A study on physical distribution acitivities


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A study on physical distribution acitivities

  1. 1. A Study on Physical Distribution Activities of Shwe Me Company LimitedSupervised by Presented byDaw Swe Swe Oo Hla WynnLecturer Roll No. 82Department of Management Studies EMBA 8th BatchYangon Institute of Economics 1
  2. 2. Presentation OutlineRationale of the StudyObjectives of the StudyScope and Limitation of the StudyResearch MethodologyOrganization of the Paper 2
  3. 3. 1.1 Rationale of the Study Myanmar is an industrial based agricultural country having natural resourcesand places for the infrastructure development. For the country, it needs to supply theconstruction materials for the construction sides, so it is essential for the supply side.There are increasingly extended requirements for the construction to facilitate thegrowing population. Shwe Me Company Limited (SM) is one of the major cement andconstruction materials importing and distributing companies, it provide constructioncompanies to raise the success and benefits of using its quality cements. The SM couldoffer it products by enhancing a robust and superior quality of the building structures.SM designated as a key importer of the Elephant brand cements, importing over 30,000tons per month from Thailand by seaborne trade. 3
  4. 4. 1.2 Objectives of the Study This paper is intended to present the importance of physical distribution indelivering the products from end of production to the consumer. The objectives of the study are as follows:1)To examine distribution channel structure of Shwe Me in terms of factors ofchoosing the right distributor2)To analyze the physical distribution activities of Shwe Me in terms of transportation,inventory, warehousing, materials handling, protective packaging and order processing 4
  5. 5. 1.3 Scope, Limitation and Method of the Study This study describes current situations and findings on the physical distribution activities of SM by analyzing its distribution channels over the country. Due to time and cost constraint, the distribution channel structure of competitors and their physical distribution activities cannot be observed. This study applies descriptive research method. In preparing this paper, both primary and secondary data are collected. Primary data are obtained from field survey and personal interview with responsible personnel of SM. Secondary data are collected from such related sources as brochures, pamphlets, reports prepared by SM as well as from text books, internet, etc. 5
  6. 6. 1.4 Organization of the Paper This paper is presented with five chapters. The first chapter displays briefintroduction of physical distribution and followed by rationale of the study, objectivesof the study, and scope, limitation and method of the study. The second chapterincludes the theoretical background of physical distribution. The third chapter is aboutthe profile of SM. The fourth chapter contains an analysis on physical distributionactivities of SM. In the last chapter, conclusion with findings and suggestions aresubmitted. 6
  7. 7. Chapter II Theoretical Background This chapter describes the theoretical background of physical distribution which is used to analyze the physical distribution activities of Shwe Me.2.1 Definition of Physical Distribution7 Physical distribution is the set of activities concerned with efficient movement of finished goods from the end of the production operation to the consumer. Physical distribution takes place within numerous wholesaling and retailing distribution channels, and includes such important decision areas as customer service, inventory control, materials handling, protective packaging, order procession, transportation, warehouse site selection, and warehousing. Physical distribution is part of a larger process called "distribution," which includes wholesale and retail marketing, as well the physical movement of products.8 7
