Distribution -AD (1)

7/31/2019 Distribution -AD (1)

1/170

1

Distribution

An over view

PROD

UCER

CUST

OMER

DISTRIBUTION


2/170

History

Manufacturer ------ selling directly to buyers.

Manufacturer------- selling in the weekly markets.

Buyers sourcing products as per needs only from above.

Retailers came into existence.

Since the requirement of customers was small, retailers stocked

enough products to meet the buyer's convenience.

2


3/170

Second phasestatus & shopping experience

Economic development lead to increase production & demandsituation started tilting towards the buyer.

Market Shifts to meet the buyers status and needs.

Beginning of competition.

Buyer started to look for better value for money. Purchase power of buyer increased.

Specialized retails emerged to carter to increased needs to differentsegments of buyers.

Better quality , premium brands , bargains , ambience etc.

3


4/170

Third Phase --- Back to convenience

Further economic boom lead to consolidation of markets.

Time constrain.

Buyers wanting quality, variety , convenience lead to

Supermarkets

Malls

Superstores

4


5/170

Development of retail industry

Increased outlets lead to retail outlet becoming morepowerful & demanding.

Trade offers became a part of life.

Specialties & one stop shops emerge.

5


6/170

Development of Suppliers

Develop new markets.

Develop new buyers.

Need to develop an efficient system of making the productsavailable.

Need for development of intermediaries --Channel Partners.

6


7/170

Channel Partners

are non company employees who help make the productavailable at the right time and right place.

7


8/170

DistributionProduction Market

Marketing

Sales

8


9/170

Channel Partners

C&F agents (carrying and forwarding agents)

Distributors Or Stockists.

Wholesalers.

9


10/170

What is a -- C & F

Stocks company products

Functions like a company office.

Does not have competitor products.

Delivers the company products.

Works as per company policy.

Implement company promo. activities.

Helps collect company dues.

10


11/170


12/170

What is a --Whole salers

Whole salers buy from companies authorised Distributors /Stockists.

Whole salers do not have any geographical exclusivity.

Wholesalers do have competitive lines and products.

Provide the reach that the company Distributors / Stockists donot provide.

Wholesalers normally do not provide redistribution service.

Sell mostly from there counter.

Work on low margins.

Income source is rotation.

12


13/170

Mother go downs / Hubs

Are owned and operated by the company. Used to maintain inventory of goods manufactured at factories

and TPOs.

13


14/170

C&F location & responsibilities

Located in Metros, state capitals, big cities and cater tovarious towns, cities in the specific area of operation.

Performs duties like carrying, storing, forwarding,

repacking, loading, invoicing, market returns, forwardingpromotional material to field staff.

Title of the good remain with the company.

Supplies only to companies distributors /stockists, super

stockists, sub stockists and to big retailers.

14


15/170

C & F - earnings

C & F is compensated a percentage of sales as commission forservices rendered.

Commission is general variable & generally decreases with

the increase of sales. Man power cost is born by the C&F.

Establishment cost is of the C&F.

Insurance of the stocks is companies responsibility. Howeverthe cost of insurance of the infra structure is of the C&F.

Incidental costs like printed stationary, postage, transportationcost for up country is cost to the company.

15


16/170

C&F Benefits / Concerns

Benefits

Does repacking of stocks as per the requirement of channelpartners at a nominal cost.

Relieves the company of capital expenditure cost.

Performs functions like logistics, few commercial duties & letsthe company concentrate on manufacturing, marketing &selling.

Concerns

Maintenance of quality and hygiene standards. Difficulty in adapting to companies vision and values.

Risk of theft, pilferage and in transit loss.

Rise in cost ofinsurance, handling cost.

16


17/170

Distributors --- location, earnings & responsibilities

Located in cities, towns, villages and cater to large number ofwholesalers , retailers.

They further divide the quantities in smaller lots as per therequirement of their customers.

Get a fixed percentage as earning. Some times get an additional incentives for driving sales.

Goods title is transferred to the distributors.

Need to give companies schemes to all customers.

Handle market returns as per companies norms. Maintain hygienic conditions while storing.

Pay to the company as per agreed terms.

17


18/170

Distributors -- Benefits / Concerns

Benefits

Offer wider reach of companies products.

Cater to customers regularly & timely.

Availabilities and accessibility. Provide credit to retailers, helping company to build stock at

retail level.

Provide wide coverage at the time of new launch.

Deploy companies visibility advertisements to retail outlets.

18


19/170

Distributors -- Concerns.

Indulge in price war with other distributors.

Cornering additional incentives aimed for retailers.

Resistance to change in ever changing market dynamics &increased competition.

Unethical practices smuggling stocks to other territories.

Creating artificial shortages.

Not communicating companies vision & policies to retailers,thus creating communication gap.

Indulging in arm twisting of companies due to strong unions.

19


20/170

Super stockists

Generally a big retailer or semi wholesaler who getssupplies from the companies distributor.

Earns by the parting of commissions done by distributor.

Pays upfront. Sometimes company bears the additional commission

given.

Facilitates the coverage and deeper penetration of

company stocks.

20


21/170

Sub stockists

Base at a location where villagers visit for their requirements.

Buys in small quantities and supply to small retailers in thevicinity.

Earns a fixed commission.

Gets company stocks from distributors.

21


22/170

Modern trade outlets

Organized retail outlets, stand alone super markets.

Generate a huge sales volume.

