INDUSTRIAL PROJECT MANAGEMENT

Department Of Civil Engineering

Maulana Azad National Institute of Technology



INDUSTRIAL PROJECT MANAGEMENT
SESSIONAL
Submitted by
Shivansh Mathur (65)
Himani Jain (66)
Damera Avinash (67)
Kamlesh Gupta (68)
Anjali Shrivastava (69)
Sumit Bhadoriya (70)

Submitted to
Dr. Varsha Rokde
Assistant Professor
Department Of Civil Engineering
Maulana Azad National Institute of Technology
Bhopal (M.P.)-462051
INDUSTRIAL PROJECT MANAGEMENT
Department Of Civil Engineering
Maulana Azad National Institute of Technology
QUESTION - WHAT IS CHANNELS OF DISTRIBUTION? DISCUSS THE
DIFFERENT CHANNELS AVAILABLE FOR CONSUMER GOODS.
ANSWER - The primary purpose of trade is to supply goods to the consumers living in far
off places. As goods and services move from producer to consumer they may have to pass
through various individuals.
A channel of distribution or trade channel is the path or route along which goods move from
producers to ultimate consumers or industrial users. In other words, it is the distribution
network through which a producer puts his product in the hands of actual users. The channel
of distribution includes the original producer, the final buyer and any middlemen-either
wholesaler or retailer. The term middleman refers to any institution or individual in the
channel which either acquires title to the goods or negotiates or sells in the capacity of an
agent or broker. But facilitating agencies that perform or assist in marketing function are not
included as middlemen in the channel of distribution. This is because they neither acquire
title to the goods nor negotiate purchase or sale. Such facilitating agencies include banks,
railways, roadways, warehouses, insurance companies, advertising agencies etc.
Let us take an example. A farmer in Srinagar has an apple orchard. Once the apples are
ripened he sells the apples to an agent of Delhi. The agent collects the apples from Srinagar,
packs them, and sells them to a wholesaler at New Delhi Sabzimandi. The wholesaler then
distributes them to various retail fruit vendors throughout Delhi by selling smaller quantities.
Finally, we purchase apples from those vendors as per our requirement. Thus, we find that
while coming from the producer at Srinagar, the product reaches the consumers by passing
through several hands like an agent, a wholesaler and a retailer. All these three are called
middlemen.
(i) Producer Agent Wholesaler Retailer Consumer
(ii) Producer Wholesaler Retailer Consumer
(iii) Producer Agent Consumer
(iv) Producer Wholesaler Consumer
(v) Producer Retailer Consumer
(vi) Producer Consumer
The above chart indicates that the number of middlemen may vary. If there is direct sale by
the produce to the consumers then there is no middleman. As the chart shows the producer
may sell goods to retailer who may then sell the same to consumers. The producer may sell
goods to wholesalers who may in turn sell to retailers and the retailer may sell to consumers.
Another alternative channel of distribution is when any agent/dealer intervenes between the
producer and retailers and acts as a middlemen. The agent is appointed by the producer for
the sale of goods to the retailers. Another alternative channel is there when producers agent
sells goods to wholesalers who sell to retailers. Agent/dealer is an independent person/firm
buying goods and selling them to retailers. Agent/dealer may also sell to wholesalers who
may then sell to retailers and goods are thus made available to consumers. In the channel of
distribution there may be more than one agent/dealer and wholesaler.
Role of middlemen in the distribution of goods-
I. Searching out buyers and sellers (contacting & Merchandising), matching goods to
the requirements of market.
II. Offering goods in the form of assortments or packages.
III. Persuading and influencing the prospective buyers to favor a certain product and its
maker (personal selling/sales promotion).
IV. Providing feed back information, marketing intelligence and sales forecasting services
for the regions to their suppliers.
V. Communicating the use of technique of the product to the users.
Role of Wholesaler in the distribution of goods-
I. A wholesaler forecasts the demand for goods and assembles different varieties of
goods from several manufacturers.
II. A wholesaler breaks the bulk so that retailers and users can buy them in small lots.
His representatives regularly call on retailers and industrial users/buyers to distribute
the goods among widely scattered people.
III. A wholesaler arranges transportation of goods from producers to his godowns and
from there to retailers.
IV. He holds large stocks and serves as a reservoir and supplies to retailers.
V. A wholesaler packs and repacks goods in convenient lots.
VI. A wholesaler performs advertising and sales promotion activities to increase the sale
of products.
Role of Retailers in the distribution of goods-
I. The retailer anticipates needs of consumers. Thus, he offers a wide choice to consumers.
II. A Retailer ensures uninterrupted and fresh supply of goods; he saves consumers from
