INDUSTRIAL DISTRIBUTION CHANNEL AND MARKETING

LOGISTICS

GUIDED BY
Prof. Sunil Kumar Pradhan

Marketing
Channel/Distribution
Channel/Trade Channel
A set of interdependent
organisations that make a
product or service
available to customers for
use.

Marketing
Logistics/Physi
cal Distribution
Consists of delivering
the completed products
to customers and
channel intermediaries.

Factors Affecting the Nature of

Industrial Channels

Geographic Distribution
Channel Size
Characteristics of Intermediaries
Mixed System

Structure of Industrial Channel

Direct Channel
The manufacturers perform
all the functions
Approach is viable when:
The value of each
transaction is large
The selling includes extensive
technical and commercial
negotiations at various levels
The buying process lengthy
The industrial buyers insist on
buying directly from the
manufacturers

Indirect Channel
The manufacturer and the
intermediaries share the
tasks between them.
Approach is appropriate
when:
The value of transactions or
sales are low
The manufacturer has
limited resources
The industrial buyers
purchase many product
items in one transaction

Why Industrial Marketers use

Intermediaries?

Buying
Promotion and Selling
Assorting
Financing
Warehousing
Grading
Transportation
Information
Risk taking
Technical Service

Why Industrial Customers Buy from

Distributors?

Dependable Delivery
Information
Variety
Liberal Credit

Types of Industrial
Middlemen/Intermediaries

Manufacturers Representatives
Industrial Distributors(Dealers)
Responsibilities
Main Categories
Brokers
Commission Merchants
Value-added Resellers(VARs)

Channel Design Framework

Channel
Objectives

Channel
Tasks

Channel
Constraints
Channel
Alternatives
Evaluation of
Alternatives
Selection of
Channel

Channel Design Contd.

Developing Channel Objectives
Analysing Channel Constraints:
External Environment
Competition
Company
Product Characteristics
Customer
Analysing Channel Tasks

Channel Design Contd.

Identifying Channel Alternatives
Involves 4 major issues:
1. Types of intermediaries:
Value Added Resellers
Industrial Distributors or Dealers
Manufacturers representative or Agents
Brokers
Commission Merchants
2. Number of Intermediaries:
Selective Distribution
Intensive Distribution
Exclusive Distribution
3. Number of Channels
4. Terms and Responsibilities of Channel Members

Channel Design Contd.

Evaluating the Channel Alternatives:
Economic Performance
Degree of Control
Adaptability to changing market situations
Selection of Channel

CHANNEL ALTERNATIVE
Agent / Manufacturer's
Channel

Company's Sales-Force
Channel

Total
Selling
Cost (Rs.)

Break Even Point

Sales Revenue (Rs.)

Managing Channel Members

Selecting Intermediaries
Motivating Middlemen
Partnership Concept
Vendor (or Supplier) Managed Inventory
System (VMI)
Reasonable Discounts and Commission
Distributor Councils
Other Motivational Practices

Controlling Channel Conflicts

Sources of Channel Conflicts

Differences in Objectives
Dealings with Customers
Differences in Interests
Differences in Perceptions
Compensation
Unclear Territory boundaries

Evaluating Channel Members

Sl
No

Evaluation Factors

Weightage

Evaluation

Middlemen
Score

Sales Achieved vs Sales

Quota

0.40

3.20

Customer Delivery Service

0.20

1.20

Customer Complaints

0.15

0.90

Market Feedback

0.10

0.50

New Customers Generated 0.15

0.60

Min Total Score = 6.0

6.40

Supply Chain Management:

A network of connected and interdependent organisations
mutually and cooperatively working together to control, manage
and improve the flow of materials and information from suppliers
to end users
OBJECTIVES:

FUNCTIONS:

a) Reduce cost per unit for

end customer
b) Minimise order to
delivery cycle time
c) Reduce waste and
duplication
d) Ensure superior delivery
service

a)
b)
c)
d)
e)

Purchase
Product Design
Production Planning
Production
Processing Customer
Orders
f) Inventory Control
g) Warehousing
h) Material Handling
i) Customer Service

