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c  c cc cThe selling process is a set of activities undertaken to

successfully obtain an order and begin building long-term customer relations. While the activities we
discuss apply to all forms of selling and can be adapted to most selling situations (including non-product
selling such as selling an idea), we will mainly concentrate on the activities carried out by professional
salespeople. For our purposes, we define professional salespeople as those whose principle occupation
involves selling products (i.e., goods and services) to buyers and do so for organizations that appreciate
and support sellers who are well-trained and ethically responsible.c

The selling activities undertaken by professional salespeople include:

1. Generating Sales Leads

2. Qualifying Leads
3. Preparing for the Sales Meeting
4. Making Initial Contact
5. The Sales Meeting
6. Handling Buyer Resistance
7. Closing the Sale
8. Account Maintenance

It should be noted that while we present these activities in an order that is suggestive of a step-by-step
approach (i.e., one activity must be carried out before the next), in many selling situations this will not be
the case. For example, a buyer for a large retailer may have observed a salesperson's product being
used while visiting a competitor¶s store. The buyer, anxious to obtain the product for use in her own
stores, contacts the salesperson immediately upon returning to the office. After addressing a few
questions from the salesperson confirming the buyer¶s status at the retail company and without much
prodding by the salesperson, the buyer places an order and agrees to meet the salesperson for lunch the
next day. In our example, only activities 

 

 
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 are carried out in order to obtain the sale and to begin building a long-term relationship.

Additionally, salespeople often find circumstances in which all activities are required but the order these
are carried out may be disrupted. For instance, salespeople are often confronted with a buyer who is
resistant to making a purchase even before the salesperson has made a presentation (e.g., "I don¶t think
I'm interested in what you¶re selling"). This will likely force the salesperson to adjust his or her selling
process. In this example it will require the salesperson address the buyer¶s resistance before beginning to
present the product.

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Selling begins by locating potential customers. A potential customer or ³prospect´ is first identified
as a sales lead, which simply means the salesperson has obtained information to suggest that
someone exhibits key characteristics that lend them to being a prospect. For certain sales
positions, locating leads may not be a major task undertaken by the sales force as these activities
are handled by others in company. For instance, salespeople may receive a list of sales leads
based on inquiries through the company¶s website.

However, for a large percentage of salespeople lead generation consumes a significant portion of their
everyday work. For salespeople actively involved in generating leads, they are continually on the look out
for potential new business. In fact, for salespeople whose chief role is that of order getter, there is virtually
no chance of being successful unless they can consistently generate sales leads.

Sales leads can come from many sources including:

 y Prospect Initiated ± Includes leads obtained when prospects initiate contact such as when they fill
out a website form, enter a trade show booth or respond to an advertisement.
y Profile Fitting ± Uses market research tools, such as company profiles, to locate leads based on
customers that fit a particular profile likely to be a match for the company¶s products. The profile
is often based on the profile of previous customers.
y Market Monitoring ± Through this approach leads are obtained by monitoring media outlets, such
as news articles, Internet forums and corporate press releases.
y Canvassing ± Here leads are gathered by cold-calling (i.e., contacting someone without pre-
notification) including in-person, by telephone or by email.
y Data Mining ± This technique uses sophisticated software to evaluate information (e.g., in a
corporate database) previously gathered by a company in hopes of locating prospects.
y Personal and Professional Contacts ± A very common method for locating sales leads uses
referrals. Such referrals may come at no cost to the salesperson or, to encourage referrals,
salespeople may offer payment for referrals. Non-paying methods including asking acquaintances
(e.g., friends, business associates) and networking (e.g., joining local or professional groups and
associations). Paid methods may include payment to others who direct leads that eventually turn
into customers including using Internet affiliate programs (i.e., paid for website referrals).
y Promotions ± The method uses free gifts to encourage prospect to provide contact information or
attend a sales meeting. For example, offering free software for signing up for a demonstration of
another product.

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Not all sales leads hold the potential for becoming sales prospects. There are many reasons for this
including:

y Cannot be Contacted ± Some prospects may fit the criteria for being a prospect but gaining time
to meet with them may be very difficult (e.g., high-level executives).
y Need Already Satisfied - Prospects may have already purchased a similar product offered by a
competitor and, thus, may not have the need for additional products.
y Lack Financial Capacity - Just because someone has a need for a product does not mean they
can afford it. Lack of financial capacity is major reason why sales leads do not become prospects.
y May Not Be Key Decision Maker - Prospects may lack the authority to approve the purchase.
y May Not Meet Requirements to Purchase - Prospects may not meet the requirements for
purchasing the product (e.g., lack other products needed for seller¶s product to work properly).

The process of determining whether a sales lead has the potential to become a prospect is known as
"qualifying" the lead. In some cases, a sales lead can be qualified by the seller prior to making first
contact. For instance, this can be done through the use of research reports, such as an evaluation of a
company¶s financial position using publicly available financial reporting services. More likely, sellers will
not be in a position to qualify leads until they establish contact with a lead, which may occur in activities
associated with either Making Initial Contact or The Sales Meeting.

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If a prospect has been qualified or if qualifying cannot take place until additional information is
obtained (e.g., when first talking to the prospect), a salesperson¶s next task is to prepare for an
eventual sales call. At this stage the salesperson's key focus is one learning as much as possible
about the prospect. While during the lead generation and qualifying portion of the selling process
a seller may have gained a great deal of knowledge about a customer, invariably there is much
more to be known that will be helpful once an actual sales call is made. The salesperson will use
their research skills to learn about such issues as:

y who is the key decision maker

y what is the customer¶s organizational structure
 y what products are currently being purchased
y how are purchase decisions made

Salespeople can attempt to gather this information through several sources including: corporate research
reports, information on the prospect¶s website, conversations with non-competitive salespeople who have
dealt with the prospect, website forums where industry information is discussed, and by asking questions
when setting up sales meetings (see Making Initial Contact). Gaining this information can help prepare
the salesperson for the sales presentation. For example, if the salesperson learns which competitor
currently supplies the prospect then the salesperson can tailor promotional material in a way that
compares the seller¶s products against products being purchased by the prospect. Additionally, having
more information about a prospect allows the salesperson to be more confident in his/her presentation
and, consequently, come across as more knowledgeable when meeting with the prospect.

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With some information about the prospect in-hand, the salesperson must then move to make initial
contact. In a few cases a salesperson may be fortunate to have the prospect contact her/him but in most
cases salespeople will need to initiate contact. In many ways arranging for contact is as much as selling
effort as selling a product.

There are two main approaches to arranging contact:

y Cold Calling for Presentation ± A challenging way to contact a prospect is to attempt to conduct a
sales meeting through a straight cold call. In this approach the intention is to not only contact the
prospect but to also give a sales presentation during this first contact period. This approach can
be difficult since the prospect may be irritated by having unannounced salespeople interrupt them
and take time out of their busy work schedule to sit for a sales meeting.
y Cold Calling for Appointment ± A better approach for most salespeople is to contact a prospect to
set up an appointment in advance of the sales meeting. The main advantages of making
appointments is that it gives the salesperson additional time to prepare for the meeting and also,
in the course of discussing an appointment, the salesperson may have the opportunity to gain
more information from the prospect. Of course, this way also has the added advantage of having
the prospect agree to the sit for the meeting, which may make them more receptive to the product
than if the salesperson had followed the Cold Calling for Presentation approach.

