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7/31/2019 Distribution -AD (1)
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1
Distribution
An over view
PROD
UCER
CUST
OMER
DISTRIBUTION
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History
Manufacturer ------ selling directly to buyers.
Manufacturer------- selling in the weekly markets.
Buyers sourcing products as per needs only from above.
Retailers came into existence.
Since the requirement of customers was small, retailers stocked
enough products to meet the buyer's convenience.
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Second phasestatus & shopping experience
Economic development lead to increase production & demandsituation started tilting towards the buyer.
Market Shifts to meet the buyers status and needs.
Beginning of competition.
Buyer started to look for better value for money. Purchase power of buyer increased.
Specialized retails emerged to carter to increased needs to differentsegments of buyers.
Better quality , premium brands , bargains , ambience etc.
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Third Phase --- Back to convenience
Further economic boom lead to consolidation of markets.
Time constrain.
Buyers wanting quality, variety , convenience lead to
Supermarkets
Malls
Superstores
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Development of retail industry
Increased outlets lead to retail outlet becoming morepowerful & demanding.
Trade offers became a part of life.
Specialties & one stop shops emerge.
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Development of Suppliers
Develop new markets.
Develop new buyers.
Need to develop an efficient system of making the productsavailable.
Need for development of intermediaries --Channel Partners.
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Channel Partners
are non company employees who help make the productavailable at the right time and right place.
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DistributionProduction Market
Marketing
Sales
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Channel Partners
C&F agents (carrying and forwarding agents)
Distributors Or Stockists.
Wholesalers.
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What is a -- C & F
Stocks company products
Functions like a company office.
Does not have competitor products.
Delivers the company products.
Works as per company policy.
Implement company promo. activities.
Helps collect company dues.
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What is a --Whole salers
Whole salers buy from companies authorised Distributors /Stockists.
Whole salers do not have any geographical exclusivity.
Wholesalers do have competitive lines and products.
Provide the reach that the company Distributors / Stockists donot provide.
Wholesalers normally do not provide redistribution service.
Sell mostly from there counter.
Work on low margins.
Income source is rotation.
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Mother go downs / Hubs
Are owned and operated by the company. Used to maintain inventory of goods manufactured at factories
and TPOs.
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C&F location & responsibilities
Located in Metros, state capitals, big cities and cater tovarious towns, cities in the specific area of operation.
Performs duties like carrying, storing, forwarding,
repacking, loading, invoicing, market returns, forwardingpromotional material to field staff.
Title of the good remain with the company.
Supplies only to companies distributors /stockists, super
stockists, sub stockists and to big retailers.
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C & F - earnings
C & F is compensated a percentage of sales as commission forservices rendered.
Commission is general variable & generally decreases with
the increase of sales. Man power cost is born by the C&F.
Establishment cost is of the C&F.
Insurance of the stocks is companies responsibility. Howeverthe cost of insurance of the infra structure is of the C&F.
Incidental costs like printed stationary, postage, transportationcost for up country is cost to the company.
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C&F Benefits / Concerns
Benefits
Does repacking of stocks as per the requirement of channelpartners at a nominal cost.
Relieves the company of capital expenditure cost.
Performs functions like logistics, few commercial duties & letsthe company concentrate on manufacturing, marketing &selling.
Concerns
Maintenance of quality and hygiene standards. Difficulty in adapting to companies vision and values.
Risk of theft, pilferage and in transit loss.
Rise in cost ofinsurance, handling cost.
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Distributors --- location, earnings & responsibilities
Located in cities, towns, villages and cater to large number ofwholesalers , retailers.
They further divide the quantities in smaller lots as per therequirement of their customers.
Get a fixed percentage as earning. Some times get an additional incentives for driving sales.
Goods title is transferred to the distributors.
Need to give companies schemes to all customers.
Handle market returns as per companies norms. Maintain hygienic conditions while storing.
Pay to the company as per agreed terms.
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Distributors -- Benefits / Concerns
Benefits
Offer wider reach of companies products.
Cater to customers regularly & timely.
Availabilities and accessibility. Provide credit to retailers, helping company to build stock at
retail level.
Provide wide coverage at the time of new launch.
Deploy companies visibility advertisements to retail outlets.
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Distributors -- Concerns.
Indulge in price war with other distributors.
Cornering additional incentives aimed for retailers.
Resistance to change in ever changing market dynamics &increased competition.
Unethical practices smuggling stocks to other territories.
Creating artificial shortages.
Not communicating companies vision & policies to retailers,thus creating communication gap.
Indulging in arm twisting of companies due to strong unions.
