LESSON 5.

DISTRIBUTION CHANNEL AND LOGISTICS MANAGEMENT

I. INTRODUCTION

Logistics and Distribution management becoming more important for various industries since it Logistics & Distribution
management is increasingly performance and increased customer satisfaction levels. In may lead to reduced operational
costs, improved delivery an increasingly globalized market, LSPs (Logistics Service Provider), also known as third-party
logistics providers (3PL) are called upon more than ever before to help customers deliver goods around the region.
Distribution management refers to the process of overseeing the movement of goods from supplier or manufacturer to
point of sale.

What is a Distribution Channel?

Distribution channel is the path that a product or service takes to get from the producer or manufacturer to the end
consumer. It's the "bridge" between creation and consumption.

The Key Members (Intermediaries/ middleman)

The channel is made up of various organizations called intermediaries. Each one adds value in some way to move the
product forward.

• Manufacturer/Producer: The company that creates the product.

• Agents/Brokers: Individuals or firms that negotiate sales but do not own the product.
• Wholesaler: Buys goods in large quantities from manufacturers and sells them in smaller quantities to retailers.
• Retailer: The final business that sells directly to the public (e.g., supermarkets, boutiques, online stores).
• End-User/Customer: The person who buys and uses the product.

What is Logistics Management?

Logistics Management is the part of the supply chain that plans, implements, and controls the efficient, effective flow
and storage of goods, services, and related information from the point of origin to the point of consumption.

II. LOGISTICS STRATEGY IN DISTRIBUTION SYSTEM

For marketers the choice of distribution design comes down to the following options:

• Direct Distribution Systems

• Indirect Distribution Systems
• Multi-Channel or Hybrid Distribution Systems

1. Distribution Systems: Direct

With a direct distribution system, the marketer reaches the intended final user of their product by distributing the product
directly to the client. That is, there are no other parties involved in the distribution process that take ownership of the
product. The direct systems can be further divided by the method of communication that takes place when a sale occurs.
These methods are:

• Direct Marketing Systems With this system the client places the order either through information gained from
non-personal contact with the marketer, such as by visiting the marketer's website or ordering from the marketer's
catalog, or through personal communication with a customer representative who is not a salesperson, such as
through toll-free telephone ordering.
• Direct Retail Systems- This type of system exists when a product marketer also operates their own retail outlets.
• Personal Selling Systems- The key to this direct distribution system is that a person whose main responsibility
involves creating and managing sales (e.g. salesperson) is involved in the distribution process, generally by
persuading the buyer to place an order.
• Assisted Marketing Systems- Under the assisted marketing system, the marketer relies on others to help
communicate the marketer's products but handles distribution directly to the customer.

2. Distribution Systems: Indirect

With an indirect distribution system, the marketer reaches the intended final user with the help of others. These resellers
generally take ownership of the product, the supplying company if the product is sold). Under this system intermediaries
may though in some cases they may sell products on a consignment basis (ie, only pay help sell the product.

Indirect methods include:

• Single-Party Selling System- Under this system the marketer engages another party who then sells and
distributes directly to the final customer. This is most likely to occur when the product is sold through large store-
based retail chains or through online retailers, in which case it is often referred to as t trade selling system.
• Multiple-Party Selling System This indirect distribution system has the product passing through two or more
distributors before reaching the final customer. The most likely scenario is when a wholesaler purchases from the
manufacturer and sells the product to retailers.

3. Distribution Systems: Multi-Channel (Hybrid)

In cases where a marketer utilizes more than one distribution design the marketer following a multi-channel or hybrid
distribution system. Starbucks follows this approach as their distribution design includes using a

direct retail system by selling company-owned stores, a direct marketing system by selling via direct mail, and distribution
systems).

Hotel and Food Service Marketing

Warehousing of intangibles is impossible, as are packing, transportation and installation. In hotels order processing is the
responsibility of reservations or front office management, F&B or maintenance departments. Customer service is used to
whereas materials handling is managed within housekeeping augment the basic hospitality product. The most important
PD decision for marketers is that of location.

