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  • 1. Distribution Management & Marketing Mix Sales and Distribution Management

2. The Marketing Mix Product Price Promotion PlaceDistribution channels help in the place aspect of themarketing mixDistribution provides place, time and possession utility tothe consumer 3. ExampleConsumer 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 Tuesday evening when she wants it time She can pay for the toothpaste and take it away possessionThe company distribution function has made allthis possible.The situation would be similar if a customer wantsto buy a refrigerator or medicines or even anelectric motor 4. Players Involved The company and its distribution network Direct company to consumer Company to a C&FA / distribution center to distributors to retailers Distributor to wholesaler to retailer All these intermediaries help the process of exchange of the product or service. 5. Distribution Management Management of all activities which facilitate movement and co-ordination of supply and demand in the creation of time and place utility in goods The art and science of determining requirements, acquiring them, distributing them and finally maintaining them in an operationally ready condition for their entire life. 6. Distribution Channels Defined Are sets of interdependent organizations involved in the process of making a product or service available for use or consumption Stern & Ansary Whether selling products or services, marketing channel decisions play a role of strategic importance in the overall presence and success a company enjoys in the marketplace. 7. Distribution Channels Are intermediaries or middlemen Exist because producers cannot reach all their consumers Multiply reach and provide efficiency to the marketing process Facilitate smooth flow and create time, place and possession utilities Have the core competence and reach Provide contact, experience, specialization and scales of operation 8. Types of Channels Sales channel 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 of the distribution Service channel performs after sales service 9. 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 10. C&FAs / C&SAs C&FA: carrying and forwarding agent C&SA: carrying and selling agent Both are on contract with a company Both are transporters who work between the company and its distributors Collect products from the company, store in a central location, break bulk and dispatch to distributors against indents Goods belong to the company C&SA also sells the goods on behalf of the company but remits proceeds after sale 11. Distributors, Dealers, Stockists, 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 12. Wholesalers Operate out of the main markets Deal with a number of company products of their choice Are not on contract with any company Sell to other wholesalers, retailers and institutions Negotiate about 15 days credit from company distributors also provide credit to their customers Operate on high volumes and low margins 13. Retailers The final contact with consumers Operate out of their shops and sell a large assortment and variety of goods Located closest to consumers Buy from company, distributors or wholesalers Highest margins in the network Provide personalized services to their customers 14. Industrial Products ProducerProducer Agent/middleman Industrial DistributorIndustrial DistributorIndustrial Customer Industrial CustomerCustomers may also directly purchase from company sales force 15. Consumer ProductsProducerProducer Producer Distributor Distributor WholesalerRetailerRetailerRetailer Customer /Customer/ Customer/ consumerConsumerConsumerRetailers may also direct from company sales force 16. Patterns of Distribution Determines the intensity of the distribution Intensity decides the service level provided Types of distribution intensity: Intensive Selective Exclusive 17. Intensive Distribution Distribution through every reasonable outlet available FMCG Strategy is to make sure that the product is available in as many outlets as possible Preferred for consumer, pharmaceutical products and automobile spares 18. Selective Distribution Multiple, but not all outlets in the market A few select outlets will be permitted to keep the products Outlets selected in line with the image the company wants to project Preferred for high value products Tanishq jewelry Keeps distribution costs lower 19. Exclusive Distribution Highly selective choice of outlets may be even one outlet in an entire market - car dealers Could include outlets set up by companies Titan, Bata Producer wants a close watch and control on the distribution of his products. 20. Distribution Channel Strategy Derived from the corporate strategy and the marketing 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 Define Key performance indicators State Critical success factors 21. Customer Service Levels Defined by the nature of the industry, the products, competition and market shares. Affordability also decides the service level It should at least match competition. Customer expectations have no limit 22. Distribution Objectives Influenced by the customer expectations Defines the extent of time, place and possession utility which the customer can expect out of the channel network 23. Set of Activities Manner in which the company and its marketing channels go about achieving the customer service levels Some of these steps could be: Periodic Sales forecasts Dispatch 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 24. Distribution Organization Primary aim: determine who will do what Major Decision points: 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 the channel partners. 25. Policy and 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 26. Key Performance Indicators 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 in demand 27. Key Performance Indicators Balanced sales achievement during a period no period end skews Market coverage with ready stocks Excellent management of accounts receivables Minimize losses on account of stock-outs Minimize damages to products 28. Critical Success Factors The distribution strategy also needs the support and encouragement of top management to succeed Some of the CSFs could be: Clear, transparent and unambiguous policy and procedure 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 29. Marketing ChannelsSales and Distribution Management 30. Channel Functions Information gathering Consumer motivation Bargaining with suppliers Placing orders Financing Inventory management Risk bearing After sales support 31. Distribution Channels Take care of the following discrepanciesSpatialTemporalBreaking bulkAssortment andFinancial support 32. Spatial Discrepancy The channel system helps reduce the distance between the producer and the consumer of his products.Consumers are scatteredHave to be reached cost effectively Example: companies produce products in one location even for global needs 33. Temporal Discrepancy The channel system helps in speeding up in meeting the requirement of the consumersTime when the product is made and when it is consumed isdifferentLimited number of production points but hundreds ofconsumers Maruti plant in Gurgaon cars and spares are available when the consumer wants 34. Breaking Bulk The channel system reduces large quantities into consumer acceptable lot sizesProduction has to be in large quantities to benefit fromeconomies of scaleConsumption is necessarily in small lot sizes India is the ultimate example in breaking bulk you can buy one cigarette, one Anacin, one toffee etc 35. Need for Assortment The channel system helps aggregate a range of products for the benefit of the consumer it could be made by one company or several of them.For the same product, it could be a variety of brands andpack sizes MICO makes fuel injection equipment, spark plugs etc in different plants but its dealer will sell the entire range. 36. Financial Support The channel system provides critical working capital to its customers by extending credit. Some channel members like stockists and wholesalers finance the business of their customers.Medical diagnostic equipment to hospitals 37. 