This document discusses distribution channels and the roles of wholesalers and retailers. It explains that wholesalers perform important functions like market coverage, inventory holding, sales support and credit/financing for manufacturers and retailers. Wholesalers help products reach consumers efficiently and include merchant wholesalers, agents, brokers and manufacturer's branches. Retailers then sell directly to consumers and provide services and utilities to make products available for personal or household use.

2.  DISTRIBUTION CHANNELS
 INTRODUCTION
 Placement or distribution of goods is an important
element in the marketing mix since the
product/service must reach the consumer in right
quantity and at right time.
 There are a number of middlemen with varied roles
and functions between the manufacturer or producer
and the consumer or user.
 They constitute the marketing channel involving them
on the process of making a product or service available
for use or consumption by consumers or industrial
users.

3.  MEANING & IMPORTANCE OF DISTRIBUTION
CHENNALS
 Richard M. Clewett states, “A channel is the pipeline
through which a product flows on its way to the ultimate
consumer. The manufacturer puts his product into the
pipeline or marketing channel and various people move it
along to the consumer at the other end of the channel.
 “Marketing Channels are the combination of agencies
through which the seller who is often through not
necessarily, the manufacturer markets his product to the
ultimate user”.
 The American Marketing Association defines marketing or
distribution channel on “the structure of intra-company
organisation units or extra-company agents and dealers,
whole and retail, through which a commodity, product or
service is marketed”.

5.  A channel symbolizes the path for movement.
 This movement may be title, possession and payment
for goods or services.
 Eight flow functions take place through channel.
 Physical possession, ownership and promotion are
typically forward flows from producer to consumer.
 Each of these moves ‘down’ the distribution channels.
 The negotiation finance and risk flows move in both
directions.
 Ordering payment are backward flows.
 At any point of time, when inventories along with its
title are held by a channel member, financing of the
proceeding level takes place.

8.  ROLE AND FUNCTION OF WHOLESALER
 Wholesaler is commonly defined as an intermediary
who sells to other intermediaries usually to retailers.
 Wholesalers are defined as all establishments or places
of business engaged in selling merchandise to
retailers, industrial, commercial and institutional
users or to other wholesalers.
 The wholesaler’s role in the modern business is shaped
by the vast economic task of coordinating periods and
places in which goods are produced and consumers.
 This sort preceding the essence of their economic
viability that helps in reducing the discrepancy of
assortment.

9.  The wholesaler’s role is for value addition for suppliers
and customers as illustrated below:

11.  MERCHANT WHOLESALERS:
 Have independently owned firms that take title to the
merchandise they handle.
 His compensation is the profit made on the sale of goods.
 They are classified as either fill service or limited service
wholesaler, depending upon the number of functions
performed.
 Two major types of full service wholesalers exist.
 General Merchandise (full service) wholesalers carry a
board assortment of merchandise and perform all channel
functions. These wholesalers do not maintain much depth
of assortment within specific product lines.
 Specialty merchandise (limited service) wholesalers offer
relatively narrow range of product but have an extensive
assortment within the product line carried. They are found
in health drinks, automotive parts and seafood industries.

12.  FOUR MAJOR TYPES OF LIMITED SERVICE
WHOLESALERS EXIST.
1. Rack jobbers:
 They furnish the racks or shelves that display
merchandise in retail stores, perform all channel
functions and sell on consignment to retailers which
means that they retain the title to the products
displayed and bill retailers only for the merchandise
sold.
 Familiar products such as history, toys, house wares,
health and beauty aids are sold by rack jobbers.

13. 2. Cash and carry wholesalers
They take title to merchandise but sell
only to buyers who call on them, pay
cash for merchandise and furnish their
own transportation for merchandise.
They carry limited product
information.
This wholesaler is common in electric,
office supplies, hardware products and
groceries.

14. 3. Drop Shippers or desk jobbers
 They are wholesalers who own the
merchandise they sell but do not
physically handle, stock or deliver
 They simply solicit orders from
retailers and other wholesaler and have
the merchandise shipped directly from
a product to a buyer.
 Drop shippers are used for bulky
products like coal, lumber and
chemicals.

