d&l exam ppt mahantesh
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Logistics Management
Prof. Mahantesh B Halagatti-KLS IMER-Belgaum
KLS Institute of Management Education and Research
Belgaum
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Logistics…..
•
Concerned with getting product andservices where they are needed and when
they are desired.•
Involves integration ofinformation,transportation,inventory,wareh
ousing,materials handling and packaging.•
The operating responsibility of logistics isthe geographical positioning of rawmaterials,work-in-process,and finishedgoods inventories where required at thelowest cost possible.
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•
Logistical process facilitates the flow of materials
from suppliers to the manufacturing firms and thedistribution of finished products throughmarketing channels to consumers.
•
The complexity of logistics increases with thenumber of industrial manufacturers,suppliers,andthe channel intermediaries such aswholesalers,distributors and retailers within anation.
•
It becomes awesome when we consider business ona global basis,having global manufacturers, globalsuppliers and global consumers.
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Logistics defined as…..
•
“
The process of anticipating customer needs
and wants, acquiring the capitalmaterials,people,technologies,and informationnecessary to meet those needs and
wants,optimising the goods or service-
providing network to customer requests andutilising the network to fulfill customer
requests in a timely manner.”
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Types of Logistics:
•
Business Logistics
•
Military Logistics
•
Event Logistics
•
Service Logistics
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Business Logistics
•
It is part of supply chain process that
plans, implements, and controls theefficient flow and storage of goods,services, and related information frompoint of origin to point of use orconsumption in order to meet customer
requirements.
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Military Logistics
•
The design and integration of all
aspects of support for the operationalcapability of the military forces andtheir equipment to ensure readiness,reliability and efficiency.
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Event Logistics
•
The network of activities, facilities and
personnel required to organise, scheduleand deploy the resources for an eventto take place and to efficientlywithdraw after the event.
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Service Logistics
•
The acquisition, scheduling and
management of the facilities/assets,personnel and materials to support andsustain a service operation or business.
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Logistics Management
•
“Logistics management is the process of
planning, implementing, and controllingthe efficient, effective flow andstorage of goods,services,and related
information from point of origin to pointof consumption for the purpose ofconforming to customer requirements.”
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Components of logistics management
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Benefits of good logistics management
•
Capability to identify potential
operational break downs and takingcorrective action prior to failure ofservice to customers.
•
Performance above industry averagein terms of inventory availability as
well as speed and consistency ofdelivery to customers.
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Benefits….
•
Capability to monitor logisticalperformance on a real-time basis
through efficient information systems.•
High delivery performance ( near
perfect orders)•
Commitment to continuous improvement•
Firms having world-class logisticalcompetency can become attractivesuppliers and ideal business partners.
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Logistical Competency
•
Is a relative assessment of a firm’scapability to offer competitively superiorcustomer service at the lowest possibletotal cost.
•
Characteristics are: Alternative logisticalcapability, emphasis on flexibility, time-
based performance, operational control,
commitment to perfect customer serviceperformance.
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Logistical Mission:
•
Logistics of a firm is an integrated effort aimedat helping to create customer value at the lowest
cost.•
Logistics managers seek to achieve the desiredquality of customer service through state-of-the-
art operating competency.•
High level of customer service would be extremelycostly and not necessary to support mostmarketing and manufacturing operations.
•
Hence logistical service must be viewed as abalance of service priority and cost.
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Basic logistics service is measured
in:•
Availability
•
Operational Performance
•
Service Reliability
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Need for logistics management:
•
Competitive pressures•
Information technology
•
Channel power
•
Profit Leverage
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Logistics Activities
•
Transportation
•
Storage•
Packaging•
Materials handling
•
Order fulfilment•
Inventory forecasting•
Production planning
•
Purchasing•
Customer service•
Site location
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Role of logistics in Supply Chain Management
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The Generic Value Chain
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Role of Logistics in Economy
•
Logistics is one of the major expenditures
for businesses, thereby affecting andbeing affected by other economicactivities.
•
Logistics supports the movement and flowof many economic transactions and it is animportant activity in facilitating the sale ofvirtually all goods and services.
•
Logistics adds value by creating Timeutility and Place utility.
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Role of Logistics in Organisation
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Relationship between Marketing Mix elements andlogistics
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Logistics Costs
•
Customer service level
•
Transportation costs•
Warehousing costs
•
Order processing/information systemscosts
•
Lot quantity costs•
Inventory carrying costs
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The Marketing Mix
•
Product
•
Place•
Price
•
Promotion
•
Distribution channels help in the ‘place’aspect of the marketing mix
•
Distribution provides place, time andpossession utility to the consumer
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Example
•
Consumer wants to buy a tube of toothpaste
–
Made available at a retail outlet close to
her residence –
place –
Made available at 8 pm on a Tuesdayevening when she wants it –
time
–
She can pay for the toothpaste and take itaway –
possession
•
The company distribution function has made
all this possible.•
The situation would be similar if a customerwants to buy a refrigerator or medicines or
even an electric motor
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Distribution Channels
•
Are intermediaries or middlemen –
Exist because producers cannot reach
all theirconsumers
–
Multiply reach and provide efficiency
to the marketingprocess
–
Facilitate smooth flow
and create time, place andpossession utilities
–
Have the core competence
and reach
–
Provide contact, experience, specialisation
andscales of operation
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Types of Channels
•
Sales: motivates buyers, shares information
between company and its consumers,negotiates fair bargains for consumers and
finances the transactions
•
Delivery channel meant only for physical part ofthe distribution
•
Service channel –
performs after sales service
Channel members…
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Listing of Channel Members
•
Company own sales team
•
C&FAs
and CSAs•
Distributors, dealers, stockists, value-added re-
sellers
•
Agents and brokers•
Franchisees
•
Electronic channels
•
Wholesalers
•
Retailers
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Distributors, Dealers,
Stockiest, Agents•
Name denotes the extent of re-distribution
done by them
•
Distributors invest in the products –
buy
products from the company
•
Are on commission, margins or mark-up•
May or may not
get credit –
but extend credit
•
Distributors cover the markets as per a beat
plan. All others merely finance the business.•
Distributors
could be exclusive for a company
•
Agents bring
buyer and seller together
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Industrial Products
Producer Producer
Industrial Distributor
Industrial Customer
Industrial Distributor
Industrial Customer
Agent/middleman
Customers may also direct from company sales force
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Consumer Products
Producer Producer Producer
Customer /
consumer
Retailer
Distributor Distributor
Retailer
Customer/
Consumer
Wholesaler
Customer/
Consumer
Retailer
Retailers may also direct from company sales force
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Patterns of Distribution
•
Determines the intensity
of the distribution
•
Intensity decides the service level
provided
•
Types of distribution intensity:
–
Intensive
–
Selective
–
Exclusive
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Distribution Intensity
•
Intensive: distribution through every
reasonable outlet available –
FMCG•
Selective: multiple, but not all outlets in
the market –
pharma, frozen food•
Exclusive: may be only one outlet in a
market -
car dealers
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Intensive Distribution
•
Strategy is to make sure that the product
is available in as many outlets as possible•
Preferred for consumer, pharmaceutical
products and automobile spares
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Exclusive Distribution
•
Highly selective
choice of outlets –
may be
even one outlet in an entire market•
Could include outlets set up by companies
–
Titan, Bata•
Producer wants a close watch and control on the distribution of his products.