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Super stockists
Generally a big retailer or semi wholesaler who getssupplies from the companies distributor.
Earns by the parting of commissions done by distributor.
Pays upfront. Sometimes company bears the additional commission
given.
Facilitates the coverage and deeper penetration of
company stocks.
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Sub stockists
Base at a location where villagers visit for their requirements.
Buys in small quantities and supply to small retailers in thevicinity.
Earns a fixed commission.
Gets company stocks from distributors.
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Modern trade outlets
Organized retail outlets, stand alone super markets.
Generate a huge sales volume.
Due there huge potential companies have appointeddistributors to cater to these outlets.
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Modern trade outlets Benefits & Concerns.
Benefits
Generate huge volumes, hence reduce distribution cost of the
company.
New platform for company to display there products. Help companies to further promote there products.
Better storage and dispensing conditions for products.
Concerns
Out flow of huge margins due to huge volumes.
With size power to dictate terms, which may not be good forthe company in the long term.
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New Channel Development
Making products available at unconventional channels - likeBPOs , Call centers, Multiplexes, Music stores, Restaurants,
Coffee shops, Pubs, Lounges etc.
They generate growth for the company due to impulsivebehavior of the consumer.
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Retailers
Last and the most important part of channel.
They are kirana stores', general stores, chemists shops,
pann shops, etc,.
They supply to the end consumer.
Maintain good inventory levels.
Hold stocks of competitors.
Have long term relation with there customers.
Offer credit.
Are influential and can substitute products.
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Retailers-- Benefits & Concerns
Benefits
Offer wide availability of products.
Largely unorganised and have low bargaining power.
Work on low margins. Offer a platform to launch new products availability, displays,
trails by educating customers.
Concerns
Expect credit and hence put pressure on the bottom line ofcompany.
High sales and distribution cost.
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Whole salers
Channel between the distributors and retailers.
Fill the gap left by distributors.
Cater to small retailers who are financially weak.
Buy in bulk and get better margin than retailers.
Part with margins to customers and retain a part of margins.
Primarily work on turn over.
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Whole salers benefits & concerns.
Benefits
Facilitate better availability of reach of products.
Buy in bulk , hence boost companys top line.
Offer credit to small retailers.
Fill the gap left by company distributors.
Concerns
Indulge in price war & create disparity in the companysproduct.
Poor storing and dispensing conditions.
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Selection of channel partner
Identifying a partner.
Applying selection criteria.
Appointment.
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Identifying a channel partner.
Advertisement.
Field survey / Trade enquiry.
Existing Dealers.
Sales team recommendations.
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selection criteria.
Short listing
Brands serviced. Experience. Companies associated
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Selection criteria
EssentialCriteria
InvestmentCapacity
Area ofcontrol
Attitude ReputationFinancialstrength
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Selection Criteria
SituationalCriteria
Storagespace
Location Infrastructure SalesForceCapability
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Channel commitment
The trading parties need
High level of commitment.
Willing to consider each other needs.
Flexibility in business operations.
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Benefits of commitment
To Company
Increased sales
Longer relationship.
Brand building.
Greater support.
To Dealer
Greater profitability.
Social Image
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Motivation of Channel Partner
Motivation schemes
Performance linkedNonperformance
(relation ship)
Monetary Non Monetary Non Monetary
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Non Performance (relationship) Schemes
Season greetings.
Personalized greetingsbirthday anniversary etc.
Appreciation( verbal / letter) Invitation to H.O.
Photographs
Dinner
Visit to shop Social visit on functions.
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Relationship schemes
Hierarchy of the scheme on social image.
History of usage of non monetary incentive.
Hierarchy of channel member in the market. Companys image as per dealer.
Hierarchy of the person in the company implementing scheme.
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Performance oriented schemes
Identifying schemes perceived as motivators.
Grouping of schemes with similar impact.
Identifying the influence of schemes. Develop guidelines to improve channel commitment.
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M ti t h
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Motivator schemes
Exclusivity. Training of sales team.
Market information. Joint advertisement. Involvement of target setting Shop displays. Customer education. Customer schemes.
Service to channel. Soft loans. Institutional business. Return on investment. Wide range of products. New product Launch.
Computerization of supply chain. Trade schemes. Settlement of complaints and claims. Information about company. Annual awards.
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Grouping of schemes.
Schemes aimed at customer satisfaction.
Range of products of company.
New Products launch.
Consumer education
Sales promotion schemes.
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Schemes aimed at System Orientation.
Schemes
Computerization ofsupply chain.
.
Service to customer.
Information ofcompanys activities.