  8. 8. Figure-2.1 A Simple Supply Chain Physical Supply Physical Supply Physical Distribution Physical Distribution Distribution Supplier Manufacturer Customer System Dominant Flow of Products and Services Dominant Flow of Demand and Design Information www.mdcegypt.com/Pages/Purchasing/Material%20Management/Physical%20Distribution.asp http://www.enotes.com/physical-distribution-reference/physical-distribution 8
  9. 9. 2.2.1 Channel Types As shown in Figure-2.2, the channels of distribution are broadly divided into four types: Producer-Customer: This is the simplest and shortest channel in which no middlemen is involved and producers directly sell their products to the consumers. Under it, the producer performs all the marketing activities himself and has full control over distribution. A producer may sell directly to consumers through door-to-door salesmen, direct mail or through his own retail stores. Big firms adopt this channel to cut distribution costs and to sell industrial products of high value. Small producers and producers of perishable commodities also sell directly to local consumers. Producer-Retailer-Customer: This channel of distribution involves only one middleman called retailer. Under it, the producer sells his product to big retailers (or retailers who buy goods in large quantities) who in turn sell to the ultimate consumers. This channel relieves the manufacturer from burden of selling the goods himself and at the same time gives him control over the process of distribution. This is often suited for distribution of consumer durables and products of high value. 9
  10. 10. Producer-Wholesaler-Retailer-Customer: This is the most common andtraditional channel of distribution. Under it, two middlemen i.e. wholesalers andretailers are involved. Here, the producer sells his product to wholesalers, who in turnsell it to retailers. And retailers finally sell the product to the ultimate consumers. Thischannel is suitable for the producers having limited finance, narrow product line andwho needed expert services and promotional support of wholesalers. This is mostlyused for the products with widely scattered market. Producer-Agent-Wholesaler-Retailer-Customer: This is the longest channel ofdistribution in which three middlemen are involved. This is used when the producerwants to be fully relieved of the problem of distribution and thus hands over his entireoutput to the selling agents. The agents distribute the product among a few wholesalers.Each wholesaler distributes the product among a number of retailers who finally sell itto the ultimate consumers. This channel is suitable for wider distribution of variousindustrial products. 10
  11. 11. Figure-2.2 Types of Channels of Distribution Direct Sale Retailer Wholesaler Retailer Agent Wholesaler Retailer 11
  12. 12. 2.2.2 Choosing the Right Distributor 10 When deciding whether to use agents, wholesalers, brokers or retailers, todistribute the product, it is needed to consider the following six factors as summarizedin the “Choosing the Right Distributor” on Table-2.1.1)Number and types of customers2)Concentration of market3)Price of product4)Complexity of product5)Financial resources6)Need for control 12
  13. 13. Table-2.1 Choosing the Right Distributor Sell Directly Use a Agent Use a Wholesaler Use a Retailer Number and Types of Few Specialized Hundreds Diversified Customers Concentration of Concentrated Concentrated Scattered Scattered Market Price of Product Expensive Less expensive Inexpensive Inexpensive Complexity of Highly technical Less technical Simple Simple Product Financial Extensive Adequate Limited Adequate Resources Need for Control High High Low Low 13
  14. 14. 2.3 Activities in the Physical Distribution The research studies findings have led many small businesses to expandtheir cost-cutting efforts beyond their historical focus on production to encompassphysical distribution activities. In the physical distribution, there are six interrelated activities that affectcustomer service and the cost of providing it. They are:1)Transportation2)Inventory Control3)Warehousing4)Materials Handling5)Protective Packaging6)Order Processing 14
