unit 12 distribution

Unit 12Unit 12DistributionDistribution

DistributionDistribution How did the merchandise How did the merchandise

get to the stores?get to the stores? Where is the merchandise Where is the merchandise

kept before it goes to the kept before it goes to the store?store?

How does the owner of a How does the owner of a store know when to order store know when to order more merchandise?more merchandise?

Unit 12 VocabularyUnit 12 Vocabulary AgentsAgents Basic Stock ListBasic Stock List Blind Check MethodBlind Check Method Bonded WarehouseBonded Warehouse Brick-and-mortar RetailersBrick-and-mortar Retailers CarloadCarload Centralized BuyingCentralized Buying Channel of DistributionChannel of Distribution Common CarriersCommon Carriers Consignment BuyingConsignment Buying Contract CarriersContract Carriers Cycle CountsCycle Counts Decentralized BuyingDecentralized Buying Direct Check MethodDirect Check Method Direct DistributionDirect Distribution Distribution CenterDistribution Center Dollar ControlDollar Control

Drop ShippersDrop Shippers E-marketplaceE-marketplace E-tailingE-tailing Exclusive DistributionExclusive Distribution Exempt CarriersExempt Carriers Freight ForwardersFreight Forwarders Indirect DistributionIndirect Distribution Integrated DistributionIntegrated Distribution Intensive DistributionIntensive Distribution IntermediariesIntermediaries InventoryInventory Inventory ManagementInventory Management Inventory TurnoverInventory Turnover Just-In-Time (JIT) Inventory Just-In-Time (JIT) Inventory

SystemSystem Memorandum BuyingMemorandum Buying Model Stock ListModel Stock List

Unit 12 VocabularyUnit 12 Vocabulary Never-out ListNever-out List Organizational BuyersOrganizational Buyers Open-to-buy (OTB)Open-to-buy (OTB) Perpetual Inventory SystemPerpetual Inventory System Physical DistributionPhysical Distribution Physical Inventory SystemPhysical Inventory System Preretailing Marketing MethodPreretailing Marketing Method Private CarriersPrivate Carriers Private WarehousePrivate Warehouse Public WarehousePublic Warehouse Quality Check MethodQuality Check Method Rack JobbersRack Jobbers Real-time Inventory SystemsReal-time Inventory Systems Receiving RecordReceiving Record Retail BuyersRetail Buyers RetailersRetailers Reverse AuctionReverse Auction

Selective DistributionSelective Distribution Six-month Merchandising PlanSix-month Merchandising Plan Source MarketingSource Marketing Spot Check MethodSpot Check Method Stockkeeping unit (SKU)Stockkeeping unit (SKU) StorageStorage Ton-mileTon-mile TransportationTransportation Unit ControlUnit Control Want SlipsWant Slips Wholesale BuyersWholesale Buyers WholesalersWholesalers

Unit 12 EssentialUnit 12 EssentialQuestionQuestion

How is distribution knowledge How is distribution knowledge utilized to manage supply-chain utilized to manage supply-chain activities?activities?

Essential Question 1 Essential Question 1 DistributionDistribution

What is the nature and scope of What is the nature and scope of channel management?channel management?

Adding ValueAdding Value

Place UTILITYPlace UTILITY Location – having the product where customers can buy itLocation – having the product where customers can buy it

Time UTILITYTime UTILITY Having the product available when the customer wants/needs Having the product available when the customer wants/needs

itit

Intermediaries provide value to producers by Intermediaries provide value to producers by providing providing expertiseexpertise in areas producers do not in areas producers do not have such as displaying, merchandising, have such as displaying, merchandising, providing convenient shopping locations and providing convenient shopping locations and hours for customers.hours for customers.

Functions of Channel MembersFunctions of Channel Members

Provide marketing informationProvide marketing information Producers rely on market research to determine their Producers rely on market research to determine their

target markets’ needs and wantstarget markets’ needs and wantsPromote productsPromote products

Producers rely on retailers to take a large portion of Producers rely on retailers to take a large portion of promotion responsibilitiespromotion responsibilities

Negotiate with the customersNegotiate with the customers Different prices are paid by the wholesaler, retailer Different prices are paid by the wholesaler, retailer

and consumer based on negotiationand consumer based on negotiation

Functions of Channel MembersFunctions of Channel Members

Physical distributionPhysical distribution Channel members move the product through the Channel members move the product through the

distribution channels to the consumerdistribution channels to the consumer Financing and risk taking:Financing and risk taking:

Moving products through a channel costs moneyMoving products through a channel costs money When channel members work together to finance When channel members work together to finance

activities and to assume financial risks, channels will activities and to assume financial risks, channels will be more effectivebe more effective

Channel ManagementChannel Management

The channel must be properly The channel must be properly managed to be effectivemanaged to be effective

Channel members shouldChannel members should Recognize the importance of their task and Recognize the importance of their task and

make informed decisionsmake informed decisions Commitment to quality of the productCommitment to quality of the product Satisfying the target market’s needs and Satisfying the target market’s needs and

wantswants All members cooperate to attain overall All members cooperate to attain overall

channel goalschannel goals

Channel ManagementChannel Management

If the channel is If the channel is not effectivenot effective, conflict , conflict occurs…..occurs…..