Inventory management Continuousavailability
Customer Complaints
Settlement of claims
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Schemes for support
Support of partnerBy offering
Exclusivity ofterritory
Market Information
-competition,-customer-reaction,
-products, etc.
Assuring minimumreturn on
investment
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Alliance building schemes
Schemes
Institutional business.
Best selling practices.
Sales staff training.
Involvement in target setting
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Schemes aimed at Goodwill
Trade schemes in line with product cycle.
Joint Schemes.
Shop Displays / Road shows.
Soft loans
Annual rewards
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Concerns of schemes.
Dealers / distributors to carry increased inventory
Increased cost of inventory.
Carry forwarding of unsold inventory. Maintain separate accounts.
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Appraisal of channel members.
Sales performance.
Servicing.
Financial discipline. Inventory maintenance.
Selling capacity.
Support to company.
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Sales Performance.
Gross sales of products.
Sales per product.
Target achievement.
New products sales. Growth rate.
Local market share.
Growth over last year.
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Servicing
Number of complaints handled.
Speed of disposal.
Customer retention rate.
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Inventory maintenance.
Average inventory maintained.
Inventory to sales ratio.
Inventory turnover.
Ability to stock in emergency.
Off season stock.
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Selling capability.
Technical knowledge & competence.
Sales people assigned for different products.
Behavior of sales persons.
Technical levels of sales persons.
Selling skills of sales staff.
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Support to company.
Interest in the product.
Competition from other product with the dealer. Time given to company products viz. competition.
Support during sales campaign.
Support for display.
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Appraisal Hidden aspects.
Financial status
Partnership issue.
Family concern.
Reputation.
Company Variables.
Social status.
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Performance Vs. Action
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Performance Vs. Action
Performance
Good Bad
Sustainable Unsustainable
Rewards / incentives
Controllable
Start withdrawal Willing to correct
uncontrollable
Identify development needs
Start withdrawal
Unwilling to correct
Start withdrawal
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Performance
Controllable Non controllable
Financial status Company related issue. Reputation
Property division.
Social status.
Partnership break.
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Channel Management , analysis & control
Required for company with high volume of sales & wide distribution
net work. FMCG , Pharma, liquor, Consumer electronics etc.
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Issues related to Channel Management system
Manual billing and accounting.
Un willing to adapt to computerized billing procedure.
Considered complicated.
Need of skilled computer operator.
Increased expense.
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Reports from CMS
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Reports from CMS
Sales
All locations/Dealers
Specific Location/Dealers
Days reports
Till date for the month.
Payment
All dealers/channels
Specific dealers
Outstanding
Over due payments
Inventory reports
ALL dealers/
locations
Specificdealers
Hubs
Expense reports
Tour expenses.
Direct expenses
Administrativeexpense
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CMS-implementation
HardwareUser friendly
software
Training of
dealers
Back end integration -- ERP
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Benefits of CMS
Data available at HO instantly. Cost effective transaction with dealers. Low communication cost. Increased sales force productivity.
Better forecast accuracy. Reduced cycle time. Less late deliveries. Reactivation of dealers. Reduction in capital of dealers. Better return on investment.
Analysis of secondary sales data. Daily stock and sales data for analysis. Customer complaints addressed faster-customer satisfaction.
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Channel Evaluation -concept
Effectiveness.
Efficiency.
Equity.
The --- 3 Es
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Channel evaluation -concept
Effectiveness
Delivery of stocks to meet demandby partners
Stimulation of demand to reachthe optimum level
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Channel evaluation -concept
Efficiency
Productivity
Profitability
ProductivityOutput generated by input used
Profitabilityreturn on investment, liquidity, Salesand profits, growth potential, marketshare
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Channel evaluation -concept
Equity-Channels ability serves to solve problems
Market segments
Geographically isolated customers
Slow moving products
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Channel evaluation - Dimensions
Efficiency
1. Cost of shifting goods.2. Cost of Storage.3. Cost of customer service.
Effectiveness
1. Environment impact ofbusiness conditions onchannel.
2. Organization Quality of
sales force.
Market fit-
1. Quality of goods.
2. Quantity of goods.
3. Customer buyingpattern.
Competitive fit
1. Competitive normsfor product line.
Strategic fit
1. Impact of shift onlong term plans inthe marketsegment
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Channel evaluation -concept
Beyond 3 Es
1. Identify the problems & causes.
2. What the organization should do to rectify the problem.
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Channel Dynamics.---
Advertising- sales force - Channel
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Process of selling
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Process of selling
Process of selling
Obtaining demand Servicing demand Feedback
Prospecting Promoting Bulk Assortment
Storage
Credit & Service
Availability
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Influences of Functional areas.
