• Describe the various activities involved in the selling process.

Ans: Activities in the Selling Process:The selling process is a set of activities undertaken to
successfully obtain an order and begin building long-term customer relations. While the activities
we discuss apply to all forms of selling and can be adapted to most selling situations (including
non-product selling such as selling an idea), we will mainly concentrate on the activities carried
out by professional salespeople. For our purposes, we define professional salespeople as those
whose principle occupation involves selling products (i.e., goods and services) to buyers and do
so for organizations that appreciate and support sellers who are well-trained and ethically
responsible.
The selling activities undertaken by professional salespeople include:
• Generating Sales Leads
• Qualifying Leads
• Preparing for the Sales Meeting
• Making Initial Contact
• The Sales Meeting
• Handling Buyer Resistance
• Closing the Sale
• Account Maintenance
It should be noted that while we present these activities in an order that is suggestive of a step-
by-step approach (i.e., one activity must be carried out before the next), in many selling situations
this will not be the case. For example, a buyer for a large retailer may have observed a
salesperson's product being used while visiting a competitor’s store. The buyer, anxious to obtain
the product for use in her own stores, contacts the salesperson immediately upon returning to the
office. After addressing a few questions from the salesperson confirming the buyer’s status at the
retail company and without much prodding by the salesperson, the buyer places an order and
agrees to meet the salesperson for lunch the next day. In our example, only activities #2 –
Qualifying the Lead, #7 – Closing the Sale and #8 – Account Maintenance are carried out in order
to obtain the sale and to begin building a long-term relationship.
Additionally, salespeople often find circumstances in which all activities are required but the order
these are carried out may be disrupted. For instance, salespeople are often confronted with a
buyer who is resistant to making a purchase even before the salesperson has made a
presentation (e.g., "I don’t think I'm interested in what you’re selling"). This will likely force the
salesperson to adjust his or her selling process. In this example it will require the salesperson
address the buyer’s resistance before beginning to present the product.
• Generating Sales Leads:
Selling begins by locating potential customers. A potential customer or “prospect” is first
identified as a sales lead, which simply means the salesperson has obtained information
to suggest that someone exhibits key characteristics that lend them to being a prospect.
For certain sales positions, locating leads may not be a major task undertaken by the
sales force as these activities are handled by others in company. For instance,
salespeople may receive a list of sales leads based on inquiries through the company’s
website.
However, for a large percentage of salespeople lead generation consumes a significant portion of
their everyday work. For salespeople actively involved in generating leads, they are continually on
the look out for potential new business. In fact, for salespeople whose chief role is that of order
getter, there is virtually no chance of being successful unless they can consistently generate
sales leads.
Sales leads can come from many sources including:
 • Prospect Initiated – Includes leads obtained when prospects initiate contact such as
when they fill out a website form, enter a trade show booth or respond to an
advertisement.
• Profile Fitting – Uses market research tools, such as company profiles, to locate leads
based on customers that fit a particular profile likely to be a match for the company’s
products. The profile is often based on the profile of previous customers.
• Market Monitoring – Through this approach leads are obtained by monitoring media
outlets, such as news articles, Internet forums and corporate press releases.
• Canvassing – Here leads are gathered by cold-calling (i.e., contacting someone without
pre-notification) including in-person, by telephone or by email.
• Data Mining – This technique uses sophisticated software to evaluate information (e.g., in
a corporate database) previously gathered by a company in hopes of locating prospects.
• Personal and Professional Contacts – A very common method for locating sales leads
uses referrals. Such referrals may come at no cost to the salesperson or, to encourage
referrals, salespeople may offer payment for referrals. Non-paying methods including
asking acquaintances (e.g., friends, business associates) and networking (e.g., joining
local or professional groups and associations). Paid methods may include payment to
others who direct leads that eventually turn into customers including using Internet
affiliate programs (i.e., paid for website referrals).
• Promotions – The method uses free gifts to encourage prospect to provide contact
information or attend a sales meeting. For example, offering free software for signing up
for a demonstration of another product.
• Qualifying Sales Leads
Not all sales leads hold the potential for becoming sales prospects. There are many reasons for
this including:
• Cannot be Contacted – Some prospects may fit the criteria for being a prospect but
gaining time to meet with them may be very difficult (e.g., high-level executives).
• Need Already Satisfied - Prospects may have already purchased a similar product
offered by a competitor and, thus, may not have the need for additional products.
• Lack Financial Capacity - Just because someone has a need for a product does not
mean they can afford it. Lack of financial capacity is major reason why sales leads do not
become prospects.
• May Not Be Key Decision Maker - Prospects may lack the authority to approve the
purchase.
• May Not Meet Requirements to Purchase - Prospects may not meet the requirements for
purchasing the product (e.g., lack other products needed for seller’s product to work
properly).
The process of determining whether a sales lead has the potential to become a prospect is
known as "qualifying" the lead. In some cases, a sales lead can be qualified by the seller prior to
making first contact. For instance, this can be done through the use of research reports, such as
an evaluation of a company’s financial position using publicly available financial reporting
services. More likely, sellers will not be in a position to qualify leads until they establish contact
with a lead, which may occur in activities associated with either Making Initial Contact or The
Sales Meeting.
• Preparing for the Sales Meeting:
If a prospect has been qualified or if qualifying cannot take place until additional
information is obtained (e.g., when first talking to the prospect), a salesperson’s next task
is to prepare for an eventual sales call. At this stage the salesperson's key focus is one
 learning as much as possible about the prospect. While during the lead generation and
qualifying portion of the selling process a seller may have gained a great deal of
knowledge about a customer, invariably there is much more to be known that will be
helpful once an actual sales call is made. The salesperson will use their research skills to
learn about such issues as:
• who is the key decision maker
• what is the customer’s organizational structure
• what products are currently being purchased
• how are purchase decisions made
Salespeople can attempt to gather this information through several sources including: corporate
research reports, information on the prospect’s website, conversations with non-competitive
salespeople who have dealt with the prospect, website forums where industry information is
discussed, and by asking questions when setting up sales meetings (see Making Initial Contact).
Gaining this information can help prepare the salesperson for the sales presentation. For
example, if the salesperson learns which competitor currently supplies the prospect then the
salesperson can tailor promotional material in a way that compares the seller’s products against
products being purchased by the prospect. Additionally, having more information about a
prospect allows the salesperson to be more confident in his/her presentation and, consequently,
come across as more knowledgeable when meeting with the prospect.
4 Making Initial Contact
With some information about the prospect in-hand, the salesperson must then move to make
initial contact. In a few cases a salesperson may be fortunate to have the prospect contact
her/him but in most cases salespeople will need to initiate contact. In many ways arranging for
contact is as much as selling effort as selling a product.
There are two main approaches to arranging contact:
• Cold Calling for Presentation – A challenging way to contact a prospect is to attempt to
conduct a sales meeting through a straight cold call. In this approach the intention is to
not only contact the prospect but to also give a sales presentation during this first contact
period. This approach can be difficult since the prospect may be irritated by having
unannounced salespeople interrupt them and take time out of their busy work schedule to
sit for a sales meeting.
• Cold Calling for Appointment – A better approach for most salespeople is to contact a
prospect to set up an appointment in advance of the sales meeting. The main
advantages of making appointments is that it gives the salesperson additional time to
prepare for the meeting and also, in the course of discussing an appointment, the
salesperson may have the opportunity to gain more information from the prospect. Of
course, this way also has the added advantage of having the prospect agree to the sit for
the meeting, which may make them more receptive to the product than if the salesperson
had followed the Cold Calling for Presentation approach.