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The heart of the selling process is the meeting that takes place between the prospect and the
salesperson. At this stage of the selling process the salesperson will spend a considerable amount of
time presenting the product. While the word "presenting" may imply the seller is taking center stage and
does most of the talking by discussing the product¶s features and benefits, in actuality successful sellers
find effective presentations to be more of a give-and-take conversation.

Additionally, the meeting is not just about the seller discussing the product, rather much more takes place
during this part of the selling process including:

y Establishing Rapport with the Prospect ± Successful salespeople know that jumping right into a
discussion of their product is not the best why to build relationships. Often it is important that,
upon first greeting the prospect, the salesperson spend a short period of time in a friendly
conversation to help establish a rapport with the potential buyer.
y Gaining Background Information ± The salesperson will use questioning skills to learn about the
prospect and the prospect¶s company and industry.
 y Access Prospect¶s Needs - Taking what is learned from the prospect¶s response to questions, the
salesperson can determine the prospect¶s needs. To accomplish this task successfully, sellers
must be skilled at listening and understanding responses.
y Presenting the Product ± The salesperson will stimulate a prospect¶s interest by discussing a
product¶s features and benefits in a way that is tailored to the needs of the customer. Part of this
discussion may include a demonstration of the product.
y Assess the Prospect - Throughout the presentation the seller will use techniques, including
interpreting non-verbal cues (e.g., body language), to gauge the prospect¶s understanding and
acceptance of what is discussed.

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It is a rare instance when a salesperson does not receive resistance from a prospect. By resistance we
are referring to a concern a prospect has regarding the product (or company) and how it will work for their
situation. In most cases the resistance is expressed verbally (e.g., "I don't see how this can help us.") but
other times the resistance presents itself in a non-verbal fashion (e.g., prospect facial expression shows
puzzlement).

While handling sales resistance may sound like a difficult part of selling, most successful salespeople
actually welcome and even encourage it as part of the selling process. Why? Because it is an indication
the prospect is paying attention to the presentation and may even have an interest in the product if the
resistance can be effectively addressed.

To overcome resistance, salespeople are trained to make sure they clearly understand the prospect's
concern. Sometimes prospects say one thing that appears to be an objection to the product but, in fact,
they have another issue that is preventing them from agreeing to a purchase. Salespeople are rarely able
to make the sale unless resistance is overcome.

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Most people involved in selling acknowledge that this part of the selling process is the most difficult.
Closing the sale is the point when the seller asks the prospect to agree to make the purchase. It is also
the point at which many customers are unwilling to make a commitment and, consequently, respond to
the seller¶s request by saying no. For anyone involved in sales such rejection can be very difficult to
overcome, especially if it occurs on a consistent basis.

Yet the most successful salespeople will say that closing the sale is actually fairly easy if the salesperson
has worked hard in developing a relationship with the customer. Unfortunately some buyers, no matter
how satisfied they are with the seller and their product, may be insecure or lack confidence in making
buying decisions. For these buyers, salespeople must rely on persuasive communication skills that help
assist and even persuade a buyer to place an order.

The use of persuasive communication techniques is by far the most controversial and most
misunderstood concept related to the selling process. Why? Because to many people the act of
persuasion is viewed as an attempt to manipulate someone into doing something they really do not want
to do. However, for sales professionals this is not what persuasive communication is about. Instead,
persuasion is a skill for assisting someone in making a decision; it is not a technique for making someone
make a decision. The difference is important. Where one is manipulative, the other is helpful and
designed to benefit the buyer. And as we noted, persuasion does not always occur. Many times buyers
take the lead in closing a sale since they are convinced the product is right for them.

For salespeople, understanding when it is time to close a sale and what techniques should be used takes
experience. In any event, the close is not the end of the selling process but is the beginning of building a
relationship.
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While account maintenance is listed as the final activity in the selling process, it really amounts to the
beginning of the next sale and, thus, the beginning of a buyer-seller relationship. In selling situations
where repeat purchasing is a goal (compared to a one-time sale), following up with a customer is critical
to establishing a long-term relationship.

After a sale, salespeople should work hard to insure the customer is satisfied with the purchase and
determine what other ways the salesperson can help the customer be even more satisfied with the
purchase. The level and nature of after-sale follow-up will often depend on the product sold. Expensive,
complex purchases that require installation and training may result in the salesperson spending
considerable time with the customer after the sale while smaller purchases may have the seller follow-up
with simple email correspondence.

By maintaining contact after the sale the seller is in a position to become more accepted by the customer
which invariably leads to the salesperson learning more about the customer and the customer¶s business.
With this knowledge the salesperson will almost always be presented with more selling opportunities.

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c* c%  In recent years, customers have been downsizing their supplier base and
replacing their multiple vendors with a very small number of possibly long-term relationships offered only
to a select few suppliers. A widely quoted figure is that customers are working today with one-third fewer
suppliers than they did 10 years ago. Combined with merger trends and market consolidation, the trend
toward purchasing from fewer suppliers has resulted in customers capable of leveraging the volume of
their purchases for enhanced services and cost-cutting opportunities. The response of many sellers to the
emergence of very large and powerful customers has been to develop a system of enterprise
relationships to better meet the needs of their major customers.

An enterprise relationship is one in which the primary function is to leverage any and all corporate assets
of the supplier in order to contribute to the customer¶s strategic success. In such a situation, both the
product and the sales force are secondary, and the customer must be of strategic importance to the
selling organisation. To achieve successful enterprise relationships, the supplier must deliver exceptional
customer value while also extracting sufficient value from the relationship. This is always challenging,
especially when the customer has large needs.

Following are some of the ways in which other companies have made strategic partner relationships
work.
‡ Suppliers are involved in the early stages of need identification, specification, and new product
development.
In conventional relationships, the primary players were the salesperson, the customer service
representative, and perhaps a design engineer. With enterprise relationships, the supplier fields a team
that interfaces with the customer on a regular basis, and includes a variety of functional areas and
management levels.
‡ In enterprise relationships, there is an unusually high degree of intimacy resulting in immediate
responsiveness from suppliers, sharing of information, radical empowerment of suppliers, and termination
of the relationship as a remote and difficult option.

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The activities of the sales force, the structure of the sales force, compensation, and even the sales
philosophy differ for each type of relationship. For instance, as the buyer-seller relationship becomes
more sophisticated and complex, the sales force¶s role as the primary point of contact between customer
and supplier often diminishes. The focus also shifts to some degree from sales volume generation to
management and maintenance of the relationship and the conflicts that are likely to arise over time.

Studies have shown that enterprise-type business-to-business relationships tend to focus on lowering the
customer¶s overall operating costs. Industrial salespeople are typically trained in selling behavior and in
how to present technical product features, not in process and cost analysis. Salespeople are needed who
can develop a thorough understanding of the customer¶s operations and the way costs are influenced by
the supplier¶s products and customer interactions. A supplier may also have to analyse whether their
sales compensation system rewards salespeople for lowering customer costs, which usually requires a
long-term perspective, or short-term volume gains.

c 
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much or too little inventory to satisfy demand, missed production schedules, and ineffectual transportation
and delivery schedules. To get a solution for this problem, companies are turning to supply chain
management. Supply chain management is the integration and organisation of information and logistics
activities across firms in a supply chain for the purpose of creating and delivering goods and services that
provide value to customers. In short, supply chain management is about producing top class products
that are available at the right time, at the right place, and in the right form and condition.