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 38. Three Flows RecognizedFORWARD Goods and ServicesCustomersCompanyBACKWARDPayment for goods / returnsBOTH WAYS Information 39. The Five Channel Flows1. Physical flow of goods2. Title flow of goods (negotiation, ownership and risk sharing also)3. Payment flows (financing and payment)4. Information flow (about goods, orders placed and orders executed)5. Promotion flows 40. Channel FlowsSome channel member/s have to perform themThere is a cost associated with each flowIf a channel member is discontinued, the flow has tobe performed by anotherAll flows and transactions can be effective only withtimely, accurate and correct informationThe channel flow is ideally to be handled by the mostcompetent channel member who can deliver bestservice at the lowest cost. 41. Direct Distribution Company to consumers or retailers without use of intermediaries. Also includes reaching Institutional buyers. Selling on the Internet If products are technically complex, this system is preferred Cost is a major consideration to adopt this mode 42. Direct Distribution - Examples Banking services Credit cards Petrol / diesel company own outlets Land line phone connections Health services Utilities electricity, water Subsidized ration Education 43. Indirect Distribution Goods may move through a set of intermediariesMost 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 with many businesses. 44. Role of IntermediariesCompany 1 Company 2 Company 3 IntermediaryLarge number of CONSUMERS 45. Indirect Distribution - Examples All FMCG, consumer durables and pharmaceutical Petrol / diesel / cooking gas - franchisees Insurance Mobile phones All kinds of passenger transport 46. Degree of Involvement ManufacturerC&FA orDistributor,Wholesaler or Distribution Centerdealers retailer Physical Physical Physical Physical Title / Title Title / ownership Title / ownershipownership Information Information Information Information Payment Payment Payment Risk sharing Order processing Order placement Order Promotions Negotiation placement Risk sharing Negotiation Promotions Risk sharing Promotions 47. Channel FormatsIs decided by who drives the channel system:Producer drivenSeller drivenService drivenOthers 48. Producer Driven This is the effort of the manufacturer to reach the product to his consumers. Examples: Company owned retail outlets petrol, Bata, Reliance mobiles Licensed outlets KMF Consignment selling agents Franchisees Brokers Vending machines Company contracted distributors 49. 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 50. 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 51. Other formatsMulti-level marketing systems Amway, Modicare,Tupperware, HerbalifeCo-operative societiesTelephone kiosksTV home shoppingCatalogue marketingThe internetExhibitions, fairs and trade showsDatabase marketing 52. 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 53. Channel LevelsProducer ProducerProducer WholesalerRetailerRetailer Customer /Customer/ Customer/ consumerConsumerConsumerZero level One level Two level 54. Marketing Channel Systems Vertical:CorporateAdministeredContractual Horizontal Multi-channel 55. Vertical Marketing System Various parties like producers, wholesalers and retailers act as a unified system to avoid conflicts Improves operating efficiency and marketing effectiveness 3 types:CorporateAdministeredContractual 56. 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 57. 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 locationsCommand high level of co-operation in shelf space,displays, pricing policies and promotion strategies 58. 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 59. Horizontal MS Two or more unrelated companies join together to pool resources and exploit an emerging market opportunityIn-store banking in hotels, big storesRetail outlets in petrol bunksCoffee Day outlets in airports 60. Multi-channel Distribution Company uses different channels to reach / same or different market segments Most FMCG companies have separate networks for retail market and institutions Pharmacy companies may use different channels to reach doctors, chemists and hospitals 61. Multi-channel Distribution Used in situations where:Same product but different market segmentsUnrelated products in same market detergentsand ice creams (HLL)Size of buyers variesGeographic concentration of potential consumersvariesReach is difficult 62. Expectations from Channel Variety and assortment at one location Bulk Breaking Close to customer location Speed of Delivery Additional services Support Installation After-sales Financial 63. WholesalingSales and Distribution Management 64. Need for Wholesalers Widespread economy consumers can only reached by thousands of retailers (except for consumer durables and industrial products) Reaching these retailers by a company directly is 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 65. Characteristics of Wholesalers Operate on large volumes but with chosen group of products Food, grocery, pharma or automobile spares etc The company itself, contracted parties or free lancers, 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 to consumers 66. 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. 67. DefinitionWholesaling is concerned with the activities ofthose persons or establishments that sell toretailers and other merchants and / or industrial, institutional and commercial users but do not sell in large amounts to consumersUS Bureau of Census 68. 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 69. Difference with Retailers Not too worried about location, ambience or promotions prefer to be in the main market Deal with other businessmen and not consumers Deal with a specific group of products only Much larger trading area Much larger transactions with suppliers and customers Believe in low margins but high volumes. 70. Functions of Wholesalers 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 71. Functions of Wholesalers 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 and customers 72. Types of Wholesalers 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 seller together do not take possession of goods Others: agri business, auction companies etc 73. Limitations of Wholesalers Some of them do not give complete information to suppliers for selfish reasons Cannot be relied on to do equitable distribution 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 74. Major Wholesaling Decisions 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 75. Favourable FactorsCompanies have limitations in market / outletcoverage. Wholesalers are required to fill the gapsHundreds of small companies who cannot afford toset up distribution networks need to depend onwholesalersIn food grains, fruits and vegetables hardly anyorganised distribution network. Wholesalers helpmove goods from farm gate to consumers 76. Favorable Factors Big companies also need wholesalers to get big volumes W/s extend credit to customers. Companies cannot match this Retailers have to visit w/s markets to buy food grains, cereals and pulses buy a lot more. 77. Unfavorable Factors Companies coverage focus on retailers and institutions through their distributors Using modern retail formats as wholesalers More outlets like Metro C&C being encouraged Enforcing strict price control so that w/s do not sell below company prices. 78. Distributor Is a wholesaler nominated by a company to exclusively re-distribute the company products to its customers in a designated territory. He does not deal in competitors 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 79. Dealer 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 defined roles. Examples: Dealer for an edible oil company A dealer for garment brands 80. Stockist May be working for a company with a designated territory but does not re-distribute the stocks. Sells from his premises. Extends credit selectively. A stockist for paper products A stockist for automobile spares Re-distribution is visiting customer premises to sell products 81. Managing Distributors The principles are similar across industry verticals. FMCG is the most complex. Has the capacity to maximize sales and market shares. Has to ensure buying goods from the company and re- distribution to the trade 82. Managing DistributorsDistributor responsibilities include:Buying adequate quantities by Stock Keeping Unit (SKU) forredistributionEnsuring full market coverage of all customers in the territoryassigned to himHelp finance the operations pays for the goods upfront butextends credit to his customersMaintaining inventory of company products adequate at alltimes to service the marketAssist company in its promotional efforts 83. Need for Distributors Under three circumstances: For entering a new town For additional coverage in the same town For replacing an existing distributor For entering a new town, assess the potential for business to decide: If the town can sustain a full fledged distributor The number of distributors required Starts with a town profile of potential, number of customers to be serviced and the competition. 