Channel strategy…
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Distribution Channel Strategy
•
Derived from
the corporate strategy and themarketing strategy
•
Steps for designing
the distribution strategy are: –
Defining customer service levels
–
Distribution objectives
and steps –
Structure
of the network required
–
Policy and procedure
to be followed
–
Key performance indicators –
Critical success factors
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Set of Activities
•
Manner
in which the company and itsmarketing channels go about achieving thecustomer service levels
•
Some of these steps
could be: –
Sales forecasts
–
Despatch
plans –
Market coverage beat plans
–
Journey plans for service engineers
–
Collection of sales proceeds –
Carrying out promotional activities
•
The company also decides as to who is to
perform which task Organization….
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Distribution Organization
•
Extent of company support and outsourcing
to
be decided•
Budget
for the cost of the distribution effort
•
Select suitable channel partners
–
C&FAs, and
distributors
•
Setting clear objectives for the partners
•
Agree on level of financial commitments
by thechannel partners.
Policy and procedure..
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Policy & Procedure
•
Define policy and implementation
guidelines through Operating Manuals•
Policy guidelines
include
–
Code of conduct
for channel members
–
System for redressal of complaints
–
Any additional subsidies
etc
–
Handling institutional business –
Service policy
for engineering products
KPIs….
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Key Performance Indicators
•
For measurement of effectiveness. Some ofthese could be: –
Consistent achievement of targets
by product groups,periods and territories
–
Achievement of market shares
–
Achievement of profitability
–
Zero complaints
from customers
–
No stock returns
–
Ability to handle emergencies
and sudden spurts indemand
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Key Performance Indicators
•
For measurement of effectiveness. Some
of these could be: –
Balanced sales achievement
during a period –
no period end skews
–
Market coverage
with ready stocks –
Excellent management of accountsreceivables
–
Minimize losses
on account of stock-outs –
Minimize damages
to products
CSFs…
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Critical Success Factors
•
The distribution strategy also needs thesupport and encouragement of topmanagement
to succeed
•
Some of the CSFs
could be: –
Clear, transparent and unambiguous policy andprocedure
–
Serious commitment
of the channel partners
–
Fairness
in dealings
–
Clearly defined
customer service policy
–
High level of integrity
–
Equitable distribution
at times of shortage
–
Timely compensation
of channel partners
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55Prof. Mahantesh B Halagatti-KLS IMER-Belgaum
KLS Institute of Management Education and Research
Belgaum
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Direct Distribution
•
Company to consumers or retailers
without use of intermediaries. Alsoincludes reaching Institutional buyers.
•
Selling on the Internet
•
If products are technically complex, thissystem is preferred
•
Cost
is a major consideration to adopt thismode
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Indirect Distribution
•
Goods may move through a set of
intermediaries –
Most FMCG companies follow this route
•
The intermediary has a far better reach
than the company•
The cost of operations
of an intermediary
like a wholesaler / retailer is shared withmany businesses.
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Indirect Distribution -
Examples•
All FMCG, consumer durables and
pharmaceutical•
Petrol / diesel / cooking gas -
franchisees
•
Insurance•
Mobile phones
•
All kinds of passenger transport
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Marketing Channel Systems
•
Vertical:
–
Corporate –
Administered
–
Contractual
•
Horizontal
•
Multi-channel
Vertical….
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Vertical Marketing System
•
Various parties like producers, wholesalers andretailers act as a unified system to avoidconflicts
•
Improves operating efficiency and marketingeffectiveness
•
3 types: –
Corporate
–
Administered –
Contractual
Corporate…
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Corporate VMS
•
Combines
successive stages of production
and distribution under single ownership•
Examples:
–
Bata, Bombay Dyeing, Raymond –
Sears, Goodyear
–
Suppliers of food items could be also their
own supplying firms -
like Nilgiris
Administered…
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Administered VMS
•
Co-ordinates distribution activities
•
Gains market power by dominating a channel•
Usually true of dominant brands like GE, Kodak,
Pepsi, Gillette, Coke and HLL in certain
locations –
Command high level of co-operation in shelf space,
displays, pricing policies and promotion strategies
Contractual…
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Contractual VMS
•
Independent producers, wholesalers and
retailers operate on a contract
•
Could take the forms of:
–
Wholesaler sponsored voluntary chains
–
Retailer co-operatives –
Manufacturer sponsored retail or wholesale franchise
–
Franchise organizations
–
Service firm sponsored retail franchise
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Horizontal MS
•
Two or more unrelated companies join
together to pool resources and exploit anemerging market opportunity
–
In-store banking in hotels, big stores
–
Retail outlets in petrol bunks
–
Coffee Day outlets in airports
Multi channel…
M lti h l Di t ib ti
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Multi-channel Distribution
•
Company uses different channels to
reach / same or different marketsegments
–
Most FMCG companies have separatenetworks for retail market andinstitutions
–
Pharma
companies may use differentchannels to reach doctors, chemists andhospitals
M lti h l Di t ib ti
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Multi-channel Distribution
•
Used in situations where:
–
Same product but different marketsegments
–
Unrelated products in same market –
detergents and ice creams (HLL) –
Size of buyers varies
–
Geographic concentration of potential
consumers varies –
Reach is difficult
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Distribution Channels
•
Take care of the following ‘discrepancies’
–
Spatial –
Temporal
–
Breaking bulk
–
Assortment and
–
Financial support
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Spatial Discrepancy
•
The channel system helps reduce the
‘distance’ between the producer and theconsumer of his products.
