Unit 2 -- Distribution

1. Unit 2 -- Distribution

2. Unit Objectives • Define channels of distribution. • Identify channel members. • Describe merchant intermediaries. • List and explain distribution intensities • Define physical distribution. • Evaluate available distribution options. • Discuss warehousing and purchasing. • Illustrate purchasing situations. • Explore the steps of the purchasing process.

3. Channel of Distribution • Path a product takes from producer or manufacturer to final user. • A new channel of distribution begins when the product changes form or is used by the purchaser. • Direct Channels • Indirect Channels

4. Channel Members • Industrial Market - products purchased for business use. • Consumer Market - products purchased for personal use. • Intermediaries - channel members that move the product through the channel (middlemen)

5. Merchant Intermediaries • Wholesalers - Purchase large quantities of goods from manufacturers, store the goods, and resell them to other businesses retailers institutions electronic retail outlets governments vending services manufacturers professional users other wholesalers commercial users

6. Merchant Intermediaries • Agents - Participants in the marketing channel who negotiate the sale of products between other channel members • Do not take title to the products distributed • Manufacturer’s Agents and Brokers - Work independently running their own businesses

7. Distribution Intensity • Intensive • using all suitable outlets for a product • complete market coverage • Selective • limited number of outlets in a given geographic area • maintains some control over product movement • Exclusive • total right to sell a product within an identified geographic location • prestige, image, channel control • Integrated Distribution • Manufacturer acts as wholesaler and retailer for its own products

8. Physical Distribution • The process of transporting, storing, and handling goods to make them available to customers • Third largest expense for most businesses • Includes: freight transportation order processing warehouse site selection warehousing materials handling customer service protective packaging inventory control

9. Trucking • Advantages • convenient • less protective packaging • rapid deliveries • reduces inventory costs • Disadvantages • possible shipment delays • long distances - costly

10. Trucking • Common Carriers • Contract Carriers • Private Carriers • Exempt Carriers

11. Railways • Advantages • large quantities - lower costs • few delays • Disadvantages • lack of flexibility

12. Railways • Piggyback Service • Fishyback Service • Specialized Service • Package Cars • Diversion-in-transit • Processing-in-transit

13. Waterways • Advantages • low cost • Disadvantages • slow • lack of flexibility • weather delays

14. Waterways • Internal Waterways • Intracoastal Waterways • International Waterways

15. Pipelines • Advantages • lower long-term costs • dependable • Disadvantages • high initial costs • risk of breakage or leaking • costs for any damages

16. Air Transportation • Advantages • speed • reduction of storage & inventory expenses • Disadvantages • costs • delays

17. Other Carriers • U.S. Postal Service • Express Carriers • Bus Package Carriers • Freight Forwarders

18. Warehousing or Storage • Holding goods until they are sold • Reasons for Storing Goods • sell to customers • surplus of goods • stabilize prices • obtain discounts • faster delivery

19. Warehousing • Private Warehouses • Public Warehouses • Distribution Centers • Bonded Warehouses

20. Purchasing • Determining what to buy & making arrangements with sources regarding final price, delivery, services expected, and method of payment. • Sometimes called “buying” • Refers to industrial use • consumption • production • distribution (resale buying)

21. Purchasing Situations • New Task Purchase • Modified Rebuy • Straight Rebuy

22. Purchasing Process • Selection of products • Selection of suppliers • Negotiating terms of agreement • Placing the order • Payment • Evaluation of process

23. Product Selection • Planning • merchandise plan • planned sales • beginning-of-the-month inventory • planned reductions • planned purchases • Analyze customer wants and needs • Decide on goods and quantities • basic stock list • model stock list • never -out list

24. Selecting Suppliers • Production Capabilities • Past Experiences • Product & Buying Arrangements • Consignment buying • Memorandum buying • Special Services • UPC Codes • Peg man • merchandising services • bonuses & gifts

25. Negotiating Terms • Discounts • Dating terms • advance dating • extra dating • end-of-month dating • receipt-of-goods dating • Delivery Arrangements • FOB destination • FOB shipping point • FOB factory freight prepaid • FOB destination charges reversed

26. Placing the Order & Payment • Purchase Order • legal contract between the buyer and the supplier that specifies the terms of the agreement • Invoice • the bill that is usually sent along with the merchandise - it requests payment - should look very similar to the purchase order

27. Evaluation • Rate of Sale • identify “keepers” • Stock Turnover • number of times the average stock has been sold and replaced in a given time period • Review Supplier Responsibilities