84. Cost of Servicing Cost benefit of using distributors to be assessed Logistics cost of serving the market The number of customers to be covered by category wholesalers, retailers, institutions Frequency of visits to markets and outlets Sales revenue estimate from each visit Markets to be covered with ready stocks or order booking for later delivery Likely collections during each visit gives an idea of the credit requirements 85. Expectations from a Distributor 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 per a beat plan with productive calls Developing new markets and new accounts Managing key accounts and institutional business 86. Expectations from a Distributor 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 schemes initiated by the company Managing damaged stocks 87. Expectations from a Distributor Organising and participation in promotional events Assist company in making a success of launching new products and packs Handling consumer quality complaints Handling statutory requirements on behalf of the company Payments and remittances promptly to the company 88. RetailingSales and Distribution Management 89. What is Retailing? Any business entity selling to consumers directly is retailing in a shop, in person, by mail, on the internet, telephone or a vending machine Retail also has a life cycle newer forms of retail come to replace the older ones the corner grocer may change to a supermarket Includes all activities involved in selling or renting products or services to consumers for their home or personal consumption 90. 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 a large 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 91. Retailing Retail stores are independent of the producers not attached to any of them A survey shows that only 35% of purchases are pre- planned. The rest are impulse- greatly influenced by quality of the merchandising efforts 92. Functions of Retailers Marketing functions to provide consumers a wide variety Helps create time, place and possession utilities May add form utility (alteration of a trouser bought by a customer) Helps create an image for the products he sells 93. 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 94. How do Customers Decide on a Retailer? Price Location Product selection Fairness in dealings Friendly sales people Specialized services provided 95. Kinds of RetailersType ofCharacteristicsretailerSpecialty store Narrow product line with deep assortment apparel,furniture, booksDepartmentSeveral product line in different departments Shoppersstore Stop, Big BazaarSupermarket Large, low-cost, low-margin, high volume, self-serviceoperation with a wide offeringConvenience Small stores in residential areas, open long hours all days ofstore the week limited variety of fast moving products likegroceries, foodDiscount storeStandard merchandise sold at lower prices for low margins -Subhiksha 96. Kinds of RetailersType of CharacteristicsretailerCorporate More outlets owned and controlled by one firm GlobuschainsVoluntary chain Wholesaler sponsored group of independent retailersRetailer co-ops Independent retailers with centralized buying operationsand common promotionsConsumer co-Co-op societies of groups of consumers operating their ownops stores farmers, industrial workers etcFranchise Contractual arrangement between the producer andorganisationretailers selling products exclusively Kemp Toys 97. 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 run operations optimally and keep track of loyal customers. Also helps them identify profitable store locations. 98. Trade / Retail FormatRange of goods and customer service dimensionsdetermine the format. Elements distinguishbetween stores and include:Store ambience. (Kemp Fort)Saving in time for shopping interiors of practical design reduce time for search and pick-up of goodsLocationPhysical characteristics external appearance,arrangement of goodsAll these are parts of the positioning strategy andinfluence the footfalls to the store. 99. Categories of Shoppers (1)Identified by Cook & WaltersTask focused shopper visits the store to buyspecific things he has planned forConvenience, minimum time, easily accessible goods,pleasing store formatGrocery shopping is an exampleLeisure shopper more interested in the ambienceand environmentHas plenty of time, wants to have a good time whileshoppingLifestyle stores are examples 100. Category of Shoppers (2) Convenience goods (low value): probable gain from shopping and making comparisons is small compared to the time, effort and mental discomfort required in the search -toothpaste Shopping goods (high value): gain is large - refrigerator Specialty goods: clearly distinguished by brand preferences Maruti Zen car or Tag-Heuer watch 101. Trading Area Catchment area from where most of the customers of a retail store come Corner grocery store caters to the locality in which it is 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 store and the variety it offers 102. Retail Strategy Positioning of the retailer Merchandising Customer service Customer communication 103. 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 value add a Food World outlet 104. Merchandising A set of activities involved in acquiring goods and services and making them available at the places, times and prices and the quantity that enable a retailer to reach his goals The most critical function in retail Directly effects the revenue and profitability of the store Also takes into account the assortment of goods and their quality 105. Customer Service Strategy Developed to create stickiness in customers Personal data collected using IT including purchasing practices and preferences Customer loyalty programs planned Create customer delight Location strategy to give competitive advantage Understanding the buying profile of the customers 106. Customer Communication The manner in which the retailer makes himself known to his customers. Has two parts to it:The messages which the retailer sends to his customers andprospectsThe word of mouth support which satisfied customers giveto the retailer by talking to others Retailer communicates about:Announcing the opening of a storePromotions running in the storeAdditional facilities introduced by the stores 107. 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 value to the customer 108. 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 merchandising events Kemp Fashion sows Introduce new products before competition - -again unlikely 109. Retail Performance Measures Gross margin return on inventory investment GMROIGross margin multiplied by ratio of sales to inventory (50%*4=200%) Gross margin per full time equivalent employee Gross margin per square foot 110. Franchising Franchisor is the firm which wants to sell its goods or services Franchisee is the firm or group that are willing to sell the products or services on behalf of the franchisor The first party gives advice and help to the second to find good locations, blue prints for a store, financial, marketing and management assistance 111. Benefits to Franchisor Faster expansion Local franchisee pays lower advertising rates than a national firm Owners motivated to work more hours than mere employees Local taxes and licenses are responsibility of franchisees 112. 