Horizontal ConflictHorizontal Conflict occurs between occurs between channel members at the same level channel members at the same level usually due to business competitionusually due to business competition

Vertical ConflictVertical Conflict occurs between occurs between channel members at different levels channel members at different levels within the same channelwithin the same channel

Channel Management DecisionsChannel Management Decisions

1. Select Channel Members1. Select Channel Members Determine the types of members that belong Determine the types of members that belong

in the channel, as well as the channel length in the channel, as well as the channel length (total number of channel members)(total number of channel members)

2. Manage Channel Members2. Manage Channel Members Determining channel responsibilitiesDetermining channel responsibilities The company must sell not only through the The company must sell not only through the

intermediaries but also to/with themintermediaries but also to/with them Partner relationship management (PRM) and Partner relationship management (PRM) and

supply chain management (SCM) software supply chain management (SCM) software might be usedmight be used


3. Motivate Channel Members3. Motivate Channel Members Develop a cooperative/collaborative and Develop a cooperative/collaborative and

balanced relationship with the partnerbalanced relationship with the partner Understand the partner’s customers – their Understand the partner’s customers – their

needs, wants, and demandsneeds, wants, and demands Understand the partner’s business – Understand the partner’s business –

operationally and financially and what’s really operationally and financially and what’s really important to themimportant to them

Look at the partner’s needs in terms of Look at the partner’s needs in terms of customer support, technical support, and customer support, technical support, and trainingtraining


4. Evaluate Channel Members4. Evaluate Channel Members Produces must evaluate intermediaries Produces must evaluate intermediaries

performance against such standards as:performance against such standards as: Sales quota attainmentSales quota attainment Average inventory levelsAverage inventory levels Customer delivery timeCustomer delivery time Treatment of damaged and lost goodsTreatment of damaged and lost goods Cooperation in promotional programsCooperation in promotional programs

Should constantly evaluate the channel:Should constantly evaluate the channel: What is working?What is working? What is not working?What is not working? What can be improved?What can be improved?


4. Evaluate Channel Members4. Evaluate Channel Members Evaluate Risks & Dangers of Distribution Evaluate Risks & Dangers of Distribution

DecisionsDecisions Transaction costs both apparent & hiddenTransaction costs both apparent & hidden Risks include loss in transit, destruction, Risks include loss in transit, destruction,

negligence, non-payment and so on. negligence, non-payment and so on. So, careful choice & evaluation of each & every So, careful choice & evaluation of each & every

channel partner is a necessity.channel partner is a necessity.


What is the nature of channels of What is the nature of channels of distribution?distribution?

Channels of Distribution

Channel of DistributionChannel of Distribution

Channel of DistributionChannel of Distribution: : The path The path a product takes from producer or a product takes from producer or manufacturer to final user.manufacturer to final user.

Direct vs. Indirect Direct vs. Indirect ChannelsChannels

Direct DistributionDirect Distribution:: channel that channel that exists when the product is sold from exists when the product is sold from the producer to the final user.the producer to the final user.

Indirect DistributionIndirect Distribution:: channels channels that exists when one or more that exists when one or more intermediariesintermediaries: : middleman, are middleman, are involved. The more intermediaries, involved. The more intermediaries, the longer the channel.the longer the channel.

Pg 450Pg 450

Pg 451Pg 451

Distribution IntensityDistribution Intensity How widely a product will be distributed.How widely a product will be distributed.

Intensive DistributionIntensive Distribution:: Involves the use of all Involves the use of all suitable outlets for a product.suitable outlets for a product.

Selective DistributionSelective Distribution:: A limited number of A limited number of outlets in a given geographic area used to sell outlets in a given geographic area used to sell the product.the product.

Exclusive DistributionExclusive Distribution:: Involves protected Involves protected territories for distribution of a product in a territories for distribution of a product in a given geographic area.given geographic area.


What are the marketing functions of What are the marketing functions of transportation and storage?transportation and storage?

Modes of TransportationModes of Transportation

TransportationTransportation: : The marketing function of The marketing function of moving a product from the place where it is moving a product from the place where it is made to the place where it is sold. made to the place where it is sold. Involves:Involves:

• TruckingTrucking• WaterwayWaterway• AirAir• RailwayRailway• PipelinePipeline


Most frequently used form Most frequently used form of transportation.of transportation.

