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Chapter 15

Wholesaling and
Physical Distribution
Text by
William M. Pride
O. C. Ferrell

Multimedia Slides by
Milton M. Pressley
Univ. of New Orleans

Copyright  2000 by Houghton Mifflin Company. All rights reserved. 15-


Objectives
✔ To Understand the Nature of Wholesaling in the Marketing Channel
✔ To Learn About Wholesalers' Functions
✔ To Understand How Wholesalers Are Classified
✔ To Be Able to Recognize How Physical Distribution Activities Are Integrated into
Marketing Channels and Overall Marketing Strategies
✔ To Examine the Major Physical Distribution Functions of Order Processing, Inventory
Management, Materials Handling, Warehousing, and Transportation
✔ To Discuss the Strategic Implications of Physical Distribution Systems

Copyright  2000 by Houghton Mifflin Company. All rights reserved. 15-


The Nature of
Wholesaling
• Wholesaling
• Wholesaler

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The Nature of Wholesaling
Major Wholesaling Functions
Supply Chain Management Creating long-term partnerships among
channel members
Promotion Providing a sales force, advertising, sales
promotion, and publicity
Warehousing, Shipping, Receiving, storing, and stockkeeping
and Product Handling Packaging
Shipping outgoing orders
Materials handling
Arranging and making local and
long-distance shipments
Inventory Control and Processing orders
Data Processing Controlling physical inventory
Recording transactions
Tracking sales data for financial analysis
Risk Taking Assuming responsibility for theft, product
obsolescence, and excess inventories

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The Nature of Wholesaling
Major Wholesaling Functions
Financing and Budgeting Extending credit
Borrowing
Making capital investments
Forecasting cash flow
Marketing Research Providing information about markets
and Information Systems Conducting research studies
Managing computer networks to facilitate
exchanges and relationships

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The Nature of
Wholesaling
• Services Provided by Wholesalers
– Extension of Producer’s Sales Force
– Financial Assistance
– Transportation
– Warehousing and Inventory
– Credit
– Source of Working Capital
– Conduits of Information

Copyright  2000 by Houghton Mifflin Company. All rights reserved. 15-


The Nature of
Wholesaling
• Services Provided by Wholesalers
– Extension of Producer’s Sales Force
– Financial Assistance
– Transportation
– Warehousing and Inventory
– Credit
– Source of Working Capital
– Conduits of Information

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Types of Wholesalers
• Merchant Wholesalers
–Full-Service Wholesalers
•General-Merchandise Wholesalers
•Limited-Line Wholesalers
•Specialty-Line Wholesalers
•Rack Jobbers
–Limited-Service Wholesalers

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Types of Wholesalers
• Merchant Wholesalers
–Full-Service Wholesalers
•General-Merchandise Wholesalers
•Limited-Line Wholesalers
•Specialty-Line Wholesalers
•Rack Jobbers
–Limited-Service Wholesalers

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Types of Wholesalers
Various Services That Limited-Service Merchant Wholesalers Provide

Cash-and- Drop Mail-


Carry Truck Shipper Order

Physical possession of merchandise Yes Yes No Yes


Personal sales calls on customers No Yes No No
Information about market conditions No Some Yes Yes
Advice to customers No Some Yes No
Stocking and maintenance of
merchandise in customers’ stores No No No No
Credit to customers No No Yes Some
Delivery of merchandise to customers No Yes No No

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Types of Wholesalers
• Limited Services Wholesalers
– Cash-and-Carry Wholesalers
– Truck Wholesalers
– Drop Shippers
– Mail-Order Wholesalers
• Agents and Brokers

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Types of Wholesalers
Various Services That Agents and Brokers Provide
Manufac- Commis-
turers’ Selling sion
Agents Agents Merchants Brokers

Physical possession of merchandise Some Some Yes No


Long-term relationship with buyers
or sellers Yes Yes Yes No
Representation of competing product
lines No No Yes Yes
Limited geographic territory Yes No No No
Credit to customers No Yes Some No
Delivery of merchandise to customers Some Yes Yes No

