2.

DISTRIBUTION MANAGEMENT Distribution Channels Distribution channels help in creating time and place utilities of the product, which are important for customer satisfaction. The distribution channel is the place of transaction for the products and it acts as an Interface between the customer and the firm. However, the effectiveness of this interface is greatly dependent on the efficiency of the logistics operation to move products in the required quantity /variety and desired place with speed. The basic role of logistics in the distribution channel is to ensure smooth movement' of products to make them available at distribution outlets as and when they are required by the customer. Distribution Channel Structure The channel structure refers to the group of channel members to whom a set of distribution tasks has been allocated. The channel structure plays a vital role in the physical distribution of products. It primarily facilitates product flow from the manufacturer to the end consumer through a hierarchy of channel members. Depending on the product and other marketing variables, the manufacturing company opts for or designs a particular structure that fits into its marketing philosophy and policy. The major considerations for building efficient channel structure are the cost of distribution, wider coverage and maximum market penetration. The consumer goods companies have a long and dense channel structure, because the end customers are very large in number and spread ever a wide geographical area The industrial product manufacturer prefers to deal directly with the customer because of product complexities, high unit price and both pre and after-sales service requirements The width and depth of the risk at each level is different and depends on the financial involvement and control over the next lower level. The channel structure facilitates produce flow from the manufacturer to the end customer. The physical movement of the product is taken care of by logistics. The addition of place and time utility to the product is not possible without the close coordination between channel tasks and logistics operations. Information flow in the channel structure is two-directional. 1. The manufacturer sends information on the order status, material availability, shipping dates, transportation mode, and payments due and so on, 2. The channel members send information on customer requirements, sale forecast, warranty claims, competition activities requirements scheduling and so forth.

The information flow in the channel structure is the basic input to logistics to activate the material flow from the manufacturer to the customer via channel members. Communication on advertising, sales promotion, exhibitions & Personal selling is part of the information flow through the channel structure. The timely flow of funds from channel members to the manufacturer is important to keep the operation going. Channel Members The marketing channel structure consists of a variety of intermediaries performing distribution tasks. These tasks differ in terms of financial involvement, relationship with manufacturer (place and time context) and the functions performed. 1. Wholesaler / Distributor 1. Wholesalers are quite common in consumer goods industry. 2. They operate as full-fledged marketing organizations, purchasing goods from the manufacturers in large quantities. 3. Wholesalers have a network of marketing offices supported by their sales staff to market the products. 4. These important functionaries also have a network of warehouses to store goods at different market locations. 5. They are a dominant source of supply for retailers of mass-distributed consumer products 6. Their logistical needs are large-quantity consignments at intervals conforming to their schedules 7. Wholesalers prefer freight consolidation for lower per-unit transportation charges and work on scale economics. 8. They collect orders from retailers and large customers (institutional) and are usually interested in volume sales only 9. These channel members are an important communication link providing useful market information to the manufacturer. 2. Dealers / Stockists

1. The Dealers carry stocks of the company's products on a consignment sales basis.
2. The stocks are transferred (along with the time frame to sale) to the dealer/ stockist. 3. The payment for the goods has to be made to the manufacturer at the end of the agreed credit period. 4. Dealers/stockists have a full-fledged marketing set-up with backup facilities of warehousing. 5. When the manufacturer realizes the payment of the inventory from dealers/ stockists on expiry of the stipulated credit period, the transaction is put down in the company's account books. 6. Exclusive dealers do not deal in products of competitors.

