction materials importing and distributing companies, it provide construction

companies to raise the success and benefits of using its quality cements. The SM could

offer it products by enhancing a robust and superior quality of the building structures.

SM designated as a key importer of the Elephant brand cements, importing over 30,000

tons per month from Thailand by seaborne trade.

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1.2 Objectives of the Study

This paper is intended to present the importance of physical distribution in

delivering the products from end of production to the consumer.

The objectives of the study are as follows:

1)To examine distribution channel structure of Shwe Me in terms of factors of

choosing the right distributor

2)To analyze the physical distribution activities of Shwe Me in terms of transportation,

inventory, warehousing, materials handling, protective packaging and order processing

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1.3 Scope, Limitation and Method of the Study

This study describes current situations and findings on the physical

distribution activities of SM by analyzing its distribution channels over the country.

Due to time and cost constraint, the distribution channel structure of

competitors and their physical distribution activities cannot be observed.

This study applies descriptive research method. In preparing this paper, both

primary and secondary data are collected. Primary data are obtained from field survey

and personal interview with responsible personnel of SM. Secondary data are collected

from such related sources as brochures, pamphlets, reports prepared by SM as well as

from text books, internet, etc.

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1.4 Organization of the Paper

This paper is presented with five chapters. The first chapter displays brief

introduction of physical distribution and followed by rationale of the study, objectives

of the study, and scope, limitation and method of the study. The second chapter

includes the theoretical background of physical distribution. The third chapter is about

the profile of SM. The fourth chapter contains an analysis on physical distribution

activities of SM. In the last chapter, conclusion with findings and suggestions are

submitted.

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Chapter II

Theoretical Background

This chapter describes the theoretical background of physical distribution

which is used to analyze the physical distribution activities of Shwe Me.

2.1 Definition of Physical Distribution7

Physical distribution is the set of activities concerned with efficient

movement of finished goods from the end of the production operation to the consumer.

Physical distribution takes place within numerous wholesaling and retailing

distribution channels, and includes such important decision areas as customer service,

inventory control, materials handling, protective packaging, order procession,

transportation, warehouse site selection, and warehousing. Physical distribution is part

of a larger process called "distribution," which includes wholesale and retail marketing,

as well the physical movement of products.8

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Figure-2.1 A Simple Supply Chain

www.mdcegypt.com/Pages/Purchasing/Material%20Management/Physical%20Distribution.asp

http://www.enotes.com/physical-distribution-reference/physical-distribution

Distribution System

Distribution System

Physical DistributionPhysical DistributionPhysical SupplyPhysical Supply

CustomerCustomerSupplierSupplier ManufacturerManufacturer

Dominant Flow of Demand and Design Information

Dominant Flow of Products and Services

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2.2.1 Channel Types

As shown in Figure-2.2, the channels of distribution are broadly divided into

four types:

Producer-Customer: This is the simplest and shortest channel in which no

middlemen is involved and producers directly sell their products to the consumers.

Under it, the producer performs all the marketing activities himself and has full control

over distribution. A producer may sell directly to consumers through door-to-door

salesmen, direct mail or through his own retail stores. Big firms adopt this channel to

cut distribution costs and to sell industrial products of high value. Small producers and

producers of perishable commodities also sell directly to local consumers.

Producer-Retailer-Customer: This channel of distribution involves only one

middleman called 'retailer'. Under it, the producer sells his product to big retailers (or

retailers who buy goods in large quantities) who in turn sell to the ultimate consumers.

This channel relieves the manufacturer from burden of selling the goods himself and at

the same time gives him control over the process of distribution. This is often suited for

distribution of consumer durables and products of high value.

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Producer-Wholesaler-Retailer-Customer: This is the most common and

traditional channel of distribution. Under it, two middlemen i.e. wholesalers and

retailers are involved. Here, the producer sells his product to wholesalers, who in turn

sell it to retailers. And retailers finally sell the product to the ultimate consumers. This

channel is suitable for the producers having limited finance, narrow product line and

who needed expert services and promotional support of wholesalers. This is mostly

used for the products with widely scattered market.

Producer-Agent-Wholesaler-Retailer-Customer: This is the longest channel of

distribution in which three middlemen are involved. This is used when the producer

wants to be fully relieved of the problem of distribution and thus hands over his entire

output to the selling agents. The agents distribute the product among a few wholesalers.

Each wholesaler distributes the product among a number of retailers who finally sell it

to the ultimate consumers. This channel is suitable for wider distribution of various

industrial products.

