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Distribution & Logistics Management - Presentation Transcript
1. Module 1 Distribution & Logistics Management
2. Introduction of Distribution Management
o Deals with the “place” part of the marketing mix.
o This aspect of marketing function provides place, time & possession utility to the customer.
o “ Distribution Management is the management of all activities which facilitates movement & co-
ordination of demand & supply in creation of time & place utility of goods & services”
Possession utility Place utility Time Utility
3. Need for distribution channels
o In the past all distribution related operations were undertaken by the company itself but with the
expansion of markets & population, the same became unmanageable.
o They realized that the intermediaries could do the job better at a much lower cost.
o The intermediaries are a link between the manufacturer & its customers.
o The intermediaries which includes all CFAs, distributors & retailers enable smooth flow of goods &
services at a certain margin to themselves.
4. Functions performed by the intermediaries
o Facilitation of search- End users are uncertain about where to find the goods & services they
want and the manufacturers are uncertain as to where to find their prospective clients. At times
also enables sales of less known brands
o Sort, Accumulate, Allocate& Assort the right kind of goods- Producers typically produces a large
number of variety of goods, whereas consumers only require limited quantity of wide variety of
goods!
o Routinisation of transactions- this helps in reducing the cost of distribution & increase the
efficiency
o Enables flow of information to both the buyers & the sellers to help them manage their business
better
o Reduction in the number of contact points
o To be aware of the environment in which they operate
5. Are intermediaries necessary?
o Companies like Dell & Amazon exist !
o Eureka Forbes is also a case in point !
o Normally, in case of a technical & complicated product the company may want to handle the
distribution themselves as the intermediary may or may not be able to learn as much as their
own salesperson
o A combination works better !
o A combination of direct & indirect distribution of godds & services generally works out better…
6. Discrepancies in distribution channel
o The distribution channel takes care of 4 discrepancies in the market place:
o Spatial discrepancy : Space difference b/w production point & consumption point
o Temporal discrepancy : Time difference b/w production point & consumption point
o Need to break the bulk
o Need to provide assortment
7. Distribution channel strategy
o Corporate strategy
o Marketing strategy
o Distribution strategy
8. Distribution strategy
o Distribution strategy deals with organizing & managing distribution functions. The same
includes :-
o Defining customer service levels
o Defining distribution objectives
o Outlining steps to achieve the above objectives
o Defining policy & procedure
o Stating KPIs
o Understanding CSFs
9. Overview of distribution channels
o A distribution channel is a group of people & firms involved in the transfer of title or ownership as
the product moves from the producer to the end user.
o The AMA defines the same as “ A structure of intra company organisation units & extra company
agents, dealers, wholesalers & retailers through which a commodity, product or service gets
marketed.
o Distribution channels can be broadly classified into :-
o Sales Channel- motivates buyers, shares information between the company and the customer,
negotiates fair bargains & finances the transaction
o Delivery Channel- consists of CFAs, CSA s ( Consignment Selling agents) also known as
facilitators.
o Service Channel -which performs after sales service
10. Types of channels
o CFA s & CSA s : are known as facilitators . Basically transporters who act as a mid way point
between the company & its distributors. Collect products from the company plant, store in a
central location for breaking bulk and dispatch to distributors against indents from the company.
Take physical possession but do not pay for it, the goods still belong to the company.
o CSA s act as CFAs but also sell goods in the market & remit the value of goods sold to the
company
o Distributors, dealers , stockists & agents : they are required to invest in products i.e. buy from
company, are on commission basis,, may or may not get credit from the company.
o Wholesalers : deal in large volumes, as margin is quite low, operate out of the main markets in
the city, deal with large no. of companies’s products & packs
o Retailers : are shopkeepers who set up shops in the market place
11. Patterns of Distribution
o Intensive distribution : make sure that the product is made available in as many outlets as
possible
o Selective distribution: only few select outlets will be permitted to sell company’s products
o Exclusive distribution: All the more selective, only one outlet in the market may sell the
company’s product
12. Basic channel flows
o All the functions performed by the marketing channel recognises three kinds of flows:-
o Forward Flow – from the company to the customers, basically goods & services
o Backward Flow -from the customers to the company, basically the value of goods & services
o Flows both ways -mainly Information
o The same is further broken to five kind of flows
o Physical flow of goods
o Title flow of goods- ownership, risk sharing
o Payment flows
o Information flow
o Promotion flow
13. Channel Formats possible
o Channel formats have been categorised into 4 types depending upon who drives the channel.
They are:-
o Producer driven
o Seller driven
o Service driven
o Others
14. Contd.
o Producer driven : Manufacturer tries to reach the product directly to his customer eg –Company
owned retail outlets, Licensed outlets, CSAs, franchisees.
o Seller driven : Manufacturer uses the wholesalers & retailers to reach the end user eg
departmental stores, discount stores, specialty stores, supermarkets etc
o Service Driven : CFAs, CSAs, transporters who “ facilitate” distribution
o Other formats : Multi level marketing system – Amway, Tupperware, Co-operative societies,,
catalogue shopping etc
15. Channel Levels
o The number of channel members decides the level of channel in operation.
o Zero level channel denotes direct distribution set up.
o One level channel consists of one intermediary only. ( retailer)
o Two level channel would have two intermediaries ( distributors then retailers)
16. What is the channel expected to deliver?
o Variety of products to suit customers needs
o Close to customer location
o Breaking bulk
o Speed to delivery
o Additional services
o Support for installation
o After sales service support
o Financing support
17. Prominent channel systems
o Vertical Marketing system (VMS) : corporate, administered & contractual
o Horizontal marketing system ( HMS)
o Multi- channel marketing system
18. Channel Design & Implementation
o Module II
19. Channel Design & Implementation
o The design of the channel involves two main elements:-
o Who shall be the members of the channel &
o How many of each type of channel member will be in the channel.
o ( channel intensity)
o A number of factors are to be kept in mind while designing the channel. Some of these factors are
:-
o Nature of the product or service being marketed
o The expectations/ “deliverables” from the system
o Location & nature of customers
o Nature of competition
o Intensity of distribution required
o Nature of the markets being targeted
o A marketing channel is required to add value to the product passing through it !
20. Channel Design & Planning Process
o Designing a suitable channel system requires defining customer needs, clarifying the channel
objectives, looking at alternate systems which can meet these objectives , cost of channel &
finally evaluating various alternatives to hone in on the ideal channel system.
o The process of channel design answers some of these questions :-
o What activities are the channel members required to perform? Which of these activities is to be
performed by which channel partner?
o How is the performance of these activities going to help company achieve its customer
satisfaction objective?
o The no. of channel members required in the network & of each category?
o How do we define the relationship between various channel entities?
21. Contd.
o Are the roles & responsibilities of the channel partners clearly defined so that there is no
ambiguities and they can perform their roles without constant reminders?
o Are all channel members clear about how they would get compensated for their services?
o Is the compensation plan fair to all channel members with regards to the task they perform?
o Are the channel members clear about how their performance going to be judged & by whom , at
what frequency?
o What is the risk of their performance being not upto the target ?
22. Stages in channel planning Segmentation Positioning Focus Development
23. Segmentation stage
o The most useful demand side insights for marketing channel design are not about what end users
want to consume rather how they want to consume the product/service being purchased !
o End –user channel preferences
o There is a need to identify not only what the consumer wants to buy but also how he wants to
buy.
o Clusters of customers on the basis of what each segment expects out of the channel is grouped
together.
o Different set of end users have different set of demands & that understanding & responding to
those demands create new business opportunities.
o For eg : a pharma company
24. End user prefences/ SODs
o Define customer needs : defined by the desired customer service levels expected out of channel
system.
o The same consists of Lot size , waiting time , choice to the customer , place utility & service
support.
o Lot size : convenient size
o Waiting time : time elapsed b/w the desire in the customer to buy the product & the time when
he actually buys it.
o Choice to the customer : Variety of products to choose from, assortment
o Place utility : depends on the intensity of the distribution
o Service support: after sales service ; matters quite a lot in case of industrial products e.g. Maruti
service centres
25. Contd
o Service Outputs :
o Are basically the benefits which the channel system passes to the end users.
o Other things being equal , the end user would prefer to deal with a channel system which gives
him greater service output.
o Louis Bucklin came out with the framework on the service outputs & specified four generic
service outputs :- a) Bulk breaking( more bulk breaking ; higher price to the end user)
o b) Spatial convenience
o c) Waiting/ delivery time
o d) Product variety
26. Segmenting the market by SODs
o Service outputs clearly differentiate marketing channels.
o Different group of end users value service outputs differently.
o The channel segmentation process should be such that it produces group of buyers who are
o Maximally similar within a group
o Maximally different b/w groups
o differ on dimensions that matter on building the distribution system
27. Positioning stage
o The activities or functions that produce the service outputs demanded by the end users are
called channel flows .
o Define the channel element which is required to service each segment.
o Need to decide which channel partner is “ ideal” to meet the expectation of different segments &
how many of them are required, basically the no. & type of intermediaries is decided.
o The sales manager also defines the service objectives & flows of each channel element
o There are eight generic channel flows : physical possession, Ownership, promotion, negotiation,
financing, risking, ordering, payment
28. Importance of positioning stage
o Identifying what channel flows are performed by whom and at what level is helpful in several
aspects :-
o 1) Helps the channel manager diagnose & remedy shortcomings in the provision of service
outputs.
o 2) Helps establish a new channel or revise an existing channel to minimize the cost of providing
desired service outputs
o 3) Helps in allocating profits equitably because…..
o Compensation in the channel system should be given on the basis of the degree of participation
in the marketing flows & the value created by the participation !
29. Focus Stage
o The sales manager decides which segment to be addressed as it may be impractical & expensive
to target all segments.
o There can be constraints such as those of the environment, managerial talent pool available &
competition.
30. Developing the right channel alternative
o The sales manager has to work out best possible alternatives in case a new channel needs to be
established
o In case an existing channel exists which needs to be modified , the sales manager needs to
identify the gaps which exist b/w the ideal channel & existing channel .
o Needs to take steps to minimize these gaps
31. Establish new channel
o The channel manager opts for a new channel if no channel exists currently in the market for a
particular segment.
o He needs to establish a channel design which comes closest to meeting the target market’s
demands.
o The same will be subject to the environmental & managerial bounds constraining the design
32. Refine existing channel
o When a pre existing channel exists in the market but is not that effective & productive, the
channel manager needs to perform a gap analysis.
o The difference b/w a zero based and the the actual channel on the demand &supply side
constitute gaps in the channel design.
o On the demand side, gaps mean that at least one of the service output demand is not being
appropriately met by the channel
o The SOD can be oversupplied or undersupplied.
o Supplying too much leads to higher prices to the end users
o Supplying too little will result in end users asking for more.
33. Contd.
o In a supply side gap at least one flow in a channel is carried out at too high a cost..
o This not only wastes channel profit margins but can also translate as higher prices for end users
which they are unwilling to pay. This is followed by a drop in sales and thus a fall in market share.
o Generally occurs due to lack of up to date expertise in channel flow management or simply from
wastage in a channel
34. Gap Analysis
o Zero based channel : A channel that meets the SODs & does so at the minimum cost of
performing the channel flows.
o A zero based channel may not exist or may seem difficult to build
o The Gap Analysis framework considers :-
o Sources of gaps
o Types of gaps
o Closing gaps
35. The gap analysis framework
o Sources of gaps
o Environmental Managerial
o Local legal constraints Lack of knowledge
o Local physical retailing infrastructure Optimization at a higher level
o Types of gaps
o Demand side gaps Supply side gaps
o SOS <SOD Flow cost too high
o SOS>SOD Which flow(s)?
o Which service outputs?
o Closing gaps
o Demand side gaps Supply side gaps
o Offer tiered service levels Change flow responsibilities of current channel members
o Expand- contract provision of SO Invest in low cost distribution technology
o Change segment(s) targeted Bring in new channel members
36. Channel Design Process
o Segmentation Positioning Targeting Establish
o new channels
o Refine existin channels
Segmentation * Define SODs by segment * Identify environment-al characteristic-s & constraints
Positioning * Define optimal channel flow performance for each Channel *Define optimal channel
structure for each segmento Targeting
o Choose
o segments to
o target to
o *Environment
o Bounds
o *Managerial
o Bounds
o *Competitive
o benchmarks
Establish new Channels * Channel flow Performance *Channel structure Refine existing Channels * Gap
analysis *Channel flow Performance *Channel structure Channel Design Process
37. Examples of channel systems Category of product Channel objectives Industrial/ technology Direct
marketing to a small no.of customers Consumer products Large no. of end users/intensive distribution
Frozen desserts/ ice creams Cold chain supported channel system Fertilizers, pesticides/ seeds Rural
based channel system Pharmaceutical products Requires different set of partners to handle doctors,
chemists, hospitals Multi level marketing Distributors to recruit more distributors House construction
items Distributors of hardware
38. Module 3 Channel Institutions
39. Retailing
o Retailing consists of activities involved in selling goods services to ultimate consumers for
personal consumption.
o Buyer is the ultimate consumer unlike an institutional or business purchaser.
o Buying motives for a retail sale is always personal or family consumption
o One needs to understand the differences in serving these different segments even though they
are served out of the same retail establishments.
o Retail success comes in many shapes, sizes & cultural origins.
o Most of the top retailers are transnational, crossing country borders to expand business.
40. Choosing a retail positioning strategy
o The retailer’s positioning strategy significantly affects its competitiveness & performance.
o Retailers make choices about cost-side & demand side characteristics of their businesses.
o On the cost side, the focus can be margin & inventory turnover goals.
o On the demand side ,the retailers choose what service outputs to their shoppers.
41. Financial & Cost- side Positioning: Margin & inventory turnover goals
o Traditional retailing (of high margin-low turnover)has transformed to modern retailing systems of
low margin & high inventory turnover & minimal service levels.e.g Home Depot, an advanced
retailer is able to combine low margin & high turnover with excellent personal service.
o A low margin- high turnover model orients towards generating higher operational efficiencies and
then pass on the savings generated to the customers.
o A typical retail package of low margin – high turnover format involves reduction in service output
levels
42.o Economic & operating drivers of various retail chain types
Economic drivers Chains Operating drivers Apparel speciality (e.g. The Limited) High gross margin High
inventory turnover Merchandise management,markdown control Merchandise management Discount.
E.g Wal mart Low operating expense High fixed asset productivity Low cost, high sales productivity
Low investment ;high sales productivity Category killer e.g Home Depot Low operating expense Low
cost, high sales productivity Departmental store e.g. Federated High gross margin Merchandise
management National Chain e.g. JC Penney High gross margin Merchandise management
43. Contd.
o One of the key decisions to take in a retail format is on which path to follow –low margin- high
turnover or high margin- low turnover?
o This plays a key role in making the company achieve its financial target.
o This appropriate pathway is guided through SPM i.e. strategic profit model
o The same influences margin & turnover dimensions of retail strategy
44. Some ratios used in SPM
o Net profit margin/profit margin/net margin :- This ratio is the percentage of sales dollars left after
subtracting the Cost of Goods sold and all expenses, except income taxes.
o Net Profit Before Tax Net Profit Margin Ratio = _____________________
o Net Sales
o Asset Turnover :- This ratio is useful to determine the amount of sales that are generated from
each dollar of assets.
o Asset Turnover = Revenue
o Total Assets
o Financial leverage :- gives an idea of the company's methods of financing or to measure its ability
to meet financial obligations
o Financial leverage = Total assets
o Net Worth
45. Contd.
o In a scenario of a slowdown wherein there is a huge pressure on margins, the company tends to
pursue asset turnover.
o Consequently, the emphasis comes more on sales per square foot ( reflects space & location
productivity) , sales per employee ( reflects labour productivity) & sales per transaction ( reflects
merchandising program productivity)
o Based on the same there are three interrelated measures of performance that help retailers
determine profitability, GMROI, GMROL, GMROS
o GMROI – Gross margin return on inventory investment- the same is gross margin percentage
times the ratio of sales to inventory ( at cost)
o i.e GMROI = Gross margin * sales to inventory ratio
o It’s basically a combination of margin management & inventory management
o Helps the retailer to evaluate inventory on the return of investment it produces & not just on the
gross margin percentage
46. Contd.
o To enhance the GMROI ,ECR initiatives like JIT, EDI linkages b/w manufacturers & retailers have
been adopted with the aim of reducing average inventory levels while maintaining sales.
o GMROL- gross margin per full time equivalent employee.
o The endeavour should be to optimize & not to maximize GMROL. An irrational increase in the
average sales force might reduce the average GMROL
o GMROS- Gross margin per square foot- is basically a measure which indicates how well the
retailers are using their unique asset i.e shelf & floor space allotted for supplier’s products.
o Measures like DPP & GMROI places pressure on suppliers to attend on issues like 1) gross margins
their brands permit retailers to earn, 2) the sales volume ( in units) their brand generate3)the
amount of shelf space/ floor space their brands occupy & 4) the costs incurred in storing handling
& selling their brands.