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 113. Retailing on the Internet 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 be on-line Shopping is 24X7 114. E-tailing Issues Logistics support to selling Payment gateway Customer product returns Conflicts with Brick &Mortar overcome by selling separate products 115. Designing Distribution Channels Sales and Distribution Management 116. Channel Design Factors Product mix and nature of the product Width and depth of market / outlet coverage planned Long term commitments to channel partners Level of customer service planned Cost affordable on the channel system Channel control requirements of the company 117. Channel Design Steps Define customer needs Clarify channel objectives Look at alternative systems which can meet these objectives Estimate cost of operating the channel system Evaluate available alternatives Finalise the ideal system 118. Customer Needs Lot size most convenient pack size which the consumer can buy at a time Waiting time time elapsed between the desire to buy the product and the time when he can actually buy it should be almost zero Variety choice of products, brands, packs Place utility choice of buying where he wants. For a consumer product it has to be at a location closest to his residence 119. Channel Design Components Revenue generation or the commercial part 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 be handled by a different entity. 120. Channel Design Issues 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 121. Channel Design Process SegmentationPositioningFocus Development 122. Segmentation Putting customers in similar clusters based on their needsDoctors who prescribe medicinesChemists who dispense medicinesHospitals and nursing homes who use them Each segment has a different need to be serviced by the channel Gives an idea to the sales manager as to the kind of channel members he should be planning for. 123. Positioning Defines the channel element required to service each of the segmentsThe sales manager decides the channel partner who isideal to meet the expectations of the segments.The number of each category of intermediary is also decidedbased on the number of customers to be serviced in eachsegment.The service objectives and flows for each channel partnerare also frozen 124. Focus It may not be possible to meet the needs of all segments cost and practicality considerations (the managerial talent available for instance) The sales manager has to firmly decide which of the segments he will service The competitive scenario also helps in this decision 125. Development At this stage the channel system is being put in place to achieve the objectives Select the best of the alternativesComparison with the most successful competitor could be agood benchmark Channel partners of competitors may be willing to share best practices of their principals For modifying an existing channel, the gap between the ideal and the existing is to be identified for remedial action. 126. Channel ObjectivesDefines what the channel system is supposed to do tosupport customer service.Customer needs could include: Lot size convenience Minimum waiting time Variety and assortment Place utilityThe product characteristics and the market profilealso impact the objectives.Competition could also affect the objectives 127. Channel Alternatives Are planned after deciding the customer segments to be serviced and the levels of serviceBusiness intermediaries currently available like C&FAs,distributors, dealers, agents wholesalers and retailers.The number and type of intermediaries requiredDeveloping new channel typesRoles of each channel member 128. Evaluation of Major AlternativesCost of operations Ability to manageand control Adaptability Range and volume to be handled 129. Evaluation Critieria Cost: If existing sales force can be expanded cost effectively, this is the best alternative Cost of alternatives at different volumes can only be estimated for comparison System with the lowest cost is preferred Adaptability the channel should be flexible to handle different types of markets and changes in the market conditions Volume and range to be handled Capable even when business grows or expands 130. Evaluation Criteria Ability to manage and control: Distribution network being an extended arm of the company, the channel partners have some obligations Operating guidelines specify these rules The channel system should help the company enforce these rules fairly to all channel partners Some of the operating rules are Company trains channel personnel and provides proper product literature 131. Selecting Channel Partners Getting good channel partners is a difficult part of doing business Some of the methods employed to select channel partners are:Sales people identify prospects and talk to themPress advertising (industrial goods)Existing channel partners can give good referencesCompetitors channel members for reference, not poaching 132. Selection Criteria 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 133. Training Channel Members 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. 134. Subjects for Training Field training on how the markets are to be worked 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 135. Subjects for Training 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 effective demonstrations Servicing of automobiles and other engineering products 136. Motivating Channel Members Ambitious volume and growth targets continuous motivation required to achieve Motivation includes:Capacity building programsTrainingPromotions supportMarketing research supportWorking with company personnelIncentives 137. Power of Motivation 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 peersFrench & Raven 138. Channel Members Evaluation 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 on sales targets, coverage, productivity, inventory holdings, attending to servicing requests etc 139. ROI as a Measure 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 it may result in termination. 140. Performance Evaluation On pre-agreed tasks only. No surprises. Specific targets on periodical basis are set. Targets on volume and outlet productivity could be for a 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 the parameters for evaluation The performance appraisal is open and transparent 141. Steps for Modifying Networks 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 compare with existing to know gaps by evaluating based on standard parameters relating to effectiveness and efficiency Action to bridge the gaps and put modified channel system into place Define key performance indicators 142. Channel Comparison FactorsEfficiency EffectivenessScalabilityFlexibility ConsistencyReliability Integrity 143. Non-store Retailing Selling door-to-door Vending machines Tele-shopping networks Selling through catalogs Other forms of direct selling Electronic channels 144. Retailing on the InternetUnlimited assortmentItems may not be on holdNo product touch or feelMore information makes the customer a bettershopperComparison shopping possibleConsumer has to plan purchases aheadNo need to handle cash payment can be on-lineShopping is 24X7 145. Vertical IntegrationThis means owning the channel. The company does thework of production, branding and distribution.Downstream integration means the producer of thegoods also does the distribution Eureka Forbes, Bata 146. Vertical IntegrationUpstream integration means the seller also produces thegoods private labels of modern retailers.If the organization does the work of production, brandingand distribution, it is said to be vertically integrated.Vertical Integration provides better control over thedistribution function 147. Outsourcing DistributionIs the most prevalent situation as: The reach is better The cost may be lower The company can exploit the core competence of its channel partners, which is distributionVertical integration is a choice which will becomelong term and cannot be easily changed once theresources have been committed.However, direct distribution (owning the channel) isstill the best solution for intensive distribution. 148. Channel (Conflict) ManagementSales and Distribution Management 149. Channel Management Channel system has a set of players:Not equally motivated to implement the ideal channeldesignWhose expectations from the system differ Is in three broad phases:Use of power basesIdentifying and resolving channel conflictsChannel co-ordination 150. Use of Channel Power Channel members are dependent on each other. The power equations between them keep them working together. There are basically 5 types of power bases reward, coercion, expert, reference and legitimacy. 