15. 4. Truck jobbers
They are small wholesalers who
have a small warehouse from which
they stock their trucks for
distribution to retailers.
They usually handle limited
assortments for fast moving or
perishable items.

16.  Agents and brokers:
 Unlike merchant wholesalers, agents and brokers do
not take title to merchandise and typically provide
fewer channel functions.
 They make their profit from commissions or fees paid
for their services where as merchant wholesalers make
their profit from the merchandise sold.
 Manufacturer’s agent and selling agent are the two
major types of agents used by producers.

17.  Manufacturer’s Agents work for several producers and
carry non-competitive, complementary merchandise in the
exclusive territory.
 They act as a producer’s sale arm in a territory and are
principally responsible for the transactional channels
functions.
 They are used extensively automotive industry, footwear
and fabricated steel industries.
 Selling agents represent a single producer and are
responsible for the entire marketing function of that
producer.
 They design promotional marketing function of the
producer.
 They design promotional plans set prices, determine
distribution policies and make recommendations on
product strategy.

18.  Brokers are independent firms or individuals
whose principal function is to bring buyers and
seller and together to make sale.
 They usually do not have continuous relationship
with the buyers or seller but negotiate a contract
between two parties and then move on to another
task.

19.  Manufacture’s Branches and Offices:
 Manufacturer’s branches and offices are wholly owned
extensions of the producer that perform wholesaling
activities.
 Producers will assume wholesaling functions
i. when there are no intermediaries to
perform these activities,
ii. customers are few in number and
geographically concentrated [or]
iii. orders are large or require significant
attention.

20. A Manufacturer’s Branch Office carries
a producer’s inventory, performs the
functions of a full service wholesaler
and is an alternative to merchant
wholesaler.
A Manufacturer’s Sales Office does not
carry inventory typically performs only
a sales function and serves as an
alternative to agents and brokers.

21.  FUNCTIONS OF WHOLESALERS
I. Market Coverage Function:
 Markets for the product of most manufacturers
consists of many customers spread over large
geographical areas.
 To have good market coverage so that their products
are readily available to customers when needed,
manufacturers can call on wholesalers to secure the
necessary market coverage at reasonable cost.

22. II. Sales Contact Functions:
 The cost to cover the spread over market by sales force
will be prohibitive.
 By using wholesalers to cover a substantial portion of
the market, manufacturers are able to reduce
significantly the costs of outside sales contacts.
III. Inventory holding function:
 Wholesalers take title to and usually stock the
products of the manufactures, which they represent.
 By doing so, they can reduce the manufacture’s
financial burden and reduce the risk with holding
large inventories and also help in planning better
production schedule.

23.  IV. Market Information Function:
 Wholesalers are quite close to the customers
geographically and in many cases have continual
contact through frequent sales calls on their
customers.
 So they are in a good position to learn about
customers’ product and service requirement, number
and type of customer orders and supports required by
customers from the company in the form of ineffective
merchandise return, after sales service information.
 They also provide advice and technical support in the
cast of high-tech industrial goods.

24.  V. Product Availability Function:
 Probably the most basic marketing function offered by
wholesalers to their customers is providing for the
ready availability of products which sometimes cover
the fabricating operation, assembly and set up of
products.
 There is also the wholesalers’ ability to bring together
from a variety of manufacturers an assortment of
product that can greatly simplify their customer’s
ordering tasks.
 Customers also do not need large quantities.
 Many manufacturers find it uneconomical to sell it to
small customers by performing bulk – breaking
functions.

25.  VI. Credit and Finance Function:
 Wholesaler provide their customer with financial
assistance by extending open account credit on
products sold, their customers have time to use
products in their business before having to pay for
them.
 Second, by stocking and providing ready availability
for many of the items needed by their customers
would bear if they had to stock all of the products
themselves.