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Figure-2.2 Types of Channels of Distribution

Direct Sale

Retailer

RetailerWholesaler

RetailerWholesalerAgent

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2.2.2 Choosing the Right Distributor 10

When deciding whether to use agents, wholesalers, brokers or retailers, to

distribute the product, it is needed to consider the following six factors as summarized

in the “Choosing the Right Distributor” on Table-2.1.

1)Number and types of customers

2)Concentration of market

3)Price of product

4)Complexity of product

5)Financial resources

6)Need for control

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Table-2.1 Choosing the Right Distributor

Sell Directly Use a Agent Use a Wholesaler Use a Retailer

Number and

Types of

Customers

Few Specialized Hundreds Diversified

Concentration of

MarketConcentrated Concentrated Scattered Scattered

Price of Product Expensive Less expensive Inexpensive Inexpensive

Complexity of

ProductHighly technical Less technical Simple Simple

Financial

ResourcesExtensive Adequate Limited Adequate

Need for Control High High Low Low

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2.3 Activities in the Physical Distribution

The research studies findings have led many small businesses to expand

their cost-cutting efforts beyond their historical focus on production to encompass

physical distribution activities.

In the physical distribution, there are six interrelated activities that affect

customer service and the cost of providing it. They are:

1)Transportation

2)Inventory Control

3)Warehousing

4)Materials Handling

5)Protective Packaging

6)Order Processing 

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Chapter IIIProfile of Shwe Me Company Limited

Organizational Background

Shwe Me Company Limited (SM) was founded in 1995 by three entrepreneurs. To comply with the legal requirements under the Myanmar Companies Act 1914, the company officially registered at the Myanmar Companies' Registration Office in April 26, 1995.

In collaboration with its international and local business partners, SM has successfully introduced Elephant Brand cements and construction materials, imported from Thailand into Myanmar by sea transport. SM is not only supplying products but also providing with quality products to its customers to have higher and better quality structures in constructional works for all builders.SM started it business by distribution of Elephant Brand cements and other construction materials to meet the demand of domestic market. SM, under the management of Board of Directors, it opened up for clients to have benefits by engaging a wide range of products and services. At present, SM is distributing Grey Cement and White Cement.

Currently, SM is distributing cements through 4 dealers, handling over 30,000 tons of grey cements, and 80 tons of white cement per mouth. The products are marketed domestically, distribute to construction sites, companies and end users over the country.

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3.3 Vision, Mission and Company Value

To provide personalized service as we strongly belief to have mutually beneficial long-term relationshipKeeping efficient and proven track records and offering comprehensive and flexible range of services

Vision

Identifying customer's needs and offer the best solutionInnovating at all times to work with wisdom skills and virtue to meet customers’ expectations

Mission

Obtaining valuable national interestsAccelerate our speedy services and trade volumesEnsuring high standard quality products and services

Company Value

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Figure-3.1 The Organizational Structure of Shwe Me

Board of Directors

Managing Director

Director (Admin) Director (Logistics)

Administration

Account

Operation

Construction

Transportation

Warehousing

Marketing

Human Resources

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Serial No. Division and State Number of

Dealers

Number of

Wholesalers

Number of

Retailers

1 Ayeyarwaddy Dealer - A 5 15

2 Bago Dealer - B 6 15

3 Kayin Dealer - D 1 -

4 Magway Dealer - C 5 6

5 Dealer - B 8 -

6 Mon Dealer - D 2 -

7 Rakhine Dealer - A 2 -

8 Sagaing Dealer - C 1 -

9 Shan Dealer - C 3 -

10 Tanintharyi Dealer - A 2 -

11 Dealer - D 44 -

Sub Total 4 79 36

Total 119

Table-4.1 Total Number of Middlemen by Region and State

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Sr. No. Region and State Population by

Region and State

Number of

Wholesalers and

Retailers

Total Ratio Ratio

1 Ayeyarwaddy 5,842,09320 5,842,093 : 20

292,104

2 Bago 5,515,20221 5,515,202 : 21

262,628

3 Kayin 1,324,504 1 1,324,504 : 1 1,324,504

4 Magway 3,759,749 11 3,759,749 : 11 341,795

5 5,759,958 8 5,759,958 : 8 719,994

6 1,875,205 2 1,875,205 : 2 937,602

7 Rakhine 2,947,859 2 2,947,859 : 2 1,473,929

8 Sagaing 4,842,801 1 4,842,801 : 1 2,421,400

9 Shan 4,474,830 3 4,474,830 : 3 1,491,610

10 Tanintharyi 1,208,212 2 1,208,212 : 2 604,106

11 5,706,84644 5,706,846 : 44

129,701

Total 43,257,259 115

Table-4.2 Total Population by Region and State (Oct 14, 2010)

