Distribution & Distribution System in India

The task of distribution is the proess whereby the demand identified has to be met with the required product or services through channelization of production ,stimulation and facilitation of the transaction.
It also involves the transfer of title along with the physical procurement of goods.

It is also important to assess how the distribution task is being performed in india.

This task can be undertaken by measuring the number of functionaries in each class, their organisation strucure and their capital structure.The margins charged by them would be a function of quantum of goods moved and the population served by them and services rendered by them and would also assist in the task of measuring their performance.The estimed number of functionaries in each class and type of market served by each of them is given as under:

Estimated number of DTEs(Directory trade establishments) by type of trade and loc Type of trade Sl.No. Rural Urban Combined

Number (1) 1 2 (2) Whole sale trade Retail trade (3) 46824 16520

% (4) 72.83 25.70

Number (5) 30380 43533

% (6) 38.51 55.19

Number (7) 77204 60053

% (8) 53.92 41.94

3
4 5 6

Commission agents
Auctioneers Other trade All trade

909
39 64292

1.41
0.06 100.0 0

4948
19 3 78883

6.27
0.02 0.00 100.00

5857
58 3 143175

4.09
0.04 0.00 100.00

Table gives estimated number of DTEs by type of trade and location. Total number of DTEs in the country, as estimated by the survey, was 1,43,175 of which 64292 DTEs (44.9%) were located in rural India and the remaining 78883 DTEs (55.1%) in urban India.

Among various types of trading establishments, wholesale trade had the maximum share (72.83%)in rural India so far as number of DTEs was concerned. However, in urban India, retail trade had the maximum share ( 55.19%) in total number of DTEs.

The share of commission agents in total number of DTEs was found to be 1.41% for rural India and 6.27% for urban India. The share of other trade was found to be 'nil" for rural India and negligible for urban India.

Distribution Logistics
The first task of the channel management is to develop a pathway or a team/network of merchants and agent business institutions for the flow of goods and services( and their titles) from the point of production to point of use.

Logistics means physical handling of products. The term physical distribution is also used in place of logistics.

The major elements of physical distribution are: Transportation Inventory Maintenance Order Processing Acquisition Protective packaging Warehousing Materials Handling Information Management

Physical distribution is the science of business logistics whereby the proper amount of right kind of product is made available at the place where demand exists.

Physical distribution is the link between manufacturing and utility creation.

Physical distribution involves the actual movement and storage of goods after they are produced and before they are consumed.

Warehousing
Warehouses are the godowns for keeping and storing goods and providing other related services in order to keep traders and or manufacturers to preserve the goods in a scientific and systematic manner so as to maintain their original value,quality and usefullness.

The purpose of warehousing in the distribution logistics is to arrange placement of products and to provide storage facility to store them, consolidate them with other and similar products,divide them into smaller quantities and to build up assortment of products.

Warehousing Functions and Objectives The basic warehousing functions traditionally have been considered to be as follows (Tompkins and White, 1984): receiving; identification and sorting; placing in storage; storage; retrieval from storage; order accumulation; packing; shipping record keeping.

In designing warehousing systems it is desirable to maximize space utilization; equipment utilization; labor utilization; accessibility of all materials; protection of all materials.

Storing goods in adequate space with the proper equipment by well trained personnel in a properly planned layout results in maximum protection of items.

The warehousing location could either be product oriented or market oriented. The following factors influence warehouse location: Product type Transportation cost Markets Rent Labour Supply Taxes Geography Competition

Inventory Management/Decision
The investment in inventory is very high in most of the undertakings engaged in manufacturing,wholesale and retail trade.The amount of investment is sometimes more in inventory than in other assets.A proper planning of purchasing, handling, storing and accounting should form a part of inventory management. An efficient system on inventory management will determine What to purchase? How much to purchase? From where to purchase? Where to store?

The purpose of inventory management is to keep the stock in such a way that neither there is overstocking nor under stocking. For proper management of inventory levels, two issues need attention and analysis.

Order Quantity: How much to order? Order Point: When to place the order?

Tranportation Decisions Transportation seeks to move goods from points of production to points of sale and consumption in the required quantity, at the right time and at a reasonable cost.

Modes of Transporatations

Roadways Railways Airways Seaways

Selection of Transportation mode

The following factors are considered while selecting a transportation mode:

The strengts and weaknesses of the company in terms of marketing,financial and production resources. The prevailing market characteristics,including the competitive scenario,geographical and territorial structure. Brand equity of companys products in the eyes of customers to bear with a stock out situation.

Product features and suitability to various trannsportation such as weight.size,shape etc. Quantity to be transported each time.

modes

of

Distance to be covered.
Total transportation cost of various modes of transportation.

Carrier performance in terms of speed,availability,flexibility,frequency,reliability,safety, claim settlement procedure and logistical service capabilities.

Total Distribution Costs

These costs are very much influenced by the interrelationships between the following categories of costs: Procurement costs Inventory carrying costs Transportation costs (i.e. freight, shipping insurance etc.) Management should develop an understanding of the trade-offs that must be made between the above categories. Changes in one element of the distribution system can have a dramatic, and often unexpected effect on other elements of the system and upon the system as a whole.

Trading companies aiming to change one or more elements should seriously consider to perform a costs analysis prior to any change and to assess the impact such change on other individual elements and upon the system as a whole by bringing together, the various types of distribution cost and the effects of proposed changes in one area of distribution.

Customer Service
Customer service is the provision of service to customers before, during and after a purchase.

Customer service is a series of activities designed to enhance the level of customer satisfaction that is, the feeling that a product or service has met the customer expectation."

Customer service provides a differential advantage to a firm and influences products price if customers are williing to pay more for better service.

