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Distribution Management &
Marketing Mix
Sales and Distribution Management
The Marketing Mix
Product
Price
Promotion
Place
Distribution channels help in the ‘place’ aspect of the
marketing mix
Dist...
Example
Consumer wants to buy a tube of toothpaste

Made available at a retail outlet close to her residence –
place
Made ...
Players Involved
The company and its distribution network
Direct company to consumer
Company to a C&FA / distribution cent...
Distribution Management
Management of all activities which facilitate
movement and co-ordination of supply and demand
in t...
Distribution Channels Defined
Are sets of interdependent organizations involved in
the process of making a product or serv...
Distribution Channels
Are intermediaries or middlemen
Exist because producers cannot reach all their
consumers
Multiply re...
Types of Channels
Sales channel motivates buyers, shares information
between company and its consumers, negotiates fair
ba...
Listing of Channel Members
Company own sales team
C&FAs and CSAs
Distributors, dealers, stockists, value-added re-sellers
...
C&FAs / C&SAs
C&FA: carrying and forwarding agent
C&SA: carrying and selling agent
Both are on contract with a company
Bot...
Distributors, Dealers, Stockists, Agents
Name denotes the extent of re-distribution done by
them
Distributors invest in th...
Wholesalers
Operate out of the main markets
Deal with a number of company products of their
choice
Are not on contract wit...
Retailers
The final contact with consumers
Operate out of their shops and sell a large assortment
and variety of goods
Loc...
Industrial Products
Producer

Producer

Agent/middleman

Industrial Distributor

Industrial Distributor

Industrial Custom...
Consumer Products
Producer

Producer

Producer

Distributor

Distributor
Wholesaler

Retailer

Retailer

Retailer

Custome...
Patterns of Distribution
Determines the intensity of the distribution
Intensity decides the service level provided
Types o...
Intensive Distribution
Distribution through every reasonable outlet
available – FMCG
Strategy is to make sure that the pro...
Selective Distribution
Multiple, but not all outlets in the market
A few select outlets will be permitted to keep the
prod...
Exclusive Distribution
Highly selective choice of outlets – may be even one
outlet in an entire market - car dealers
Could...
Distribution Channel Strategy
Derived from the corporate strategy and the
marketing strategy
Steps for designing the distr...
Customer Service Levels
Defined by the nature of the industry, the products,
competition and market shares.
Affordability ...
Distribution Objectives
Influenced by the customer expectations
Defines the extent of time, place and possession
utility w...
Set of Activities
Manner in which the company and its marketing channels
go about achieving the customer service levels
So...
Distribution Organization
Primary aim: determine who will do what
Major Decision points:
Extent of company support and out...
Policy and Procedure
Define policy and implementation guidelines
through Operating Manuals
Policy guidelines include
Code ...
Key Performance Indicators
Consistent achievement of targets by product
groups, periods and territories
Achievement of mar...
Key Performance Indicators
Balanced sales achievement during a period –
no period end skews
Market coverage with ready sto...
Critical Success Factors
The distribution strategy also needs the support and
encouragement of top management to succeed
S...
Marketing Channels
Sales and Distribution Management
Channel Functions
Information gathering
Consumer motivation
Bargaining with suppliers
Placing orders
Financing
Inventory m...
Distribution Channels
Take care of the following ‘discrepancies’
Spatial
Temporal
Breaking bulk
Assortment and
Financial s...
Spatial Discrepancy
The channel system helps reduce the ‘distance’ between
the producer and the consumer of his products.
...
Temporal Discrepancy
The channel system helps in speeding up in meeting
the requirement of the consumers
Time when the pro...
Breaking Bulk
The channel system reduces large quantities into
consumer acceptable lot sizes
Production has to be in large...
Need for Assortment
The channel system helps aggregate a range of
products for the benefit of the consumer – it could be
m...
Financial Support
The channel system provides critical working
capital to its customers by extending credit.
Some channel ...
Channel Flows
Forward flow – company to its customers – goods and
services
Backward flow – customers to the company – paym...
Three Flows Recognized

Company

Payment for goods / returns

Information

FORWARD

BACKWARD

BOTH WAYS

Customers

Goods ...
The Five Channel Flows
1.
2.
3.
4.
5.

Physical flow of goods
Title flow of goods (negotiation, ownership and risk
sharing...
Channel Flows
Some channel member/s have to perform them
There is a cost associated with each flow
If a channel member is ...
Direct Distribution
Company to consumers or retailers without use of
intermediaries. Also includes reaching Institutional
...
Direct Distribution - Examples
Banking services
Credit cards
Petrol / diesel – company own outlets
Land line phone connect...
Indirect Distribution
Goods may move through a set of intermediaries
Most FMCG companies follow this route

The intermedia...
Role of Intermediaries
Company 1

Company 2

Intermediary

Large number of CONSUMERS

Company 3
Indirect Distribution - Examples
All FMCG, consumer durables and pharmaceutical
Petrol / diesel / cooking gas - franchisee...
Degree of Involvement
Manufacturer
• Physical
• Title /
ownership
• Information
• Risk sharing
• Promotions

C&FA or
Distr...
Channel Formats
Is decided by who ‘drives’ the channel system:

Producer driven
Seller driven
Service driven
Others
Producer Driven
This is the effort of the manufacturer to reach the
product to his consumers. Examples:
Company owned reta...
Seller Driven
Use of existing channels to reach the largest number of
end users

Existing wholesalers and retailers
Modern...
Service Driven
These are the people who facilitate the distribution

Transporters and freight forwarders
Providers of ware...
Other formats
Multi-level marketing systems – Amway, Modicare,
Tupperware, Herbalife
Co-operative societies
Telephone kios...
Channel Levels
Zero level – if the product or service is provided to
the end user directly by the company.
Used mostly by ...
Channel Levels
Producer

Producer

Producer
Wholesaler

Retailer

Retailer

Customer /
consumer

Customer/
Consumer

Custo...
Marketing Channel Systems
Vertical:
Corporate
Administered
Contractual

Horizontal
Multi-channel
Vertical Marketing System
Various parties like producers, wholesalers and
retailers act as a unified system to avoid confl...
Corporate VMS
Combines successive stages of production and
distribution under single ownership
Examples:
Bata, Bombay Dyei...
Administered VMS
Co-ordinates distribution activities
Gains market power by dominating a channel
Usually true of dominant ...
Contractual VMS
Independent producers, wholesalers and retailers
operate on a contract
Could take the forms of:
Wholesaler...
Horizontal MS
Two or more unrelated companies join together to
pool resources and exploit an emerging market
opportunity
I...
Multi-channel Distribution
Company uses different channels to reach /
same or different market segments
Most FMCG companie...
Multi-channel Distribution
Used in situations where:
Same product but different market segments
Unrelated products in same...
Expectations from Channel
Variety and assortment at one location
Bulk Breaking
Close to customer location
Speed of Deliver...
Wholesaling
Sales and Distribution Management
Need for Wholesalers
Widespread economy – consumers can only reached
by thousands of retailers (except for consumer
durabl...
Characteristics of Wholesalers
Operate on large volumes but with chosen group of
products
Food, grocery, pharma or automob...
Characteristics of Wholesalers
Sell physical inputs or products – tangible goods ( Ws
in some service industries)
Optimise...
Definition
Wholesaling is concerned with the activities of
those persons or establishments that sell to
retailers and othe...
Delivering Value

Keep goods accessible to customers instantly
At times, get together to bargain for better
terms
Pass on ...
Difference with Retailers
Not too worried about location, ambience or
promotions – prefer to be in the main market
Deal wi...
Functions of Wholesalers
Varies in degree between free-lance, company
distributors and stockists / agents
Sales and promot...
Functions of Wholesalers
Grading and packing of commodities
Transportation of goods to customers
Financing the buying of c...
Types of Wholesalers
Full service: stocking, selling, offering credit, delivery
and business assistance (company distribut...
Limitations of Wholesalers
Some of them do not give complete information to
suppliers for selfish reasons
Cannot be relied...
Major Wholesaling Decisions
Which markets to operate in
Manpower to employ
What products to sell
Pricing decisions / Promo...
Favourable Factors
Companies have limitations in market / outlet
coverage. Wholesalers are required to fill the gaps
Hundr...
Favorable Factors
Big companies also need wholesalers to get big volumes
W/s extend credit to customers. Companies cannot
...
Unfavorable Factors
Companies coverage focus on retailers and institutions
through their distributors
Using modern retail ...
Distributor
Is a wholesaler nominated by a company to
exclusively re-distribute the company products to its
customers in a...
Dealer
Role similar to a distributor but
May not have a clearly defined territory and may sell both in
the market and from...
Stockist
May be working for a company with a designated
territory but does not re-distribute the stocks. Sells from
his pr...
Managing Distributors
The principles are similar across industry verticals. FMCG
is the most complex.
Has the capacity to ...
Managing Distributors
Distributor responsibilities include:
Buying adequate quantities by Stock Keeping Unit (SKU) for
red...
Need for Distributors
Under three circumstances:

For entering a new town
For additional coverage in the same town
For rep...
Cost of Servicing
Cost benefit of using distributors to be assessed
Logistics cost of serving the market
The number of cus...
Expectations from a Distributor
To be stated at the start of the relationship
Helps get the right kind of distributor also...
Expectations from a Distributor
Merchandising and displays in the market
Secondary sales efforts and tracking – critical f...
Expectations from a Distributor
Organising and participation in promotional events
Assist company in making a success of l...
Retailing
Sales and Distribution Management
What is Retailing?
Any business entity selling to consumers directly is
retailing – in a shop, in person, by mail, on the
...
Retailing
Term retail derived from French word ‘retaillier’ meaning
‘to break bulk’
Characteristics:
Order sizes tend to b...
Retailing
Retail stores are independent of the producers – not
attached to any of them
A survey shows that only 35% of pur...
Functions of Retailers
Marketing functions to provide consumers a wide variety
Helps create time, place and possession uti...
Functions of Retailers
Add value through:
Additional services – extended store timings, credit, home
delivery
Personnel to...
How do Customers Decide on a Retailer?
Price
Location
Product selection
Fairness in dealings
Friendly sales people
Special...
Kinds of Retailers
Type of
retailer

Characteristics

Specialty store

Narrow product line with deep assortment – apparel,...
Kinds of Retailers
Type of
retailer