Locating Hospitality Outlets

As noted by Medlik and Airey, the traditional influences on the location of manufacturing industry-nearness to raw
materials, and catering outlets. Demand is the most important (perhaps parts and labour-have little bearing on the location
of hotels 1 only) criterion. Hospitality services must be provided where demand exists.
Location decisions start by attempting to understand customers search behavior. For low-involvement convenience
products, such as coffee shops, most consumers are not prepared to expend time and effort in search; for high-
involvement shopping products, such as a gourmet restaurant or private club, search may be extensive. Location tends to
be a more significant factor in the success of convenience products.

There are two distinct, but interdependent, location decisions:

(1) The selection of a trading area, and

(2) The selection of a particular site within the trading area.

Selecting a Trading Area

Pioneering work into the relative attractiveness of trading areas was performed which states that 2 trading areas (a and b)
attract trade from an intermediate pos W. T. Reilly in the 1920s and 1930s. Reilly formulated the Law of Retail Gravitation
the square of the intermediate point's distance from the trading areas.

Selecting a Site

Chain operations generally have formalized checklists of factors often taken by real estate or properties division staff,
based to be taken into account during site selection. Decisions are often taken by real estate or properties division staff,
based on data collected from both secondary sources and market surveys.

Objectives and Decision Areas

When devising a logistics strategy, managers aim at achieving a suitable compromise between three main objectives:
capital reduction, cost reduction and service level improvement.

Capital reduction: The first objective is to reduce as much as possible the level of investment in the logistics system
(which depends on owned equipment and inventories).

Cost reduction: The second objective is to minimize the total cost associated with transportation and storage. For
example, one can operate privately owned warehouses and vehicles (provided that sales volume is large enough).

Service level improvement: The level of logistics service greatly influences customer satisfaction which in turn has a
major impact on revenues. Thus, improving the logistics service level may increase revenues, especially in markets with
homogeneous low-price products where competition is not based on product features.

Logistics Decisions

Logistics decisions are traditionally classified as strategic, tactical and operational, according to the planning horizon.

Strategic Decisions: Strategic decisions have long-lasting effects (usually over mam years). They include logistics
systems design and the acquisition of costly resources (facility location, capacity sizing, plant and warehouse layout, fleet
sizing).

Tactical Decisions: Tactical decisions are made on a medium-term basis (ex-mode selection, consolidation strategy).
Tactical decisions often use forecasts based as resource allocation (storage allocation, order picking strategies,
transportation on disaggregated data.

Operational Decisions: Operational decisions are made on a daily basis or in real time and have a narrow scope. They
include warehouse order picking as well shipment and vehicle dispatching. Operational decisions are customarily based
on very detailed data.
SUPPLY CHAIN MANAGEMENT IN LOGISTICS

This is, in reality, an extension of the ideas that have been developed. The total logistics concept advocates the benefits
whole. Supply chain management is similar, but also includes of viewing the various elements of logistics as an integrated
the supplier and the end user in the process, the upstream (supply side) and downstream (demand side) partners in the
management and traditional logistics. There are four distinct supply chain.

These four are;

1. The supply chain is viewed as a single entity rather than a series of fragmented elements such as procurement,
manufacturing, distribution, etc. This is also how logistics is viewed in most forwardlooking companies.
2. Supply chain management is very much a strategic planning process, with a particular emphasis on strategic
decision making rather than on the operational systems.
3. Supply chain management provides for a very different approach to dealing with inventory. Traditionally, inventory
has been used as a safety valve between the separate components within the pipeline thus leading to large and
expensive stocks of products.
4. Central to the success of effective supply chain management is the use of integrated information systems that are
a part of the whole supply chain rather than merely acting in isolation for each of the separate components.

Elements of the Supply Chain

A simple supply chain is made up of several elements that are linked by the movement of products along it. The supply
chain starts and ends with the customer.

• Customer: The customer starts the chain of events when they decide to purchase a product that has been
offered for sale by a company.
• Planning: The requirement triggered by the customer's sales order will production plan to produce the products
to fulfill the customer's orders. To manufacture the products the company will then have to purchase the raw
materials needed.
• Purchasing: The purchasing department receives a list of raw materials and services required by the production
department to complete the customer's orders.
• Inventory: The raw materials are received from the suppliers, checked for quality and accuracy and moved into
the warehouse. The supplier will then send an invoice to the company for the items they delivered
• Production: Based on a production plan, the raw materials are moved inventory to the production area. The
finished products ordered by the customer are manufactured using the raw materials purchased from suppliers.
• Transportation: When the finished product arrives in the warehouse, the shipping department determines the
most efficient method to ship the products so that they are delivered on or before the date specified by the
customer.