–
Consumers are scattered
–
Have to be reached cost effectively
•
Example: companies produce products in
one location even for global needs
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Temporal Discrepancy
•
The channel system helps in speeding up in
meeting the requirement of the consumers
–
Time when the product is made and when it is
consumed is different
–
Limited number of production points but hundreds ofconsumers
•
Maruti plant in Gurgaon
–
cars and spares are
available when the consumer wants
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Breaking Bulk
•
The channel system reduces large quantities
into consumer acceptable lot sizes
–
Production has to be in large quantities to benefit
from economies of scale
–
Consumption is necessarily in small lot sizes•
India is the ultimate example in breaking bulk
–
you can buy one cigarette, one Anacin, one
toffee etc
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Need for Assortment
•
The channel system helps aggregate a
range of products
for the benefit of theconsumer –
it could be made by onecompany or several of them.
–
For the same product, it could be a variety
ofbrands and pack sizes
•
MICO makes fuel injection equipment,
spark plugs etc in different plants but itsdealer will sell the entire range.
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Financial Support
•
The channel system provides critical
working capital to its customers byextending credit.
•
Some channel members like stockists
and
wholesalers finance the business
of their
customers.
–
Medical diagnostic equipment to hospitals
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Channel Flows
•
Forward flow –
company to its customers
–
goods and services•
Backward flow –
customers to the
company –
payment for the goods.
Returned goods.
•
Flows both ways -
information
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Three Flows Recognized
FORWARD
BOTH WAYS
BACKWARD
Goods and Services
Information
Payment for goods / returns
Company Customers
C
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The Five Channel Flows
•
Physical flow
of goods
•
Title flow
of goods (negotiation, ownershipand risk sharing also)
•
Payment flows
(financing and payment)•
Information flow
(about goods, orders
placed and orders executed)
•
Promotion flows
Who is responsible?
Channel Flows
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Channel Flows
•
Some channel member/s have to performthem
•
There is a cost associated
with each flow
•
If a channel member is discontinued, the flowhas to be performed by another
•
All flows and transactions can be effectiveonly with timely, accurate and correctinformation
•
The channel flow is ideally to be handled bythe most competent channel member whocan deliver best service at the lowest cost.
D f I l t
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Degree of Involvement
Manufacturer C&FA or
DistributionCenter
Distributor,
dealers
Wholesaler or
retailer
Physical
Title / ownership
Information
Risk sharing
Promotions
Physical
Title
Information
Payment
Order
processing
Physical
Title / ownership
Information
Payment
Order placement
Negotiation
Risk sharing
Promotions
Physical
Title / ownership
Information
Payment
Order placement
Negotiation
Risk sharing
Promotions
Channel formats…
Ch l F t
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Channel Formats
•
Is decided by who
‘drives’ the channel
system:
–
Producer driven
–
Seller driven –
Service driven
–
Others
P d D i
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Producer Driven
•
This is the effort of the manufacturer
to reach theproduct to his consumers. Examples: –
Company owned retail outlets –
petrol, Bata, Reliancemobiles
–
Licensed outlets –
KMF
–
Consignment selling agents –
Franchisees
–
Brokers
–
Vending machines –
Company contracted distributors
S ll D i
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Seller Driven
•
Use of existing channels
to reach the
largest number of end users –
Existing wholesalers and retailers
–
Modern retail formats
–
Specialty stores –
Shoppers’
Stop
–
Discount stores –
Subhiksha
–
Pheriwalas
S i D i
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Service Driven
•
These are the people who facilitate the
distribution –
Transporters and freight forwarders
–
Providers of warehouse space
–
C&F agents
–
3P Logistics service providers
–
Couriers
Other formats
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Other formats
•
Multi-level marketing systems –
Amway,Modicare, Tupperware, Herbalife
•
Co-operative societies
•
Telephone kiosks
•
TV home shopping
•
Catalogue marketing•
The internet
•
Exhibitions, fairs and trade shows
•
Data base marketing
Channel levels…
Ch l L l
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Channel Levels
•
Zero level –
if the product or service is provided
to the end user directly by the company.
–
Used mostly by companies delivering service like
health, education, banking (also known as service
channels)
•
One level –
consists of one intermediary
•
Two level –
consists of two intermediaries and
is the most common for FMCG products
S i Ch l
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Service Channel
•
Companies establish their own uniquechannels to deliver services like health,
education, banking, insurance etc –
Hundreds of bank branches to be close toprospects
–
Banks may also recruit independent agents to getcustomers to walk in
–
Consulting or IT firm uses one team for Biz
Development and another for execution –
Musician or magician may use mass media,events or web sites to reach customers
Channel LevelsSummarize Expectations…
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Channel Levels
Manufacturer Manufacturer Manufacturer
End User
Retailer
End User
Retailer
End User
Distributor/ wholesaler
Zero level Two levelOne level
KLS I tit t f M t Ed ti d R h
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89Prof. Mahantesh B Halagatti-KLS IMER-Belgaum
KLS Institute of Management Education and Research
Belgaum
What is Retailing?
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What is Retailing?