Characteristics

Corporate
chains

More outlets owned and controlled by one firm – Gl...
Retailers’ Strengths
Choice of merchandise is their prerogative – put
pressure on producer suppliers
Many new products on ...
Trade / Retail Format
Range of goods and customer service dimensions
determine the ‘format’. Elements distinguish
between ...
Categories of Shoppers (1)
Identified by Cook & Walters
Task focused shopper – visits the store to buy
specific things he ...
Category of Shoppers (2)
Convenience goods (low value): probable gain from
shopping and making comparisons is small compar...
Trading Area
Catchment area from where most of the customers of
a retail store come
Corner grocery store caters to the loc...
Retail Strategy
Positioning of the retailer
Merchandising
Customer service
Customer communication
Positioning Strategy
Wide range with a high value add – Lifestyle brand of
stores
Limited range but a high value add – Tan...
Merchandising
A set of activities involved in acquiring goods and
services and making them available at the places,
times ...
Customer Service Strategy
Developed to create ‘stickiness’ in customers
Personal data collected using IT – including
purch...
Customer Communication
The manner in which the retailer makes himself
known to his customers. Has two parts to it:
The mes...
Pricing Strategy
Premium and indicating high value
Reasonable pricing with good value
Low pricing but high value for money...
Product Differentiation
Feature exclusive national brands not available in
competing retailers – unlikely
Exclusivity of p...
Retail Performance Measures
Gross margin return on inventory investment – GMROI
Gross margin multiplied by ratio of sales ...
Franchising
Franchisor is the firm which wants to sell its goods or
services
Franchisee is the firm or group that are will...
Benefits to Franchisor
Faster expansion
Local franchisee pays lower advertising rates than a
national firm
Owners motivate...
Benefits to Franchisee
Quick recognition among potential customers
Management training provided by principal
Principal may...
Retailing on the Internet
Unlimited assortment
Items may not be on hold – someone has to deliver
the product – delays
No p...
E-tailing Issues
Logistics support to selling
Payment gateway
Customer product returns
Conflicts with Brick &Mortar – over...
Designing Distribution Channels
Sales and Distribution Management
Channel Design Factors
Product mix and nature of the product
Width and depth of market / outlet coverage planned
Long term...
Channel Design Steps
Define customer needs
Clarify channel objectives
Look at alternative systems which can meet these
obj...
Customer Needs
Lot size – most convenient pack size which the
consumer can buy at a time
Waiting time – time elapsed betwe...
Channel Design Components
Revenue generation or the commercial part
Physical delivery of the goods or services – the logis...
Channel Design Issues
Activities required and who will perform
Activities relationship to service levels
Number of channel...
Channel Design Process
Segmentation
Positioning
Focus
Development
Segmentation
Putting customers in similar clusters based on their
needs
Doctors who prescribe medicines
Chemists who dispe...
Positioning
Defines the channel element required to service each
of the segments
The sales manager decides the channel par...
Focus
It may not be possible to meet the needs of all segments
– cost and practicality considerations (the managerial
tale...
Development
At this stage the channel system is being put in place
to achieve the objectives
Select the best of the altern...
Channel Objectives
Defines what the channel system is supposed to do to
support customer service.
Customer needs could inc...
Channel Alternatives
Are planned after deciding the customer segments to
be serviced and the levels of service
Business in...
Evaluation of Major Alternatives
Cost of operations
Ability to manage
and control
Adaptability
Range and volume
to be hand...
Evaluation Critieria
Cost:

If existing sales force can be expanded cost effectively, this is
the best alternative
Cost of...
Evaluation Criteria
Ability to manage and control:
Distribution network being an extended arm of the company,
the channel ...
Selecting Channel Partners
Getting good channel partners is a difficult part of
doing business
Some of the methods employe...
Selection Criteria
Qualitative: willingness, confidence in company products,
willingness to abide by company rules, buildi...
Training Channel Members
Starts from the time of recruitment
Channel member owner and his staff
Market views channel membe...
Subjects for Training
Field training on how the markets are to be worked to
achieve sales, collect payments and ensure the...
Subjects for Training
Care of company products
Technical specifications and answering FAQs of
customers
For technical and ...
Motivating Channel Members
Ambitious volume and growth targets – continuous
motivation required to achieve
Motivation incl...
“Power” of Motivation
Reward – positive support
Coercion- threat of punitive action
Referent – positive effects of associa...
Channel Members Evaluation
Effectiveness of the distribution channel determines
the success of the company
Company would l...
ROI as a Measure
Leading FMCG companies feel that an ROI of 30% for
a distributor is healthy and is a fair indication that...
Performance Evaluation
On pre-agreed tasks only. No surprises.
Specific targets on periodical basis are set.
Targets on vo...
Steps for Modifying Networks
Service level desired and willing to deliver
Activities required to deliver service level, wh...
Channel Comparison Factors
Efficiency
Effectiveness
Scalability
Flexibility
Consistency
Reliability
Integrity
Non-store Retailing
Selling door-to-door
Vending machines
Tele-shopping networks
Selling through catalogs
Other forms of d...
Retailing on the Internet
Unlimited assortment
Items may not be on hold
No product touch or feel
More information makes th...
Vertical Integration
This means owning the channel. The company does the
work of production, branding and distribution.
Do...
Vertical Integration
Upstream integration means the seller also produces the
goods – private labels of modern retailers.
I...
Outsourcing Distribution
Is the most prevalent situation as:
The ‘reach’ is better
The cost may be lower
The company can e...
Channel (Conflict) Management
Sales and Distribution Management
Channel Management
Channel system has a set of players:
Not equally motivated to implement the ideal channel
design
Whose ...
Use of Channel Power
Channel members are dependent on each other.
The power equations between them keep them
working toget...
“Power” (Bases) of Motivation
Reward – incentives for good performance
Coercion – threat of punishment for non-performance...
Countervailing Power
Balances the power exerted by one channel member.
It is not a one-sided equation.
Both the channel me...
Channel Coordination
Channel system is well coordinated if each member
understands his role correctly and performs it to h...
Channel Conflict
Situation of discord or disagreement between
partners in the same channel system – has negative
connotati...
Channel Conflict
CHANNEL CONFLICT

GOAL

DOMAIN

PERCEPTION

Goal conflict – rising out of mismatch in understanding of
ob...
Conflicts Result From…
Each channel member wanting to pursue his own
goals
Each wants to retain his independence
There are...
Four Stages of Conflict

PERCEIVED

FELT

MANIFEST

Each stage is progressively
more severe than the earlier
one

LATENT
Types of Conflicts
Latent Conflict:

Some amount of discord exists but does not affect the
working or delivery of customer...
Types of Conflicts
Felt Conflict:

Reaching the stage of worry, concern and alarm. Also known as
‘affective’ conflict.
Par...
Root Causes for Channel Conflict
Roles not defined properly
Allocation of scarce resources between members seem unfair
to ...
Resolving Conflicts
Understanding nature and intensity
Tracing the source of the conflict
Understand the impact of the con...
Conflict Resolution Styles
Styles are a combination
of assertiveness and co-operation.

Avoidance
Aggression

Accommodatio...
Avoidance
Used by weak channel members.
Problem is postponed or discussion avoided.
Relationships are not of much importan...
Aggression
Also known as a competitive or selfish style.
It means being concerned about one’s own goals
without any though...
Accommodation
A situation of complete surrender.
One party helps the other achieve its goals without
being worried about i...
Compromise
Obviously both sides have to give up something to meet
mid way.
Can only work with small and not so serious con...
Collaboration
Also known as a problem solving approach
Tries to maximize the benefit to both parties while
solving the dis...
Channel Policies
Defines how the channel is required to operate.
Normally framed by the channel principal to guide
the ope...
Channel Policies
Markets to be covered
Customer coverage
Pricing
Product portfolio to be handled
Selection, termination of...
The Services Sector
Twice the size of the manufacturing sector
Services offered are to be in line with customer
demand
Ser...
5 Characteristics of Services
They are intangible – can only be felt. No visual
features like size, style.
They are insepa...
Channels Used
Shorter channels than for products
Some channels used are:
Direct from service provider to user
Agents or br...
Channel Information Systems
Sales and Distribution Management
CIS Purpose
CIS is Channel Information Systems
CIS is the orderly flow of pertinent operational data
both internally and b...
Information - Advantages
Useful in marketing planning – helps improve quality of
marketing decisions
Can help tap market o...
Classification of Information
Based on the use made of it by marketing – planning,
operations, decision making or control
...
Information Process
COLLECTION

PROCESSING

STORAGE

USE
Information Process
Collection: acquiring and placing raw data – monthly
sales by each territory
Processing: analyzing dat...
Developing a Channel MIS
Decide what information is required

Organize information in a manner suitable
for interpretation...
Use of Information
Planning: sales forecasts or distributor indents
Control: expenses against budget
There is always a cos...
Sources of Data
Reports (oral and written) and records of channel
members, sales people
Letters, statements and market res...
A Good Channel MIS…
Integrated system to handle all regular data
Useful decision support system
Reflects the style of the ...
Element Importance
In a good channel MIS, it is necessary to define upfront
for each element of the MIS, the following:
Pu...
Competition Tracking
Purpose

Plan day to day corrective action to protect
market shares and shelf space

Source

Trade, c...
Market Logistics and SCM
Sales and Distribution Management
Materials Management
Materials forms the largest single cost item in most
manufacturing companies – needs to be carefully
...
Logistics Defined
Logistics means having the right thing, at the right
place, at the right time
The procurement, maintenan...
Logistics
Functions: planning, procurement, transportation,
supply and maintenance
Processes: requirements determination, ...
Scope of Logistics
Choice of markets
Procurement
Plant location and layout
Inventory management
Location and management of...
Components of Logistics Management
Logistics Activities
Input

•Natural
Resources
•HR
•Finance
•Information

Customer serv...
Links and Flows
General material flow/ service flow
Information flow
Information flow
Customer’s
customer

Customer

Lead ...
Logistics and Marketing
Interface on:

Product design and pricing
Customer service policies
Sales forecasts and order proc...
Support
Activities

Value Chain (Michael Porter)
Firm’s Infrastructure
Human Resources (Organization, people, methods)
Sys...
Logistics Plan Outline
Internal analysis (current position)
Organization
Human resources
Transportation
Relations with int...
Principles of Logistics Excellence
Strategic
Link logistics to corporate
strategy
Organize comprehensively
Use the power o...
Logistics Focus Areas
Customer service related
Packaging
Order processing
Spare parts and service support
After sales Cust...
Supply Chain Management
Business context:
Globalization of the market place
Advances in technology
Increasingly demanding,...
Supply Chain Integration
Optimizing the supply chain requires
supplier and customer involvement
to integrate
processes,
po...
Supply Chain Integration
Customer Analysis
Purchasing/Supplier
Partnering

Order Fulfillment

Storage &
Transportation

In...
Why Carry Inventory?
Support production requirements
Support operational requirements
Maximize customer service – ensure a...
Functions of Inventory
Inventory serves as a buffer between:
Supply and demand
Customer demand and finished goods
Requirem...
Factors Which Drive Inventory
Target service level parameters
Lot sizing practices
Safety stock and safety time convention...
Categories of Inventory
Anticipation – built in anticipation of future demand
– peak season, strike, promotion
Fluctuation...
Categories of Inventory
Transportation – pipeline or movement inventories –
to cover the time needed to move from one poin...
Types of Inventory
Obvious….
Raw materials
Work-in-process
Finished goods – of primary concern to marketing
Maintenance, r...
Performance Measures
Inventory turns = Annual cost of goods sold /average
inventory in value
Days of sales = inventory on ...
Types of Inventory Systems
Pure Inventory – when and how much to order. RM
procurement. Simple manufacturing operations
Pr...
Types of Classification
ABC category – most common for all
HML - high, medium, low - similar
FSND – fast moving, slow movi...
ABC Inventory Analysis
Based on Pareto’s law:
A – 20% items worth 80% of value
B – 30% items worth 15% of value
C – about ...
Inventory Related Costs
Unit costs – basic value of the item carried
Ordering costs – generating and sending a material
re...
Approaches for Controlling Inventory
Continuous review:
Safety stocks and forecasting methods
Excess and obsolete inventor...
Stores Management Objectives
Providing efficient service to users
Reduce cost of carrying goods
Providing correct, updated...
Functions
Warehouses
Material handling