  15. 15. Chapter III Profile of Shwe Me Company LimitedOrganizational Background Shwe Me Company Limited (SM) was founded in 1995 by three entrepreneurs. To comply with the legal requirements under the Myanmar Companies Act 1914, the company officially registered at the Myanmar Companies Registration Office in April 26, 1995. In collaboration with its international and local business partners, SM has successfully introduced Elephant Brand cements and construction materials, imported from Thailand into Myanmar by sea transport. SM is not only supplying products but also providing with quality products to its customers to have higher and better quality structures in constructional works for all builders. SM started it business by distribution of Elephant Brand cements and other construction materials to meet the demand of domestic market. SM, under the management of Board of Directors, it opened up for clients to have benefits by engaging a wide range of products and services. At present, SM is distributing Grey Cement and White Cement. Currently, SM is distributing cements through 4 dealers, handling over 30,000 tons of grey cements, and 80 tons of white cement per mouth. The products are marketed domestically, distribute to construction sites, companies and end users over the country. 15
  16. 16. 3.3 Vision, Mission and Company Value Vision To provide personalized service as we strongly belief to have mutually beneficial long-term relationship Keeping efficient and proven track records and offering comprehensive and flexible range of services Mission Identifying customers needs and offer the best solution Innovating at all times to work with wisdom skills and virtue to meet customers’ expectations Company Value Obtaining valuable national interests Accelerate our speedy services and trade volumes Ensuring high standard quality products and services 16
  17. 17. Figure-3.1 The Organizational Structure of Shwe Me Board of Directors Managing Director Director (Admin) Director (Logistics) Administration Operation Account Marketing Human Resources Construction Transportation Warehousing 17
  18. 18. Table-4.1 Total Number of Middlemen by Region and State Number of Number of Number ofSerial No. Division and State Wholesalers Dealers Retailers 1 Ayeyarwaddy Dealer - A 5 15 2 Bago Dealer - B 6 15 3 Kayin Dealer - D 1 - 4 Magway Dealer - C 5 6 5 Dealer - B 8 - 6 Mon Dealer - D 2 - 7 Rakhine Dealer - A 2 - 8 Sagaing Dealer - C 1 - 9 Shan Dealer - C 3 - 10 Tanintharyi Dealer - A 2 - 11 Dealer - D 44 - Sub Total 4 79 36 Total 119 18
  19. 19. Table-4.2 Total Population by Region and State (Oct 14, 2010) Number of Population bySr. No. Region and State Wholesalers and Total Ratio Ratio Region and State Retailers 1 Ayeyarwaddy 5,842,093 292,104 20 5,842,093 : 20 2 Bago 5,515,202 262,628 21 5,515,202 : 21 3 Kayin 1,324,504 1 1,324,504 : 1 1,324,504 4 Magway 3,759,749 11 3,759,749 : 11 341,795 5 5,759,958 8 5,759,958 : 8 719,994 6 1,875,205 2 1,875,205 : 2 937,602 7 Rakhine 2,947,859 2 2,947,859 : 2 1,473,929 8 Sagaing 4,842,801 1 4,842,801 : 1 2,421,400 9 Shan 4,474,830 3 4,474,830 : 3 1,491,610 10 Tanintharyi 1,208,212 2 1,208,212 : 2 604,106 11 5,706,846 129,701 44 5,706,846 : 44 Total 43,257,259 115 19
  20. 20. Table-4.3 Distributed Townships where Wholesalers and Retailers existed by Region and State Number of TownshipsSerial Total Number of Townships Region and State where Wholesalers / Ratio No. in Region and State Retailers exist 1 Ayeyarwaddy 26 15 26 : 15 2 Bago 28 15 28 : 15 3 Kayin 7 1 7:1 4 Magway 25 11 25 : 11 5 31 6 31 : 6 6 Mon 10 2 10 : 2 8 Rakhine 17 2 17:2 9 Sagaing 37 1 37:1 10 Shan 56 3 56:3 11 Tanintharyi 10 2 10:2 11 Tanintharyi 10 2 10:2 12 45 44 45 : 44 20
  21. 21. Table-4.4 Prices of Shwe Me Products Serial Product Package Price (Kyats) No. 1 Grey Cement 50 kg 4,800 50 kg 120,00 2 White CementSource: SM Price ListDifferent from place of delivery to buyer, the prices of Grey Cements range between 4600 Kyats and 5700Kyats. The prices of White Cements range between 4600 Kyats and 5700 Kyats, it depends on currencyexchange rate.Although SM cements are inexpensive, it uses direct-selling channel and one to three level intermediarychannel (Dealers, Wholesalers and Retailers). 21