2 more can be considered in Indian context as support and competition. Extent of dependence defines the power base which is appropriate. 151. Power (Bases) of MotivationReward incentives for good performanceCoercion threat of punishment for non-performanceReferent benefit of sheer association with a strong company Legitimate arising out of a contract Expert specialized knowledge Support additional benefits for better performers only Competition created between channel partners 152. Countervailing PowerBalances the power exerted by one channel member.It is not a one-sided equation.Both the channel member and the principal can haveinfluence on each other.Results from interdependence within the channelsystem. Company exerts power on the distributor to get its coverage and revenues Distributor has enough influence on his customers and this is critical for the company also Weaker partners do get exploited ancillary units 153. Channel Coordination Channel system is well coordinated if each member understands his role correctly and performs it to help the system achieve its customer service objectives. In a coordinated channel: Interests of all channel members are protected Actions of all are in line with overall objectives Flows are streamlined to desired customer service objectives Channel co-ordination is an on-going effort 154. Channel Conflict Situation of discord or disagreement between partners in the same channel system has negative connotations and is driven more by feelings than facts Conflict is part of any social system getting disparate entities to work together as in a channel system is also one such social unit If any member feels that another is working in a manner as to affect him, conflict results 155. Channel Conflict CHANNEL CONFLICTGOAL DOMAIN PERCEPTION Goal conflict rising out of mismatch in understanding of objectives by various channel members Domain conflict resulting due to mismatch of understanding of responsibilities and authority Perception conflict due to mismatch in reading of the market place and thus proposed actions 156. Conflicts Result From Each channel member wanting to pursue his own goals Each wants to retain his independence There are limited resources which all of them want to utilize in achieving their goals Features of conflicts: Initially latent and does not affect the working Is not normally possible to detect till it becomes disruptive 157. Each stage is progressively more severe than the earlier oneFour Stages of Conflict PERCEIVEDMANIFESTLATENT FELT 158. Types of Conflicts Latent Conflict: Some amount of discord exists but does not affect the working or delivery of customer service objectives. Disagreement could be on roles, expectations, perceptions, communication. Perceived Conflict: Discords become noticeable channel partners are aware of the opposition. Channel members take the situation in their stride and go about their normal business No cause for worry but the opposition has to be recognized 159. Types of Conflicts Felt Conflict: Reaching the stage of worry, concern and alarm. Also known as affective conflict. Parties are trying to outsmart each other. Causes could be economical or personal Needs to be managed effectively and not allowed to escalate. Manifest Conflict: Reflects open antagonistic behavior of channel partners. Confrontation results. Initiatives taken are openly opposed affecting the performance of the channel system. May require outside intervention to resolve 160. Root Causes for Channel Conflict Roles not defined properly Allocation of scarce resources between members seem unfair to some Differences in perception of the business environment Future expectations not likely to materialize Decision domain disagreements who has to decide on what (key account pricing) Channel members do not agree on objectives Misunderstanding or misinterpretation of routine business communication 161. Resolving ConflictsUnderstanding nature and intensityTracing the source of the conflictUnderstand the impact of the conflictStrategy and plan of action for resolution 162. Conflict Resolution StylesAvoidanceStyles are a combinationof assertiveness and co-operation.AggressionAccommodation CompromiseCollaborationLeast effort and results Maximum effort and Best resultsKenneth W Thomas 163. Avoidance Used by weak channel members. Problem is postponed or discussion avoided. Relationships are not of much importance. As there is no serious effort on getting anything done, conflict is avoided. 164. Aggression Also known as a competitive or selfish style. It means being concerned about ones own goals without any thought for the others. The dominating channel partner (may be the principal) dictates terms to the others. Long term could be detrimental to the system. 165. Accommodation A situation of complete surrender. One party helps the other achieve its goals without being worried about its own goals. Emphasis is on full co-operation and flexibility in approach. May generate matching feelings in the receiver. If not handled properly, can result in exploitation 166. Compromise Obviously both sides have to give up something to meet mid way. Can only work with small and not so serious conflicts. Used often in the earlier two stages. 167. Collaboration Also known as a problem solving approach Tries to maximize the benefit to both parties while solving the dispute. Most ideal style of conflict resolution a win-win approach Requires a lot of time and effort to succeed. Sensitive information may have to be shared 168. Channel Policies Defines how the channel is required to operate. Normally framed by the channel principal to guide the operations of the channel system If not framed properly could prove the starting point of channel conflicts. Some subjects of channel policies could be as seen in the next slide: 169. Channel Policies Markets to be covered Customer coverage Pricing Product portfolio to be handled Selection, termination of channel members Ownership of the channel 170. The Services Sector Twice the size of the manufacturing sector Services offered are to be in line with customer demand Services have to be presented in an appealing manner to sustain customers. Needs specialized channels which understand the characteristics of service delivery 171. 5 Characteristics of ServicesThey are intangible can only be felt. No visualfeatures like size, style.They are inseparable from their service providers a3P cannot deliverThey cannot be standardized custom made anddeliveredCustomers are involved to a great degree define theservicesThey are perishable cannot be stored for deliverylater. Salvage value of an unsold service is zero. 172. Channels Used Shorter channels than for products Some channels used are:Direct from service provider to userAgents or brokers to bring buyer and seller togetherFranchisees or contractorsElectronic channels High degree of customization is provided 173. Channel Information SystemsSales and Distribution Management 174. CIS Purpose CIS is Channel Information Systems CIS is the orderly flow of pertinent operational data both internally and between channel members, for use as a basis of decision making in specified responsibility areas of channel management CIS is of primary use of sales managers. 175. Information - Advantages Useful in marketing planning helps improve quality of marketing decisions Can help tap market opportunities Provides an alert against competition Helps spot trends favourable or otherwise Helps develop action plans for growth Gives feedback on consumer needs 176. Classification of Information Based on the use made of it by marketing planning, operations, decision making or control Based on subjects consumers, products, competition, channels, promotions, pricing, sales volume, value etc Operations data facts and figures Also based on assumptions, anticipated occurrences forecasts relating to the channel system 177. Information ProcessCOLLECTIONPROCESSING STORAGE USE 178. Information Process Collection: acquiring and placing raw data monthly sales by each territory Processing: analyzing data to get meaning out of it arranging, modifying and interpreting the data by the user comparison of sales between periods Storage: keeping the information intact till it is needed Use: application of information for management decision making sales data of the last 6 months to forecast the sales of the next month. 