Due there huge potential companies have appointeddistributors to cater to these outlets.

22


23/170

Modern trade outlets Benefits & Concerns.

Benefits

Generate huge volumes, hence reduce distribution cost of the

company.

New platform for company to display there products. Help companies to further promote there products.

Better storage and dispensing conditions for products.

Concerns

Out flow of huge margins due to huge volumes.

With size power to dictate terms, which may not be good forthe company in the long term.

23


24/170

New Channel Development

Making products available at unconventional channels - likeBPOs , Call centers, Multiplexes, Music stores, Restaurants,

Coffee shops, Pubs, Lounges etc.

They generate growth for the company due to impulsivebehavior of the consumer.

24


25/170

Retailers

Last and the most important part of channel.

They are kirana stores', general stores, chemists shops,

pann shops, etc,.

They supply to the end consumer.

Maintain good inventory levels.

Hold stocks of competitors.

Have long term relation with there customers.

Offer credit.

Are influential and can substitute products.

25


26/170

Retailers-- Benefits & Concerns

Benefits

Offer wide availability of products.

Largely unorganised and have low bargaining power.

Work on low margins. Offer a platform to launch new products availability, displays,

trails by educating customers.

Concerns

Expect credit and hence put pressure on the bottom line ofcompany.

High sales and distribution cost.

26


27/170

Whole salers

Channel between the distributors and retailers.

Fill the gap left by distributors.

Cater to small retailers who are financially weak.

Buy in bulk and get better margin than retailers.

Part with margins to customers and retain a part of margins.

Primarily work on turn over.

27


28/170

Whole salers benefits & concerns.

Benefits

Facilitate better availability of reach of products.

Buy in bulk , hence boost companys top line.

Offer credit to small retailers.

Fill the gap left by company distributors.

Concerns

Indulge in price war & create disparity in the companysproduct.

Poor storing and dispensing conditions.

28


29/170

Selection of channel partner

Identifying a partner.

Applying selection criteria.

Appointment.

29


30/170

Identifying a channel partner.

Advertisement.

Field survey / Trade enquiry.

Existing Dealers.

Sales team recommendations.

30


31/170

selection criteria.

Short listing

Brands serviced. Experience. Companies associated

31


32/170

Selection criteria

EssentialCriteria

InvestmentCapacity

Area ofcontrol

Attitude ReputationFinancialstrength

32


33/170

Selection Criteria

SituationalCriteria

Storagespace

Location Infrastructure SalesForceCapability

33


34/170

Channel commitment

The trading parties need

High level of commitment.

Willing to consider each other needs.

Flexibility in business operations.

34


35/170

Benefits of commitment

To Company

Increased sales

Longer relationship.

Brand building.

Greater support.

To Dealer

Greater profitability.

Social Image

35


36/170

Motivation of Channel Partner

Motivation schemes

Performance linkedNonperformance

(relation ship)

Monetary Non Monetary Non Monetary

36


37/170

Non Performance (relationship) Schemes

Season greetings.

Personalized greetingsbirthday anniversary etc.

Appreciation( verbal / letter) Invitation to H.O.

Photographs

Dinner

Visit to shop Social visit on functions.

37


38/170

Relationship schemes

Hierarchy of the scheme on social image.

History of usage of non monetary incentive.

Hierarchy of channel member in the market. Companys image as per dealer.

Hierarchy of the person in the company implementing scheme.

38


39/170

Performance oriented schemes

Identifying schemes perceived as motivators.

Grouping of schemes with similar impact.

Identifying the influence of schemes. Develop guidelines to improve channel commitment.

39

M ti t h


40/170

Motivator schemes

Exclusivity. Training of sales team.

Market information. Joint advertisement. Involvement of target setting Shop displays. Customer education. Customer schemes.

Service to channel. Soft loans. Institutional business. Return on investment. Wide range of products. New product Launch.

Computerization of supply chain. Trade schemes. Settlement of complaints and claims. Information about company. Annual awards.

40


41/170

Grouping of schemes.

Schemes aimed at customer satisfaction.

Range of products of company.

New Products launch.

Consumer education

Sales promotion schemes.

41


42/170

Schemes aimed at System Orientation.

Schemes

Computerization ofsupply chain.

.

Service to customer.

Information ofcompanys activities.

Inventory management Continuousavailability

Customer Complaints

Settlement of claims

42


43/170

Schemes for support

Support of partnerBy offering

Exclusivity ofterritory

Market Information

-competition,-customer-reaction,

-products, etc.

Assuring minimumreturn on

investment

43


44/170

Alliance building schemes

Schemes

Institutional business.

Best selling practices.

Sales staff training.

Involvement in target setting

44


45/170

Schemes aimed at Goodwill

Trade schemes in line with product cycle.

Joint Schemes.

Shop Displays / Road shows.

Soft loans

Annual rewards

45


46/170

Concerns of schemes.

Dealers / distributors to carry increased inventory

Increased cost of inventory.

Carry forwarding of unsold inventory. Maintain separate accounts.

46


47/170

Appraisal of channel members.

Sales performance.

Servicing.

Financial discipline. Inventory maintenance.

Selling capacity.

Support to company.

47


48/170

Sales Performance.

Gross sales of products.

Sales per product.

Target achievement.

New products sales. Growth rate.

Local market share.

Growth over last year.

48


49/170

Servicing

Number of complaints handled.

Speed of disposal.

Customer retention rate.

49


50/170


51/170

Inventory maintenance.