Customer Service

Receive goods
Identify goods
Sort goods
Dispatch to storage
Hold...
Purpose of Warehousing
To provide desired level of customer service at the
lowest possible total cost
It is that part of t...
Reasons for Warehousing
Service related

Cost related

Maintain source of supply
Support customer service policies
Meet ch...
Warehouses
Support manufacturing
Mix products from multiple facilities for shipment to a
single customer
Break-bulk
Aggreg...
Distribution Warehousing
The objective is to set up a network of warehouses
closest to the customer locations to service m...
Distribution Center
Warehouse designed to speed the flow of goods and
avoid unnecessary costs
Speeds bulk-breaking to avoi...
Market Positioned
Warehouses located nearest to the final customer
Factors influencing are:
Order cycle time
Transportatio...
Production Positioned
Warehouses located close to the production facilities
or supply sources
Not the same level of custom...
Intermediate Positioned
Mid point locations between the final customer and
the producer
High customer service levels possi...
Transportation
Very important in the Logistics function:
Movement across space or distance adds value to products
Transpor...
Transportation Principles
Continuous flow
Optimise unit of cargo - stackability
Maximum vehicle unit – capacity utilizatio...
The Selection Criteria
Environmental analysis: shipper, carrier, government
regulations, public influence
Deciding objecti...
Cost Factors
Can be product related or market related.
Product related: density, stowability, ease or difficulty
of handli...
Customer Service Factors
Consistency, dependability
Transit time
Coverage – door-to-door for example
Flexibility in handli...
Reverse Logistics
Movement of goods from the market or customer
back to the company
The need:
Increased awareness of the e...
Advantages of Rail
Economy – more so for goods over long distances
Efficiency of energy
Reliability – not affected by weat...
Disadvantages
Uneconomical for small shipments and short distances
Not suitable for remote stations
Costly terminal handli...
Road Freight Advantages
Through movement – direct from consignor to
consignee, no transshipment
Flexibility – routes and l...
Disadvantages
Susceptibility to weather and road conditions – in
spite of the best protection
Unsuitability for heavy load...
Air Transport Advantages
Faster mode
Reduction in cost particularly inventory
Broad service range
Increasing capabilities
...
Water Transport
Advantages:
Mass movement of bulk
Lowest freight cost
Preferred for long haul of low value commodities

Di...
Pipeline Movement
Advantages:

Reliable, continuous, all weather transport
Low energy consumption – hence low cost
Low mai...
Ropeways
Advantages:
In hilly or inaccessible areas
Long and circuitous routes with streams / deep valleys
For commodities...
Carrier Selection
Traffic Related
Length of haul
Consignment weight
Dimensions
Value
Urgency
Regularity of shipment
Fragil...
Chart of Relative Merits
Parameter