47. Demand side positioning
o The demand side positioning is essentially oriented on the SOD s which the retailer is trying to
address. Some of them are :-
o -Bulk breaking
o -Spatial convenience
o -Waiting & delivery time
o -Product variety
o -Customer Service possibilities
o Bulk breaking -one of the classic functions of a retail intermediary, allows the consumer the
opportunity to purchase in small units- BO GO, pricing of multiple units
o Spatial Convenience- products are generally classified as convenience , shopping,& speciality
goods. The extent of search shopping activity varies between the categories & the consumer
segments.
48. Contd.
o In the current environment location decisions are slowly being overpowered by convenience in
terms of speed & the ease to access
o Waiting & delivery time : consumer differ in their willingness to tolerate out of stock products
when they shop.
o The same also varies across different purchase occasions
o Retailers can respond to the demand for low waiting time by holding extra safety stocks , but the
same involves cost
o He needs to gauge how damaging to its business an out of stock occurrence will be
o Even the elapsed time in the store can be viewed as an element of total waiting & delivery time.
o A classic no waiting outlet is the vending machine. Sophisticated technology allows the vending
machine operators to track what is sold & when the machines are out of stock, thus maximising
sales potential, given the inherent impulse nature of vending purchases
49. Contd.
o Product variety: In retailing the service output of products is represented by two dimensions
breadth & depth.
o Breadth represents different classes of goods making up the product offering i.e the collection of
product lines
o Depth or assortment refers to the extent of product brands or models offered within each generic
product category.
o Discount stores generally don’t stock all brands thus have low assortment whereas a speciality
store would have a complete & deepest assortment of models , size, prices etc.
o The variety & assortment dimension of retailing operations demands the attention of top
management, because decisions in this area colour the entire picture of the enterprise.
50. Contd.
o All major retail innovations of this century have relied on manipulating the customer service
variable.
o Retailers can adopt “friendly” behind the counter sales assistant to help locate & compare
merchandise or offer an “ expert advice” enhancing the whole locate- compare-select process
o At times the savings that can be passed on to the consumer by eliminating certain kinds of in-
store assistance or improving the productivity of a downsized workforce are substantial.
o Customer service is a costly benefit to provide but retailers continue to invest in it because of the
substantial benefits it can generate.e.g. provision of shopping carts in retail stores.
o Such investments made in customer service does involve an expenditure on channel functions
but does takes a cost from the customer’s shoulders
Customer service
51. Strategic issues in retailing
o There are some major strategic issues faced by the retailers and the suppliers need to
understand the same
o An important consumer trend in the current environment is increasing importance of
convenience.
o Some of the major issues are pertaining
o increased levels of retailer power
o increasing reliance on private labels.
o emergence of power retailers ; category killers
52. Importance of convenience to consumers
o Convenience is measured by the time required to make a purchase, getting in & out of the store
& wherever applicable getting delivery of the purchase product.
o Shortage of time & increasing no. of working woman have fuelled an intense demand for
convenience
o In lot of surveys conducted, consumers are indicating that speed & convenience are more
important to them than price.
o When companies actually provide first rate service- bold, fast, unexpected, innovative &
customised they can achieve a remarkable differential advantage
o The drive to make life simpler, has spawned all sorts of convenience marketers.
o The time starved shopper prefers outdoor shoppingcentresanchored by superstores such as Wal
Mart or Sam’ s Club
o Delivering customer satisfaction at profit- the main goal of marketers is becoming difficult to
achieve.
53. Increased power of retailers
o Earlier the suppliers had an upper hand on the retailers but now the retailers tend to dominate
them. The reasons for this reversal are many & diverse
o The sales of most items normally sold through grocery, drug & mass merchandising chains have
not been growing rapidly. Competition has evolved into a market share game. Better prices
coupled with excellent locations , appealing stores & reasonable service have been the major
route of survival & success for the retailers.
o The supermarkets still remain the major outlets for packaged goods. Lot of other alternative
formats like warehouse clubs, deep discount drug stores and mass merchandisers have been
expanding at the expense of supermarkets.
54. Contd.
o Secondly, retailers are continuously concerned about increasing their productivity. Though it is
virtually impossible for grocery retailers to raise prices, but it is not impossible for them to reduce
costs.
o Thirdly, they are under immense pressure to evolve into profit centres rather than just being
concerned about inventory management. Now they need to be responsible for capital
management, service levels, turnover, retail margins and pricing, quality control, competitiveness
and variety, operating costs, shelf space & position & vendor float and terms .
o Fourthly, retailers have many products to choose when deciding what to stock on their shelves.In
the American market more than 30,000 new SKUs are introduced each year
o Thus retailers have abundance of new products from which to choose but the store sizes have not
increased significantly. The manufacturers’ bargaining power is further weakened because most
new products do not succeed.
o Fifth, information technology has has diffused throughout retailing to a great extent. It is now
virtually possible to capture item- by –item data through scanning devices, at their electronic
point of sales terminal. E.g UPC code
55. Use of UPC code in retail product replenishment :Wal Mart example
o The UPC is scanned .
o The SKU of the product is registered in Wal- mart’s data base,
o along with a description of product.
o 2. Item locator program
o If the store runs out of this UPC, wal-mart’s item locator
o Can find the closest store which has that SKU, stock can the be
o Ordered over phone.
o 3. Data transmission
o Data is a shared multiple times per day with Wal mart HQ
o Via satellite
o 4. Retail link
o Wal mart’s database is shared with2500 of it’s 10,000 suppliers.
o Sales history of the UPC is available with the manufacturer which helps
o Him product rescheduling.
o 5. Forecasting
o Collaborative forecasting & replenishment programs are carried out
56. Contd .
o Even suppliers have contributed to the influence of retail buyers. They engage in many many
allowances in “ bribing : their way to the retailers shelves. Some of these allowances are :-
o Forward buying on deals
o Slotting allowances
o Failure fees
o Payment for participation in newspaper inserts
o Deepest case allowances
o Highest possible payments for displays & shelf placements
o Guaranteed returns at full retail
o Manufacturer supplied labor for shelf sets etc.
57. Illustration of few
o Forward buying on deals
o Manufacturers experience wide swings in demand for their products from retailers when they use
trade promotions heavily.
o Temporary wholesale price cuts of one sort or another cause the retailer to engage in forward
buying i.e buying significantly more products than the retailer needs & stockpiling it until it runs
down again.
o Although this strategy clearly increases the quantity sold but it plays havoc with the cost prices &
manufacturer’ marketing plans .
o The increasing use of EDI technology has decreased the problem of forward buying somewhat.
CRP ( continuous replenishment programs) have been particularly useful to assess the reorder
level.
o A related problem is diverting. When manufacturers offer a regional trade promotion some
retailers and wholesalers buy in bulk & then distribute it in areas where the discount is not
available. This severely upsets suppliers’ efforts on tailor made marketing efforts for different
regions
58. Slotting allowances
o Manufacturers pay retailers funds known slotting allowances to receive space for new products
o Whenever a new product is introduced, the manufacturer pays the retailer extra amount for a “
slot” for a new product.
o The manufacturers argue that slotting allowances are deliberately kept high to prevent their
access to store shelf space, whereas the retailers argue that the manufacturers should also share
the risk of failure of new products.
o Failure fees
o Here the wholesaler usually imposes a fee whenever it has to pull a failing product from its ware
house. Generally a time period is allotted to a new product, if the same fails to reach a minimum
sales target, the fee is imposed.
59. Emergence of private branding
o Private labels also known as store brands have off late become very popular. E.g Marks & spencer
runs its own private brand under the label of St. Michael.
o Private labels are a way of generating loyalty to their store rather than to the manufacturer’s
brands.
o It also helps them earn extra profits because private label merchandise fetches higher gross
margins as compared to the branded merchandise.
o Increasingly “ private brands of large retailing companies are being positioned as the leading
brand in their assortment
60. Contd.
o Private brands are categorised into 5 basic types
o Store name identification program ( Products bear the retailers store name or logo. E.g Gap,
Benetton
o Retailers’ own brand name identity programs ( a brand image independent of the store name
that is available in only the company’s store e.g. Kenmore & Craftsman [ Sears]
o Designer-exclusive programs ( merchandise designed and sold under a designer’s name in an
exclusive arrangement with the retailer e.g Halston III [ JC Penney]
o Exclusive licensed name programs (celebrity-endorsed lines or other signature label lines
developed under exclusive arrangements with the retailer.e.g Allen Solly [Federated department
stores]
o Generic programs ( goods that are essentially unbranded)
61. Contd.
o Private label goods typically cost 10 to 20% less than other brands, but their gross margins are as
much as twice as high for non store brands
o The use of private branding has resulted in even greater power for retailer in the channel of
distribution in the following ways
o In this case there is more retailer’s initiative for fashion direction, trend setting & innovation
o Retailer is responsible for marketing to consumers as opposed to an orientation as a distributing
agent of the supplier
o There is more strategic concern on the part of many suppliers with marketing to important
retailers as opposed to the direct concern with the consume market.
o But private label management is not trivial for retailers.
o Many of them are uninspired in design, mainly because retailers have little talent on marketing
process.
o However retailers can clearly target those customers who seek value for money through private
labels
o If done well, they are formidable competitors to national brands, however if not executed
properly, the product design may soon become obsolete & the retailer may suffer.
62. “ Power retailing” & category killers
o Power retailing is not restricted to just one type of format. It incorporates speciality stores,
discount stores, electronc superstores etc.
o The attributes which make power retailing successful are :
o Willingness to take risks via market testing & trend forecasting
o Ordering early and selling merchandise in high volume with emphasis on increasing GMROI
o Investing large sums in information systems that can deliver instant sales trend data from
multiple locations
o commitment to deliver value
o Commitment to make shopping easier
o The assortment of some private labels are so deep that they have become known as category
killers.
o The assortment is generally very deep and low priced relative to traditional retailers.
o Customers don’t mind making special trips to purchase items and are overlooking the benefit of
one stop shopping convenience like Wal Mart, Target , Kmart etc.
63. Retailing Polarity: Price sensitivity or flight to quality
o Some of the major trends in retailing have contributed to an increased polarity in the retail trade .
o On one hand you have the emergence of tightly managed , limited line, highly focused specialty
chains like Gap, the body shop etc.
o On the other hand there is an aggressive growth of large discount stores happening which are
based on high turnover & low margins format.
o They rely on the state of art warehouse technology , EDI, SCM& self service to move mass
merchandise.
o Specialty stores are soon becoming classic examples of high touch marketing. e.g No Kidding,
Massachusetts based specialty toy store which is quite a contrast to mass merchandiser Toys “
R” U.
o A successful example on the high tech, warehouse technology side of retail spectrum is IKEA, the
Swedish retailer that operates one of the world’s largest volume furniture chains. It’s vision is to
offer a wide range of home furnishings of good design and function at very low prices so that
majority of the population can afford to buy.Offers child playrooms, baby changing rooms ,
Swedish restaurants.
o One of the main strategy of IKEA is that it sells furniture as unassembled in flat packs which is
able to reduce transport volume by 70 %
64. Emergence of Global retailing
o Though retailers have traditionally lagged behind other industries in the race to globalize
however now they are increasingly choosing to globalize their operations.
o The same is driven by factors such as slow growth in home markets & overwhelming
attractiveness of overseas markets that offer less intense competition & weakening barriers of
foreign market entry.
o However some difficulties do come up in expanding to foreign markets. E.g.
o Need for quality real estate locations
o Need to develop physical logistics operations comparable to home country
o Need to develop supplier relationships in new markets
o Differences in zoning, pricing, taxation, labor laws, hours of operation
o Need to offer local attractive products, packaged and positioned in a culturally sensitive manner.
65. Strategic responses by suppliers to growing power of retailers
o Some steps which the manufacturers have taken are :-
o Have taken up more channel flows & developed new channel technologies. E,g. VF corporation
o Change the role of price promotions in the total marketing mix to retailers & consumers
o Expand the product line to counteract the popularity of ever more upscale store brands
o Divest non marketing functions and redirect spending towards new product development &
marketing
o Expand the no. of channels used to distribute product in order to reduce dependence on few
retailers
o All these steps are directed towards building& maintaining value of their core brands. They use
innovations , new product development, increased investments towards brand equity rather than
consumer promotions and are using multiple channel judiciously n order to reach the market
66. Definitions Of Wholesaling
o Wholesalers buy and resell merchandise to retailers and other merchants and to industrial,
institutional and commercial users, but do not sell in significant amounts to ultimate consumers –
Cundiff & Still
o A Person or firm that buys merchandise and resells it either to retailers for subsequent resale to
the consumer or to a business firm for industrial and business use – Mason & Rath
o Wholesaling is concerned with the activities
o of those persons or establishments that sell
o to retailers and other merchants, and/or
o industrial, institutional and commercial users,
o but that do not sell in large amounts to final
o consumers – US Bureau of Census
67. Wholesaler in Channels Distribution
o Manufacturer to consumer
o Manufacturer to agent to consumer
o Manufacturer to retailer to consumer
o Manufacturer to wholesaler to retailer to consumer
o In B2B channel
o Manufacturer to business house
o Manufacturer to wholesaler to business house
o Manufacturer to agent to business house.
o Functions of wholesalers:
o Sales and promotion of chosen company products
o Buying the assortment of goods to be handled
o Breaking bulk to suit customer requirements
o Storage and protection of the goods till they are sold out
o Grading and packing of goods like commodities
o Transportation of the goods to the customers
o Financing the buying of the goods and extension of credit to the customers
o Bearing the risks associated with the business
o Collecting and disseminating market information to suppliers
68. Wholesaling Direct Intermediaries: Four producers each sell directly to six retailers, resulting in 24
transactions : A B C D 6 5 4 3 2 1 PRODUCERS RETAILERS
69. Four producers use the same wholesaling middleman, reducing the number of transactions to 10: A B
C D 6 5 4 3 2 1 WHOLESALING INTERMEDIARIES PRODUCERS RETAILERS
70. Features of Wholesalers in India
o They are usually located in the main markets
o Handle a large assortment of similar products
o They do not work for any particular company but sell the fast moving products and brands
o They operate on thin margins
o They try to negotiate quantity discounts from the companies selling to them. For competitive
reasons, they may even sell the goods by passing on the entire discount to retailers
o They keep a running account of the purchases made by their customers
o Whole sailing Functions for producer Suppliers:
o Order collecting and marketing agency for the producer. Collects orders from a large number of
small retailers and distributes goods in small lots which is uneconomical for the producer himself
to do
o The manufacturer is able to produce on a large scale as the wholesaler places truckload or
container load orders on the manufacturer
o Wholesaler places orders in advance. This ensures a great deal of sales certainty to the producer
who need not keep elaborate inventory or have stocks left behind
o The manufacturer can thus focus on quality and quantity to be produced
o Helps in maintaining price stability. Buys and sells even when the prices are high or low
71. Wholesaling functions for retailers and other customers
o By getting the stocks when required, he manages his own inventory well, thereby reducing the
risks of carrying extra stock
o Wholesalers deliver goods promptly – there is no waiting time. His customers need not place
orders in advance and wait for deliveries
o Wholesaler delivers the best value for the goods handled by him
o The retailers gets information about new products, promotions and the like in advance from the
wholesalers
o One stop shop for the retailer
o Reduces the gap by supplying goods as and when required
o Retailer is aware that the wholesaler is like a reservoir from where he can draw his requirements
quite frequently
o Classification of wholesalers:
o Wholesalers have been traditionally classified into various categories depending on the range of
functions they perform. A broad classification are as follows :
o Full service – stocking, selling, offering credit, delivery assistance are all provided. Company
distributors are a good example
o Limited service – the name indicates that the range of services are limited
o Merchant wholesalers – independent businesses which include distributors etc
o Brokers and agents – these people bring the buyer and the seller together and get the
commission out of all transactions
o Miscellaneous – include agricultural business, petroleum bulk handlers etc
72. Wholesalers tasks
o Assembling or aggregating the goods : the wholesaler is very clear on the requirements of his set
of customers. He knows the type, quality and quantity of the goods his customers need and
hence is able to place orders on his suppliers who are normally producers
o Warehousing of the goods
o Order booking and execution
o Transportation of the goods
o Financing of the business : the wholesaler has to provide finance for buying the goods he want to
sell.
o Risk bearing
o Providing market information
o Grading & packing
73. Major Wholesaling decisions
o Which markets to operate in : The focus has shifted from achieving large volumes at low margins
to getting profitable volumes even though margins in wholesaling continue to be low as they
have to be very competitive
o Manpower : In the case of company distributors who are charged with the responsibility of
redistribution, the staff recruitment is critical and has to be done to suit the company
requirements.
o Promotional support : The most common form of promotion is the passing on the price benefits to
their customers
o Credit and Collection : Extending credit has become a competitive necessity to retain customers.