5 The Sales Meeting
The heart of the selling process is the meeting that takes place between the prospect and the
salesperson. At this stage of the selling process the salesperson will spend a considerable
amount of time presenting the product. While the word "presenting" may imply the seller is taking
center stage and does most of the talking by discussing the product’s features and benefits, in
actuality successful sellers find effective presentations to be more of a give-and-take
conversation.
Additionally, the meeting is not just about the seller discussing the product, rather much more
takes place during this part of the selling process including:
 • Establishing Rapport with the Prospect – Successful salespeople know that jumping right
into a discussion of their product is not the best why to build relationships. Often it is
important that, upon first greeting the prospect, the salesperson spend a short period of
time in a friendly conversation to help establish a rapport with the potential buyer.
• Gaining Background Information – The salesperson will use questioning skills to learn
about the prospect and the prospect’s company and industry.
• Access Prospect’s Needs - Taking what is learned from the prospect’s response to
questions, the salesperson can determine the prospect’s needs. To accomplish this task
successfully, sellers must be skilled at listening and understanding responses.
• Presenting the Product – The salesperson will stimulate a prospect’s interest by
discussing a product’s features and benefits in a way that is tailored to the needs of the
customer. Part of this discussion may include a demonstration of the product.
• Assess the Prospect - Throughout the presentation the seller will use techniques,
including interpreting non-verbal cues (e.g., body language), to gauge the prospect’s
understanding and acceptance of what is discussed.
6 Handling Buyer Resistance
It is a rare instance when a salesperson does not receive resistance from a prospect. By
resistance we are referring to a concern a prospect has regarding the product (or company) and
how it will work for their situation. In most cases the resistance is expressed verbally (e.g., "I don't
see how this can help us.") but other times the resistance presents itself in a non-verbal fashion
(e.g., prospect facial expression shows puzzlement).
While handling sales resistance may sound like a difficult part of selling, most successful
salespeople actually welcome and even encourage it as part of the selling process. Why?
Because it is an indication the prospect is paying attention to the presentation and may even
have an interest in the product if the resistance can be effectively addressed.
To overcome resistance, salespeople are trained to make sure they clearly understand the
prospect's concern. Sometimes prospects say one thing that appears to be an objection to the
product but, in fact, they have another issue that is preventing them from agreeing to a purchase.
Salespeople are rarely able to make the sale unless resistance is overcome.
7. Closing the Sale
Most people involved in selling acknowledge that this part of the selling process is the most
difficult. Closing the sale is the point when the seller asks the prospect to agree to make the
purchase. It is also the point at which many customers are unwilling to make a commitment and,
consequently, respond to the seller’s request by saying no. For anyone involved in sales such
rejection can be very difficult to overcome, especially if it occurs on a consistent basis.
Yet the most successful salespeople will say that closing the sale is actually fairly easy if the
salesperson has worked hard in developing a relationship with the customer. Unfortunately some
buyers, no matter how satisfied they are with the seller and their product, may be insecure or lack
confidence in making buying decisions. For these buyers, salespeople must rely on persuasive
communication skills that help assist and even persuade a buyer to place an order.
The use of persuasive communication techniques is by far the most controversial and most
misunderstood concept related to the selling process. Why? Because to many people the act of
persuasion is viewed as an attempt to manipulate someone into doing something they really do
not want to do. However, for sales professionals this is not what persuasive communication is
about. Instead, persuasion is a skill for assisting someone in making a decision; it is not a
technique for making someone make a decision. The difference is important. Where one is
manipulative, the other is helpful and designed to benefit the buyer. And as we noted, persuasion
does not always occur. Many times buyers take the lead in closing a sale since they are
convinced the product is right for them.
For salespeople, understanding when it is time to close a sale and what techniques should be
used takes experience. In any event, the close is not the end of the selling process but is the
beginning of building a relationship.
• Account Maintenance
While account maintenance is listed as the final activity in the selling process, it really amounts to
the beginning of the next sale and, thus, the beginning of a buyer-seller relationship. In selling
situations where repeat purchasing is a goal (compared to a one-time sale), following up with a
customer is critical to establishing a long-term relationship.
After a sale, salespeople should work hard to insure the customer is satisfied with the purchase
and determine what other ways the salesperson can help the customer be even more satisfied
with the purchase. The level and nature of after-sale follow-up will often depend on the product
sold. Expensive, complex purchases that require installation and training may result in the
salesperson spending considerable time with the customer after the sale while smaller purchases
may have the seller follow-up with simple email correspondence.
By maintaining contact after the sale the seller is in a position to become more accepted by the
customer which invariably leads to the salesperson learning more about the customer and the
customer’s business. With this knowledge the salesperson will almost always be presented with
more selling opportunities.
b. What do you mean by enterprise relationship?
Ans: Enterprise Relationship:In recent years, customers have been downsizing their supplier
base and replacing their multiple vendors with a very small number of possibly long-term
relationships offered only to a select few suppliers. A widely quoted figure is that customers are
working today with one-third fewer suppliers than they did 10 years ago. Combined with merger
trends and market consolidation, the trend toward purchasing from fewer suppliers has resulted in
customers capable of leveraging the volume of their purchases for enhanced services and cost-
cutting opportunities. The response of many sellers to the emergence of very large and powerful
customers has been to develop a system of enterprise relationships to better meet the needs of
their major customers.
An enterprise relationship is one in which the primary function is to leverage any and all corporate
assets of the supplier in order to contribute to the customer’s strategic success. In such a
situation, both the product and the sales force are secondary, and the customer must be of
strategic importance to the selling organisation. To achieve successful enterprise relationships,
the supplier must deliver exceptional customer value while also extracting sufficient value from
the relationship. This is always challenging, especially when the customer has large needs.
Following are some of the ways in which other companies have made strategic partner
relationships work.
• Suppliers are involved in the early stages of need identification, specification, and new product
development.
In conventional relationships, the primary players were the salesperson, the customer service
representative, and perhaps a design engineer. With enterprise relationships, the supplier fields a
team that interfaces with the customer on a regular basis, and includes a variety of functional
areas and management levels.
• In enterprise relationships, there is an unusually high degree of intimacy resulting in immediate
responsiveness from suppliers, sharing of information, radical empowerment of suppliers, and
termination of the relationship as a remote and difficult option.
· Effects of Different types of Sales Relationships:
The activities of the sales force, the structure of the sales force, compensation, and even the
sales philosophy differ for each type of relationship. For instance, as the buyer-seller relationship
becomes more sophisticated and complex, the sales force’s role as the primary point of contact
between customer and supplier often diminishes. The focus also shifts to some degree from sales
volume generation to management and maintenance of the relationship and the conflicts that are
likely to arise over time.
Studies have shown that enterprise-type business-to-business relationships tend to focus on
lowering the customer’s overall operating costs. Industrial salespeople are typically trained in
selling behavior and in how to present technical product features, not in process and cost
analysis. Salespeople are needed who can develop a thorough understanding of the customer’s
operations and the way costs are influenced by the supplier’s products and customer interactions.
A supplier may also have to analyse whether their sales compensation system rewards
salespeople for lowering customer costs, which usually requires a long-term perspective, or short-
term volume gains.
Distributive Network Relations: In recent times, many companies have experienced the
problem of too much or too little inventory to satisfy demand, missed production schedules, and
ineffectual transportation and delivery schedules. To get a solution for this problem, companies
are turning to supply chain management. Supply chain management is the integration and
organisation of information and logistics activities across firms in a supply chain for the purpose of
creating and delivering goods and services that provide value to customers. In short, supply chain
management is about producing top class products that are available at the right time, at the right
place, and in the right form and condition.