Weightage

Rail

Road

Air

Water

Pipe
line

Rope
way

Speed

30

5

6

8

4

3

3

V...
International Sales & Distribution
Sales and Distribution Management
Why International?
The WTO agreement has resulted in opening up of new areas
for freer trade (Textiles, Services & Agricul...
Choosing the Market
Factors to be borne in mind while choosing markets:
Size of the market
Language & Culture of the marke...
Culture and International Business
Culture influences everything from taste &
preferences to consumption patterns and atti...
Legal Aspects of International Business
Laws vary from country to country – there is no “international
law”
Important to k...
Risks in International Business
Two main risks in international business:
Political risks – involve disruption of contract...
Risks in International Business
Risks can be insured with agencies like the export
credit guarantee corporation(ECGC) for ...
Trade Between Countries
Reasons for trade between countries include:
Non availability of a product or resource
Cost advant...
International Trade-Company Perspective
Companies may choose to sell internationally for the
reasons given below:
Limited ...
Entry Strategy
Exporting through local agent
Exporting through foreign agent
Exporting to foreign importer / distributor
S...
Organizing for International Sales
Structure depends on volume of sales and nature of
the product.
In situations of low vo...
Distribution
Distribution is a vital aspect of marketing – ensuring
availability of the product in the right quantity, at ...
Distribution Options
Depends on the volume of the business
Positioning of the product
Infrastructure of distribution in th...
Role of Logistics
Very important aspect of international selling
Logistics can make up over 15% of the cost of the product...
Profile of International Salespersons
Pleasant and amiable personality
Ability to adapt to foreign culture – especially fo...
Pricing and Payment Terms
Common pricing terms are:
Ex Works – at the mfrs factory gate
FOT, FOR – free on truck / rail –l...
Pricing and Payment Terms
Payment terms can include:
Cash in advance
Cash on delivery – cash against documents
Consignment...
Currency of Pricing
The US Dollar is the most widely used currency for pricing
international sales
Importers in some count...
Packing and Shipping
Packing is of two types:
Industrial packing – bulk for protection during shipping &
transport
Consume...
Market Intelligence
Secondary data is very easy to gather from various
publications, agencies like chambers of commerce, t...
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  1. 1. Distribution Management & Marketing Mix Sales and Distribution Management
  2. 2. The Marketing Mix Product Price Promotion Place Distribution channels help in the ‘place’ aspect of the marketing mix Distribution provides place, time and possession utility to the consumer
  3. 3. Example Consumer wants to buy a tube of toothpaste Made available at a retail outlet close to her residence – place Made available at 8 pm on a Tuesday evening when she wants it – time She can pay for the toothpaste and take it away – possession The company distribution function has made all this possible. The situation would be similar if a customer wants to buy a refrigerator or medicines or even an electric motor
  4. 4. Players Involved The company and its distribution network Direct company to consumer Company to a C&FA / distribution center to distributors to retailers Distributor to wholesaler to retailer All these intermediaries help the process of ‘exchange’ of the product or service.
  5. 5. Distribution Management Management of all activities which facilitate movement and co-ordination of supply and demand in the creation of time and place utility in goods The art and science of determining requirements, acquiring them, distributing them and finally maintaining them in an operationally ready condition for their entire life.
  6. 6. Distribution Channels Defined Are sets of interdependent organizations involved in the process of making a product or service available for use or consumption – Stern & Ansary Whether selling products or services, marketing channel decisions play a role of strategic importance in the overall presence and success a company enjoys in the marketplace.
  7. 7. Distribution Channels Are intermediaries or middlemen Exist because producers cannot reach all their consumers Multiply reach and provide efficiency to the marketing process Facilitate smooth flow and create time, place and possession utilities Have the core competence and reach Provide contact, experience, specialization and scales of operation
  8. 8. Types of Channels Sales channel motivates buyers, shares information between company and its consumers, negotiates fair bargains for consumers and finances the transactions Delivery channel meant only for physical part of the distribution Service channel – performs after sales service
  9. 9. Listing of Channel Members Company own sales team C&FAs and CSAs Distributors, dealers, stockists, value-added re-sellers Agents and brokers Franchisees Electronic channels Wholesalers Retailers
  10. 10. C&FAs / C&SAs C&FA: carrying and forwarding agent C&SA: carrying and selling agent Both are on contract with a company Both are transporters who work between the company and its distributors Collect products from the company, store in a central location, break bulk and dispatch to distributors against indents Goods belong to the company C&SA also sells the goods on behalf of the company but remits proceeds after sale
  11. 11. Distributors, Dealers, Stockists, Agents Name denotes the extent of re-distribution done by them Distributors invest in the products – buy products from the company Are on commission, margins or mark-up May or may not get credit – but extend credit Distributors cover the markets as per a beat plan. All others merely finance the business. Distributors could be exclusive for a company Agents bring buyer and seller together
  12. 12. Wholesalers Operate out of the main markets Deal with a number of company products of their choice Are not on contract with any company Sell to other wholesalers, retailers and institutions Negotiate about 15 days credit from company distributors – also provide credit to their customers Operate on high volumes and low margins
  13. 13. Retailers The final contact with consumers Operate out of their shops and sell a large assortment and variety of goods Located closest to consumers Buy from company, distributors or wholesalers Highest margins in the network Provide personalized services to their customers
  14. 14. Industrial Products Producer Producer Agent/middleman Industrial Distributor Industrial Distributor Industrial Customer Industrial Customer Customers may also directly purchase from company sales force
  15. 15. Consumer Products Producer Producer Producer Distributor Distributor Wholesaler Retailer Retailer Retailer Customer / consumer Customer/ Consumer Customer/ Consumer Retailers may also direct from company sales force
  16. 16. Patterns of Distribution Determines the intensity of the distribution Intensity decides the service level provided Types of distribution intensity: Intensive Selective Exclusive
  17. 17. Intensive Distribution Distribution through every reasonable outlet available – FMCG Strategy is to make sure that the product is available in as many outlets as possible Preferred for consumer, pharmaceutical products and automobile spares
  18. 18. Selective Distribution Multiple, but not all outlets in the market A few select outlets will be permitted to keep the products Outlets selected in line with the image the company wants to project Preferred for high value products Tanishq jewelry Keeps distribution costs lower
  19. 19. Exclusive Distribution Highly selective choice of outlets – may be even one outlet in an entire market - car dealers Could include outlets set up by companies – Titan, Bata Producer wants a close watch and control on the distribution of his products.
  20. 20. Distribution Channel Strategy Derived from the corporate strategy and the marketing strategy Steps for designing the distribution strategy are: Defining customer service levels Distribution objectives and steps Structure of the network required Policy and procedure to be followed Define Key performance indicators State Critical success factors
  21. 21. Customer Service Levels Defined by the nature of the industry, the products, competition and market shares. Affordability also decides the service level It should at least match competition. Customer expectations have no limit
  22. 22. Distribution Objectives Influenced by the customer expectations Defines the extent of time, place and possession utility which the customer can expect out of the channel network
  23. 23. Set of Activities Manner in which the company and its marketing channels go about achieving the customer service levels Some of these steps could be: Periodic Sales forecasts Dispatch plans Market coverage beat plans Journey plans for service engineers Collection of sales proceeds Carrying out promotional activities The company also decides as to who is to perform which task
  24. 24. Distribution Organization Primary aim: determine who will do what Major Decision points: Extent of company support and outsourcing to be decided Budget for the cost of the distribution effort Select suitable channel partners – C&FAs, and distributors Setting clear objectives for the partners Agree on level of financial commitments by the channel partners.
  25. 25. Policy and Procedure Define policy and implementation guidelines through Operating Manuals Policy guidelines include Code of conduct for channel members System for redressal of complaints Any additional subsidies etc Handling institutional business Service policy for engineering products
  26. 26. Key Performance Indicators Consistent achievement of targets by product groups, periods and territories Achievement of market shares Achievement of profitability Zero complaints from customers No stock returns Ability to handle emergencies and sudden spurts in demand
  27. 27. Key Performance Indicators Balanced sales achievement during a period – no period end skews Market coverage with ready stocks Excellent management of accounts receivables Minimize losses on account of stock-outs Minimize damages to products
  28. 28. Critical Success Factors The distribution strategy also needs the support and encouragement of top management to succeed Some of the CSFs could be: Clear, transparent and unambiguous policy and procedure Serious commitment of the channel partners Fairness in dealings Clearly defined customer service policy High level of integrity Equitable distribution at times of shortage Timely compensation of channel partners
  29. 29. Marketing Channels Sales and Distribution Management
  30. 30. Channel Functions Information gathering Consumer motivation Bargaining with suppliers Placing orders Financing Inventory management Risk bearing After sales support
  31. 31. Distribution Channels Take care of the following ‘discrepancies’ Spatial Temporal Breaking bulk Assortment and Financial support
  32. 32. Spatial Discrepancy The channel system helps reduce the ‘distance’ between the producer and the consumer of his products. Consumers are scattered Have to be reached cost effectively Example: companies produce products in one location even for global needs
  33. 33. Temporal Discrepancy The channel system helps in speeding up in meeting the requirement of the consumers Time when the product is made and when it is consumed is different Limited number of production points but hundreds of consumers Maruti plant in Gurgaon – cars and spares are available when the consumer wants
  34. 34. Breaking Bulk The channel system reduces large quantities into consumer acceptable lot sizes Production has to be in large quantities to benefit from economies of scale Consumption is necessarily in small lot sizes India is the ultimate example in breaking bulk – you can buy one cigarette, one Anacin, one toffee etc
  35. 35. Need for Assortment The channel system helps aggregate a range of products for the benefit of the consumer – it could be made by one company or several of them. For the same product, it could be a variety of brands and pack sizes MICO makes fuel injection equipment, spark plugs etc in different plants but its dealer will sell the entire range.
  36. 36. Financial Support The channel system provides critical working capital to its customers by extending credit. Some channel members like stockists and wholesalers finance the business of their customers. Medical diagnostic equipment to hospitals
  37. 37. Channel Flows Forward flow – company to its customers – goods and services Backward flow – customers to the company – payment for the goods. Returned goods. Flows both ways - information
  38. 38. Three Flows Recognized Company Payment for goods / returns Information FORWARD BACKWARD BOTH WAYS Customers Goods and Services
  39. 39. The Five Channel Flows 1. 2. 3. 4. 5. Physical flow of goods Title flow of goods (negotiation, ownership and risk sharing also) Payment flows (financing and payment) Information flow (about goods, orders placed and orders executed) Promotion flows
  40. 40. Channel Flows Some channel member/s have to perform them There is a cost associated with each flow If a channel member is discontinued, the flow has to be performed by another All flows and transactions can be effective only with timely, accurate and correct information The channel flow is ideally to be handled by the most competent channel member who can deliver best service at the lowest cost.
  41. 41. Direct Distribution Company to consumers or retailers without use of intermediaries. Also includes reaching Institutional buyers. Selling on the Internet If products are technically complex, this system is preferred Cost is a major consideration to adopt this mode
  42. 42. Direct Distribution - Examples Banking services Credit cards Petrol / diesel – company own outlets Land line phone connections Health services Utilities – electricity, water Subsidized ration Education
  43. 43. Indirect Distribution Goods may move through a set of intermediaries Most FMCG companies follow this route The intermediary has a far better reach than the company The cost of operations of an intermediary like a wholesaler / retailer is shared with many businesses.
  44. 44. Role of Intermediaries Company 1 Company 2 Intermediary Large number of CONSUMERS Company 3
  45. 45. Indirect Distribution - Examples All FMCG, consumer durables and pharmaceutical Petrol / diesel / cooking gas - franchisees Insurance Mobile phones All kinds of passenger transport
  46. 46. Degree of Involvement Manufacturer • Physical • Title / ownership • Information • Risk sharing • Promotions C&FA or Distribution Center Distributor, dealers Wholesaler or retailer • Physical • Title • Information • Payment • Order processing • Physical • Title / ownership • Information • Payment • Order placement • Negotiation • Risk sharing • Promotions • Physical • Title / ownership • Information • Payment • Order placement • Negotiation • Risk sharing • Promotions
  47. 47. Channel Formats Is decided by who ‘drives’ the channel system: Producer driven Seller driven Service driven Others
  48. 48. Producer Driven This is the effort of the manufacturer to reach the product to his consumers. Examples: Company owned retail outlets – petrol, Bata, Reliance mobiles Licensed outlets – KMF Consignment selling agents Franchisees Brokers Vending machines Company contracted distributors
  49. 49. Seller Driven Use of existing channels to reach the largest number of end users Existing wholesalers and retailers Modern retail formats Specialty stores – Shoppers’ Stop Discount stores – Subhiksha Pheriwalas
  50. 50. Service Driven These are the people who facilitate the distribution Transporters and freight forwarders Providers of warehouse space C&F agents 3P Logistics service providers Couriers
  51. 51. Other formats Multi-level marketing systems – Amway, Modicare, Tupperware, Herbalife Co-operative societies Telephone kiosks TV home shopping Catalogue marketing The internet Exhibitions, fairs and trade shows Database marketing