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· Selecting and managing supplier relationships

· Managing inbound logistics

· Managing internal logistics

· Managing outbound logistics

· Designing product assembly and batch manufacturing

· Managing process technology

· Managing order, pricing, and payment terms

· Managing channel partners

· Managing product installation and maintenance

Supply chain management focuses on the entire supply chain. Fundamental to this concept is recognising
that a supply chain is not a linked series of one-on-one relationships between buyers and sellers, but a
synchronised network or system involving a supplier¶s own suppliers as well as downstream customers
and their distributors, brokers/agents, transporters, and final customers.

·   (ccc1c c!jcHow is the sales force involved in supply chain management? In
the traditional distribution systems, the sales force¶s involvement was largely at the tail end of the process
when interacting with the customer and channel members. This generalisation, however, is changing
somewhat as companies adopt more of a market-driven focus to SCM. This involves a shift from sourcing
inputs at the cheapest possible prices to designing, managing, and integrating the firm¶s supply chain with
that of both suppliers and customers. The benefits experienced by the end customer is becoming the
main objective, as opposed to internal goals such as delivery cycles, production schedules, and operating
costs.
Effective Sales Force relations with the Distributive Networks will depend on the following three factors:
‡ Knowledge of the entire upstream and downstream supply chain.
‡ Thinking strategically about partnering.
‡ Establishing good lines of communications and influence with senior corporate management.

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· 'ccc2) Sales quotas are a way of life for the sales force. All activities of the sales
force revolve around the fulfillment of sales quotas. Sales quotas are targets assigned to sales personnel.
They signify the performance expected from them by the organisation. Sales quotas help in directing,
evaluating and controlling the sales force. They form an indispensable tool for sales managers to carry
out sales management activities. Sales quotas are prepared on the basis of sales forecasts and budgets.
Sales quotas serve various purposes in organisations.

They provide targets for sales personnel to achieve & also act as standards to measure sales force
performance and help motivate the sales force. Compensation plans are invariably linked to quotas. The
commission and bonuses given to sales persons are based on their meeting quotas set for them. The
four categories of sales quotas widely used are:

± sales volume quotas,

± expense quotas,
± activity quotas and
± profit quotas.

A sales quota should be fair, challenging yet attainable, rewarding, easy to understand, flexible and must
satisfy management objectives.

It must also help in the coordination of sales force activities. Setting motivating and easy to understand
quotas is essential to obtain the cooperation of the sales force. Various methods are used to set sales
quotas, among which, quotas based on sales forecasts and market potential are the most common.
Skilful administration by sales managers is required for effective implementation of quotas. Convincing
salespeople about the fairness and accuracy of quotas helps the sales management to successfully
implement quotas.

Sales quotas have certain limitations such as being time consuming, difficulty in comprehending if
complicated statistical calculations have been used and focusing on attaining sales volumes at the cost of
ignoring important non-selling activities. Quotas may reduce risk-taking among sales personnel and may
influence them to adopt unethical selling practices. With changes in the competitive environment and
variations in customer expectations, many companies have started developing compensation plans that
are increasingly based on non-traditional aspects, thereby reducing dependency on quotas.

The process of establishing normal and reasonable sales quotas can vary greatly as a function of the
business, industry, type and size of the sales organisation, and product and/or service being sold.
However, there can often be a great deal of commonality in the approach to this important sales-
generating tool.

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considered to ensure the effective establishment of sales quotas are:
- Corporate revenue goals
- Historical revenue performance
- Current sales coverage model
- Planned increases in sales headcount
- Introduction of new products and services
- Current market share
- Stretch targets

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j cc  c((: Logistics management is that part of the supply chain which plans,
implements and controls the efficient, effective forward and reverse flow and storage of goods, services
and related information between the point of origin and the point of consumption in order to meet
customers¶ requirements. A professional working in the field of logistics management is called a
logistician.
Logistics management activities typically include inbound and outbound transportation management, fleet
management, warehousing, materials handling, order fulfillment, logistics network design, inventory
management, supply/demand planning, and management of third party logistics services providers.

  c1 cThe logistics function includes sourcing and procurement, production planning and
scheduling, packaging and assembly, and customer service. It is involved in all levels of planning and
execution ± strategic, operational and tactical. Logistics management is an integrating function, which
coordinates and optimizes all logistics activities, as well as integrates logistics activities with other
functions including marketing, sales manufacturing, finance and information technology.

Logistics is much more and much wider than mere physical handling of goods. Logistics involves several
other functions such as purchasing, plant location, plant layout, etc., and even the disposal of wastes. It
covers astonishingly varied professional disciplines. They are:

· Facility location
· Planning
· Forecasting and order management
· Transportation: the mode and the route
· Inventory management: all inventories
· Warehousing
· Protective packaging

Raw material and finished products had always to be moved, though on a small scale. Things began
changing with the advance in transportation. Population began moving from rural to urban areas and to
business centres. No longer did people live near production centres, nor did production take place near
residence centres. The geographical distance between the production point and consumption point
increased.
Since the early 1990¶s, the business scene has changed. The globalization, the free market and the
competition has required that the customer gets the right material, at the right time, at the right point and
in the right condition at the lowest cost. This is "globalization" and is not unusual today. Here are some of
the logistics functions that allowed this to happen:
1. Purchasing ± of raw materials, assembled products, finished products from all over the world. Where
can you get the quality you want at the best price?
2. Manufacturing operations ± how should the machines be organized, how many workers do you need,
where do you stock your materials and finished products, how many products do you manufacture on
each production run, etc.
3. Transportation ± domestic and international, from raw materials to finished product; that moves what,
and when, and for what price?
4. Warehousing ± product is either moving (transportation) or not (warehousing). This is becoming a very
sophisticated area and a key to shortening the time to market for products.
5. Inventory control ± how much product is on hand, on order, in transit, and where is it? Inventory drives
logistics.
6. Import/export ± international regulations and documentation can be complex. It takes a specialist to
understand the best way to get product across borders.
7. Information systems ± globalization on today¶s scale is possible because there is technology that
transfers the needed information.

Logistics functions are unavoidable costs to a company, but today they are recognized as crucial to a
company¶s competitiveness and profitability.

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 c!cLike most marketing decisions, a great
deal of research and thought must go into determining how to carry out distribution activities in a way that
meets a marketer¶s objectives. The marketer must consider many factors when establishing a distribution
system. Some factors are directly related to marketing decisions while others are affected by relationships
that exist with members of the channel.

The following are the key factors to consider when designing a distribution strategy. We can group these
into two main categories:

± marketing decision issues and

± channel relationship issues.

j c  c cDistribution strategy can be shaped by how decisions are made in other
marketing areas as under:

· c  The nature of the product often dictates the distribution options available especially if
the product requires special handling. For instance, companies selling delicate or fragile products, such
as flowers, glass articles, etc., look for shipping arrangements that are different than those sought for
companies selling extremely tough or durable products, such as steel rods.

· ( c cBesides issues related to physical handling of products, distribution decisions are
affected by the type of promotional activities needed to sell the product to customers. For products
needing extensive salesperson-to-customer contact (e.g., automobile purchases) the distribution options
are different than for products where customers typically require no sales assistance (i.e., bread
purchases).