26. RETAILERS
 DEFINITION, ROLE AND FUNCTION OF
RETAILERS
 Retail trade is defined by the Bureau of Census as
“all establishment engaged in selling merchandise
for personal or household consumption and
rending services incident to the sale of such
goods”.
 Retailing includes all activities involved in selling,
renting and providing services to ultimate
customers for personal, non-business use.
 They are distinguished from wholesalers by the
fact that they sell primarily to ultimate users.

27.  The utilities provides by intermediaries are of major
value to retailers.
 Time, place, possession and form utilities are offered
by most retailers in varying degrees.
 Many retailers often are able to influence marketing
policies and practices of their suppliers.
 Any time a retailer is able to obtain a price concession
advertising support or faster delivery from a
manufacturer influence has been exerted over that
manufacturers policies.

28.  FORMS OF RETAIL OUTLETS
 There is a wide variety of retail outlets but broadly
they can be classified into
I. Form of ownership : Who owns the outlet
II.Level of service : The degree of service provided to
customer
III.Merchandise line : How many different types of
products a store carries and in what assortment
IV.Method of operation : The manner in which services
are provided – how and where the customer purchase
products.

29.  I. Form of ownership
a) Independent retailer:
 This is the retail outlet common to every day life which
is owned by an individual e.g. dry cleaner, florist etc.
 The customer gets a personalised service in these
kinds of stores.
b) Corporate chain:
 It involves multiple outlets under common ownership.
 In a chain operation, centralisation in decision making
and purchasing is common.
 Chain stores have advantage in dealing with
manufacturers particularly as the size of the chain
grows.

30. c) Contractual system:
It involves independently owned stores
that band together to act like chain.
The example include retailer sponsored
co-operative, wholesaler sponsored
voluntary chains and franchising.

31.  II. Level of service
 a) Self Service: The customer performs many
functions and little is provided by the outlet. Home
building supply outlets, discount stores and catalogue
showroom are often self service.
 b) Limited Service: These outlets provide some
services which as credit, merchandise return and
telephone ordering. Department stores are considered
as limited service outlets.
 c) Full Service: These retailers provide a complete list
of services to cater to its customers. Specialty stores
are among the few stores in this category.

32.  III. Merchandise line
 a) Depth of Line: These kinds of stores carry a
considerable assortment (depth) of a related line of
items. There are limited line stores. Stores that carry
tremendous depth in one primary line of merchandise
are single line stores.
 b) Breadth of Line: These stores carry a board
product line with limited depth. These are referred to
as general merchandise stores, e.g. a large department
store carries a wide range of different types of
products, but not unusual size.

33.  IV. Method of operation
 a) Store Retailing: Traditionally, retailing meant the
consumer went to the store and purchased a product
which is store retailing e.g. corporate chains,
departmental stores and limited and single the
specialty stores.
 b) Non-store Retailing: It occur outside a retail outlet
such as through direct marketing e.g. mail order,
vending machines, computer and tele-shopping.

34.  FUNCTIONS OF RETAILER
 The retailer is the ultimate connecting point to the
consumer in distribution channel. The retailers
perform various functions such as:
a) Physical flow
 Take possession of merchandise from wholesaler.
 Provide inventory facility
 Make the required assortment in variety and quantity
 Change the title of the merchandise to customers.
b) Promotion
 Retailer takes an active part in producers promotion
programme by facilitating POP display, store display
and act as final dispenser of sales promotion schemes
to the consumer.

35.  c) Negotiation, Financing and Risk Bearing
 The retailer negotiates with the wholesaler and
manufacturer is quality, price stocked quantity and
terms of sale.
 They also negotiates with consumers.
 They also help in financing consumer by extending
credit facility for regular or bulk buying.
 As risk accompanies ownership, the retailers assume
all the risk inherent in ownership of goods.

36.  d) Order, payment and information flow
 Anticipating or reacting to the needs of customer, the
retailers order the merchandise through the
wholesaler to manufacturer.
 Accepting payment from the customer is consideration
for the transfer of ownership retailer pass on the
payment, after deducting their margin, backward in
the channel.
 Retailers form a vital link in the two way flow of
information about customer response, product and
promotional information.