3. Van Dealer 1. The van dealer is a totally different type of player in the distribution system They are neither authorized dealers nor distributors of the manufacturer. 2. They distribute different brands in the same product class. 3. Van dealers often buy products from an authorized wholesaler of the company and sell them in their areas. 4. They sometimes sell the products at a lower price than the company's authorized dealers by manipulating the prices based on the discounts offered to them by wholesalers. 5. Their investment risk is distributed over the several brands they sell. 6. Generally, they do not keep the inventory. These channel members buy on a daily basis on Cash terms. 7. The van dealer can reach remote places where the company's dealer finds it uneconomical to serve the customer 4. Selling Agent 1. Selling agents are appointed on a contractual basis for selling a company's products to clients in lieu of an elaborate sales organization. 2. They are contracted not to sell the competitor's products. However, they can sell complementary products. 3. Selling agents are deployed for collecting out- standing payments from the clients. 4. They extend services like organizing loans and offering credit facilities to their clients. 5. They are compensated for their services by way of commission on sales. Sales agents are quite common in the textile industry. 5. Manufacturer's Agent 1. These intermediaries are appointed on a contractual basis for selling industrial goods. 2. They represent the manufacturer in creating awareness, technical discussion, commercial negotiation and liaison and liaison with clients 3. Manufacturing agents are usually ex-employees with a technical background and know the technical intricacies of the product. 4. They are compensated on a case-to-case basis. 5. These agents do not have any organization for marketing and are mostly involved in presales acclivities and clinching sales deals. 6. Broker 1. The role of the broker is to facilitate a sales/purchase deal 2. The Brokers do not permanently represent either the buyer or the seller. 3. They are not involved in handling products. Their function is to organize negotiation meetings between two parties and facilitate a deal. 4. Such facilitators do not provide services like financial assistance, payment collection or inspection. 5. Their relations with buyers and sellers are limited to a particular transaction. 6. For the broker's services, both the parties have to pay the brokerage fee. Generally, services of brokers are quite common in stock markets, scrape selling/ purchasing and organizing auctions, and so on.

7 Retailer 1. This is the last but one link in the distribution network preceding the consumer. 2. Retailers are commonly engaged in selling mass distributed consumer products. 3. They buy the material from wholesalers in small quantities and have very limited finances to invest in the business. 4. Retailers normally purchase goods from the wholesalers either on credit or against cash, depending on their mutual relationship and the prevailing trends in the industry. 5. The logistics requirement is frequent supplies in small quantities as they cannot keep a large inventory because of their limited financial capacity. Channel Strategy The channel strategy is based on the broad principles through which the firm expects to achieve its distribution objectives for the target market. Depending on the nature of the product, industry practices and market trends the enterprise may formulate the channel strategies to serve the end customers. The channel strategy decision can be examined in light of the following views A ) Length Of The Channel This is more concerned with the levels of channel structure. The decision depends on whether the sales are directly made to the customer or use a large number of intermediaries to reach the final consumers. The decision is based on market reach, distribution cost and the degree of controls on the channel members. 1. The firm may have its own channel outlets wherein there is a limitation on Investment in infrastructure. However, there is full control on distribution activities in the distribution channels owned by the firm. (Showrooms and retail chains ) 2. The other option is the contractual system such as franchising, wherein a high degree of control can be exercised on channel activities and logistics programs organized to support those activities. 3. The third option is to employ independent intermediaries such as wholesalers, stockists, distributors, dealers, agents and retailers The advantage here is that the firm gets readymade infrastructure to operate from, without any investment as the intermediaries are widely spread and thus wider market coverage is possible. The disadvantage of this system is that firms lose on the degree of control. The firm does not have a direct interface with customers in this system and will have to think of a system for information linkage with the customers. The degree of control on the channel, inventory in this system is loose as compared to the previous two systems discussed above. The failure probability of the logistical programs designed for this distribution system is high because of the absence of cohesive linkages in the channel structure

B ) Channel Breadth The decision on this aspect depends on market coverage. Consumer goods, snack foods, newspapers, confectionary and garments are mass-consumed items that need a wider distribution channel for building market share. Profits are generated through volume sales, which are possible only if the product is available at the point of demand that has both time and place utility. The decision on channel breadth depends on the product purchase frequency, the ease with which the customer would like to acquire it, market coverage to build market share and buyer behaviour. The control becomes more complex for mass-distributed consumer products covering national or global markets. Information technology and modern means of communication are playing a significant role in the efficient and effective control of these complex activities. C) Marketing Strategy There is another dimension to the channel selection, particularly the channel breadth selection, For building market share, a wider market coverage is required and hence intensive distribution will support the objective. However to support the differentiation-based marketing strategies for focused customer group, distribution channel exclusivity will help the firm to exercise full control on the distribution task and logistical activities in order to achieve the objectives. Exclusivity will also assist to build trust and confidence in the produce and the firm through customized pre and post-sales service. In the exclusive channel structure, there is a need and scope for customized logistics programs, as the firm's marketing resources are deployed for the focused group of customers who bank on the service rather than the price. The effectiveness of the channel depends on the two factors: 1. Degree of control on intermediaries 2. Back-up supply efficiency The degree of control has a direct relationship with the compensation the channel members receive for the distribution task they perform for the firm. This is to be backed up with an efficient goods supply to make goods available in the desired quantity as and when required. So, frequent deliveries in small lots may have to be made. This could mean an increase in the transportation cost, but it will be more than offset by a significant reduction in the incidence of inventory carrying cost on the system.