·   c cThe desired price at which a marketer seeks to sell their product can impact how they
choose to distribute. The inclusion of resellers in a marketer¶s distribution strategy may affect a product¶s
pricing since each member of the channel seeks to make a profit for their contribution to the sale of the
product. If too many channel members are involved the eventual selling price may be too high to meet
sales targets in which case the marketer may explore other distribution options.
· "cjc cA distribution system is only effective if target customers can obtain the product.
Consequently, a key decision in setting up a channel arrangement is for the marketer to choose the
approach that reaches target customers in the most effective way possible. The most important decision
with regard to reaching the target market is to determine the level of distribution coverage needed to
effectively meet customer¶s needs. Distribution coverage is measured in terms of the intensity by which
the product is made available. For the most part, distribution coverage decisions are of most concern to
consumer products companies, though there are many industrial products that also must decide how
much coverage to give their products.

The marketer must take into consideration many factors when choosing the right level of distribution
coverage. However, all marketers should understand that distribution creates costs to the organisation.
Some of these expenses can be passed along to customers (e.g., shipping costs) but others cannot (e.g.,
need for additional salespeople to handle more distributors). Thus, the process for determining the right
level of distribution coverage often comes down to an analysis of the benefits (e.g., more sales) versus
the cost associated with gaining the benefits.

·  cc 
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coverage, selective and exclusive.

0cjc!  ± The mass coverage (also known as intensive distribution) strategy attempts to
distribute products widely in nearly all locations in which that type of product is sold. This level of
distribution is only feasible for relatively low priced products that appeal to very large target markets (e.g.,
FMCG products). A product such as Coca-Cola is a classic example since it is available in a wide variety
of locations including grocery/provision stores, convenience stores, vending machines, hotels and many,
many more. With such a large number of locations selling the product the cost of distribution is extremely
high and must be offset with very high sales volume.

0c c!  ± Under selective coverage the marketer deliberately seeks to limit the locations in
which this type of product is sold. The logic of this strategy is due to the size and nature of the product¶s
target market. Products with selective coverage appeal to smaller, more focused target markets (e.g., air
conditioners) compared to the size of target markets for mass marketed products. Consequently, because
the market size is smaller, the number of locations needed to support the distribution of the product is
fewer.

0c*3 c!  ± Some high-end products target very narrow markets that have a relatively small
number of customers. These customers are often characterised as ³discriminating´ in their taste for
products and seek to satisfy some of their needs with high-quality, though expensive products.
Additionally, many buyers of high-end products require a high level of customer service from the channel
member from whom they purchase. These characteristics of the target market may lead the marketer to
sell their products through a very select or exclusive group of resellers. Another type of exclusive
distribution may not involve high-end products but rather products only available in selected locations
such as company-owned stores. While these products may or may not be higher priced compared to
competitive products, the fact that these are only available in company outlets give exclusivity to the
distribution.

While these three distribution coverage options serve as a useful guide for understanding how distribution
intensity works, the advent of the Internet has brought into question the effectiveness of these schemes.
For all intents and purposes all products available for purchase over the Internet are distributed in the
same way ± mass coverage. So a better way to look at the three levels is to consider these as options for
distribution coverage of products that are physically purchased by a customer (i.e., walk-in to purchase).

· j c!c cFor many products and services, their manufacturers or providers
use multiple channels of distribution. A refrigerator, for example, might be bought directly from the
manufacturer, either over the telephone, direct mail, or the Internet, or through several kinds of retailers,
including independent appliance stores, franchised company stores, and department stores. In addition,
large and small businesses may make their purchases through other outlets.

Channel structures range from two to five levelsc

· ",c ccThe simplest is a two-level structure in which goods and services move directly
from the manufacturer or provider to the consumer. Two-level structures occur in some industries where
consumers are able to order products directly from the manufacturer and the manufacturer fulfills those
orders through its own physical distribution system.

· "c c In a three-level channel structure retailers serve as intermediaries between
consumers and manufacturers. Retailers order products directly from the manufacturer & then sell those
products directly to the consumer.

· 1c c A fourth level is added when manufacturers sell to wholesalers rather than to
retailers. In a four-level structure, retailers order goods from wholesalers rather than manufacturers.

· 1 c c Finally, a manufacturer¶s agent can serve as an intermediary between the
manufacturer and its wholesalers, creating a five-level channel structure consisting of the manufacturer,
agent, wholesale, retail, and consumer levels. A five-level channel structure might also consist of the
manufacturer, wholesalers, agents, retail, and consumer levels, whereby agents service smaller retailers
not covered by the large wholesalers in the industry.

·  c!cGiven the importance of distribution channels it is important to make a careful
assessment of the channel alternatives. In evaluating possible channels, it may be helpful first to analyse
the distribution channels used by competitors. This analysis may reveal that using the same channels
would provide the best option, or it may show that choosing an alternative channel structure would give
the firm a competitive advantage. Other factors to consider include the company¶s pricing strategy and
internal resources. As a general rule, as the number of intermediaries included in a channel increase,
producers lose a greater percentage of their control over the product and pay more to compensate each
participating channel level. At the same time, however, more intermediaries can also provide greater
market coverage.

cc 5cc ccc(ccc(cc

·  c (which provides the advantage of direct contact with the consumer);

· 7  c*2 (cj (OEM) sales (in which a company¶s product is sold to another
company that incorporates it into a finished product); ± manufacturer¶s representatives (salespeople
operating out of agencies that handle an assortment of complimentary products);

· ' (who generally buy goods in large quantities, warehouse them, then break them down into
smaller shipments for their customers ± usually retailers);

· $ (who act as intermediaries between producers and wholesalers or retailers);

· %  (which include independent stores as well as regional and national chains); and

·  c( cIdeally, the distribution channels selected by a company should be close to the desired
market, able to provide necessary services to buyers, able to handle local advertising and promotion,
experienced in selling compatible product lines, solid financially, cooperative, and reputable.
Since many businesses lack the resources to hire, train, and supervise their own sales forces, sales
agents and brokers are a common distribution channel. Many businesses consign their output to an
agent, who might sell it to various wholesalers, one large distributor, or a number of retail outlets. In this
way, an agent might provide the company with access to channels it would not otherwise have had.
Moreover, since most agents work on a commission basis, the cost of sales drops when the level of sales
drops, this provides these companies with some measure of protection against economic downturns.
When selecting an agent, the firm should look for one who has experience with desired channels as well
as with closely related ±but not competitive ± products.

Other channel alternatives can also offer benefits to small businesses. For example, by warehousing
goods, wholesalers can reduce the amount of storage space needed by the manufacturers. They can
also provide national distribution that might otherwise be out of reach for some firms. Selling directly to
retailers can be a challenge for many companies. Independent retailers tend to be the easiest market for
companies to penetrate. The merchandise buyers for independent retailers are most likely to get their
supplies from local distributors, can order new items on the spot, and can make adjustments to inventory
themselves. Likewise, buyers for small groups of retail stores also tend to hold decision-making power,
and they are able to try out new items by writing small orders. However, these buyers are more likely to
seek discounts, advertising allowances, and return guarantees.