botheration of buying goods in bulk and storing them.
III. A retailer transports goods from wholesalers to ultimate consumers. Some retailers
provide free home delivery service to their consumers.
IV. He maintains adequate supply of goods so that consumers are sure of getting regular
supply at the time of their need.
V. A retailer brings new products to the notice of customers and educates them in their uses.
CHOICE OF A CHANNEL OF DISTRIBUTION
The factors to be considered before choosing a suitable channel of distribution are listed
below:
1. Product considerations: The nature and type of product have an important bearing on the
choice of distribution channels. For examples, perishable goods need speedy movements and
hence shorter channel or route of distribution; For durable goods, longer and diversified
channels may be used; Similarly, for technical products requiring specialized selling and
serving talents, the shortest channel should be used.
2. Market considerations: The nature and type of customers and size of market are
important considerations in the choice of a channel of distribution. For example, if the market
size is large, there may be long channels, whereas in a small market direct selling may be
profitable. The nature and type of consumers include factors such as desire for credit,
preference for the stop shopping, demand for personal services, amount of time and effort the
customer is willing to spend. It also includes factors like age, income group, sex, and religion
of customers.
3. Company considerations: The nature, size and objectives of the business firm also play
an important role in the selection of distribution channel. It includes financial resources,
market standing, volume of production, desire for control of channel, services provided by
manufacturers', etc. For example a company with substantial financial resources need not rely
too much on the middlemen and can afford to reduce the levels of distribution.
4. Middlemen consideration: The cost and efficiency of distribution depends largely on the
nature and type of middlemen. It includes characteristics of middlemen such as availability,
attitudes, services, sales potential, costs etc. For example, if the terms and conditions of
engaging wholesalers are unfavorable, a manufacturer may like to channelize his products
through semi wholesalers or retailers, thereby, bypassing wholesalers. However, the
determining factor would be the differential advantage involved in the choice. To conclude,
the channel generating the largest sales volume at lower unit cost will be given top priority.
This will minimize distribution cost.
TYPES OF DISTRIBUTION CHANNELS-
Normally goods and services pass through several hands before they come to the hands of the
consumer for use. But in some cases producers sell goods and services directly to the
consumers without involving any middlemen in between them, which can be called as direct
channel. So there are two types of channels, one direct channel and the other, indirect
channel. From the above diagram it can be found that there is just one direct channel i.e.
from producer to the consumer.
(i) Direct Channel- In this channel, producers sell their goods and services directly to the
consumers. There is no middleman present between the producers and consumers. The
producers may sell directly to consumers through door-to-door salesmen and through their
own retail stores. For example, Bata India Ltd, HPCL, Liberty Shoes Limited has their own
retail shops to sell their products to consumers. For certain service organizations consumers
avail the service directly. Banks, consultancy firms, telephone companies, passenger and
freight transport services, etc. are examples of direct channel of distribution of service.
(ii) Indirect Channel- If the producer is producing goods on a large scale, it may not be
possible for him to sell goods directly to consumers. As such, he sells goods through
middlemen. These middlemen may be wholesalers or retailers. A wholesaler is a person who
buys goods in large quantities from producers; where as a retailer is one who buys goods
from wholesalers and producers and sells to ultimate consumers as per their requirement. The
involvement of various middlemen in the process of distribution constitutes the indirect
channel of distribution. Let us look into some of the important indirect channels of
distribution. This is the common channel for the distribution of goods to ultimate consumers.
Selling goods through wholesaler may be suitable in case of food grains, spices, utensils, etc.
and mostly of items, which are smaller in size. Under this channel, the producers sell to one
or more retailers who in turn sell to the ultimate consumers. This channel is used under the
following conditions
(i) When the goods cater to a local market, for example, breads, biscuits, patties, etc.
(ii) When the retailers are big and buy in bulk but sell in smaller units, directly to the
consumers. Departmental stores and super bazaars are examples of this channel.