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Serial

No.Region and State

Total Number of Townships

in Region and State

Number of Townships

where Wholesalers /

Retailers exist

Ratio

1 Ayeyarwaddy 26 15 26 : 15

2 Bago 28 15 28 : 15

3 Kayin 7 1 7 : 1

4 Magway 25 11 25 : 11

5 31 6 31 : 6

6 Mon 10 2 10 : 2

8 Rakhine 17 2 17:2

9 Sagaing 37 1 37:1

10 Shan 56 3 56:3

11 Tanintharyi 10 2 10:2

11 Tanintharyi 10 2 10:2

12 45 44 45 : 44

Table-4.3 Distributed Townships where Wholesalers and Retailers existed by Region and State

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Serial

No.Product Package Price (Kyats)

1 Grey Cement 50 kg 4,800

2 White Cement 50 kg 120,00

Table-4.4 Prices of Shwe Me Products

Source: SM Price List

Different from place of delivery to buyer, the prices of Grey Cements range between 4600 Kyats and 5700

Kyats. The prices of White Cements range between 4600 Kyats and 5700 Kyats, it depends on currency

exchange rate.

Although SM cements are inexpensive, it uses direct-selling channel and one to three level intermediary

channel (Dealers, Wholesalers and Retailers).

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Serial No. Product

Complexity

Highly Technical Less Technical Simple

1 Grey Cement

2 White Cement

Table-4.5 Complexity of Shwe Me Products

Highly Technical : product that requires highly-trained staff for pre-sales

information and post-sales service

Less Technical : product that does not require highly-trained staff for detailed

information about product usage

Simple : product that is user-friendly and simple for customers to use

Source: Survey Data

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Working Capital

(Current Assets – Current Liabilities)

(Kyats)

Cash in Hand

(Kyats)

Apr 2010 1078,087,650 158,446,230

May 2010 1056,036,760 153,304,970

Jun 2010 1037,002,253 154,060,650

Jul 2010 1021,200,478 174,061,170

Aug 2010 1012,926,909 186,660,090

Sept 2010 1042,412,069 189,573,690

Oct 2010 1001,544,049 142,053,140

Nov 2010 1037,312,344 162,360,660

Dec 2010 1058,216,969 179,629,860

Jan 2011 1067,621,790 164,859,690

Feb 2011 1018,815,065 161,668,365

Mar 2011 1081,368,680 185,642,280

Table-4.6 Monthly Working Capital and Cash in Hand of Shwe Me in (2010-2011) Fiscal Year

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Need for Control Number of

Involving Managers

Percentage

High Need for Control3

37.5 %

Low Need for Control5

62.5 %

Total8

100%

Table-4.7 Need for Control by Involving Managers of Shwe Me

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Channel Mode of Transport

Road Rail Water Air

Channel 1

Channel 2

Ayeyarwaddy

Bago

Kayin

Magwe

Mon

Rakhine

Sagaing

Shan

Tanintharyi

Total 10 1 7 -

Percentage 55% 6% 39% -

Table-4.8 Mode of Transport Usage by Channel

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Channel Forecasting and Order Decisions

Made Not Made

Channel 1 Yes

Channel 2

Ayeyarwaddy No

Bago No

Kayin No

Magwe No

No

Mon No

Rakhine No

Sagaing No

Shan No

Tanintharyi No

No

Table-4.9 Forecasting and Inventory Decisions Made by Channel

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Channel Number of Warehouse Details

Channel 1 3 Central Warehouses

Channel 2

Ayeyarwaddy 20 Sub Warehouses

Bago 21 Sub Warehouses

Kayin 1 Sub Warehouses

Magwe 11 Sub Warehouses

8 Sub Warehouses

Mon 2 Sub Warehouses

Rakhine 2 Sub Warehouses

Sagaing 1 Sub Warehouses

Shan 3 Sub Warehouses

Tanintharyi 2 Sub Warehouses

44 Sub Warehouses

Total 118

Table-4.10 Warehouse Usage by Channel

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Channel Materials Handling Equipments

Fork-lift Truck PalletPick-up

(2-Ton) TruckOthers

Channel 1 Shwepyithar WarehousesShwepyithar Warehouses 2 20 20 -Channel 2 Ayeyarwaddy - -Bago - -Kayin - -Magwe - -

- -Mon - -Rakhine - -Sagaing - -Shan - -Tanintharyi - -

20 -Total 2 20 40 -

Table-4.11 Use of Materials Handling Equipments Practice by Channel

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Product Name Package Size Package Type