Medium-sized retail chains often do their buying through a central office. In order to convince the chain to
carry a new product, the company must usually make a formal sales presentation with brochures and
samples. Once an item makes it onto the shelf, it is required to produce a certain amount of revenue to
justify the space it occupies, or else it will be dropped in favor of a more profitable item. National retail
chains, too, handle their merchandise buying out of centralised offices and are unlikely to see company
sales people making cold sales calls. Instead, they usually request a complete marketing program, with
anticipated returns, before they will consider carrying a new product. Once an item becomes successful,
however, these larger chains often establish direct computer links with producers for replenishment.

--------------------------------------------------------------------------------------------------------------------------------------------

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The forecast of demand forms the basis for all strategic and planning decisions in a supply chain.
Throughout the supply chain, all push process is performed in anticipation of customer demand whereas
all pull process is performed in response to customer demand. For push process, a manager must plan
the level of available capacity and inventory. In both instances the first step a manager must take is to
forecast what customer demand will be? The utility of forecasts can be enhanced through collaborative
forecasting among supply chain partners.

· Production : Scheduling, inventory control, aggregate planning, purchasing

· Marketing : Sales-force allocation, promotions, new product introduction
· Finance : Plant/equipment investment, budgetary planning
· Personnel : Workforce planning, hiring, layoffs

It is essential that these decisions not to be segregated by functional area or even by enterprise, as they
influence each other and are best made jointly. For example, Coca-cola considers the demand forecast
over the coming quarter and decides on the various promotions. The promotion information is then used
to update the demand forecast. The updated forecast is essential for the bottlers, who are often
independent of Coca-Cola, to plan their production as it may require additional investment and hiring
decisions. A bottler operating without the updated forecast based on the promotions unlikely to have
sufficient supply available for Coca-Cola. This example illustrates the importance of collaboration-both
within the functions of a company as well as among companies in a supply chain.
Mature products with stable demand are usually easiest to forecast. Staple products at a supermarket,
such as milk or paper towels, fit this description. Forecasting and the accompanying managerial decisions
are extremely difficult when either the supply of raw materials or the demand for the finished product is
highly variable. Some examples of items that are difficult to forecast include fashion goods and many
high-tech products. Good forecasting is very important in these cases because the time window for sales
is narrow and if a firm has over-or under produced, it has a little chance to recover. For a product with a
long life cycle, in contrast, the impact of a forecasting error is less significant.

· !(ccc1cc1 cjc A company must be knowledgeable about

numerous factors that are be related to the demand forecast. Some of these factors are listed next.

· Past demand
· Lead time of product
· Planned advertising or marketing efforts
· State of the economy
· Planned price discounts
· Actions competitors have taken

A company must understand such factors before it can select an appropriate forecasting methodology.
For example, historically a firm may have experienced low demand for chicken noodle soup in October
and high demand in December and January. If the firm decides to discount the product in October, the
situation is likely to change, with some of the future demand shifting to the month of October. The firm
should make its forecast taking this factor into consideration. Forecasting methods are classified
according to the following four types:

1. Qualitative: Qualitative forecasting methods are primarily subjective and rely on human judgment. They
are most appropriate when there is little historical data available or when experts have market intelligence
that is critical in making the forecast. Such methods may be necessary to forecast demand several years
into the future in a new industry.

2. Time series: Time series forecasting methods use historical demand to make a forecast. They are
based on the assumption that past demand history is a good indicator of future demand. These methods
are most appropriate when the basic demand pattern does not vary significantly from one year to the
next. These are the simplest methods to implement and can serve as a good starting point for a demand
forecast.

3. Casual: Casual forecasting methods assume that the demand forecast is highly correlated with certain
factors in the environment (eg. The state of the economy, interest rate, etc.) Casual forecasting methods
find this correlation between demand and environmental factors will be to forecast future demand. For
example, product pricing is strongly correlated with demand. Companies can thus use casual methods to
determine the impact of price promotions on demand.

4. Simulation: Simulation forecasting methods initiate the consumer choices that give rise to demand to
arrive at a forecast. Using simulation, a firm can combine time series and casual methods to answer such
question as: What will be the impact of a price promotion is? What will the impact be of a competitor
opening a store nearby? Airlines simulate customer buying behavior to forecast demand for a higher fare
seats when there are no seats available at the lower rates.
There are fixed as well as variable costs associated with facilities, transportation, and inventories at each
facility. Fixed costs are those are incurred no matter how much is produced or shipped from a facility.
Variable costs are those that are incurred in proportion to the quantity produced or shipped from a given
facility. Variable facility, transportation, and inventory costs generally display economies of scale and the
marginal cost decreases as the quantity produced at a facility increases. In the models we consider,
however, all variable costs grow linearly with the quantity produced or shipped.

Sun Oil is considering two different plant sizes in each location. Low-capacity plants can produce 10
million units a year whereas high-capacity plants can produce 20 million units a year as shown in Cells
H4:H8 and J4:J8, respectively. High-capacity plants exhibit some economies of scale and have fixed
costs that are less than twice the fixed cost of a low-capacity plant as shown in cells I4:I8. All fixed costs
are annualized. The vice president would like to know what the lowest cost network should look like. Next,
we discuss the capacitated plant location model, which can be used in this setting.

$ ccc(c1 

The following basic, six ± step approach helps an organization perform effective forecasting:

1. Understand the objective of forecasting

2. Integrate demand planning and forecasting throughout the supply chain
3. Understand and identify customer segments
4. Identify the major factors that influence the demand forecast
5. Determine the appropriate forecasting technique
6. Establish performance and error measures for the forecast
Each organization must use all six steps to forecast effectively.

· 8cc7

6 cc1 cThe objective of every forecast to support decisions that are
based on the forecast, so an important first step is to clearly identify these decisions. Examples of such
decisions include how much of a particular product to make, how much to inventory, and how much to
order. All parties affected by a supply chain decision should be aware of the link between the decision
and the forecast.

For example, if Wal-Mart plans a promotion in which it will discount detergent during the month of July,
this information must be shared with the manufacturer, the transporter, and others involved in filling
demand as they all have decisions to make that will be affected by the forecast of demand. All parties
should come up with a common forecast for the promotion and a shared plan of action based on the
forecast. Failure to make these decisions jointly may result in either too much or too little product in
various stages of the supply chain.

c(c cc1 c"ccc! cA Company should link
its forecast to all planning activities throughout the supply chain. These include capacity planning,
production planning, promotion planning, and purchasing, among others. This link should exist at both the
information system and the human resource management level. As a variety of functions are affected by
the outcomes of the planning process, it is important that all of them are integrated into the forecasting
process. In one unfortunately common scenario, a retailer develops forecasts based on promotional
activities, whereas a manufacturer, unaware of these promotions, develops a different forecast for their
production planning. As a result, the manufacturer may not have enough products for the retailer,
ultimately leading to poor customer service.

To accomplish this integration, it is a good idea for a firm to have a cross-functional team, with members
from each affected function responsible for forecasting demand-and an even better idea to have
members of different companies in the supply chain working together to create a forecast.

 cj6c1cc cc(c1cNext, a firm must identify major factors
that influence the demand forecast. A proper analysis of these factors is central to developing an
appropriate forecasting technique. The main factors influencing forecasts are demand, supply, and
product-related Phenomena.