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Types of Wholesalers
• Agents and Brokers
–Manufacturers’ Agents
–Selling Agents
–Commission Merchants
• Manufacturers’ Sales Branches and
Offices

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The Nature of
Physical Distribution
• Physical Distribution
–Outsourcing
• Physical Distribution Objectives
–Meeting Standards of Customer Service
–Reducing Total Distribution Costs

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The Nature of
Physical Distribution
• Physical Distribution
–Outsourcing
• Physical Distribution Objectives
–Meeting Standards of Customer Service
–Reducing Total Distribution Costs

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The Nature of
Physical Distribution
5% Order Processing
Inventory 5% Administration
Carrying 21%

26% 43% Transportation


Warehousing

Source: Data from 1995 Physical Distribution Cost and Service Memorandum 4-
63, Herbert W. Davis and Company, Mar. 19, 1996, p. 2.
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The Nature of
Physical Distribution
• Physical Distribution
– Outsourcing
• Physical Distribution Objectives
– Meeting Standards of Customer Service
– Reducing Total Distribution Costs
– Reducing Cycle Time
Functions of Physical Distribution
Order Processing
Electronic Data Interchange (EDI)


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The Nature of
Physical Distribution
• Functions of Physical Distribution
–Inventory Management
•Just-in-Time (JIT)
–Materials Handling
–Warehousing
•Private Warehouses
•Public Warehouses
•Distribution Centers

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The Nature of
Physical Distribution
• Functions of Physical Distribution
–Inventory Management
•Just-in-Time (JIT)
–Materials Handling
–Warehousing
•Private Warehouses
•Public Warehouses
•Distribution Centers

Copyright  2000 by Houghton Mifflin Company. All rights reserved. 15-1


The Nature of
Physical Distribution
• Functions of Physical Distribution
–Inventory Management
•Just-in-Time (JIT)
–Materials Handling
–Warehousing
•Private Warehouses
•Public Warehouses
•Distribution Centers

Copyright  2000 by Houghton Mifflin Company. All rights reserved. 15-2


The Nature of
Physical Distribution
• Functions of Physical Distribution
–Transportation
•Transportation Modes

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The Nature of Physical
Distribution
Proportion of Intercity Freight Carried by Various Transportation Modes

5 0.3% Airways

4 15.8% Waterways

19.9% Pipelines
3

2 26.1% Trucks

1 Railroads 37.9%

0 10 20 30 40

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The Nature of
Physical Distribution
Railroads Trucks Waterways Airways Pipelines
Coal Clothing Petroleum Flowers Oil
Grain Paper goods Chemicals Perishable Processed
Chemicals Computers Iron ore food coal
Lumber Books Bauxite Instruments Natural gas
Automobiles Livestock Grain Emergency Water
Steel parts Chemicals
Overnight mail

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The Nature of
Physical Distribution
• Transportation
– Transportation Modes
– Choosing Transportation Modes
– Coordinating Transportation
• Intermodal Transportation
• Freight Forwarders
• Megacarriers

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The Nature of
Physical Distribution
• Transportation
– Transportation Modes
– Choosing Transportation Modes
– Coordinating Transportation
• Intermodal Transportation
• Freight Forwarders
• Megacarriers

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The Nature of
Physical Distribution
• Strategic Issues in
Physical Distribution

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BY NOW, YOU
SHOULD . . .

✔ Understand the Nature of Wholesaling in the


Marketing Channel
✔ Know About Wholesalers' Functions
✔ Understand How Wholesalers Are Classified
✔ Be Able to Recognize How Physical Distribution
Activities Are Integrated into Marketing Channels
and Overall Marketing Strategies
✔ Have Examined the Major Physical Distribution
Functions of Order Processing, Inventory
Management, Materials Handling, Warehousing,
and Transportation
✔ Be Able to Discuss the Strategic Implications of
Physical Distribution Systems

Copyright  2000 by Houghton Mifflin Company. All rights reserved. 15-2

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