MK0010- Sales, Distribution and Supply Chain Management

Q1.Why is distribution termed as the second half of marketing? Explain

the different patterns of distribution.
Physical Distribution is the set of activities aiming to provide intermediaries and
customers with the right quality goods, in right time and at right locations. Physical
distribution takes place within numerous wholesaling and selling distribution
channels and includes such important areas as inventory control, customer service,
packaging, warehousing, transportation, site selection and so on. In actuality,
physical distribution is a part of larger process called distribution, which includes
wholesale and retail marketing as well as physical movement of products.
Reasons for why distribution is termed as second half of marketing
In the world of selling, distribution is termed as the second half of marketing. The
reason is that the expenses incurred and efforts involved in distribution and
supplying nearly accounts close to fifty percent of the total marketing budget.
Manufacturers only produce the goods and at maximum provide them to
wholesalers. These produced goods must be provided in proper quantities,
convenient locations and, at times, when customers want them. Simply stated,
distribution is a value added task through which the finished goods are supplied to
the place of demand and stored till sold.
Different patterns of Distribution
There are three broad patterns of distribution -intensive, selective and exclusive
distribution:
(a) Intensive distribution provides the scope of covering the market to the
maximum level. By adopting this method, a marketer sells its products in the
market on all possible stores where a customer is likely to look for the product and
purchase it. Example: Marketers of convenience products like biscuits, CFL bulbs,
cigarettes, salt, bread, detergents, soaps, soft drinks, snacks, magazines, potato
chips, and chewing gums prefer intensive distribution. Intensive distribution is
generally necessary where customers have a range of acceptable brands to choose
from. It means, if the desired brand is not available, customer will simply choose
another.
(b) Selective distribution is a sort of distribution channel where a manufacturer
sells its product through multiple, but not all possible outlets. By adopting this
method, a manufacturer selects the best retail stores in a particular geographical
area to sells his products. Example: Selective distribution is appropriate for
consumer shopping products such as various types of garments, consumer
appliances etc.

(c) Exclusive distribution one of the extreme form of selective distribution where
a manufacturer sells its goods and services through only very few middlemen like
one wholesaler, retailer or distributor is used in a specific geographical area. This
type of distribution pattern is frequently used in
Q2.Who are called as Wholesalers? Explain different types of Wholesalers.
The wholesaler essentially purchases the goods from the producer, stocks them,
and redistributes these to the other intermediaries like the retailers who
subsequently sell them to the end-users or the customers. This function of the
wholesaler enables:
The producers to concentrate on their core function of manufacturing the goods
The retailers, consisting of the supermarkets or the departmental stores, to
concentrate on meeting the expectations and needs of the end-users
Facilitates the distribution and smooth transfer of the goods from the producers to
the market through the retailers
Simplifies the product and information flows between the producer and the enduser through performance of those functions which would not be profitable for
either the producer or the retailer
Types of Wholesalers
Broadly, wholesalers can be classified into three categorieswholesaler merchants,
brokers or agents and producers wholesalers.
Wholesaler Merchants
Merchants performing the full range of duties of a wholesaler are termed as
wholesaler merchants. They purchase the goods from the producer in bulk and
segregate and sell in small lots to retailers and other customers, both commercial
and industrial. For the sale of industrial goods they also appoint salespersons on
their roll if the need arises. Good wholesaler merchants are in demand in view of the
services rendered by them. Such merchants can be further categorized as full
service and limited service wholesalers based on the functions performed by
them:
(i) Full-service wholesaler merchants: As is clear from the terminology, full-service
wholesaler merchants are responsible for all the activities of purchase from the
producer, getting the title of the product, warehousing, sale and delivery to
retailers, distribution and credit provision. These merchants can once again be
further categorized based on their activities:
(a) General merchandise merchants: They primarily deal with all types of retailers
and carry with them the whole range of products required by retailers. Example,

these merchants carry a wide variety of products such as automobile equipment,

hardware, electrical items, furniture, drugs and supply them to the general
department stores, etc.
(b) Limited line merchants: Merchants who carry a limited range of products, but
offer the widest variety sourced from multiple producers. Example, they supply only
a limited line of products such as automobile spare parts, sanitary goods and
washing machines.
(c) Rack jobbers: Wholesaler merchants who source products and display them at
retail outlets not owned by them are termed as rack jobbers. They would normally
get paid by the retailers only when the goods are sold. They are however not much
prevalent in modern times. Example: Rack jobbers, send delivery trucks to stores,
and the delivery person sets up racks of toys, health and beauty products, hardware
items, etc.
(d) Specialty line merchants: They focus on specific product lines only, for example,
tea wholesaler merchant, paints wholesaler merchants, etc.
(e) Cooperatives: Common examples in India for this type of wholesale merchants
are Gujarat Cooperative Milk Marketing Federation (GCMMF) and Punjab State
Cooperative Milk Producers Federation (MILKFED). Such organizations are usually
owned by their members who share the organizational profit equally among
themselves.
(ii) Limited-service wholesaler merchants: Merchants offering selected services
through their self-limited role are termed as limited service wholesale merchants.
They can be further categorized as:
(a) Cash-and-carry merchants: The strategy of such merchants is to deal with low
margins and in high volumes; thereby they attempt to cut out all incidental costs by
offering the goods from their own warehouses on cash terms of payment. Obtaining
title for the goods and arranging for proper warehousing and storing are the
principal tasks carried out by cash and carry merchants and customers are
expected to visit them, purchase the goods against cash and carry them back on
their own. Furniture and other specific products are carried by such merchants.
(b) Drop shippers: These are specialized players whose function is to procure orders
from the customers and have them serviced directly by the producer. In effect, the
drop shipper does not take possession or transport the goods, but owns the title for
the goods from the moment goods are shipped by the producer to the moment they
are received by the customer. For example, Retail Traders selling on sites like Ebay,
Indiatimes, Rediff, Junglee.com (Amazon), etc., or owning web stores, ecommerce
websites, physical retail stores will benefit from drop shippers.