On the demand side, a company must ascertain whether demand is growing, declining, or has a seasonal
pattern. These estimates must be based on demand-not sales data. For example, a supermarket may
have promoted a certain brand of cereal in July 2002. As a result, the demand for this cereal may have
been high while the demand for others, comparable cereal brands was low in July.

The supermarket should not use the sales data from 2002 to estimate that demand for this brand will be
high in July 2003, because this will only be the case if the same brand is promoted again in July 2003 and
other brands respond as they did the previous year. When making the demand forecast, the supermarket
must understand what the demand would have been in the absence of promotion activity and how
demand is affected by promotions. A combination of these two pieces of information will allow the
supermarket to forecast demand for July2003 given the promotion activity planned for that year.

On the supply side, a company must consider the available supply sources to decide on the accuracy of
the forecast desired. If alternate supply sources with short lead times are available, a highly accurate
forecast may not be especially important. However, if only a single supplier with a long lead time is
available, an accurate forecast will have great value.

On the product side, a firm must know the number of variants of a product being sold and whether these
variants substitute for or complement each other. If demand for a product influences or is influenced by
demand for another product, the two forecast are best made jointly. For example, when a firm introduces
an improved version of an existing product, it is likely that the demand for the existing product will decline
because new customers will buy the improved version. While the decline in demand for the original
product would not be indicated by historical data, the historical demand is still useful in that it allows the
firm to estimate the combined total for the two versions. Clearly, demand for the two products should be
forecast jointly.

· ( cc c1 c" 2cIn selecting an appropriate forecasting

technique, a company should first understand the dimensions that will be relevant to the forecast. These
dimensions include geographical area, product groups, and customer groups. The company should
understand the difference in demand along each dimension. A firm would e wise to have different
forecasts and techniques for each dimension. At this stage, a firm selects an appropriate forecasting
method from the four methods discussed earlier-qualitative time series, casual, or simulation. As
mentioned earlier, using a combination of these methods is often effective.

*
 c(cc*cjcc1ccCompanies should establish clear
performance measures to evaluate the accuracy and timeliness of the forecast. These measures should
correlate with the objectives of the business decision based on these forecasts. For example, consider a
mail order company that uses a forecast to place orders.

With its suppliers up the supply chain. Suppliers send in the orders with a two-month lead time and the
products are then sold. The objective of the order is to provide the company with a quantity that
minimizes both the amount of extra product left over at the end of the sales season and any lost sales
that would result if the product were not available. The mail order company must ensure that the forecast
is created at least two months before the start of the sales season because suppliers take two months to
send the ordered quantities.

At the end of the sales season, the company must compare actual demand to forecasted demand to
estimate the accuracy of the forecast. The observed accuracy should be compared with the desired
accuracy and the resulting gap should be used to identity corrective action that the mail order company
needs to take. In the next section, we begin by discussing the techniques for static and adaptive time
series forecasting.

· " (c c1 cjcThe goal of any forecasting method is to predict the systematic
component of demand and estimate the random component. The systematic component of demand data,
in the most general form, contains a level, a trend, and a seasonal factor. The systematic component may
take a variety of forms, as shown following.

· Multiplicative: Systematic component =level x trend x seasonal factor

· Additive: Systematic component=level + trend +seasonal factor
· Mixed: systematic component= (level + trend) x seasonal factor
The specific form of the systematic component applicable to a given forecast will depend on the nature of
demand. Companies may develop both static and adaptive forecasting methods for each form.

 cj: A static method assumes that the estimates of level, trend, and seasonality within the
systematic component do not vary as new demand is observed. In this case, we estimate each of these
parameters based on historical date and then use the same values for all future forecasts. In this section
we discuss a static Forecasting method for use when demand has a trend as well as a seasonal
component. We assume that the systematic component of demand is mixed, that is,

Systematic component= (level + trend) x seasonal factor.

A similar approach can be applied for other forms as well. We begin with a few basic definitions:
L =Estimate of level at t=0(the depersonalized demand estimate during period t=0)
T =Estimate of trend (increase or decrease in demand per period)
S t =Estimate of seasonal factor for period t
D t =Actual demand observed in period t
F t =Forecast of demand for period t
In a static forecasting method, the forecast in period t for demand in period t + l is given as follows:
F t +l= [L + (t + l) T] S t + l
We now describe one method for estimating the three parameters L, T, and S. As an example, we
consider the demand for rock salt used primarily to melt snow and produced by Tahoe Salt. Tahoe Salt¶s
product is sold through a variety of independent retailers around the Lake Tahoe area of the Sierra
Nevada Mountains. In the past, Tahoe Salt has relied on estimates of demand from a sample of their
retailers but they have noticed that these retailers always overestimated what they would purchase,
leaving Tahoe (and even retailers) stuck with lots of excess inventory. After meeting with their retailers
Tahoe has decided to produce a collaborative forecast. Tahoe Salt now has data on the actual retail sales
of their salt and they intend to work with the retailers to create a more accurate a more accurate forecast
with this data. This is the quarterly demand data for the last three years

From this we observe that demand for salt is seasonal with demand increasing from the second quarter of
a given year to the first quarter of the following year. The second quarter of each year has the lowest
demand of all quarter in the year. Each cycle lasts four quarters and the demand pattern repeats itself
every year. There is also a growth trend in the demand, with sales growing over the last three years. The
company estimates that growth will continue in the coming in the coming year at historical rates. We now
describe how each of the three parameters-level, trend, and seasonal factors may be estimated. The
following two steps are necessary to making this estimation:

1. Deseasonalize demand and run linear regression to estimate level and trend.
2. Estimate seasonal factors.
Sun Oil is considering two different plant sizes in each location. Low-capacity plants can produce 10
million units a year whereas high-capacity plants can produce 20 million units a year as shown in Cells
H4:H8 and J4:J8, respectively. High-capacity plants exhibit some economies of scale and have fixed
costs that are less than twice the fixed cost of a low-capacity plant as shown in cells I4:I8. All fixed costs
are annualized. The vice president would like to know what the lowest cost network should look like. Next,
we discuss the capacitated plant location model, which can be used in this setting.

c cc c((c/c(c

c! cj(: In this era of competition among supply chains, the success of a
corporation is increasingly dependent on management¶s ability to integrate the company¶s networks of
business relationships. Supply chain management has been defined as the integration of key business
processes, from raw-material suppliers through end users that provide products services and information.
Supply chain management makes use of a growing body of tools, techniques, and skills for coordinating
and optimizing key processes, functions, and relationships, both within the OEM and among its suppliers
and customers, to enable and capture opportunities for synergy. An OEM¶s competitive advantage is
highly dependent on this integrated management function. Supply chain management attempts to
combine the best of worlds, the scale and coordination of large companies with the low costs, flexibility,
and creativity of small companies.

The focus of supply chain management must evolve in response to changing business environments and
evolving product life cycles. Different interactions among participants are required during each phase of
the product life cycle, from inception through recycling. The supplies chains for products in new markets
must be flexible to respond to wide fluctuations in demand (both in quantity and product mix). Products in
mature, stable markets require supply chains that can reliably deliver products at low cost. Thus, effective
supply chain management must be responsive to these changing conditions to ensure that the supply
chain evolves accordingly.