The wholesaler is very selective about the extention of credit. In the case of institutional buyers,
a fixed period of credit is always part of the contract
74. Major wholesaling decisions (cont)
o Image and customer perception : Wholesalers are expected to sell at the best and lowest prices
and were earlier not associated with good quality. However this has been changed now while
continuing to give good prices, they also deal with quality products
o Warehouse location and design : The location has to be in the center of business district to
provide access to all his customers
o Inventory control : It has to be a fine balance between keeping optimal level of stocks and getting
the benefits of quantity purchases
75. Distributors/Dealers
o A distributor is a wholesaler nominated by a company to most times exclusively re-distribute the
company products to all retailers and institutions in a designated territory. He does not deal in
competitors products.
o Examples are :
o A distributor for Philips lighting division
o A distributor for L&T engineering division
o A dealer has a similar role of a distributor but has two differences :
o 1.He may not have a clearly defined territory and sells both in the market and from his shop
o 2. He may deal with competitive products also
o Examples are :
o A dealer for an edible oil company
o A dealer for garment brands
76. Expectations from the distributor
o Achieving sales targets in volume, value and brand packs
o Financial commitment for inventory &credit to be extended in the market
o Manpower – for selling and handling the office records and reports
o Developing new markets and new accounts
o Managing key accounts and institutional business
o Merchandising and displays in the market
o Secondary sales effort
o Effectively handling promotions and schemes initiated by the company
o Organising and participating in promotional events
o Assisting the company for new products
o Handling consumer quality complaints
o Payments and remittances to the company in time
77.o Most companies take a deposit from the distributor before appointing him
o The security deposit has to be paid as as demand draft and not a bank guarantee
o The quantum of the security deposit is a maximum of two weeks of the expected sales value
o The security deposit is to protect the company against any payment defaults by the distributor
Security Deposits
78.o The distributor is required to keep about ten pre-signed cheques with the company
o Every time the company dispatches goods to the distributor, the value of the goods is
immediately entered in one of the cheques and deposited into the bank account of company
o When number reduces to 2, he is required to send a fresh set of another ten blank cheques
o If any payment bounces, he is required to remit the value immediately by demand drafts
Payment by the distributor
79. Credit to be extended by the distributor
o In most markets, due to the intense competition between companies, the distributor has to
extend some credits to the customer
o The average credit period could be 15 days for retailers and 30 days for the institution
o Thumb-rule
o If the distributor is covering 100% of the outlets in the market, he would extend credit to about
50% of the outlets or about 60% of his revenue from the market
80. Investment in inventory and infrastructure
o The distributor is required to always maintain a certain level of the company goods in inventory
o Normally, in FMCG industry, this level of inventory is about 2 weeks of saleable physical stocks
o The term ‘saleable’ is important as any damaged stocks is not to be considered for this inventory
norm
o The sales people should constantly monitor this inventory holding and not let it go down for any
o The distributor also has to invest in a rented or own warehouse with a capacity for at least 1
month of average sales
o Also in manpower for selling, collections and keeping the accounts and suitable vehicle to operate
in the markets
81. Manpower
o The distributor should always have adequate number of salespeople to cover the market
o A THUMB RULE for deciding the number of salesmen are as follows :
o 1. Frequency of coverage of the outlets – some of the major outlets may have to be covered twice
a week, most of the outlets once a week and smaller may be once in a fortnight
o 2. Average of 40 outlets to be called on every day by the salespeople
o Whether the coverage is with ready stocks
o It is expected that at least 90% of the calls for the day are productive – some sales is done in
each outlet
o For running the office, keeping records, generating reports and banking, some persons are
required
82. Coverage of markets
o The territory of the distributor is defined by the company along with the distributor
o Once the territory is defined, the number of outlets to be covered in the territory would be known
o At the rate of 40 outlets per day and the frequency of visit, the total number of days required to
cover the entire market once is available
o A Beat plan is then drawn up
o The beat plan decides the day, frequency and the market to be visited and the number of outlets
to be covered each day
o The salespeople are required to cover every single outlet as per the beat plan every day and
make each call ‘productive’
83. Developing in Rural market
o Distributor is expected to develop all interior markets with in 20-25 km (beat plan)
o After he stabilizes his market area they can also expand the market ,the company salespersons
will also help the distributors
o When extending the market they should not enter the other distributors area
84. Outlet coverage
o There are three important task to be performed
o Width of distribution
o Depth of distribution
o Merchandising
85. Managing damaged stocks
o The distributors can take back the damaged goods from the retailers with the permission of sales
personnel
o All the damaged stocks cost to the company and have to be handled carefully
o Damaged stocks can be destroyed or disposed after getting permission from the company sales
personnel
86.o Distributor’s margins
o Company sells produuct at price ‘x’, he can sell to his customer at price ‘y’
o The difference between x and y is the margin
o The gross margin is normally 5% and net margin can be 2% to 3%
o Distributor’s return on investment
o Most FMCG companies expect their distributor to achieve a ROI of 30%,they even help to improve
the market.
o If they exceed ROI above 30%the company gives additional task to bring down the ROI
87. Reports /records to be maintained by distributor
o Records:
o Secondary sales achieved by pack-size in volume and value
o Stock level by pack-size at the end of each day
o Copy of all invoices for stock
o Copies of all cash memos for secondary sales made
o Bank pass book and list of cheque issued to the company
o Reports:
o Daily secondary sales report
o Daily stock report
88. Trends in Wholesaling
Price competition is still intense ( profit margins are low – between 1% and 2%)
Successful wholesalers must add value by increasing efficiency and effectiveness
The distinction between large retailers and wholesalers continues to blur
More services will be provided to retailers
More concerned with the customers
Using new technologies for better services
Modernising their warehouses and physical handling facilities.
Many wholesalers are going global
89. Future of wholesalers in India
o Companies still have limitations in their coverage. This has to be made up by wholesalers.
o There are many companies who can’t afford their own distribution network
o In food grains, fruits and vegetables only wholesalers can help move these goods from farm gate
to the consumer
o Big companies need wholesalers to get big sales volumes
o Wholesalers extend credit to their customers, which a company will never be able to match this.
90. Electronic Channels
91. Electronic channel defined
o Any channel which involves using internet as a means of reaching the end user or any channel
from which the consumer buys online.They are used both for B2B & B2C formats.
o Coordination challenges in electronic channels
o Channel conflicts do arise with the establishment of online channel along with a traditional
channel because of disintermediation.
o Online sales happen in mainly the following three situations
o a) The manufacturer itself creates an owned online presence in direct competition to the
standard channel.
o b) Manufacturer contracts to sell through third party pure play on line resellers
o c) The manufacturers products might get sold online because its retailers itself are into online
operations
92. Contd.
o In case a) the online sales and marketing effort , carries the potential of goal, domain &
perception of reality conflicts.
o Goal conflict arises as the manufacturer wants to maximise its profit over its totality of sales
channel, one of which is the on line channel.
o Domain conflict also arises because the manufacturer who sells on line may cannibalise directly
the consumers of the bricks and mortar channel. Thus domain conflict occurs over territorial
rights.
o The classic opportunity of free riding also is available. Domain conflict also occurs when the
consumer bought the product on line but tries to return the product to the bricks and mortar
outlet.
o Perception of reality conflict also emerges as for the manufacturer its just a mere expansion of its
reach in market whereas the retailer perceives him of trying to steal its customers.
93. Contd.
o In situation b) the classic dual distribution conflict occurs.
o Here again, the same type of goal, domain & perceptual conflict occurs .
o The two competing resellers generally have very different goals. Again a possibility of free riding
exists.
o However in this case unlike case a), the manufacturer does not have direct pricing or service
control over the on line channel. The same limits its ability to prevent conflict.
o In case c ) The on line reseller internalises at least partly the negative effects of aggressive online
competition on the bricks & mortar channel.
94. Demand side gaps in electronic channel
o End users have demand for the same service outputs ( bulk breaking, spatial convenience,
waiting delivery time, customer service, assortment & variety) in general but the expectation and
the context changes in an on line format
o On line format is viewed is more pleasant than fighting the holiday crowds at stores
o However, difficulty does crops up on issues like :- returning products, out of stock issues, delivery
time uncertainties, information security & price.
o On the SODs separately ;
o Bulk breaking : online resellers should be able to ship few units at a time to many addresses
versus the standard in retailer based channels of shipping many units at a time to few retailers.
E.g amazon.com
95. Contd.
o Spatial convenience : the spatial convenience of shopping at home simply cannot be beat by any
bricks and mortar retailer. However if the product needs to be returned the same spatial
convenience can become quite a pain.
o Waiting & delivery time : the same is not a major strength of on line resellers in many categories.
The waiting time becomes too long when delay happens in terms of loading & viewing the
screens because of poor internet speed. Interestingly, there is little the online reseller can do to
contain it.
o The second dimension of delivery time is the actual lapse that happens in delivery
o Assortment and variety can be vastly increased with online shopping over what is available at
standard bricks and mortar store. E.g Amazon . Com markets itself as “ Earth’s biggest selection”
offering 5 mn book titles
o Customer service A multidimensional offering. It includes both pre sales service and post sales
service.
96. Supply side gaps in electronic channel
o Injecting an on line element to the channel helps in reducing the cost of channel flows.
o Physical possession
o Promotion
o Negotiation
o Risking
o Ordering
o Payment
97. Franchise
98. Franchise
o A franchise is the agreement or license between two legally independent parties which gives:
o A person or group of people (franchisee) the right to market a product or service using the
trademark or trade name of another business (franchisor)
o The franchisee the right to market a product or service using the operating methods of the
franchisor
o The franchisee the obligation to pay the franchisor fees for these rights
o The franchisor the obligation to provide rights and support to franchisees
99.
100. Advantages
o “ Owning a franchise allows you to go into business for yourself, but not by yourself.”
o A franchise provides franchisees with a certain level of independence where they can operate
their business.
o A franchise provides an established product or service which already enjoys widespread brand
name recognition. This gives the franchisee the benefits of customer awareness which would
ordinarily take years to establish.
o A franchise increases your chances of business success because you are associating with proven
products and methods.
o Franchises may offer consumers the attraction of a certain level of quality and consistency
because it is mandated by the franchise agreement.
101. Contt…
o Franchises offer important pre-opening support:
o site selection
o design and construction
o financing (in some cases)
o training
o grand-opening program
o Franchises offer ongoing support
o training
o national and regional advertising
o operating procedures and operational assistance
o ongoing supervision and management support
o increased spending power and access to bulk purchasing (in some cases)
102. Disadvantages
o The franchisee is not completely independent.
o In addition to the initial franchise fee, franchisees must pay ongoing royalties and advertising
fees.
o Franchisees must be careful to balance restrictions and support provided by the franchisor with
their own ability to manage their business.
o A damaged, system-wide image can result if other franchisees are performing poorly or the
franchisor runs into an unforeseen problem.
o The term (duration) of a franchise agreement is usually limited and the franchisee may have little
or no say about the terms of a termination.
103. Types of Franchises
o There are two main types of franchises:-
o Product Distribution Franchises.
o Business Format Franchises.
104.o Product Distribution franchises
simply sell the franchisor’s products and are supplier-dealer relationships.
the franchisor licenses its trademark and logo to the franchisees but typically does not
provide them with an entire system for running their business.
The industries where you most often find this type of franchising are soft drink distributors,
automobile dealers and gas stations.
Some familiar product distribution franchises include:
Pepsi
Ford Motor Company
Although product distribution franchising represents the largest percentage of total retail
sales, most franchises available today are business format opportunities.
105. Business format franchises: Not only use a franchisor’s product, service and trademark, but
also the complete method to conduct the business itself, such as the marketing plan and operations
manuals. Business format franchises are the most common type of franchise. USA Today reported that
the 10 most popular franchising opportunities are in these industries: ◆ fast food ◆ retail ◆ service ◆
automotive ◆ restaurants ◆ maintenance ◆ building and construction ◆ retail—food ◆ business services ◆ lodging
106. Types of Franchise Arrangements
o Two types of franchising arrangements:
o Single-unit (direct-unit) franchise.
o Multi-unit franchise:
Area development.
Master franchise (sub-franchising).
o Single-unit (direct-unit) franchise
is an agreement where the franchisor grants a franchisee the rights to open and operate
ONE franchise unit.
This is the simplest and most common type of franchise.
It is possible, however, for a franchisee to purchase additional single-unit franchises once
the original franchise unit begins to prosper.
This is then considered a multiple, single-unit relationship.
107. Multi-unit franchise is an agreement where the franchisor grants a franchisee the rights to
open and operate MORE THAN ONE unit. There are two ways a multi-unit franchise can be achieved: 1.
An Area Development franchise or 2. A Master franchise. Area Development franchise A franchisee has
the right to open more than one unit during a specific time, within a specified area. For example, a
franchisee may agree to open 5 units over a five year period in a specified territory.
108. Contt.
o Master franchise agreement
Gives the franchisee more rights than an area development agreement.
In addition to having the right and obligation to open and operate a certain number of units
in a defined area, the master franchisee also has the right to sell franchises to other people
within the territory, known as sub-franchises.
Therefore, the master franchisee takes over many of the tasks, duties and benefits of the
franchisor, such as providing support and training, as well as receiving fees and royalties.
109. What Are The Legal Issues of Franchising?
o The two main franchising legal documents are the:
The Disclosure Document, which may be in the format known as the UFOC.
Franchise agreement.
o The UFOC
o The purpose of the UFOC is to provide prospective franchisees with information about the
franchisor, the franchise system and the agreements they will need to sign so that they can make
an informed decision.
o In addition to the disclosure part of the document, the UFOC includes the actual franchise
agreement as well as other agreements the franchisee will be required to sign, along with the
franchisor’s financial statements.
o The UFOC is designed to give you some of the information you need in order to make an informed
decision about investing in a particular franchise.
110.o The UFOC includes information about:
o The franchisor
o The company’s key staff
o Management’s experience in franchise management
o Franchisor’s bankruptcy and litigation history
o Initial and ongoing fees involved in opening and running the franchise
o Required investment and purchases
o Territory rights
o Responsibilities of the franchisor and franchisee
o Other franchisees in the system with contact information
111. The Franchise Agreement
o The franchise agreement is more specific than the UFOC about the terms of the relationship
between the franchisor and franchisee. A typical franchise agreement may include specifics
about:
o The franchise system, such as use of trademarks and products.
o Territory.
o Rights and obligations of the parties: standards, procedures, training, assistance, advertising, etc.
o Term (duration) of the franchise.
o Payments made by the franchisee to the franchisor.
o Termination and/or the right to transfer the franchise.
112. What are the Key Subjects in the Franchise Agreement?
o Use of trademarks.
o Location of the franchise.
o Term of the franchise.
o Renewal, termination and transfer of franchise agreement.
113. Contt..
o Franchisee’s fees and other payments
o Obligations and duties of the franchisor.
o Obligations and duties of the franchisee.
o Restriction on goods and services offered.
114. What are the keys to Franchise Success?
o Enough money.
o Follow the system.
o Don’t neglect family and friends.
o Be an enthusiastic franchisee.
o Recruit the best and treat them with respect.
o Teach your employees.
o Give customers great service.
o Get involved with the community—customers like to shop in places that support them.
o Stay in touch with your franchisor and other franchisees.
o Watch the details.
115.
116. Introduction of Company
o McDonald’s in India is a 50-50 joint venture partnership between McDonald’s Corporation [USA]
and two Indian businessmen.
Amit Jatia’s company Hardcastle Restaurants Pvt. Ltd. owns and operates McDonald's
restaurants in Western India.
While Connaught Plaza Restaurants Pvt. Ltd headed by Vikram Bakshi owns and operates
the Northern operations.
o McDonald's India opened its first family restaurant at Basant Lok in Oct, 1996.
Total Restaurents-175.
117. Franchise Rights Include:
McDonald's trademarks.
Restaurant decor designs.
Signage and equipment layout.
Formula and specifications for menu items.
use of McDonald's method of operation.
Inventory Control.
Accounting & Marketing.
118.o Business Model Franchise.
o Franchise Model – Only 15% of the total number of restaurants are owned by the Company.
o The remaining 85% is operated by franchisees. The company follows a comprehensive framework
of training and monitoring of its franchises to ensure that they adhere to the Quality, Service,
Cleanliness and Value propositions offered by the company to its customers.
o Product Consistency – By developing a sophisticated supplier networked operation and
distribution system, the company has been able to achieve consistent product taste and quality
across geographies.
o Act like a retailer and think like a brand – McDonald’s focuses not only on delivering sales for the
immediate present, but also protecting its longterm brand reputation.
119. What does the franchisee have to do?
In return the franchisee agrees to operate the business in accordance with McDonald's
standards of QSC&V.
The franchisee is expected to take a role in operating the business and to become involved
in local civic and charitable activities.
Throughout the franchise term the franchisee must only have one business interest -
McDonald's restaurants
120. Becoming a Franchisee
o Every McDonald's franchisee must successfully complete a training programme.
This takes around nine months full-time to complete.
o Franchise candidates are not charged for the training, but have to fund themselves during this
period.
Each franchisee has the constant support of a McDonald's Field Consultant who is always
available for help and advice.
121. Financial Requirements and Start-Up Costs
o An initial down payment is required when you purchase a new restaurant (40% of the total cost)
or an existing restaurant (25% of the total cost).
o The down payment must come from non-borrowed personal resources, which include:
Cash on hand; securities, bonds, and debentures; vested profit sharing (net of taxes); and
business or real estate equity, exclusive of your personal residence.
o Since the total cost varies from restaurant to restaurant, the minimum amount for a down
payment will vary. Generally, minimum of $300,000 of non-borrowed personal resources to be
considered to open a McDonald's franchise. Individuals with additional funds may be better
prepared for additional or multi-restaurant opportunities which McDOnald's encourages
122. Other Requirements to Open a McDonald's
o In terms of space: Minimum of 2,500 – 3,000 square feet carpet area on the ground floor with a
clear height of 11 feet and a frontage of at least 35 to 40 feet.
o Significant business experience - Individuals who have demonstrated successful ownership or
management of multiple business units or have managed multiple departments.
o Rapid growth - Individuals who possess the capability to grow rapidly with McDonald's.
o Business plan - The ability to develop and execute a business plan.