Average inventory maintained.

Inventory to sales ratio.

Inventory turnover.

Ability to stock in emergency.

Off season stock.

51


52/170

Selling capability.

Technical knowledge & competence.

Sales people assigned for different products.

Behavior of sales persons.

Technical levels of sales persons.

Selling skills of sales staff.

52


53/170

Support to company.

Interest in the product.

Competition from other product with the dealer. Time given to company products viz. competition.

Support during sales campaign.

Support for display.

53


54/170

Appraisal Hidden aspects.

Financial status

Partnership issue.

Family concern.

Reputation.

Company Variables.

Social status.

54

Performance Vs. Action


55/170

Performance Vs. Action

Performance

Good Bad

Sustainable Unsustainable

Rewards / incentives

Controllable

Start withdrawal Willing to correct

uncontrollable

Identify development needs

Start withdrawal

Unwilling to correct

Start withdrawal

55


56/170

Performance

Controllable Non controllable

Financial status Company related issue. Reputation

Property division.

Social status.

Partnership break.

56


57/170

Channel Management , analysis & control

Required for company with high volume of sales & wide distribution

net work. FMCG , Pharma, liquor, Consumer electronics etc.

57


58/170

Issues related to Channel Management system

Manual billing and accounting.

Un willing to adapt to computerized billing procedure.

Considered complicated.

Need of skilled computer operator.

Increased expense.

58

Reports from CMS


59/170

Reports from CMS

Sales

All locations/Dealers

Specific Location/Dealers

Days reports

Till date for the month.

Payment

All dealers/channels

Specific dealers

Outstanding

Over due payments

Inventory reports

ALL dealers/

locations

Specificdealers

Hubs

Expense reports

Tour expenses.

Direct expenses

Administrativeexpense

59


60/170

CMS-implementation

HardwareUser friendly

software

Training of

dealers

Back end integration -- ERP

60


61/170

Benefits of CMS

Data available at HO instantly. Cost effective transaction with dealers. Low communication cost. Increased sales force productivity.

Better forecast accuracy. Reduced cycle time. Less late deliveries. Reactivation of dealers. Reduction in capital of dealers. Better return on investment.

Analysis of secondary sales data. Daily stock and sales data for analysis. Customer complaints addressed faster-customer satisfaction.

61


62/170

Channel Evaluation -concept

Effectiveness.

Efficiency.

Equity.

The --- 3 Es

62


63/170

Channel evaluation -concept

Effectiveness

Delivery of stocks to meet demandby partners

Stimulation of demand to reachthe optimum level

63


64/170


Efficiency

Productivity

Profitability

ProductivityOutput generated by input used

Profitabilityreturn on investment, liquidity, Salesand profits, growth potential, marketshare

64


65/170


Equity-Channels ability serves to solve problems

Market segments

Geographically isolated customers

Slow moving products

65


66/170

Channel evaluation - Dimensions

Efficiency

1. Cost of shifting goods.2. Cost of Storage.3. Cost of customer service.

Effectiveness

1. Environment impact ofbusiness conditions onchannel.

2. Organization Quality of

sales force.

Market fit-

1. Quality of goods.

2. Quantity of goods.

3. Customer buyingpattern.

Competitive fit

1. Competitive normsfor product line.

Strategic fit

1. Impact of shift onlong term plans inthe marketsegment

66


67/170


Beyond 3 Es

1. Identify the problems & causes.

2. What the organization should do to rectify the problem.

67


68/170

Channel Dynamics.---

Advertising- sales force - Channel

68

Process of selling


69/170

Process of selling

Process of selling

Obtaining demand Servicing demand Feedback

Prospecting Promoting Bulk Assortment

Storage

Credit & Service

Availability

69


70/170

Influences of Functional areas.

Sales forcemanagement

Channelmanagement

Advertisement

SellingStrategy

70


71/170

Roles

Sales force prospecting / promoting /educating the customer etc.

Channel Servicing the demand

71


72/170

Channel role

Receive orders from customers.

Deliver to stock to the customer at the right place and atthe right time.

Store material at different distribution locations. Maintain healthy relations with customer.

Receive feedback & forward to sales force.

72


73/170

Channel Design.

Of all the marketing decisions, the ones

regarding distribution channel are far mostfar- reaching. The company can revamp the

promotional programme, modify the productline. But once the company has set up itsdistribution channels, it generally findschanging them difficult.

73


74/170

Distribution network USHA international

Electrical shops

Specialized selling points for sewing machines.

Specialized air-conditioning & refrigeration dealerships.

Consumer durable shops. Specialized auto components dealerships.

74


75/170

Network of Usha

Manufacturer

Companyshow room

Distributor Special channels Direct mailMarketing.

Dealers Retail outlets Electrical trade Consumer durables

Consumer

75


76/170

Channel for Auto Lubricants

C&F

Petrol pumps

Stockist

Exclusive dealer Multi brand dealer

RetailerWork shops

Customer76

Ideal Channel


77/170

Ideal Channel

Challenges ----

1. Channel needs to be adopted depending on target

segments and positioning.2. Goals of channel members differ.

3. Alternates are available.

77


78/170

Ideal channel

Should include

1. Number of channel to use.

2. Levels in each channel.

3. Type of intermediaries.

4. Number of channel intermediaries at each level.

78


79/170

Ideal Channel

Target group

Buyers need

Retailers needs

Legal aspects

Distribution needs

Feasible alternatives

Reach

Function to bepreformed bythe channel

Product features

79

Internet as a channel partner


80/170

Retail.

