Presented by:Swati gupta

Swati khuranaSunil

Learning objectives1. Understand alternative channel

structures.2. Know types of industrial intermediaries.3. Understand steps involved in designing

a channel.4. Learn how to manage channel members.5. Understand concepts of supply chain

management, Logistics, and business logistics system.

6. Learn the tasks of physical distribution and total distribution cost.

Industrial channel structures include both direct and indirect channels.

Direct Channels. Examples are direct selling through company sales force and direct

marketing through on-line marketing, telemarketing and direct mail.

Direct channels are used typically when (i) Transaction value is large, (ii) Technical & commercial negotiations are held at various levels (iii) Buying process takes a long time (iv) Buyers want to buy directly from manufacturers.

  Indirect Channels. Consists of intermediaries like distributors / dealers,

manufacturer’s reps / agents, value-added resellers (VARs), brokers and commission merchants.

  Indirect channels are generally used when (i) Value of transaction /

sales is low, (ii) The manufacturer’s resources are limited,(iii) Customers are geographically dispersed, (iv) Buyers purchase many items in one transaction.

1. Industrial Distributors / Dealers. They perform many functions like buying, storing,

promoting, financing, selling, transporting and servicing certain geographic market, & are given discounts.

  Major categories are (i) General – line distributors, (ii)

Specialized distributors, and (iii) Combination house. 

2. Manufactures’ Representatives / Agents.

They perform functions like promoting manufacturers’ products / services, getting orders, and colleting market information. They are independent business firms, representing various manufacturers whose products complement one another but are not competitive.

  They are paid commission on the value of sales or

orders booked. They do not buy, store or finance transactions.

. Value-added Resellers (VARs) They are new type of intermediaries from computer

industry. They deal with computer hardware and software companies, customize the same to solve specific problems of buying firms. They are paid discounts.

 

4. Brokers They bring together buyers and sellers, when

information is not available completely. They represent either a buyer or a seller, and their relationship is short term. They do not buy products & services and are paid on commission basis.

 

5. Commission Merchants. They represent sellers / manufactures, mostly with

bulk commodities like raw materials, to perform functions like arranging inspection, transporting, negotiating and selling. They are paid commission on the value of sales.

CHANNEL DESIGN

It includes developing new channels and modifying the existing channels.  The procedure / steps are as follows; (i) Developing channel objectives; (ii) Analyzing channel constraints; (iii)Analyzing channel tasks; (iv) Identifying channel alternatives. These include the following issues : (a) Types of intermediaries. (b)  Number of intermediaries. (c)   Number of channels.  (v) Evaluating the channel alternatives. The criteria used are: (a)    Economic factor (b)   Control factor (c)    Adaptive factor  (vi)  Selection of the channel (s).

It includes :1. Selecting Intermediaries.2. Motivating Intermediaries.

(a)   Partnering relationships.(b)   Reasonable discounts and commission. (c)   Distributor councils.(d)   Other motivational tools.

 3. Controlling Channel Conflicts

(a)   Sources of channel conflicts.(b)  Controlling conflicts by

(i)   Effective communication network; (ii) Joint goal – setting; (iii) Diplomacy; Mediation; Arbitration. (iv) Vertical marketing system (VMS).

 4. Evaluating Channel Members

SCM includes activities of moving goods from raw material through operations to final consumers, as shown in “SCM Framework” below.

Main aims of SCM are (i) Reduce cost per unit, (ii) Reduce waste & duplication, (iii) Minimize order to delivery cycle, and (iv) Ensure superior delivery service. Firms adopting SCM gain competitive advantage.

The aims are achieved by a network of interdependent firms working together with partnering relationships to manage and control various activities, in order to improve flow of materials and information from suppliers to end users.

Firms involved in SCM are suppliers of raw materials & components, transporters, distributors, material handling & information processing firms.

Logistics Management (LM)LM plans and coordinates activities to achieve superior customer service levels at lowest costs. LM optimizes material flow within the firm, but SCM extends integration of material flow to suppliers’ suppliers and customers’ customers. For better understanding, see figure on “ business logistics system”, which has two product movement; physical supply and physical distribution.

Physical Supply Industrial Manufactuer Physical Distribution(or Marketing Logistics)

Marketing Logistics (or Physical distribution) consists of delivering finished products to intermediaries and customers.

TASKS OF PHYSICAL DISTRIBUTION (PD) PD tasks are :

(i) Transportation, (ii) Warehousing, (iii) Inventory Control, (iv) Customer Service, (v) Packaging, (vi) Material Handling, (vii) Order Processing, (viii) Communication, (ix) Locations of factory & Warehouses.

Total Distribution cost and customer service are balanced by

(i) Minimizing total distribution cost, or (ii) Total systems approach through maximizing profits.

  Total Distribution Cost = Transportation cost

(Freight) + Warehouse cost + Inventory cost + Cost of lost sales due to delayed delivery.

=Sa les R evenue - To ta l P hys ical D istributor C ost

C apita l Investm ent

A firm must minimize “total distribution cost”, instead of minimizing individual cost elements, to balance customer service and total distribution cost. Another approach, called “total systems approach or channel integration” focuses on “return on investment” (ROI). Here, a firm’s channel members work together to improve “customer service”, in order to get higher sales revenue.