=> Supply Chain Management (SCM) involves the following
sub-processes:
· Selecting and managing supplier relationships
· Managing inbound logistics
· Managing internal logistics
· Managing outbound logistics
· Designing product assembly and batch manufacturing
· Managing process technology
· Managing order, pricing, and payment terms
· Managing channel partners
· Managing product installation and maintenance
Supply chain management focuses on the entire supply chain. Fundamental to this concept is
recognising that a supply chain is not a linked series of one-on-one relationships between buyers
and sellers, but a synchronised network or system involving a supplier’s own suppliers as well as
downstream customers and their distributors, brokers/agents, transporters, and final customers.
· Involvement of Sales Force in SCM: How is the sales force involved in supply chain
management? In the traditional distribution systems, the sales force’s involvement was largely at
the tail end of the process when interacting with the customer and channel members. This
generalisation, however, is changing somewhat as companies adopt more of a market-driven
focus to SCM. This involves a shift from sourcing inputs at the cheapest possible prices to
designing, managing, and integrating the firm’s supply chain with that of both suppliers and
customers. The benefits experienced by the end customer is becoming the main objective, as
opposed to internal goals such as delivery cycles, production schedules, and operating costs.
Effective Sales Force relations with the Distributive Networks will depend on the following three
factors:
• Knowledge of the entire upstream and downstream supply chain.
• Thinking strategically about partnering.
• Establishing good lines of communications and influence with senior corporate management.
Q.2 a. Differentiate between sales quotas and sales territories. (5 marks)
Ans: The Quotas
· What are sales quotas? Sales quotas are a way of life for the sales force. All activities of the
sales force revolve around the fulfillment of sales quotas. Sales quotas are targets assigned to
sales personnel. They signify the performance expected from them by the organisation. Sales
quotas help in directing, evaluating and controlling the sales force. They form an indispensable
tool for sales managers to carry out sales management activities. Sales quotas are prepared on
the basis of sales forecasts and budgets. Sales quotas serve various purposes in organisations.
They provide targets for sales personnel to achieve & also act as standards to measure sales
force performance and help motivate the sales force. Compensation plans are invariably linked to
quotas. The commission and bonuses given to sales persons are based on their meeting quotas
set for them. The four categories of sales quotas widely used are:
– sales volume quotas,
– expense quotas,
– activity quotas and
– profit quotas.
A sales quota should be fair, challenging yet attainable, rewarding, easy to understand, flexible
and must satisfy management objectives.
It must also help in the coordination of sales force activities. Setting motivating and easy to
understand quotas is essential to obtain the cooperation of the sales force. Various methods are
used to set sales quotas, among which, quotas based on sales forecasts and market potential are
the most common. Skilful administration by sales managers is required for effective
implementation of quotas. Convincing salespeople about the fairness and accuracy of quotas
helps the sales management to successfully implement quotas.
Sales quotas have certain limitations such as being time consuming, difficulty in comprehending if
complicated statistical calculations have been used and focusing on attaining sales volumes at
the cost of ignoring important non-selling activities. Quotas may reduce risk-taking among sales
personnel and may influence them to adopt unethical selling practices. With changes in the
competitive environment and variations in customer expectations, many companies have started
developing compensation plans that are increasingly based on non-traditional aspects, thereby
reducing dependency on quotas.
The process of establishing normal and reasonable sales quotas can vary greatly as a function of
the business, industry, type and size of the sales organisation, and product and/or service being
sold. However, there can often be a great deal of commonality in the approach to this important
sales-generating tool.
· Criteria for the effective establishment of sales quotas:Some of the basic criteria which are
considered to ensure the effective establishment of sales quotas are:
- Corporate revenue goals
- Historical revenue performance
- Current sales coverage model
- Planned increases in sales headcount
- Introduction of new products and services
- Current market share
- Stretch targets
b. Briefly explain the functions of logistics management.
Functions of Logistics Management
Meaning of Logistics management: Logistics management is that part of the supply chain
which plans, implements and controls the efficient, effective forward and reverse flow and storage
of goods, services and related information between the point of origin and the point of
consumption in order to meet customers’ requirements. A professional working in the field of
logistics management is called a logistician.
Logistics management activities typically include inbound and outbound transportation
management, fleet management, warehousing, materials handling, order fulfillment, logistics
network design, inventory management, supply/demand planning, and management of third party
logistics services providers.
Logistics Functions The logistics function includes sourcing and procurement, production
planning and scheduling, packaging and assembly, and customer service. It is involved in all
levels of planning and execution – strategic, operational and tactical. Logistics management is an
integrating function, which coordinates and optimizes all logistics activities, as well as integrates
logistics activities with other functions including marketing, sales manufacturing, finance and
information technology.
Logistics is much more and much wider than mere physical handling of goods. Logistics involves
several other functions such as purchasing, plant location, plant layout, etc., and even the
disposal of wastes. It covers astonishingly varied professional disciplines. They are:
· Facility location
· Planning
· Forecasting and order management
· Transportation: the mode and the route
· Inventory management: all inventories
· Warehousing
· Protective packaging
Raw material and finished products had always to be moved, though on a small scale. Things
began changing with the advance in transportation. Population began moving from rural to urban
areas and to business centres. No longer did people live near production centres, nor did
production take place near residence centres. The geographical distance between the production
point and consumption point increased.
Since the early 1990’s, the business scene has changed. The globalization, the free market and
the competition has required that the customer gets the right material, at the right time, at the
right point and in the right condition at the lowest cost. This is "globalization" and is not unusual
today. Here are some of the logistics functions that allowed this to happen:
1. Purchasing – of raw materials, assembled products, finished products from all over the world.
Where can you get the quality you want at the best price?
2. Manufacturing operations – how should the machines be organized, how many workers do you
need, where do you stock your materials and finished products, how many products do you
manufacture on each production run, etc.
3. Transportation – domestic and international, from raw materials to finished product; that moves
what, and when, and for what price?
4. Warehousing – product is either moving (transportation) or not (warehousing). This is
becoming a very sophisticated area and a key to shortening the time to market for products.
5. Inventory control – how much product is on hand, on order, in transit, and where is it?
Inventory drives logistics.
6. Import/export – international regulations and documentation can be complex. It takes a
specialist to understand the best way to get product across borders.
7. Information systems – globalization on today’s scale is possible because there is technology
that transfers the needed information.
Logistics functions are unavoidable costs to a company, but today they are recognized as crucial
to a company’s competitiveness and profitability.

Q.3 The marketing manager of Hasan Group Ltd., Mr. Arjun was thinking about designing a
new distribution channel strategy so as to improvise the distribution system. What key
factors should he consider when designing a strategy related to distribution channels? (10
marks)

Ans: Designing Marketing Channels:

· Factors considered for designing Distribution Channels: Like most marketing decisions, a
great deal of research and thought must go into determining how to carry out distribution activities
in a way that meets a marketer’s objectives. The marketer must consider many factors when
establishing a distribution system. Some factors are directly related to marketing decisions while
others are affected by relationships that exist with members of the channel.
The following are the key factors to consider when designing a distribution strategy. We can
group these into two main categories:
– marketing decision issues and
– channel relationship issues.
Marketing Decision Issues: Distribution strategy can be shaped by how decisions are made in
other marketing areas as under:
· Product Issues The nature of the product often dictates the distribution options available
especially if the product requires special handling. For instance, companies selling delicate or
fragile products, such as flowers, glass articles, etc., look for shipping arrangements that are
different than those sought for companies selling extremely tough or durable products, such as
steel rods.