179. Developing a Channel MIS Decide what information is requiredOrganize information in a manner suitablefor interpretation and action Decide who will use the information when and for what purpose 180. Use of Information Planning: sales forecasts or distributor indents Control: expenses against budget There is always a cost of collecting information. If data collected is not used properly, the data provider will hesitate to give the information. The channel MIS works at the sales operational level. It has very little strategic intent. 181. Sources of Data Reports (oral and written) and records of channel members, sales people Letters, statements and market research Any other info collected by the sales people and the channel members from the market External sources like business publications, magazines, newspapers, trade journals. In a dedicated channel system the collection of info is well streamlined in the JC meeting With use of IT enabled systems collection and processing has become simpler. 182. A Good Channel MIS Integrated system to handle all regular data Useful decision support system Reflects the style of the marketing organization User friendly and user oriented Convincing to the providers of the info as to its purpose Be cost effective Not need for verification from other sources Be fast and totally reliable 183. Element Importance In a good channel MIS, it is necessary to define upfront for each element of the MIS, the following: Purpose of the info Source of the info Action possible Impact on customer service 184. Competition TrackingPurpose Plan day to day corrective action to protectmarket shares and shelf spaceSourceTrade, channel partners and sales peopleActionSpot action while in the market and taken bypossiblechannel partners or sales peopleImpact on Timely action to provide better support to theservice trade and retain their goodwill 185. Market Logistics and SCM Sales and Distribution Management 186. Materials Management Materials forms the largest single cost item in most manufacturing companies needs to be carefully managed Materials management function includes planning and control, purchasing and stores and inventory control Materials management is the precursor to logistics and supply chain management 187. Logistics Defined Logistics means having the right thing, at the right place, at the right time The procurement, maintenance, distribution and replacement of personnel and materials Websters Dictionary The science of planning, organizing and managing activities that provide goods or services Logistics World, 1997 188. Logistics Functions: planning, procurement, transportation, supply and maintenance Processes: requirements determination, acquisition, distribution and conservation Business: science of planning, design and support of business operations of procurement, purchasing, inventory, warehousing, distribution, transportation, customer support, financial and human resources 189. Scope of Logistics Choice of markets Procurement Plant location and layout Inventory management Location and management of warehouses Choices of carriers, mode of transport Packaging decisions Relevant to all enterprises: manufacturing, Government, Institutions, service organizations 190. Components of Logistics Management Logistics ActivitiesCustomer service Demand forecasting OutputDistributionInputCommunications MarketingInventory control OrientationNaturalMaterials handling(competitive Resources Order processingAdvantage)HR Parts and service support Plants and warehouse selection Time and PlaceFinance ProcurementutilityInformation Packaging Efficient moveReturn goods handlingto customerSalvage and scrap disposalTraffic and transportation Warehouse and storage 191. Links and FlowsGeneral material flow/ service flow Information flow Information flowCustomersSuppliersCustomerLead Firm Supplier customersupplier General cash flowOutbound / Downstream logistics Inbound / Upstream logistics 192. Logistics and Marketing Interface on:Product design and pricingCustomer service policiesSales forecasts and order processingInventory policies and location of warehousesChannels of distribution and dispatch planningTransportation to reach products to customers Production wants larger production runs to minimize time spent on set up changes on the machines. Marketing wants smaller runs of a variety of products. 193. Value Chain (Michael Porter)Firms InfrastructureActivitiesSupport Human Resources (Organization, people, methods) Systems and TechnologyProcurementOperationsMarketing OutboundInboundLogisticsLogisticsService & SalesPrimary Activities 194. Logistics Plan Outline Internal analysis (current position) Organization Human resources Transportation Relations with internal customers Quality of product Quality of Service External / situation analysis Competitor logistics performance Trends External environment / economy Public, private and contract warehouse Public, private and contract carriage 195. Principles of Logistics Excellence StrategicOperational Link logistics to corporate Focus on financial strategyperformance Organize comprehensivelyTarget optimum service levels Use the power ofManage the details information Leveraging logistics volumes Emphasize human resources Measure and react to Form strategic alliancesperformanceAlling & Tyndall 196. Logistics Focus AreasCustomer service relatedOperations related Packaging Plant and warehouse site Order processinglocation Spare parts and service support Procurement After sales Customer serviceInventory control support Materials handling Demand forecastingSalvage and scrap disposal Distribution communications Traffic and transportation Return goods handling Warehousing and storage Logistics may be confined to the company whereas SCM extends beyond 197. Supply Chain Management Business context:Globalization of the market placeAdvances in technologyIncreasingly demanding, informed customer basePurchase decisions on dimensions of quality, price and time Innovative supply chain:To meet customer driven challengesTo reduce costsImprove service levelsEnhance speed to market 198. Supply Chain Integration Optimizing the supply chain requiressupplier and customer involvementto integrateprocesses,policies,systems,database andstrategiesbetween diverse trading partners 199. Supply Chain Integration Customer Analysis Order Fulfillment Purchasing/Supplier Partnering IntegratedInventory Management Storage &Supply Chain and control TransportationManagementManufacturing/ Demand & Lead Time Re-manufacturing/Management Assembly MaterialsManagement 200. Why Carry Inventory? Support production requirements Support operational requirements Maximize customer service ensure availability when needed protect against uncertainty Hedge against marketplace uncertainty Take advantage of order quantity discounts 201. Functions of Inventory Inventory serves as a buffer between: Supply and demand Customer demand and finished goods Requirements for an operation and the output from the previous operation Parts and materials to begin an operation and the suppliers of the materials 202. Factors Which Drive Inventory Target service level parameters Lot sizing practices Safety stock and safety time conventions Volume discounts and purchase arrangements Seasonal build up needs 203. Categories of Inventory Anticipation built in anticipation of future demand peak season, strike, promotion Fluctuation (safety) to cover random, unpredictable fluctuations in supply and demand and lead time to prevent disruption in operations, deliveries etc Lot-size to take advantage of quantity discounts, reduce shipping, set up and clerical costs also called cycle stock 204. Categories of Inventory Transportation pipeline or movement inventories to cover the time needed to move from one point to another factory to distribution point for example Hedge for materials where prices are volatile Maintenance, repair and operating supplies (MRO) to support M and O spare parts, lubricants, consumables etc 205. Types of Inventory Obvious.Raw materialsWork-in-processFinished goods of primary concern to marketingMaintenance, repair and operating (MRO) suppliesIn-transit, pipeline 206. Performance Measures Inventory turns = Annual cost of goods sold /average inventory in value Days of sales = inventory on hand / average daily