DistributionAn over view

History

Manufacturer ------ selling directly to buyers. Manufacturer------- selling in the weekly markets.

Buyers sourcing products as per needs only from above.

Retailers came into existence.

Since the requirement of customers was small, retailers stocked enough products to meet the buyer's convenience.

Second phase –status & shopping experience

Economic development lead to increase production & demand situation started tilting towards the buyer.

Market Shifts to meet the buyers status and needs. Beginning of competition. Buyer started to look for “better value for money”. Purchase power of buyer increased. Specialized retails emerged to carter to increased needs to different

segments of buyers. Better quality , premium brands , bargains , ambience etc.

Third Phase --- Back to convenience

Further economic boom lead to consolidation of markets. Time constrain. Buyers wanting quality, variety , convenience lead to Supermarkets Malls Superstores

Development of retail industry

Increased outlets lead to retail outlet becoming more powerful & demanding.

Trade offers became a part of life. Specialties & one stop shops emerge.

Development of Suppliers

Develop new markets. Develop new buyers. Need to develop an efficient system of making the products

available.

Need for development of “intermediaries” --Channel Partners.

Channel Partners

are non company employees who help make the product available at the right time and right place.

DistributionProduction Market

Marketing

Sales

Channel Partners C&F agents (carrying and forwarding agents)

Distributors Or Stockists.

Wholesalers.

What is a -- C & F Stocks company products Functions like a company office. Does not have competitor products. Delivers the company products. Works as per company policy. Implement company promo. activities. Helps collect company dues.

What is a -- Distributor / Stockist Title of goods is transferred from company to the distributor. Invoiced directly from company. Do not maintain competing lines. Can maintain non competitive products. There investment is in company’s inventory and credit to

retailers. Earn form the margin given by the company. Incur cost of distribution (transportation cost), establishment cost,

man power cost. Overhead cost is split by keeping stocks of more companies. Business is evaluated by return on investment. Some companies give an assured minimum return

What is a -- Whole salers

Whole salers buy from companies authorised Distributors / Stockists.

Whole salers do not have any geographical exclusivity. Wholesalers do have competitive lines and products. Provide the reach that the company Distributors / Stockists do

not provide. Wholesalers normally do not provide redistribution service. Sell mostly from there counter. Work on low margins. Income source is rotation.

Mother go downs / Hubs

Are owned and operated by the company. Used to maintain inventory of goods manufactured at factories

and TPOs.

C&F – location & responsibilities

Located in Metros, state capitals, big cities and cater to various towns, cities in the specific area of operation.

Performs duties like carrying, storing, forwarding, repacking, loading, invoicing, market returns, forwarding promotional material to field staff.

Title of the good remain with the company. Supplies only to companies distributors /stockists, super

stockists, sub stockists and to big retailers.

C & F - earnings

C & F is compensated a percentage of sales as commission for services rendered.

Commission is general variable & generally decreases with the increase of sales.

Man power cost is born by the C&F. Establishment cost is of the C&F. Insurance of the stocks is companies responsibility. However

the cost of insurance of the infra structure is of the C&F. Incidental costs like printed stationary, postage, transportation

cost for up country is cost to the company.

C&F – Benefits / Concerns

Benefits Does repacking of stocks as per the requirement of channel

partners at a nominal cost. Relieves the company of capital expenditure cost. Performs functions like logistics, few commercial duties & lets

the company concentrate on manufacturing, marketing & selling.

Concerns

Maintenance of quality and hygiene standards. Difficulty in adapting to companies vision and values. Risk of theft, pilferage and in transit loss. Rise in cost of –insurance, handling cost.

Distributors --- location, earnings & responsibilities

Located in cities, towns, villages and cater to large number of wholesalers , retailers.

They further divide the quantities in smaller lots as per the requirement of their customers.

Get a fixed percentage as earning. Some times get an additional incentives for driving sales. Goods title is transferred to the distributors. Need to give companies schemes to all customers. Handle market returns as per companies norms. Maintain hygienic conditions while storing. Pay to the company as per agreed terms.

Distributors -- Benefits / Concerns

Benefits Offer wider reach of companies products. Cater to customers regularly & timely. Availabilities and accessibility. Provide credit to retailers, helping company to build stock at

retail level. Provide wide coverage at the time of new launch. Deploy companies visibility advertisements to retail outlets.