· Promotion Issues Besides issues related to physical handling of products, distribution
decisions are affected by the type of promotional activities needed to sell the product to
customers. For products needing extensive salesperson-to-customer contact (e.g., automobile
purchases) the distribution options are different than for products where customers typically
require no sales assistance (i.e., bread purchases).
· Pricing Issues The desired price at which a marketer seeks to sell their product can impact how
they choose to distribute. The inclusion of resellers in a marketer’s distribution strategy may affect
a product’s pricing since each member of the channel seeks to make a profit for their contribution
to the sale of the product. If too many channel members are involved the eventual selling price
may be too high to meet sales targets in which case the marketer may explore other distribution
options.
· Target Market Issues A distribution system is only effective if target customers can obtain the
product. Consequently, a key decision in setting up a channel arrangement is for the marketer to
choose the approach that reaches target customers in the most effective way possible. The most
important decision with regard to reaching the target market is to determine the level of
distribution coverage needed to effectively meet customer’s needs. Distribution coverage is
measured in terms of the intensity by which the product is made available. For the most part,
distribution coverage decisions are of most concern to consumer products companies, though
there are many industrial products that also must decide how much coverage to give their
products.
The marketer must take into consideration many factors when choosing the right level of
distribution coverage. However, all marketers should understand that distribution creates costs to
the organisation. Some of these expenses can be passed along to customers (e.g., shipping
costs) but others cannot (e.g., need for additional salespeople to handle more distributors). Thus,
the process for determining the right level of distribution coverage often comes down to an
analysis of the benefits (e.g., more sales) versus the cost associated with gaining the benefits.
· Levels of distribution coverage: There are three main levels of distribution coverage – mass
coverage, selective and exclusive.
- Mass Coverage – The mass coverage (also known as intensive distribution) strategy attempts
to distribute products widely in nearly all locations in which that type of product is sold. This level
of distribution is only feasible for relatively low priced products that appeal to very large target
markets (e.g., FMCG products). A product such as Coca-Cola is a classic example since it is
available in a wide variety of locations including grocery/provision stores, convenience stores,
vending machines, hotels and many, many more. With such a large number of locations selling
the product the cost of distribution is extremely high and must be offset with very high sales
volume.
- Selective Coverage – Under selective coverage the marketer deliberately seeks to limit the
locations in which this type of product is sold. The logic of this strategy is due to the size and
nature of the product’s target market. Products with selective coverage appeal to smaller, more
focused target markets (e.g., air conditioners) compared to the size of target markets for mass
marketed products. Consequently, because the market size is smaller, the number of locations
needed to support the distribution of the product is fewer.
- Exclusive Coverage – Some high-end products target very narrow markets that have a
relatively small number of customers. These customers are often characterised as
“discriminating” in their taste for products and seek to satisfy some of their needs with high-
quality, though expensive products. Additionally, many buyers of high-end products require a high
level of customer service from the channel member from whom they purchase. These
characteristics of the target market may lead the marketer to sell their products through a very
select or exclusive group of resellers. Another type of exclusive distribution may not involve high-
end products but rather products only available in selected locations such as company-owned
stores. While these products may or may not be higher priced compared to competitive products,
the fact that these are only available in company outlets give exclusivity to the distribution.
While these three distribution coverage options serve as a useful guide for understanding how
distribution intensity works, the advent of the Internet has brought into question the effectiveness
of these schemes. For all intents and purposes all products available for purchase over the
Internet are distributed in the same way – mass coverage. So a better way to look at the three
levels is to consider these as options for distribution coverage of products that are physically
purchased by a customer (i.e., walk-in to purchase).
· Marketing Channel Alternatives: For many products and services, their manufacturers or
providers use multiple channels of distribution. A refrigerator, for example, might be bought
directly from the manufacturer, either over the telephone, direct mail, or the Internet, or through
several kinds of retailers, including independent appliance stores, franchised company stores,
and department stores. In addition, large and small businesses may make their purchases
through other outlets.
Channel structures range from two to five levels.
· Two Level Structures: The simplest is a two-level structure in which goods and services move
directly from the manufacturer or provider to the consumer. Two-level structures occur in some
industries where consumers are able to order products directly from the manufacturer and the
manufacturer fulfills those orders through its own physical distribution system.
· Three Level Structures: In a three-level channel structure retailers serve as intermediaries
between consumers and manufacturers. Retailers order products directly from the manufacturer
& then sell those products directly to the consumer.
· Four Level Structures: A fourth level is added when manufacturers sell to wholesalers rather
than to retailers. In a four-level structure, retailers order goods from wholesalers rather than
manufacturers.
· Five Level Structure: Finally, a manufacturer’s agent can serve as an intermediary between
the manufacturer and its wholesalers, creating a five-level channel structure consisting of the
manufacturer, agent, wholesale, retail, and consumer levels. A five-level channel structure might
also consist of the manufacturer, wholesalers, agents, retail, and consumer levels, whereby
agents service smaller retailers not covered by the large wholesalers in the industry.
· Selecting Channels: Given the importance of distribution channels it is important to make a
careful assessment of the channel alternatives. In evaluating possible channels, it may be helpful
first to analyse the distribution channels used by competitors. This analysis may reveal that using
the same channels would provide the best option, or it may show that choosing an alternative
channel structure would give the firm a competitive advantage. Other factors to consider include
the company’s pricing strategy and internal resources. As a general rule, as the number of
intermediaries included in a channel increase, producers lose a greater percentage of their
control over the product and pay more to compensate each participating channel level. At the
same time, however, more intermediaries can also provide greater market coverage.
As already discussed, the alternative channels a company can choose from are:
· Direct Sales (which provides the advantage of direct contact with the consumer);
· Original Equipment Manufacturer (OEM) sales (in which a company’s product is sold to
another company that incorporates it into a finished product); – manufacturer’s representatives
(salespeople operating out of agencies that handle an assortment of complimentary products);
· Wholesalers (who generally buy goods in large quantities, warehouse them, then break them
down into smaller shipments for their customers – usually retailers);
· Brokers (who act as intermediaries between producers and wholesalers or retailers);
· Retailers (which include independent stores as well as regional and national chains); and
· Direct mail Ideally, the distribution channels selected by a company should be close to the
desired market, able to provide necessary services to buyers, able to handle local advertising and
promotion, experienced in selling compatible product lines, solid financially, cooperative, and
reputable.
Since many businesses lack the resources to hire, train, and supervise their own sales forces,
sales agents and brokers are a common distribution channel. Many businesses consign their
output to an agent, who might sell it to various wholesalers, one large distributor, or a number of
retail outlets. In this way, an agent might provide the company with access to channels it would
not otherwise have had. Moreover, since most agents work on a commission basis, the cost of
sales drops when the level of sales drops, this provides these companies with some measure of
protection against economic downturns. When selecting an agent, the firm should look for one
who has experience with desired channels as well as with closely related –but not competitive –
products.
Other channel alternatives can also offer benefits to small businesses. For example, by
warehousing goods, wholesalers can reduce the amount of storage space needed by the
manufacturers. They can also provide national distribution that might otherwise be out of reach
for some firms. Selling directly to retailers can be a challenge for many companies. Independent
retailers tend to be the easiest market for companies to penetrate. The merchandise buyers for
independent retailers are most likely to get their supplies from local distributors, can order new
items on the spot, and can make adjustments to inventory themselves. Likewise, buyers for small
groups of retail stores also tend to hold decision-making power, and they are able to try out new
items by writing small orders. However, these buyers are more likely to seek discounts,
advertising allowances, and return guarantees.
