Chain of Productions and Channels of Distribution

We will look at:

• Revision of Chain of Production• Samples of Chain of Production• Primary/Secondary/Tertiary Activities• Channels of Distribution and samples• Wholesalers/Retailers

Questions to consider

• Definition of Chain of Production/ Channels of Distribution• List out sample chains and channels• Differentiate Primary/Secondary/Tertiary Activities• Explain wholesalers/ retailers/ cash and carry

Chain of ProductionTaken from Economics chapter

Production means combining these resources to produce goods/services that customers want

Chain of Production and Channels of Distribution Think about the steps involved in providing consumers with the

following:

1. Baker selling bread.2. A kitchen table and chairs.3. Cakes.

The Chain of Production

• The chain of production refers to the various production or processing stages that a good or service goes through before it is sold.

For Bread: 1. Wheat-2. Millers for flour-3. Baker-4. Transport-5. Customer

The Three Sectors of the Economy

From this we can identify 3 distinct sectors involved in the manufacturing and distribution of products.

• The Primary Sector (Raw Materials from land/sea)

• The Secondary Sector (Manufacturing/ Construction)

• The Tertiary Sector (Services Providers)

The Primary Sector

• Primary producers take materials from the land or sea or use the land or sea to make a product.• The main industries involved in primary production are:• Agriculture• Forestry • Fishing• Mining • Oil Production.

Secondary Producers

• These manufacture and process the raw materials supplied by the primary producers.• Some examples would be:• The Building Industry• Technological and Pharmaceutical Firms• Food Processing • Clothing

Tertiary Producers

• They do not make the products. Instead they supply services that businesses need to operate successfully. • Examples include: • Insurance• Banking• Doctors• Solicitors

Exercise: List the following into three columns to show which are primary, which are secondary, and which are tertiary

Insurance Companies

Agriculture

Packaging Firms

Furniture Firms

Banks

Pharmaceutical Firms

Mining

Solicitors

Bakeries

Doctors

Forestry

Clothing Firms

Oil producers

Advertising Industries

Fishing

Primary Secondary Tertiary

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The Channels of Distribution

Channels of distribution are the methods used to transfer finished goods from manufacturers to consumers. Common examples are:

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wholesaler retailer consumer1 Manufacturer

2 Manufacturer retailer consumer

3 Manufacturer consumer

Examples of Channels of Distribution

Tailor Made Prodcuts

Producer Consumer

Books

Producer Manufacturer Retailer Consumer

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Wholesaling

• A wholesaler is a company or person that buys large quantities of goods from many manufacturers and sells them in smaller quantities to retailers. E.G. A school may need large stocks of paper, which it purchases directly through the wholesaler in order to receive a discount

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Cash and Carry Wholesalers• Cash and carry wholesalers act as supermarkets

to retailers. Consumers are not permitted to shop in them. E.g. Musgraves.

• They differ from the traditional wholesaler because:

1. They do not give credit.2. They do not deliver goods.3. They operate on a self-service basis.4. They provide ample parking space for retailers.5. Their prices tend to be lower than traditional

wholesalers.

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Functions of a retailer• A retailer is somebody (or an outlet) who sells finished

goods to consumers. E.g.Tesco, Johnny Ryan’s, Elvery’s.

• Functions of a retailer:1. Provides a wide range of goods to consumers in one place2. Sells goods to consumers in small quantities3. Offers advice to consumers on products they may need4. Informs manufacturers of changing consumer trends5. Creates a demand for goods by advertising 6. Arranges finance for consumers for expensive goods7. May accept “trade-ins” to make it easier for consumers to

buy new goods

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Wholesaler aids retailer

Prevents retailers over-stockinggoods that may be going out offashion

Provides information about new products coming onto the market

Retailers may be able to sell alltheir stock before payment is due

Provides credit facilities

Reduces retailer’s transport costs and saves retailer’s time

Delivers goods

Retailers do not have to storelarge quantities of goods

Sells goods in small quantities

Retailers need deal with only asmall number of wholesalersrather than many manufacturers

Provides a wide range of goods

Benefit to retailerRole played by wholesaler

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Wholesaler aids manufacturer

Prevents the manufacturers frommaking goods that may be goingout of fashion

Provides the manufacturer with information from retailers regarding consumer trends

Gives the manufacturer workingcapital for current expenditure

Pays promptly for goods

Reduces the manufacturer’s advertising costs

Promotes the goods to retailers and consumers

Manufacturers are saved thewarehousing costs

Stores the goods

Manufacturers have a smallnumber of customers, whichreduces their overhead costs

Buys very large quantities

Benefit to manufacturerRole played by wholesaler

List a possible channel of distribution for the following

• Cereal• A Tailored Suit• Tickets to see a gig in the O2• New Audi