123. Contt…
o Good management skills - Commitment to personally manage the day-to-day operations of the
restaurant business.
o Training - Willingness to complete a comprehensive world class training program and become
proficient in all aspects of operating a McDonald's restaurant business.
o Exceptional customer experience - The capability to effectively manage an organization that
recruits, trains, and motivates restaurant employees who deliver an exceptional customer
experience.
o Good credit history - An acceptable credit history.
o Manage finances well - Ability to manage finances including a thorough understanding of
business financial statements.
124. Fees to McDonald's
o During the term of the franchise, you pay McDonald’s the following fees:
o Service fee - A monthly fee based upon the restaurant’s sales performance (currently a service
fee of 4.0% of monthly sales).
o Rent - A monthly base rent or percentage rent that is a percentage of monthly sales. McDonald's
usually owns the property and also acts as the landlord.
125. McDonald’s Supply Chain
o McDonald’s Supply chain is based on the three-legged stool concept : Company – Franchisees –
Suppliers
o Logistics
100 sales items in the restaurant
400 SKUs in the warehouse
200 restaurants per DC (~180 DCs globally)
Delivery frequency: ~3/wk, higher in urban areas
2-3 stops per route
Exclusive distributors (3PL)
Strong quality focus (Cold Chain, HACCP, QIP)
126.o McDonald’s took 4 years and around Rs 450 crores to set up the food supply chain even before
opening its 1 st restaurant.
o McD India has pioneered the cold chain management system.
o They provided assistance in the
Selection of high quality seeds
Drip-irrigation technology
Refrigerated transportation system
127. Suppliers Dist. Retai Customer Material Flow Supply Chain of its ingredients
128.o Trikaya Agriculture - Supplier of Iceberg Lettuce. successfully grows speciality crops like iceberg
lettuce, special herbs and many oriental vegetables. Farm infrastructure features:
o A specialized nursery with a team of agricultural experts.
o Drip and sprinkler irrigation in raised farm beds with fertilizer mixing plant.
o Pre-cooling room and a large cold room for post harvest handling.
A large cold room and a refrigerated van for transportation where the temperature and the relative
humidity of this crop is maintained between 1º C and 4º C and 95% respectivelyo Vista Processed Foods Pvt. Ltd. - Supplier of Chicken and Vegetable range of products. A joint
venture with OSI Industries Inc., USA, and McDonald's India Pvt. Ltd. Vista Processed Foods Pvt.
Ltd. produces a range of frozen chicken and vegetable foods. A world class infrastructure at its
plant at Taloja, Maharashtra, has:
o Separate processing lines for chicken and vegetable foods.
o Capability to produce frozen foods at temperature as low as -35 Degree Celsius to retain total
freshness.
o International standards, procedures and support services.
Supply Chain
129. Dynamix Diary - Supplier of Cheese. Dynamix has brought immense benefits to farmers in
Baramati, Maharashtra by setting up a network of milk collection centres equipped with bulk coolers.
Easy accessibility has enabled farmers augment their income by finding a new market for surplus milk.
The factory has:
o Fully automatic international standard processing facility.
o Capability to convert milk into cheese, butter/ghee, skimmed milk powder, lactose, casein &
whey protein and humanised baby food.
o Stringent quality control measures and continuous Research & Development.
Supply Chain
130.o Radhakrishna Foodland - Distribution Centre .
o An integral part of the Radhakrishna Group, Foodland specialises in handling large volumes,
providing the entire range of services including procurement, quality inspection, storage,
inventory management, deliveries, data collection, recording and reporting. Salient strengths
are:
o A one-stop shop for all distribution management services.
o Dry and cold storage facility to store and transport perishable products at temperatures up to -
22 Degrees Celsius.
o Effective process control for minimum distribution cost.
131. Supply Chain Process
132. SUPPLY CHAIN INTEGRATION
133. Project on KFC Franchise
134.o FRANCHISING: It is the practice of using another firm's successful business model
o Two parties come in a contract during franchising
Franchisor: upstream manufacturer of a product
Franchisee: Separate companies, downstream providers of marketing channel flows
Target Market for KFC Franchisee
o KFC targets the market of Urban and Sub-urban Areas.
o KFC: Kentucky Fried Chicken
o Target Market
o People want variety in their diet.
o High Income people
o Quality conscious People
o Population density is high
135.o Why Franchisee takes KFC Brand?
o Creditability
o Transferability of Knowledge
o Specialist
o Years of Experience
o Brand Name
o Management Backup
o Branding
o Advertising
o Name Recognition
o Reputation
o Expansion
o Limitations of KFC Franchising:
o Cost
o Price
o Control
136.
137. INFORMATION THAT KFC REQUIRES
o KFC Franchise may not be for every entrepreneur,
o However for this we would require some information on your property:
o • City:
o • Area in City:
o • Carpet Area of the property:
o • Frontage:
o • Floor:
o • Photographs:
o • Detail about the trade area:
o • Brands present in the vicinity
o • Other details which you feel would be relevant:
o Source:- Yum foods INDIA, gurgoan
138. Steps to buy KFC Franchise NOTE:- This process is to acquire franchise in INDIA
139. STEPS TO BE FOLLOWED…..
o Step 1
o Be prepared to own more than one franchise. Yum Brands focuses on multi-branding, which
means if you want to open a KFC, you'll need to also open another franchise to place alongside it.
You'll draw in groups of people who want a wide selection of food options. However, you'll need to
be willing to open a Pizza Hut, Taco Bell, Long John Silver's & A&W restaurant too.
o Step 2
o Consider owning multiple franchises on multiple sites. Yum Brands ideally looks for ambitious
entrepreneurs who want to own at least three KFC franchises. Desire and ability to purchase
more than one KFC franchise makes you more appealing to Yum Brands and also increases your
long-term income potential. Yum Brands will work with you to build up your KFC business.
o Step 3
o Plan to spend $1 million to $2 million on starting up your KFC and partner brand franchises. While
the franchise fees of KFC is less than many fast service restaurants, you must provide the
franchise fee for another Yum Brands franchise and supply equipment and overhead for the other
franchise too. You will need to find a third-party lender for your initial investment .
o NOTE:- This process is to acquire franchise in US
140.o Step 4
o Assess your finances to see if you meet the requirements KFC asks for. KFC requires franchise
owners to have a net worth of $1 million and liquid assets of at least $360,000. You must have
experience in food service or a partner with experience in food service.
o Step 5
o Contact Yum Brands if you meet the qualifications and interested in pursuing a KFC franchise. Go
to the Yum Brands franchising website and click on "Getting Started" to submit a
questionnaire and contact information.
o Step 6
o Wait about a month while Yum Brands assesses your qualifications to own a KFC and another
multi-branded franchise. You must have a draft of an operating plan by the end of this time
period, so begin working with accountants and business partners before you contact Yum Brands.
o Step 7
o Continue the process with Yum Brands towards your KFC franchise. If you're approved, interviews
will be set up with Yum Brands officials and Yum Brands can help you choose a site and a partner
franchise for your KFC franchise. The entire approval and planning process will likely take about a
year
141. Franchise Disclosure Document(FDD)
o Valuable document for prospective franchisees.
o It contains 23 items of information.
The Franchisor, It's Predecessors And Affiliates
Business Experience
Litigation
Bankruptcy
Initial Franchise Fee
Other Fees
Initial Investment
Restrictions On Sources Of Products And Services
Franchisee's Obligations
Financing
Franchisor's Obligations
Territory
Trademarks
Patents, Copyrights and Proprietary Information
Obligation To Participate In The Actual Operation Of The Franchise Business
Restrictions On What The Franchisee May Sell
Renewal, Termination, Transfer And Dispute Resolution
Public Figures
Earnings Claims
List Of Outlets
Financial Statements
Contracts
Receipt
142. Concept:KFC Delhi Initial Fees:20,25,000 Royalty Rate:5.5% of gross revenue payable to KFC
Advertising Fee:4.5% of Gross revenue payable to KFC national and local cooperative Note: these are
current figures Services Provided by KFC corporation to its franchisee Partners: Field supervision of
operation, including quality inspection. Management reports Promotion Management and employee
training National advertising Auditing and record keeping
143.o HUMAN RESOURCE POLICY IN KFC Hiring and retaining the right employees is critical to the
success of your restaurant's operation. Here you'll find news and research on getting the most
from your human resources processes. Area Manager : Area Managers are accountable for
providing coaching, leadership and operational support to 8-10 KFC Restaurants within a defined
Area. Restaurant General Managers: The Restaurant General Manager is accountable for creating
and running an energetic and valuable work environment, which is committed to serving the best
chicken at the fastest speed and with a smile. The Restaurant General Manager reports directly to
an Area Manager and is accountable for successfully implementing and maintaining all Company
policies and procedures in relation to operations, customer service, cash handling, marketing,
purchasing, human resources, health & safety, administration, training and development.
Assistant Managers: The Assistant Manager is responsible for assisting the Restaurant General
Manager (RGM) in creating an energetic and valuable work environment. Assistant Managers are
also responsible for ensuring all Company policies and procedures are followed in relation to
operations, customer service, cash handling, marketing, purchasing, human resources, health &
safety, administration, training and development.
144.o Trainee Managers: Trainee Managers help with day-to-day running of the restaurant, and need to
ensure that all operations, customer service, cash handling, marketing, purchasing, human
resources, administration and training & development policies are followed. Customer Service
Team Members: Responsible for working the service areas and ensuring quality product, service
and cleanliness is delivered to all customers at top speed and with a smile! Food Service Team
Members: Responsible for putting the crunch in the coating and the zing in the Zinger…the cook’s
main task is to prepare and cook the irresistible KFC products! The cook must also maintain the
cleanliness of the cooking area as well as the quality of product and speed of preparation.
o Material Flow in outlets:
o All suppliers adhere to Indian government regulations on food, health and hygiene while
continuously maintaining KFC's recognized standards.
o KFC's Quality Inspection Programme (QIP) carries out quality checks at over 20 different points in
the Cold Chain system.
145.o Suppliers:
o Triyaka Agriculture – Supplier of Iceberg Lettuce
o Implementation of advanced agricultural practices has enabled Trikaya to successfully grow
specialty crops like iceberg lettuce, special herbs and many oriental vegetables. Farm
infrastructure features:
o • A specialized nursery with a team of agricultural experts.
o • Pre-cooling room and a large cold room for post harvest handling.
o • Refrigerated truck for transportation
o Vista Processed Foods Pvt, Ltd.- Supplier of Chicken & Vegaetables
o A joint venture with OSI Industries Inc., USA, and KFC India Pvt. Ltd. Vista Processed Foods Pvt.
Ltd. produces a range of frozen chicken and vegetable foods. A world class infrastructure at its
plant at Taloja, Maharashtra, has :
o • Separate processing lines for chicken and vegetable foods. • Capability to produce frozen foods
at temperature as low as -35 Degree Celsius to
o retain total freshness.
o • International standards, procedures and support services
146.o Amrit Food – Supplier of Milk & Milk Products( Frozen Desserts)
o Amrit Food, an ISO 9000 company, manufactures widely popular brands - Gagan Milk and Nandan
Ghee at its factory at Ghaziabad, Uttar Pradesh. Its plant has:
o • State-of-the-art fully automatic machinery requiring no human contact with product, for total
hygiene.
o • Installed capacity of 6000 litres per hour for producing homogenized UHT (Ultra High
Temperature) processed milk and milk products.
o • Strict quality control supported by a fully equipped quality control laboratory.
o Dynamix Diary –Supplier of Cheese
o Dynamix has brought immense benefits to farmers in Baramati, Maharashtra by setting up a
network of milk collection centres equipped with bulk coolers. Easy accessibility has enabled
farmers augment their income by finding a new market for surplus milk. The factory has:
o • Fully automatic international standard processing facility.
o • Capability to convert milk into cheese, butter/ghee, skimmed milk powder, lactose, casein &
whey protein and humanised baby food.
o • Stringent quality control measures and continuous Research & Development
147.o Radhakrishna Foodland – Distribution Centre
o An integral part of the Radhakrishna Group, Foodland specialises in handling large volumes,
providing the entire range of services including procurement, quality inspection, storage,
inventory management, deliveries, data collection, recording and reporting. Salient strengths are:
o • A one-stop shop for all distribution management services
o • Dry and cold storage facility to store and transport perishable products at temperatures up to -
22 Degrees Celsius.
o • Effective process control for minimum distribution cost.
148.o KFC today purchases more than 96% of its products and supplies from Indian Suppliers(Do we
Know)
o INTERVIEW OF EMPLOYEE AT KFC,SEC.18,NOIDA:- EMPLOYEE NAME:- MR. SUNIL
o • HE SAID THAT WHEN KFC ENTERED IN INDIA IN 1995 IT WAS NOT SUCCESSSFUL BECAUSE THEY
HAVE NOT ADDED THE FLAVOURES AND SPICES IN THE KFC MENU WHICH INDIAN PEOPLE LIKE.
o • THE MAIN REASON OF KFC FAILURE WAS THAT KFC WAS TARGETTING HIGHER CLASS INCOME
GROUP IN INDIA
o • BUT DUE TO PROTEST OF INDIAN FARMERS AND GOVERNMENT PRESSURE IT HAD TO LEAVE
INDIA.
o • BUT AGAIN IN 2003 IT CAME BACK INTO INDIA WITH THE STRATEGIES LIKE TARGETTING HIGHER
INCOME GROUP LEVEL.
o • BUT AT THE SAME TIME PROVIDING MENU WHICH CAN BE AFFORDED BY THE MIDDLE INCOME
GROUP LEVEL LIKE KFC MINI BURGER AT RS.25 AND CAME UP WITH MENU LIKE HOT CRISPY
CHICKEN WHICH CONTAINS INDIAN SPICES WHICH INDIAN PEOPLE LIKE.
o • BUT NOW THEY ARE ADHERING THE RULES OF FOOD CORPORATION OF INDIA
149.o EXPANSION PLANS :
o "We are planning to invest up to Rs 150 crore in the Indian market by 2010. We will expand
the KFC chain in the country to 110 restaurants by end of the period, from 50 now," quoted
Niren Chaudhary, Managing Director, Yum! Restaurants India
o ISSUES:
o Understanding the significance of cultural, economic, regulatory and ecological issues while
establishing business in a foreign country
o Appreciate the need for protecting animal right
o Understand the importance of ethics in doing business
o Examine the reasons for protests of PETA (People for Ethical Treatment of animals)
150. Amity Business School MBA Class of 2010, Semester II Recruitment, Selection & Training Of
Channel Members
151. GROUP MEMBERS:- ADITYA TOMAR (13) NITIN JOLLY (19) ANSHUL ARORA (30) GAURAV TYAGI
(33) CHARANJEEV SINGH (36) ACHIN LAMBA (43) Recruitment of channel members
152.o After a company has chosen a channel alternative, individual intermediaries must be selected,
trained ,motivated and evaluated.
o Companies need to select their channel members carefully.
o To customers, the channels are the company.
o E.g. :-McDonalds, Mercedes-Benz dirty outlets will give negative impression.
153. Recruiting channel partners
o We need three pieces of information:
o Negotiating strength To what extent do the potential members have significantly more
negotiating strength? Does only one candidate really fit our needs, or do several? Either way,
there is always some room for negotiation.
o Financial incentives Know, How much you are willing to pay, and then determine the amount the
potential members will charge. List any incentives or discounts you might offer.
o Your pitch Establish your business credibility with some qualifying messages. Know your
candidates' needs, and identify how you'll meet them. Differentiate and substantiate your ability
to be a good partner.
154. Know what you need and what your customers prefer
o The most important part of developing a good channel strategy is determining exactly what you
need in a channel.
o You can explore two categories of considerations: your channel objectives and your customers'
preferred buying processes and buying experience.
o It helps to be as specific as possible when you identify these objectives. For example, consider:
o Cost What are your cost goals and tolerances? How much can you afford to train, support, and
provide incentives for your channels?
o Growth What are your sales targets? How many units do you want to sell?
155.o 3. Reach What regions or market segments do you need access to? Do you want to expand
geographically or reach different customers?
o 4. Expertise Do you need a channel that can provide a specific level of product or service
expertise?
o 5. Visibility How well known is the channel? What is its reputation? What kind of marketing and
promotion are you expecting a channel to provide?
156. Understanding Customer needs
o To identify the kind of buying process and buying experience your customers prefer, consider the
following questions:
o How does each of your customer segments prefer to buy? What is the exact, step-by-step
process?
o How much interaction do your customers want during the purchase process? Depending on the
product, customers might need a lengthy and detailed conversation before they buy.
o How do your customers expect to be able to pay: credit cards, on account, or cash?
o What level of postsale support do your customers require?
157.o Choose the right channel groups
o After you understand your needs, you can determine which channel groups are the best fit with
your company. A quick survey of your industry reveals the potential candidates. Not every
channel group previously listed is appropriate. Also, be sure to include your direct sales channels.
