DISTRIBUTION CHANNEL AND LOGISTICS MANAGEMENT

Presented by: Dr. Prashant MehtaAssistant Professor

National Law University, Jodhpur

AGENDA

• Definitions

• Characteristics of Channel of Distribution

• Functions of Channel of Distribution

• Classification / Types of Channel of Distribution

• Channel Systems

• Channel Design Decisions

• Channel Management Decisions

• Physical Distribution and Logistics Management

• Distribution Channel in Pharmaceutical industry

Distribution Channel

Channel of distribution have a broad impact on the Marketing program of any firm, because

it is one of the most important component of Marketing-Mix. The other components of

marketing mix are Product, Price and Promotion.

Definition

• The main objective of distribution strategy is getting the right goods to the right place at the

right time at the least possible cost. In other words we can also define distribution channel

as a way of moving goods from the point of production to the point of consumption.

• It can also be defined as an organized network of agencies and institutions, which in

combination perform all the activities required to link producers with end users and users

with the producers to accomplish the Marketing task.

Characteristics of Channel of Distribution

Characteristics of distribution channel cannot be over emphasized by any stretch of our

imagination because without distribution channel marketing task would have remained

incomplete. Following are few main characteristics of distribution channel:

Characteristics

• It requires a minimum of buyer and a seller. Besides this it may include other middleman.

• A basic transaction in distribution channel is the exchange of ownership / title of goods.

Middlemen play an very important role in transfer of ownership / title of goods.

• Distribution channel creates transactional efficiency.

• A distribution channel may be simple or complex. (Handshake agreement or large contracts)

• Distribution channel may be long or short depending on the company’s marketing

requirements as well as the product of the company.

Functions of Channel of Distribution

Assorting

Accumulation

Allocation

Buying  

Contact

Distribution

Financing

Market information 

New Products 

Product Planning

Promotion

Pricing 

Physical Possession  

Risk Taking

Service

Sorting

Classification/Types of Channel of Distribution

Direct Channels

  Own Retail shops

• Personal selling (door to door)

• Mail order selling

• Automatic vending

• Franchised shops

• Telephone selling (Telemarketing)

• Exclusive Stores/Specialty Stores

• E-marketing

Classification/Types of Channel of Distribution

Indirect Channels

Merchandise Agents and Brokers – Works on Commission basis

Merchandise Wholesalers or trade channels

– Manufacturer/ProducerConsumer/End User

– Manufacturer/ProducerWholesalerConsumer/End User

– Manufacturer/ProducerRetailerConsumer/End User

– Manufacturer/ProducerWholesaler/DistributorRetailerConsumer/End User 

– Manufacturer/ProducerWholesaler/DistributorSemi-wholesalerRetailerConsumer/End User

– Manufacturer/ProducerAgent/BrokerRetailerConsumer/ End User 

– Manufacturer/Producer Agent/Broker Wholesaler Retailer Consumer/End User

Channel Systems

• Vertical Marketing System

A distribution channel structure in which producers, wholesalers and retailers act as a unified system. One

channel member owns the other, has contracts with them and the power that they all co-operate. The

economies are achieved through size, bargaining power and elimination of duplicated services.

• Horizontal Marketing System

A channel arrangement in which two or more companies at one level join together to follow a new

marketing opportunities where they can combine there resources and use they optimally.

• Hybrid Marketing Systems

Multi-channel distribution system in which a single firm sets up two or more marketing channels to reach

one or more customer segments.

Channel Design Decisions

In designing marketing channels, a manufacturer struggles between what is ideal and what is

practical.Therefore the design aspects should involve the following.

 

Analyzing the consumer needs

The designing of the channel starts with finding out what values consumers in various target segments are

looking from the channel.

Setting the channel objectives

– It must be effective and efficient– It must have low cost of implementation– It must have better control– It must have wide coverage – It must contribute to maximum overall profit

Channel Design Decisions

Factors affecting choice of Distribution channel

Market Factors:

Nature of Market

Number of Potential Customers

Geographic Concentration

Order Size

Product Factors:

Unit value

Perishable Goods

Technical Nature of Products

Company Factors:

Financial Resources

Managerial Capability

Desire for Channel Control

Service provided by the seller

Channel Design Decisions

Middleman Factors:

Product launchPromotional schemeMarket Information

Environmental Factors:

Economic conditionsTechnological inventionsSocio-cultural developmentsPolitical and Legal Ethical factors and Rival/Competitors channel

Identifying the major alternatives:

Types of intermediariesNumber of intermediaries (Intensive / Exclusive / Selective) Responsibilities of each channel member

Evaluating the major alternatives:

Economic criteriaControl criteriaAdaptive criteria

Channel Management Decisions

Selecting the Channel Members

Motivating the Channel Members

Evaluating the Channel Members

Physical Distribution and Logistics Management

• Marketing logistics involves planning, implementing and controlling the physical flow of materials,

final goods and related information from the point of origin to the point of consumption to meet the

customer requirements at the profit.

• Logistics goal is to provide customer satisfaction and customer service, speedy and flexible delivery

system, presorting and pre-tagging of merchandise, order tracking information and willingness to

take back or replace defective goods.

• Main objective of logistics system is to provide customer satisfaction at the least cost.

Major Logistics Functions

Order Processing

It includes checking customers credit, checking of stock, order to ship, bills to customers, update inventory records and send production order for new stocks

Warehousing

Owned / Rented

Types/ Number of Warehouses

Location of Warehouses

Inventory

Inventory Management (Ordering cost and Carrying cost)

Just in time inventory

Transportation

Rail

Trucks

Ships

Pipeline

Air

Distribution Channel in Pharmaceutical Industry

A Profile

Pharmaceutical Industry – Indian v/s Multinationals

Product Profile – Medicines, Vaccines, IV Fluids, Disposables etc

Channel of Distribution – Direct, Indirect and Others