Distributors -- Concerns.

Indulge in price war with other distributors. Cornering additional incentives aimed for retailers. Resistance to change in ever changing market dynamics &

increased competition. Unethical practices – smuggling stocks to other territories. Creating artificial shortages. Not communicating companies vision & policies to retailers,

thus creating communication gap. Indulging in arm twisting of companies due to strong unions.

Super stockists

Generally a big retailer or semi wholesaler who gets supplies from the companies distributor.

Earns by the parting of commissions done by distributor. Pays upfront. Sometimes company bears the additional commission

given. Facilitates the coverage and deeper penetration of

company stocks.

Sub stockists

Base at a location where villagers visit for their requirements. Buys in small quantities and supply to small retailers in the

vicinity. Earns a fixed commission. Gets company stocks from distributors.

Modern trade outlets

Organized retail outlets, stand alone super markets. Generate a huge sales volume. Due there huge potential companies have appointed

distributors to cater to these outlets.

Modern trade outlets – Benefits & Concerns.

Benefits Generate huge volumes, hence reduce distribution cost of the

company. New platform for company to display there products. Help companies to further promote there products. Better storage and dispensing conditions for products.

Concerns

Out flow of huge margins due to huge volumes. With size – power to dictate terms, which may not be good for

the company in the long term.

New Channel Development

Making products available at unconventional channels - like BPOs , Call centers, Multiplexes, Music stores, Restaurants, Coffee shops, Pubs, Lounges etc.

They generate growth for the company due to impulsive behavior of the consumer.

Retailers

Last and the most important part of channel. They are ‘kirana stores', general stores, chemists shops, ‘pann shops’, etc,. They supply to the end consumer. Maintain good inventory levels. Hold stocks of competitors. Have long term relation with there customers. Offer credit. Are influential and can substitute products.

Retailers-- Benefits & Concerns

Benefits Offer wide availability of products. Largely unorganised and have low bargaining power. Work on low margins. Offer a platform to launch new products– availability, displays,

trails by educating customers.

Concerns

Expect credit and hence put pressure on the bottom line of company.

High sales and distribution cost.

Whole salers

Channel between the distributors and retailers. Fill the gap left by distributors. Cater to small retailers who are financially weak. Buy in bulk and get better margin than retailers. Part with margins to customers and retain a part of margins. Primarily work on turn over.

Whole salers – benefits & concerns.

Benefits Facilitate better availability of reach of products. Buy in bulk , hence boost company’s top line. Offer credit to small retailers. Fill the gap left by company distributors.

Concerns

Indulge in price war & create disparity in the company’s product.

Poor storing and dispensing conditions.

Selection of channel partner

Identifying a partner. Applying selection criteria. Appointment.

Identifying a channel partner.

Advertisement. Field survey / Trade enquiry. Existing Dealers. Sales team recommendations.

selection criteria.

Short listing

Brands serviced. Experience. Companies associated

Selection criteria

Essential Criteria

Investment Capacity

Area of

control Attitude Reputation Financial strength

Selection Criteria

Situational Criteria

Storage space Location Infrastructure Sales ForceCapability

Channel commitment

The trading parties need — High level of commitment. Willing to consider each other needs. Flexibility in business operations.

Benefits of commitment

To Company

Increased sales Longer relationship. Brand building. Greater support.

To Dealer

Greater profitability. Social Image

Motivation of Channel Partner

Motivation schemes

Performance linked Non –performance(relation ship)

Monetary Non Monetary Non Monetary

Non Performance (relationship) Schemes

Season greetings. Personalized greetings –birthday anniversary etc. Appreciation –( verbal / letter) Invitation to H.O. Photographs Dinner Visit to shop Social visit on functions.

Relationship schemes

Hierarchy of the scheme on social image. History of usage of non monetary incentive. Hierarchy of channel member in the market. Company’s image as per dealer. Hierarchy of the person in the company implementing scheme.

Performance oriented schemes

Identifying schemes perceived as motivators. Grouping of schemes with similar impact. Identifying the influence of schemes. Develop guidelines to improve channel commitment.

