Distribution & Logistics (Channel Management)
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Transcript of Distribution & Logistics (Channel Management)
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