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Transcript of Distribution
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DistributionAn over view
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History
Manufacturer ------ selling directly to buyers. Manufacturer------- selling in the weekly markets.
Buyers sourcing products as per needs only from above.
Retailers came into existence.
Since the requirement of customers was small, retailers stocked enough products to meet the buyer's convenience.
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Second phase –status & shopping experience
Economic development lead to increase production & demand situation started tilting towards the buyer.
Market Shifts to meet the buyers status and needs. Beginning of competition. Buyer started to look for “better value for money”. Purchase power of buyer increased. Specialized retails emerged to carter to increased needs to different
segments of buyers. Better quality , premium brands , bargains , ambience etc.
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Third Phase --- Back to convenience
Further economic boom lead to consolidation of markets. Time constrain. Buyers wanting quality, variety , convenience lead to Supermarkets Malls Superstores
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Development of retail industry
Increased outlets lead to retail outlet becoming more powerful & demanding.
Trade offers became a part of life. Specialties & one stop shops emerge.
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Development of Suppliers
Develop new markets. Develop new buyers. Need to develop an efficient system of making the products
available.
Need for development of “intermediaries” --Channel Partners.
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Channel Partners
are non company employees who help make the product available at the right time and right place.
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DistributionProduction Market
Marketing
Sales
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Channel Partners C&F agents (carrying and forwarding agents)
Distributors Or Stockists.
Wholesalers.
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What is a -- C & F Stocks company products Functions like a company office. Does not have competitor products. Delivers the company products. Works as per company policy. Implement company promo. activities. Helps collect company dues.
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What is a -- Distributor / Stockist Title of goods is transferred from company to the distributor. Invoiced directly from company. Do not maintain competing lines. Can maintain non competitive products. There investment is in company’s inventory and credit to
retailers. Earn form the margin given by the company. Incur cost of distribution (transportation cost), establishment cost,
man power cost. Overhead cost is split by keeping stocks of more companies. Business is evaluated by return on investment. Some companies give an assured minimum return
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What is a -- Whole salers
Whole salers buy from companies authorised Distributors / Stockists.
Whole salers do not have any geographical exclusivity. Wholesalers do have competitive lines and products. Provide the reach that the company Distributors / Stockists do
not provide. Wholesalers normally do not provide redistribution service. Sell mostly from there counter. Work on low margins. Income source is rotation.
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Mother go downs / Hubs
Are owned and operated by the company. Used to maintain inventory of goods manufactured at factories
and TPOs.
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C&F – location & responsibilities
Located in Metros, state capitals, big cities and cater to various towns, cities in the specific area of operation.
Performs duties like carrying, storing, forwarding, repacking, loading, invoicing, market returns, forwarding promotional material to field staff.
Title of the good remain with the company. Supplies only to companies distributors /stockists, super
stockists, sub stockists and to big retailers.
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C & F - earnings
C & F is compensated a percentage of sales as commission for services rendered.
Commission is general variable & generally decreases with the increase of sales.
Man power cost is born by the C&F. Establishment cost is of the C&F. Insurance of the stocks is companies responsibility. However
the cost of insurance of the infra structure is of the C&F. Incidental costs like printed stationary, postage, transportation
cost for up country is cost to the company.
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C&F – Benefits / Concerns
Benefits Does repacking of stocks as per the requirement of channel
partners at a nominal cost. Relieves the company of capital expenditure cost. Performs functions like logistics, few commercial duties & lets
the company concentrate on manufacturing, marketing & selling.
Concerns
Maintenance of quality and hygiene standards. Difficulty in adapting to companies vision and values. Risk of theft, pilferage and in transit loss. Rise in cost of –insurance, handling cost.
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Distributors --- location, earnings & responsibilities
Located in cities, towns, villages and cater to large number of wholesalers , retailers.
They further divide the quantities in smaller lots as per the requirement of their customers.
Get a fixed percentage as earning. Some times get an additional incentives for driving sales. Goods title is transferred to the distributors. Need to give companies schemes to all customers. Handle market returns as per companies norms. Maintain hygienic conditions while storing. Pay to the company as per agreed terms.
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Distributors -- Benefits / Concerns
Benefits Offer wider reach of companies products. Cater to customers regularly & timely. Availabilities and accessibility. Provide credit to retailers, helping company to build stock at
retail level. Provide wide coverage at the time of new launch. Deploy companies visibility advertisements to retail outlets.