Medium-sized retail chains often do their buying through a central office. In order to convince the
chain to carry a new product, the company must usually make a formal sales presentation with
brochures and samples. Once an item makes it onto the shelf, it is required to produce a certain
amount of revenue to justify the space it occupies, or else it will be dropped in favor of a more
profitable item. National retail chains, too, handle their merchandise buying out of centralised
offices and are unlikely to see company sales people making cold sales calls. Instead, they
usually request a complete marketing program, with anticipated returns, before they will consider
carrying a new product. Once an item becomes successful, however, these larger chains often
establish direct computer links with producers for replenishment.
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Assignment Set- 2

Q.1 a. What is demand forecasting? Explain the basic approach to forecasting demand.
The forecast of demand forms the basis for all strategic and planning decisions in a supply chain.
Throughout the supply chain, all push process is performed in anticipation of customer demand
whereas all pull process is performed in response to customer demand. For push process, a
manager must plan the level of available capacity and inventory. In both instances the first step a
manager must take is to forecast what customer demand will be? The utility of forecasts can be
enhanced through collaborative forecasting among supply chain partners.
· Production : Scheduling, inventory control, aggregate planning, purchasing
· Marketing : Sales-force allocation, promotions, new product introduction
· Finance : Plant/equipment investment, budgetary planning
· Personnel : Workforce planning, hiring, layoffs
It is essential that these decisions not to be segregated by functional area or even by enterprise,
as they influence each other and are best made jointly. For example, Coca-cola considers the
demand forecast over the coming quarter and decides on the various promotions. The promotion
information is then used to update the demand forecast. The updated forecast is essential for the
bottlers, who are often independent of Coca-Cola, to plan their production as it may require
additional investment and hiring decisions. A bottler operating without the updated forecast based
on the promotions unlikely to have sufficient supply available for Coca-Cola. This example
illustrates the importance of collaboration-both within the functions of a company as well as
among companies in a supply chain.
Mature products with stable demand are usually easiest to forecast. Staple products at a
supermarket, such as milk or paper towels, fit this description. Forecasting and the accompanying
managerial decisions are extremely difficult when either the supply of raw materials or the
demand for the finished product is highly variable. Some examples of items that are difficult to
forecast include fashion goods and many high-tech products. Good forecasting is very important
in these cases because the time window for sales is narrow and if a firm has over-or under
produced, it has a little chance to recover. For a product with a long life cycle, in contrast, the
impact of a forecasting error is less significant.
· Components of a Forecast and Forecasting Methods A company must be knowledgeable
about numerous factors that are be related to the demand forecast. Some of these factors are
listed next.
· Past demand
· Lead time of product
· Planned advertising or marketing efforts
· State of the economy
· Planned price discounts
· Actions competitors have taken
A company must understand such factors before it can select an appropriate forecasting
methodology. For example, historically a firm may have experienced low demand for chicken
noodle soup in October and high demand in December and January. If the firm decides to
discount the product in October, the situation is likely to change, with some of the future demand
shifting to the month of October. The firm should make its forecast taking this factor into
consideration. Forecasting methods are classified according to the following four types:
1. Qualitative: Qualitative forecasting methods are primarily subjective and rely on human
judgment. They are most appropriate when there is little historical data available or when experts
have market intelligence that is critical in making the forecast. Such methods may be necessary
to forecast demand several years into the future in a new industry.
2. Time series: Time series forecasting methods use historical demand to make a forecast. They
are based on the assumption that past demand history is a good indicator of future demand.
These methods are most appropriate when the basic demand pattern does not vary significantly
from one year to the next. These are the simplest methods to implement and can serve as a good
starting point for a demand forecast.
3. Casual: Casual forecasting methods assume that the demand forecast is highly correlated with
certain factors in the environment (eg. The state of the economy, interest rate, etc.) Casual
forecasting methods find this correlation between demand and environmental factors will be to
forecast future demand. For example, product pricing is strongly correlated with demand.
Companies can thus use casual methods to determine the impact of price promotions on
demand.
4. Simulation: Simulation forecasting methods initiate the consumer choices that give rise to
demand to arrive at a forecast. Using simulation, a firm can combine time series and casual
methods to answer such question as: What will be the impact of a price promotion is? What will
the impact be of a competitor opening a store nearby? Airlines simulate customer buying
behavior to forecast demand for a higher fare seats when there are no seats available at the
lower rates.

There are fixed as well as variable costs associated with facilities, transportation, and inventories
at each facility. Fixed costs are those are incurred no matter how much is produced or shipped
from a facility. Variable costs are those that are incurred in proportion to the quantity produced or
shipped from a given facility. Variable facility, transportation, and inventory costs generally display
economies of scale and the marginal cost decreases as the quantity produced at a facility
increases. In the models we consider, however, all variable costs grow linearly with the quantity
produced or shipped.
Sun Oil is considering two different plant sizes in each location. Low-capacity plants can produce
10 million units a year whereas high-capacity plants can produce 20 million units a year as shown
in Cells H4:H8 and J4:J8, respectively. High-capacity plants exhibit some economies of scale and
have fixed costs that are less than twice the fixed cost of a low-capacity plant as shown in cells
I4:I8. All fixed costs are annualized. The vice president would like to know what the lowest cost
network should look like. Next, we discuss the capacitated plant location model, which can be
used in this setting.
Basic Approach to Demand Forecasting
The following basic, six – step approach helps an organization perform effective forecasting:
1. Understand the objective of forecasting
2. Integrate demand planning and forecasting throughout the supply chain
3. Understand and identify customer segments
4. Identify the major factors that influence the demand forecast
5. Determine the appropriate forecasting technique
6. Establish performance and error measures for the forecast
Each organization must use all six steps to forecast effectively.
· Understand the Objective of Forecasting The objective of every forecast to support decisions
that are based on the forecast, so an important first step is to clearly identify these decisions.
Examples of such decisions include how much of a particular product to make, how much to
inventory, and how much to order. All parties affected by a supply chain decision should be aware
of the link between the decision and the forecast.
For example, if Wal-Mart plans a promotion in which it will discount detergent during the month of
July, this information must be shared with the manufacturer, the transporter, and others involved
in filling demand as they all have decisions to make that will be affected by the forecast of
demand. All parties should come up with a common forecast for the promotion and a shared plan
of action based on the forecast. Failure to make these decisions jointly may result in either too
much or too little product in various stages of the supply chain.
Integrate Demand Planning and Forecasting Throughout the Supply Chain A Company
should link its forecast to all planning activities throughout the supply chain. These include
capacity planning, production planning, promotion planning, and purchasing, among others. This
link should exist at both the information system and the human resource management level. As a
variety of functions are affected by the outcomes of the planning process, it is important that all of
them are integrated into the forecasting process. In one unfortunately common scenario, a retailer
develops forecasts based on promotional activities, whereas a manufacturer, unaware of these
promotions, develops a different forecast for their production planning. As a result, the
manufacturer may not have enough products for the retailer, ultimately leading to poor customer
service.
To accomplish this integration, it is a good idea for a firm to have a cross-functional team, with
members from each affected function responsible for forecasting demand-and an even better
idea to have members of different companies in the supply chain working together to create a
forecast.
Identify Major Factors that Influence the Demand Forecast Next, a firm must identify major
factors that influence the demand forecast. A proper analysis of these factors is central to
developing an appropriate forecasting technique. The main factors influencing forecasts are
demand, supply, and product-related Phenomena.