Motivator schemes

Exclusivity. Training of sales team. Market information. Joint advertisement. Involvement of target setting Shop displays. Customer education. Customer schemes. Service to channel. Soft loans. Institutional business. Return on investment. Wide range of products. New product Launch. Computerization of supply chain. Trade schemes. Settlement of complaints and claims. Information about company. Annual awards.

Grouping of schemes.

Schemes aimed at customer satisfaction.

Range of products of company.

New Products launch.

Consumer education

Sales promotion schemes.

Schemes aimed at System Orientation.

Schemes

Computerization of supply chain.

.

Service to customer.

Information of company’s activities.

Inventory management Continuous availability

Customer Complaints

Settlement of claims

Schemes for support

Support of partnerBy offering

Exclusivity of territory

Market Information-competition,

-customer -reaction,

-products, etc.

Assuring minimum return on investment

Alliance building schemes

Schemes

Institutional business.

Best selling practices.

Sales staff training.

Involvement in target setting

Schemes aimed at Goodwill

Trade schemes in line with product cycle.

Joint Schemes.

Shop Displays / Road shows.

Soft loans

Annual rewards

Concerns of schemes.

Dealers / distributors to carry increased inventory Increased cost of inventory. Carry forwarding of unsold inventory. Maintain separate accounts.

Appraisal of channel members.

Sales performance. Servicing.

Financial discipline. Inventory maintenance.

Selling capacity. Support to company.

Sales Performance.

Gross sales of products. Sales per product. Target achievement. New products sales. Growth rate. Local market share. Growth over last year.

Servicing

Number of complaints handled. Speed of disposal. Customer retention rate.

Financial discipline.

Outstanding to company. Frequency of defaults. Receivable from other channels.

Inventory maintenance.

Average inventory maintained. Inventory to sales ratio. Inventory turnover. Ability to stock in emergency. Off season stock.

Selling capability.

Technical knowledge & competence. Sales people assigned for different products. Behavior of sales persons. Technical levels of sales persons. Selling skills of sales staff.

Support to company.

Interest in the product. Competition from other product with the dealer. Time given to company products viz. competition. Support during sales campaign. Support for display.

Appraisal Hidden aspects. Financial status Partnership issue. Family concern. Reputation. Company Variables. Social status.

Performance Vs. Action

Performance

Good Bad

Sustainable Unsustainable

Rewards / incentives

Controllable

Start withdrawal Willing to correct

uncontrollable

Identify development needs

Start withdrawal

Unwilling to correct

Start withdrawal

Performance

Controllable Non controllable

Financial status Company related issue. Reputation

Property division.

Social status.

Partnership break.

Channel Management , analysis & control

Required for company with high volume of sales & wide distribution net work.

FMCG , Pharma, liquor, Consumer electronics etc.

Issues related to Channel Management system

Manual billing and accounting. Un willing to adapt to computerized billing procedure. Considered complicated. Need of skilled computer operator. Increased expense.

Reports from CMS

Sales

All locations/Dealers

Specific Location/Dealers

Days reports

Till date for the month.

Payment

All dealers/channels

Specific dealers

Outstanding

Over due payments

Inventory reports

ALL dealers/locations

Specific dealers

Hubs

Expense reports

Tour expenses.

Direct expenses

Administrative expense

CMS-implementation

Hardware User friendly software

Training of dealers

Back end integration -- ERP

Benefits of CMS

Data available at HO instantly. Cost effective transaction with dealers. Low communication cost. Increased sales force productivity. Better forecast accuracy. Reduced cycle time. Less late deliveries. Reactivation of dealers. Reduction in capital of dealers. Better return on investment. Analysis of secondary sales data. Daily stock and sales data for analysis. Customer complaints addressed faster-customer satisfaction.

Channel evaluation -concept

Beyond 3 E’s

1. Identify the problems & causes.

2. What the organization should do to rectify the problem.

Channel Dynamics.---

Advertising- sales force - Channel

Process of selling

Process of selling

Obtaining demand Servicing demand Feedback

Prospecting Promoting Bulk Assortment

Storage

Credit & Service

Availability

Influences of Functional areas.