37.  SELECTION OF CHANNEL OF DISTRIBUTION
 A new firm typically starts as a local operation selling
in a limited market.
 Since it has limited capital, it uses existing
middlemen.
 The number of middlemen in any local is ought to be
limited i.e. a few manufacturer’s selling agents, few
wholesalers, several established retailers.
 Deciding upon the best channels is a challenging task
if the new firm is successful, it branches out to new
markets and operates with existing intermediaries.

38. The following steps are involved
while selecting and designing a
distribution channel.
Step I : Analysing service output levels
desired by customers
Step II : Establishing channel
objectives
Step III : Identifying the major channel
alternatives
Step IV : Evaluating channels.

39.  STEP I: ANALYSING SERVICE OUTPUT LEVELS
DESIRED BY CUSTOMER
 There is diversity in the customer’s buying needs,
product assortments, merchandise choice and
frequency of buying. There are five service outputs
produced by channels. They include:
 Lot Size: It is the number of units that the channel
permits an individual customer to buy on one
situation. The smaller the lot size the greater the
service output level that the channel must provide.
 Product variety: It represents the breadth of
assortment provided by the marketing channel
customers like greater assortment breadth because the
chance of exactly meeting their need.

40.  STEP I: ( CONTINUED……)
 Waiting time: It is the average time that customers
wait for receiving the goods. Customers normally
prefer fast delivery channels. Faster service requires a
greater service output level.
 Convenience: This expresses the degree to which the
marketing channel makes it easy for customers to
purchase the product.
 Service back up: Services back up represents the
addition on services like credit, delivery, installation,
repairs provided by the channel. The greater the
service back up, the greater the work provided by the
channel.

41. STEP 2: ESTABLISHING CHANNEL
OBJECTIVES
 These objectives should be stated in terms of
targeted service output levels.
 Channel objectives vary with product
characteristics.
 Perishable products require more direct
marketing.
 Bulking products such as building and
machinery material require channels
minimizing transportation and shipping
distance and the number of handling in the

42. STEP 2: ( CONTINUED…..)
 Non standardized products are sold directly
by company sales representatives.
 Products which require installation,
fabrication and maintenance are sold by
company itself. Similarly high unit value
products are often sold through a company
sales-force.
 Channel design decision maker should do the
strength and weakness analysis of each
member and the decision should be
adaptable to a larger environment.

43.  STEP 3: IDENTIFYING THE MAJOR CHANNEL
ALTERNATIVES
 After defining the target market and the variability of
customer needs, there should be the identification of
channel alternatives.
 A channel alternative is characterized by:
(a) Types of business intermediaries:
 There are various kinds of intermediaries and each
them differ in their role and function.
 The intermediaries can be of the manufacture’s agents
or independent units or manufacture’s sales-force.

44.  STEP 3: [CONTINUED…….. ]
(b) The number of intermediaries:
 The number of intermediaries decides the type of
distribution the organisation prefers.
 Exclusive distribution severely limiting the number of
intermediaries handling the company’s merchandise. In
this case the producer exercises a great deal of control.
 Selective distribution involves the use of more than a few
but less than all of the intermediaries who are willing to
carry a particular product. This type of distribution is used
by established as all as new organisations.
 An intensive distribution involves planning the goods or
services in as many outlets as possible.
 To get the locational convenience, it is required to offer
greater intensity of distribution.

45. STEP 3 [ CONTINUED……. ]
(c) The responsibility and duty of each
channel participant:
The manufacturer must determine the
conditions and responsibilities of the
participating channel members.
The policies involved are price policies
conditions of sale, territorial rights and
mutual services to be performed by
each party.

46. STEP 4: EVALUATING CHANNELS
 The various channels so selected needs to be evaluated
against (a) Economic criteria, (b) Adaptive criteria, (c)
Control criteria.
a) Economic Criteria :
 Each channel member produce a different level of sales
and cost.
 Whether the company salesforce or the intermediaries
will be generating more sales and the cost involved in
maintaining each of these alternatives are to be
analysed.

