Trupti Manik Jumle

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Definition
The path through which goods and services travel from the vendor to the consumer or payments for those products travel from the consumer to the vendor. A distribution channel can be as short as a direct transaction from the vendor to the consumer, or may include several interconnected intermediaries along the way such as wholesalers, distributers, agents and retailers. Each intermediary receives the item at one pricing point and moves it to the next higher pricing point until it reaches the final buyer. Coffee does not reach the consumer before first going through a channel involving the farmer, exporter, importer, distributor and the retailer & is Also called the channel of distribution.
Read more: http://www.businessdictionary.com/definition/distribution-channel.html#ixzz2DQLy8vPZ

Channel conflict
Channel conflict is a situation in which channel partners have to compete against one another or the vendor's internal sales department. Channel conflict can cost a company and its partners money as both the partners try to undercut one another. It can also lower morale within the channel and cause some partners to consider other vendors. To prevent channel conflict, partners sometimes enact agreements such as deal registration. Channel conflict may also occur among various segments of corporate departments, such as the sales channel. For example, the direct contact component of the sales department may have to compete with other sales channels, such as telephone, online and mail campaigns

Managing Channel Conflicts: Overview

All channels are based on the premise that anyone joining the channel and performing channel functions stands to benefit. Channel conflicts arise in channel systems when one or more channel members start perceiving the behavior and actions of another channel member as an impediment to goal attainment. There are many sources of channel conflicts. They can originate from competing roles, clash of domains and differing perceptions of reality. Marketing channel strategies and channel structures are also important sources of conflict. Channel conflicts can be of different types. They can be primarily divided into pre-contractual and post-contractual conflicts and conflicts based on channel

levels. Based on the timing of conflicts, they are divided into conflicts that arise before channel members enter into agreements and those that arise after channel members enter into agreements. Channel level conflicts may be vertical, horizontal or multi-level. To ensure effective coordination and channel functioning, different conflict management techniques can be used.

They are primarily segregated into structural and behavioral conflict resolution strategies. Some commonly used strategies include negotiation, persuasion, problem solving, cooperation, arbitration and mediation. Channel members can also resolve conflicts by exchange of personnel between channels and by association with different trade organizations. Channel power is also frequently used as a conflict management tool. Power sources are usually effective when wielded by channel leaders. Channel leaders can use referent, expert, legitimate, coercive and reward power to minimize channel conflicts. Creative and effective channel leadership result in channel members moving towards shared goals. If this ideal situation is achieved, distribution channels will be in a better position to satisfy the demands of target customers and maximize profits of individual channel members.

The major components of a physical distribution management

Answer: This has been defined as the study and evaluation of the relative profitability or costs of different marketing operations in terms of customers marketing units, commodities, territories or services. As you read earlier in the lesson physical distribution cost in the third largest component in the total cost of business operations. Hence there is good scope for cost reduction in this area as it has not received the attention due to it till recent years. One feature of distribution costs distinguishing them from other functional costs is that they have to be looked upon as a unit. Indiscriminate cost reduction in any one of the individual cost elements, such as inventory maintenance, warehousing, transportation or clerical services, can have a disastrous effect on the efficiency of the system as a whole e.g., if we cut inventories it will save capital investment and the costs of supplying capital and it may save some expenses in storage, taxes and insurance. On the other hand a cut in inventory levels may seriously affect reliability of the delivery service to customers. As Mr. John F Magee puts it, it saves money but destroys competitive position. Similarly a cut in transportation costs will result in lack of flexibility and responsiveness to market changes more inventories at more stock points will need more investment and will increase the risk of obsolescence.

Again refusal to allow any cost increase may be equal damaging. It may mean wiping out an opportunity for improving the efficiency of the distribution system as a whole. The use of high speed data processing and communications may increase the cost of distribution. But they will cut down the delays in feeding information back to production and control the lags in the movement of materials into the distribution system in response to customer demand. Thus they may actually cut total distribution costs. Distribution Costs The following is meant to be a tentative list of various costs of distribution. They are not exhaustive. 1. Costs of transportation by common carrier, contract carrier or firms own transport equipment. 2. Warehousing costs in public or private facilities 3. Order handling costs 4. Packing costs 5. Inventory costs of a) Insurance b) Taxes c) Handling d) Obsolescence e) Capital invested Ever since marketing managers began to express concern for the distribution function the total cost approach borrowed from logistics and operations research, many firms have achieved tremendous improvement in their performance and profitability. Even before we can analyze the distribution costs by evolving proper criteria we face a major difficulty. Many concerns do not collect these costs under the separate heading of distribution costs. In actual practice these costs are lost in unlikely cost centers or manipulated to satisfy departmental or individual requirement. In other worth managements, as a matter of policy may not identify distribution costs. In a recent investigation into distribution cost in the U.K. the finding was that most firms contracted were unable to produce a composite breakdown of their distribution costs. In the final analysis the identified distribution costs varied from 3% to 42% of sales. In some industries especially perishable goods and fashion goods industries distribution costs are critical and may represent the major trading cost. Major Stumbling blocks is distribution cost analysis 1. Problems is the attempt to break down total distribution costs into specific components of cost. 2. Difficulties in apportioning these costs to different cost centers of cost units. The common bases adopted are product groups, market segments, geographic location, etc or a combination of these. 3. Problems in the measurement of actual cost associated with a particular distribution activity and in the estimation of future cost in the light of a distribution changing environment. It is generally agreed that the functions of production or manufacturing have been terminated when a product has been placed in a saleable state and that the distribution function has begun. Distribution costs can broadly classified and accounted for it terms of sales departments, territories, salesmen, lines of products, sales and production orders and customers, or a combination of these. To provide adequate detail the accounting system provides the following records