•
Any business entity selling to consumersdirectly is retailing
–
in a shop, in person, bymail, on the internet, telephone or a vendingmachine
•
Retail also has a life cycle
–
newer forms ofretail come to replace the older ones –
thecorner grocer may change to a supermarket
•
Includes all activities involved in selling or
renting products or services
to consumers fortheir home or personal consumption
Retailing
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Retailing
•
Term retail derived from French word‘retaillier’
meaning ‘to break bulk’
•
Characteristics: –
Order sizes tend to be small but many
–
Caters to a wide variety of customers. Keeps alarge assortment of goods
–
Lot of buying in the outlet is ‘impulse’- inventory
management is critical
–
Selling personnel and displays are important
elements of the selling process –
Strengths in ‘availability’
and ‘visibility’
–
Targeted customer mix
decides the marketing mix
of the retailer
Retailing
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Retailing
•
Retail stores are independent of the
producers –
not attached to any of them
•
A survey shows that only 35% ofsupermarket purchases are pre-
planned. The rest are ‘impulse’-
greatlyinfluenced by quality of the
merchandising efforts
Functions of Retailers
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Functions of Retailers
•
Marketing functions to provide consumersa wide variety
•
Helps create time, place and possessionutilities
•
May add form utility
(alteration of a trouserbought by a customer)
•
Helps create an ‘image’
for the productshe sells
Functions of Retailers
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Functions of Retailers
•
Add value
through:
–
Additional services
–
extended store timings,credit, home delivery
–
Personnel to identify and solve customer
problems
–
Location
in a bazaar to facilitate comparison
shopping
How do Customers Decide on a
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Retailer?•
Price
•
Location•
Product selection
•
Fairness
in dealings•
Friendly sales people
•
Specialized services
provided
Kinds of Retailers
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Kinds of Retailers
Type of
retailer
Characteristics
Specialty store Narrow product line with deep assortment –
apparel,
furniture, books
Department
store
Several product line in different departments –
Shoppers
Stop, Big Bazaar
Supermarket Large, low-cost, low-margin, high volume, self-service
operation with a wide offering
Conveniencestore Small stores in residential areas, open long hours alldays of the week –
limited variety of fast moving
products like groceries, food
Discount store Standard merchandise sold at lower prices for low
margins -
Subhiksha
Kinds of Retailers
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Kinds of Retailers
Type of
retailer
Characteristics
Corporate
chains
More outlets owned and controlled by one firm –
Globus
Voluntary chain Wholesaler sponsored group of independent retailers
Retailer co-ops Independent retailers with centralized buying operations
and common promotions
Consumer co-
ops Co-op societies of groups of consumers operating theirown stores –
farmers, industrial workers etc
Franchise
organisation
Contractual arrangement between the producer and
retailers –
selling products exclusively –
Kemp Toys
Retailers’ Strengths
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Retailers
Strengths
•
Choice of merchandise
is their prerogative –
put
pressure on producer suppliers
•
Many new products on offer. Can charge penalty
if products do not do well
•
New developments in IT
help them runoperations optimally
and keep track of loyal
customers. Also helps them identify profitable
store locations.
Organized Retail Features
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Organized Retail -
Features
•
Sponsored
by companies or corporate groups
•
Large formats
like supermarkets, departmentstores and now hypermarkets
•
Right ambience
to make shopping a pleasure
•
Use latest technology
for customer care andsupply chain management.
•
Large employment
potential
•
Effectively manage operating costs•
Offer consumers value for money
Retailing Trends India
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Retailing Trends -
India
•
Consumer wants more benefits without
additional costs•
Rising income levels –
cheap no longerworks, but ‘value for money’
•
Explosion of communication
channelsinfluences choices of products
•
Increased literacy
has made consumer more
conscious of his bargaining power •
Growing number of urban nuclear families
Retailing Trends India
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Retailing Trends -
India
•
Influence of retailer
increasing –
assortmentplus other facilities offered
•
Rural consumers want the same things andas their urban counterparts and are willing topay for it
•
Better organized supply chains
to cater to alarge number of outlets in different locations
•
Improved infrastructure
helping theconsumers
•
Bigger volumes help in economies of scale
Trade / Retail Format
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•
Range of goods
and customer service
dimensions determine the ‘format’. Elementsdistinguish between stores and include:
–
Store ambience. (Kemp Fort)
–
Saving in time
for shopping –
interiors of practicaldesign –
reduce time for search and pick-up of
goods –
Location
–
Physical characteristics
–
external appearance,
arrangement of goods•
All these are parts of the positioning strategy
and influence the ‘footfalls’
to the store.
Categories of Shoppers (1)
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Categories of Shoppers (1)
•
Identified by Cook & Walters
•
Task focused shopper
–
visits the store to buyspecific things he has planned for –
Convenience, minimum time, easily accessiblegoods, pleasing store format
–
Grocery shopping is an example
•
Leisure shopper
–
more interested in theambience and environment –
Has plenty of time, wants to have a good time
while shopping
–
Lifestyle stores are examples
Category of Shoppers (2)
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Category of Shoppers (2)
•
Convenience goods (low value):
probable gainfrom shopping and making comparisons is small
compared to the time, effort and mentaldiscomfort required in the search -toothpaste
•
Shopping goods (high value):
gain is large -
refrigerator •
Specialty goods: clearly distinguished by brandpreferences –
Maruti Zen car or Tag-Heuer
watch
Trading area…
Trading Area
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Trading Area
•
Catchment
area from where most of thecustomers of a retail store come
–
Corner grocery store caters to the locality in which itis situated
–
Discount stores have a wider area. Subhiksha
locations for consumers in 2 km radius –
Specialty stores have a much wider trading area –
MTR, Shoppers’
Stop etc
•
Trading area increases with the size of the storeand the variety it offers
Retail Strategy
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Retail Strategy
•
Positioning
of the retailer
•
Merchandising•
Customer service
•
Customer communication
Positioning Strategy
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Positioning Strategy
•
Wide range with a high value add
–
Lifestyle brand of stores
•
Limited range but a high value add
–
Tanishque
jewelry store
•
Limited range with a limited value add
–
Bata stores
•
Wide range of goods but a limited valueadd
–
a Food World outlet
Merchandising
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Merchandising
•
A set of activities involved in
acquiring goodsand services and making them available at the
places, times and prices and the quantity thatenable a retailer to reach his goals
•
The most critical function in retail
•
Directly effects the revenue and profitability ofthe store
•
Also takes into account the assortment of goodsand their quality
Customer Service Strategy
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Customer Service Strategy
•
Developed to create ‘stickiness’
in customers
•
Personal data
collected using IT –
includingpurchasing practices and preferences
•
Customer loyalty programs
planned
•
Create ‘customer’
delight•
Location strategy
to give competitive advantage
•
Understanding the buying profile
of the
customers
Communication …
Customer Communication
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Customer Communication
•
The manner in which the retailer makeshimself known
to his customers. Has two
parts to it: –
The messages
which the retailer sends to hiscustomers and prospects
–
The word of mouth support
which satisfiedcustomers give to the retailer by talking to others
•
Retailer communicates about:
–
Announcing the opening
of a store –
Promotions running
in the store
–
Additional facilities
introduced by the stores
Pricing Strategy
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Pricing Strategy
•
Premium and indicating high value
•
Reasonable pricing with good value•
Low pricing but high value for money
•
All strategies are focused on giving valueto the customer
Product differentiation….