158.o Choose the right channel members
o Now that you know your needs and which channel groups can best satisfy them, you need to
identify some specific channel members to work with.
o Create a table with the name of a specific company at the top of each column. In each row, list a
characteristic of a channel partner that helps you meet your needs. Your list of desired channel
characteristics depends on your business and industry. However, channel characteristics tend to
fall into three categories:
o Business/operational
o Sales/marketing
o Strategic fit
159.o Business/operational characteristics
o You can use business/operational characteristics to evaluate how channel groups or members
conduct nonsales activities, such as finance, manufacturing, invoicing, shipping, and inventory
processes. These characteristics help you assess how well managed the potential members are
and whether you want to do business with them. Characteristics might include:
o Image or reputation Distributors are renowned for their ability to drive volume; they have
extensive shipping and inventory management capabilities. Resellers/VARs aren't known for
volume; they're experts at adding service or enhancing the product. Which reputation better fits
your needs?
o Financial strength Do the potential members have the resources to meet your business needs?
How established are they?
o Process efficiency/effectiveness What are the potential members' reputations for process
quality? Are they automated, or do they rely on manual processes?
o Service levels How effective is the potential members' service for both you and your customers?
o Cost What are the potential members' cost reputations? How well do they meet your cost
targets?
160.o Sales/marketing characteristics
o You can use sales/marketing characteristics to evaluate how well channel groups or members
meet your sales and marketing needs. Characteristics might include:
o Reach/coverage In which geographic areas do the potential members sell? Which market
segments do they service? Do they have enough sales representatives and outlets? How effective
is their Internet presence?
o Sales competence Do the potential members' salespeople have adequate knowledge and
experience with your industry and products? What kind of training and certification does their
staff have?
o Compensation What do the potential members expect from you in terms of pricing, discounts,
and other sales incentives?
o Advertising/promotions How well can potential members meet your need to generate visibility in
the marketplace? Are they seasoned marketers?
o Product enhancement How capable are the potential members of adding the kinds of product
enhancements or services that you require or allow?
161.o Strategic fit characteristics
o You can use strategic fit characteristics to evaluate how well channel groups or members align
with your philosophy and outlook. Characteristics might include:
o Level of commitment Have the potential members demonstrated the commitment level and
executive alignment you expect?
o Resources allocated to your products How willing are the potential members to commit the sales
and marketing resources you need to be successful?
o Collaboration on winning business How willing are the potential members to conduct joint sales
and marketing activities? Typically, these kinds of considerations are most relevant if your
product is complex and requires a more sophisticated selling effort.
o Shared strategic plan How willing and competent are the potential members to create a plan
jointly for your mutual success?
o Common interrelated visions Do the potential members share your perspective on market
trends and customer needs?
162. RECRUITMENT OF CHANNEL MEMBERS
o For recruitment of channel members, producer can invite applications.
o Producer should mention his requirements.
o Various mode for invitation of application can be used:-
o > Notification through News-papers, magazines, pamphlets etc.
o > Internet, mails.
o > Personal contacts- meetings.
o > Company can contact business consultants.
163.o If the intermediaries are sales agents , producers should evaluate the number and character of
other lines carried and the size and quality of sales force.
o If the intermediaries are department stores that want exclusive distribution, the producer should
evaluate locations, future growth potential, and type of clientele.
164. TRANING OF CHANNEL MEMBERS
o Companies need to plan and implement careful training programs for their intermediaries.
o Training should clarify the specific duties of the channel member.
o Training should give the complete information to the channel member about the company, its
product, its policies, its customer.
165.o E.g.:- Microsoft requires third-party service engineers to complete a set of courses and take
certification exams. Those who pass are formally recognized as Microsoft Certified Professionals ,
and they can use this designation to promote business.
166.o Certain companies develop program to survey customers and certify those dealers that met or
exceeded national benchmark for sales and service customer satisfaction.
o Certification is based on customer satisfaction, product knowledge , ability to advice customers
about their specific needs & timely delivery of the products.
o This helped the dealers to provide outstanding customer experience and allow them to
differentiate within the dealer marketplace, helping them to contribute to increased customer
traffics & higher sales.
o E.g.:- Kyocera Mita Corporation (America)
167. Training & Motivation for Channel Partners
168. Channel Partners
o The name used to describe a company that partners with a manufacturer or producer to market
and sell the manufacturer's products, services, or technologies— usually through a co-branding
relationship. Channel partners may be distributors, vendors, retailers, consultants, systems
integrators ( SI ) ) , technology deployment consultancies, and value-added resellers (VARs) and
other organizations
169. Why is Training and Motivation necessary?
o Regular training is required in order to make them understand our company and brand.
o Better understanding of target market.
o About new policies of company.
o Companies commitment towards channel members and their welfare.
o Facilitates two way communication.
o In case of special service outlet the partner needs to be trained in order to meet the standards by
the company.
o In case of automobile technical details of the new products are given to partners.
o Product knowledge, benefits, features, specifications, how to use the product, and what gives it
an edge over the competitiors.
o To give best advice to the customers.
o finding out the needs and problems of channel members.
170. Maslow's Theory of Hierarchy of Needs
o Basic Needs : Profit, Volume
o Security : Stability, Growth, New business developments.
o Social : Recognition in the community,
o Personal : Biggest Business Man, Best, etc
o Aesthetic : Stylish office, Modern Gadgets, Computerization etc.
171. Motivation
o Allowing channel partners to participate in decision making, developing close, mutually satisfying
relationships, being responsive to channel partners needs by offering support, providing guidance
in channel operations, and communicating channel-wide objectives and policies. Indicative of
Participative, Supportive and Directive Leadership Styles-are effective channel strategies for
fostering channel partner motivation.
o Financial rewards
o Non-Financial rewards
172. Financial Rewards include
o Higher Margins.
o Extended credit time.
o Bonuses.
o Reimbursement of expenses.
o Create joint ventures. Create a relationship that takes into account the resources that both
companies can bring to bear in order to make the relationship successful. You will need to invest
resources in training, marketing and sales support, while the channel must commit resources to
training and actively promote the solution within its target market.
173. Non Financial rewards include
o Non Cash rewards appeal to the higher levels of Maslow's Hierarchy of Needs - belonging, esteem
and self actualization.
o Contests. Contests for selling the maximum no of products and achieving targerts.
o Share Information regarding sales and targets achieved to keep them updated on recent trends
in the market.
o Understand the Relationship. You are using a channel because you want the channel to carry the
cost of sales, while the channel wants you to minimize their sales costs by getting you perform
services for them. Because your agendas are different, you must craft a relationship that makes
sense and works for both firms
o Public recognition for higher performance through momentos.
o Train. Channel sales training must go beyond the sales training that you would normally supply
to a direct sales force. Your channel partners’ sales reps will need top quality selling tools, such
as competitive data sheets, sales scripts, selling videos, testimonials as well as the usual
brochures and specification sheets.
o Support. If the channel partners are using your product in new ways, such as customizing it for a
particular industry, they’ll need MORE support than your direct sales force. Frequent and ongoing
communication is vitally important to the health of a channel relationship.
174. Training
o Channel partner training is widely referred to as training that you provide for your partners to
help sell your products and services.
o Training may include the tour of the suppliers manufacturing place and offices.
o Seminars, Safety certifications, New product orientations, or Maintenance training.
o Pre-sales Partner Training
o Gain a competitive edge by keeping up with the latest technology.
o Learn to successfully deploy and manage products.
o Increase service related revenue and margin.
o Short term training programs for channel partners.
o Sales Training –to spot an opportunity and know product differentiators.
o Post-sales Technical Training
o Standard courses.
o Custom training.
175. What do you think are the biggest challenges involved in channel partner training?
o Distributed locations.
o Budget constraints.
o Lack of control over partners.
o Staffing constraints.
o Technology Infrastructure
176. Channel Implementation Process
o After attaining a good channel design for the market, the channel manager’s job is not over. He
now has to implement the channel design .
o The same involves 3 basic tasks :-
Identifying Power Sources Identifying channel conflicts Achieve Channel coordination
177. Channel Implementation Process
o Specific channel members are likely to specialise in particular flows & activities.
o If the channel members do not perform properly , the entire channel effort suffers.
o For e.g a poor transportation system can ruin a most excellent channel design also at times
o For a channel manager to implement the optimal channel design, in the face of interdependence
of the channel partners , of whom not all incentivised uniformly & not all cooperate to deliver
their designated channel flows, the channel manager needs to possess & use channel power .
o A channel member’s power is its ability to control the decision variables in the marketing strategy
of another member in the given channel at a different level of distribution
178. The nature of power
o Power defined:
o Power is the ability of one channel member ( A) to get another channel member (B) do
something, it otherwise would not have done. It is basically the potential to influence!
o Difference b/w power & co operation
o At times what looks like a manufacturer’s use of power over the distributor could simply be an act
of free will, or a response to the power of environment or other players.
179. Why marketing channels require power?
o Interdependence in channel system does not mean, that what is good for one is good for all
o Each channel member is seeking it’s own profit
o Maximising the system’s profit is not the same as maximising each member’s profit
o All else constant, each member tries to avoid cost at its own level or push it to the other channel
member while garnering revenues.
o Problem of double marginalisation- involves taking of two margins rather than one in the channel.
Solution can be vertical integration
180. Identifying the power sources
o Five sources of power:-
o Reward Power
o Coercive Power
o Expertise Power
o Legitimate Power
o Referent Power
181. Reward Power
o A reward is a benefit given in recompense to a channel member for altering its behaviour .
o Financial aspect of rewards.
o Reward power is based on the belief held by B that A has the ability to grant rewards to B.
o The effective use of reward power restson A’s possession of some resource that B values &
believes it can obtain by conforming to A’ s request
o For e.g French chain of sporting goods Decathlon
182. Coercive Power
o Coercive Power stems from B’ s expectation of punishment by A if B fails to conform to A’s
influence attempt.
o e.g. reduction in margins, withdrawl of rewards previously granted, exclusive territory right,
slowing down of shipments.
o It’s the reverse of reward power.
o Channel members view this as an attack on themselves & their businesses.
o When they perceive coercion, the react by considering the counter attack
o Coercion should be used when all other alternatives to evoke change have proved unsuccessful
183. Expert Power
o Expert Power is based on the target’s perception that the influencer has special knowledge,
useful expertise that the target does not possess.
o The value of expertise comes out more prominently in one of the most widespread channel form-
franchise
o The durability of expert power presents another problem in channel management- what after the
expertise gets transferred?
o To retain expert power in the long run, a channel partner has 3 options:-
o a) Dole out expertise in small portions
o b) Invest in continuous learning, thereby it shall always possess some new & important
information to offer
o c) Transmit only customised information i.e encourage transaction specific expertise
o e.g supermarkets, retailers & industrial distributors have an edge over suppliers on consumer
information; eg ( General Foods now Kraft Foods)
184. Legitimate Power
o To be legitimate is to be seen as right & proper, as being in accordance with what is seen as
normal or established standards.
o The same stems from the target company’s sense that it is in some way obligated to comply with
the requests of the influencer.
o The decision maker feels constrained morally, socially or legally to go along with the influencer
o Legitimate power can come from two sources : from law- Legal legitimate Power : from norms &
values – Traditional Legitimate power
185. Legitimate Power contd.
o Legal legitimate power is conferred by govts., coming from the nation’s law of contracts& the
laws of commerce. For e.g. In many countries patent & trademark laws gives owners justification
in supervising the distribution of their products.
o Another major source of legitimate power comes from the contract channel members write to
each other.
o In a traditional legitimate power which stems from norms, values & beliefs, a firm may believe
that a channel member deserves to be accorded a certain deference perhaps because of its
successful track record or exemplary management.
186. Referent Power
o Referent Power exists when B views A as a standard of reference & therefore wishes to identify
publicly with A
o A prominent reason for wishing to be publicly identified with the other is prestige
o Downstream channel members would like to carry high status brands to benefit their own image
187. The Balance of Power
o Channel outcome depends on the balance of power in a relationship
o Net Dependence
o Dependence is never entirely one way, it is mutual.e.g Agfa, Canada. Power is to be balanced in a
relationship. Net dependence should be assessed.
o High mutual dependence gives rise to high mutual power. Each channel member is able to create
high levels of value addition.
o The two sides can drive each other to craft & implement creative win win solutions
o It also encourages cooperation by blocking exploitation, no party is weak, both are giants. The
same leads to channel coordination
188. Imbalanced Dependence
o Exploitation inevitable?
o Imbalanced dependence happens when one channel member A is much more dependent than
channel member B.
o The balance of power favours B & A is open to exploitation
o The dependent party suffers in economic terms as well non economic benefits.
o e.g. Marks & Spencers ( Britain’s largets retailer) preferred suppliers
189. Imbalanced Dependence : Countermeasures for the weaker party
o The weaker party can take 3 counter measures :
o a) Developing alternatives to A
o b) Organizing a coalition to attack A
o c) Exiting the situation , removing itself from the danger by no longer seeking the benefits which
A provides
o e.G the U S automobile dealers; once represented only one brand of car but were eventually
forced to diversify themselves
190. Exercising Power: Influence Strategies
o “ The more the parties have power, the more they tend to use it”
o Latent power is rapidly converted to exercised power
o Converting the potential to influence into real changes in the behaviour of the other party
requires communication. The nature of that communication affects channel relationships.
o Most of the channel communications can be grouped into the following six influence strategies :-
o Promise strategy 4)Request strategy
o Threat strategy 5)Information Exchange strategy
o Legalistic strategy 6)Recommendation strategy
191. Influence strategies contd . Influence strategies 1.Promise 2Threat 3.Legalistic 4.Request
5.Information Exchange 6.Recommendation Power sources necessary for this to work Reward Coercion
Legitimacy Referent, reward, coercion Expertise, reward Expertise reward
192. Consequence of each strategy
o The first three styles (promise, threat, legalistic) often provoke a backlash because they are
perceived as heavy handed , high pressure techniques.
o In the short term, high pressure techniques are effective, however they have damaging long term
effects on the counterpart’s trust & commitment.
o A promise can be considered as a bribe, as insulting & unprofessional, something of a forcing
technique in the short term
o In the long term, it has mixed effects. The counterpart usually delivers on the promise & his &
channel members financial indicators improve
193. Contd.
o The last three influence strategies (request, information exchange & recommendation are more
subtle more nuanced than the first three.
o Channel counterparts welcome these efforts and do not take offence of the usage
o These three strategies increase all facets of counterpart’s satisfaction economically &
interpersonally.
o Recommendation strategy although more overt because the desired behaviour is stated, does
not threaten the counterpart’s autonomy
194. Channel Conflict
o Nature of channel conflict
o Channel conflict is a state of opposition, or discord among the organization comprising a
marketing channel
o The many connotations of conflict :- contention, disunity, disharmony, argument, friction,
hostility, antagonism, struggle, battle…
o Conflicts are always not negative, rather than keeping channel members apart & damaging their
relationship, some conflicts actually strengthens & improves the channel.
o Channel conflict arises when the behaviour of a channel member is in opposition to its channel
counterpart.
o Interdependent parties at some level try to block each other
195. Degree of Conflict
o Conflict implies incompatibility at some level.
o When conflict occurs at such a low level that channel members do not fully sense it, the conflict is
latent in nature.
o Latent conflict is the norm in marketing channels.
o When a channel member senses that some sort of opposition exists, opposition of view points, of
perceptions, of sentiments, of interests or of intentions, the conflict is perceived
o Perceived conflict is cognitive i.e. emotionless & mental. E.g- two organizations can perceive they
are in disagreement but their individual members experience little emotion as a result . They
describe themselves as “business like”, or professional & consider their differences to be all in a
day’s work
196. Contd.
o But when emotions enter, the channel experiences felt conflict, or affective conflict.
o At this stage the players describes their channel as conflictual as the organization members
experience tension, anxiety, anger, frustration, hostility.
o At this level, the differences start getting personalised.
o Description of their interactions soon start sounding as disputes
o If not managed, felt conflict can escalate quickly into manifest conflict. This conflict is visible!
o In this ,There is blocking of each others initiatives & withdrawal of support.
197. Measuring conflict
o How do you go about diagnosing the true level of conflict that an organization faces in a channel
relationship?
o Gather 4 kinds of information :-
o Step 1 –Counting up the issues
o Step 2- Importance
o Step 3- Frequency of disagreement
o Step 4- Intensity of dispute
o With this we arrive at the index of conflict :-
o Conflict =
i=1 n Importance * Frequency* Intensity
198. Consequences of conflict
o Conflict is usually considered as dysfunctional. Although true, but at certain occasions conflict
actually makes the relationship better !
o This is functional (useful) conflict.
o Functional conflict occurs when channel members recognize each other’s importance &
understand that each party’s success depends on another.
o In a functional conflict , opposition leads to :-
o More frequent & effective communication
o Establishing outlets for expressing their grievances
o Critically reviewing their past actions
o Devise & split more equitable split of system resources
o Develop more balanced distribution of power
o Develop standardized ways too deal with future conflict
199. Contd .
o Functional conflict is a natural outcome of a close cooperation with suppliers
o When channel members are committed, these disputes raise standards of performance in the
short term.
o An influential channel is a disputatious one
o This is not to say that peaceful channels are better
o At times what appears as peaceful & harmonious relationship might be a relationship of
indifference ! The two parties don’t disagree on anything & neglect becomes mutual. The
relationship then exists only on paper
o Lack of conflict soon becomes lack of engagement that leads to poor performance
o These channels need to increase their activity levels
200. Sources of conflict
o Most conflict is rooted in differences in :-
o Channel members’ goals
o Their perceptions of reality
o What they consider to be their domains or areas where they should operate with autonomy
201. Competing Goals
o Each channel members' set of goals & objectives is different from those of other members.
o Goal divergence & subsequent conflict is very common
o Resellers carry a supplier’s line in order to maximise their own profits. They can do so in following
ways:-
o a) Achieving higher gross margins per unit
o b) Increasing unit sales & decreasing inventory
o c) Holding down expenses &
o d) Receiving higher allowances from the manager.
o But even the manufacturer wants to make greater profits
202. Contd.
o For this the supplier wishes to do exactly the reverse.
o Accept lower margins ( pay suppliers more & charge customer less
o Hold more inventory ( avoid stockouts, maximise selection), spend more to support the product
line
o Get by avoiding allowances
o So both collide on all objectives except one – raise unit sales!