sales 207. Types of Inventory Systems Pure Inventory when and how much to order. RM procurement. Simple manufacturing operations Production Inventory finite production rates. Demand fluctuation. Products compete for manufacturing capacity Production distribution Inventory compete for production capacity. Geographic placement of inventory for best service of demand 208. Types of Classification ABC category most common for all HML - high, medium, low - similar FSND fast moving, slow moving, non-moving, dead spare parts / FG SDE scarce, difficult, easy to obtain procurement / Spares GOLF govt, ordinary, local, foreign source procurement / Spares VED vital, essential, desirable spare parts / FG SOS seasonal, off-seasonal - commodity 209. ABC Inventory Analysis Based on Paretos law:A 20% items worth 80% of valueB 30% items worth 15% of valueC about 50% items account for 5% of the usage Classify items based on the above criteria Apply degree of control in proportion to the importance of the group 210. Inventory Related Costs Unit costs basic value of the item carried Ordering costs generating and sending a material release, transport, any other acquisition costs Carrying costs capital, storage, obsolescence Stock-out costs Quality costs non-conforming goods Other costs duties, tooling, exchange rate differences etc 211. Approaches for Controlling Inventory Continuous review: Safety stocks and forecasting methods Excess and obsolete inventory Part simplification and re-design On-site supplier managed inventory Use of supply chain inventory management systems, Materials Requirement Planning, Distribution Requirement Planning etc Automated inventory tracking systems Supplier buyer cycle-time reduction 212. Stores Management Objectives Providing efficient service to users Reduce cost of carrying goods Providing correct, updated stock figures Controlling inventory Preventing damage to or obsolescence of materials Achieve all of the above with good housekeeping 213. Functions WarehousesMaterial handling Customer Service Information Transfer Storage Function Receive goods Identify goods Sort goods TemporaryPermanentDispatch to storage Hold inventoryRecall, select goods Marshal the shipment Dispatch the shipmentPrepare records and advices 214. Purpose of Warehousing To provide desired level of customer service at the lowest possible total cost It is that part of the firms logistics system that stores products (RM, Packing Materials, WIP, FG) at and between point of origin and point of consumption and provides info to management on the status, condition and disposition of items being stored Distribution warehousing relates mainly to FG 215. Reasons for WarehousingService related Cost related Maintain source of supply Achieve production economies Support customer service policies Achieve transportation economies Meet changing market conditions Take advantage of Quantity Overcome time and space Purchase discounts and forward differentials buys Support JIT programs of suppliers Least Logistics cost for a desired and customers level of customer service Provide customers with the right mix of products at all times Temporary storage of materials to be disposed or re-cycled 216. Warehouses Support manufacturing Mix products from multiple facilities for shipment to a single customer Break-bulk Aggregate Used more as a flow-thru point than as a hoarding point 217. Distribution Warehousing The objective is to set up a network of warehouses closest to the customer locations to service markets better and minimise cost Could be C&FA s, depots or distribution centers Macro location strategies:Market positionedProduction positionedIntermediately positioned 218. Distribution Center Warehouse designed to speed the flow of goods and avoid unnecessary costs Speeds bulk-breaking to avoid inventory carrying costs Helps to centralise control and co-ordination of logistics activities Products can also be cross-docked (one vehicle to another) 219. Market Positioned Warehouses located nearest to the final customer Factors influencing are: Order cycle time Transportation costs Sensitivity of the product Order size Levels of customer service offered 220. Production Positioned Warehouses located close to the production facilities or supply sources Not the same level of customer service as the earlier one Serve as points of aggregation / collection for products made in a number of plants Factors influencing are: Perishability of raw materials Number of products in the product mix Assortments ordered by customers Transport consolidation rates ex; FTL 221. Intermediate Positioned Mid point locations between the final customer and the producer High customer service levels possible even if products made in number of units Other macro approaches look at cost minimisation or cost and demand elements to maximise profitability 222. Transportation Very important in the Logistics function:Movement across space or distance adds value to productsTransportation provides time and place utility Role of transportation includes:Provides opportunity for growth under competitiveconditionsDeeper penetration into marketsWider distribution means greater demandCan influence product prices favourably 223. Transportation Principles Continuous flow Optimise unit of cargo - stackability Maximum vehicle unit capacity utilization Adaptation of vehicle unit to volume and nature of traffic Standardisation Compatibility of unit load equipment Minimum of dead weight to total weight Maximum utilization of capital, equipment and personnel 224. The Selection Criteria Environmental analysis: shipper, carrier, government regulations, public influence Deciding objectives Selecting mode Select transport type within the mode Define functions of transport Evaluation and control customer perception / satisfaction, best practice benchmarking 225. Cost Factors Can be product related or market related. Product related: density, stowability, ease or difficulty of handling and liability Market related: competition, location of markets, Government regulations, traffic in and out of the market, seasonality of movements and impact on customer service Five prominent modes: Road, rail, air, water and pipeline. Sixth one is use of Ropeways 226. Customer Service Factors Consistency, dependability Transit time Coverage door-to-door for example Flexibility in handling a range of products Loss and damage performance Additional services provided 227. Reverse Logistics Movement of goods from the market or customer back to the company The need:Increased awareness of the environmentStringent legislationFor some it is part of the businessProfitability of dealing with scrap, surplus Surplus, obsolescence can result due to:Over optimistic sales forecasts, change in product specs,errors in estimating material usage, losses in processing oroverbuying based on incentives 228. Advantages of Rail Economy more so for goods over long distances Efficiency of energy Reliability not affected by weather conditions 229. Disadvantages Uneconomical for small shipments and short distances Not suitable for remote stations Costly terminal handling facilities Inflexible time schedules 230. Road Freight Advantages Through movement direct from consignor to consignee, no transshipment Flexibility routes and loading routines can be easily altered, operate day and night Less capital costs for own fleet + immunity from industrial action Fast turn-around if articulated units like tractors and trailers are used Minimum delays 231. Disadvantages Susceptibility to weather and road conditions in spite of the best protection Unsuitability for heavy loads rail transport more economical for bulk loads Unsuitability for long distances again the rail telescopic rates are more favourable 232. Air Transport Advantages Faster mode Reduction in cost particularly inventory Broad service range Increasing capabilities Disadvantages: High cost Weather affects flight conditions Limitations on heavy consignments 233. Water Transport Advantages:Mass movement of bulkLowest freight costPreferred for long haul of low value commodities Disadvantages:Not for quick transitSuitable for certain types on commodities only 234. Pipeline Movement Advantages:Reliable, continuous, all weather transportLow energy consumption hence low costLow maintenance and operating costsUnderground, no