Product Differentiation
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Product Differentiation
•
Feature exclusive national brands not available
in competing retailers –
unlikely
•
Exclusivity
of products –
specialty stores
•
Mostly private labels
–
Westside
•
Feature, big, specially planned merchandisingevents
–
Kemp Fashion sows
•
Introduce new products
before competition -
-
again unlikely
Performance measures…
Franchising
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Franchising
•
Franchisor is the firm which wants to sellits goods or services
•
Franchisee is the firm or group that arewilling to sell the products
or services on
behalf of the franchisor –
The first party gives advice and help to thesecond to find good locations, blue prints for a
store, financial, marketing and managementassistance
Franchisor benefits…
Benefits to Franchisor
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Benefits to Franchisor
•
Faster expansion
•
Local franchisee pays lower advertisingrates
than a national firm
•
Owners motivated
to work more hoursthan mere employees
•
Local taxes and licenses are responsibility
of franchisees
Franchisee benefits…
Benefits to Franchisee
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Benefits to Franchisee
•
Quick recognition
among potential customers
•
Management training
provided by principal•
Principal may buy ingredients and supplies
and
sell to franchisee at lower prices
•
Financial
assistance
•
Promotional
aids, in-store displays etc
Electronic channels…
Retailing on the Internet
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g
•
Unlimited assortment
•
Items may not be on hold
–
someone has to
deliver the product –
delays•
No product touch or feel
•
More info makes the customer a better
shopper •
Comparison shopping
possible
•
Consumer has to plan purchases ahead
•
No need to handle cash –
payment can beon-line
•
Shopping is 24X7
E-tailing Issues
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E tailing Issues
•
Logistics
support to selling
•
Payment
gateway•
Customer product returns
•
Conflicts
with Brick &Mortar –
overcomeby selling separate products
FDI in retail….
KLS Institute of Management Education and Research
B l
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Prof. Mahantesh B Halagatti-KLS IMER-Belgaum
Belgaum
Need for Wholesalers
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Need for Wholesalers
•
Widespread economy
–
consumers can onlyreached by thousands of retailers (except for
consumer durables and industrial products)•
Reaching these retailers by a company directlyis not possible
(except for consumer durables
and industrial products)•
Hence the need for wholesalers in two forms: –
Well established free-lance
wholesalers
–
Contracted
distributors, stockists
and agents
Characteristics….
Characteristics of Wholesalers
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Characteristics of Wholesalers
•
Operate on large volumes
but with chosen groupof products
–
Food, grocery, pharma
or automobile spares etc
•
The company itself, contracted parties or freelancers, can operate as wholesalers
•
Mostly B2B business
–
trade and institutions
•
Wholesaler could also be a retailer –
in rural
markets –
W/s sells to other retailers and also toconsumers
Characteristics of Wholesalers
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Characteristics of Wholesalers
•
Sell physical inputs or products –
tangible goods
( Ws in some service industries)
•
Optimise
results, maximise
service
(effectiveness)
and minimise
operating costs
(efficiency)•
Buy goods for resale, keep inventory, take risks
of price changes, negotiate terms, procure
orders, deliver and extend credit.
Definition…
Definition
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•
Wholesaling is concerned with the
activities of those persons orestablishments that sell to retailers and
other merchants and / or industrial,
institutional and commercial users
butdo not sell in large amounts to
consumers –
US Bureau of Census
Delivering value…
Delivering Value
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Delivering Value
•
Keep goods accessible
to customers
instantly•
At times, get together to bargain
for better
terms
•
Pass on
benefits or incentives to their
customers
•
Have a wide trading area
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Functions of Wholesalers
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u c o s o o esa e s
•
Varies in degree
between free-lance, company
distributors and stockists
/ agents
•
Sales and promotion
of chosen company
products
•
Buying the assortment
of goods•
Breaking bulk
to suit customer requirements
•
Storage
and protection
of goods till sold
Functions of Wholesalers
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•
Grading and packing
of commodities
•
Transportation
of goods to customers•
Financing
the buying of customers
•
Bearing the risks
associated with the
business
•
Collecting and disseminating market
information
to both suppliers andcustomers
Types of Wholesalers
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yp
•
Full service: stocking, selling, offering credit,delivery and business assistance (company
distributors, wholesale merchants)•
Limited service: range of service is limited(examples include Metro C&C, mail order)
•
Merchant w/s: independent businesses
•
Brokers and agents: bring buyer and sellertogether –
do not take possession of goods
•
Others: agri
business, auction companies etc
Limitations of Wholesalers
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•
Some of them do not give
completeinformation to suppliers for selfish reasons
•
Cannot be relied on to do
equitabledistribution
•
At times, do not want
company and
customers to meet•
Tend to hoard goods
and influence pricing
•
Consumers have no say in pricing or quality
in a w/s dominated system
Major decisions…
Major Wholesaling Decisions
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j g
•
Which markets
to operate in
•
Manpower
to employ
•
What products
to sell
•
Pricing decisions
/ Promotional support
•
Credit and collections
•
Image and customer perception
•
Warehouse location and design•
Inventory Control
Favourable Factors
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•
Companies have limitations in market / outletcoverage.