Job portals.

E greetings.

Internet service provider.

Matrimonial services. E broking.

Travel.

Hotels/ cars/ tours

Classifieds.

On line market.

Mobile VAS.

E gamming.

80


81/170

Internet as a partner S.W.O.T.

Strengths1. Better inventory management.2. Convenience.3. Complete variety display.4. Customization.5. Better database.

6. Helps in information search.

Weakness

1. High delivery cost

2. High waiting time.

3. Lower penetration of internet.

4. Additional logistics chain

Opportunities

1. Well suited niche marketing.

2. Can hasten the process ofpurchase.

Threats

1. Channel conflict.

2. Low acceptance of internetfor payments.

3. Shopping experience isdenied.

4. No trial facility 81


82/170

Conventional channel vs. Internet

Existing1. Inability to maximize price.

2. Inability to take advantage ofshortage due lack of marketintelligence.

3. Lack of visibility of market price.

4. New buyer identification difficult.

5. High communication cost.

6. High sale process.

Internet1. Prices of product are higher due

to bidding.

2. E-selling bring buyers for allmarket on one platform.

3. Market facing shortage will havehighest biding. Auction providescomplete market price visibility.

4. Shorter buyers search.

5. Reduce communication cost.

6. Lower inventories .increased

sales frequency.

7. Lower process time for sale.

82


83/170

Channel Levels:

Length of a channel: No. of

intermediaries b/n producer & final consumer

Zero Level:

Manufacturer Consumers

Eg: Eureka Forbes, Readers Digest

One Level: Manufacturer Retailer Consumer

Eg: Maruti Suzuki dealers

Two Level:

Manufacturer Wholesaler Retailer Consumer

Eg: FMCG, White goods Three Level:

Manufacturer Dist. Wholesaler Retailer Consumer.

Eg: FMCG, White goods

83


84/170

Channel Dynamics:

Vertical Marketing Systems: (VMS) Producers, Wholesalers, Retailers etc. acting as a unified

system

Horizontal Marketing Systems: (HMS)

Two or more unrelated companies come togetherto exploit emerging marketing opportunity Eg: Banks & Car manufacturers tie-ups

Multi Channel Marketing Systems/Dual Marketing

Firms using two or more marketing channels toreach its customers Eg: Sale of airline tickets online as well as through agents

84

Channel Conflict & its management


85/170

g

Can happen at any stage in the channel management. Requires immediate attention.

Generally arises when the channel & company differ.

85


86/170

Types of conflict

Multi channel conflict. Channel compete amongst them self's.

Leads to decline of both channels.

Horizontal channel conflict. When two or more partnerscompete.

Leads to dilution of brand image.

86


87/170

Indications of channel conflict

Internal indicators.

1. Low channel productivity.

2. Deterioration of channel relationship.

3. Poor customer service.

External Indicators

1. Low customer satisfaction.

2. Reduction in support of product line.

3.

De-emphasis on brand.4. Competition for sale in the same geographical area.

87


88/170

Areas of conflict ---

Multi point contact with institutional buyers. (Rep / Retailers)

Direct contact of wholesalers & retailers with consumer.

Direct contact of wholesaler & retailer with C&F / Depot.

88


89/170

Identify the areas of Conflict

Channels competing with each other.

Channels serving the same customer.

Deteriorating profits of a channel member is leading toencroachment.

Will decline of channel harm the manufacturer?

Use decision making practice to solve channel conflict.

89

Conflict situations


90/170

Horizontal conflict

1. Conflict due to Multi brands outlets, exclusive showrooms,company showrooms

i.e.-- same merchandise available in all stores.

no exclusivity of territory of retailers.

Vertical conflict

1. Internet sales are conflicting with all channels.2. Company is selling directly to customers.

Customer satisfaction

1. Customers want high quality with competing price.2. Customer not shifting shop due to price difference.

90


91/170

How to resolve channel conflict???

ANY SUGGESTIONS ??

91

Conflict & Channel Efficiency


92/170

92

y

Can conflict increaseefficiency?Does conflictdecreaseefficiency?

Does conflict haveany affect?

How does conflictaffect channel

efficiency?


93/170

93

Effects of Channel Conflicts

1. Negative Effect

2. No Effect or

3. Positive Effect .

Effects of Channel Conflict


94/170

94


1. Negative Effect: Reduced Efficiency

As the level of conflict increases,

Channel efficiency declines



95/170

95


2.No Effect: Efficiency Remains Constant

Exists in channels characterized byhigh level of dependency amongmembers

Channel efficiency is not affected



96/170

96


3. Positive Effect: Efficiency Increased

Conflict might drive for eitheror both members to reappraise theirpolicies

Channel efficiency increases

Managing Channel Conflict


97/170

97

Managing Channel ConflictDetectingconflict

Appraising the

effect ofconflict

ResolvingconflictManagingConflict

Detecting Channel Conflict


98/170

98

g

Regularly survey other membersperceptions of firms performance

Perform marketing channel audit

Form distributors advisory councilsor channel members committees

OR

OR


99/170

Transport

Types

1. Rail

2. Road.

3. Air.

4. Water.5. Door to door service.

6. Courier.

99

Transportation Modes


100/170

RailCost-effective for shipping bulk products,

WaterLow cost for shipping bulky, low-value,

non perishable goods, slowest form.