Sales forcemanagement

Channel management

Advertisement

Selling Strategy

Roles Sales force– prospecting / promoting /

educating the customer etc. Channel – Servicing the demand

Channel role Receive orders from customers. Deliver to stock to the customer at the right place and at

the right time. Store material at different distribution locations. Maintain healthy relations with customer. Receive feedback & forward to sales force.

Channel Design.

“Of all the marketing decisions, the ones regarding distribution channel are far most far- reaching. The company can revamp the promotional programme, modify the product line. But once the company has set up its distribution channels, it generally finds changing them difficult.”

Distribution network – USHA international

Electrical shops Specialized selling points for sewing machines. Specialized air-conditioning & refrigeration dealerships. Consumer durable shops. Specialized auto components dealerships.

Network of Usha

Manufacturer

Company show room Distributor Special channels Direct mail

Marketing.

Dealers Retail outlets Electrical trade Consumer durables

Consumer

Channel for Auto Lubricants

C&F

Petrol pumps

Stockist

Exclusive dealer Multi brand dealer

RetailerWork shops

Customer

Ideal Channel

Challenges ----

1. Channel needs to be adopted depending on target segments and positioning.

2. Goals of channel members differ.3. Alternates are available.

Ideal channel Should include

1. Number of channel to use.2. Levels in each channel.3. Type of intermediaries.4. Number of channel intermediaries at each level.

Ideal Channel

Target group

Buyer’s need

Retailer’s needs

Legal aspects

Distribution needs

Feasible alternatives

Reach

Function to be preformed by the channel

Product features

Internet as a channel partner

Retail. Job portals. E greetings. Internet service provider. Matrimonial services. E broking. Travel. Hotels/ cars/ tours Classifieds. On line market. Mobile VAS. E gamming.

Internet as a partner – S.W.O.T.

Strengths1. Better inventory management.2. Convenience.3. Complete variety display.4. Customization.5. Better database.6. Helps in information search.

• Weakness

1. High delivery cost

2. High waiting time.

3. Lower penetration of internet.

4. Additional logistics chain

• Opportunities

1. Well suited niche marketing.

2. Can hasten the process of purchase.

• Threats1. Channel conflict.

2. Low acceptance of internet for payments.

3. Shopping experience is denied.

4. No trial facility

Conventional channel vs. Internet

Existing1. Inability to maximize price.2. Inability to take advantage of

shortage due lack of market intelligence.

3. Lack of visibility of market price.4. New buyer identification difficult.5. High communication cost.6. High sale process.

Internet1. Prices of product are higher due

to bidding.2. E-selling bring buyers for all

market on one platform.3. Market facing shortage will have

highest biding. Auction provides complete market price visibility.

4. Shorter buyers search.5. Reduce communication cost.6. Lower inventories .increased sales

frequency.7. Lower process time for sale.

Channel Levels: Length of a channel: No. of intermediaries b/n producer & final consumer Zero Level:

Manufacturer Consumers Eg: Eureka Forbes, Reader’s Digest

One Level: Manufacturer Retailer Consumer

Eg: Maruti Suzuki dealers Two Level:

Manufacturer Wholesaler Retailer Consumer Eg: FMCG, White goods

Three Level: Manufacturer Dist. Wholesaler Retailer Consumer.

Eg: FMCG, White goods

Channel Dynamics: Vertical Marketing Systems:

Producers, Wholesalers, Retailers etc. acting as a unified system

Horizontal Marketing Systems Two or more unrelated companies come together

to exploit emerging marketing opportunity Eg: Banks & Car manufacturers’ tie-ups

Multi Channel Marketing Systems/Dual Marketing Firms using two or more marketing channels to

reach its customers Eg: Sale of airline tickets online as well as through agents

Channel Conflict & its management

Can happen at any stage in the channel management. Requires immediate attention. Generally arises when the channel & company differ.

Types of conflict

Multi channel conflict.– Channel compete amongst them self's. Leads to decline of both channels.

Horizontal channel conflict.– When two or more partners compete.

Leads to dilution of brand image.

Indications of channel conflict

Internal indicators.1. Low channel productivity.2. Deterioration of channel relationship.3. Poor customer service.

External Indicators1. Low customer satisfaction.2. Reduction in support of product line.3. De-emphasis on brand.4. Competition for sale in the same geographical area.