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Distributors -- Concerns.
Indulge in price war with other distributors. Cornering additional incentives aimed for retailers. Resistance to change in ever changing market dynamics &
increased competition. Unethical practices – smuggling stocks to other territories. Creating artificial shortages. Not communicating companies vision & policies to retailers,
thus creating communication gap. Indulging in arm twisting of companies due to strong unions.
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Super stockists
Generally a big retailer or semi wholesaler who gets supplies from the companies distributor.
Earns by the parting of commissions done by distributor. Pays upfront. Sometimes company bears the additional commission
given. Facilitates the coverage and deeper penetration of
company stocks.
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Sub stockists
Base at a location where villagers visit for their requirements. Buys in small quantities and supply to small retailers in the
vicinity. Earns a fixed commission. Gets company stocks from distributors.
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Modern trade outlets
Organized retail outlets, stand alone super markets. Generate a huge sales volume. Due there huge potential companies have appointed
distributors to cater to these outlets.
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Modern trade outlets – Benefits & Concerns.
Benefits Generate huge volumes, hence reduce distribution cost of the
company. New platform for company to display there products. Help companies to further promote there products. Better storage and dispensing conditions for products.
Concerns
Out flow of huge margins due to huge volumes. With size – power to dictate terms, which may not be good for
the company in the long term.
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New Channel Development
Making products available at unconventional channels - like BPOs , Call centers, Multiplexes, Music stores, Restaurants, Coffee shops, Pubs, Lounges etc.
They generate growth for the company due to impulsive behavior of the consumer.
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Retailers
Last and the most important part of channel. They are ‘kirana stores', general stores, chemists shops, ‘pann shops’, etc,. They supply to the end consumer. Maintain good inventory levels. Hold stocks of competitors. Have long term relation with there customers. Offer credit. Are influential and can substitute products.
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Retailers-- Benefits & Concerns
Benefits Offer wide availability of products. Largely unorganised and have low bargaining power. Work on low margins. Offer a platform to launch new products– availability, displays,
trails by educating customers.
Concerns
Expect credit and hence put pressure on the bottom line of company.
High sales and distribution cost.
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Whole salers
Channel between the distributors and retailers. Fill the gap left by distributors. Cater to small retailers who are financially weak. Buy in bulk and get better margin than retailers. Part with margins to customers and retain a part of margins. Primarily work on turn over.
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Whole salers – benefits & concerns.
Benefits Facilitate better availability of reach of products. Buy in bulk , hence boost company’s top line. Offer credit to small retailers. Fill the gap left by company distributors.
Concerns
Indulge in price war & create disparity in the company’s product.
Poor storing and dispensing conditions.
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Selection of channel partner
Identifying a partner. Applying selection criteria. Appointment.
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Identifying a channel partner.
Advertisement. Field survey / Trade enquiry. Existing Dealers. Sales team recommendations.
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selection criteria.
Short listing
Brands serviced. Experience. Companies associated
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Selection criteria
Essential Criteria
Investment Capacity
Area of
control Attitude Reputation Financial strength
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Selection Criteria
Situational Criteria
Storage space Location Infrastructure Sales ForceCapability
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Channel commitment
The trading parties need — High level of commitment. Willing to consider each other needs. Flexibility in business operations.
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Benefits of commitment
To Company
Increased sales Longer relationship. Brand building. Greater support.
To Dealer
Greater profitability. Social Image
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Motivation of Channel Partner
Motivation schemes
Performance linked Non –performance(relation ship)
Monetary Non Monetary Non Monetary
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Non Performance (relationship) Schemes
Season greetings. Personalized greetings –birthday anniversary etc. Appreciation –( verbal / letter) Invitation to H.O. Photographs Dinner Visit to shop Social visit on functions.
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Relationship schemes
Hierarchy of the scheme on social image. History of usage of non monetary incentive. Hierarchy of channel member in the market. Company’s image as per dealer. Hierarchy of the person in the company implementing scheme.
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Performance oriented schemes
Identifying schemes perceived as motivators. Grouping of schemes with similar impact. Identifying the influence of schemes. Develop guidelines to improve channel commitment.