For example, marketing excellence used to be the primary source of Procter & Gamble¶s (P&G¶s)
dominance of the consumer products industry. However, as P&G expanded its product and service
offerings in response to market opportunities, the increased complexity of these offerings created
difficulties in meeting the needs of retail partners and customers. Traditional marketing strategies
involving in-store sales and price promotions created great variations in product demand. To meet heavy
short-term marketing-induced peaks in demand, P&G invested in huge manufacturing capacities,
inventories, warehouses, and logistics capabilities.

In response to these problems, P&G modified its supply chain focus and remade itself through a series of
innovative initiatives. Working both internally and with suppliers and customers, the company created a
heralded partnership with Wal-Mart, virtually eliminated price promotions, and streamlined its logistics and
continuous replenishment programs. These initiatives reduced variations and uncertainties in demand,
thereby reducing the need for surge production capacities and large inventories. Thus, by evolving their
primary supply chain focus from marketing to production, inventories, and logistics in response to
changing business requirements, P&G was able to reduce costs, meet customer demand, and build
strong, coordinated relationships with retail partners and customers.

c
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c
c' cWholesaling refers to the activities involved in selling to organizational buyers who
intend to either resell or use for their own purposes. A wholesaler is an organization providing the
necessary means to:
1) allow suppliers (e.g., manufacturers) to reach organizational buyers (e.g., retailers, business buyers),
and 2) allow certain business buyers to purchase products which they may not be able to purchase
otherwise. According to the 2002 Census of Wholesale trade, there are over 430,000 wholesale
operations in the United States.

While many large retailers and even manufacturers have centralized facilities and carry out the same
tasks as wholesalers, we do not classify these as wholesalers since these relationships only involve one
other party, the buyer. Thus, a distinguishing characteristic of wholesalers is that they offer distribution
activities both for a supplying party and for a purchasing party. For our discussion of wholesalers we will
primarily focus on wholesalers who sell to other resellers such as retailers.

%   The term µretailing¶ refers to µthe activities involved in selling commodities directly to
consumers¶.
   cRetailing consists of the sale of goods or merchandise for personal or household consumption
either from a fixed location such as a department store or kiosk, or from a fixed location and related
subordinated services.

Defined here as sales of goods between two distant parties where the deliverer has no direct interest in
the transaction, the earliest instances of distance retailing probably coincided with the first regular delivery
or postal services. Such services would have started in earnest once man had learned how to ride a
camel, horse, etc.

') When individuals or groups left their community and settled elsewhere, some missed foodstuffs
and other goods that were only available in their birthplace. They arranged for some of these goods to be
sent to them. Others in their newly adopted community enjoyed these goods and demand grew. Similarly,
new settlers discovered goods in their new surroundings that they dispatched back to their birthplace, and
once again, demand grew. This soon turned into a regular trade. Although such trading routes expanded
mainly through the growth of traveling salesmen and then wholesalers, there were still instances where
individuals purchased goods at long distance for their own use.

A second reason that distance selling increased was through war. As armies marched through territories,
they laid down communication lines stretching from their home base to the front. As well as garnering
goods from whichever locality they found themselves in, they would have also taken advantage of the
lines of communication to order goods from home.

In commerce, a retailer buys goods or products in large quantities from manufacturers or importers, either
directly or through wholesalers, and then sells individual items or small quantities to the general public or
end-user customers, usually in a shop, also called a store. Retailers are at the end of the supply chain.
Marketers see retailing as part of their overall distribution strategy.

Shops may be on residential streets, or in shopping streets with few or no houses, or in shopping centers.
Shopping streets may or may not be for pedestrians only. Sometimes a shopping street has a partial or
full rooftop to protect customers from precipitation. Online retailing, also known as e-commerce, is the
latest form of non-shop retailing.

Shopping generally refers to the act of buying products. Sometimes, this is done to obtain necessities
such as food and clothing; sometimes, it is done as a recreational activity. Recreational shopping often
involves window shopping (just looking, not buying) and browsing and does not always result in a
purchase.

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cc! c  ccMost OEMs no longer compete solely as autonomous corporations.
They also compete as participants in integrated supply chains. This revolution, which is changing the
ways products are designed, produced, and delivered, has the potential to alter the manufacturing
landscape as dramatically as the industrial revolution or the advent of mass production. The focus is on
changing nature of supply chains and efforts to optimize their performance.c
In the past, OEMs typically drove down the cost of purchased materials through aggressive negotiations,
imposing terms and conditions that minimized supplier profitability and often left suppliers in a weakened
condition. More recently, OEMs have begun to adopt a strategic partnership approach, which recognizes
that increased, sustainable benefits can accrue from long-term relationships between participants in the
supply chain (a win-win situation). This approach considers total life-cycle costs over multiple iterations of
a product, with the goal of increasing mutual benefits for all participants in the long run.


 
  
















 




 





 


 














 
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· time devoted to managing, training, and support

· effort devoted to becoming a better customer
· investment in supply chain integration software and compatible information systems throughout the
chain
· Opportunity costs (i.e., investments in supply chain integration may necessitate foregoing other business
opportunities)
· risks of production stoppages

Because the extent of interconnectedness and interdependency makes highly integrated chains
increasingly vulnerable to disruptions, the risk of production stoppages should not be overlooked. A highly
integrated, interdependent supply chain that consists primarily of sole-source suppliers practicing just-in-
time manufacturing with minimal inventories is highly reliant on the timely delivery of quality components
and services. Failure by one participant to deliver can rapidly bring other parts of the chain to a halt. This
happens, on occasion, even to the best suppliers and logistics providers.

c$ cc c  : The most sought-after benefit, or return on investment, in supply chain
integration is the cost savings that result from reductions in inventory. Inventories can be reduced by
increasing the speed at which materials move through the supply chain and by reducing safety stocks.
For example, if the costs of maintaining inventory are approximately 1 percent per month and if an
integrated supply chain can reduce inventory levels by 30 percent, the savings, shared among the
participants, can be substantial.

Other potential benefits of supply chain integration are listed below:

· reduced friction, fewer barriers, and less waste of resources on procedures that do not add value
· increased functional and procedural synergy between participants
· faster response to changing market demands
· lower cost manufacturing operations
· lower capital investment in excess manufacturing capacity
· shorter product realization cycles and lower product development costs
· increased competitiveness and profitability

·  ccIntegrating a supply chain is an incremental process, with priority typically given to
the highest potential returns on investment. Based on strategies, needs, and potential returns, different
priorities and approaches may be assigned to the supply chains of different segments of a business. The
integration process can be expensive and is, in many respects, an exercise in resource allocation.

Many companies adopt an approach that begins at home and gradually works outward through the supply
chain. The first step is to make in-house improvements, such as inventory reductions that can reduce
working capital, warehousing, and transportation costs. An analysis of in-bound logistics can often reveal
opportunities for savings. From there, the integration effort expands outward.

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 cInformation is crucial to the performance of a supply chain because it provides the basis
upon which supply chain managers make decisions. Information Technology (IT) consists of the tools
used to gain awareness of information, analyze this information, and act on it to improve the performance
of the supply chain. Using IT systems to capture and analyze information can have a significant impact on
a firm¶s performance. Information is the key to the success of a supply chain because it enables
management to take decisions over broad scope that crosses both functions and companies. E-business
is the execution of business transactions via the Internet. Supply chain transactions that involve e-
business include the flow of information, product, and funds. The goal is to enable managers to analyze
their supply chains to identify if and how they can use e-business most beneficially.

