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Unit 2 -- DistributionUnit 2 -- Distribution

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Unit ObjectivesUnit Objectives

Define channels of distribution.Define channels of distribution. Identify channel members.Identify channel members. Describe merchant intermediaries.Describe merchant intermediaries. List and explain distribution intensitiesList and explain distribution intensities Define physical distribution.Define physical distribution. Evaluate available distribution options.Evaluate available distribution options. Discuss warehousing and purchasing.Discuss warehousing and purchasing. Illustrate purchasing situations.Illustrate purchasing situations. Explore the steps of the purchasing process.Explore the steps of the purchasing process.

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Channel of DistributionChannel of Distribution

Path a product takes from producer or manufacturer to final user.

A new channel of distribution begins when the product changes form or is used by the purchaser.

Direct Channels Indirect Channels

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Channel MembersChannel Members

Industrial Market - products purchased for business use.

Consumer Market - products purchased for personal use.

Intermediaries - channel members that move the product through the channel (middlemen)

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Merchant IntermediariesMerchant Intermediaries

Wholesalers - Purchase large quantities of goods from manufacturers, store the goods, and resell them to other businesses

retailers institutions

electronic retail outlets governments

vending services manufacturers

professional users other wholesalers

commercial users

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Merchant IntermediariesMerchant Intermediaries

Agents - Participants in the marketing channel who negotiate the sale of products between other channel members

Do not take title to the products distributed

Manufacturer’s Agents and Brokers - Work independently running their own businesses

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Distribution IntensityDistribution Intensity

Intensive• using all suitable outlets for a product

• complete market coverage Selective

• limited number of outlets in a given geographic area

• maintains some control over product movement Exclusive

• total right to sell a product within an identified geographic location

• prestige, image, channel control Integrated Distribution

• Manufacturer acts as wholesaler and retailer for its own products

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Physical Distribution Physical Distribution

The process of transporting, storing, and handling goods to make them available to customers

Third largest expense for most businesses Includes:

freight transportation order processing

warehouse site selection warehousing

materials handling customer service

protective packaging inventory control

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TruckingTrucking

Advantages• convenient• less protective packaging• rapid deliveries• reduces inventory costs

Disadvantages• possible shipment delays• long distances - costly

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TruckingTrucking

Common CarriersContract CarriersPrivate CarriersExempt Carriers

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RailwaysRailways

Advantages

• large quantities - lower costs

• few delays

Disadvantages

• lack of flexibility

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RailwaysRailways

Piggyback ServiceFishyback ServiceSpecialized ServicePackage CarsDiversion-in-transitProcessing-in-transit

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WaterwaysWaterways

Advantages• low cost

Disadvantages• slow

• lack of flexibility

• weather delays

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WaterwaysWaterways

Internal Waterways

Intracoastal Waterways

International Waterways

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PipelinesPipelines

Advantages• lower long-term costs

• dependable

Disadvantages• high initial costs

• risk of breakage or leaking

• costs for any damages

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Air TransportationAir Transportation

Advantages• speed• reduction of storage & inventory expenses

Disadvantages• costs• delays

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Other CarriersOther Carriers

U.S. Postal ServiceU.S. Postal ServiceExpress CarriersExpress CarriersBus Package CarriersBus Package CarriersFreight ForwardersFreight Forwarders

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Warehousing or StorageWarehousing or Storage

Holding goods until they are sold Reasons for Storing Goods

• sell to customers• surplus of goods• stabilize prices• obtain discounts• faster delivery

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WarehousingWarehousing

Private WarehousesPublic WarehousesDistribution CentersBonded Warehouses

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PurchasingPurchasing

Determining what to buy & making arrangements with sources regarding final price, delivery, services expected, and method of payment.

Sometimes called “buying” Refers to industrial use

• consumption• production• distribution (resale buying)

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Purchasing SituationsPurchasing Situations

New Task Purchase

Modified Rebuy

Straight Rebuy

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Purchasing ProcessPurchasing Process

Selection of products Selection of suppliers Negotiating terms of agreement Placing the order Payment Evaluation of process

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Product SelectionProduct Selection

Planning• merchandise plan

– planned sales– beginning-of-the-month inventory– planned reductions– planned purchases

Analyze customer wants and needs Decide on goods and quantities

• basic stock list• model stock list • never -out list

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Selecting SuppliersSelecting Suppliers

Production Capabilities Past Experiences Product & Buying Arrangements

• Consignment buying

• Memorandum buying

Special Services• UPC Codes

• Peg man

• merchandising services

• bonuses & gifts

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Negotiating TermsNegotiating Terms

Discounts Dating terms

• advance dating• extra dating• end-of-month dating• receipt-of-goods dating

Delivery Arrangements• FOB destination• FOB shipping point• FOB factory freight prepaid• FOB destination charges reversed

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Placing the Order & PaymentPlacing the Order & Payment

Purchase Order• legal contract between the buyer and the

supplier that specifies the terms of the agreement

Invoice• the bill that is usually sent along with the

merchandise - it requests payment - should look very similar to the purchase order

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EvaluationEvaluation

Rate of SaleRate of Sale• identify “keepers”identify “keepers”

Stock TurnoverStock Turnover• number of times the average stock has number of times the average stock has

been sold and replaced in a given time been sold and replaced in a given time periodperiod

Review Supplier ResponsibilitiesReview Supplier Responsibilities