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Motivator schemes
Exclusivity. Training of sales team. Market information. Joint advertisement. Involvement of target setting Shop displays. Customer education. Customer schemes. Service to channel. Soft loans. Institutional business. Return on investment. Wide range of products. New product Launch. Computerization of supply chain. Trade schemes. Settlement of complaints and claims. Information about company. Annual awards.
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Grouping of schemes.
Schemes aimed at customer satisfaction.
Range of products of company.
New Products launch.
Consumer education
Sales promotion schemes.
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Schemes aimed at System Orientation.
Schemes
Computerization of supply chain.
.
Service to customer.
Information of company’s activities.
Inventory management Continuous availability
Customer Complaints
Settlement of claims
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Schemes for support
Support of partnerBy offering
Exclusivity of territory
Market Information-competition,
-customer -reaction,
-products, etc.
Assuring minimum return on investment
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Alliance building schemes
Schemes
Institutional business.
Best selling practices.
Sales staff training.
Involvement in target setting
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Schemes aimed at Goodwill
Trade schemes in line with product cycle.
Joint Schemes.
Shop Displays / Road shows.
Soft loans
Annual rewards
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Concerns of schemes.
Dealers / distributors to carry increased inventory Increased cost of inventory. Carry forwarding of unsold inventory. Maintain separate accounts.
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Appraisal of channel members.
Sales performance. Servicing.
Financial discipline. Inventory maintenance.
Selling capacity. Support to company.
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Sales Performance.
Gross sales of products. Sales per product. Target achievement. New products sales. Growth rate. Local market share. Growth over last year.
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Servicing
Number of complaints handled. Speed of disposal. Customer retention rate.
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Financial discipline.
Outstanding to company. Frequency of defaults. Receivable from other channels.
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Inventory maintenance.
Average inventory maintained. Inventory to sales ratio. Inventory turnover. Ability to stock in emergency. Off season stock.
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Selling capability.
Technical knowledge & competence. Sales people assigned for different products. Behavior of sales persons. Technical levels of sales persons. Selling skills of sales staff.
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Support to company.
Interest in the product. Competition from other product with the dealer. Time given to company products viz. competition. Support during sales campaign. Support for display.
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Appraisal Hidden aspects. Financial status Partnership issue. Family concern. Reputation. Company Variables. Social status.
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Performance Vs. Action
Performance
Good Bad
Sustainable Unsustainable
Rewards / incentives
Controllable
Start withdrawal Willing to correct
uncontrollable
Identify development needs
Start withdrawal
Unwilling to correct
Start withdrawal
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Performance
Controllable Non controllable
Financial status Company related issue. Reputation
Property division.
Social status.
Partnership break.
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Channel Management , analysis & control
Required for company with high volume of sales & wide distribution net work.
FMCG , Pharma, liquor, Consumer electronics etc.
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Issues related to Channel Management system
Manual billing and accounting. Un willing to adapt to computerized billing procedure. Considered complicated. Need of skilled computer operator. Increased expense.
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Reports from CMS
Sales
All locations/Dealers
Specific Location/Dealers
Days reports
Till date for the month.
Payment
All dealers/channels
Specific dealers
Outstanding
Over due payments
Inventory reports
ALL dealers/locations
Specific dealers
Hubs
Expense reports
Tour expenses.
Direct expenses
Administrative expense
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CMS-implementation
Hardware User friendly software
Training of dealers
Back end integration -- ERP
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Benefits of CMS
Data available at HO instantly. Cost effective transaction with dealers. Low communication cost. Increased sales force productivity. Better forecast accuracy. Reduced cycle time. Less late deliveries. Reactivation of dealers. Reduction in capital of dealers. Better return on investment. Analysis of secondary sales data. Daily stock and sales data for analysis. Customer complaints addressed faster-customer satisfaction.
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Channel evaluation -concept
Beyond 3 E’s
1. Identify the problems & causes.
2. What the organization should do to rectify the problem.
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Channel Dynamics.---
Advertising- sales force - Channel
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Process of selling
Process of selling
Obtaining demand Servicing demand Feedback
Prospecting Promoting Bulk Assortment
Storage
Credit & Service
Availability
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Influences of Functional areas.