( c"c cc! cIn modern management information has become a central
feature of management planning and control. Computers and information technology have been used to
support logistics and supply chain management for many years. The application of information technology
to the process of planning and control of supply chain activities (including logistics activities) has grown
rapidly with the introduction of microcomputers in the early 1980s. Nowadays, information technology is
viewed as the key father that will affect the growth and development of logistics and supply chain
management.

This section focuses on how information can make logistics and supply chain management decisions
more effective, considers the role of information management in the development of supply chain strategy
and then discusses the issues from an operational perspective.

Many firms today view effective management of logistics and supply chain activities as a prerequisite to
the achievement of overall cost efficiency and as a key to ensuring their ability to price their products and
services to meet and beat the competition. A logistics competency of a firm technology is being used by
leading edge firms to increase their competitiveness and develop a sustainable competitive advantage.
Capabilities relating to information system and information technologies have been traditionally regarded
as key strategic resources and expertise in these areas is now thought to be the most valuable and
essential of all corporate resources. Hence there is a need for effective management of corporate
information systems and technologies which are highly relevant and most important to logistics and
supply chain management.

· (cc  ccc! c ( c(cc ( c"

i) Effective information management can help ensure that a firm meets the logistical needs of its
customers. Firms need to place priorities on logistical elements such as c (c 5c0c
 5cc5c (c cc3  5cc  5cc(5c
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  . The logistics
managers are responsible for these activities and timely and accurate flow of meaningful information
enables them to successfully implement the same. The logistics activities assist significantly in meeting
customer needs and an accurate and relevant information system can facilitate the logistics mission.

ii) Logistics information system combine hardware and software to manage, control and measure logistics
activities which occur within specific firms as across the overall supply chain.

Hardware includes computers and servers, Internet technologies such as barcode and RF devices,
communication channels and storage media.

Software includes system and application programs used for logistics and supply chain activities. The
ability to integrate and thus leverage the power of these technologies makes the firms more successful
than other firms which do not have such abilities.
iii) Companies need better information on their customers (such as customer service and sales
forecasting), information on their suppliers, (such as production planning and sourcing and purchasing).
Areas of technology systems including   cc(9 ( c and logistics
management activities were not delivering needed information to the management for making strategic
decisions.

iv) "cc c(c cc cccc  ccc c(. A
customer orders provides the communication message to set the logistics process in motion. The cost
and efficiency of the entire operation are impacted by the speed and quality of the information flows. Slow
and erratic communication can result in loss of customers or excessive transportation, inventory and
warehousing costs together with possible manufacturing inefficiencies caused by frequent changes in the
production line. The order processing and information system forms the foundation for the logistics and
corporate management information systems.

v) Leading-edge organizations are utilizing computers-extensively to support logistics activities.

Computers are used in order entry, order processing, finished goods inventory control, performance
measurement, freight audit/payment, and warehousing. World class logistics practices include use of
logistics information systems as a key to competitiveness.

vi) Computer based   cc( (DSS) support the executive decision making process in
logistics and supply chain management. To support time-based competition, firms are increasingly using
information technologies as source of competitive advantage. Systems such as a 2 c (QRc
60 0 ( (JIT) and   c(c (ECR) are integrating a number of information
based technologies in an effort to reduce order cycle times, speed responsiveness and lower supply
chain inventory. More sophisticated application of information technology such as decision support
systems, artificial intelligence and export systems are being used directly to support decision making in
logistics and supply chain management.

vii) Today, companies are restructuring their businesses to function in the new era of electronic
commerce. Organizations can have a deluge of information on dotcoms, business to business
requirements and online customer and supplier linkages. ERP systems, purchasing databases and data
warehouses,  cc  (EDI), business to business electronic commerce are recent
developments which are applied in logistics and supply chain management.

·  cc+,cc! c(cc  

To be successful in the new visual e-based economy, even traditional companies are taking notice of the
need for new information systems. The next generation of systems will promote the free flow of perfect
information instantaneously up and down the supply chain. To survive in a perfectly competitive market,
firms need to develop fluid and swift supply chain having competitive advantage in terms of speed and
excellence of education. The drivers of new supply chain systems and the new
e-economy are:

i) Internal and external strategic integration

ii) Globalization and communication
iii) Data information management
iv) New business processes
v) Replacement of obsolete systems and
vi) Strategic cost management

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 c c cc, c

i) cc*3c c  : As supply chain members work increasingly together, it
becomes necessary to integrate the different functions such as purchasing, engineering manufacturing,
marketing, logistics, accounting etc., which are internal to the organization as well as between parties that
are external to the organization (end customers, third party logistics, retailers, distributors, warehouses,
transportation provides, suppliers agents, financial institutions etc.)

For the internal strategies to be effective, all members within the firm must use the same information
system which spans across business sites and functions. This can be accomplished through a
companywide  cc c( (ERP) that links these internal groups together via
a single integrated set of master records.

External integration refers to the systems which link the external suppliers and distributors to the firm. It is
needed to forecast demand and balance the levels of supply and demand at different points in the supply
chain. Internet linkages, network communications and electronic data exchanges are example \s of
systems used for external integration.

ii) Æ
 : cc!((   Firms require systems which enable them to carry out their
business in different culture and geographic and manage suppliers and customers all over the world.
Firms need to calculate total global logistics costs, increase leverage and component standardization
worldwide and improve communication of their strategies across global business units and supply chain
partners. Supply chain systems must be able to communicate in a variety of languages even though
English is the universal language of the internet.

iii) c ( cj( Firms have access to new forms of servers, telecommunication and
wireless applications and software which increase the accuracy, frequency and the speed of
communication between suppliers, customers as well as internal users. Information systems must be able
to effectively filter, analyse and store abundant data to enable effective decision making. It must be
possible for the users to access data bases and extract the needed information to make better supply
chain decisions. This achieved through systems known as î


 

.

iv) +,c$ c In the final two decades of 20th century, many organizations went through
the process 


 

   (a form of restructuring) in an effort to increase
productivity and reduce costs. Along with this change, organizations adopted computers and information
systems to perform tasks which were performed manually earlier. Even after these changes, business
processes are constantly being changed to respond to a rapidly changing environment. Such business
processes include customer order management, supplier evaluation and selection and new-product
development. In this processes of change, firms can create a â c; capability which allows
them to quickly adapt to their customers¶ changing needs and control costs. Computer network and ERP
are the information systems which enable the firm to link these business processes efficiently.

v) %(cc
c( Firms often adopted a ³piece-meal´ approach to system usage
such that each function such as purchasing, engineering, accounting etc., use its own system which was
not linked to other systems. Such systems are referred to as obsolete systems or legacy systems which
need to be integrated into a single enterprise-wide system used by everyone in the supply chain.

vi)  cc(( The complete supply chain cycle, from order fulfillment back to
purchasing and order payment, involves a large number of transactions between different members of the
supply chain. Firms used to automate the cost based on outdated cost accounting systems in order to
determine specific cost drivers behind different business processes. But the new systems develop
promise to automate data capture throughout supply chain systems. This has automated the transactions
that occur in the traditional procurement cycle. This will reduce the costs of purchasing and logistics
departments, and considerably reduce inventory held in warehouses and stock rooms throughout the
entire supply chain.