Truck

Most important carrier for consumergoods, flexible.

AirHigh cost, ideal when speed is needed or

distant markets have to be reached

PipelineCarry petroleum based products,

very low cost, requires little energy.

p

InternetWeb sites have products available, used

especially for services.100


101/170

Routes of Goods

Goods atshippers

Freightforwarderwarehouse

Airterminal

planeair

Freight

forwarderwarehouse

Goods at

consignees

Containerterminal

vesselsea May

changetranspor-

tationmodes

truck

landrailway

land barge

mid-streampierbulk goodssea

101


102/170

Logistics

While distribution channel movesresponsibility and information through thechain.

Logistics covers the physical movement ofgoods.

102

Importance of logistics


103/170

Logistics amounts to > 10% of the cost of goods.

It impacts the quality of goods.

Facilitates marketing (ease in handling, storage, meets statuaryrequirements.

Economics in manufacturing can be increased by time andlocation shifts. E.g. food industry--

103


104/170

Principle of logistics

Larger the loadlesser the cost.

Effective logistics requires total cost to be considered.

Packed good to be carried for effective transportation &to reduce the cost. ( Container in rail & road transport.)

Improvement in Weight : Bulk ratio.

Higher the value : weight ratio TPT. Cost will be higher.

Vertical storage.

Optimum storage space utilization. Shortest route may not be most economical route.

104

Functions of logistics.


105/170

Packing & unpacking.

Breaking bulk.

Handling & collection of delivery material.

Documentation & transfer of ownership / insurance. Transportation.

Warehousing and storage.

Route planning.

105


106/170

Distribution & logistics.

The distribution system moves the responsibility andinformation through the chain.

Logistics system comprises of handling, storage,transportation, documentation, physical movement ofgoods.

106

Logistic process The stimulus to logistic process is the customer order.


107/170

What is required

Product, specification

Quantity & packing

Special features*

Delivery

When required

Whom to ship & destination

Mode of shipment

Price to be charged

Whether

(cost +Insurance +Freight)

WhetherFree at a particular point

Discounts andtaxes to be charged.

Documentation

Inspection report

Excise pass

Shippingdocuments

Mode of payment

Letter of credit

Documentsthru bank

Advance paymentOr credit

107


108/170

Inputs for logistics

Product

Material handlingfacilities

container / carrier

Product to be:-

1. Packed2. Marked

3. Certifiedfor shipping

108

The activities of Logistics


109/170

Handling

Storage

Transportation

Documentation

Demurrage

109


110/170

Output of logistics end result

Product delivered

At the right place At the right time In good condition

110

Th S l Ch i f M f t i C


111/170

13-111

The Supply Chain of a Manufacturing Company

Logistics Integration for Customer


112/170

Logistics Integration for Customer

Satisfaction, Distribution Cost, Control and

Customer Service

112

Customer Satisfaction


113/170


113

Logistics Integration forCustomer Satisfaction


114/170


Leads to customer satisfaction through superiorcustomer service.

Organizational objectives of P [Productivity],Q [Quality],C[Cost],D [Delivery],E [Employee Morale],F [Flexibility],S

[Safety],H [Health],E [Environment] are set to meetcustomer expectations of Q,C,D.

Q, C, S, H, E are parts of must be quality that a customerexpects. Logistics addresses D, F objectives which lead

to customer satisfaction through superior customerservice

114

How logistics lead to customerti f ti ?


115/170

satisfaction?

1. Rapid response

Logistics should ensure that the supplier is able torespond to the change in the demand very fast.

Entire production should change from traditionalpush system to pull system to facilitate rapidresponse.

IT helps management in producing and delivering

goods when the consumer needs them. Thisresults into reduction of inventory and exposes alloperational deficiencies.

115


116/170

2. Minimum variance Logistics is expected to minimize events like

delays due to obstacles in information flow, trafficsnarls, acts of god, wrong dispatches, damage intransit, thereby minimize and improve on OTD or

On Time Delivery3. Quality

If the quality of product fails logistics will have toship the product out of customers premises and

repeat the logistics operation again. This adds tocosts and customer dissatisfaction. Hencelogistics should contribute to TQM initiative ofmanagement.

116


117/170

4. Life cycle support- Logistics function isexpected to provide life cycle support to theproduct after sale. This includes

a) After sales serviceb) Reverse logistics or Product recall

117

a) After sales service: the service support needed


118/170

a) After sales service: the service support neededby the product once it is sold during its life cycle

b) Reverse logistics or Product recall as a result of Rigid quality standards [critical in case of contaminated

products which can cause environmental hazard]

Transit damage [leaking containers containing hazardousmaterial]

Product expiration dating

Rigid laws prohibiting unscientific disposal of itemsassociated with product [packaging]

Rigid laws making recycling mandatory Erroneous order processing by supplier

Reverse logistics is an important component of logisticsplanning

118


119/170

119

Distribution costs


120/170

Analysis of distribution cost may be made onthe following lines:

Product or Product lines Individual customers or Group of customers

Channels of distribution

Salesmen

Geographical area or territories

Terms of sales

Order sizes 120


121/170

Elements of Total cost in Physical

Distribution Systems

Total Distribution CostTDC = TC + FC + CC + IC + HC +

PC + MC

121


122/170

TC - Transport Cost

(Substantial Fixed Cost element) Capacity to match volumes

Centralised Distribution

Route Planning Optimal Schedules

Use of software

Railways, Airways ,Seaway cost

122

FC Facility Cost


123/170

FC Facility Cost Warehousing, capital cost and running cost

related to infrastructure and internalsystems to store and pick up stocks

Use of Information Systems, Electronic DataInterchange

Warehouse Management System like radiolinks. Reduction in wage bill Refer to HR

123

CC C i i C


124/170

CC Communication Cost Cost associated with communication

through the chain. These are administrativecosts

IC Inventory Cost Direct capital cost for goods purchased and

Opportunity cost for carrying inventory.These are cost associated with maintenanceand replenishment of inventory

124


125/170

HC Handling Cost

Cost associated with Damage, Pilferage,Deterioration of stocks

PC Packaging Cost

Repacking, shrink wrapping, pallets, boxes,containers, tapes, labels etc

125


126/170

MC

Management Cost Cost associated Management of the chain.

Ranging from security system to storageconditions to HR, Finance and almost

everything where managerial input isneeded

126

Control and Customer Service


127/170

127

Definition of Customer Service


128/170

Definition of Customer Service

Customer service is the fulfillment process, theprocess to meet consumer demand as a whole.

The process includes records requests manually

or electronically, payment, selection of goods,delivery and provision of goods, as well asproviding service to users of goods, alsoregulates the handling of goods returned to the

consumer at the time of complaint. Customer service is a process for providing

significant value added benefit to the supplychain in a cost-effective way.

128

Logistics planning in customer service


129/170

129

THE IMPORTANCE OFCUSTOMER SERVICE


130/170

CUSTOMER SERVICE

130

THE IMPORTANCE OF CUSTOMERSERVICE


131/170

Effect on Service Sales

Effect on Customer Service

- Increasing customer loyalty

- Maintain good relations with customers bycreating customer satisfaction.

- The cost of maintaining existing customers ischeaper than getting new customers (6X fold cost)

ServiceImprovement

Improvement:Volume Price

Reputation

IncreasedMarketShare

IncreasedProfit

131

THE COMPONENTS OF CUSTOMERSERVICE


132/170

SERVICE

Pre-transaction elements: customer service factorsthat arise prior to the actual transaction taking place

Transaction elements: the elements directly relatedto the physical transaction and are those that are

most commonly concerned with distribution andlogistics.

Post-transaction elements: these involve thoseelements that occur after the delivery has taken place

132

Pre-transaction elements


133/170

Is the determination of customer service strategies to beimplemented, provide a written record of customer servicepolicies. For example, specify how the item is sent afterthe order is received, set the procedure returns (backorder), and method of delivery so customers know whatservices will be obtained.

written customer service policy;

accessibility of order personnel;

single order contact point;

organizational structure;

method of ordering;

order size constraints;

system flexibility;

transaction elements.

133

Transaction elements


134/170

Is a determination concerning the implementation of the strategy

delivery of goods / products to the consumer. This element is adirect result of the delivery of goods to customers, manageinventory levels, and selecting means of transport.

order cycle time (cycle time from orders / d order received)

order preparation;

inventory availability;

delivery alternatives;

delivery time;

delivery reliability;

delivery of complete order;

condition of goods;

order status information.

134

Post-transaction elements


135/170

Determination procedure is performed services to support

products manufactured on the market. For example, toprotect consumers from defective products, providingreturns, guarantees reinstatement, warrants, and listeningto consumer complaints.

availability of spares; call-out time;

invoicing procedures;

invoicing accuracy;

product tracing/warranty;

returns policy; customer complaints and procedures;

claims procedures.

135

MULTIFUNCTIONAL DIMENSIONSof Customer service


136/170

of Customer service

1. Time usually order fulfilment cycle time;2. Dependability guaranteed fixed delivery

times of accurate, undamaged orders;

3. Communications ease of order taking,and queries response;

4. Flexibility the ability to recognize andrespond to a customer's changing needs.

136

CONCEPTUAL MODELS OFSERVICE QUALITY


137/170

SERVICE QUALITY

Service quality is a measure of the extent towhich the customer is experiencing the levelof service that he or she is expecting.

Service quality is that it is the matchbetween what the customer expects andwhat the customer experiences.

Service quality =nsExpectatioDesired100xePerformancPerceived

137


138/170

LOGISTICS

138

The Increased Importance of Logistics


139/170

A Reduction in Economic Regulation

Recognition by Prominent Non-Logisticians Technological Advances

The Growing Power of Retailers

Globalization of Trade

Three objectives of logistics strategy:

Cost reduction (variable costs)

Capital reduction (investment, fixed costs)

Service Improvement (may be at odds withthe above two objectives).

139

Management actions

Planning Implementation Control

Inputs into logistics

Outputs of

logistics

Components oflogistics management :


140/170

Marketing

orientation

(competitive

advantage)

Time and

place utility

Efficient

movement to

customer

Proprietary

asset

Natural resources

(land, facilities,

and equipments)

Human resources

Financial resources

Information

resources

Logistics Activities

Customer Service

Demand forecasting

Distributioncommunications

Inventory control

Material handling

Order Processing

Parts and servicesupport

Plant andwarehouse siteselection

Procurement

Packaging

Return goods

handlingSalvage and scrapdisposal

Traffic andtransportation

Warehousing and

Raw

materials

In-process

inventory

Finished

goods

Inputs into logistics

Suppliers

Logistics management

Customers

140

Logistics activities can be divided into three


141/170

gcategories:

ProductionStorageTransportation

The term Resource applies to all of the

factors of production, including materials(e.g., Iron, fabric, parts), equipment (e.g.,machines or vehicles), energy (e.g., oil,coal, electricity) and labor.