  22. 22. Table-4.5 Complexity of Shwe Me Products Complexity Serial No. Product Highly Technical Less Technical Simple Grey Cement 1 White Cement 2Source: Survey Data Highly Technical : product that requires highly-trained staff for pre-sales information and post-sales service Less Technical : product that does not require highly-trained staff for detailed information about product usage Simple : product that is user-friendly and simple for customers to use 22
  23. 23. Table-4.6 Monthly Working Capital and Cash in Hand of Shwe Me in (2010-2011) Fiscal Year Working Capital (Current Assets – Current Liabilities) Cash in Hand (Kyats) (Kyats)Apr 2010 1078,087,650 158,446,230May 2010 1056,036,760 153,304,970Jun 2010 1037,002,253 154,060,650Jul 2010 1021,200,478 174,061,170Aug 2010 1012,926,909 186,660,090Sept 2010 1042,412,069 189,573,690Oct 2010 1001,544,049 142,053,140Nov 2010 1037,312,344 162,360,660Dec 2010 1058,216,969 179,629,860Jan 2011 1067,621,790 164,859,690Feb 2011 1018,815,065 161,668,365Mar 2011 1081,368,680 185,642,280 23
  24. 24. Table-4.7 Need for Control by Involving Managers of Shwe MeNeed for Control Number of Percentage Involving ManagersHigh Need for Control 37.5 % 3Low Need for Control 62.5 % 5Total 100% 8 24
  25. 25. Table-4.8 Mode of Transport Usage by Channel Channel Mode of Transport Road Rail Water AirChannel 1Channel 2AyeyarwaddyBagoKayinMagweMonRakhineSagaingShanTanintharyi Total 10 1 7 - Percentage 55% 6% 39% - 25
  26. 26. Table-4.9 Forecasting and Inventory Decisions Made by Channel Channel Forecasting and Order Decisions Made Not Made Channel 1 Yes Channel 2 Ayeyarwaddy No Bago No Kayin No Magwe No No Mon No Rakhine No Sagaing No Shan No Tanintharyi No No 26
  27. 27. Table-4.10 Warehouse Usage by Channel Channel Number of Warehouse DetailsChannel 1 3 Central WarehousesChannel 2Ayeyarwaddy 20 Sub WarehousesBago 21 Sub WarehousesKayin 1 Sub WarehousesMagwe 11 Sub Warehouses 8 Sub WarehousesMon 2 Sub WarehousesRakhine 2 Sub WarehousesSagaing 1 Sub WarehousesShan 3 Sub WarehousesTanintharyi 2 Sub Warehouses 44 Sub WarehousesTotal 118 27
  28. 28. Table-4.11 Use of Materials Handling Equipments Practice by Channel Channel Materials Handling Equipments Pick-up Fork-lift Truck Pallet Others (2-Ton) Truck Channel 1 Shwepyithar Warehouses Shwepyithar Warehouses 2 20 20 - Channel 2 Ayeyarwaddy - - Bago - - Kayin - - Magwe - - - - Mon - - Rakhine - - Sagaing - - Shan - - Tanintharyi - - 20 - Total 2 20 40 - 28
  29. 29. Table-4.12 Packaging Characteristics of CementsProduct Name Package Size Package TypeGrey Cement 50 kg PP BagWhite Cement 50 kg PP Bag 29
  30. 30. Table-4.13 Order-to-Payment Cycle by Channel Order-to-Payment Cycle Channel Receipt of Cash / Credit The Whole Delivery Order Payment CycleChannel 1Shwepyithar WarehousesYangon Sea Ports ≤ 1 day ≤ 1 day ≤ 1 day 30 – 33 daysShwepyithar Warehouses ≤ 1 day ≤ 1 day ≤ 1 day 30 – 33 daysChannel 2Ayeyarwaddy ≤ 1 day ≤ 2 day 30 days 30 – 33 daysBago ≤ 1 day ≤ 1 day 30 days 30 – 33 daysKayin ≤ 1 day ≤ 1 day 30 days 30 – 33 daysMagwe ≤ 1 day ≤ 1 day 30 days 30 – 33 days ≤ 1 day ≤ 10 day 30 days 30 – 43 daysMon ≤ 1 day ≤ 1 day 30 days 30 – 33 daysRakhine ≤ 1 day ≤ 7 day 30 days 30 – 40 daysSagaing ≤ 1 day ≤ 2 day 30 days 30 – 33 daysShan ≤ 1 day ≤ 2 day 30 days 30 – 33 daysTanintharyi ≤ 1 day ≤ 4 day 30 days 30 – 33 days ≤ 1 day ≤ 1 day 30 days 30 – 33 days 30
  31. 31. Chapter V Conclusion5.1 Findings By examining distribution channel of Shwe Me Co.Ltd , it is found that SM is using two channels of distribution out of four types of distribution channels. They are: 1) Sell directly itself Channel (1): SM (Sea Port) – Customers SM (Sea Port) – SM (Swhepyithar Warehouses) – Customers 2) Use dealers or middlemen Channel (2): SM (Sea Port) – Dealers –Wholesalers – Retailers – Customers 31