47.  STEP 4: [ CONTINUED……….. ]
 b) Adaptive Criteria:
 The order to develop a channel, the members must
make some degree of commitment to each other for a
specified period of time.
 So in rapidly changing volatile or uncertain product
markets, the producer needs the channel structure and
policies to maximize control over the members.
 c) Control Criteria:
 The area of channel evaluation should be broadened
to include the control criteria.
 The balance of the dynamics of marketing control
between intermediaries and manufacturer should be
considered.

48.  CHANNELS OF DISTRIBUTION FOR CONSUMER AND
INDUSTRIAL GOODS
 The channels for consumer goods and industrial goods differ widely
because of customer demands.
 As the intermediaries between a producer and buyer, increases the
channel is viewed as increasing in length.
 Channels for Consumer Goods

49.  Channel A represents a direct channel, because a producer
deals directly with each consumer. Many products and
services are distributed this way.
 The remaining three channels B,C,D, are indirect channels,
because intermediaries are inserted between the producer
and consumers and perform numerous channel functions.
 Channel B, with a retailer added is most common when a
retailer is large and can buy in large quantities from a
producer.
 Adding a wholesaler in channel C is most common for low
cost, low unit value items that are frequently purchased by
consumers such as sweets, chocolates and magazines.
 Channels D, is manufacturers and many small retailers and
an agent is used to help coordinate a large supply of the
product

50. B. Channels for Industrial Goods and Services

51.  In channels for consumer products, individual
channels typically are shorter and rely on one
intermediary or none at all because industrial users are
fewer in number and tend to be concentrated
geographically and buy in larger quantities.
 Channel A is a direct channel and firms using this
channel maintain their own sales-force and are
responsible for all channel functions.
 This channel arrangement is employed when buyers
are large and well defined, the sales effort requires
extensive negotiations and the products are of high
unit value and require hands on expertise in terms of
installation or use.
 Other channels are indirect channels.

52.  In channel B an industrial distributor performs a
variety of marketing channel functions.
 Channel C, introduces a second intermediary, an
agent, who serve primarily as the independent selling
arms of producers are represent and producer to
industrial users.
 Channel D is the longest channel and includes both
agents and distributors.
 Channel structures for consumer and industrial
products assume various forms based on the number
and type of intermediaries.
 Knowledge of the roles played by these intermediaries
is important for understanding the channel operation.

53. PHYSICAL DISTRIBUTION
 MEANING, OBJECTIVES AND IMPORTANCE:
 Meaning
 Physical distribution involves planning, implementing,
and controlling the physical flows of materials and
final goods from points of origin to points of use to
meet customer needs at a profit.
 In some cases the physical distribution also includes
the movement of raw materials from the source of
supply to the beginning of the production line.

54.  Objectives
 Like other components of the marketing – mix,
physical distribution, too strikes to achieve two broad
marketing objectives, viz., Consumer satisfaction and
profit maximization.
 By delivering products to target consumers at the
places and time required, physical distribution
ensures
 To serve the customer in a better way
 To provide value satisfactions for consumers.
 To repeat the sales
 To retain more customer
 To add new customers

55. To facilitate the lowering of stock level
To avoid out of stock situations.
To devise a constant delivery schedule
To reduce the amount of capital tied-up
in inventory.
To determine the optimum number
and location of warehouses
To improve the handling of materials,
To increase the stock turnover

56.  The importance of physical distribution system
will be better understood from the following:
1. A well-devised Physical Distribution system
helps to minimize cost of marketing:
 Recently, all the major components of marketing cost,
viz., transportation cost, materials handling,
inventories, order processing, etc. have registered a
sharp increase primarily due to inflationary conditions
all the world over.
 It is against this that physical distribution
management assumes particular significance.
 A sizable chunk of marketing cost cold very well is
curtailed by evolving an appropriate PDS.