  52. 52. Channel Levels Zero level – if the product or service is provided to the end user directly by the company. Used mostly by companies delivering service like health, education, banking (also known as service channels) One level – consists of one intermediary Two level – consists of two intermediaries and is the most common for FMCG products
  53. 53. Channel Levels Producer Producer Producer Wholesaler Retailer Retailer Customer / consumer Customer/ Consumer Customer/ Consumer Zero level One level Two level
  54. 54. Marketing Channel Systems Vertical: Corporate Administered Contractual Horizontal Multi-channel
  55. 55. Vertical Marketing System Various parties like producers, wholesalers and retailers act as a unified system to avoid conflicts Improves operating efficiency and marketing effectiveness 3 types: Corporate Administered Contractual
  56. 56. Corporate VMS Combines successive stages of production and distribution under single ownership Examples: Bata, Bombay Dyeing, Raymond Sears, Goodyear Suppliers of food items could be also their own supplying firms - like Nilgiris
  57. 57. Administered VMS Co-ordinates distribution activities Gains market power by dominating a channel Usually true of dominant brands like GE, Kodak, Pepsi, Gillette, Coke and HLL in certain locations Command high level of co-operation in shelf space, displays, pricing policies and promotion strategies
  58. 58. Contractual VMS Independent producers, wholesalers and retailers operate on a contract Could take the forms of: Wholesaler sponsored voluntary chains Retailer co-operatives Manufacturer sponsored retail or wholesale franchise Franchise organizations Service firm sponsored retail franchise
  59. 59. Horizontal MS Two or more unrelated companies join together to pool resources and exploit an emerging market opportunity In-store banking in hotels, big stores Retail outlets in petrol bunks Coffee Day outlets in airports
  60. 60. Multi-channel Distribution Company uses different channels to reach / same or different market segments Most FMCG companies have separate networks for retail market and institutions Pharmacy companies may use different channels to reach doctors, chemists and hospitals
  61. 61. Multi-channel Distribution Used in situations where: Same product but different market segments Unrelated products in same market – detergents and ice creams (HLL) Size of buyers varies Geographic concentration of potential consumers varies Reach is difficult
  62. 62. Expectations from Channel Variety and assortment at one location Bulk Breaking Close to customer location Speed of Delivery Additional services Support Installation After-sales Financial
  63. 63. Wholesaling Sales and Distribution Management
  64. 64. Need for Wholesalers Widespread economy – consumers can only reached by thousands of retailers (except for consumer durables and industrial products) Reaching these retailers by a company directly is not possible (except for consumer durables and industrial products) Hence the need for wholesalers in two forms: Well established free-lance wholesalers Contracted distributors, stockists and agents
  65. 65. Characteristics of Wholesalers Operate on large volumes but with chosen group of products Food, grocery, pharma or automobile spares etc The company itself, contracted parties or free lancers, can operate as wholesalers Mostly B2B business – trade and institutions Wholesaler could also be a retailer – in rural markets – W/s sells to other retailers and also to consumers
  66. 66. Characteristics of Wholesalers Sell physical inputs or products – tangible goods ( Ws in some service industries) Optimise results, maximise service (effectiveness) and minimise operating costs (efficiency) Buy goods for resale, keep inventory, take risks of price changes, negotiate terms, procure orders, deliver and extend credit.
  67. 67. Definition Wholesaling is concerned with the activities of those persons or establishments that sell to retailers and other merchants and / or industrial, institutional and commercial users but do not sell in large amounts to consumers US Bureau of Census
  68. 68. Delivering Value Keep goods accessible to customers instantly At times, get together to bargain for better terms Pass on benefits or incentives to their customers Have a wide trading area
  69. 69. Difference with Retailers Not too worried about location, ambience or promotions – prefer to be in the main market Deal with other businessmen and not consumers Deal with a specific group of products only Much larger trading area Much larger transactions with suppliers and customers Believe in low margins but high volumes.
  70. 70. Functions of Wholesalers Varies in degree between free-lance, company distributors and stockists / agents Sales and promotion of chosen company products Buying the assortment of goods Breaking bulk to suit customer requirements Storage and protection of goods till sold
  71. 71. Functions of Wholesalers Grading and packing of commodities Transportation of goods to customers Financing the buying of customers Bearing the risks associated with the business Collecting and disseminating market information to both suppliers and customers
  72. 72. Types of Wholesalers Full service: stocking, selling, offering credit, delivery and business assistance (company distributors, wholesale merchants) Limited service: range of service is limited (examples include Metro C&C, mail order) Merchant w/s: independent businesses Brokers and agents: bring buyer and seller together – do not take possession of goods Others: agri business, auction companies etc
  73. 73. Limitations of Wholesalers Some of them do not give complete information to suppliers for selfish reasons Cannot be relied on to do equitable distribution At times, do not want company and customers to meet Tend to hoard goods and influence pricing Consumers have no say in pricing or quality in a w/s dominated system
  74. 74. Major Wholesaling Decisions Which markets to operate in Manpower to employ What products to sell Pricing decisions / Promotional support Credit and collections Image and customer perception Warehouse location and design Inventory Control
  75. 75. Favourable Factors Companies have limitations in market / outlet coverage. Wholesalers are required to fill the gaps Hundreds of small companies who cannot afford to set up distribution networks – need to depend on wholesalers In food grains, fruits and vegetables – hardly any organised distribution network. Wholesalers help move goods from farm gate to consumers
  76. 76. Favorable Factors Big companies also need wholesalers to get big volumes W/s extend credit to customers. Companies cannot match this Retailers have to visit w/s markets to buy food grains, cereals and pulses – buy a lot more.
  77. 77. Unfavorable Factors Companies coverage focus on retailers and institutions through their distributors Using modern retail formats as wholesalers More outlets like Metro C&C being encouraged Enforcing strict price control so that w/s do not sell below company prices.
  78. 78. Distributor Is a wholesaler nominated by a company to exclusively re-distribute the company products to its customers in a designated territory. He does not deal in competitor’s products. Does not sell from his premises. Extends credit selectively. A redistribution stockist for HLL A distributor for Philips lighting division A distributor for L&T engineering division
  79. 79. Dealer Role similar to a distributor but May not have a clearly defined territory and may sell both in the market and from his shop May deal with competitive products also Extends credit selectively. Dealers in industrial products may have better defined roles. Examples: Dealer for an edible oil company A dealer for garment brands
  80. 80. Stockist May be working for a company with a designated territory but does not re-distribute the stocks. Sells from his premises. Extends credit selectively. A stockist for paper products A stockist for automobile spares Re-distribution is visiting customer premises to sell products
  81. 81. Managing Distributors The principles are similar across industry verticals. FMCG is the most complex. Has the capacity to maximize sales and market shares. Has to ensure buying goods from the company and redistribution to the trade
  82. 82. Managing Distributors Distributor responsibilities include: Buying adequate quantities by Stock Keeping Unit (SKU) for redistribution Ensuring full market coverage of all customers in the territory assigned to him Help finance the operations – pays for the goods upfront but extends credit to his customers Maintaining inventory of company products adequate at all times to service the market Assist company in its promotional efforts
  83. 83. Need for Distributors Under three circumstances: For entering a new town For additional coverage in the same town For replacing an existing distributor For entering a new town, assess the potential for business to decide: If the town can sustain a full fledged distributor The number of distributors required Starts with a town profile of potential, number of customers to be serviced and the competition.
  84. 84. Cost of Servicing Cost benefit of using distributors to be assessed Logistics cost of serving the market The number of customers to be covered by category – wholesalers, retailers, institutions Frequency of visits to markets and outlets Sales revenue estimate from each visit Markets to be covered with ready stocks or order booking for later delivery Likely collections during each visit – gives an idea of the credit requirements
  85. 85. Expectations from a Distributor To be stated at the start of the relationship Helps get the right kind of distributor also Achieving sales targets – volume, value and packs Financial commitment on inventory and credit Investment in infrastructure – space, vehicles Manpower – front line and back office Distribution effort – market and outlet coverage as per a beat plan with productive calls Developing new markets and new accounts Managing key accounts and institutional business
  86. 86. Expectations from a Distributor Merchandising and displays in the market Secondary sales efforts and tracking – critical for fmcg and pharma (secondary sales is sales from the distributor to the outlets in the market) Effectively handling promotions and schemes initiated by the company Managing damaged stocks
  87. 87. Expectations from a Distributor Organising and participation in promotional events Assist company in making a success of launching new products and packs Handling consumer quality complaints Handling statutory requirements on behalf of the company Payments and remittances promptly to the company
  88. 88. Retailing Sales and Distribution Management
  89. 89. What is Retailing? Any business entity selling to consumers directly is retailing – in a shop, in person, by mail, on the internet, telephone or a vending machine Retail also has a life cycle – newer forms of retail come to replace the older ones – the corner grocer may change to a supermarket Includes all activities involved in selling or renting products or services to consumers for their home or personal consumption
  90. 90. Retailing Term retail derived from French word ‘retaillier’ meaning ‘to break bulk’ Characteristics: Order sizes tend to be small but many Caters to a wide variety of customers. Keeps a large assortment of goods Lot of buying in the outlet is ‘impulse’- inventory management is critical Selling personnel and displays are important elements of the selling process Strengths in ‘availability’ and ‘visibility’ Targeted customer mix decides the marketing mix of the retailer
  91. 91. Retailing Retail stores are independent of the producers – not attached to any of them A survey shows that only 35% of purchases are preplanned. The rest are ‘impulse’- greatly influenced by quality of the merchandising efforts
  92. 92. Functions of Retailers Marketing functions to provide consumers a wide variety Helps create time, place and possession utilities May add form utility (alteration of a trouser bought by a customer) Helps create an ‘image’ for the products he sells
  93. 93. Functions of Retailers Add value through: Additional services – extended store timings, credit, home delivery Personnel to identify and solve customer problems Location in a bazaar to facilitate comparison shopping
  94. 94. How do Customers Decide on a Retailer? Price Location Product selection Fairness in dealings Friendly sales people Specialized services provided
  95. 95. Kinds of Retailers Type of retailer Characteristics Specialty store Narrow product line with deep assortment – apparel, furniture, books Department store Several product line in different departments – Shoppers Stop, Big Bazaar Supermarket Large, low-cost, low-margin, high volume, self-service operation with a wide offering Convenience store Small stores in residential areas, open long hours all days of the week – limited variety of fast moving products like groceries, food Discount store Standard merchandise sold at lower prices for low margins Subhiksha
  96. 96. Kinds of Retailers Type of retailer Characteristics Corporate chains More outlets owned and controlled by one firm – Globus Voluntary chain Wholesaler sponsored group of independent retailers Retailer co-ops Independent retailers with centralized buying operations and common promotions Consumer coops Co-op societies of groups of consumers operating their own stores – farmers, industrial workers etc Franchise organisation Contractual arrangement between the producer and retailers – selling products exclusively – Kemp Toys
  97. 97. Retailers’ Strengths Choice of merchandise is their prerogative – put pressure on producer suppliers Many new products on offer. Can charge penalty if products do not do well New developments in IT help them run operations optimally and keep track of loyal customers. Also helps them identify profitable store locations.
  98. 98. Trade / Retail Format Range of goods and customer service dimensions determine the ‘format’. Elements distinguish between stores and include: Store ambience. (Kemp Fort) Saving in time for shopping – interiors of practical design – reduce time for search and pick-up of goods Location Physical characteristics – external appearance, arrangement of goods All these are parts of the positioning strategy and influence the ‘footfalls’ to the store.
  99. 99. Categories of Shoppers (1) Identified by Cook & Walters Task focused shopper – visits the store to buy specific things he has planned for Convenience, minimum time, easily accessible goods, pleasing store format Grocery shopping is an example Leisure shopper – more interested in the ambience and environment Has plenty of time, wants to have a good time while shopping Lifestyle stores are examples
  100. 100. Category of Shoppers (2) Convenience goods (low value): probable gain from shopping and making comparisons is small compared to the time, effort and mental discomfort required in the search -toothpaste Shopping goods (high value): gain is large refrigerator Specialty goods: clearly distinguished by brand preferences – Maruti Zen car or Tag-Heuer watch
  101. 101. Trading Area Catchment area from where most of the customers of a retail store come Corner grocery store caters to the locality in which it is situated Discount stores have a wider area. Subhiksha locations for consumers in 2 km radius Specialty stores have a much wider trading area – MTR, Shoppers’ Stop etc Trading area increases with the size of the store and the variety it offers
  102. 102. Retail Strategy Positioning of the retailer Merchandising Customer service Customer communication
  103. 103. Positioning Strategy Wide range with a high value add – Lifestyle brand of stores Limited range but a high value add – Tanishque jewelry store Limited range with a limited value add – Bata stores Wide range of goods but a limited value add – a Food World outlet
