channels of distribution in retail

7/29/2019 Channels of Distribution in Retail

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CHANNELS OF DISTRIBUTION

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1Channels of Distribution


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Learning Objectives

Functions of a retailer in channel

Supply Chain Efficiency

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Channels of Distribution


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A Typical Channel of Distribution

Manufacturer

Wholesaler

Final

Consumer

Retailer

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The Retailers Role in the Sorting Process

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Functions of Retailing

Sorting

Breaking bulk

Holding stock

Channel of communication

Transport

Additional services

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Distribution Models in India

Distribution models in India vary by number of layers in the channel, the

intermediariesused, and the numberof channel partners.

Every model requires manufacturers to trade-off between degree of control

and their reach.

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Typical Flows of Goods and Promotion in

FMCG Retailing

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Distribution Channels in India

The Indian supply chain is more dependent on middlemen rather than on the

retailers unlike their counterparts in modern economies.

This over-dependence can be attributed to the lack of power of retailers in the

channel.

Retailers should have more involvement in supply chain management, whereas,

in practice, Indian retailers have nothing to do with supply chain management.

The promotional effort to reach the retailers will have to come through at least

three middlemen. This means that retailers are unreachable for direct promotion

by the manufacturers.

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What is a Supply Chain?

Warehousing

Warehousing

Transportation

Transportation

Vendors/plants/portsTransportation

Factory

Transportation Retailers / customers

Information

flows

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The Marketing Functions

A channel must perform eight marketing functions:

Buying, Selling, Storing, Transporting

Sorting, Financing, Information gathering, Risk taking

A marketing function does not have to be shifted in its

entirety to another institution or to the consumer but can

be divided among several entities.

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Global Optimization

Retail is the last point in the value chain.

Retailers provide assortments, hence deal with a

large number of suppliers.

The supply chain of big retailers is a complexnetwork of facilities dispersed over large geography

Different facilities in the supply chain frequently have

different, conflicting objectives

The supply chain is a dynamic system that evolvesover time

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Channel Width

Intensive distribution

Means that all possible retailers are used in a tradearea.

Selective distribution

Means that a moderate number of retailers are usedin a trade area.

Exclusive distribution

Means only one retailer is used to cover a tradingarea.

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Comparing Distribution Types

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Role of Retailer in Marketing

Channel

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Retailer

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Enjoy Substantial Channel Power


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Retailers Act as Buying Agents

for Customers Rather than asSelling Agents for Suppliers

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Retailers Often Operate onLow Price / Low Margin

Model

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Retailers Operate in

Saturated Markets andFight for Market Share

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Hence, The Need to Reduce

Distribution Costs

Distribution

Costs

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Distribution Costs Often Account for a Significant

Percentage of the Final Price of Products

Sometimes Distribution Costsare Higherthan the Manufacturing

Cost or the Costs of Raw

Materials and Component Parts

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Some Examples...

Autos Software Apparels Electronics Packaged Foods

Distribution

Manufacturing

Raw Materials

and

Components

15%

40%

45%

25%

65%

10%

28%

19%

53%

30%

30%

40%

41%

33%

26%

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Retail Supply Chain

The biggest and the best

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Wal-Mart US Cross-dock distribution center

Situated at Bentonville, Arkansas

1.2 million-square feet

On one side- Wal-Mart trailer trucks drop off boxes of merchandize from

thousands of suppliers

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Contd

An electric eye reads the bar codes / RFID tags on each carton

Electric arms at each stream reach out and guide the boxes to the outbound

streams as per the particular stores orders

Waiting Wal-Mart trucks rush these to the respective stores across US

where they will be put on shelf

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What is cross docking ???

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Cross-docking is a practice in logistics of unloading materials from an

incoming semi-trailer truck or railroad car and loading these materials

directly into outbound trucks, trailers, or rail cars, with little or no storage

in between. This may be done to change type of conveyance, to sort

material intended for different destinations, or to combine material from

different origins into transport vehicles (or containers) with the same, or

similar destination.


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Advantages of cross docking in retail


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Streamlines the supply chain from point of origin to point of sale

Reduces handling costs, operating costs, and the storage of inventory

Products get to the distributor and consequently to the customer faster Reduces, or eliminates warehousing costs

May increase available retail sales space.


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Factors affecting the use of cross-docking in Retail


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Cross-docking is dependent on continuous communication between

suppliers, distribution centers, and all points of sale.

Customer and supplier geographyparticularly when a single corporate

customer has many multiple branches or using points

Freight costs for the commodities being transported Cost of inventory in transit

Complexity of loads

Handling methods

Logistics software integration between supplier(s), vendor, and shipper Tracking of inventory in transit


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Supply integration

A consumer lifts a product, the cashier scans it and a signal will go out

across Wal-Martglobal network to the supplier.

This will prompt him to make or pack another one of that item and ship it

into the Wal-Mart supply chain

It is like an orchestratheWal-Mart symphony with no finale.

Non-stop delivery, sorting, packing, distribution, buying, manufacturing,

reordering,delivery,sorting,packing.

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Scale of operations

One companyHP sells more than 400,000 computers through 4500 Wal-

Mart stores in one day during Christmas season

2.5 billiongeneral merchandizecartonsmove every year through their SC

Wal-Mart does not make a single thing. All it makes is a hyper-efficient

SupplyChain

Delivers material across the globeinvolving multitude of suppliers, port

operators, custom brokers, forwarders, and carriers very, very hard to

duplicate

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Simple mathematics

To sell cheap, they had to buy cheaper

Only option, buy direct from manufacturers

Manufacturerswere not ready to ship to multiple Wal-Mart stores

Wal-Mart got their own trucks. Cost was roughly 3% more for own

distribution and logistics

Purchasing cost was 5% less. Wal-Mart could cut costs by 3% and scale-up

thevolumes.

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channels of distribution in retail

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