Wholesalers are required to fill the
gaps•
Hundreds of small companies who cannotafford to set up distribution networks
–
needto depend on wholesalers
•
In food grains, fruits and vegetables –
hardlyany organised
distribution network.Wholesalers help move goods from farm gateto consumers
Favourable Factors
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•
Big companies also need wholesalers toget big volumes
•
W/s extend credit
to customers.Companies cannot match this
•
Retailers have to visit w/s markets tobuy food grains, cereals and pulses – buy a lot more.
Unfavourable…
Unfavourable Factors
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•
Companies coverage focus on retailers
and institutions
through their distributors
•
Using modern retail formats aswholesalers
•
More outlets like Metro C&C
beingencouraged
•
Enforcing strict price control
so that w/s donot sell below company prices.
Distributor
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•
Is a wholesaler nominated by a company to
exclusively re-distribute the company products to
its customers
in a designated territory. He doesnot deal in competitor’s products. Does not sell
from his premises. Extends credit selectively.
–
A redistribution stockist
for HLL
–
A distributor for Philips lighting division
–
A distributor for L&T engineering division
Dealer
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•
Role similar to a distributor but –
May not have a clearly defined territory
and may sell
both in the market and from his shop –
May deal with competitive products
also
–
Extends credit selectively.
–
Dealers in industrial products may have better definedroles.
•
Examples:
–
Dealer for an edible oil company –
A dealer for garment brands
Stockist
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•
May be working for a company with adesignated territory but does not re-
distribute the stocks. Sells from hispremises. Extends credit selectively.
–
A stockist
for paper products –
A stockist
for automobile spares
•
Re-distribution is visiting customer
premises to sell products
Managing distributors….
Managing Distributors
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•
The principles
are similar
across
industry verticals. FMCG is the most
complex.•
Has the capacity
to maximise
sales and
market shares.•
Has to ensure buying goods from the
company and re-distribution
to the trade
Managing DistributorsWhy necessary?….
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•
Distributor responsibilities include: –
Buying
adequate quantities by Stock Keeping Unit(SKU) for redistribution
–
Ensuring full market coverage
of all customers inthe territory assigned to him
–
Help finance the operations
–
pays for the goods
upfront but extends credit to his customers –
Maintaining inventory
of company productsadequate at all times to service the market
–
Assist company in its promotional efforts
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Cost of Servicing
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•
Cost benefit of using distributors to beassessed
–
Logistics
cost of serving the market –
The number of customers
to be covered bycategory –
wholesalers, retailers, institutions
–
Frequency
of visits to markets and outlets –
Sales revenue
estimate from each visit
–
Markets to be covered with ready stocks or orderbooking for later delivery
–
Likely collections
during each visit –
gives an ideaof the credit requirements
Expectations…
Expectations from a Distributor
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•
To be stated at the start
of the relationship
•
Helps get the right kind of distributor also –
Achieving sales targets
–
volume, value and packs
–
Financial commitment
on inventory and credit
–
Investment in infrastructure
–
space, vehicles
–
Manpower
–
front line and back office
–
Distribution effort
–
market and outlet coverage as pera beat plan with productive calls
–
Developing new markets and new accounts –
Managing key accounts and institutional business
Expectations from a Distributor
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•
Merchandising
and displays in the market
•
Secondary sales
efforts and tracking –
critical for
fmcg
and pharma
(secondary sales is sales from
the distributor to the outlets in the market)
•
Effectively handling promotions and schemesinitiated by the company
•
Managing damaged stocks
Expectations from a Distributor
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•
Organising
and participation in promotionalevents
•
Assist company in making a success oflaunching new products
and packs
•
Handling consumer quality complaints
•
Handling statutory requirements
on behalf of thecompany
•
Payments and remittances
promptly to thecompany
KLS Institute of Management Education and Research
Belgaum
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Prof. Mahantesh B Halagatti-KLS IMER-Belgaum
Channel Design Factors
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•
Product mix and nature
of the product
•
Width and depth
of market / outlet coverageplanned
•
Long term commitments
to channel partners
•
Level of customer service
planned
•
Cost affordable
on the channel system
•
Channel control requirements
of the company
Steps….
Channel Design Steps
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•
Define customer needs
•
Clarify channel objectives
•
Look at alternative systems
which canmeet these objectives
•
Estimate cost
of operating the channelsystem
•
Evaluate
available alternatives•
Finalise
the ‘ideal’
system
Customer needs….
Customer Needs
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•
Lot size
–
most convenient pack size whichthe consumer can buy at a time
•
Waiting time
–
time elapsed between thedesire to buy the product and the time whenhe can actually buy it –
should be almost zero
•
Variety
–
choice of products, brands, packs•
Place utility
–
choice of buying where hewants. For a consumer product it has to be at
a location closest to his residence
Components …
Channel Design Components
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•
Revenue generation
or the commercialpart
•
Physical delivery
of the goods or services –
the logistics part
•
The ‘service’
part
to take care of after-
sales support
•
Each part of the system is likely to behandled by a different entity.
Design issues….
Channel Design Issues
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•
Activities
required and who will perform
•
Activities relationship to service levels•
Number
of channel members required and
the relationship
between categories
•
Roles, responsibilities, remuneration and
appraisal
of performance of channel
members
Channel Design Process
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Segmentation
Development
Focus
Positioning
Similar to any other marketing task
Segmentation
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•
Putting customers in similar clusters
based ontheir needs
–
Doctors who prescribe medicines –
Chemists who dispense medicines
–
Hospitals and nursing homes who use them
•
Each segment has a different need
to beserviced by the channel
•
Gives an idea to the sales manager as to the
kind of channel members
he should be planningfor.