Supply Chain Management Framework

Information Flow
Cash Flow

Product Flow

Suppliers
of raw
materials
and
compone
nts

Planni
ng
and
foreca
sting

Purcha
se

Product
ion or
Operati
on

Distribu
tion and
logistics

Custom
er
Service

Perfor
mance
and
evaluat
ion

Business
Custome
rs or end
users

Logistics Management
Planning and coordinating activities
necessary to achieve superior levels of
service at lowest cost.
Logistics management optimises material
flow within the organisation, while supply
chain management extends material flow
integration upstream to suppliers and
downstream to customers.

Marketing Logistics/Physical
Distribution
In business, logistics system has two major
product movement:
1. Physical Supply
2. Physical Distribution

BUSINESS LOGISTIC SYSTEM

Physical supply
Raw materials
Components
Supplies

Industrial Manufacturer

Physical distribution

Material storage

Manufacturing

Finished Goods
storage

Industrial customers
Industrial
Distributors/Dealers

Sl No
1

TASKS OF PHYSICAL
DISTRIBUTION
Tasks

Brief Description

TRANSPORTATION It is the means of moving goods from production unit to

customer. It is the most important cost area in physical
distribution.

WAREHOUSING

It provides storage space for products which are made

available to customer when needed. It can improve customer
service & transportation cost.

INVENTORY
CONTROL

Inventory is used to insure the products are available to

customers in the right product mix, at the right location, &
at the right time.

PACKAGING

It provides protection to products & maintains product

identity when products arrive at the market place.

MATERIAL
HANDLING

It increases speed & minimizes costs of order- picking,

moving products between storage & transport carriers,
loading & unloading operations.

Sl
No

TASKS OF PHYSICAL
DISTRIBUTION
Tasks
Brief Description

ORDER
PROCESSING

It starts the physical distribution process & directs

various activities which are necessary to deliver the
products to customers. Speed & accuracy of order
processing affect customer service & costs.

COMMUNICATION Information is exchanged between the countries

physical distribution or marketing logistic department
& its customer. It assist in performing various tasks.

FACTORY AND
WAREHOUSE
LOCATIONS

Right locations of manufacturing plants & warehouse

(or godowns) increase customer service & reduce
transportation (or freight) costs.

CUSTOMER
SERVICE

The result of physical distribution activities is

customer service, it create customer value (or
benefits) that has impact companies market shares,
total cost & profitability.

Total Cost Approach

Focuses on balancing two important elements:
1. Total Distribution Costs = Freight +
Warehouse Cost + Inventory Cost + Cost of
Lost Sales due to delayed delivery
2. The level of service provided to customers
(a) customers service need.
(b) competitors service level.
(c) companys profitable objective.

Determining customer service

levels
Set the goals of customer services levels for
each of the important service elements.
Measure the actual performance for each
service element.
Analyse the variance between actual service
performance and the goal.
Take corrective actions to minimise the
variances.

Elements of Customer Service

Customer service

Presale service
Advising Service
Technical Service
Ordering ease
Patronage Awards

During- Sale service

Post-sale service

Keeping Adequate stocks

Speed and accuracy of
delivery
Product substitution

Product warranty
Maintenance contract
Repair service
Installation service
Customer training

Impact of Marketing Logistics

on Intermediaries
The industrial marketer can improve the performance of
physical distribution in the entire channel system by taking the
following steps:
1. Develop computerised information system that will link
individual channel members to the manufacturers system. This
will provide realistic sales and inventory of the channel
members to the manufacturer.
2. Standardise packaging and material handling at all channel
members to assist in efficient operations
3. The manufacturer and the channel members should improve
the performance of their respective tasks or services. Thus the
physical distribution must be integrated with channel members
to improve marketing effectiveness.

Role of Marketing Logistics

Should be considered as a long term
strategic issue.
Considered as a source of creating a unique
competitive advantage.
Important role in future due to global
competition, world wide sourcing, JIT system
and TQM.