1. Controlling accounts in the general Ledger to reflect the total cost of sales division and administrative division. 2. A subsidiary ledger supporting each of the divisional controlling accounts or recording the objects of selling and administrative expenses such as salaries, supplies, taxes, insurance, deprecation etc. 3. Proper procedure for allocating the items of distribution costs among territories products salesman or other desired breakdowns. 4. Budgets and standards for distribution costs. The Objectives of the accounting system described above are as follows 1. Classification and accounting for distribution costs by channels of distribution, departments, territories, salesman, orders, lines of products and customers comparative statements being submitted to management periodically. 2. Preparation and user of standards for distribution functions to control costs by delegating responsibility, establishing measures of efficiency providing incentives to personnel and supplying predetermined costs as an aid in budget preparation and formulation of pricing policies. 3. Analysis of distribution costs as a guide to management in making current business decisions and setting future policies

10.2. Logistics Vs Distribution

Physical distribution is concerned with the ways organizations get the physical product to a point where it is most convenient for the consumer to buy it. Logistics takes a wider view: originally based on military terminology, logistics is concerned with the process of moving raw materials through the production and distribution processes to the point at which the finished product is needed. This involves strategic decision-making about warehouse location, materials management, stock levels and information systems. Logistics is the area in which purchasing and marketing overlap. In some ways the physical distribution of a product is part of the bundle of benefits that make up that product. For example, a jacket bought through mail order offers convenience benefits which a chain-store jacket does not. Conversely, the chain-store purchase may include hedonic benefits (the fun of shopping around, the excitement of finding a real bargain), which the mail-order company does not supply. Even when the actual jacket is identical, the benefits derived from the distribution method are different. The purpose of any physical distribution method is to get the product from its point of production to the consumer efficiently and effectively. The product must arrive in good condition, and fit the consumers need for convenience, or cheapness, or choice, or whatever else the particular target market thinks is important. Thus, from a marketing viewpoint, the subject of distribution covers such areas as transportation methods, wholesaling, high street retailing, direct mail marketing and even farm-gate shops. Physical distribution is to do with transportation methods; distribution strategy decisions are about which outlets should be used for the product. Transportation methods vary according to speed, cost, and ability to handle the type of

product concerned. As a general rule, the quicker the method the more expensive it is, but in some cases it may be cheaper to use a faster method because the firms capital is tied up for less time. For perishable goods such as fruit, standby airfreight can be as cheap as sea transport, when the lower incidence of wastage is taken into account. The transportation method chosen for a particular product will depend on the factors listed below The physical characteristics of the product If the product is fragile (for example sheet glass) distribution channels need to be short and handling minimized. For perishable goods (e.g. fruit) it may be cheaper to use standby airfreight than to ship by sea, because there will be less spoilage enrooted. The methods used by the competition It is often possible to gain a significant competitive edge by using a method which is out of the ordinary. For example, most inner-city courier companies use motorbikes to deliver urgent documents, but a few use bicycles. In heavy traffic bicycles are often quicker, and can sometimes use routes that are not open to powered vehicles, so deliveries are quicker. The costs of the various channels available The cheapest is not always the best: for example, computer chips are light, but costly, and therefore it is cheaper to use airfreight than to tie up the companys capital in lengthy surface transportation. The reliability of the channel Emergency medical supplies must have 100% reliable transportation, as must cash deliveries. The transit time Security This also applies to fruit and computer chips. Highly valuable items may not be easily distributed through retailers. Direct delivery may work much better. Traceability The ease with which a shipment can be located or redirected. For example, oil tankers can be diverted to deliver to different refineries at relatively short notice. The level of customer service required Customers may need the product to be delivered in exact timings (for example, in just-in-time manufacturing). The Meals on Wheels service is another example; it is essential that deliveries are 100% reliable.

In all these cases, there will be trade-offs involved. Greater customer service will almost always be more expensive; greater reliability may increase transit time, as will greater traceability because in most cases the product will need to be checked on and off the transport method chosen. As with any other aspect of marketing activity, the customers overall needs must be taken into account, and the relative importance of those needs must be judged with some accuracy if the firm is to remain competitive. Transportation method is also affected by the channel of distribution, or marketing channel. Products are rarely delivered directly from producer to consumer, but instead pass through the hands of wholesalers, agents, factors or other middle men. Cutting out the middleman is popularly supposed to be a way of buying things cheaper. In fact, for most products where agents and wholesalers are used, the savings made by greater efficiency more than cover the cost of the extra markup on the product. This means that cutting out the middleman is more likely to increase the cost of the product. Direct producer-to-consumer channels are typical of personal services such as hairdressing, where use of intermediaries would be impossible, and of major capital purchases such as houses or home improvements. This is because these products cannot be broken down into smaller units, or assorted, or accumulated. There is therefore no function for the middlemen to fulfil. If the distribution network is

efficiently managed, goods come down the channel and information goes up. Retailers can feed back information about what consumers need, either formally (by carrying out a monitoring exercise and passing the information to the manufacturer or wholesaler) or informally (since retailers order only what is selling, producers can infer what is required by the consumers). A good salesperson will also act as an information channel, and will find out from the retailers what they think consumers want, as well as convey information from the manufacturers to the retailer. Major manufacturers often have several distribution channels, catering for different market segments. Food processing firms will usually have separate channels for caterers and for retailers, car manufacturers may deal directly with large fleet operators rather than operating through their retail dealer network, and electronics manufacturers may have one channel for consumer products and another for defense products.