57. 2. Physical distribution system helps to attain the
objective of utmost customer satisfaction:
 Customer satisfaction is the end of all marketing
activities.
 A satisfactory physical distribution system ensures
best possible warehousing, inventory control,
transport, protective packaging, physical handling,
order processing, etc. which gives the customer the
service they expect.
3. PDS creates time and place utilities:
 Physical distribution creates utilities of time and place
of making available a product at the time it is needed
and at the place where it is needed.

58.  4. PDS form a major part of national wealth:
 PDS in the form of rail, road, highways, trucks,
aircraft, ships docks, etc. represents a major portion of
national income.
 Hence PDS becomes important from the point of view
of the national economy as well.
 Thus, the process of physical distribution is of utmost
importance not only from the view point of the
enterprise in question but also from the broader
national angle.

59.  COMPONENTS OF PDS
 PDS comprises the following broad areas:
 Transportation
 Transportation refers to the movement of products from the warehouse
(s) to the consumer destination (s).
 It is the crux of the problem of physical distribution.
 It plays an important role in the economic development of nation.
 The entire work of assembling and dispersing of goods is done with the
help of some form of transport.
 Better transport opens up new markets, which, in turn, increases the
volume of production requiring the support of wider and larger
transport facilities.
 Without the development of transport, large scale production would
have been impossible.
 There are several models of transport such as,
 Land/Road Transport (Road & Rail way)
 Water Transport
 Air Transport

60.  Some of the factors determining the choice of
selecting transport medium may be pointed out
here.
 1. Cost:
 Cost of transport is indicated by the freight rate and
total freight bill that a company is required to pay on
the goods / Cargo.
 The distance to be traveled and the volume of products
to be moved go to determine the cost.
 The distance criterion influences the ratio between the
fixed and variable components of the total movement
cost.

61.  2. Performance Criteria:
 Performance characteristics of each mode of transport
considerably influence the choice of management.
 The important performance criteria are speed,
reliability, frequency, availability and safety.
 Speed refers to the pace of movement and it usually
indicated in kilometers per hour.
 While calculating speed, the time involved in
transhipment, handling, stoppages, loading and
unloading, and starting from station to customer
destination are taken into account.
 It’s the total time taken from warehouse to customer
destination that is relevant.

62.  Reliability: It implies the dependability of the transport
medium.
 Dependability in indicated by the number of in-transit
interruptions, dislocation owing to inclement weather,
accident proveness, etc.
 Both railways and roadways in these terms rank before
airways and waterways.
 Frequency: It refers to repetitive movement of the mode of
transport from one place to the other.
 There are daily rail and road cargo services from practically
all trading centre in the country.
 Availability: It implies flexibility and accessibility of the
transport medium.
 The chromic wagon shortage makes railways a purely
available mode; road transport emerges successfully in this
test.

63.  Safety:
 Safe and secure movement of products is important.
 Safety is indicated by the possibilities of product loss and
damage.
 Product suitability:
 Not all media are suitable for the movement of all types of
products.
 Hence the choice of the transport medium is also determined
by its suitability from the view point of product character.
 Perishable products and products having a high replacement
rate and time value are best moved by the roadways whereas
bulky goods like coal, oil, etc, is best moved by railways and
water ways.
 Similarly, products with a high unit value, such as diamond,
jewellary, electronic equipment, etc. are best moved by air
owing to the low ratio of the transport cost to the product

64.  INVENTORY MANAGEMENT
 Inventory refers to all kinds of materials, component parts,
supplies, inprocess goods and finished goods available with
a firm.
 A firm cannot succeed in maximizing customer satisfaction
without effective management of inventories.
 It is because of this reason that inventory management of
physical distribution.
 Inventory management means the laying down of the
policy to be followed regarding the holdings of stocks or
raw materials and finished products and the
implementation of this policy in the business.
 The principal aim of inventory management is to ensure
enough supply of all the materials and supplies of the
quality essential to the business with the least of the
inventory investment and inventory carrying cost.