  104. 104. Merchandising A set of activities involved in acquiring goods and services and making them available at the places, times and prices and the quantity that enable a retailer to reach his goals The most critical function in retail Directly effects the revenue and profitability of the store Also takes into account the assortment of goods and their quality
  105. 105. Customer Service Strategy Developed to create ‘stickiness’ in customers Personal data collected using IT – including purchasing practices and preferences Customer loyalty programs planned Create ‘customer’ delight Location strategy to give competitive advantage Understanding the buying profile of the customers
  106. 106. Customer Communication The manner in which the retailer makes himself known to his customers. Has two parts to it: The messages which the retailer sends to his customers and prospects The word of mouth support which satisfied customers give to the retailer by talking to others Retailer communicates about: Announcing the opening of a store Promotions running in the store Additional facilities introduced by the stores
  107. 107. Pricing Strategy Premium and indicating high value Reasonable pricing with good value Low pricing but high value for money All strategies are focused on giving value to the customer
  108. 108. Product Differentiation Feature exclusive national brands not available in competing retailers – unlikely Exclusivity of products – specialty stores Mostly private labels – Westside Feature, big, specially planned merchandising events – Kemp Fashion sows Introduce new products before competition - -again unlikely
  109. 109. Retail Performance Measures Gross margin return on inventory investment – GMROI Gross margin multiplied by ratio of sales to inventory (50%*4= 200%) Gross margin per full time equivalent employee Gross margin per square foot
  110. 110. Franchising Franchisor is the firm which wants to sell its goods or services Franchisee is the firm or group that are willing to sell the products or services on behalf of the franchisor The first party gives advice and help to the second to find good locations, blue prints for a store, financial, marketing and management assistance
  111. 111. Benefits to Franchisor Faster expansion Local franchisee pays lower advertising rates than a national firm Owners motivated to work more hours than mere employees Local taxes and licenses are responsibility of franchisees
  112. 112. Benefits to Franchisee Quick recognition among potential customers Management training provided by principal Principal may buy ingredients and supplies and sell to franchisee at lower prices Financial assistance Promotional aids, in-store displays etc
  113. 113. Retailing on the Internet Unlimited assortment Items may not be on hold – someone has to deliver the product – delays No product touch or feel More info makes the customer a better shopper Comparison shopping possible Consumer has to plan purchases ahead No need to handle cash – payment can be on-line Shopping is 24X7
  114. 114. E-tailing Issues Logistics support to selling Payment gateway Customer product returns Conflicts with Brick &Mortar – overcome by selling separate products
  115. 115. Designing Distribution Channels Sales and Distribution Management
  116. 116. Channel Design Factors Product mix and nature of the product Width and depth of market / outlet coverage planned Long term commitments to channel partners Level of customer service planned Cost affordable on the channel system Channel control requirements of the company
  117. 117. Channel Design Steps Define customer needs Clarify channel objectives Look at alternative systems which can meet these objectives Estimate cost of operating the channel system Evaluate available alternatives Finalise the ‘ideal’ system
  118. 118. Customer Needs Lot size – most convenient pack size which the consumer can buy at a time Waiting time – time elapsed between the desire to buy the product and the time when he can actually buy it – should be almost zero Variety – choice of products, brands, packs Place utility – choice of buying where he wants. For a consumer product it has to be at a location closest to his residence
  119. 119. Channel Design Components Revenue generation or the commercial part Physical delivery of the goods or services – the logistics part The ‘service’ part to take care of after-sales support Each part of the system is likely to be handled by a different entity.
  120. 120. Channel Design Issues Activities required and who will perform Activities relationship to service levels Number of channel members required and the relationship between categories Roles, responsibilities, remuneration and appraisal of performance of channel members
  121. 121. Channel Design Process Segmentation Positioning Focus Development
  122. 122. Segmentation Putting customers in similar clusters based on their needs Doctors who prescribe medicines Chemists who dispense medicines Hospitals and nursing homes who use them Each segment has a different need to be serviced by the channel Gives an idea to the sales manager as to the kind of channel members he should be planning for.
  123. 123. Positioning Defines the channel element required to service each of the segments The sales manager decides the channel partner who is ‘ideal’ to meet the expectations of the segments. The number of each category of intermediary is also decided based on the number of customers to be serviced in each segment. The service objectives and flows for each channel partner are also frozen
  124. 124. Focus It may not be possible to meet the needs of all segments – cost and practicality considerations (the managerial talent available for instance) The sales manager has to firmly decide which of the segments he will service The competitive scenario also helps in this decision
  125. 125. Development At this stage the channel system is being put in place to achieve the objectives Select the best of the alternatives Comparison with the most successful competitor could be a good benchmark Channel partners of competitors may be willing to share best practices of their principals For modifying an existing channel, the gap between the ideal and the existing is to be identified for remedial action.
  126. 126. Channel Objectives Defines what the channel system is supposed to do to support customer service. Customer needs could include: Lot size convenience Minimum waiting time Variety and assortment Place utility The product characteristics and the market profile also impact the objectives. Competition could also affect the objectives
  127. 127. Channel Alternatives Are planned after deciding the customer segments to be serviced and the levels of service Business intermediaries currently available like C&FAs, distributors, dealers, agents wholesalers and retailers. The number and type of intermediaries required Developing new channel types Roles of each channel member
  128. 128. Evaluation of Major Alternatives Cost of operations Ability to manage and control Adaptability Range and volume to be handled
  129. 129. Evaluation Critieria Cost: If existing sales force can be expanded cost effectively, this is the best alternative Cost of alternatives at different volumes can only be estimated for comparison System with the lowest cost is preferred Adaptability – the channel should be flexible to handle different types of markets and changes in the market conditions Volume and range to be handled – Capable even when business grows or expands
  130. 130. Evaluation Criteria Ability to manage and control: Distribution network being an extended arm of the company, the channel partners have some obligations Operating guidelines specify these rules The channel system should help the company enforce these rules fairly to all channel partners Some of the operating rules are…… Company trains channel personnel and provides proper product literature
  131. 131. Selecting Channel Partners Getting good channel partners is a difficult part of doing business Some of the methods employed to select channel partners are: Sales people identify prospects and talk to them Press advertising (industrial goods) Existing channel partners can give good references Competitors’ channel members for reference, not poaching
  132. 132. Selection Criteria Qualitative: willingness, confidence in company products, willingness to abide by company rules, building company image, innovativeness etc Quantitative: financial status, infrastructure, location, present businesses, customer relationships, market standing etc
  133. 133. Training Channel Members Starts from the time of recruitment Channel member owner and his staff Market views channel member as part of the company – he has to behave in a like manner – hence training assumes significance Training could be on the job field training or classroom training Training is an ongoing process.
  134. 134. Subjects for Training Field training on how the markets are to be worked to achieve sales, collect payments and ensure the right kind of merchandising Class room training on company products, competition and how to tackle it to gain market shares Special meetings for new product launches Submitting reports and maintaining records Statutory compliance
  135. 135. Subjects for Training Care of company products Technical specifications and answering FAQs of customers For technical and industrial products – recognition of specs, installation procedure, repair and maintenance and effective demonstrations Servicing of automobiles and other engineering products
  136. 136. Motivating Channel Members Ambitious volume and growth targets – continuous motivation required to achieve Motivation includes: Capacity building programs Training Promotions support Marketing research support Working with company personnel Incentives
  137. 137. “Power” of Motivation Reward – positive support Coercion- threat of punitive action Referent – positive effects of association Legitimate – enforcing a contract Expert – support of special knowledge Support – additional benefits for performers Competition – pitting against peers French & Raven
  138. 138. Channel Members Evaluation Effectiveness of the distribution channel determines the success of the company Company would like its channel partners to perform at the highest standards possible Need to constantly evaluate performance on sales targets, coverage, productivity, inventory holdings, attending to servicing requests etc
  139. 139. ROI as a Measure Leading FMCG companies feel that an ROI of 30% for a distributor is healthy and is a fair indication that he is performing well. If the ROI is more, additional tasks are given If the ROI is less, the company may provide additional support Post evaluation tasks include counseling, retraining and motivating. In extreme cases it may result in termination.
  140. 140. Performance Evaluation On pre-agreed tasks only. No surprises. Specific targets on periodical basis are set. Targets on volume and outlet productivity could be for a week or a month Targets relating to increasing market shares or total outlet coverage could be for 6 months Different weightages could be given for each of the parameters for evaluation The performance appraisal is open and transparent
  141. 141. Steps for Modifying Networks Service level desired and willing to deliver Activities required to deliver service level, who will do it and at what cost Derive ideal channel structure and compare with existing to know gaps by evaluating based on standard parameters relating to effectiveness and efficiency Action to bridge the gaps and put modified channel system into place Define key performance indicators
  142. 142. Channel Comparison Factors Efficiency Effectiveness Scalability Flexibility Consistency Reliability Integrity
  143. 143. Non-store Retailing Selling door-to-door Vending machines Tele-shopping networks Selling through catalogs Other forms of direct selling Electronic channels
  144. 144. Retailing on the Internet Unlimited assortment Items may not be on hold No product touch or feel More information makes the customer a better shopper Comparison shopping possible Consumer has to plan purchases ahead No need to handle cash – payment can be on-line Shopping is 24X7
  145. 145. Vertical Integration This means owning the channel. The company does the work of production, branding and distribution. Downstream integration means the producer of the goods also does the distribution – Eureka Forbes, Bata
  146. 146. Vertical Integration Upstream integration means the seller also produces the goods – private labels of modern retailers. If the organization does the work of production, branding and distribution, it is said to be vertically integrated. Vertical Integration provides better control over the distribution function
  147. 147. Outsourcing Distribution Is the most prevalent situation as: The ‘reach’ is better The cost may be lower The company can exploit the ‘core competence’ of its channel partners, which is distribution Vertical integration is a choice which will become long term and cannot be easily changed once the resources have been committed. However, direct distribution (owning the channel) is still the best solution for ‘intensive’ distribution.
  148. 148. Channel (Conflict) Management Sales and Distribution Management
  149. 149. Channel Management Channel system has a set of players: Not equally motivated to implement the ideal channel design Whose expectations from the system differ Is in three broad phases: Use of power bases Identifying and resolving channel conflicts Channel co-ordination
  150. 150. Use of Channel Power Channel members are dependent on each other. The power equations between them keep them working together. There are basically 5 types of power bases – reward, coercion, expert, reference and legitimacy. 2 more can be considered in Indian context as support and competition. Extent of dependence defines the power base which is appropriate.
  151. 151. “Power” (Bases) of Motivation Reward – incentives for good performance Coercion – threat of punishment for non-performance Referent – benefit of sheer association with a strong company Legitimate – arising out of a contract Expert – specialized knowledge Support – additional benefits for better performers only Competition – created between channel partners
  152. 152. Countervailing Power Balances the power exerted by one channel member. It is not a one-sided equation. Both the channel member and the principal can have influence on each other. Results from interdependence within the channel system. Company exerts power on the distributor to get its coverage and revenues Distributor has enough influence on his customers and this is critical for the company also Weaker partners do get exploited – ancillary units
  153. 153. Channel Coordination Channel system is well coordinated if each member understands his role correctly and performs it to help the system achieve its customer service objectives. In a coordinated channel: Interests of all channel members are protected Actions of all are in line with overall objectives Flows are streamlined to desired customer service objectives Channel co-ordination is an on-going effort
  154. 154. Channel Conflict Situation of discord or disagreement between partners in the same channel system – has negative connotations and is driven more by feelings than facts Conflict is part of any social system – getting disparate entities to work together as in a channel system is also one such social unit If any member feels that another is working in a manner as to affect him, conflict results
  155. 155. Channel Conflict CHANNEL CONFLICT GOAL DOMAIN PERCEPTION Goal conflict – rising out of mismatch in understanding of objectives by various channel members Domain conflict – resulting due to mismatch of understanding of responsibilities and authority Perception conflict – due to mismatch in reading of the market place and thus proposed actions
  156. 156. Conflicts Result From… Each channel member wanting to pursue his own goals Each wants to retain his independence There are limited resources which all of them want to utilize in achieving their goals Features of conflicts: Initially latent and does not affect the working Is not normally possible to detect till it becomes disruptive