On the demand side, a company must ascertain whether demand is growing, declining, or has a
seasonal pattern. These estimates must be based on demand-not sales data. For example, a
supermarket may have promoted a certain brand of cereal in July 2002. As a result, the demand
for this cereal may have been high while the demand for others, comparable cereal brands was
low in July.
The supermarket should not use the sales data from 2002 to estimate that demand for this brand
will be high in July 2003, because this will only be the case if the same brand is promoted again
in July 2003 and other brands respond as they did the previous year. When making the demand
forecast, the supermarket must understand what the demand would have been in the absence of
promotion activity and how demand is affected by promotions. A combination of these two pieces
of information will allow the supermarket to forecast demand for July2003 given the promotion
activity planned for that year.
On the supply side, a company must consider the available supply sources to decide on the
accuracy of the forecast desired. If alternate supply sources with short lead times are available, a
highly accurate forecast may not be especially important. However, if only a single supplier with a
long lead time is available, an accurate forecast will have great value.
On the product side, a firm must know the number of variants of a product being sold and
whether these variants substitute for or complement each other. If demand for a product
influences or is influenced by demand for another product, the two forecast are best made jointly.
For example, when a firm introduces an improved version of an existing product, it is likely that
the demand for the existing product will decline because new customers will buy the improved
version. While the decline in demand for the original product would not be indicated by historical
data, the historical demand is still useful in that it allows the firm to estimate the combined total for
the two versions. Clearly, demand for the two products should be forecast jointly.
· Determine the Appropriate Forecasting Technique: In selecting an appropriate forecasting
technique, a company should first understand the dimensions that will be relevant to the forecast.
These dimensions include geographical area, product groups, and customer groups. The
company should understand the difference in demand along each dimension. A firm would e wise
to have different forecasts and techniques for each dimension. At this stage, a firm selects an
appropriate forecasting method from the four methods discussed earlier-qualitative time series,
casual, or simulation. As mentioned earlier, using a combination of these methods is often
effective.
Establish Performance and Error Measures for Forecast : Companies should establish clear
performance measures to evaluate the accuracy and timeliness of the forecast. These measures
should correlate with the objectives of the business decision based on these forecasts. For
example, consider a mail order company that uses a forecast to place orders.
With its suppliers up the supply chain. Suppliers send in the orders with a two-month lead time
and the products are then sold. The objective of the order is to provide the company with a
quantity that minimizes both the amount of extra product left over at the end of the sales season
and any lost sales that would result if the product were not available. The mail order company
must ensure that the forecast is created at least two months before the start of the sales season
because suppliers take two months to send the ordered quantities.
At the end of the sales season, the company must compare actual demand to forecasted demand
to estimate the accuracy of the forecast. The observed accuracy should be compared with the
desired accuracy and the resulting gap should be used to identity corrective action that the mail
order company needs to take. In the next section, we begin by discussing the techniques for
static and adaptive time series forecasting.
· Time Series Forecasting Methods: The goal of any forecasting method is to predict the
systematic component of demand and estimate the random component. The systematic
component of demand data, in the most general form, contains a level, a trend, and a seasonal
factor. The systematic component may take a variety of forms, as shown following.
· Multiplicative: Systematic component =level x trend x seasonal factor
· Additive: Systematic component=level + trend +seasonal factor
· Mixed: systematic component= (level + trend) x seasonal factor
The specific form of the systematic component applicable to a given forecast will depend on the
nature of demand. Companies may develop both static and adaptive forecasting methods for
each form.
Static Methods: A static method assumes that the estimates of level, trend, and seasonality
within the systematic component do not vary as new demand is observed. In this case, we
estimate each of these parameters based on historical date and then use the same values for all
future forecasts. In this section we discuss a static Forecasting method for use when demand has
a trend as well as a seasonal component. We assume that the systematic component of demand
is mixed, that is,
Systematic component= (level + trend) x seasonal factor.
A similar approach can be applied for other forms as well. We begin with a few basic definitions:
L =Estimate of level at t=0(the depersonalized demand estimate during period t=0)
T =Estimate of trend (increase or decrease in demand per period)
S t =Estimate of seasonal factor for period t
D t =Actual demand observed in period t
F t =Forecast of demand for period t
In a static forecasting method, the forecast in period t for demand in period t + l is given as
follows:
F t +l= [L + (t + l) T] S t + l
We now describe one method for estimating the three parameters L, T, and S. As an example,
we consider the demand for rock salt used primarily to melt snow and produced by Tahoe Salt.
Tahoe Salt’s product is sold through a variety of independent retailers around the Lake Tahoe
area of the Sierra Nevada Mountains. In the past, Tahoe Salt has relied on estimates of demand
from a sample of their retailers but they have noticed that these retailers always overestimated
what they would purchase, leaving Tahoe (and even retailers) stuck with lots of excess inventory.
After meeting with their retailers Tahoe has decided to produce a collaborative forecast. Tahoe
Salt now has data on the actual retail sales
of their salt and they intend to work with the retailers to create a more accurate a more accurate
forecast with this data. This is the quarterly demand data for the last three years
From this we observe that demand for salt is seasonal with demand increasing from the second
quarter of a given year to the first quarter of the following year. The second quarter of each year
has the lowest demand of all quarter in the year. Each cycle lasts four quarters and the demand
pattern repeats itself every year. There is also a growth trend in the demand, with sales growing
over the last three years. The company estimates that growth will continue in the coming in the
coming year at historical rates. We now describe how each of the three parameters-level, trend,
and seasonal factors may be estimated. The following two steps are necessary to making this
estimation:
1. Deseasonalize demand and run linear regression to estimate level and trend.
2. Estimate seasonal factors.
Sun Oil is considering two different plant sizes in each location. Low-capacity plants can produce
10 million units a year whereas high-capacity plants can produce 20 million units a year as shown
in Cells H4:H8 and J4:J8, respectively. High-capacity plants exhibit some economies of scale and
have fixed costs that are less than twice the fixed cost of a low-capacity plant as shown in cells
I4:I8. All fixed costs are annualized. The vice president would like to know what the lowest cost
network should look like. Next, we discuss the capacitated plant location model, which can be
used in this setting.
b. Define supply chain management. (2 marks)
Supply Chain Management: In this era of competition among supply chains, the success of a
corporation is increasingly dependent on management’s ability to integrate the company’s
networks of business relationships. Supply chain management has been defined as the
integration of key business processes, from raw-material suppliers through end users that provide
products services and information.
Supply chain management makes use of a growing body of tools, techniques, and skills for
coordinating and optimizing key processes, functions, and relationships, both within the OEM and
among its suppliers and customers, to enable and capture opportunities for synergy. An OEM’s
competitive advantage is highly dependent on this integrated management function. Supply chain
management attempts to combine the best of worlds, the scale and coordination of large
companies with the low costs, flexibility, and creativity of small companies.
The focus of supply chain management must evolve in response to changing business
environments and evolving product life cycles. Different interactions among participants are
required during each phase of the product life cycle, from inception through recycling. The
supplies chains for products in new markets must be flexible to respond to wide fluctuations in
demand (both in quantity and product mix). Products in mature, stable markets require supply
chains that can reliably deliver products at low cost. Thus, effective supply chain management
must be responsive to these changing conditions to ensure that the supply chain evolves
accordingly.
For example, marketing excellence used to be the primary source of Procter & Gamble’s (P&G’s)
dominance of the consumer products industry. However, as P&G expanded its product and
service offerings in response to market opportunities, the increased complexity of these offerings
created difficulties in meeting the needs of retail partners and customers. Traditional marketing
strategies involving in-store sales and price promotions created great variations in product
demand. To meet heavy short-term marketing-induced peaks in demand, P&G invested in huge
manufacturing capacities, inventories, warehouses, and logistics capabilities.