(c) Mail order merchants: These merchants disseminate informationon the goods
carried by them through catalogues and primarily cater to the retailers or the
institution buyers. Some of the common mail order wholesale products are
cosmetics and jewellery.
(d) Truck wholesalers: These merchants offer truckload of their goods at the
doorsteps of their institutional customers and sell their products on an as-is-whereis basis. Common examples of such sale are the fruits and vegetables purchased by
hospitals, hotels, and other institutions.

Q3. An organization needs to be extremely cautious in making

investments in various types of inventories. The extent of control required
to be maintained on all items is not the same. Explain some important
tools of Inventory management like ABC analysis, Just-In-Time & Economic
order quantity model.
Definition of Inventory
Inventory is a stock of materials used to satisfy customer demand or support the
production of goods or services. As a rule, inventory refers to items that add to or
become part of an enterprises output.
Inventory Management
Inventory management is primarily about specifying the size and placement of
stocked goods. Inventory management is required at different locations within a
facility or within multiple locations of a supply network to protect the regular and
planned course of production against the random disturbance of running out of
materials or goods. The scope of inventory management also concerns the fine lines
between replenishment lead time, carrying costs of inventory, asset management,
inventory forecasting, inventory valuation, inventory visibility, future inventory price
forecasting, physical inventory, available physical space for inventory, quality
management, replenishment, returns and defective goods and demand forecasting.
Tools of Inventory management
ABC Analysis: ABC classification is one of the models of inventory classification. ABC
stands for Always Better Control. The value of inventory items consumed in a year
is one of the important factors of this control method.
Small quantities of inventory items form a very large portion of inventory
consumption throughout the year.
Somewhat larger number of inventory items form a reasonable share of inventory
consumption throughout the year.

 Huge number of inventory items form a very small share of inventory

consumption throughout the year.
These essential facts have given rise to the concept of ABC Analysis. It has been
observed that in a manufacturing firm only
10% of items contribute to 70% of the inventory consumption throughout the
year.
20% of the items contribute to 20% of the inventory consumption throughout the
year.
70% of the items contribute to only 10% of the inventory consumption throughout
the year.
Economic Order Quantity: It is defined as the level of inventory order at which
the cost of holding inventory (i.e., ordering cost + inventory carrying cost) is the
minimum. By using the EOQ model, it becomes easy for a firm to understand that
its total expenditure will increase if it orders too much or too little of a stock item.
Simply put, if a firm increases its order quantity then it will simultaneously increase
the investment of the firm and reduces the number of times each year you send in a
replenishment order.
Limitations or assumptions of this model:
1. The EOQ formula is applicable to products that are available at a single price
2. Demand is known, steady and not dependent on any factor
3. Lead time is known and steady
4. Receipt of inventory is immediate and complete
5. Discounts on quantity cannot be given
Just-In-Time (JIT) Systems: The concept of just-in-time (JIT) system has been
made popular by Japanese firms. In a JIT system, manufactured components and
parts are transported to the manufacturing site just few hours before they are
actually put to use. The delivery of material is integrated with the manufacturing
cycle and speed. Thus, JIT system removes the requirement of carrying large
inventories, and hence saves other costs such as transportation costs to the
manufacturer. However, the system requires liaisoning between the manufacturer
and the suppliers regarding information about the delivery time and the quality of
the raw material.

Q4.Explain the SCOR model with a diagrammatic representation.

SCOR model
The SCOR model is used to understand simple or complex supply chains through a common set of terms.
Consequently, different industries can be related to each other to interpret any supply chain. SCOR is
based on five unique management methods. These are: Plan, Source, Make, Deliver and Return.
(i) Plan: It includes methods required to balance collective demand and supply to devise a strategy which
meet sourcing, production and delivery requirements in an optimum manner.
(ii) Source: It includes methods to procure goods/services to meet the actual or anticipated demand.
(iii) Make: It includes methods that convert a raw product to a finished product to meet the actual or
anticipated demand.
(iv) Deliver: It includes methods that are involved in the transfer of final products to the end consumer.
This includes concepts such as distribution management, transportation, etc.
(v) Return: It includes methods which are involved in receiving the returned products no matter what
the reason for return is.