Sales forcemanagement
Channel management
Advertisement
Selling Strategy
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Roles Sales force– prospecting / promoting /
educating the customer etc. Channel – Servicing the demand
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Channel role Receive orders from customers. Deliver to stock to the customer at the right place and at
the right time. Store material at different distribution locations. Maintain healthy relations with customer. Receive feedback & forward to sales force.
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Channel Design.
“Of all the marketing decisions, the ones regarding distribution channel are far most far- reaching. The company can revamp the promotional programme, modify the product line. But once the company has set up its distribution channels, it generally finds changing them difficult.”
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Distribution network – USHA international
Electrical shops Specialized selling points for sewing machines. Specialized air-conditioning & refrigeration dealerships. Consumer durable shops. Specialized auto components dealerships.
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Network of Usha
Manufacturer
Company show room Distributor Special channels Direct mail
Marketing.
Dealers Retail outlets Electrical trade Consumer durables
Consumer
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Channel for Auto Lubricants
C&F
Petrol pumps
Stockist
Exclusive dealer Multi brand dealer
RetailerWork shops
Customer
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Ideal Channel
Challenges ----
1. Channel needs to be adopted depending on target segments and positioning.
2. Goals of channel members differ.3. Alternates are available.
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Ideal channel Should include
1. Number of channel to use.2. Levels in each channel.3. Type of intermediaries.4. Number of channel intermediaries at each level.
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Ideal Channel
Target group
Buyer’s need
Retailer’s needs
Legal aspects
Distribution needs
Feasible alternatives
Reach
Function to be preformed by the channel
Product features
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Internet as a channel partner
Retail. Job portals. E greetings. Internet service provider. Matrimonial services. E broking. Travel. Hotels/ cars/ tours Classifieds. On line market. Mobile VAS. E gamming.
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Internet as a partner – S.W.O.T.
Strengths1. Better inventory management.2. Convenience.3. Complete variety display.4. Customization.5. Better database.6. Helps in information search.
• Weakness
1. High delivery cost
2. High waiting time.
3. Lower penetration of internet.
4. Additional logistics chain
• Opportunities
1. Well suited niche marketing.
2. Can hasten the process of purchase.
• Threats1. Channel conflict.
2. Low acceptance of internet for payments.
3. Shopping experience is denied.
4. No trial facility
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Conventional channel vs. Internet
Existing1. Inability to maximize price.2. Inability to take advantage of
shortage due lack of market intelligence.
3. Lack of visibility of market price.4. New buyer identification difficult.5. High communication cost.6. High sale process.
Internet1. Prices of product are higher due
to bidding.2. E-selling bring buyers for all
market on one platform.3. Market facing shortage will have
highest biding. Auction provides complete market price visibility.
4. Shorter buyers search.5. Reduce communication cost.6. Lower inventories .increased sales
frequency.7. Lower process time for sale.
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Channel Levels: Length of a channel: No. of intermediaries b/n producer & final consumer Zero Level:
Manufacturer Consumers Eg: Eureka Forbes, Reader’s Digest
One Level: Manufacturer Retailer Consumer
Eg: Maruti Suzuki dealers Two Level:
Manufacturer Wholesaler Retailer Consumer Eg: FMCG, White goods
Three Level: Manufacturer Dist. Wholesaler Retailer Consumer.
Eg: FMCG, White goods
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Channel Dynamics: Vertical Marketing Systems:
Producers, Wholesalers, Retailers etc. acting as a unified system
Horizontal Marketing Systems Two or more unrelated companies come together
to exploit emerging marketing opportunity Eg: Banks & Car manufacturers’ tie-ups
Multi Channel Marketing Systems/Dual Marketing Firms using two or more marketing channels to
reach its customers Eg: Sale of airline tickets online as well as through agents
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Channel Conflict & its management
Can happen at any stage in the channel management. Requires immediate attention. Generally arises when the channel & company differ.
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Types of conflict
Multi channel conflict.– Channel compete amongst them self's. Leads to decline of both channels.
Horizontal channel conflict.– When two or more partners compete.
Leads to dilution of brand image.
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Indications of channel conflict
Internal indicators.1. Low channel productivity.2. Deterioration of channel relationship.3. Poor customer service.
External Indicators1. Low customer satisfaction.2. Reduction in support of product line.3. De-emphasis on brand.4. Competition for sale in the same geographical area.
