INDUSTRIAL DISTRIBUTION CHANNEL AND MARKETING LOGISTICS

Marketing Channel/Distributi on Channel/Trade Channel

A set of interdependent organisations that make a product or service available to customers for use.

Marketing Logistics/Physi cal Distribution

Consists of delivering the completed products to customers and channel intermediaries.

Factors Affecting the Nature of Industrial Channels

Geographic Distribution Channel Size Characteristics of Intermediaries Mixed System

Structure of Industrial Channel

Direct Channel
The manufacturers perform all the functions Approach is viable when: The value of each transaction is large The selling includes extensive technical and commercial negotiations at various levels The buying process lengthy The industrial buyers insist on buying directly from the manufacturers

Indirect Channel
The manufacturer and the intermediaries share the tasks between them. Approach is appropriate when: The value of transactions or sales are low The manufacturer has limited resources The industrial buyers purchase many product items in one transaction

Why Industrial Marketers use Intermediaries?

Buying Promotion and Selling Assorting Financing Warehousing Grading Transportation Information Risk taking Technical Service

Why Industrial Customers Buy from Distributors?

Dependable Delivery Information Variety Liberal Credit

Types of Industrial Middlemen/Intermediaries

Manufacturers Representatives Industrial Distributors(Dealers) Responsibilities Main Categories Brokers Commission Merchants Value-added Resellers(VARs)

Channel Design Framework

Channel
Objectives

Channel Constraints
Channel Alternatives Evaluation of Alternatives Selection of Channel

Channel Tasks

Channel Design Contd.

Developing Channel Objectives Analysing Channel Constraints: External Environment Competition Company Product Characteristics Customer Analysing Channel Tasks

Channel Design Contd.

Identifying Channel Alternatives Involves 4 major issues: 1. Types of intermediaries: Value Added Resellers Industrial Distributors or Dealers Manufacturers representative or Agents Brokers Commission Merchants 2. Number of Intermediaries: Selective Distribution Intensive Distribution Exclusive Distribution 3. Number of Channels 4. Terms and Responsibilities of Channel Members

Channel Design Contd.

Evaluating the Channel Alternatives: Economic Performance Degree of Control Adaptability to changing market situations Selection of Channel

CHANNEL ALTERNATIVE
Agent / Manufacturer's Channel

Company's Sales-Force Channel

Total Selling
Cost (Rs.)
Break Even Point

Sales Revenue (Rs.)

Managing Channel Members

Selecting Intermediaries Motivating Middlemen Partnership Concept Vendor (or Supplier) Managed Inventory System (VMI) Reasonable Discounts and Commission Distributor Councils Other Motivational Practices

Controlling Channel Conflicts

Sources of Channel Conflicts Differences in Objectives Dealings with Customers Differences in Interests Differences in Perceptions Compensation Unclear Territory boundaries

Evaluating Channel Members

Sl No Evaluation Factors Weightage Evaluation Middlemen Score

Sales Achieved vs Sales Quota

0.40

3.20

2 3 4 5

Customer Delivery Service Customer Complaints Market Feedback

0.20 0.15 0.10

6 6 5 4

1.20 0.90 0.50 0.60 6.40

New Customers Generated 0.15 Min Total Score = 6.0

Supply Chain Management:

A network of connected and interdependent organisations mutually and cooperatively working together to control, manage and improve the flow of materials and information from suppliers to end users FUNCTIONS: OBJECTIVES:
a) Reduce cost per unit for end customer b) Minimise order to delivery cycle time c) Reduce waste and duplication d) Ensure superior delivery service
a) b) c) d) e) Purchase Product Design Production Planning Production Processing Customer Orders f) Inventory Control g) Warehousing h) Material Handling i) Customer Service

Supply Chain Management Framework

Information Flow Cash Flow

Product Flow Distribu tion and logistic s

Suppliers of raw materials and compone nts

Planni ng and foreca sting

Purcha se

Product ion or Operati on

Custom er Service

Perfor mance and evalua tion

Business Custome rs or end users

Logistics Management
Planning and coordinating activities necessary to achieve superior levels of service at lowest cost. Logistics management optimises material flow within the organisation, while supply chain management extends material flow integration upstream to suppliers and downstream to customers.

Marketing Logistics/Physical Distribution

In business, logistics system has two major product movement:
1. Physical Supply 2. Physical Distribution

BUSINESS LOGISTIC SYSTEM

Physical supply
Raw materials Components Supplies

Industrial Manufacturer

Physical distribution

Material storage

Manufacturing

Finished Goods storage

Industrial customers Industrial Distributors/Dealers

TASKS OF PHYSICAL DISTRIBUTION

Sl No 1 Tasks Brief Description TRANSPORTATION It is the means of moving goods from production unit to customer. It is the most important cost area in physical distribution. WAREHOUSING It provides storage space for products which are made available to customer when needed. It can improve customer service & transportation cost. Inventory is used to insure the products are available to customers in the right product mix, at the right location, & at the right time. It provides protection to products & maintains product identity when products arrive at the market place. It increases speed & minimizes costs of order- picking, moving products between storage & transport carriers, loading & unloading operations.

INVENTORY CONTROL PACKAGING MATERIAL HANDLING

4 5

TASKS OF PHYSICAL DISTRIBUTION

Sl No 6 Tasks ORDER PROCESSING Brief Description It starts the physical distribution process & directs various activities which are necessary to deliver the products to customers. Speed & accuracy of order processing affect customer service & costs.

COMMUNICATION Information is exchanged between the countries physical distribution or marketing logistic department & its customer. It assist in performing various tasks.
FACTORY AND WAREHOUSE LOCATIONS CUSTOMER SERVICE Right locations of manufacturing plants & warehouse (or godowns) increase customer service & reduce transportation (or freight) costs. The result of physical distribution activities is customer service, it create customer value (or benefits) that has impact companies market shares, total cost & profitability.

Total Cost Approach

Focuses on balancing two important elements: 1. Total Distribution Costs = Freight + Warehouse Cost + Inventory Cost + Cost of Lost Sales due to delayed delivery 2. The level of service provided to customers (a) customers service need. (b) competitors service level. (c) companys profitable objective.

Determining customer service levels

Set the goals of customer services levels for each of the important service elements. Measure the actual performance for each service element. Analyse the variance between actual service performance and the goal. Take corrective actions to minimise the variances.

Elements of Customer Service

Customer service

Presale service
Advising Service Technical Service Ordering ease Patronage Awards

During- Sale service

Keeping Adequate stocks Speed and accuracy of delivery Product substitution

Post-sale service
Product warranty Maintenance contract Repair service Installation service Customer training

Impact of Marketing Logistics on Intermediaries

The industrial marketer can improve the performance of physical distribution in the entire channel system by taking the following steps: 1. Develop computerised information system that will link individual channel members to the manufacturers system. This will provide realistic sales and inventory of the channel members to the manufacturer. 2. Standardise packaging and material handling at all channel members to assist in efficient operations 3. The manufacturer and the channel members should improve the performance of their respective tasks or services. Thus the physical distribution must be integrated with channel members to improve marketing effectiveness.

Role of Marketing Logistics

Should be considered as a long term strategic issue. Considered as a source of creating a unique competitive advantage. Important role in future due to global competition, world wide sourcing, JIT system and TQM.