  157. 157. Four Stages of Conflict PERCEIVED FELT MANIFEST Each stage is progressively more severe than the earlier one LATENT
  158. 158. Types of Conflicts Latent Conflict: Some amount of discord exists but does not affect the working or delivery of customer service objectives. Disagreement could be on roles, expectations, perceptions, communication. Perceived Conflict: Discords become noticeable – channel partners are aware of the opposition. Channel members take the situation in their stride and go about their normal business No cause for worry but the opposition has to be recognized
  159. 159. Types of Conflicts Felt Conflict: Reaching the stage of worry, concern and alarm. Also known as ‘affective’ conflict. Parties are trying to outsmart each other. Causes could be economical or personal Needs to be managed effectively and not allowed to escalate. Manifest Conflict: Reflects open antagonistic behavior of channel partners. Confrontation results. Initiatives taken are openly opposed affecting the performance of the channel system. May require outside intervention to resolve
  160. 160. Root Causes for Channel Conflict Roles not defined properly Allocation of scarce resources between members seem unfair to some Differences in perception of the business environment Future expectations not likely to materialize Decision domain disagreements – who has to decide on what (key account pricing) Channel members do not agree on objectives Misunderstanding or misinterpretation of routine business communication
  161. 161. Resolving Conflicts Understanding nature and intensity Tracing the source of the conflict Understand the impact of the conflict Strategy and plan of action for resolution
  162. 162. Conflict Resolution Styles Styles are a combination of assertiveness and co-operation. Avoidance Aggression Accommodation Compromise Collaboration Least effort and results Maximum effort and Best results Kenneth W Thomas
  163. 163. Avoidance Used by weak channel members. Problem is postponed or discussion avoided. Relationships are not of much importance. As there is no serious effort on getting anything done, conflict is avoided.
  164. 164. Aggression Also known as a competitive or selfish style. It means being concerned about one’s own goals without any thought for the others. The dominating channel partner (may be the principal) dictates terms to the others. Long term could be detrimental to the system.
  165. 165. Accommodation A situation of complete surrender. One party helps the other achieve its goals without being worried about its own goals. Emphasis is on full co-operation and flexibility in approach. May generate matching feelings in the receiver. If not handled properly, can result in exploitation
  166. 166. Compromise Obviously both sides have to give up something to meet mid way. Can only work with small and not so serious conflicts. Used often in the earlier two stages.
  167. 167. Collaboration Also known as a problem solving approach Tries to maximize the benefit to both parties while solving the dispute. Most ideal style of conflict resolution – a win-win approach Requires a lot of time and effort to succeed. Sensitive information may have to be shared
  168. 168. Channel Policies Defines how the channel is required to operate. Normally framed by the channel principal to guide the operations of the channel system If not framed properly could prove the starting point of channel conflicts. Some subjects of channel policies could be as seen in the next slide:
  169. 169. Channel Policies Markets to be covered Customer coverage Pricing Product portfolio to be handled Selection, termination of channel members Ownership of the channel
  170. 170. The Services Sector Twice the size of the manufacturing sector Services offered are to be in line with customer demand Services have to be presented in an appealing manner to sustain customers. Needs specialized channels which understand the characteristics of service delivery
  171. 171. 5 Characteristics of Services They are intangible – can only be felt. No visual features like size, style. They are inseparable from their service providers – a 3P cannot deliver They cannot be standardized – custom made and delivered Customers are involved to a great degree – define the services They are perishable – cannot be stored for delivery later. Salvage value of an unsold service is zero.
  172. 172. Channels Used Shorter channels than for products Some channels used are: Direct from service provider to user Agents or brokers to bring buyer and seller together Franchisees or contractors Electronic channels High degree of customization is provided
  173. 173. Channel Information Systems Sales and Distribution Management
  174. 174. CIS Purpose CIS is Channel Information Systems CIS is the orderly flow of pertinent operational data both internally and between channel members, for use as a basis of decision making in specified responsibility areas of channel management CIS is of primary use of sales managers.
  175. 175. Information - Advantages Useful in marketing planning – helps improve quality of marketing decisions Can help tap market opportunities Provides an alert against competition Helps spot trends – favourable or otherwise Helps develop action plans for growth Gives feedback on consumer needs
  176. 176. Classification of Information Based on the use made of it by marketing – planning, operations, decision making or control Based on subjects – consumers, products, competition, channels, promotions, pricing, sales volume, value etc Operations data – facts and figures Also based on assumptions, anticipated occurrences – forecasts relating to the channel system
  177. 177. Information Process COLLECTION PROCESSING STORAGE USE
  178. 178. Information Process Collection: acquiring and placing raw data – monthly sales by each territory Processing: analyzing data to get meaning out of it – arranging, modifying and interpreting the data by the user – comparison of sales between periods Storage: keeping the information intact till it is needed Use: application of information for management decision making – sales data of the last 6 months to forecast the sales of the next month.
  179. 179. Developing a Channel MIS Decide what information is required Organize information in a manner suitable for interpretation and action Decide who will use the information when and for what purpose
  180. 180. Use of Information Planning: sales forecasts or distributor indents Control: expenses against budget There is always a cost of collecting information. If data collected is not used properly, the data provider will hesitate to give the information. The channel MIS works at the sales operational level. It has very little strategic intent.
  181. 181. Sources of Data Reports (oral and written) and records of channel members, sales people Letters, statements and market research Any other info collected by the sales people and the channel members from the market External sources like business publications, magazines, newspapers, trade journals. In a dedicated channel system the collection of info is well streamlined – in the JC meeting With use of IT enabled systems collection and processing has become simpler.
  182. 182. A Good Channel MIS… Integrated system to handle all regular data Useful decision support system Reflects the style of the marketing organization User friendly and user oriented Convincing to the providers of the info as to its purpose Be cost effective Not need for verification from other sources Be fast and totally reliable
  183. 183. Element Importance In a good channel MIS, it is necessary to define upfront for each element of the MIS, the following: Purpose of the info Source of the info Action possible Impact on customer service
  184. 184. Competition Tracking Purpose Plan day to day corrective action to protect market shares and shelf space Source Trade, channel partners and sales people Action possible Spot action while in the market and taken by channel partners or sales people Impact on service Timely action to provide better support to the trade and retain their goodwill
  185. 185. Market Logistics and SCM Sales and Distribution Management
  186. 186. Materials Management Materials forms the largest single cost item in most manufacturing companies – needs to be carefully managed Materials management function includes planning and control, purchasing and stores and inventory control Materials management is the precursor to logistics and supply chain management
  187. 187. Logistics Defined Logistics means having the right thing, at the right place, at the right time The procurement, maintenance, distribution and replacement of personnel and materials – Webster’s Dictionary The science of planning, organizing and managing activities that provide goods or services – Logistics World, 1997
  188. 188. Logistics Functions: planning, procurement, transportation, supply and maintenance Processes: requirements determination, acquisition, distribution and conservation Business: science of planning, design and support of business operations of procurement, purchasing, inventory, warehousing, distribution, transportation, customer support, financial and human resources
  189. 189. Scope of Logistics Choice of markets Procurement Plant location and layout Inventory management Location and management of warehouses Choices of carriers, mode of transport Packaging decisions Relevant to all enterprises: manufacturing, Government, Institutions, service organizations
  190. 190. Components of Logistics Management Logistics Activities Input •Natural Resources •HR •Finance •Information Customer service Demand forecasting Distribution Communications Inventory control Materials handling Order processing Parts and service support Plants and warehouse selection Procurement Packaging Return goods handling Salvage and scrap disposal Traffic and transportation Warehouse and storage Output • Marketing Orientation (competitive Advantage) • Time and Place utility • Efficient move to customer
  191. 191. Links and Flows General material flow/ service flow Information flow Information flow Customer’s customer Customer Lead Firm Supplier Supplier’s supplier General cash flow Outbound / Downstream logistics Inbound / Upstream logistics
  192. 192. Logistics and Marketing Interface on: Product design and pricing Customer service policies Sales forecasts and order processing Inventory policies and location of warehouses Channels of distribution and dispatch planning Transportation to reach products to customers Production wants larger production runs to minimize time spent on set up changes on the machines. Marketing wants smaller runs of a variety of products.
  193. 193. Support Activities Value Chain (Michael Porter) Firm’s Infrastructure Human Resources (Organization, people, methods) Systems and Technology Procurement Service Marketing & Sales Outbound Logistics Operations Inbound Logistics Primary Activities
  194. 194. Logistics Plan Outline Internal analysis (current position) Organization Human resources Transportation Relations with internal customers Quality of product Quality of Service External / situation analysis Competitor logistics performance Trends External environment / economy Public, private and contract warehouse Public, private and contract carriage
  195. 195. Principles of Logistics Excellence Strategic Link logistics to corporate strategy Organize comprehensively Use the power of information Emphasize human resources Form strategic alliances Operational Focus on financial performance Target optimum service levels Manage the details Leveraging logistics volumes Measure and react to performance Alling & Tyndall
  196. 196. Logistics Focus Areas Customer service related Packaging Order processing Spare parts and service support After sales Customer service support Demand forecasting Distribution communications Return goods handling Operations related Plant and warehouse site location Procurement Inventory control Materials handling Salvage and scrap disposal Traffic and transportation Warehousing and storage Logistics may be confined to the company whereas SCM extends beyond
  197. 197. Supply Chain Management Business context: Globalization of the market place Advances in technology Increasingly demanding, informed customer base Purchase decisions on dimensions of quality, price and time Innovative supply chain: To meet customer driven challenges To reduce costs Improve service levels Enhance speed to market
  198. 198. Supply Chain Integration Optimizing the supply chain requires supplier and customer involvement to integrate processes, policies, systems, database and strategies between diverse trading partners
  199. 199. Supply Chain Integration Customer Analysis Purchasing/Supplier Partnering Order Fulfillment Storage & Transportation Integrated Supply Chain Management Manufacturing/ Re-manufacturing/ Assembly Inventory Management and control Demand & Lead Time Management Materials Management
  200. 200. Why Carry Inventory? Support production requirements Support operational requirements Maximize customer service – ensure availability when needed – protect against uncertainty Hedge against marketplace uncertainty Take advantage of order quantity discounts
  201. 201. Functions of Inventory Inventory serves as a buffer between: Supply and demand Customer demand and finished goods Requirements for an operation and the output from the previous operation Parts and materials to begin an operation and the suppliers of the materials
  202. 202. Factors Which Drive Inventory Target service level parameters Lot sizing practices Safety stock and safety time conventions Volume discounts and purchase arrangements Seasonal build up needs
  203. 203. Categories of Inventory Anticipation – built in anticipation of future demand – peak season, strike, promotion Fluctuation (safety) – to cover random, unpredictable fluctuations in supply and demand and lead time – to prevent disruption in operations, deliveries etc Lot-size – to take advantage of quantity discounts, reduce shipping, set up and clerical costs – also called cycle stock
  204. 204. Categories of Inventory Transportation – pipeline or movement inventories – to cover the time needed to move from one point to another – factory to distribution point for example Hedge – for materials where prices are volatile Maintenance, repair and operating supplies (MRO) – to support M and O – spare parts, lubricants, consumables etc
  205. 205. Types of Inventory Obvious…. Raw materials Work-in-process Finished goods – of primary concern to marketing Maintenance, repair and operating (MRO) supplies In-transit, pipeline
  206. 206. Performance Measures Inventory turns = Annual cost of goods sold /average inventory in value Days of sales = inventory on hand / average daily sales
  207. 207. Types of Inventory Systems Pure Inventory – when and how much to order. RM procurement. Simple manufacturing operations Production Inventory – finite production rates. Demand fluctuation. Products compete for manufacturing capacity Production – distribution Inventory – compete for production capacity. Geographic placement of inventory for best service of demand
  208. 208. Types of Classification ABC category – most common for all HML - high, medium, low - similar FSND – fast moving, slow moving, non-moving, dead – spare parts / FG SDE – scarce, difficult, easy to obtain – procurement / Spares GOLF – govt, ordinary, local, foreign source – procurement / Spares VED – vital, essential, desirable – spare parts / FG SOS – seasonal, off-seasonal - commodity
  209. 209. ABC Inventory Analysis Based on Pareto’s law: A – 20% items worth 80% of value B – 30% items worth 15% of value C – about 50% items account for 5% of the usage Classify items based on the above criteria Apply degree of control in proportion to the importance of the group