Grey Cement 50 kg PP Bag

White Cement 50 kg PP Bag

Table-4.12 Packaging Characteristics of Cements

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ChannelOrder-to-Payment Cycle

Receipt of Order

DeliveryCash / Credit

PaymentThe Whole

CycleChannel 1 Shwepyithar WarehousesYangon Sea Ports ≤ 1 day ≤ 1 day ≤ 1 day 30 – 33 daysShwepyithar Warehouses ≤ 1 day ≤ 1 day ≤ 1 day 30 – 33 daysChannel 2 Ayeyarwaddy ≤ 1 day ≤ 2 day 30 days 30 – 33 daysBago ≤ 1 day ≤ 1 day 30 days 30 – 33 daysKayin ≤ 1 day ≤ 1 day 30 days 30 – 33 daysMagwe ≤ 1 day ≤ 1 day 30 days 30 – 33 days

≤ 1 day ≤ 10 day 30 days 30 – 43 daysMon ≤ 1 day ≤ 1 day 30 days 30 – 33 daysRakhine ≤ 1 day ≤ 7 day 30 days 30 – 40 daysSagaing ≤ 1 day ≤ 2 day 30 days 30 – 33 daysShan ≤ 1 day ≤ 2 day 30 days 30 – 33 daysTanintharyi ≤ 1 day ≤ 4 day 30 days 30 – 33 days

≤ 1 day ≤ 1 day 30 days 30 – 33 days

Table-4.13 Order-to-Payment Cycle by Channel

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Chapter V

5.1 Findings

By examining distribution channel of Shwe Me Co.Ltd , it is found that SM is

using two channels of distribution out of four types of distribution channels. They are:

1) Sell directly itself

Channel (1): SM (Sea Port) – Customers

SM (Sea Port) – SM (Swhepyithar Warehouses) –

Customers

2) Use dealers or middlemen

Channel (2): SM (Sea Port) – Dealers –Wholesalers – Retailers – Customers

Conclusion

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Channel (1) is direct selling channel in which no middlemen is involved and the

producer directly sells its products to the consumers, performs all the marketing activities

and has full control over distribution.

Channel (2) is one to three levels - intermediary channels in which Dealers,

Wholesalers and Retailers act as the middlemen. The dealers buy goods in huge quantities

and sell to end users. By using Dealers and Wholesalers, it relieves SM, from burden of

selling and distribution of the goods. It also eliminates the utilization of man power in

outreach areas. It is also noted that SM is using selective distribution by limited number of

channels (direct selling channel and one to three levels -level intermediary channel).

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By analyzing the choice of distributors regarding with the number of customers, it

is found that SM' middlemen deal with great number of customers. According to the ratio of

population to middlemen, it is also found that the size of population is bigger enough than

that of middlemen. (Range between 129 thousand to one and 2,421 thousand to one). Those

middlemen and end-users are diversified in the market.

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With regard to distributed townships and middlemen usage by Region and State

in Myanmar, it is noted that SM has a few number of middlemen in Kayin State (just 1

middleman in 7 Townships) and in Sagaing Region (just 1 middleman in 37 Townships).

In contrast, there are large numbers of middlemen in Yangon Region (44 middlemen in 45

Townships).

It is also noted that cements are inexpensive as the price range is between 4700

Kyats and 5,600 Kyats per 50kg bags. For White Cement, the price is stable at 12,000

Kyats per 50kg bag.

As regards the complexity of product, cements are less technical products;

expressing the application method on the package so that customers can use it easily

without needing the help of highly-trained staff.

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Regarding with financial resources of SM, it is noted that SM has adequate financial

resources since it has strong working capital (range between 1001 million Kyats and 1081

million Kyats) and positive cash in hand (range between 142 million Kyats and 189 million

Kyats). SM has selected the right persons for the appointment of the dealers who have

adequate financial resources and good reputation in business fields.

With regard to need for control, it can be found that most involving managers of SM

(37.5%) want to maintain tight control over product distribution and 62.5% of involving

managers do not want to maintain control over distribution.

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By exploring activities in the physical distribution regarding with transportation, it is

found that SM uses road, rail and water transports for delivering goods to customers.

Pipeline and air transports are not used. Thus SM is using three modes of transportation

out of five transportation modes. It is also found that SM uses 20 numbers of it owned

Trucks for delivering goods to customers existing near sea ports and uses Common

Carriers to reach to customers far away from distribution point. 4Dealers uses 20

numbers of their owned Trucks for delivering goods to customers

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Regarding with warehousing, it is noted that cements are kept at the Warehouses

located in Shwepyithar. It is also noted that SM centralizes its inventory in one place

(Shwepyithar Warehouses) in Myanmar in order to reduce warehousing and inventory

duplication costs. It is also found that there are Sub-warehouses located in respective

Region and State of Myanmar. There are 115 Sub-warehouses owned by distributors

and wholesalers.