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Areas of conflict ---
Multi point contact with institutional buyers. – (Rep / Retailers) Direct contact of wholesalers & retailers with consumer. Direct contact of wholesaler & retailer with C&F / Depot.
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Identify the areas of Conflict
Channels competing with each other. Channels serving the same customer. Deteriorating profits of a channel member is leading to
encroachment. Will decline of channel harm the manufacturer?
Use decision making practice to solve channel conflict.
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Conflict situations
Horizontal conflict1. Conflict due to Multi brands outlets, exclusive showrooms,
company showrooms i.e.-- same merchandise available in all stores. no exclusivity of territory of retailers. Vertical conflict1. Internet sales are conflicting with all channels.2. Company is selling directly to customers.
Customer satisfaction1. Customers want high quality with competing price.2. Customer not shifting shop due to price difference.
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How to resolve channel conflict???
ANY SUGGESTIONS ??
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Transport
Types1. Rail2. Road.3. Air.4. Water.5. Door to door service.6. Courier.
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Logistics While distribution channel moves
responsibility and information through the chain.
Logistics covers the physical movement of goods.
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Importance of logistics
Logistics amounts to > 10% of the cost of goods. It impacts the quality of goods. Facilitates marketing (ease in handling, storage, meets statuary
requirements. Economics in manufacturing can be increased by time and
location shifts. E.g. food industry--
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Principle of logistics
Larger the load—lesser the cost. Effective logistics requires total cost to be considered. Packed good to be carried for effective transportation &
to reduce the cost. ( Container in rail & road transport.) Improvement in Weight : Bulk ratio. Higher the value : weight ratio TPT. Cost will be higher. Vertical storage. Optimum storage space utilization. Shortest route may not be most economical route.
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Functions of logistics.
Packing & unpacking. Breaking bulk. Handling & collection of delivery material. Documentation & transfer of ownership / insurance. Transportation. Warehousing and storage. Route planning.
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Distribution & logistics. The distribution system moves the responsibility and
information through he chain.
Logistics system comprises of handling, storage, transportation, documentation, physical movement of goods.
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Logistic process The stimulus to logistic process is the customer order.
What is required
Product, specification
Quantity & packing
Special features*
Delivery
When required
Whom to ship & destination
Mode of shipment
Price to be charged
Whether (cost +Insurance +Freight)
WhetherFree at a particular point
Discounts and taxes to be charged.
Documentation
Inspection report
Excise pass
Shipping documents
Mode of payment
Letter of credit
Documents thru bank
Advance paymentOr credit
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Inputs for logistics
Product
Material handling facilities container / carrier
Product to be:- 1. Packed2. Marked
3. Certified for shipping
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The activities of Logistics
Handling Storage Transportation Documentation Demurrage
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Output of logistics — end result
Product delivered
At the right place At the right time In good condition
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Channel Integration Channel integration is not vertical integration, requiring ownership. It is streamlining physical and information flow by re-engineering the
distribution process. It is achieved through range of information and telecommunication
technologies.
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Logistics – contribution to corporate goals
Revenues :: Positioning of stocks in locations – for reliable & swift delivery for higher sales revenue.
Expenses :: Cost incurring activities viz- transportation warehousing and inventory- to be considered in totality.
Capital investment :: for improved customer satisfaction and lower logistics cost
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Core components for integration
To achieve channel integration management must design and implement a logistics system which coordinates with the components of the entire system, so as to give a given level of customer service, at the enquired cost.
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Core components …. Development of customer standards Selection of transportation modes. Optimal number & location of warehouses. Inventory & control procedures. Production scheduling. Order processing and information system.
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JIT - just in time logistics system
Purchasing Transportation. Warehousing. Inventory control. Production. Quality control.
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Distribution cost
Time for which the inventory is held in transit. The space required. Ware housing cost. Transportation cost. Labour cost. Documentation cost ( Specially for international trade) Damage & Claim In bound & out bound logistics.
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Cost control – A managements perspective
Difficult to control – issues involved. Higher cost passed to customer. ( where freight & insurance is
charged extra) Major cost improvement comes from technology than
managements action. Cost reductions – not visible.
Value additions can be done in:-
1. Reduction in delivery time.
2. Less errors , damages and losses.
3. Better packing, merchandising, training.
4. More effective attention to problems, maintenance, spare parts requirements and service