65.  INVENTORY MANAGEMENT [ continued……… ]
 Inventory control means holding balanced stock of
materials and / or finished goods. It aims at there
objectives:
 Never run of anything (out of stock)
 Never build up a very large inventory i.e. having much
of anything on hand (unwanted stock)
 Never send out too many small orders for more i.e.
never pay high prices and incur high freight and lose
quantity discount because of buying in small
quantities.
 It should be noted that the efficient inventory
management cannot eliminate business risk but it can
certainly reduce it. We can only assess risk, plan a
strategy and accept risk and most favourable terms.

66.  STORAGE AND WAREHOUSING
 Storage and warehousing is one of the important
physical distribution functions of marketing.
 The word storage means holding the stock of goods for
a relatively longer period.
 Thus, storage is a function that helps in preserving the
goods at one place until they are needed at another
place.
 Warehousing, on the other hand, involves more than
storage.
 Warehouse, perform many of the usual functions of
wholesalers’ e.g. breaking bulk, dispatch of smaller
consignments to retailers, providing market
intelligence and many other merchandising services of
manufacturers.

67.  STORAGE AND WAREHOUSING[ continued………….. )
 As regards the location of warehouse, usually two options
are available, viz. to centralize warehouse
 facilities at one geographical location or to decentralize
them at more than one location.
 The centralized warehouse is built around the
manufacturing plant while the decentralized warehouse is
built at or in the vicinity of market.
 In centralized warehouse products are moved to the
warehouse from the plant from where these are distributed
to different markets irrespective of the distance.
 Thus, there is only one dispatch point.
 In decentralized warehousing, on the other hand, the
products are first moved in bulk from the plant to different
warehouse called distribution centers where these are
assorted, regrouped, and repackaged in customer
acceptable sizes and delivered.
 It is a full service warehouse, primarily related to market.

68.  STORAGE AND WAREHOUSING [ continued………… ]
 A distribution center provides services with the help of a
computer and modern materials handling equipment.
 It can reduce cost of inventory, storage, handling and transport.
 Products are shifted from the factory to the distribution center
directly and not to a storage warehouse.
 The distribution center is a new idea developed recently in India.
 Many companies are shifting steadily from storage warehouses,
to distribution centers in their plans of physical distribution.
 As regards the ownership of warehouses, broadly two options are
available viz., private warehouse(s) or/and public warehouse(s).
 The former are owned and operated by the company itself and
are often exclusively used by it.
 The latter are those which are owned and operated by public
institutions or other persons and are open for use by anybody at a
charge who can confirm to certain rules and regulations.

69.  MANAGING PHYSICAL DISTRIBUTION
 The design and management of physical distribution
systems involve a number of business functions in
addition to marketing, including raw materials
management, inventory control, manufacturing,
transportation, and warehouse and plant location. The
major steps in designing the PDS are:
1. Establish PDS objective
2. Measure customer service
3. Examine cost trade – offs,
4. Identify and select design alternatives.

70.  1. Establish PDS objectives
 The principal objective was to provide better customer
service.
 Customer service consists of providing products at the
time and location corresponding to the customer’s
needs.
 It is a measure of how all the customer service function
is being accomplished.
 The customer services levels that may be provided
range from very good to very poor.
 Five major factors affect customer service, Time
dependability, communication, availability and
convenience.

71.  Measure customer service
 Several possible measure of customer services are
shown in fig. 1.

72.  The choice of an appropriate measure or measures is
situation specific and is based on the service factors(s)
most closely linked to customer satisfaction.
 The pre-transaction elements use measure that
designate service capability before it is provided.
 A target delivery date indicates the planned time or
delivery.
 The transactions elements gauge service performance
for various components of buyer – seller transactions.
 The post-transaction elements measure customer
service based and sellers is an important factor in
customer service.

73.  Examine cost trade - offs
 Trade-off analysis in PDS design is the evaluation of the
costs of each system component with the objective of
determining the combination of components that provides
a minimum total cost system for specified customer service
level.
 The inter–relationships of various PDS components are
shown fig.2.
 The arrows indicate the trade –offs between activities the
must be evaluated in:
 Estimating customer service levels.
 Developing purchasing policies
 Selecting transportation policies
 Making warehousing decisions
 Setting inventory levels