space problemCan traverse difficult terrainMinimal transit lossesOperation round the clock, safeEconomies of scale double the throughput for only 30%additional cost Disadvantage is in the investment cost 235. Ropeways Advantages:In hilly or inaccessible areasLong and circuitous routes with streams / deep valleysFor commodities capable of movement in ropeway bucketsShort haulages of less than 50 kmsAreas where other carriers are uneconomical Disadvantages:Heavy investmentsLimitations on size and quantity of haul 236. Carrier SelectionTraffic Related Shipper relatedService related Length of haulSize of firmSpeed (transit time) Consignment weightInvestment priorities Reliability DimensionsMarketing strategyCost Value Network of production Customer relationship Urgency and distributionGeographical coverage Regularity of shipmentAvailability of railAccessibility Fragility sidings Availability of special ToxicityStockholding policy vehicles / equipment Perishability Management structureMonitoring of goods Type of packing System of carrier Unitisation evaluationAncillary services bulk Special handling required breaking, storage 237. Chart of Relative MeritsParameter Weightage Rail Road Air Water Pipe Ropeline waySpeed3056 84 33Versatility1068 56 32Reliability2068 55 74Availability 1078 56 32Continuity of1067 55 83serviceDistribution cost2045 66 78Total score10 5.46.75.15.15.14.0Overall ranking1021 45 56 238. International Sales & Distribution Sales and Distribution Management 239. Why International? The WTO agreement has resulted in opening up of new areas for freer trade (Textiles, Services & Agricultural products) China, Russia, India & the East European countries have embraced free market policies resulting in huge opening up of underserved populations. Domestic competition has increased especially from imports. Outsourcing in manufacturing and services has increased due to cost pressures & improvement in infrastructure. 240. Choosing the Market Factors to be borne in mind while choosing markets: Size of the market Language & Culture of the market Competition in the market Proximity of the market Political and Financial stability of the country Ease of doing business 241. Culture and International Business Culture influences everything from taste & preferences to consumption patterns and attitude to foreigners. Culture influences communication modes Culture influences dress and behavior Culture influences usage of a product Language is very important in international business to communicate effectively. 242. Legal Aspects of International Business Laws vary from country to country there is no international law Important to know the local laws to do business on investment, management, employment, marketing, pricing, royalties, profit repatriation, taxation etc Developed countries have stringent laws on safety, pollution, intellectual property rights etc. In times of disputes, which law will prevail this needs to be spelt out in contracts 243. Risks in International Business Two main risks in international business: Political risks involve disruption of contracts or payments due to sudden political changes, expropriation of businesses etc Commercial & Financial risks failure of the buyer to pay due to bankruptcy or sudden changes in the exchange availability or rate. 244. Risks in International Business Risks can be insured with agencies like the export credit guarantee corporation(ECGC) for a premium based on the countrys risk. Letters of credit may be guaranteed by international banks located in major financial centers like London, New York, Singapore etc. 245. Trade Between Countries Reasons for trade between countries include: Non availability of a product or resource Cost advantages in buying rather than making a product locally Differentiated products-Luxury products or better designed products in the same category may be available from different countries (cars, electronics, textiles and garments etc) 246. International Trade-Company Perspective Companies may choose to sell internationally for the reasons given below: Limited growth in home market Overseas markets offer large profitable opportunities Excess capacity which cannot be absorbed locally Cost advantage over international competitors Mitigating risk of increased domestic competition 247. Entry Strategy Exporting through local agent Exporting through foreign agent Exporting to foreign importer / distributor Setting up local office / representative Licensing / Franchising Setting up Joint ventures for distribution / manufacture Setting up wholly owned manufacturing facilities 248. Organizing for International Sales Structure depends on volume of sales and nature of the product. In situations of low volumes, exporting through local or foreign agents is cost effective As volume grows and in complex products or large value deals, using own sales personnel is preferable. To be effective, it is preferable to have local personnel in the sales force 249. Distribution Distribution is a vital aspect of marketing ensuring availability of the product in the right quantity, at the right time and right place. More important in international markets due to distance and transportation time. Importers, manufacturers and retailers are increasingly asking for Just in Time deliveries. Distribution strategy varies from market to market depending on size and local conditions. Multiple channels may be used in countries. 250. Distribution Options Depends on the volume of the business Positioning of the product Infrastructure of distribution in the country Local laws some countries insist on local companies in the distribution business Internet as a channel of sales and distribution 251. Role of Logistics Very important aspect of international selling Logistics can make up over 15% of the cost of the product Involves multiple modes of transport land, sea and air Considerable paperwork and formalities to be completed in international trade Logistics providers now offer complete one stop solution including distribution, invoicing and collection of payment 252. Profile of International Salespersons Pleasant and amiable personality Ability to adapt to foreign culture especially food, drink etc Conversant in one or more foreign languages Ability to act independently and decisively Ability to understand complexities of financing, foreign exchange etc Some local sales persons in the force will be useful to overcome some barriers and leverage local networks for business development 253. Pricing and Payment TermsCommon pricing terms are: Ex Works at the mfrs factory gate FOT, FOR free on truck / rail loaded on truck/rail FAS free along side at port next to ship FOB free on board loaded on ship C&F cost and freight inclusive of to destination CIF cost, insurance and freight inclusive to destination 254. Pricing and Payment TermsPayment terms can include:Cash in advanceCash on delivery cash against documentsConsignment basis payable after saleUsance payment days after acceptance of documentsLetter of creditLong term credit financing for machinery / projectsEach method has risks for the buyer or seller. The LC offerssafety and comfort for both 255. Currency of Pricing The US Dollar is the most widely used currency for pricing international sales Importers in some countries may prefer invoicing in local currencies like Japanese Yen or Euro or Pound Sterling, Singapore Dollars or UAE Dirhams Saudi riyals etc. This reduces the risk of exchange rate fluctuations for the buyer Exchange fluctuation is a major risk for sellers and can be managed by hedging the currency. 256. Packing and Shipping Packing is of two types: Industrial packing bulk for protection during shipping & transport Consumer packing to enhance sales appeal Packing could makeup up to 5% of product costs Countries have laws or practices in packing which must be understood and adhered to. Packing depends on the product and must be suitable for containerized shipping and mechanical handling. 257. Market Intelligence Secondary data is very easy to gather from various publications, agencies like chambers of commerce, trade bodies, embassies, trade shows, internet, banks etc Usually secondary data is sufficient to establish the feasibility of the market. Care must be taken to understand the data and the measures used before drawing conclusions.