Used primarily for Used primarily for lightweight shipments over lightweight shipments over moderate distances.moderate distances.

Accounts for 80% of Accounts for 80% of shipments weighing less shipments weighing less than 1000 pounds.than 1000 pounds.

TruckingTrucking


Major type of transportation in the Major type of transportation in the United States.United States.

Used for moving heavy and bulky Used for moving heavy and bulky freight.freight.

Rail TransportationRail Transportation


One of the oldest forms of One of the oldest forms of transportation.transportation.

Primary means ofPrimary means of international international distribution. distribution.

Water TransportationWater Transportation


Normally owned by the company Normally owned by the company using them. using them.

Most frequently used to transport Most frequently used to transport oil and natural gas.oil and natural gas.

PipelinesPipelines


Used to ship high-value low-weight Used to ship high-value low-weight items. items.

Greatest advantage isGreatest advantage is speed. speed.

Greatest disadvantageGreatest disadvantage is cost.is cost.

Air TransportationAir Transportation

StorageStorage

Private WarehousePrivate Warehouse: : Facility designed to meet Facility designed to meet the needs of its owner.the needs of its owner.

Public WarehousePublic Warehouse: : Storage and handling Storage and handling facilities to any individual or company that will pay facilities to any individual or company that will pay for its use.for its use.

Distribution CenterDistribution Center: : Warehouse designed to Warehouse designed to speed delivery of goods and to minimize storage speed delivery of goods and to minimize storage costs.costs.

Bonded WarehouseBonded Warehouse: : Stores products that Stores products that require the payment of a federal tax. Products require the payment of a federal tax. Products may not be moved until the tax is paid.may not be moved until the tax is paid.

WarehousingWarehousing


What are the common terms What are the common terms associated with buying and associated with buying and shipping?shipping?

BuyingBuying

Retail BuyersRetail Buyers: : Purchase goods for resale.Purchase goods for resale. Consignment BuyingConsignment Buying: : Goods are paid for only Goods are paid for only

after the final customer purchases them.after the final customer purchases them. Memorandum BuyingMemorandum Buying: : Occurs when the Occurs when the

supplier agrees to take back any unsold goods by supplier agrees to take back any unsold goods by a certain pre-established date.a certain pre-established date.

Reverse AuctionReverse Auction: : Companies post what they Companies post what they want to buy and suppliers bid for the contract.want to buy and suppliers bid for the contract.

ShippingShipping Common CarriersCommon Carriers: : Provides transportation Provides transportation

services to any business in their operating area.services to any business in their operating area. Contract CarrierContract Carrier: : For-hire carriers that provide For-hire carriers that provide

equipment and drivers for specific routes.equipment and drivers for specific routes. Private CarrierPrivate Carrier: : Transport goods for an Transport goods for an

individual business.individual business. Ton-mileTon-mile: : The movement of one ton of freight The movement of one ton of freight

one mile.one mile. Freight ForwarderFreight Forwarder: : Private companies that Private companies that

combine less-than-carload or less-than-truckload combine less-than-carload or less-than-truckload shipments from several different businesses and shipments from several different businesses and deliver them to their destinations.deliver them to their destinations.


What is the receiving process?What is the receiving process?

Receiving ProcessReceiving Process The receiving process:The receiving process:

1.1. Receive the goodsReceive the goods

2.2. Check the goodsCheck the goods

3.3. Mark the goods (if necessary)Mark the goods (if necessary)

4.4. Deliver the goods for use, storage, or saleDeliver the goods for use, storage, or sale


How is technology used in How is technology used in channel management?channel management?

Inventory ManagementInventory Management

Inventory managementInventory management:: Finding and Finding and maintaining inventory levels that are maintaining inventory levels that are neither too small nor too large.neither too small nor too large.

Tracking InventoryTracking Inventory

Keeping tabs on how much inventory Keeping tabs on how much inventory you have is the first step in controlling you have is the first step in controlling inventory levels.inventory levels.

Tracking InventoryTracking Inventory Physical Inventory SystemsPhysical Inventory Systems:: Looks at how Looks at how

much inventory is on hand and compares it much inventory is on hand and compares it to what is wanted on hand.to what is wanted on hand.

Perpetual Inventory SystemsPerpetual Inventory Systems:: As inventory As inventory is sold, it is subtracted from the inventory list. is sold, it is subtracted from the inventory list. As new inventory arrives, it is added. As new inventory arrives, it is added.