Customer service is usually measured in terms of the

Level of product availability Speed and Consistency Communication between seller and customer

Availability:

Customer service is measured by the availability of inventory with in a specified order cycle time.
Order Cycle: It is important to understand the time gap between between the customers order placement and receipt of the product.The speed and consistency of the order cycle influence the amount of inventory held throughout the supply chain. Therefore, the speed and consistency of order cycle are the prime factors in channel design. Communication: It refers to firms ability to provide timely information to the customer about order status, order tracking, order confirmation, product substitution, product shortages and product information requests. The ability of channel members to provide good communication systems(Automated Information Systems) is a major factor in channel design.

Distribution Analysis, Control and Management

In case of physical distribution system, the three major components are.

Transportation A set of inventories A set of fixed facilities at which goods are stored

Each of these components has a major activity to perform or an objective to achieve.

For example-The transportation sub system has to achieve the objective of moving the goods to the consumption points through the shortest route with in the specified Parameters of time & cost.

The objectives of the physical distribution system can be any one of the following
Improve Customer service level at the present level of expenditure Reduce the costs while maintaining the present level of customer service

Pre transaction

Transaction

Post transaction

(i)Written statement of policy (ii) Statements in hand of customer (iii) Organisational Structure (iv) System flexibilty

(i) Stockout level (ii) Order Cycle (iii) Time (iv) Transportation,shipment

(i) Installation,Warranty, repairs (ii) Customer Claims (iii) Temporary replacement of products during repairs

Risk Return Analysis

Every independent businessman is interested in maximizing his returns and minimizing his risks. He calculates the return on the basis of return on the capital employed whereas he estimates the risk by . (a)deviation in his earnings on capital (b) the degree of effort required to achieve the mean earning (c) the degree of capital input he must make in order to get the desired return.

The concept of risk and return analysis is integral to the process of investing and finance. All financial decisions invlove some risk. You may expect to get a return of 15% per annum in your investment but the risk of "not able to achieve 15% return" will always be there.
Return is simply a reward for investment as all investments involve some risk.

The greater the risk, the greater the return expected.

The objective of risk and return analysis is to maximize the return by creating a balance of risk

For example, in case of working capital management, the less inventory you keep, the higher the expected return as less of your money is locked as asset.; but you also have a increased risk of running out of raw material when you actually need it for production or maintenance. Which means you loose sale. Thus all companies tries very hard to maintain the minimum level of inventory without affecting production.

Controlling Channel members

Controlling is the process of taking steps to bring actual results and desired results closer together It follows from the definition that in order to control..

Establish performance standards Measure the performance against these standards

To take corrective measures to correct any deviations

Control issues are nothing but control problems and may arise on account of any one of the three reasons

When the objectives of the firm and the wholesalers are not aligned

When the tasks are not clearly defined

When the intermediaries do not possess the required characteristics.

Problem Area__

The entire channel system might be functioning profitably yet an individual channel member may not be performing according to the accepted norms of the channel. In this case, we have to review and control the performance of this channel member otherwise the rest of the members may not perform as per the norms.

Therefore it becomes necessary to control not only the channel system but also individual channel members.

There exist three conventional methods for the purpose of controlling. These are contract, power and structure.

Contract Contract can be defined as An agreement enforceable by law. It may be in writing or oral or even implied. In relatively long term commercial relationships like channel contracts, the agreement is generally put in writing so as to impart clarity and avoid ambiguity. Power Power is another tool available for controlling the channel of distribution. Power arises out of dependency of one member with another such that either one of them or both members are capable of affecting the achievement of objectives of the other.

Reward Power(when the company decides to assign a greater sales quota for a particular retailer on a premium product in shortage)

Coercive Power(It is a sort of punishment given to the member i.e sanctions granted to a member are of a negative nature)

Structure The third tool available for control is the structure of the system and also the structure of the intermediary institution.

Longer the channel, lower the control

i.e larger the number of members lower the control.

It is for this reason, analysis begin with

Net Profit /sales X sales/Assets X Assets/Owned capital X 100

N.P/ SALESThis indicates profit margin made by the company on the sales made by the company SALES/ASSETS--- This indicates the capital employed as a base necessary to realize the expected sales.

ASSETS/OWNED CAPITAL----This indicates from where the money to be employed must come from.

Some of the other controllable variables are:

Inventory Turnover: Sales Turnover/Inventory------- This is very significant working capital ratio because it gives a brief idea about the operating cycle of the firm i.e how many times is inventory converted into sales during a particular year. Accounts Receivables This ratio tells us what quantum of money is outstanding and for how long.

Accounts Payable: This ratio gives us a clear picture of the amount of money payable and how often these payments have to be made.

For Analysing the labour productivity, we use the following ratios;

Turnover to Employees:Turnover/No.of Employees----This ratio indicates how many employees are required to achieve the given level of TURNOVER.

By helping us in predicting future employee relationship and For control purposes by knowing the T.O. per employee, we can compare with past performance.
Customer to Employees= No of Customers/No.of Employees This ratio indicates the number of employees necessary to serve a given set of customers within the geographical layout. Order to Employee Ratio= No of orders/No. of Employees

Establishing standards and control In order to control it is necessary to have some measure against which we can compare the performance. If we want to establish criteria for the purpose of control it is necessary to fully understand the purpose for which these standards have to be developed. Basically it is necessary to control CHANNEL STRUCTURE CHANNEL MEMBERS Therefore standards to be established should be capable of measuring the performance of the structure and performance of the individual channel members.

Factors affecting standards for CHANNEL STRUCTURE

1-Measurement of size of the potential trading area 2-sales potential for each trading area 3- Potential for product in any trading area 4- Salesman required to achieve this potential 5-Calculation of Cost 6-Comparison of real figure with budgeted figure Evaluation of channel members-already discussed(unit-I)