In response to these problems, P&G modified its supply chain focus and remade itself through a
series of innovative initiatives. Working both internally and with suppliers and customers, the
company created a heralded partnership with Wal-Mart, virtually eliminated price promotions, and
streamlined its logistics and continuous replenishment programs. These initiatives reduced
variations and uncertainties in demand, thereby reducing the need for surge production capacities
and large inventories. Thus, by evolving their primary supply chain focus from marketing to
production, inventories, and logistics in response to changing business requirements, P&G was
able to reduce costs, meet customer demand, and build strong, coordinated relationships with
retail partners and customers.

Q.2 a. Find out the differences and similarities in wholesaling and retailing. (5 marks)

Ans: Wholesaling :Wholesaling refers to the activities involved in selling to organizational buyers
who intend to either resell or use for their own purposes. A wholesaler is an organization
providing the necessary means to:
1) allow suppliers (e.g., manufacturers) to reach organizational buyers (e.g., retailers, business
buyers), and 2) allow certain business buyers to purchase products which they may not be able to
purchase otherwise. According to the 2002 Census of Wholesale trade, there are over 430,000
wholesale operations in the United States.
While many large retailers and even manufacturers have centralized facilities and carry out the
same tasks as wholesalers, we do not classify these as wholesalers since these relationships
only involve one other party, the buyer. Thus, a distinguishing characteristic of wholesalers is
that they offer distribution activities both for a supplying party and for a purchasing party. For our
discussion of wholesalers we will primarily focus on wholesalers who sell to other resellers such
as retailers.
Retailing The term ‘retailing’ refers to ‘the activities involved in selling commodities directly to
consumers’.
Definition: Retailing consists of the sale of goods or merchandise for personal or household
consumption either from a fixed location such as a department store or kiosk, or from a fixed
location and related subordinated services.
Defined here as sales of goods between two distant parties where the deliverer has no direct
interest in the transaction, the earliest instances of distance retailing probably coincided with the
first regular delivery or postal services. Such services would have started in earnest once man
had learned how to ride a camel, horse, etc.
Why? When individuals or groups left their community and settled elsewhere, some missed
foodstuffs and other goods that were only available in their birthplace. They arranged for some of
these goods to be sent to them. Others in their newly adopted community enjoyed these goods
and demand grew. Similarly, new settlers discovered goods in their new surroundings that they
dispatched back to their birthplace, and once again, demand grew. This soon turned into a
regular trade. Although such trading routes expanded mainly through the growth of traveling
salesmen and then wholesalers, there were still instances where individuals purchased goods at
long distance for their own use.
A second reason that distance selling increased was through war. As armies marched through
territories, they laid down communication lines stretching from their home base to the front. As
well as garnering goods from whichever locality they found themselves in, they would have also
taken advantage of the lines of communication to order goods from home.
In commerce, a retailer buys goods or products in large quantities from manufacturers or
importers, either directly or through wholesalers, and then sells individual items or small
quantities to the general public or end-user customers, usually in a shop, also called a store.
Retailers are at the end of the supply chain. Marketers see retailing as part of their overall
distribution strategy.
Shops may be on residential streets, or in shopping streets with few or no houses, or in shopping
centers. Shopping streets may or may not be for pedestrians only. Sometimes a shopping street
has a partial or full rooftop to protect customers from precipitation. Online retailing, also known as
e-commerce, is the latest form of non-shop retailing.
Shopping generally refers to the act of buying products. Sometimes, this is done to obtain
necessities such as food and clothing; sometimes, it is done as a recreational activity.
Recreational shopping often involves window shopping (just looking, not buying) and browsing
and does not always result in a purchase.

b. What do you mean by supply chain integration? What are the costs involved in
integration? (5 marks)

Ans: Supply Chain Integration : Most OEMs no longer compete solely as autonomous
corporations. They also compete as participants in integrated supply chains. This revolution,
which is changing the ways products are designed, produced, and delivered, has the potential to
alter the manufacturing landscape as dramatically as the industrial revolution or the advent of
mass production. The focus is on changing nature of supply chains and efforts to optimize their
performance.
In the past, OEMs typically drove down the cost of purchased materials through aggressive
negotiations, imposing terms and conditions that minimized supplier profitability and often left
suppliers in a weakened condition. More recently, OEMs have begun to adopt a strategic
partnership approach, which recognizes that increased, sustainable benefits can accrue from
long-term relationships between participants in the supply chain (a win-win situation). This
approach considers total life-cycle costs over multiple iterations of a product, with the goal of
increasing mutual benefits for all participants in the long run.
Costs of Integration: The costs, complexities, and risks of fully integrating and managing a
highly integrated supply chain can be as substantial as the costs of integrating and operating a
corporation of comparable size. Thus, most supply chain integration efforts to date have been
very limited in scope. Some of the major costs are listed below:
· time devoted to managing, training, and support
· effort devoted to becoming a better customer
· investment in supply chain integration software and compatible information systems throughout
the chain
· Opportunity costs (i.e., investments in supply chain integration may necessitate foregoing other
business opportunities)
· risks of production stoppages
Because the extent of interconnectedness and interdependency makes highly integrated chains
increasingly vulnerable to disruptions, the risk of production stoppages should not be overlooked.
A highly integrated, interdependent supply chain that consists primarily of sole-source suppliers
practicing just-in-time manufacturing with minimal inventories is highly reliant on the timely
delivery of quality components and services. Failure by one participant to deliver can rapidly bring
other parts of the chain to a halt. This happens, on occasion, even to the best suppliers and
logistics providers.
Benefits of in Integration: The most sought-after benefit, or return on investment, in supply
chain integration is the cost savings that result from reductions in inventory. Inventories can be
reduced by increasing the speed at which materials move through the supply chain and by
reducing safety stocks. For example, if the costs of maintaining inventory are approximately 1
percent per month and if an integrated supply chain can reduce inventory levels by 30 percent,
the savings, shared among the participants, can be substantial.
Other potential benefits of supply chain integration are listed below:
· reduced friction, fewer barriers, and less waste of resources on procedures that do not add
value
· increased functional and procedural synergy between participants
· faster response to changing market demands
· lower cost manufacturing operations
· lower capital investment in excess manufacturing capacity
· shorter product realization cycles and lower product development costs
· increased competitiveness and profitability

· Integration Process: Integrating a supply chain is an incremental process, with priority typically
given to the highest potential returns on investment. Based on strategies, needs, and potential
returns, different priorities and approaches may be assigned to the supply chains of different
segments of a business. The integration process can be expensive and is, in many respects, an
exercise in resource allocation.
Many companies adopt an approach that begins at home and gradually works outward through
the supply chain. The first step is to make in-house improvements, such as inventory reductions
that can reduce working capital, warehousing, and transportation costs. An analysis of in-bound
logistics can often reveal opportunities for savings. From there, the integration effort expands
outward.

Q.3 Discuss the recent issues related to applications of information technology in supply
chain networks. (10 marks)
Introduction: Information is crucial to the performance of a supply chain because it provides the
basis upon which supply chain managers make decisions. Information Technology (IT) consists
of the tools used to gain awareness of information, analyze this information, and act on it to
improve the performance of the supply chain. Using IT systems to capture and analyze
information can have a significant impact on a firm’s performance. Information is the key to the
success of a supply chain because it enables management to take decisions over broad scope
that crosses both functions and companies. E-business is the execution of business transactions
via the Internet. Supply chain transactions that involve e-business include the flow of information,
product, and funds. The goal is to enable managers to analyze their supply chains to identify if
and how they can use e-business most beneficially.