203. Inherent differences in the viewpoints of suppliers & resellers
o Maximise profit by Maximise profit by Supplier: You don’t put enough effort behind my brand.
Your prices are too high
o Financial * Higher prices to reseller *Higher own level margins Reseller: You don’t support me
enough. With your wholesale prices , we cant make money
o Goals * Higher sales by reseller * Lower expenses
o *Higher reseller expenses * Faster inventory turnover
o *Higher reseller inventory * Higher allowances from
o manufacturers
o * Lower allowances to reseller
Supplier viewpoint Reseller viewpoint Expression of clash
204. Contd.
o Focus on Focus on
Desired target accountso Multiple segments
o Multiple markets
o Many accounts
o ( volume plus share)
o Segment corresponding
o to resellers positioning
o Our markets only
o Selected accounts those
o that are profitable to serve)
Supplier:We need more coverage & more effort Reseller.:You don’t respect our marketing strategy. We
need to make money too. Desired products & account policy *Concentrate on our product category &
our brand * Carry out full line * achieve economies of scope over product Categories *Serve customers
by offering brand assortment *Do not carry inferior Or slow moving items Supplier: You carry too may
lines. Don’t give us enough attention, you’re disloyal Reseller : Our customers come first. We need to
satisfy them to benefit you.Why don’t you prune your product line
205. Reasons for Channel Conflict
o Roles not defined properly.
o Resources scarcity.
o Differences of perceptions on the business environment.
o Channel members have expectations from each other.
o Decision domain disagreements.
o Goal incompatibility.
o Communication Difficulties.
o More Reasons of Channel Conflict Contd
206. More Challenging Reasons of Channel Conflict
o Goal in-compatibility.
o Unclear role definition.
o New channel partner.
o Target fixing exercise.
o Extension of Credit.
o Multiple distributors.
o Difference in perception.
o Loss of opportunity.
o Clash of interest.
207. Differing Perceptions of Reality
o One of the important sources of conflict
o There are different bases of action in response to the same situation
o At times perceptions differ markedly on such basic topics as:-
o -What the attributes of the product or service are?
o -What applications it serves& for which segments?
o -What the competition is?
o Inaccurate expectations also lead to surprise , and frequently opposition, when the parties fail to
act as expected
208. Contd.
o One of the major reasons for such misperceptions is focus.
o Seldom do channel members cooperate fully to assemble the entire picture from separate pieces.
o When they share information they uncover dramatic differences in perception.
o Lack of communication exacerbates conflict
o Need to have frequent, timely & relevant communication to align perceptions & expectations.
o This problem is all the more exacerbated if channel partners come from different national
business cultures
209. Clashes over domain
o Each channel member has its own domains , or spheres of function
o Much conflict in channels occur when one member perceives that the other is not taking proper
care of its responsibilities in its appropriate domain.
o Classic examples of the same are :-
o - market research
o - pre & post sales service & support
o - inventory
o e.G J. E Ekornes, a Norwegian Home furniture manufacturer
210. Contd.
o Intra channel competition
o One of the most serious sources of conflict occurs when channel members compete potentially
for the same business.
o Here the upstream member sees its down stream member as a competitor.
o Since the resellers believe in providing an assortment & pool demand of a class of products & end
up stocking supplier’s competition
o The more acrimonious disputes occur when the upstream channel member believes it has an
understanding or agreement to limit competition. E.g. A California medical supply firm won
almost $5mn in damages from a distributor over a breach of contract.
211. Contd.
o From the downstream viewpoint , the domain clash occurs when supplier sells through many of
the firm’s direct competitors in the market, e.g in intensive distribution.
o Another source of domain conflict occurs when multiple types of channels represent the suppliers
product to the same geographical market.
o There are many labels for this :-
o -Dual distribution
o -Plural distribution. E.g G.E
o -Hybrid distribution
o ( Multiple channel is not the same as intensive distribution)
212. Multiple Channels
o Multiple channels have become quite common.
o Earlier companies used to opt for one primary route & other routes were downplayed, even
disguised in order to avoid channel conflict & avoid confusing customers.
o Now with the explosion of multiple channels it’s become more of a norm rather than exception.
o The reasons for the same are :-
o Heightened competition
o Helps increase market penetration & raise entry barriers to potential customers.
o Helps serve customers efficiently in case of fragmented markets
213. Contd.
o Customers also find the same convenient.
o Suppliers & customers can both find each other more easily.
o Helps customers to pit one channel against other in search for more services at low prices.
o But it has some danger as well . Some of them are ;-
o Downstream channel member loses motivation, can withhold support, retaliate or exit structure.
o Particularly the case when customers free ride.
214. Contd.
o The ironic result of multiple channels is that by adding channel types, the supplier may come to
reduce rather than increase, the breadth & vigour of his channel representation.
o Each segment calls for different SODs.
o The suppliers think that by offering multiple channels they can serve multiple segments.
o On paper, the same is always appealing, but the whole strategy collapses if customers refuse to
stick to their assigned categories.
215. Analyzing multiple channels
o The basic question is , when should multiple channels be used & how much?
o Multiple channels don’t always compete
o They can help each other by building primary demand. E.g combination of a store & direct
marketing operation
o What can suppliers do ?
o Can manage conflict by devising different pricing schemes for different channels, but this at
times becomes legally dubious, leads to an opportunity of arbitrage. E.g. gray markets
o Can offer more products, more service, more support, even different products to different
channel types to help them differentiate themselves
216. Contd.
o Can offer different brand names to different channels
o Can also sell primary flagship product line from one channel & remaining secondary or peripheral
things through a captive channel
o All parties should be made to realize that the environment has changed & that market has split
into different segments demanding different level of service outputs
217. Conflict Resolution Strategies
o Channel partners can cope with the conflict through 2 approaches:-
o Try to keep conflict escalate to dysfunctional zone by developing institutionalized
mechanisms( arbitration boards, norms of behavior etc)
o Use patterns of behaviour to resolve manifest conflict
o Institutionalized Mechanisms to contain conflict early
o - Here channel members devise policies to address conflict in its early stages, even before it
arises
218. Contd.
o These policies become instiutionalised.
o They serve many conflict management functions.
o The same includes mechanisms like joint memberships in trade associations, distributor councils
& exchange of personnel programs.
o Some build in appeal to third parties such as referral boards of arbitration & mediation
219. Information intensive mechanisms
o Here the emphasis is on sharing information.e.g Armstrong world industries which uses expertise
power to avoid conflict
o Joint membership in trade associations. E.g the committee jointly founded by the Grocery
Manufacturers of America, GMA, & the Food Marketing Institute that was responsible for
developing the universal product code .
o Some channels use exchange of persons as an institutional vehicle to avoid conflict.e.g Walmart
& P&G.
o A variation of the same is co –optation . The same is a mechanism designed to absorb new
elements into the leadership or policy determining structure of an organisation
220. Contd.
o Co optation permits sharing of responsibility so that a variety of channel members feel identified
& committed to the program developed for a particular service/product.
o It places an “outsider” in a position to participate in analysing an existing situation, to suggest
alternatives & to take part in the deliberation of consequences.
o Third party mechanisms
o Though co optation brings together representatives of channel members, mediation & arbitration
brings together third parties which are uninvolved in the channel.
221. Contd.
o The same keeps mainfest conflict in bounds.
o Mediation is the process where the third party attempts to settle a dispute by persuading them to
continue negotiations or provide substantive recommendations
o Gets a fresh view of the situation & is able to perceive opportunities which “insiders” cannot.
o Generally mediation & arbitration are supported by their own institutional framework. E.g. (CEDR)
Centre of Dispute Resolution.
o Helps channel members increase their communication with each other regarding their goals.
222. Contd.
o An alternative to mediation is arbitration, wherein, a third party actually makes the decision.
o Arbitration can be compulsory or voluntarily
o In compulsory arbitration process, the parties are required by law to submit the dispute to the
third party , whose decision is final & binding.
o In voluntary arbitration , the parties voluntarily submit their dispute to the third party whose
decision is final & binding. E.g the American Arbitration association offers commercial arbitration
rules.
o Institutionalising the practise of taking dispute to the third party forestalls conflict
223. Contd.
o Building Relational Norms
o Norms are another class of factors that serve to forestall conflict.
o They govern as how channel members mange their relationships & grow over time as relationship
functions.
o A channel’s norms are its expectations about behaviour, expectations that channel members at
least partially share.
o Some commonly observed norms are :-
o Flexibility :expectation to adapt readily to the changed environment , without obstructions
o Information exchange:expectation to share any & all pertinent information, no matter how
sensitive the same is
o Solidarity :expectation from each other to work for mutual benefit.
224. Styles of conflict resolution Accommodation High cooperativeness Cooperativeness: Concern
for the other party’s outcomes Collaboration or problem solving Compromise Low assertiveness
Avoidance High Assertiveness Competition or Aggression Assertiveness: Concern for one’s own
outcomes
225. Contd.
o Assertiveness- strength of emphasis on achieving its own goals, such as building store traffic,
increasing uniqueness of its assortment, or increasing margins
o Cooperativeness- concern for other party’s goals, such as supplier’s goals of building volume,
creating distinctive image, or taking share from competitor
o Avoidance- it attempts to prevent conflict by circumventing discussion. Attempts are to save time
& unpleasntness. Neither side feels the commitment for the other.
o Accomodation- more focussed on other channel member’s goals rather on one’s own. It’s a
proactive means of strengthening the relationship by cultivating the other channel. Signals a
genuine willing ness to cooperate, encourages reciprocation.
o Competition- involves playing a zero sum game by pursuing one’s own goals while ignoring the
other party’s goals. This style generates conflict, fosters distrust.
o Compromise- repeatedly pressing for solutions that lets each side achieve its goals. Gives
something to everyone. Used to handle minor conflicts.
o Collaboration or problem solving- Channel member wants to achieve its own goals as well as
counterpart’s . Win- win approach, helps build favourable self image as well as favorable public
representation. Its an information intensive strategy. For this one needs to have high level of
resources- especially of information , time & energy. This approach is popular in franchising.
226. Amity Business School MBA Class of 2010, Semester II Logistics
227.o DEFINITION OF LOGISTICS MANAGEMENT
o CONCEPT OF LOGISTICS MANAGEMENT
o ROLE OF LOGISTICS MANAGEMENT IN AN ORGANIZATION
o ROLE OF LOGISTICS IN SCM & INTEGRATION OF LOGISTICS OPERATIONS
o THE FIVE ARMS OF LOGISTICS MANAGEMENT TRANSPORTATION,
o WAREHOUSING,
o MATERIALS HANDLING,
o INFORMATION &
o PACKAGING.
o PHYSICAL DISTRIBUTION MANAGEMENT
228. DEFINITION
o Logical extension of transportation and related areas to achieve an efficient and effective goods
distribution system
o Design and operation of the physical, managerial, and informational systems needed to allow
goods to overcome time and space (from the producer to customer).
o Logistics is the process of strategically managing the procurement, movement and storage of
materials, parts and finished inventory( and the related information flows) through the
organization and its marketing channels in such a way that current and future profitability are
maximized through the cost-effective fulfillment of orders
o Logistics management can provide a multitude of ways to increase efficiency and productivity
and hence contribute significantly to reduced unit costs
229. Integrated Logistics
o The process of anticipating customer needs and wants; acquiring the capital, materials, people,
technologies, and information necessary to meet those needs and wants; optimizing the goods or
service –producing network to fulfill customer requests; and utilizing the network to fulfill
customer requests in a timely way.
o Inbound logistics
o Conversion operations
o Outbound logistics
230. Decisions in logistics management
o Product Design
o Plant Location
o Choice of Markets/Sources
o Production Structure
o Distribution/Dealer Network Design
o Location of Warehouses
o Plant Layout
o Allocation Decision
o Production Planning
o Inventory Management – Stocking Levels
231.o 11. Transportation – mode Choice, Shipment Size and Routing Decision, and Transport
Contracting
o 12. Packaging
o 13. Materials Handling
o 14. Warehouse Operations
232. Key Actors in effective logistics system
o Shippers
o Suppliers
o - Carriers (rail, road, air,water, pipeline)
o - Ware house providers
o - Freight Forwarders
o - Terminal Operators (Ports etc.)
o Government (regulator of logistics)
233. Role of government(legislations that affect logistics)
o Sales Tax
o Consignment Tax
o Excise Duties
o Octroi and Entry Tax
o Use of Packaging Material
o VAT (value added tax)
o Motor Vehicles Act and similar acts for other models
o Distribution Policies
234. Total Logistics Cost
o Product inventory at source
o Pipeline inventory
o Product inventory at warehouses and dealers
o Transit losses/insurance
o Storage losses/insurance
o Handling and warehouse operations
o Packaging
o Transportation
o Customer’s shopping
235. Models in logistics management
o Forecasting models
o location models
o allocation models
o Inventory Models
o Routing Models
o Scheduling Models
236. Supply chain (logistics network)
o Supply chain is defined as the sequence of business processes and information that provides a
product or service from suppliers through manufacturing and distribution to the ultimate
customer.
o (marketing, logistics, production)
237. SUPPLY CHAIN STRATEGY
o SUPPLY CHAIN SHOULD BE STRUCTURED TO MEET THE NEEDS OF DIFFERENT PRODUCTS AND
CUSTOMER GROUPS
o The efficiency of the supply chain can be measured based on the size of the inventory investment
in the supply chain
o Weeks of supply
o Inventory turnover
o Inventory turnover = cost of goods sold/ average
o aggregate inventory value
238.o The cost of goods sold is the annual cost for a company to produce the goods or services
provided to customers
o The average aggregate inventory value is the total value of all items held in inventory for the firm
valued at cost. (includes the raw material, work-in-process, finished goods, and distribution
inventory owned by the company)
o Weeks of supply is a measure of how many weeks worth of inventory is in the system at a
particular point in time.
239. Efficient supply chain
o Highest cost efficiency
o Non value added activities should be eliminated
o Scale economies should be pursued
o Optimization techniques should be deployed to get the best capacity utilization in production and
distribution
o Information linkages should be established to ensure the most efficient, accurate, cost-effective
transmission of information across the supply chain
o (grocery, basic apparel, food, oil and gas)
240. Responsive supply chains
o Responsive and flexible to the changing and diverse needs of the customer
o Companies use build to order and mass customization processes as a means to meet the specific
requirements of customers
o (Fashion apparel, computers, popular music)
241. When a company creates a logistics strategy it is defining the service levels at which its
logistics organization is at its most cost effective. Because supply chains are constantly changing and
evolving, a company may develop a number of logistics strategies for specific product lines, specific
countries or specific customers. Logitics Issue: Logistics strategy
o Why Logistical Function must be performed and by which channel members
o Who will transport and store supplies, Part and finished Product – How, Where and When ?
o Who will manage inventory level and how ?
o Who will collect , analyze and exchange data about orders, billings and payment and how and
when ?
o How do production and sales related objectives effect logistical plans ?
o How are Logistics effected by customer requirements and preferences, channel and company
capabilities, and product plan ?
o Will the organization handle its own logistics or hire other to handle some or all the functions ?
242. Which mode? Which carrier? Which route? Shipment size and frequency? Where?, How many?
What size? Allocation? Strategy/Control system? How much? Where? The Logistics (Strategic) Planning
Triangle
243. A company can start to develop a logistics strategy by looking at four distinct levels of their
logistics organization. Strategic: By examining the company’s objectives and strategic supply chain
decisions, the logistics strategy should review how the logistics organization contributes to those high-
level objectives. Structural: The logistics strategy should examine the structural issues of the logistics
organization, such as the optimum number of warehouses and distribution centers or what products
should be produced at a specific manufacturing plant. What is involved in developing a Logistic
Strategy Functional: Any strategy should review how each separate function in the logistics
organization is to achieve functional excellence. Implementation: The key to developing a successful
logistics strategy is how it is to be implemented across the organization. The plan for implementation
will include development or configuration of an information system, introduction of new policies and
procedures and the development of a change management plan.