141


142/170

INVENTORY: Fundamental logistics questions are (1) when should a

resource (material, machine or labor) be put in inventory and takenout of inventory; and (2) where should a resource be stored.


143/170

The when question includes the general topics ofeconomic-order-

quantity models, safety stock models and seasonal models, andspecialized topics of fleet management, and personnel planning.

The where questions includes the topic ofinventory echelons.

Some of the important inventory questions are:

(a) How much does it cost to store resources in inventory?

(b) How much safety stock should be carried in inventory to preventagainst running out of a resource?

(c) How much inventory should be carried in order to smooth outseasonal variations in demand?

(d) Where should replacement parts be stored in multi-echeloninventory system?

143


144/170

Logistics - Science of managing (controlling) the movement and

storage of goods (or people) from acquisition to consumption.


145/170

Goods: Raw Materials Final products, and everything in between.

Logistics for services & people similar to goods logistics.

Ex. Police, fire, ambulance, passenger airlines, taxi cabs, etc.

Movement = Transportation (between locations).

Storage = Inventory, Warehousing (at locations).

Difference between acquisition and consumption is a matter of spaceand time.

NOTE: Logistics does not dealwith Technology of Production,such as the design of machines and vehicles and the design offinished products.

Focus: Best way to overcome space and time that separates acquisition

and consumption.

145

Five Business Systems - Tightly InterconnectedWithin The OrganizationManagement


146/170

MeasurementDecisions

ManagementSystems

RewardDecisions

StrategicDecisions

Transportation

Decisions

SourcingDecisions

InventoryDecisions

Logistics

Systems{Price

DecisionsPromotionDecisions

MarketingSystems

ProductDecisions

Place (How,where, how

much)

}ProductionScheduling

Decisions

ProductionCapacityDecisions

Shop FloorDecisions

Manufacturing

Systems}

ProductDesign

Decisions

ProcessDesign

Decisions EngineeringSystems}

146

Activities and Logistics Decisions


147/170

Transportationrate and contract negotiation

mode and service selectionrouting and scheduling

Inventoriesfinished goods policiessupply schedulingshort term forecasting

Warehousingprivate vs. publicspace determinationwarehouse configurationStock layout and dock designstock placementCross-docking

Facility Locationdetermining location, number

and size of facilities

allocating demand to facilities

Customer Servicedetermining customer wantsdetermining customerresponse to service changes

Materials Handlingequipment selectionequipment replacementorder picking procedures

Packaging designOrder Processing

order procedure determinationProduction Scheduling

aggregate productionquantities

sequencing and timing ofproduction runs

147

Logistics Planning

Decide what, when, how in three levels:


148/170

Strategic long range > 1 year

Tactical - < 1 year horizon Operational frequently on hourly or daily basis

Examples of Decisions

Type Strategic Tactical Operational

Location

Transportation

Order Processing(CS)

#Facilities, size,location

Mode

Selecting orderentry system

Inventorypositioning

Seasonal ServiceMix

Priority rules forcustomers

Routing

ReplenishmentQty and timing

Expediting orders

148

The Logistics (Strategic) Planning Triangle


149/170

Which mode?Which carrier?

Which route?

Shipment size andfrequency?

Where?, Howmany? What size?

Allocation?

Strategy/Controlsystem?

How much?

Where?

149

Transport Fundamentals

Most important component of logistics cost.Usually 1/3 - 2/3 of total cost


150/170

Transport involves equipment (trucks, planes, trains, boats, pipeline), people (drivers, loaders & un-loaders), and decisions (routing, timing, quantities, equipment size,

transport mode).

When deciding the transport mode for a given productthere are several things to consider:

Mode price Transit time and variability (reliability) Potential for loss or damage.

NOTE: In developing countries we often find it necessary tolocate production close to both markets and resources,while in countries with developed distribution systems peoplecan live in places far from production and resources.

Usually 1/3 - 2/3 of total cost.

150

Air

Rapidly growing segment of transportation industry

Single-mode Service Choices and Issues


151/170

Rapidly growing segment of transportation industryLightweight, small items [Products: Perishable and time sensitive

goods: Flowers, produce, electronics, mail, emergency shipments,documents, etc.]Quick, reliable, expensiveOften combined with trucking operations

Rail

Low cost, high-volume [Products: Heavy industry, minerals,chemicals, agricultural products, autos, etc.]Improving flexibilityintermodal service

TruckMost used modeFlexible, small loads [Products: Medium and light manufacturing,food, clothing, all retail goods]Trucks can go door-to-door as opposed to planes and trains 152

WaterOne of oldest means of transportLow-cost, high-volume, slow


152/170

Bulky, heavy and/or large items (Products: Nonperishable bulk

cargo - Liquids, minerals, grain, petroleum, lumber, etc )]Standardized shipping containers improve serviceCombined with trucking & rail for complete systemsInternational trade

PipelinePrimarily for oil & refined oil productsSlurry lines carry coal or kaolinHigh capital investmentLow operating costsCan cross difficult terrainHighly reliable; Low product losses

153

Transport Cost Characteristics Rail

High fixed costs low variable costs


153/170

High fixed costs, low variable costs

High volumes result in lower per unit (variable) costs

Highway

Lower fixed costs (dont need to own or maintain roads)

Higher unit costs than rail due to lower capacity per truck

Terminal expenses and line-haul expenses

Water

High terminal (port) costs and high equipment costs (both fixed)

Very low unit costs

Air

Substantial fixed costs

Variable costs depend highly on distance traveled Pipeline

Highest proportion of fixed cost of any mode due to pipeline ownershipand maintenance and extremely low variable costs

154

Vehicle Routing:


154/170

- Separate single origin and destination:Once we have selected a transport mode and have goods that

need to go from point A to point B, we must decide how toroute a vehicle (or vehicles) from point A to point B.