  32. 32. Channel (1) is direct selling channel in which no middlemen is involved and theproducer directly sells its products to the consumers, performs all the marketing activitiesand has full control over distribution. Channel (2) is one to three levels - intermediary channels in which Dealers,Wholesalers and Retailers act as the middlemen. The dealers buy goods in huge quantitiesand sell to end users. By using Dealers and Wholesalers, it relieves SM, from burden ofselling and distribution of the goods. It also eliminates the utilization of man power inoutreach areas. It is also noted that SM is using selective distribution by limited number ofchannels (direct selling channel and one to three levels -level intermediary channel). 32
  33. 33. By analyzing the choice of distributors regarding with the number of customers, itis found that SM middlemen deal with great number of customers. According to the ratio ofpopulation to middlemen, it is also found that the size of population is bigger enough thanthat of middlemen. (Range between 129 thousand to one and 2,421 thousand to one). Thosemiddlemen and end-users are diversified in the market. 33
  34. 34. With regard to distributed townships and middlemen usage by Region and Statein Myanmar, it is noted that SM has a few number of middlemen in Kayin State (just 1middleman in 7 Townships) and in Sagaing Region (just 1 middleman in 37 Townships).In contrast, there are large numbers of middlemen in Yangon Region (44 middlemen in 45Townships).It is also noted that cements are inexpensive as the price range is between 4700Kyats and 5,600 Kyats per 50kg bags. For White Cement, the price is stable at 12,000Kyats per 50kg bag. As regards the complexity of product, cements are less technical products;expressing the application method on the package so that customers can use it easilywithout needing the help of highly-trained staff. 34
  35. 35. Regarding with financial resources of SM, it is noted that SM has adequate financialresources since it has strong working capital (range between 1001 million Kyats and 1081million Kyats) and positive cash in hand (range between 142 million Kyats and 189 millionKyats). SM has selected the right persons for the appointment of the dealers who haveadequate financial resources and good reputation in business fields. With regard to need for control, it can be found that most involving managers of SM(37.5%) want to maintain tight control over product distribution and 62.5% of involvingmanagers do not want to maintain control over distribution. 35
  36. 36. By exploring activities in the physical distribution regarding with transportation, it isfound that SM uses road, rail and water transports for delivering goods to customers.Pipeline and air transports are not used. Thus SM is using three modes of transportationout of five transportation modes. It is also found that SM uses 20 numbers of it ownedTrucks for delivering goods to customers existing near sea ports and uses CommonCarriers to reach to customers far away from distribution point. 4Dealers uses 20numbers of their owned Trucks for delivering goods to customers 36
  37. 37. Regarding with warehousing, it is noted that cements are kept at the Warehouseslocated in Shwepyithar. It is also noted that SM centralizes its inventory in one place(Shwepyithar Warehouses) in Myanmar in order to reduce warehousing and inventoryduplication costs. It is also found that there are Sub-warehouses located in respectiveRegion and State of Myanmar. There are 115 Sub-warehouses owned by distributorsand wholesalers. 37
  38. 38. With regard to inventory, it can be found that SM uses centralized inventorydistribution system because stock is pushed out into the system from the ShwepyitharWarehouses. It is found that there is the use of material handling equipments such as 2 Fork-lifts, 20Trucks and 20 Pallets in Channel 1 and use of 20 trucks in Channel 2. It is alsofound that Channel 2 is labor intensive for the movement of cement bags. 38
  39. 39. According to packaging characteristics of cement, it can be found that SM usesmoisture-proof PP bag for the packaging. By analyzing order processing with order-to-payment cycle it is noted that the total duration takes 30 – 33 days for Channel 1 and ittakes 30 – 40 days for Channel 2 because receipt of payment from Dealers andWholesalers allow within 30 days.