244.o Formulating Logistical Strategy: To finalize logistical strategy, it is necessary to evaluate the
relationships between alternative customer services levels and associated cost.
o The general Approach consist of
o Determine a least-total-cost network
o Measuring Service availability and capability associated with the least-total-cost-system design
o Analyze the relation
o Finalizing the plan
o When examining the four levels of logistics organization, all components of the operation should
be examined to ascertain whether any potential cost benefits can be achieved. There are
different component areas for each company but the list should at least include the following:
o Transportation
o Outsourcing
o Logistics Systems
o Competitors
o Information
o Strategy Review
245. Logistic Manager are often asked to estimate the inventory impact of adding or deleting
warehouses. This relationship between uncertainty and required inventory is called Portfolio effect. It
can be estimated by SQAURE ROOT Rule Portfolio effect
246.o For Example, assume that a manager wants to estimate the inventory impact of sifting from a
one to a two warehouse network. In effect
o The network is being doubled
o The demand variability will be increased
o Using the Square root rule, the firm’s aggregate safety stock for a two warehouse system can be
estimated as
Portfolio effect Example The Projected inventory increase Resulting from adding a second warehouse is
estimated as a 141 % increase in safety stock SSj = √Nj * SSi √ Ni = √2 * SSi √ 1 = 1.41 * SSi Where
SSj = Aggregate safety stock for Nj warehouses or product variations ; Nj = Number of warehouse
locations or product variations for new configurations Ni = Number of warehouse locations or product
variations for existing configurations SSi = Aggregate safety stock for Nj warehouses or product
variations
247.o Objective:-
o To compare the Effect of Lean and Agile strategies
o an Aquarium Manufacturer
o Lean strategy : can reduce, or even eliminate waste in the production process but lean might not
be able to respond to fluctuation in customer demand.
o Agile strategy : enhances the responsiveness of the manufacturer towards the fluctuations in
customer demand.
o Research Shows that:-
o Both strategies provide different types of impact for the manufacturer.
o Manufacturer should not select either a lean or agile strategy but rather to have a combination of
both the strategies.
Case Study(Abstract)
248.
249. The second major problem is The long lead time for order delivery Since the production
schedule is set on a weekly basis, all orders coming later than the beginning of the production cycle
(Monday) will have to be put into the next production cycle. This inflexible production schedule leads
to; :- long lead time for order delivery :- customer dissatisfaction The third major problem is related
with Product Quality Because of lack of standardization in the production process; :-Normally 10 to
15% of finished products are usually rejected by customers. :-All of these products cannot be
reworked, but rather has to be scrapped. In addition, sometimes it becomes difficult to identify the
person responsible for defective products.
250. Amity Business School Communication And Control Presentation By: Anshul Ghori(43) Ankita
Verma(02) Ateet Gupta(28) Nitin Baliyan (30) Shashank Rajvanshi Swati Singh(09) Vineet chaudhary()
In Logistics
251. Supply Chain : “ It is a system of suppliers, Manufacturers, Distributors, retailers, and
customers where material flow Supplier to Customer and Information flow in both the directions.”
252. Role Of Communication:
o Order Status
o Product availability
o Delivery Schedule
o Invoice
o Customer Inquiry
o Replenishments.
Paper based information Flow (Increases operating cost and decreases customer satisfaction)o E.D.I.(Electronic Data Interchange)
o Personal Computers
o Bar coding and Scanning
253. Role of Control : Plant Warehouse Final Assembly (Manufacturing) Sub-assembly A Sub
assembly B Sub assembly C Part A Part B Part B Part C Part C Part D
254. Applications of New Information Technologies:
o Improved Information Technology helps in
o Increasing speed
o Capacity
o Decline in Cost
o Improved Competitiveness
o Electronic Data Interchange
o Personal Computers
o Communications
o Bar coding and Scanning.
255. Electronic Data Interchange EDI is the computer-to-computer interchange of strictly formatted
messages that represent documents other than monetary instruments. EDI implies a sequence of
messages between two parties, either of whom may serve as originator or recipient. Messages from
buyer to seller request for quotation (RFQ) purchase order receiving advice payment advice
256.
o Radio Frequency
o Historically, logistics activities had a distinct communications disadvantage since they involved
movement in either a transport or a material-handling vehicle.
o Application of radio frequency (RF), satellite communications has overcome these problems.
o Radio frequency is used within relatively small areas, such as distribution centres to facilitate two
way information exchange.
o Satellite technology allows communication across a wide geographic area such as a region or
even the world.
o Satellite communication provides a fast & high-volume channel for information-movement around
the globe.
o Example: Schneider National, a nationwide truckload carrier, uses communication dishes on the
top of its trucks to allow communication between drivers & dispatchers.
257.o Bar Coding & Scanning
o Information collection & exchange are critical for logistics information management & control.
Typically applications include tracking receipts at the warehouse & sales at the grocery store.
o Bar coding and electronic scanning are identification technologies that facilitate logistics
information collection & exchange. Bar coding refers to the placement of consumer readable
codes on items, cartoons, containers.
o UPC (Universal Product Code) is used extensively in the consumer goods industry for retail
checkouts, other channel members desire more detailed information.
258.
259.
260.o Principle of Logistic Communication
o 1)AVAILABILTY
o Rapid availability of information is extremely necessary to respond to customers and improve
management decisions.
o Customers frequently need quick access to inventory and order status information regardless of
managerial, customer, or product order location.
o Many times it warrants the need for decentralized logistics operations so that information system
is capable of being accessed and information updated from anywhere in the country or even the
world.
o Information availability reduces substantially the operating and planning uncertainty.
261. 2)ACCURACY
o Logistics information must accurately reflect both current status and periodic activity for
customer orders and inventory levels.
o ‘ Accuracy’ is the degree to which LIS reports match actual physical counts or status.
o In case of low consistency between physical and information system inventory levels, buffer stock
becomes necessary to accommodate the uncertainty.
o Increased information accuracy reduces inventory requirements.
262. 3)TIMELINESS
o Timeliness refers to the delay between the occurrence of an activity and the recognition of that
activity in the information system.
o Logistics information must be timely to provide quick management feedback.
o Timely information reduces uncertainty and identifies problems, thus reducing inventory
requirements and increases decision accuracy.
o When a continuous physical product flow may exist such as “work in process” to “finished
goods”, information system providing inventory status may be updated on an hourly, shift, or
daily basis.
o Real time or immediate updates are timelier but result in increased record-keeping efforts .
263. 4)FLEXIBILITY
o LIS must be able to provide data tailored to meet the requirements of a specific customer.
o For example, some customers may want invoices aggregated across certain geographic
boundaries or divisions or retailer.
o Retailer ‘A’ may want individual invoices for each store, while Retailer ‘B’ may desire an
aggregated invoice that totals all stores.
264.o 5)APPROPRIATE FORMAT
o Logistics reports and screens must contain right information in the right structure and sequence.
o For example, LIS showing a distribution centre inventory status with one product and one
distribution centre listed per screen.
o This format will require customer service executive check inventory status at each distribution
centre when attempting to locate inventory to satisfy a specific customer order.
o This implies that if there are five distribution centres, a review and comparison of five computer
screens is required.
265.o (c) Appropriate format would provide a single screen with inventory status for all fve-distribution
centres.
o (d) The combined screen makes it much easier for a customer service executive to identify the
best source for the product.
o (e) This can be considered as an appropriate format as one single screen or report contains and
effectively presents all relevant information for a decision maker.
o An effective format should integrate past and future information regarding on hand inventory,
demand forecast, and planned receipts for each single term at a distribution centre.
266.o Conclusion
o The above discussion reviews information technologies that are influencing logistics performance.
o Technical capabilities are increasing so fast that expertise is required to remain knowledgeable.
o It is necessary to integrate logistics requirement with current information technology capabilities
to maintain a competitive edge in today’s business environment.
267.o Case Study: UPS
o Largest distribution company in 1992.
o The company provides manufacturers, wholesalers, retailers & service companies with a wide
verity of ground base and air packages, document service offerings and value added services
also.
268.o Problem identification
o Company did not rely on Information technology to drive its distribution business.
o Lack of communication network.
o Lack of innovative tech for tracing and billing.
269.o Understanding the current process
o Company’s objective is to overhauling technology and transforming the functional, operation into
the proficient user of modern technology.
o Highly accurate vision of future market and customer requirement.
270.o Solution
o Bar coding and scanning
o Digital pen based tecno, to collect delivery information
o National wireless communication network.
271. Amity Business School MBA Class of 2010, Semester II Inventory Management
272. Prepared By:- Shafali Chopra B-02 Shashank Mishra B-25 Anuj Mathur B-30 Kushagr Sharma B-
49 Sourav Duggal B-51 INVENTORY MANAGEMENT
273. What Is Inventory ?
o Inventory is a list for goods and materials , or those goods and materials themselves, held
available in stock by a business .
274. Inventory Management
o Inventory management is primarily about specifying the size and placement of stocked goods
o Inventory management is required at different locations.
275. The Purpose of Inventory
o In environments where an organization suffers from
Lacks strong control over
electronic information transfer among all departments and all significant
suppliers
lead times
quality of materials received
276. Functions of inventory management
o Inventory allows managers to decouple operations. That is placing inventory between two work
centers or between a customer and a supplier and allows them to operate independently.
o Inventory protects one part of an operating system from disruptions in other parts of the system.
o Inventory can be used to reduce the number of times orders are placed or the number of setups
required to meet demand.
o Inventory can provide hedge against inflation.
o The inventory allows forms to take advantage of quantity discounts from suppliers.
o The inventory allows firms to meet unexpected demands
277. Goals: Reduce Cost, Improve Service
o By effectively managing inventory:
Xerox eliminated $700 million inventory from its supply chain
Wal-Mart became the largest retail company utilizing efficient inventory management
GM has reduced parts inventory and transportation costs by 26% annually
278. Goals: Reduce Cost, Improve Service
o By not managing inventory successfully
In 1994, “IBM continues to struggle with shortages in their ThinkPad line” (WSJ, Oct 7, 1994)
In 1993, “Liz Claiborne said its unexpected earning decline is the consequence of higher
than anticipated excess inventory” (WSJ, July 15, 1993)
In 1993, “Dell Computers predicts a loss; Stock plunges. Dell acknowledged that the
company was sharply off in its forecast of demand, resulting in inventory write downs” (WSJ,
August 1993)
279. Important reasons for obtaining and holding inventory
o Predictability
o Fluctuations in Demand
o Unreliability of Supply
o Price protection
o Quantity discount
o Lower ordering cost
280. Types of Stock
o Raw materials :
o Finished product
o Work-in-process (WIP)
281. Types of Inventory From Functional Standpoint
o Consumables
o Service, repair, replacement, and spare items (S&R Items)
o Buffer/safety inventory
o Anticipation Stock
o Transit Inventory
282. When to order
o Let us assume average that the average rate of usage is 4 units per for a component.
o Assume also that the time required to place and receive an order is 10 days then the reorder
point would be ,
o Reorder point = 4*10 = 40 units
o Thus , an order should be placed when inventory drops to 40 units
283. How much to order
o Two major factors influences this decision :
Cost of placing an order
Cost of carrying total inventory
o Q= (2DS/IC)Sqr Root
Q= quantity to be ordered in units
D= Annual rate of inventory depletion (sales)
S= Cost to place order
I=Annual inventory Carrying Cost
C=Price per unit
284. How Inventory is Valued
o First-in, First-out (FIFO)
o Assumes that the first goods purchased are the first to be used or sold regardless of the actual
timing of their use or sale.
o Last-in, First-out (LIFO)
o Assumes that the most recently purchased/acquired goods are the first to be used or sold
regardless of the actual timing of their use or sale.
285.o Average Cost Method
o Average Cost = Total Cost of Goods ÷ Total Quantity of Goods
o Available for Sale Available for Sale
286.o Specific Cost Method (also Actual Cost Method)
o This method of inventory valuation assumes that the organization can track the actual cost of an
item into, through, and out of the facility.
287.o Standard Cost Method
o This method of inventory valuation is often used by manufacturing companies to give all of their
departments a uniform value for an item throughout a given year.
288. Cost
o The objective behind proper inventory management is to ensure the availability of materials at
the right time, in right place, at right cost.
289. Elements of inventory Cost
o Procurement Cost:-
Cost of order processing from indenting stage to accounts and finally to purchase. It
involves use of stationary and services, cost of staff and the executive’s time spent on
order processing.
Cost of transmission of an order
Cost of transportation
Cost of invoice pricing
Cost of goods receiving, handling, inspecting and entry in the stock register/computer
Cost of final feeding of data in the logistic information system
290.o Inventory- Carrying Cost
Space rent for the storage of goods
Cost of working capital locked in the inventory
Cost of insurance of goods
Cost of spoilage in the quality of goods in storage, breakages in handling
Cost of deterioation due to passes of time and change in weather
Cost of deterioration of goods or depreciation
291. Inventory Carrying cost further divided into
o Stock- Out Costs.
o Over Stock Costs.
292. ABC ANALYSIS Category of Items Percentage of Items Percentage of Monthly/Yearly
Consumption Value Degree of Inventory Management A 20 65 BEST B 30 25 BETTER C 50 10 GOOD
293. Adverse effects of inventories.
o Over depending on inventory can prohibit meaningful feedback on quality of the product service
bundle.
o Large inventories hide operational problems that might be solved if they were discovered.
o There is financial cost to carrying excess inventory.
o There is some risk of damages to goods held in inventory.
o Large inventories are associated with a risk of product obsolescence and losses due to
depriciation.
294. Dell Computers: A Case Study in Low Inventory
o Dell has maintained low inventory.
o Reasoning behind need for lower inventory:
o Computers depreciate at a very high rate. Sitting in inventory, a computer loses a ton of value.
o As Dell's CEO, Kevin Rollins, said, "The longer you keep it the faster it deteriorates.
o Assume that the depreciation is a full point per week (1%/week) and use that to determine how
much money high inventory turns can save Dell.
295. Dell’s Inventory Turnover Data
o Year Inventory Turnover Week's Inventory
o 1992 4.79 10.856 1993 5.16 10.078 1994 9.4
5.532 1995 9.8 5.306 1996 24.2 2.149 1997
41.7 1.247 1998 52.40 0.992 1999 52.40
0.992 2000 51.4 1.012 2001 63.50 .819
296. Conclusion
o Computers lose 1 percent of their value per week. This isn't like the canned food industry where
managers can let their supplies sit around for months before anyone bats an eye. Computers
aren’t canned goods, and as Kevin Rollins of Dell put it, computers “rot”. The longer a computer
sits around, the less it is worth.
o That said, due to depreciation alone, in 1993 Dell was losing roughly 10% per computer just by
allowing computers to sit around before they were sold. In 2001, Dell was losing less than a
percent. Based on holding costs alone, Dell reduced costs by nearly 9%.
297. Amity Business School MBA Class of 2010, Semester II Transportation , Distribution & logistics
298.o Submitted By:
o Ruchi Tyagi
o Karan Aditya Abrol
o Mehul Srivastava
o Saurabh Sharma
o Shurid Sarkar
o Piyush Jagwani
299. INTRODUCTION
o Transportation :- Transport or transportation is the movement of people and goods from one
location to another .
o Logistics :- Logistics is the management of the flow of goods, information and other resources,
including energy and people, between the point of origin and the point of consumption in order to
meet the requirements of consumers .
o Transportation and Logistics :-
Mobilize global inventory.
G et the right goods to the right customer and place at the right time in the right
condition for the right price, even as you comply with trade regulations.
Get the sale and deliver on your commitment, while reducing costs, boosting service,
and avoiding customs delays and fines .
300. Relationship of Transportation to other business function
o Traffic Management and Transportation.
o Purchasing.
o Customer Service.
o Product Pricing.
o Distribution Locations
301. Transportation Infrastructure
o Transportation is a visible element of logistics. Consumers are accustomed to seeing trucks and
train transporting products or parked at business facilities .
o Transportation Functionality :-
o a). Product Movement :-
Basic value is to move inventory to a specified destination.
Financial Resources ex. 60% of U.S total logistics cost is related to transportation.
Environment Resources
- largest consumer of fuel and oil.
- air pollution and noise pollution .
o b). Product Storage :-
Less visible element of transportation.
Vehicles can also be used for product storage.
Diversion implication .
302.o According to the investigation of National Council of Physical Distribution Management (NCPDM)
in 1988, the cost of transportation, on average, accounted for 6.5% of market revenue and 44%
of logistics costs.
303. The Effects of Transportation on Logistics Activities
o Transportation plays a connective role among the several steps that result in the conversion of
resources into useful goods in the name of the ultimate consumer.
o It is the planning of all these functions and sub-functions into a system of goods movement in
order to minimize cost maximize service to the customers that constitutes the concept of
business logistics
304.o There have been major changes in the number and location of facilities with the closure of many
single-user warehouses and an expansion of consolidation facilities and distribution centre.
o These developments reflect factors such as better transport services and pressures to improve
logistics performance.
305. The Role of Transportation in Service Quality
o The role that transportation plays in logistics system is more complex than carrying goods for the
proprietors.
o By means of well-handled transport system, goods could be sent to the right place at right time in
order to satisfy customers’ demands.
o Transportation is the base of efficiency and economy in business logistics and expands other
functions of logistics system
o In addition, a good transport system performing in logistics activities brings benefits not only to
service quality but also to company competitiveness.