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With regard to inventory, it can be found that SM uses centralized inventory

distribution system because stock is pushed out into the system from the Shwepyithar

Warehouses.

It is found that there is the use of material handling equipments such as 2 Fork-

lifts, 20Trucks and 20 Pallets in Channel 1 and use of 20 trucks in Channel 2. It is also

found that Channel 2 is labor intensive for the movement of cement bags.

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According to packaging characteristics of cement, it can be found that SM uses

moisture-proof PP bag for the packaging. By analyzing order processing with order-to-

payment cycle it is noted that the total duration takes 30 – 33 days for Channel 1 and it

takes 30 – 40 days for Channel 2 because receipt of payment from Dealers and

Wholesalers allow within 30 days.

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5.2 Suggestions and Recommendations

SM should reinforce its current two channels. To strengthen Channel 1, SM

should establish own Distribution Centers and branches in or near the center of district

or province cities. To make Channel 2 more effective, SM should employ more

Wholesalers and Retailers in Township-level where lack of Wholesalers and Retailers

to allocate at every prominent. In addition, SM should be aware of selecting

Wholesalers. It is important to meet the criteria of adequate financial resources,

trustworthiness and good reputation in business fields to avoid fraud.

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To achieve broad market coverage, it is recommended that SM should expand several

distribution routes or all possible distribution channels.

Since SM deals with a large number of customers, it needs to use the services of

Wholesalers and Retailers other than Company owned distributors, to provide readiness

and availability of the products to customers in time. According to Table-4.3, SM should

be broadening middlemen usage in other Townships to expand the number of Townships.

On the other hand, as the customers are geographically dispersed and the market is widely

scattered, it can be more economical to use the services of Wholesalers and Retailers.

Thus, SM should establish branches in densely populated areas by appointing new

Wholesalers and Retailers.

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Regarding with the price of product, it is suggested that SM should employ more

Wholesalers and Retailers since price of cements are inexpensive. As cheaper items,

cements should be sold in bulk to Intermediaries or Companies who make use of

benefits in "Economy of Scales".

Since cements are less technical complexity, it is agreeable that SM is using

Dealers and Wholesalers as Intermediaries. SM should employ more middlemen to

main fluctuation of price and to control over them.

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Since financial resources are adequate, SMC should establish own distribution

centers as branches and provide warehousing facilities in rural, remote areas, and

remaining townships. In addition, SM should use all available outlets to persuade

Wholesalers and Retailers to enlarge coverage of the cement market.

Regarding with the mode of transportation, SM should use inland water transports

for the best suited to moving large quantities of consignment with low cost. For speedy

and flexible delivery, SM road transport is the best.

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It should have more Sub-warehouses in hard-to-reach areas like Kayin State and

Shan State. When choosing warehouse locations, it is suggested that for the best

determinations, it make on proximity to the market and distance to terminals should be

taken into account.

With regard to inventory control, Shwepyithar Warehouses should keep to

minimum balance with inventory to deliver in needs of each distribution center (Sub-

warehouses of Dealers and Wholesalers). Since Dealers and Wholesalers are closest to

the marketplace, they have the capacity to know what the customer needs. So, the best

performance in coordination between Sea Ports, Warehouses and Distribution Centre

(Sub-warehouses) is advisable. By doing so, SM can has responsiveness to meet local

demand and attain the high degree of customer services.

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To improve distribution efficiency of Sub-warehouses owned by Dealers and

Wholesalers, it has to provide cargo handling equipments such as Pallet, Fork-lift and

Pick-up Trucks. In consideration for the capital investment of using such equipments,

Dealers and Wholesalers should be made balance between capital cost and operating

cost of distribution centre.

It is recommended that SM use an appropriate computerized system and software

for order processing, inventory management and warehousing, so that stock levels and

delivery schedules can be updated accordingly.

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In conclusion, since cements are no needs of selling directly by the Company, tight

control over distribution is no necessity for SM. Thus, it is strongly recommended that

SM use intensive distribution option by placing its products in as many places as

possible. In the local market, there are a few ranges of acceptable cement brands.

Therefore comprehensive distribution system should be applied. SM should also well

execute the efficiency of functioning activities in the physical distribution with more

compatible times and places.

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5.3 Needs for Future Research

This research only covers two specific objectives: the distribution channel

structure and the physical distribution activities of Shwe Me in Myanmar., this study is

somewhat limited in scope other competing companies in the same industry is

recommended for future researchers .

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