Supply-Demand Nexus

To have an effective supply chain management framework: organizations must have a clear understanding of the supply
demand nexus and its implications for strategy and supply and demand; organizations need to understand customer
demand so that they can manage it, create future demand and, of implementation.
There is an interdependent relationship between course, meet the level of desired customer satisfaction.
Demand defines the supply chain target, while supply side capabilities support, shape and sustain demand.

Objectives of Supply Chain Management

The traditional objective of supply chain management is to minimize total supply chain cost to meet fixed and given
demand.
This total cost may be comprised of a number of terms including:

• Raw material and other acquisition costs

• In-bound transportation costs
• Facility investment costs
• Direct and indirect manufacturing costs
• Direct and indirect distribution center costs
• Inventory holding costs
• Inter-facility transportation costs
• Out-bound transportation costs

INTEGRATION OF SALES AND DISTRIBUTION STRATEGY

Sales and distribution management constitutes one of the most important parts of marketing management. "Exchange" is
the core aspect of marketing and it is the sales and distribution management which facilitates it. Sales Management has
been defined as: the management of a firm's personal selling function while distribution is the management of the indirect
selling effort i.e. selling through extra corporate organizations which form the distribution network of the firm. Another
school of thought takes the complete selling process as the distribution system. According to Robert Christie Mill, "the link
between tourism suppliers and the customers is known as the distribution system."

Notwithstanding, whether the sales and distribution a lot of effort is put in to sell tickets via both personal sales force and
intermediary need to be performed in order to consummate successful exchange:

a. Contact - Finding and communicating with prospective buyer.

b. Prospecting - Bringing together the marketers or suppliers offering the product or service and the prospective
buyer.
c. Negotiation and reaching an agreement on price and other terms of the offer so that transaction ownership
and possession can be transferred or the service be utilized or consumed.
d. Promotion - Of the marketers or suppliers’ offerings, and his or her satisfaction generating potential.
e. Physical - Actual transfer of possession i.e. timely and safe delivery. Distribution
f. Collection - Of relevant consumer's information and revenue in exchange of goods or services.

Except for extreme instances of organizations which make exclusive use of either their own sales force or distribution
channels, most organizations get the above functions performed through a combination of their own sales force and the
distribution network they choose to hire. A major decision in sales and distribution therefore becomes the judicious
allocation of the above tasks between the sales force and channel members.

Within selling you should be familiar with the two main sales functions:

(1) In-reach selling, and

(2) Outreach selling.

The former deals with incoming queries from customers whereas the later process is targeted at existing and potential
customers. Both, however, have the common goal, i.e. increase in sales.

Interdependence of Sales and Distribution

In most organizations both sales management and the management of channels of distribution are the responsibility of the
sales manager and should be viewed as jointly contributing to the accomplishment of the marketing task.
Apart from this important fact, some other pointers towards the interdependence of these two vital functions are as under.

a. All organizations use their own sales force or distribution network to reach out to their customers.
The emerging practice is to use own sales force to sell to wholesalers/semi-wholesalers who in turn sell to
retailers.
b. The decision of the organization to allocate certain responsibility in the exchange process to its channel members
would define the scope of responsibility its own sales force and thereby would determine the type of personnel to
be effectively realized. training required.
c. Even though, an organization may decide to deal directly with its wholesale semi-wholesaler, retailer or consumer,
it is required to decide upon the type it will provide to the first and subsequent level of intermediaries.
d. The choice before an organization to have direct distribution, indirect distribution or a combination of the two is of
strategic importance and depends upon factors such as the degree of control, flexibility, costs and financial
requirements etc.
e. To implement overall marketing strategy, the manufacturers or suppliers need the cooperation of distribution
outlets in terms of adequate stock maintenance in-store displays, local advertising, and point of purchase
promotion.

Conclusion:

In summary, distribution channels and logistics management work in tandem to bridge the gap between production and
consumption. The distribution channel provides the strategic pathway that defines who sells the product and where it is
available, while logistics management executes the physical flow, ensuring the product is delivered how and when the
customer needs it. Ultimately, their seamless integration is what transforms a manufactured item into a readily available
product, fulfilling customer demand and driving business success.