  40. 40. 5.2 Suggestions and Recommendations SM should reinforce its current two channels. To strengthen Channel 1, SM should establish own Distribution Centers and branches in or near the center of district or province cities. To make Channel 2 more effective, SM should employ more Wholesalers and Retailers in Township-level where lack of Wholesalers and Retailers to allocate at every prominent. In addition, SM should be aware of selecting Wholesalers. It is important to meet the criteria of adequate financial resources, trustworthiness and good reputation in business fields to avoid fraud. 40
  41. 41. To achieve broad market coverage, it is recommended that SM should expand severaldistribution routes or all possible distribution channels. Since SM deals with a large number of customers, it needs to use the services ofWholesalers and Retailers other than Company owned distributors, to provide readinessand availability of the products to customers in time. According to Table-4.3, SM shouldbe broadening middlemen usage in other Townships to expand the number of Townships.On the other hand, as the customers are geographically dispersed and the market is widelyscattered, it can be more economical to use the services of Wholesalers and Retailers.Thus, SM should establish branches in densely populated areas by appointing newWholesalers and Retailers. 41
  42. 42. Regarding with the price of product, it is suggested that SM should employ moreWholesalers and Retailers since price of cements are inexpensive. As cheaper items,cements should be sold in bulk to Intermediaries or Companies who make use ofbenefits in "Economy of Scales". Since cements are less technical complexity, it is agreeable that SM is usingDealers and Wholesalers as Intermediaries. SM should employ more middlemen tomain fluctuation of price and to control over them. 42
  43. 43. Since financial resources are adequate, SMC should establish own distributioncenters as branches and provide warehousing facilities in rural, remote areas, andremaining townships. In addition, SM should use all available outlets to persuadeWholesalers and Retailers to enlarge coverage of the cement market. Regarding with the mode of transportation, SM should use inland water transportsfor the best suited to moving large quantities of consignment with low cost. For speedyand flexible delivery, SM road transport is the best. 43
  44. 44. It should have more Sub-warehouses in hard-to-reach areas like Kayin State andShan State. When choosing warehouse locations, it is suggested that for the bestdeterminations, it make on proximity to the market and distance to terminals should betaken into account. With regard to inventory control, Shwepyithar Warehouses should keep tominimum balance with inventory to deliver in needs of each distribution center (Sub-warehouses of Dealers and Wholesalers). Since Dealers and Wholesalers are closest tothe marketplace, they have the capacity to know what the customer needs. So, the bestperformance in coordination between Sea Ports, Warehouses and Distribution Centre(Sub-warehouses) is advisable. By doing so, SM can has responsiveness to meet localdemand and attain the high degree of customer services. 44
  45. 45. To improve distribution efficiency of Sub-warehouses owned by Dealers andWholesalers, it has to provide cargo handling equipments such as Pallet, Fork-lift andPick-up Trucks. In consideration for the capital investment of using such equipments,Dealers and Wholesalers should be made balance between capital cost and operatingcost of distribution centre. It is recommended that SM use an appropriate computerized system and softwarefor order processing, inventory management and warehousing, so that stock levels anddelivery schedules can be updated accordingly. 45
  46. 46. In conclusion, since cements are no needs of selling directly by the Company, tightcontrol over distribution is no necessity for SM. Thus, it is strongly recommended thatSM use intensive distribution option by placing its products in as many places aspossible. In the local market, there are a few ranges of acceptable cement brands.Therefore comprehensive distribution system should be applied. SM should also wellexecute the efficiency of functioning activities in the physical distribution with morecompatible times and places. 46
  47. 47. 5.3 Needs for Future Research This research only covers two specific objectives: the distribution channelstructure and the physical distribution activities of Shwe Me in Myanmar., this study issomewhat limited in scope other competing companies in the same industry isrecommended for future researchers . 47
  48. 48. 48