Given a map of all of our route choices between A and B wecan create a network representing these choices Theproblem then reduces to the problem of finding theshortest pathin the network from point A to B.

This is a well solved problem that can use Dijkstras Algorithm

for quick solution of small to medium (several thousandnodes) sized problems.

155

Vehicle Routing:

Multiple Origin and Destination Points


155/170

Suppose we have multiple sources and multiple destinations,

that each destination requires some integer number of truckloads,

and that none of the sources have capacity restrictions [No

Capacity Restriction].

In this case we can simply apply the transportation methodof

linear programming to determine the assignment of sources to

destinations.Sources Destinations

- Multiple Origin and Destination Points

156

- Coincident Origin and Destination: The TSP

Vehicle Routing:


156/170

If a vehicle must deliver to more than two customers, we

must decide the order in which we will visit those customers soas to minimize the total cost of making the delivery.

We first suppose that any time that we make a delivery tocustomers we are able to make use of only a single vehicle,i.e., that vehicle capacity of our only truck is never an issue.

In this case, we need to dispatch a single vehicle from ourdepot to n- 1 customers, with the vehicle returning to thedepot following its final delivery.

This is the well-known Traveling Salesman Problem(TSP).The TSP has been well studied and solved for problem

instances involving thousands of nodes. We can formulate theTSP as follows:

157

Questions about the TSP


157/170

Given a problem with nnodes, how many distinct feasible tours

exist? How many arcs will the network have?

How many xijvariables will we have?

How could we quantify the number of subtour elimination

constraints? The complexity of the TSP has led to several heuristic or

approximate methods for finding good feasible solutions. Thesimplest solution we might think of is that of the nearestneighbor.

158

Vehicle Routing: TSP, inventory routing, and vehiclerouting

Traveling Salesman Problem (TSP): salesman visits n cities ati i


158/170

minimum cost

vehicle routing problem (VRP): m vehicles with capacity todeliver to n customers who have volume requirement, timewindows, etc.

Inventory Routing: m vehicle to delivery to n customer withtime windows, vehicle and storage capacity constraints, and un-specified amount to be delivered.

Points to remember:

1. Load points closest together on the same truck

2. Build routes starting with points farther from depot first

3. Fill the largest vehicle to capacity first

4. Routes should not cross5. Form teardrop pattern routes.

6. Plan pickups during deliveries, not after all deliveries havebeen made.

159

Vehicle Routing


159/170

Find best vehicle route(s) to serve a set of orders from

customers.

Best route may be minimum cost, minimum distance, or

minimum travel time.

Orders may be Delivery from depot to customer. Pickup at customer and return to depot.

Pickup at one place and deliver to anotherplace.

160

Logisticscontribution to corporate goals


160/170

g

Revenues :: Positioning of stocks in locations forreliable & swift delivery for higher sales revenue.

Expenses :: Cost incurring activities viz- transportationwarehousing and inventory- to be considered in totality.

Capital investment :: for improved customer satisfactionand lower logistics cost

161

Core components for integration


161/170

To achieve channel integration managementmust design and implement a logistics

system which coordinates with thecomponents of the entire system, so as togive a given level of customer service, at theenquired cost.

162


162/170

JIT - just in time logistics system


163/170

Purchasing

Transportation.

Warehousing.

Inventory control.

Production.

Quality control.

164

Distribution cost


164/170

Time for which the inventory is held in transit.

The space required.

Ware housing cost.

Transportation cost.

Labour cost. Documentation cost ( Specially for international trade)

Damage & Claim

In bound & out bound logistics.

165


165/170

Cost control A managements perspective

Difficult to control issues involved.


166/170

Higher cost passed to customer. ( where freight & insurance is

charged extra) Major cost improvement comes from technology than

managements action.

Cost reductions not visible.

Value additions can be done in:-1. Reduction in delivery time.

2. Less errors , damages and losses.

3. Better packing, merchandising, training.

4. More effective attention to problems, maintenance, spareparts requirements and service

167


167/170

168

Channel Integration


168/170

Channel integration is not vertical integration, requiring ownership. It is streamlining physical and information flow by re-engineering the

distribution process.

It is achieved through range of information and telecommunicationtechnologies.

169

Linking sales & distribution


169/170

Sales management and distribution can not exist /operate / performwithout each other.

To achieve sales revenue , sales growth, sales management plansstrategies and action plan.

The distribution management executes these plans.

170

Role


170/170

Sales management Strategy for effective coverage

of markets & outlets.

Strategy to handle customer

complaints

Planning of local

advertisement and salespromotion

Distribution management--- Follow up call plan.

Make customer call productive.

Use multi channel approach

Prompt action at customer interfacelevel.

If problem persists-involve seniorsales & service people.

Coordination of distribution channels

Responsibility with distribution

channel. Expenses shared between company &