  210. 210. Inventory Related Costs Unit costs – basic value of the item carried Ordering costs – generating and sending a material release, transport, any other acquisition costs Carrying costs – capital, storage, obsolescence Stock-out costs Quality costs – non-conforming goods Other costs – duties, tooling, exchange rate differences etc
  211. 211. Approaches for Controlling Inventory Continuous review: Safety stocks and forecasting methods Excess and obsolete inventory Part simplification and re-design On-site supplier managed inventory Use of supply chain inventory management systems, Materials Requirement Planning, Distribution Requirement Planning etc Automated inventory tracking systems Supplier – buyer cycle-time reduction
  212. 212. Stores Management Objectives Providing efficient service to users Reduce cost of carrying goods Providing correct, updated stock figures Controlling inventory Preventing damage to or obsolescence of materials Achieve all of the above with good housekeeping
  213. 213. Functions Warehouses Material handling Customer Service Receive goods Identify goods Sort goods Dispatch to storage Hold inventory Recall, select goods Marshal the shipment Dispatch the shipment Prepare records and advices Information Transfer Storage Function Temporary Permanent
  214. 214. Purpose of Warehousing To provide desired level of customer service at the lowest possible total cost It is that part of the firm’s logistics system that stores products (RM, Packing Materials, WIP, FG) at and between point of origin and point of consumption and provides info to management on the status, condition and disposition of items being stored Distribution warehousing relates mainly to FG
  215. 215. Reasons for Warehousing Service related Cost related Maintain source of supply Support customer service policies Meet changing market conditions Overcome time and space differentials Support JIT programs of suppliers and customers Provide customers with the right mix of products at all times Temporary storage of materials to be disposed or re-cycled Achieve production economies Achieve transportation economies Take advantage of Quantity Purchase discounts and forward buys Least Logistics cost for a desired level of customer service
  216. 216. Warehouses Support manufacturing Mix products from multiple facilities for shipment to a single customer Break-bulk Aggregate Used more as a ‘flow-thru’ point than as a ‘hoarding’ point
  217. 217. Distribution Warehousing The objective is to set up a network of warehouses closest to the customer locations to service markets better and minimise cost Could be C&FA s, depots or distribution centers Macro location strategies: Market positioned Production positioned Intermediately positioned
  218. 218. Distribution Center Warehouse designed to speed the flow of goods and avoid unnecessary costs Speeds bulk-breaking to avoid inventory carrying costs Helps to centralise control and co-ordination of logistics activities Products can also be cross-docked (one vehicle to another)
  219. 219. Market Positioned Warehouses located nearest to the final customer Factors influencing are: Order cycle time Transportation costs Sensitivity of the product Order size Levels of customer service offered
  220. 220. Production Positioned Warehouses located close to the production facilities or supply sources Not the same level of customer service as the earlier one Serve as points of aggregation / collection for products made in a number of plants Factors influencing are: Perishability of raw materials Number of products in the product mix Assortments ordered by customers Transport consolidation rates ex; FTL
  221. 221. Intermediate Positioned Mid point locations between the final customer and the producer High customer service levels possible even if products made in number of units Other macro approaches look at cost minimisation or cost and demand elements to maximise profitability
  222. 222. Transportation Very important in the Logistics function: Movement across space or distance adds value to products Transportation provides time and place utility Role of transportation includes: Provides opportunity for growth under competitive conditions Deeper penetration into markets Wider distribution means greater demand Can influence product prices favourably
  223. 223. Transportation Principles Continuous flow Optimise unit of cargo - stackability Maximum vehicle unit – capacity utilization Adaptation of vehicle unit to volume and nature of traffic Standardisation Compatibility of unit load equipment Minimum of dead weight to total weight Maximum utilization of capital, equipment and personnel
  224. 224. The Selection Criteria Environmental analysis: shipper, carrier, government regulations, public influence Deciding objectives Selecting mode Select transport type within the mode Define functions of transport Evaluation and control – customer perception / satisfaction, best practice benchmarking
  225. 225. Cost Factors Can be product related or market related. Product related: density, stowability, ease or difficulty of handling and liability Market related: competition, location of markets, Government regulations, traffic in and out of the market, seasonality of movements and impact on customer service Five prominent modes: Road, rail, air, water and pipeline. Sixth one is use of Ropeways
  226. 226. Customer Service Factors Consistency, dependability Transit time Coverage – door-to-door for example Flexibility in handling a range of products Loss and damage performance Additional services provided
  227. 227. Reverse Logistics Movement of goods from the market or customer back to the company The need: Increased awareness of the environment Stringent legislation For some it is part of the business Profitability of dealing with scrap, surplus Surplus, obsolescence can result due to: Over optimistic sales forecasts, change in product specs, errors in estimating material usage, losses in processing or overbuying based on incentives
  228. 228. Advantages of Rail Economy – more so for goods over long distances Efficiency of energy Reliability – not affected by weather conditions
  229. 229. Disadvantages Uneconomical for small shipments and short distances Not suitable for remote stations Costly terminal handling facilities Inflexible time schedules
  230. 230. Road Freight Advantages Through movement – direct from consignor to consignee, no transshipment Flexibility – routes and loading routines can be easily altered, operate day and night Less capital costs – for own fleet + immunity from industrial action Fast turn-around – if articulated units like tractors and trailers are used Minimum delays
  231. 231. Disadvantages Susceptibility to weather and road conditions – in spite of the best protection Unsuitability for heavy loads – rail transport more economical for bulk loads Unsuitability for long distances – again the rail telescopic rates are more favourable
  232. 232. Air Transport Advantages Faster mode Reduction in cost particularly inventory Broad service range Increasing capabilities Disadvantages: High cost Weather affects flight conditions Limitations on heavy consignments
  233. 233. Water Transport Advantages: Mass movement of bulk Lowest freight cost Preferred for long haul of low value commodities Disadvantages: Not for quick transit Suitable for certain types on commodities only
  234. 234. Pipeline Movement Advantages: Reliable, continuous, all weather transport Low energy consumption – hence low cost Low maintenance and operating costs Underground, no space problem Can traverse difficult terrain Minimal transit losses Operation round the clock, safe Economies of scale – double the throughput for only 30% additional cost Disadvantage is in the investment cost
  235. 235. Ropeways Advantages: In hilly or inaccessible areas Long and circuitous routes with streams / deep valleys For commodities capable of movement in ropeway buckets Short haulages of less than 50 kms Areas where other carriers are uneconomical Disadvantages: Heavy investments Limitations on size and quantity of haul
  236. 236. Carrier Selection Traffic Related Length of haul Consignment weight Dimensions Value Urgency Regularity of shipment Fragility Toxicity Perishability Type of packing Special handling required Shipper related Size of firm Investment priorities Marketing strategy Network of production and distribution Availability of rail sidings Stockholding policy Management structure System of carrier evaluation Service related Speed (transit time) Reliability Cost Customer relationship Geographical coverage Accessibility Availability of special vehicles / equipment Monitoring of goods Unitisation Ancillary services – bulk breaking, storage
  237. 237. Chart of Relative Merits Parameter Weightage Rail Road Air Water Pipe line Rope way Speed 30 5 6 8 4 3 3 Versatility 10 6 8 5 6 3 2 Reliability 20 6 8 5 5 7 4 Availability 10 7 8 5 6 3 2 Continuity of service 10 6 7 5 5 8 3 Distribution cost 20 4 5 6 6 7 8 Total score 10 5.4 6.7 5.1 5.1 5.1 4.0 Overall ranking 10 2 1 4 5 5 6
  238. 238. International Sales & Distribution Sales and Distribution Management
  239. 239. Why International? The WTO agreement has resulted in opening up of new areas for freer trade (Textiles, Services & Agricultural products) China, Russia, India & the East European countries have embraced free market policies resulting in huge opening up of underserved populations. Domestic competition has increased especially from imports. Outsourcing in manufacturing and services has increased due to cost pressures & improvement in infrastructure.
  240. 240. Choosing the Market Factors to be borne in mind while choosing markets: Size of the market Language & Culture of the market Competition in the market Proximity of the market Political and Financial stability of the country Ease of doing business
  241. 241. Culture and International Business Culture influences everything from taste & preferences to consumption patterns and attitude to foreigners. Culture influences communication modes Culture influences dress and behavior Culture influences usage of a product Language is very important in international business to communicate effectively.
  242. 242. Legal Aspects of International Business Laws vary from country to country – there is no “international law” Important to know the local laws to do business – on investment, management, employment, marketing, pricing, royalties, profit repatriation, taxation etc Developed countries have stringent laws on safety, pollution, intellectual property rights etc. In times of disputes, which law will prevail – this needs to be spelt out in contracts
  243. 243. Risks in International Business Two main risks in international business: Political risks – involve disruption of contracts or payments due to sudden political changes, expropriation of businesses etc Commercial & Financial risks – failure of the buyer to pay due to bankruptcy or sudden changes in the exchange availability or rate.
  244. 244. Risks in International Business Risks can be insured with agencies like the export credit guarantee corporation(ECGC) for a premium based on the country’s risk. Letters of credit may be guaranteed by international banks located in major financial centers like London, New York, Singapore etc.
  245. 245. Trade Between Countries Reasons for trade between countries include: Non availability of a product or resource Cost advantages in buying rather than making a product locally Differentiated products-Luxury products or better designed products in the same category may be available from different countries (cars, electronics, textiles and garments etc)
  246. 246. International Trade-Company Perspective Companies may choose to sell internationally for the reasons given below: Limited growth in home market Overseas markets offer large profitable opportunities Excess capacity which cannot be absorbed locally Cost advantage over international competitors Mitigating risk of increased domestic competition
  247. 247. Entry Strategy Exporting through local agent Exporting through foreign agent Exporting to foreign importer / distributor Setting up local office / representative Licensing / Franchising Setting up Joint ventures for distribution / manufacture Setting up wholly owned manufacturing facilities
  248. 248. Organizing for International Sales Structure depends on volume of sales and nature of the product. In situations of low volumes, exporting through local or foreign agents is cost effective As volume grows and in complex products or large value deals, using own sales personnel is preferable. To be effective, it is preferable to have local personnel in the sales force
  249. 249. Distribution Distribution is a vital aspect of marketing – ensuring availability of the product in the right quantity, at the right time and right place. More important in international markets due to distance and transportation time. Importers, manufacturers and retailers are increasingly asking for Just in Time deliveries. Distribution strategy varies from market to market depending on size and local conditions. Multiple channels may be used in countries.
  250. 250. Distribution Options Depends on the volume of the business Positioning of the product Infrastructure of distribution in the country Local laws – some countries insist on local companies in the distribution business Internet as a channel of sales and distribution
  251. 251. Role of Logistics Very important aspect of international selling Logistics can make up over 15% of the cost of the product Involves multiple modes of transport – land, sea and air Considerable paperwork and formalities to be completed in international trade Logistics providers now offer complete one stop solution including distribution, invoicing and collection of payment
  252. 252. Profile of International Salespersons Pleasant and amiable personality Ability to adapt to foreign culture – especially food, drink etc Conversant in one or more foreign languages Ability to act independently and decisively Ability to understand complexities of financing, foreign exchange etc Some local sales persons in the force will be useful to overcome some barriers and leverage local networks for business development
  253. 253. Pricing and Payment Terms Common pricing terms are: Ex Works – at the mfrs factory gate FOT, FOR – free on truck / rail –loaded on truck/rail FAS – free along side – at port next to ship FOB – free on board – loaded on ship C&F – cost and freight – inclusive of to destination CIF – cost, insurance and freight – inclusive to destination
  254. 254. Pricing and Payment Terms Payment terms can include: Cash in advance Cash on delivery – cash against documents Consignment basis – payable after sale Usance – payment … days after acceptance of documents Letter of credit Long term credit financing – for machinery / projects Each method has risks for the buyer or seller. The LC offers safety and comfort for both
  255. 255. Currency of Pricing The US Dollar is the most widely used currency for pricing international sales Importers in some countries may prefer invoicing in local currencies like Japanese Yen or Euro or Pound Sterling, Singapore Dollars or UAE Dirhams Saudi riyals etc. This reduces the risk of exchange rate fluctuations for the buyer Exchange fluctuation is a major risk for sellers and can be managed by hedging the currency.
  256. 256. Packing and Shipping Packing is of two types: Industrial packing – bulk for protection during shipping & transport Consumer packing – to enhance sales appeal Packing could makeup up to 5% of product costs Countries have laws or practices in packing which must be understood and adhered to. Packing depends on the product and must be suitable for containerized shipping and mechanical handling.
  257. 257. Market Intelligence Secondary data is very easy to gather from various publications, agencies like chambers of commerce, trade bodies, embassies, trade shows, internet, banks etc Usually secondary data is sufficient to establish the feasibility of the market. Care must be taken to understand the data and the measures used before drawing conclusions.
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