Positioning
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•
Defines the channel element
required to service
each of the segments
–
The sales manager decides the channel partner who
is ‘ideal’ to meet the expectations of the segments.
–
The number of each category
of intermediary is also
decided based on the number of customers to beserviced in each segment.
–
The service objectives and flows
for each channel
partner are also frozen
Focus
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•
It may not be possible to meet the needsof all segments –
cost and practicality
considerations (the managerial talentavailable for instance)
•
The sales manager has to firmly decidewhich of the segments he will service
•
The competitive scenario
also helps in this
decision
Development
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•
At this stage the channel system is being putin place
to achieve the objectives
•
Select the best of the alternatives –
Comparison with the most successful competitorcould be a good benchmark
•
Channel partners of competitors may bewilling to share best practices
of theirprincipals
•
For modifying an existing channel, the gapbetween the ideal and the existing
is to beidentified for remedial action.
Channel Objectives
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•
Defines what the channel system is supposedto do to support customer service.
•
Customer needs could include: –
Lot size convenience
–
Minimum waiting time
–
Variety and assortment –
Place utility
•
The product characteristics and the market
profile
also impact the objectives.•
Competition could also affect the objectives
Channel Alternatives
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•
Are planned after deciding the customer
segments to be serviced and the levels of
service –
Business intermediaries currently available like
C&FAs, distributors, dealers, agents wholesalers and
retailers.
–
The number and type
of intermediaries required
–
Developing new
channel types
–
Roles
of each channel member
Evaluation of Major
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AlternativesCost of operations
Ability to manage
and control
Adaptability
Range and volumeto be handled
Criteria for evaluation
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Evaluation Criteria
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•
Ability to manage and control:•
Distribution network being an extended arm of the
company, the channel partners have someobligations
•
Operating guidelines specify these rules
•
The channel system should help the companyenforce these rules fairly to all channel partners
•
Some of the operating rules are……
•
Company trains channel personnel andprovides proper product literature
Selecting Channel Partners
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•
Getting good channel partners is a difficult part
of doing business
•
Some of the methods employed
to selectchannel partners are: –
Sales people
identify prospects and talk to them
–
Press advertising
(industrial goods) –
Existing channel partners can give good references
–
Competitors’
channel members for reference, not
poaching
Selection Criteria
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•
Qualitative: willingness, confidence in
company products, willingness to abide by
company rules, building company image,
innovativeness etc
•
Quantitative: financial status,infrastructure, location, present
businesses, customer relationships,market standing etc
Training Channel Members
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•
Starts from the time of recruitment
•
Channel member owner and his staff
•
Market views channel member as part of the
company –
he has to behave in a like manner –
hence training assumes significance•
Training could be on the job
field training or
classroom
training
•
Training is an ongoing
process.
Subjects…..
Subjects for Training
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•
Field training on how the markets are to beworked
to achieve sales, collect payments and
ensure the right kind of merchandising•
Class room training on company products,competition
and how to tackle it to gain market
shares•
Special meetings for new product launches
•
Submitting reports
and maintaining records
•
Statutory compliance
Subjects for Training
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•
Care of company products
•
Technical specifications
and answering FAQs
of
customers•
For technical and industrial products –
recognition of specs, installation procedure,
repair and maintenance and effectivedemonstrations
•
Servicing
of automobiles and other engineeringproducts
Motivation….
Motivating Channel Members
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•
Ambitious volume and growth targets –
continuous motivation
required to achieve
•
Motivation includes:
–
Capacity building
programs
–
Training –
Promotions support
–
Marketing research
support
–
Working with company personnel –
Incentives
“power”……
“Power” of MotivationFrench & Raven
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•
Reward –
positive support
•
Coercion-
threat of punitive action
•
Referent –
positive effects of association
•
Legitimate –
enforcing a contract
•
Expert –
support of special knowledge
•
Support –
additional benefits for performers
•
Competition –
pitting against peers
Channel Members EvaluationRole of ROI…..
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•
Effectiveness
of the distribution channel
determines the success of the company
•
Company would like its channel partners to
perform at the highest standards
possible
•
Need to constantly evaluate
performance onsales targets, coverage, productivity, inventory
holdings, attending to servicing requests etc
ROI as a Measure
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•
Leading FMCG companies feel that an ROI of
30%
for a distributor is healthy and is a fair
indication that he is performing well. –
If the ROI is more, additional tasks are given
–
If the ROI is less, the company may provide additional
support
•
Post evaluation tasks include counseling,
retraining and motivating. In extreme cases itmay result in termination.
Performance Evaluation
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•
On pre-agreed tasks
only. No surprises.
•
Specific targets
on periodical basis are set.
–
Targets on volume and outlet productivity could be fora week or a month
–
Targets relating to increasing market shares or total
outlet coverage could be for 6 months –
Different weightages
could be given for each of theparameters for evaluation
•
The performance appraisal is open andtransparent
Modifying a network..
Steps for Modifying Networks
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•
Service level desired and willing
to deliver
•
Activities required
to deliver service level,
who
will do it and at what cost•
Derive ideal
channel structure
and comparewith existing to know gaps
by evaluating
based on standard parameters relating toeffectiveness and efficiency
•
Action to bridge the gaps
and put modified
channel system into place•
Define key performance indicators
Channel Comparison Factors
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Efficiency
Effectiveness
Scalability
Flexibility
Consistency
Reliability
Integrity
Non-store Retailing
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•
Selling door-to-door
•
Vending
machines•
Tele-shopping
networks
•
Selling through catalogs•
Other forms of direct selling
•
Electronic
channels
Electronic channels…
Retailing on the Internet
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•
Unlimited
assortment
•
Items may not be on hold
•
No product touch or feel•
More information
makes the customer abetter shopper
•
Comparison shopping
possible•
Consumer has to plan purchases ahead
•
No need to handle cash –
payment can beon-line
•
Shopping is 24X7Vertical integration….