Focusing Aspects with diagram

The SCOR model focuses on the following aspects:
1. All communication with the customer right from the purchase of a product to its payment.
2. All product transactions that come in the process right from the supplier to the end customer which
includes equipment, bulk commodities, spare parts, etc.
3. All market communication right from understanding the collective demand to the fulfilment of each
order. Other key notions highlighted by the SCOR model are information technology, guidance, quality
and administration.

Q5.When one member of distribution channel tries to maximize its profits

at the expense of rest of the members, it will create conflicts, resulting in
the decline of profits. To avoid these conflicts, now retail firms have
started forming vertical Marketing systems (VMS). Explain the three types
of VMS through which goods and services are usually distributed to
customers.
Vertical Marketing systems (VMS)
A Vertical Marketing System (VMS) is a system in which almost all the members of distribution
channel such as manufacturers, wholesalers and retailers work together to satisfy human needs and wants
by facilitating the smooth flow of goods and services from manufacturer to the ultimate consumer. In
traditional marketing system, manufacturers, wholesalers and retailers are separate entities who try to
maximize their own profits. The philosophy behind developing vertical marketing system is that when one
member of distribution channel tries to maximize its profits at the expense of rest of the members, it will
create conflicts, resulting in the decline of profits for the whole channel of distribution. To avoid these
conflicts, now retail firms have started forming vertical marketing systems.
Types of VMS:
Three types of VMS are:
1. Independent firm VMS

2. Partially integrated VMS

3. Fully integrated VMS
1. Independent firm VMS is a marketing system where manufacturers play a vital role to provide
goods and services to customers. This is the case where retailers are very small and therefore,
manufacturers have to reach the whole market. Also when a firms financial resources are limited and
channel members are not in a position to share risks and expenses, therefore, they want the manufacturer
to come forward and lead the retailing efforts. Independent retailers on the other hand, target their
customer base and build loyalty by becoming a friendly retailer and word of mouth publicity.

2. Partially integrated VMS is a marketing system in which two independent, financially strong firms
along a channel of distribution perform all manufacturing and distribution functions without the
involvement of any intermediary. This is the case where involvement of wholesalers may be expensive
and/or unaffordable. The example of such system is where manufacturers and retailers divide all the
retailing activities like production, storage and distribution without any independent wholesalers.
Partially integrated VMS is most suitable where:
I.
II.
III.
IV.
V.

wholesalers are costly to afford

company has ample resources
both manufacturers and retailers are large
unit sales are moderate, and
Strict control over channel is required.

3. Fully integrated VMS is a system where one member of the distribution channel for say
manufacturer performs all production, storage and distribution functions without the involvement of any
channel member. This is the case where manufacturer having sufficient resources wants direct interaction
with its customers. Earlier this system was usually employed by manufacturers of repute but now due to
easy availability of finance and retail facilities that significantly contribute to a nations economy, retailers
are also moving upward in the chain.

Q6.Describe the supply chain Benchmarking Procedure.

Benchmarking
Benchmarking has been used variedly to refer to several activities. Several definitions have described as
benchmarking. Some of these definitions are discussed to emphasize the diversity:

A continuous systematic process for evaluating the products, services and work of organizations that
are recognized as representing best practices for the purpose of organizational improvement

(Spendolini, 1992).
A continuous search for, and application of, significantly better practices that lead to superior

competitive performance (Watson, 1993).

A disciplined process that begins with a thorough search to identify bestpractice- organizations,
continues with the careful study of ones own practices and performance, progresses through
systematic site visits and interviews, and concludes with an analysis of results, development of
recommendations and implementation (Garvin, 1993).

Procedure for supply chain benchmarking

There is a procedure for defining the methodologies and metrics, achieve milestones and set comparisons
for benchmarking. At the implementation level, application of benchmarking is generally believed to
involve seven key steps:
(i) Determine which functions to Benchmark: The organization needs to first ascertain which
functional areas are to be benchmarked, those which will gain the most from the benchmarking
procedure.
(ii) Identify performance variables and collect data: The organization needs to recognize the
performance variables which will be used to measure those functional areas and then accordingly collect
data.
(iii) Select best in class companies: The organization needs to first choose the best-in-class company
for each area that is to be benchmarked. The chosen company should be one that performs its functions at
the lowest cost and achieves the highest level of customer satisfaction.
(iv) Compare: An organization needs to compare its performance with that of the best-in-class company
for each benchmark being considered. The results need to be compared in an easy format to ascertain the
gap between its own performance and that of the best-in-class company.

(v) Specify programmes and actions to meet and surpass: The organization needs to specify the
programmes and actions to meet and exceed the competition which is based on a strategy to improve the
areas which have some possibility of improvement. The organization can either devise its own methods to
improve its weak areas or look up to the industry leaders for guidance.
(vi) Implement and monitor: The organization needs to implement these programmes by setting
specific goals to be achieved within a stipulated time period. The organization also needs to develop a
monitoring mechanism to review and update the examination/study done within the stipulated time
period.
(vii) Recalibrate: The monitoring mechanism developed by the organization will form the basis for
revision and change of measurements in the subsequent benchmarking studies.