Areas of conflict ---

Multi point contact with institutional buyers. – (Rep / Retailers) Direct contact of wholesalers & retailers with consumer. Direct contact of wholesaler & retailer with C&F / Depot.

Identify the areas of Conflict

Channels competing with each other. Channels serving the same customer. Deteriorating profits of a channel member is leading to

encroachment. Will decline of channel harm the manufacturer?

Use decision making practice to solve channel conflict.

Conflict situations

Horizontal conflict1. Conflict due to Multi brands outlets, exclusive showrooms,

company showrooms i.e.-- same merchandise available in all stores. no exclusivity of territory of retailers. Vertical conflict1. Internet sales are conflicting with all channels.2. Company is selling directly to customers.

Customer satisfaction1. Customers want high quality with competing price.2. Customer not shifting shop due to price difference.

How to resolve channel conflict???

ANY SUGGESTIONS ??

Transport

Types1. Rail2. Road.3. Air.4. Water.5. Door to door service.6. Courier.

Logistics While distribution channel moves

responsibility and information through the chain.

Logistics covers the physical movement of goods.

Importance of logistics

Logistics amounts to > 10% of the cost of goods. It impacts the quality of goods. Facilitates marketing (ease in handling, storage, meets statuary

requirements. Economics in manufacturing can be increased by time and

location shifts. E.g. food industry--

Principle of logistics

Larger the load—lesser the cost. Effective logistics requires total cost to be considered. Packed good to be carried for effective transportation &

to reduce the cost. ( Container in rail & road transport.) Improvement in Weight : Bulk ratio. Higher the value : weight ratio TPT. Cost will be higher. Vertical storage. Optimum storage space utilization. Shortest route may not be most economical route.

Functions of logistics.

Packing & unpacking. Breaking bulk. Handling & collection of delivery material. Documentation & transfer of ownership / insurance. Transportation. Warehousing and storage. Route planning.

Distribution & logistics. The distribution system moves the responsibility and

information through he chain.

Logistics system comprises of handling, storage, transportation, documentation, physical movement of goods.

Logistic process The stimulus to logistic process is the customer order.

What is required

Product, specification

Quantity & packing

Special features*

Delivery

When required

Whom to ship & destination

Mode of shipment

Price to be charged

Whether (cost +Insurance +Freight)

WhetherFree at a particular point

Discounts and taxes to be charged.

Documentation

Inspection report

Excise pass

Shipping documents

Mode of payment

Letter of credit

Documents thru bank

Advance paymentOr credit

Inputs for logistics

Product

Material handling facilities container / carrier

Product to be:- 1. Packed2. Marked

3. Certified for shipping

The activities of Logistics

Handling Storage Transportation Documentation Demurrage

Output of logistics — end result

Product delivered

At the right place At the right time In good condition

Channel Integration Channel integration is not vertical integration, requiring ownership. It is streamlining physical and information flow by re-engineering the

distribution process. It is achieved through range of information and telecommunication

technologies.

Logistics – contribution to corporate goals

Revenues :: Positioning of stocks in locations – for reliable & swift delivery for higher sales revenue.

Expenses :: Cost incurring activities viz- transportation warehousing and inventory- to be considered in totality.

Capital investment :: for improved customer satisfaction and lower logistics cost

Core components for integration

To achieve channel integration management must design and implement a logistics system which coordinates with the components of the entire system, so as to give a given level of customer service, at the enquired cost.

Core components …. Development of customer standards Selection of transportation modes. Optimal number & location of warehouses. Inventory & control procedures. Production scheduling. Order processing and information system.

JIT - just in time logistics system

Purchasing Transportation. Warehousing. Inventory control. Production. Quality control.

Distribution cost

Time for which the inventory is held in transit. The space required. Ware housing cost. Transportation cost. Labour cost. Documentation cost ( Specially for international trade) Damage & Claim In bound & out bound logistics.

Cost control – A managements perspective

Difficult to control – issues involved. Higher cost passed to customer. ( where freight & insurance is

charged extra) Major cost improvement comes from technology than

managements action. Cost reductions – not visible.

Value additions can be done in:-

1. Reduction in delivery time.

2. Less errors , damages and losses.

3. Better packing, merchandising, training.

4. More effective attention to problems, maintenance, spare parts requirements and service