Vertical Integration
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•
This means owning the channel. The
company does the work of production,
branding and distribution.•
Downstream integration
means the
producer of the goods also does thedistribution –
Eureka Forbes, Bata
Vertical Integration
U i i h ll
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•
Upstream integration
means the selleralso produces the goods –
private
labels of modern retailers.•
If the organization does the work ofproduction, branding and distribution, it
is said to be vertically integrated.•
Vertical Integration provides better
control
over the distribution function
Outsourcing..
Outsourcing Distribution
I th t l t it ti
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•
Is the most prevalent situation
as: –
The ‘reach’
is better
–
The cost
may be lower
–
The company can exploit the ‘core competence’
ofits channel partners, which is distribution
•
Vertical integration is a choice which will
become long term and cannot be easilychanged once the resources have beencommitted.
•
However, direct distribution (owning thechannel) is still the best solution for ‘intensive’
distribution.
KLS Institute of Management Education and Research
Belgaum
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Warehousing
A role beyond storage
Prof. Mahantesh B Halagatti-KLS IMER-Belgaum
W h i ?
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A place where finished goods are stored
till they are further distributed
A variable in make-and-sale equation of
the organization
It’s distribution centre playing key role in
organization’s logistics strategy. It’s a point
where organization fails or succeeds infulfilling the sales & marketing promises
A switching facility in logistical network
Warehousing ?…..
Typical Warehouse Layout
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MATERIAL INWARD & INSPECTION
BULK STORAGEPLACE
RACK /BINSTORAGE
PLACE
ORDER PICKING SECTION
PACKAGING SECTION
MATERIAL DISPATCH SECTION
T f W h
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Types of Warehouses
•Captive warehouseLocated inside the factory premises
For monitoring excisable goods
•Field warehouseLocated near to place of consumption
For servicing the customers & channel partners
•Customs warehouseLocated near to air & sea ports
For goods meant for imports & exports
St Alt ti
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MediumLowHighRisk
Inverselyrelated tovolumes
LowInverselyrelated tovolumes
Cost per unitstored
MediumLowHighOperationFlexibility
MediumLowHighControls
V. LessNone V.highInvestment
Contract
WH
Public
WH
Private
WH
FACTORS
Storage Alternatives
W h F ti
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Warehouse FunctionsStock holding
ConsolidationBreak bulkCross dockingProcessingPostponement
AssortmentMixing / assembling
Packaging & labellingMaterial handlingOrder fill ing
Information handling
Warehouse Layout Design
Guidelines
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-Make maximum use of available area
- Use ‘unitized‘ load system
- Minimize the goods movement byproper storage allocations
- Provide flexibility for changes in future
- Design for safe, clean & secure space
Guidelines
Factors Influencing WarehouseLayout Design
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- Inventory turnover - Storage method- Product configuration
- Product characteristics- Housekeeping- Material handling methods
- Safety and security
Warehouse Site Selection
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•Market proximity•Infrastructure(Road, utilities, communication)• Access to site•Transportation cost• Availability of space•Taxes and levies
•Regulation
Warehouse Site Selection
Warehouse Network
Cost implications
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Secondary
TransportationCost
InventoryCarrying
Cost
PrimaryTransportation
CostTotalCost
Cost
No of Warehouses
– Cost implications
Warehouse Decision
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Product
characteristics
value density,
Logistics Reach,
Perishability
Resources-
Competencylevel,Financialresources,System
Type -Private,
Public,
Contract
Strategic Decisions
Layout, Equipment,
Storage scheme, IT
Tactical DecisionStorage
allocations, Order picking,
Transportation
Operational DecisionsWork allocations, Job
scheduling, Performance
monitoring
Warehouse Decision
Warehousing Strategy
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Warehousing Strategy
•Proximity to market•Reliability in service•Flexibility in operations
storage spaceThroughput
Material handling
•Location flexibility
•Economies of scale
Warehouse Capacity Planning
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J F M A M J J A S O ND
Storagecapacity
requirement
Public or contract warehouse
(for 25 % 0f capacity)
Private warehouse(for75 % 0f capacity)
Months
Warehouse Capacity Planning
Warehouse Performance
Parameters
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- Stock turn over ratio
- Warehouse cost to sales
- Warehouse cost per unit handled
- Warehouse occupancy rate
Parameters
KLS Institute of Management Education and Research
Belgaum
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Material Handling Systems
Forexploiting productivity potential in logistics
Prof. Mahantesh B Halagatti-KLS IMER-Belgaum
Material Handling Stages
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Unloading the incoming material fro transport vehicle
Moving the unloaded material to assigned storage place inwarehouse
Lifting the material from storage place during order picking
Moving material fro inspection and packing
Loading the boxes / cartons on to transport vehicle
Material Handling Stages
Material Handling Principles
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Standard equipment should be preferred to keep low capital
investments
Equipment designed for maximum continuous flow should be
preferred
Portable or movable equipment to be preferred
Ratio of dead weight to pay load should be minimum forhandling equipment
Gravity flow should be incorporated in the system design
Material Handling Principles
Material Handling Systems
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Manual
Mechanical
Semi-automatic
Automatic
Information guides
Material Handling Systems
Selection Criteria:
Material Handling Systems
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Volumes to be handledSpeed in handling
ProductivityProduct characteristics
(weight, size, shape)
Nature of the product(hazardous, perishable, crushable)
Material Handling Systems
Material Handling
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Material Handling
Manual TrolleyVersatileFor smaller loadsFor short distance
Material Handling
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Material Handling
Forklift•Manual or mechanized
•Portable•Large distance travel
•Medium & large loads handling
•Vertical movement•Intermittent duty
•Directional undeliverable
Material Handling
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Material Handling
Overhead CraneCarry heavy loadsContinuous duty
Size shape no bar
Material Handling
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Material Handling
Material handling
at sea ports
Advanced MaterialHandling Systems
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Pneumatic tube systemFor handling material in powered form
Semi-automatic systemSorting devices
Robotics
Automatic guided vehicle systemMaterial handling on a fixed path
computer operated guided vehicle
Speed of operation 150-250