Just-in-time (JIT) Inventory SystemsJust-in-time (JIT) Inventory Systems:: The The responsibility of inventory is shifted to the responsibility of inventory is shifted to the vendor and is delivered just before it is used.vendor and is delivered just before it is used.

Inventory CostsInventory Costs

Financing CostsFinancing Costs: The interest you pay to : The interest you pay to borrow money to purchase inventory.borrow money to purchase inventory.

Opportunity CostOpportunity Cost: Loss of the use of : Loss of the use of money tied up in inventory.money tied up in inventory.

Storage CostsStorage Costs: The amount of money : The amount of money spent on renting or buying the space spent on renting or buying the space needed to store the inventory.needed to store the inventory.

Inventory CostsInventory Costs

Insurance CostsInsurance Costs: The amount spent to : The amount spent to insure the inventory on hand against loss.insure the inventory on hand against loss.

Shrinkage CostsShrinkage Costs: Money lost when : Money lost when inventory items are broken, damaged, inventory items are broken, damaged, spoiled, or stolen.spoiled, or stolen.

Obsolescence CostsObsolescence Costs: Money lost when : Money lost when products or materials become obsolete products or materials become obsolete while in inventory.while in inventory.


How does distribution affect the How does distribution affect the cost of products?cost of products?

Distribution CostsDistribution Costs Many factors go into determining the Many factors go into determining the

distribution costs of a product:distribution costs of a product: Channel or channels usedChannel or channels used Transportation method usedTransportation method used Intensity of distributionIntensity of distribution Inventory costsInventory costs Who does the sellingWho does the selling Buying and shippingBuying and shipping Economic issuesEconomic issues


What are the distinguishing What are the distinguishing characteristics of retailers, characteristics of retailers, wholesalers, agents, and wholesalers, agents, and brokers?brokers?

Channel MembersChannel Members RetailersRetailers: : Sell products to the final Sell products to the final

consumer for personal use.consumer for personal use. Brick-and-mortar retailersBrick-and-mortar retailers:: Sell products to Sell products to

the consumer from their own physical store.the consumer from their own physical store. E-tailingE-tailing: : Involves retailers selling products Involves retailers selling products

to the consumer over the internet.to the consumer over the internet.

Channel MembersChannel Members WholesalersWholesalers: : Businesses that buy large Businesses that buy large

quantities of goods from manufacturers, quantities of goods from manufacturers, store the goods, and then resell them to store the goods, and then resell them to other businesses – also referred to as other businesses – also referred to as distributors.distributors. Rack jobbersRack jobbers:: Manage inventory and Manage inventory and

merchandising for retailers by counting stock, merchandising for retailers by counting stock, filling it in when needed, and maintaining filling it in when needed, and maintaining store displays.store displays.

Drop shippersDrop shippers: : Own the goods they sell but Own the goods they sell but do not physically handle the actual products.do not physically handle the actual products.

Channel MembersChannel Members AgentsAgents: : Act as intermediaries by Act as intermediaries by

bringing buyers and sellers together.bringing buyers and sellers together. Independent Manufacturers’ Independent Manufacturers’

RepresentativesRepresentatives:: Works with several Works with several related (but not competing) manufactures in related (but not competing) manufactures in a specific industry. They are paid a specific industry. They are paid commissions based on what they sell.commissions based on what they sell.

BrokersBrokers:: Brings buyers and sellers together Brings buyers and sellers together in order to make a sale. They negotiate the in order to make a sale. They negotiate the sale, are paid a commission, and then look sale, are paid a commission, and then look for other customers.for other customers.


How does customer service How does customer service affect channel management?affect channel management?

Customer

Warehouse

Call Center

Online Order

Inventory Check

Items

in Stock?

NO: Customer Notified of Backorder

YES: Item Packed for Shipment

Accounts Receivable Processes Payment

Item Shipped

Actions to Facilitate

Order Processing

Customer Service Affects Customer Service Affects

Ensures timely delivery of productsEnsures timely delivery of products Ensures effective customer communicationEnsures effective customer communication

Order processingOrder processing• Correct shipping informationCorrect shipping information• Correct productsCorrect products• Handling complaintsHandling complaints• Reducing the probability of complaintsReducing the probability of complaints• Nice and friendly peopleNice and friendly people

Customer Service Affects Customer Service Affects

Treat channel members as customersTreat channel members as customers Follow up with customers after the sale Follow up with customers after the sale Answer customer questions honestly and Answer customer questions honestly and

correctly correctly Handle customer problems professionally Handle customer problems professionally

and within company guidelinesand within company guidelines Make sure customers have a positive Make sure customers have a positive

experienceexperience

unit 12 distribution

Documents

channel membersdetermine

scope of channel management

effectivechannel members

wantsall members

types of members

channel length total

product available

target markets