306. Transportation Principles
o Economy of Scale :-
o The more items (weights) is transported, the less the transportation
o costs per item (unit of weights)
Transportation cost per good Number of goods in shipment $ 100 / good $ 10 /good
307.o Economies of Distance Tapering Principle
The larger the distance, larger the transportation costs
Tapering Principle Transportation Cost per Mile Shipment Distance 1 mile 1000 miles $50/mile
$.05/mile $.10/mile 500 miles
308. Legal Types of Transportation
o Common Carriers :
o A Common Carrier is the one which provides transportation service to a general public according
to a fixed rate.
o Examples- Public airlines, railroads, bus lines, cruise ships etc. operate as common carriers
o Contract Carriers:
o These are similar to common carriers but instead of serving to general public, they provide
transport services for a negotiated price to selected customers, defined by contract agreement.
Normally contract carrier rates are less than common carrier rates. They allow shippers greater
control over the transportation resources.
309.o Private Carriers :
o It is wholly owned or leased by the firm, and is incidental to a company’s main line of business.
Wholly owned transport provides great deal of flexibility and economy.
310. Non Operating Intermediaries
o They do not own or operate equipment. These companies are some where analogous to a
wholesaler in a marketing channel.
o Freight Forwarders :
o They are for profit businesses that consolidates small
o shipments from various customers into a bulk shipment
o and then utilize a common surface or air carrier for
o transport.
311.o At destination, the freight forwarders splits the
o consolidated shipment into the original smaller
o shipments.
o Advantages:
o Lower Rate
o Faster transport of small shipments
312.o Shipper association :
o Shippers associations are operationally similar to freight forwarders. They are voluntary non profit
entities where members, operating in a specific industry collaborate to gain economies related to
small shipment purchases.
o Brokers :
o Transport brokers are agents that brings shippers and carriers together by providing timely
information about rates , routes and capacities. They may arrange transportation but assume no
liability for it.
313. Transportation Structure
o Transport is performed by modes, such as air, rail, road, water, cable, pipeline and space.
314.o Water :-
Oldest mode of transport.
moderate fixed costs (ships and freight handling equipment)
low variable costs (labor, fuel)
Main adv. Of water transport is the capacity to transport extremely large shipments.
Main disadvantage is slow speed and limited range of operation.
Slow transit time provides a form of storage in transit that can benefit logistic sys. Design.
Air :-
Least utilized mode of transport because of limited load size and weight lift capacity
. Fixed cost is lower than rail or road or pipeline. But operating costs are highest.
Main adv. lies in SPEED this allows other aspects of logistics like warehousing and inventory
to be reduced or eliminated.
Premium air carriers such as Federal Express, DHL Express etc provides airfreight services.
315.o Rail Transport :-
high fixed costs (land, tracks) & low variable costs (labor, fuel)
Improving flexibility
Intermodal services
o Road Transport :-
Mostly used mode
low fixed costs (government builds, maintain Roads) & medium-high variable costs
(labor, fuel)
Flexible
Trucks go door to door as opposed to planes and trains .
Irrespective of the mode chosen ultimately the consignment reaches the doorsteps of
the customer by road.
316.o Pipeline. Highest fixed costs (right of way & construction costs of equipment) & lowest variable
costs (no labor or fuel) Slow and dependable Low energy consumption. Pipe line operates all the
time except when it is shut down for maintainance.
317. Intermodal Transportation
o Transportation services are achieved by combining modes .
Piggyback
Trainships
Fishyback
Coordinated Air-truck
318. TRANSPORTATION MANAGEMENT OUTSOURCE SOLUTION CASE STUDY
319.o The case is about Pilot Chemical Company . It had 5 production plants in Ohio, New Jersey and
Texas.
o Most of its freight was liquid and it used trucks, rail and ship for the transportation of its freight.
o Logistics control was distributed among the plants, with each site operating independently.
o As a result the Company could not account for the cost-to-serve elements. They could not
determine the cause of rising costs.
o In order to upgrade their logistics, they opted to outsource it to ChemLogix a 3PL.
Summary
320.o Increase transparency of freight cost components.
o Providing historical costs, market pricing and competitive market.
o Mitigate rising “cost-to-serve” issues.
Challenges
321. Solution
o Design and implement a customized, web enabled On-Demand TMS.
o Integrate a centralized team of logistics professionals to support the transportation management
processes.
322.o Optimized freight operations
o Significant reduction in costs
o Optimum vehicle Load and Route
o Shorter Lead-Time
o Transport follow-up
Results
323.o Packing and utilization:
324.o Packing :
o Packaging also refers to the process of design, evaluation, and production of packages.
o Packaging is the science, art and technology of enclosing or protecting products for distribution,
storage, sale, and use.
o Packaging can be described as a coordinated system of preparing goods for transport,
warehousing, logistics, sale, and end use.
o Packaging makes transportation of goods easy by combining them into one unit.
o Is a vital part of product.
o Can influence customer attitude towards product.
o Can influence purchase decisions.
o In many countries it is fully integrated into government, business, institutional, industrial, and
personal use.
o Proper packaging is essential to contain, protect & offer a means of handling the product.
o Each package design has the goal of protecting the product from the assembly line to the user.
325.
326.
327.
328.
329.o Palletisation
o A pallet is a flat tray upon which several articles can be placed, which can then be handled as one
article.
o Metal strapping, nets, plastic films are used to secure the articles to the pallet.
o Development of pallets also led to the growth of FORKLIFT TRUCKS.
o Pallets can be in the form of:
o Wooden or non timber pallet
o Four way entry pallet or box type pallet
o Effects of Palletisation :
o Reduction in time needed to load & unload the products from the vehicle.
o Individual package can be assembled in the plant on to a pallet according to single customer
order.
o Cuts delivery time: rebates upto 30% have been quoted by shippers.
o Drawback of palletisation:
o Lack of uniformity in pallets.
330.o Containerization:
o A cargo container is a type of shipping container with weather proof construction which can be
stored outdoors & transported in cars, trucks or ships.
o Containers are preferred means of unitization as:
o Requires less protective packaging
o Better rates are available for container shipment
o Loss & damage may be reduced
o Types of containers
o Van containers
o Open top containers
o Top cover containers
o Side door containers
331.o Moving containers:
o Products are unitised so as to facilitate their movement from one point in the distribution channel
to another.
o By roads: The main snag is loading the container
o Direct lifting cranes
o A forklift truck
o Slide loader
o Self loading devices
o By trains:
o It is more economical than road transport
o Flat cars are used for transport
o By ships:
o Containers can be transported in cargo ships
o Ships have wide hatches & give complete access to holds
332.o Drawbacks of Containerisation :
o Heavy capital investment in equipment is required
o System needs high load factor to be economic
o Liability is difficult to place
o Higher insurance cost.
o Benefits of Containerisation:
o Door to door shipment time is reduced
o Freight costs are reduced
o Better utilisation of expensive capital equipment
o Decrease in warehousing & inventory costs
o Shorter delays in international transfers
333.o Roll On/Roll off Ferries(RORO)
o RORO was developed to reduce the expense of container lifting equipment.
o LASH was developed for inter vehicle water transport.
o Mother vessel does not require special docks or terminals.
o Barge containers are water borne througout.
334.o Cost of Packaging:
o Main element :
o Package cost
o Storage & handling cost of empty package
o Filling cost
o Storage cost of filled package
o Transport cost of delivering filled packages
o Insurance cost involved in transport
o Losses due to breakage
o Effect of package on sales
o Unit package cost:
o Basic material or container price stated on the supplier quotation.
o The actual unit price on quotation will depend upon:
o Volume
o Methods of over packing
o Freight charges
o Development cost
335.o Storage/handling cost:
o Price advantage gained from large volume ordering has to be considered in comparison to two
factors.
o Amt of capital
o Cost of labor & space involved in storage & handling materials
o Production operation cost:
o For the production cost to be efficient & cost effective it is necessary that the packaging material
is strong.
o Main influences of these costs are:
o Material, labour & overhead costs
o Packaging losses
336.o Warehousing :
o After production , the product is shipped to the user’s warehouse.
o This cost is influenced by:
o Shape of the package
o Strength of the package
o Distribution:
o These are generally refered as Transport costs
o Governed by either the finished pack weight or vol
o Also depend upon the shipping distance
337.o Package Design Process.
338.
339.
340.
341.
342. Packaging material
343.o Fiber board:
o Corrugated board provides air cushioning, thus it is able to absorb shock waves more efficiently.
o Shrink-wrapped units are a good replacement of it as these reduces the volume of outer cases &
cost of packaging.
o It also increases the efficiency of packaging .
o Fibre drums:
o Economical than steel &plastic drums
o Can be used as true , one-trip, disposable container
o Certified to UN regulations
o Provides excellent protection for reeled products such as textiles,films,adhesive tapes etc .
o Paper sacks :
o It usually consist of two paper plies formed into a bag with a rectangular base.
o It is a cheaper alternative to outer cases for the packaging of bags of coffee etc.
o Labels :
o Paper labeling is used for decorating a package.
o The total volume is eroding as material will improve the appearance & the cost
344. Metal Containers
345.o Aluminium :
o Particularly in wrapping & flexible laminate
o Main potential market is as a replacement for tinplate container for cans
o Metal tubes & molded trays are two main packaging uses of it
o Aerosols:
o This is the fastest growing container group
o Success of slow release plastic strips for insecticides has caused a slow down in growth of
aerosols
o Keep potentially reactive components separate till they are emitted e.g. hot shave foams
346.
347.o Blow molding:
o Polyethylene & PVC is used for this
o Used in applications such as
o Fruit squashes
o Shampoos
o Liquid detergents etc
o Extruded films:
o Main areas of application are
o Shrink wrapping
o Over wrapping
o Sacks
o Bags
o Thermoforming:
o It is a process of producing plastic parts from a flat sheet of plastic under temperature &
pressure.
o Initial project cost is low
o Lead time to tooling & production is much shorter.
o Glass Containers
348. Choosing Right Material
o Material should:
o Protect the product adequately at low cost
o Suitable handling characteristics
o Permit mechanized production, often at high speeds
o Have appropriate sales appeal
o Factors influencing the packaging material Decision:
o Characterstics of the product to be packaged
o Destination
o Kind of transportation
o Handling, stowage & storage considerations
o Climate consideration in transit & at destination
o Condition of distribution & use
349. WAREHOUSING
350.o Warehousing
o It is an act of storing and assorting the finished goods so as to create maximum time utility at
minimum cost
o Goal
o Maximize resource utilization
o Maximize customer service
o Objectives
o Maximize space utilization
o Maximize equipment utilization
o Maximize labor utilization
o Maximize protection of all materials
Warehousing
351.o Need
o To provide adequate buffer storage against inequalities.
o To safeguard stock from damage and unauthorized removal by providing an environment for
material storage.
o To record accurate receipts stock holding and dispatches to provide an efficient communication
interface of the system.
o Functions
o Material handling
o Storage
o Information transfer Function
o Customer service
Warehousing
352. Warehouse Location
o Market Oriented
o It is located near to the target market or customers.
o Production Oriented
o It is nearer to the production point and only after processing the goods are shipped.
353. Warehouse Types
o Basis - Ownership
o Private
o Public
o Basis - Operations
o Centralized
o Decentralized
o Others
o General Merchandise
o Special Commodity
o Climate controlled
354. Costs
o Inventory Cost
o Transportation Cost
o Warehousing Cost
o With fixed cost and variable cost elements
o Variable cost relationship with economies of scale
o Warehouse cost relationship with diseconomies of scale.
355. Example of Warehouses of Companies in India
o Hensel Electric India Pvt. Ltd.
o Asap Automation(I) Pvt .Ltd.
o Dewas Techno Products Pvt. Ltd.
o Fibres & Fabrics International Pvt. Ltd.
o They are many other like Super journal pvt. ltd, Blr transportation ltd, Puja industries etc
356. Hensel Electric India Pvt. Ltd - Portable Distribution Units, Junction Boxes, Industrial Plugs And
Sockets, Electrical Panel Assembly, Empty enclosures, Cable Entry Systems, low voltage Panels,
Suspension Combination, Control Units With Spring-Cage & Screw Connections. Warehouse in Chennai.
Fibres and Fabrics International Pvt. Ltd - Warehousing, Cutting, Sewing, Laundry, Finishing,
Conditioning, Packing Centralized Ware House. Warehouse in Banglore Inward material is barcode
scanned and the system allocates it to the designated storage pallets and updates receipt of goods.
Entire warehouse is palletised for optimum utilisation of space. Warehouse management systems are
put to use, for allocating fabrics for cutting and trims allocation for work orders in process.
357.o BWI LOGISTICS Pvt. Ltd. is a CHA (custom house agent) licensed freight forwarding agents and
custom clearing agents in India with specialization in handling various activities in the domain of
imports and exports. We offer Customs Clearance, Transportation, Freight Forwarding, Domestic
Door-to-Door Deliveries and various other Special Logistic Services.
o Spectrum of services includes the following:
o Customs Clearance
o Road Transportation Services
o Air Freight Services
o Sea Freight Services
o Domestic Door to Door Delivery
o Special Services
Warehousing Facility Providers
358.o Various other companies are
o Trinity Clearing and Shipping agencies,
o Balaji Packers and Movers,
o Professional Packers and Movers.
o These all companies provide almost same facilities along with the facility of warehousing for the
different organisations.
o These other facilities are:
o Import/Export services,
o Cargo Monitoring,
o Consultation services, and
o Logistics services.
359. Lean Logistics: Goodyear's Automated Warehouse Puts Customers on Top Case Study
360.o The Assignment
o Paul Fledderjohann, Goodyear's Manager, Process Engineering, North America Tire (NAT) Supply
Chain, is keenly aware of the distribution challenges. He is also well informed as to what tire
manufacturing facilities are doing, not just to survive, but also to compete in an ever-evolving
marketplace. It's a dilemma Goodyear faced in 2005 as it set its sights on improvements to the
warehouse distribution system at the Goodyear facility in Fayetteville, North Carolina.
361. The Challenge With a modernization project going on upstream from the warehouse, it was
clear the Goodyear plant would require more than a retrofit for the current manual processes used for
tire distribution. With the high number of SKUs, manual sorting capabilities had reached capacity, and
Goodyear wanted to protect its workforce from the risk of injuries. It was also essential to have a
Supply Chain Deployment strategy that offered real advantages to customers. Goodyear decided to
build a new facility to handle tire storage and distribution. The challenge now was finding the right
automation system, and the right provider to design and install it. Goodyear worked earlier with RMT
Robotics to build a fully-automated warehouse at the Goodyear plant in Lawton, Oklahoma, and felt
that solution would be a good system for Fayetteville. As the creator of large, high-velocity gantry
robots and integrated systems, RMT understood the performance demands that Goodyear would
require in Fayetteville.
362. The Concept The challenge for Goodyear's NAT Supply Chain and RMT Robotics was to create a
system for Fayetteville that could ship more tires directly to customers, and do it more accurately. As
well, Goodyear wanted a system that could achieve payback very quickly. The robotic distribution
system that RMT proposed for the Goodyear plant featured 12 gantry robots working simultaneously to
handle every aspect of warehouse distribution, from the time the product arrived from manufacturing,
all the way through to sequential loading onto a trailer for customer delivery. It's a competitive
advantage to have automation that can sort, temporarily stage, then ship tires directly to customers
on demand. It not only reduces labor costs, it also keeps inventory levels low and customer response
high.“ RMT's 'direct ship' system was capable of managing the entire system inventory and had no
difficulties coping with the demands of a high-SKU environment.
363. The Fayetteville facility can produce 55,000 replacement tires per day. To stock, stage and
ship them from a deployment standpoint is very, very difficult and manually intensive. Our new system
does it all automatically, first by identifying each tire, and then remembering that identification as it
stacks, sorts and deploys to customer requirements.“ The system maintains a large, dynamic picking
inventory on the floor under the gantry, then ships it out in trailer loading sequence. All of this without
ever having seen a person, pallet or rack location. While the system is able to palletize to feed longer
term storage, it's the high percentage that flows from final finish direct to trailer that makes the
solution such a success. In the fall of 2005, RMT Robotics was commissioned to begin the project. The
work was completed in nine months, and after system optimization, Goodyear declared the installation
phase completed in early May, 2006. As a test, we processed about 30,000 tires per day for about a
month and a half. When we finally went inside the gantry to do a physical count of the tires after
processing 1.3 million tires, the discrepancy in inventory was basically nonexistent. That's very, very
impressive.
364. The Future Today, the robotic distribution system handles 100 percent of tire volume from the
Fayetteville plant. The Goodyear Supply Chain Team confirms that, with a few modifications, the
system is well suited to cope with any future production increases. Now, with a fully-automated system
that also offers timely, accurate information on every tire regardless of where it is in the warehouse
and deployment cycle, it's a real competitive advantage. Goodyear's NAT Supply Chain is confident the
new Automated Warehouse Facility will make it more attractive for customers to receive tires from
Goodyear. This technology allows Goodyear to fully integrate production related systems to supply
chain systems. That means better customer fill rates, better deployment of product, and ultimately the
ability to offer more attractive solutions. It has benefited both companies, and the pioneering spirit of
the relationship has resulted in solutions that fundamentally re-define the tire distribution model.
Ankit Dhankar + FOLLOW
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