Channel Design Even though leading-edge firms are doing more planning of their Channels, evidence suggests that majority of supply chains were not designed but were developed over time. Steps in Channel Design Process 1.Establish Objectives 1. Market Covering Objectives 2. Customer Buying Behaviour 3. Type Of Distribution : Intensive Distribution / Selective Distribution / Exclusive Distribution 4. Selection Of Channel Institutions 5. Control Of Operations 2. Product Characteristics : They are the major considerations in Channel Design 1.Product Value : High Value products require a large inventory investment 2.Technicality Of The Product : Pre & Post-purchase services are often required 3.Degree Of Market Acceptance: Amount of Selling efforts required 4.Degree Of Substitutability: Brand loyalty is lowest for convenience goods but highest for specialty goods 5. Requirement In Bulk: Low value, high volume products are restricted to markets close to point of production 6. Product Perishability: Due to risks of obsolescence, products are sold directly to final consumers 7. Degree Of Market Concentration: when market is concentrated in a geographic area ,direct channels may be most effective & efficient method of distribution 8. Seasonability: More storage flexibility is required 9. Width & Depth of The Product Line: Low value products may use intensive distribution, whereas High value products may use selective channels 3. Customer Service Objectives 1. Availability Of The Products 2. Oder Cycle Time 3.Communication (Ability To Supply Timely Information) Logistics Support To The Distribution Channel The success of the distribution channel depends largely on the effectiveness and efficiency of logistics operations of the firm. Channel management is essentially involved in the control of product flow, information flow, promotional flow and ownership flow. However, the product flow and related information flow are taken care of by logistics management. The channel cannot exist without an efficient flow of material across the channel structure so as to make available the right product at the right time and place.

In a nutshell, Channel management and the logistics management should go hand in hand for an efficient and effective physical distribution of products.
BENEFITS OF SCM

a) Quantified 1. RM & FG Inventory Reduction 2. Revenue Increase by Avoiding Retail Shorts and Lost Orders 3. Reduction in Dead & Slow Moving Stock 4. Plant Through-put Improvement 5. Higher efficiency due to process integration b) Non-Quantified 1. Realistic order promising 2. Increased customer loyalty 3. Reduction in manual follow up / interventions 4. Long term planning 5. Capabilities for new products 6. Coordinating advertising promotions with capacity buffer Bull - Whip Effect Supply chain co-ordination improves if all stages of the chain take actions that together increase total supply chain profit & the co-ordination requires each stage to take in to account the impact of its actions have on other stages A lack of co-ordination occurs because of conflict of objectives or information flow is delayed or distorted. The information is distorted as it moves across the supply chain because complete information is not share between different stages. This distortion is further exaggerated by the fact that supply chain today produces a large number of product variety. As a result the fluctuations in orders increases as they move up the supply chain from retailers to distributors to manufacturers to their suppliers which is known as Bullwhip Effect