Information Technology in Supply Chain: In modern management information has become a
central feature of management planning and control. Computers and information technology have
been used to support logistics and supply chain management for many years. The application of
information technology to the process of planning and control of supply chain activities (including
logistics activities) has grown rapidly with the introduction of microcomputers in the early 1980s.
Nowadays, information technology is viewed as the key father that will affect the growth and
development of logistics and supply chain management.
This section focuses on how information can make logistics and supply chain management
decisions more effective, considers the role of information management in the development of
supply chain strategy and then discusses the issues from an operational perspective.
Many firms today view effective management of logistics and supply chain activities as a
prerequisite to the achievement of overall cost efficiency and as a key to ensuring their ability to
price their products and services to meet and beat the competition. A logistics competency of a
firm technology is being used by leading edge firms to increase their competitiveness and
develop a sustainable competitive advantage. Capabilities relating to information system and
information technologies have been traditionally regarded as key strategic resources and
expertise in these areas is now thought to be the most valuable and essential of all corporate
resources. Hence there is a need for effective management of corporate information systems and
technologies which are highly relevant and most important to logistics and supply chain
management.
· Importance of Logistics and Supply Chain Information Systems and Information
Technology
i) Effective information management can help ensure that a firm meets the logistical needs of its
customers. Firms need to place priorities on logistical elements such as on time delivery, stock-
out levels, order status, shipment tracking and expediting, order convenience, order
completeness, creation of customer pick up and back-haul opportunities and product
substitution. The logistics managers are responsible for these activities and timely and accurate
flow of meaningful information enables them to successfully implement the same. The logistics
activities assist significantly in meeting customer needs and an accurate and relevant information
system can facilitate the logistics mission.
ii) Logistics information system combine hardware and software to manage, control and measure
logistics activities which occur within specific firms as across the overall supply chain.
Hardware includes computers and servers, Internet technologies such as barcode and RF
devices, communication channels and storage media.
Software includes system and application programs used for logistics and supply chain activities.
The ability to integrate and thus leverage the power of these technologies makes the firms more
successful than other firms which do not have such abilities.
iii) Companies need better information on their customers (such as customer service and sales
forecasting), information on their suppliers, (such as production planning and sourcing and
purchasing). Areas of technology systems including decision support system/information
technology and logistics management activities were not delivering needed information to the
management for making strategic decisions.
iv) The order processing system is the nerve center of the logistics and supply chain
system. A customer orders provides the communication message to set the logistics process in
motion. The cost and efficiency of the entire operation are impacted by the speed and quality of
the information flows. Slow and erratic communication can result in loss of customers or
excessive transportation, inventory and warehousing costs together with possible manufacturing
inefficiencies caused by frequent changes in the production line. The order processing and
information system forms the foundation for the logistics and corporate management information
systems.
v) Leading-edge organizations are utilizing computers-extensively to support logistics activities.
Computers are used in order entry, order processing, finished goods inventory control,
performance measurement, freight audit/payment, and warehousing. World class logistics
practices include use of logistics information systems as a key to competitiveness.
vi) Computer based decision support systems (DSS) support the executive decision making
process in logistics and supply chain management. To support time-based competition, firms are
increasingly using information technologies as source of competitive advantage. Systems such as
a quick response (QR) just-in-time (JIT) and efficient consumer response (ECR) are
integrating a number of information based technologies in an effort to reduce order cycle times,
speed responsiveness and lower supply chain inventory. More sophisticated application of
information technology such as decision support systems, artificial intelligence and export
systems are being used directly to support decision making in logistics and supply chain
management.
vii) Today, companies are restructuring their businesses to function in the new era of electronic
commerce. Organizations can have a deluge of information on dotcoms, business to business
requirements and online customer and supplier linkages. ERP systems, purchasing databases
and data warehouses, electronic data interchange (EDI), business to business electronic
commerce are recent developments which are applied in logistics and supply chain management.
· Drivers of New Supply Chain Systems and Applications
To be successful in the new visual e-based economy, even traditional companies are taking
notice of the need for new information systems. The next generation of systems will promote the
free flow of perfect information instantaneously up and down the supply chain. To survive in a
perfectly competitive market, firms need to develop fluid and swift supply chain having
competitive advantage in terms of speed and excellence of education. The drivers of new supply
chain systems and the new
e-economy are:
i) Internal and external strategic integration
ii) Globalization and communication
iii) Data information management
iv) New business processes
v) Replacement of obsolete systems and
vi) Strategic cost management
These are briefly discussed in the following paragraphs:
i) Internal and External Strategic Integration: As supply chain members work increasingly
together, it becomes necessary to integrate the different functions such as purchasing,
engineering manufacturing, marketing, logistics, accounting etc., which are internal to the
organization as well as between parties that are external to the organization (end customers, third
party logistics, retailers, distributors, warehouses, transportation provides, suppliers agents,
financial institutions etc.)
For the internal strategies to be effective, all members within the firm must use the same
information system which spans across business sites and functions. This can be accomplished
through a companywide enterprise resource planning system (ERP) that links these internal
groups together via a single integrated set of master records.
External integration refers to the systems which link the external suppliers and distributors to the
firm. It is needed to forecast demand and balance the levels of supply and demand at different
points in the supply chain. Internet linkages, network communications and electronic data
exchanges are example \s of systems used for external integration.
ii) Globalization and Communication: Firms require systems which enable them to carry out
their business in different culture and geographic and manage suppliers and customers all over
the world. Firms need to calculate total global logistics costs, increase leverage and component
standardization worldwide and improve communication of their strategies across global business
units and supply chain partners. Supply chain systems must be able to communicate in a variety
of languages even though English is the universal language of the internet.
iii) Data Information Management: Firms have access to new forms of servers,
telecommunication and wireless applications and software which increase the accuracy,
frequency and the speed of communication between suppliers, customers as well as internal
users. Information systems must be able to effectively filter, analyse and store abundant data to
enable effective decision making. It must be possible for the users to access data bases and
extract the needed information to make better supply chain decisions. This achieved through
systems known as data warehouses.
iv) New Business Process: In the final two decades of 20th century, many organizations went
through the process of business process reengineering (a form of restructuring) in an effort to
increase productivity and reduce costs. Along with this change, organizations adopted computers
and information systems to perform tasks which were performed manually earlier. Even after
these changes, business processes are constantly being changed to respond to a rapidly
changing environment. Such business processes include customer order management, supplier
evaluation and selection and new-product development. In this processes of change, firms can
create a “rapid response” capability which allows them to quickly adapt to their customers’
changing needs and control costs. Computer network and ERP are the information systems
which enable the firm to link these business processes efficiently.
v) Replacement of obsolete systems: Firms often adopted a “piece-meal” approach to system
usage such that each function such as purchasing, engineering, accounting etc., use its own
system which was not linked to other systems. Such systems are referred to as obsolete systems
or legacy systems which need to be integrated into a single enterprise-wide system used by
everyone in the supply chain.
vi) Strategic cost management: The complete supply chain cycle, from order fulfillment back to
purchasing and order payment, involves a large number of transactions between different
members of the supply chain. Firms used to automate the cost based on outdated cost
accounting systems in order to determine specific cost drivers behind different business
processes. But the new systems develop promise to automate data capture throughout supply
chain systems. This has automated the transactions that occur in the traditional procurement
cycle. This will reduce the costs of purchasing and logistics departments, and considerably
reduce inventory held in warehouses and stock rooms throughout the entire supply chain.