Impact of Bullwhip Effect The impact of increase in variability falls on various measures of performance of supply chain 1.It increases manufacturing cost in the supply chain due to building of excess production capacity or holding excess inventory. Both of which increases manufacturing cost per unit produced. 2. It increases inventory cost in the supply chain due to carrying higher level of inventory than would be required. The high level of inventory also increases the warehousing space requirement & the cost thereof. 3.It increases replenishment lead time by making production scheduling at supply points much more difficult compared to actual requirements. 4. It increases transportation costs as transportation requirements fluctuates significantly over time & surplus capacity need to be maintained to cover high demand periods. 5. It increases labour costs associated with shipping & receiving in the supply chain as the fluctuation occurs in labour requirement for shipping or receiving at various stages of supply chain. 6.It also hurts the level of product availability & results in more stock-outs in the supply chain. The large fluctuations make it harder for manufacturer to supply all distributors / retailer s orders on time. 7. The Bullwhip Effect has a negative on performance at every stage& thus hurts the relationship between different stages of supply chain. There is a tendency to assign blame to other stages of supply chain because each stage feels it is doing the best it can. The Bullwhip Effect thus leads to a loss of trust between different stages of the supply chain & makes any potential co-ordination efforts more difficult.

In 1958,Dr.J.Forrester presented this effect through his simulation model therefore it is also known as Forrester Effect
SCM TODAY: 10 TIPS to Remain Competitive

1. Know Your Customer (Dells direct model helps it get a real time pulse of customer trends.) 2. Align Supply Chain Management With Strategic Goals (GlaxoSmithKline is focusing on effectively communicating its strategic goals to current & prospective suppliers, as well as to its internal suppliers). 3. Build Partnerships With Suppliers( Chrysler, an automobile manufacturer has about 400 partner (suppliers) engineers co-located at its facilities.) 4. Certify Suppliers( Lockheed Martin has various levels of supplier certification. Certified suppliers get preferred procurement status and benefit from reduced inspections, and increased visibility to other Lockheed units.) 5. Leverage Technology ( Dell's Major suppliers are able to have an online and real time view of customer demand. Similarly, Dell with the help of its web based supply chain is able to have a real time view of what is getting manufactured at its suppliers end.) 6. Refine Manufacturing Operations( Kanban, Single Minute Exchange Of Dies (SMED) & Cell Manufacturing are some techniques that operational leaders have applied to move ahead of their competition). 7. Accelerate Inventory Flow (Dell carries only about 5 days worth of inventory against its competitors are laden with 30, 45 and even 90 days of inventory) 8. Perfect Logistics ( Hewlett-Packard (HP) has implemented an efficient logistics system which helped it cut down the time between order and delivery by 66%, thereby reducing the operating costs by 15%.) 9. Invest In The Best Talent ( Ford's President and Chief Operating Officer, Nick Scheele, once held senior purchasing positions.) 10. Analyse Key Data ( A high tech products company, after analysis was surprised to find that it was carrying about 12% overall surplus inventory. At the same time the company was still running short of inventory for key products, leading to loss of sales) .
ROLE OF LOGISTICS IN THE SUPPLY CHAIN

Logistics basically connects the source of supply with the sources of demand. It bridges the gaps between market demand and capabilities of supply sources. Logistics helps in bridging these gaps so as to make them invisible at the points of demand in the supply chain. To achieve this, all components of the logistics system such as warehousing, transportation network, inventory control system and supporting information system are put into operation with the objective of delivering the right product at the right place and at the right time with the least cost.

When these gaps tend to be larger and the risk of dilution of service level is high, an integrated system is needed to make the operation seamless for product and information flow. This would entail the restructuring of the distribution network, designing logistics programs due to channel members' requirements, speedier, reliable & consistent freight movements, load unitization, cross-docking and freight consolidation. The efficiency and effectiveness of inventory movement across the supply chain is largely dependent on the capability of logistics management. Integration of the supply chain is not possible without the capability and reliability of the logistics operation. Cost reduction and customer service enhancement in the supply chain are not possible without efficient logistics operations such as warehousing, material handling, inventory control, packaging & transportation. In fact, Logistics and SCM cannot be separated from each other, since they are part of the same customer service solution. However, for the success of both logistics and the supply chain, the following operations need to be taken care of, planned and managed properly: 1. Close coordination with suppliers 2. Reduce inventory levels 3. Speed, reliability and consistency in inventory movement 4. Faster replenishment cycle 5. Shorter performance cycle 6. Flexible manufacturing cycle 7. Asset utilization and productivity 8. Innovations for value additions in customer service offerings In a nutshell, logistics is the key to the success of SCM. The degree of success depends on the level of integration between them using the enablers such as information and communication technology.