Sales forcemanagement
Channelmanagement
Advertisement
SellingStrategy
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Roles
Sales force prospecting / promoting /educating the customer etc.
Channel Servicing the demand
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Channel role
Receive orders from customers.
Deliver to stock to the customer at the right place and atthe right time.
Store material at different distribution locations. Maintain healthy relations with customer.
Receive feedback & forward to sales force.
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Channel Design.
Of all the marketing decisions, the ones
regarding distribution channel are far mostfar- reaching. The company can revamp the
promotional programme, modify the productline. But once the company has set up itsdistribution channels, it generally findschanging them difficult.
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Distribution network USHA international
Electrical shops
Specialized selling points for sewing machines.
Specialized air-conditioning & refrigeration dealerships.
Consumer durable shops. Specialized auto components dealerships.
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Network of Usha
Manufacturer
Companyshow room
Distributor Special channels Direct mailMarketing.
Dealers Retail outlets Electrical trade Consumer durables
Consumer
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Channel for Auto Lubricants
C&F
Petrol pumps
Stockist
Exclusive dealer Multi brand dealer
RetailerWork shops
Customer76
Ideal Channel
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Ideal Channel
Challenges ----
1. Channel needs to be adopted depending on target
segments and positioning.2. Goals of channel members differ.
3. Alternates are available.
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Ideal channel
Should include
1. Number of channel to use.
2. Levels in each channel.
3. Type of intermediaries.
4. Number of channel intermediaries at each level.
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Ideal Channel
Target group
Buyers need
Retailers needs
Legal aspects
Distribution needs
Feasible alternatives
Reach
Function to bepreformed bythe channel
Product features
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Internet as a channel partner
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Retail.
Job portals.
E greetings.
Internet service provider.
Matrimonial services. E broking.
Travel.
Hotels/ cars/ tours
Classifieds.
On line market.
Mobile VAS.
E gamming.
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Internet as a partner S.W.O.T.
Strengths1. Better inventory management.2. Convenience.3. Complete variety display.4. Customization.5. Better database.
6. Helps in information search.
Weakness
1. High delivery cost
2. High waiting time.
3. Lower penetration of internet.
4. Additional logistics chain
Opportunities
1. Well suited niche marketing.
2. Can hasten the process ofpurchase.
Threats
1. Channel conflict.
2. Low acceptance of internetfor payments.
3. Shopping experience isdenied.
4. No trial facility 81
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Conventional channel vs. Internet
Existing1. Inability to maximize price.
2. Inability to take advantage ofshortage due lack of marketintelligence.
3. Lack of visibility of market price.
4. New buyer identification difficult.
5. High communication cost.
6. High sale process.
Internet1. Prices of product are higher due
to bidding.
2. E-selling bring buyers for allmarket on one platform.
3. Market facing shortage will havehighest biding. Auction providescomplete market price visibility.
4. Shorter buyers search.
5. Reduce communication cost.
6. Lower inventories .increased
sales frequency.
7. Lower process time for sale.
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Channel Levels:
Length of a channel: No. of
intermediaries b/n producer & final consumer
Zero Level:
Manufacturer Consumers
Eg: Eureka Forbes, Readers Digest
One Level: Manufacturer Retailer Consumer
Eg: Maruti Suzuki dealers
Two Level:
Manufacturer Wholesaler Retailer Consumer
Eg: FMCG, White goods Three Level:
Manufacturer Dist. Wholesaler Retailer Consumer.
Eg: FMCG, White goods
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Channel Dynamics:
Vertical Marketing Systems: (VMS) Producers, Wholesalers, Retailers etc. acting as a unified
system
Horizontal Marketing Systems: (HMS)
Two or more unrelated companies come togetherto exploit emerging marketing opportunity Eg: Banks & Car manufacturers tie-ups
Multi Channel Marketing Systems/Dual Marketing
Firms using two or more marketing channels toreach its customers Eg: Sale of airline tickets online as well as through agents
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Channel Conflict & its management
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g
Can happen at any stage in the channel management. Requires immediate attention.
Generally arises when the channel & company differ.
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Types of conflict
Multi channel conflict. Channel compete amongst them self's.
Leads to decline of both channels.
Horizontal channel conflict. When two or more partnerscompete.
Leads to dilution of brand image.
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Indications of channel conflict
Internal indicators.
1. Low channel productivity.
2. Deterioration of channel relationship.
3. Poor customer service.
External Indicators
1. Low customer satisfaction.
2. Reduction in support of product line.
3.
De-emphasis on brand.4. Competition for sale in the same geographical area.
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Areas of conflict ---
Multi point contact with institutional buyers. (Rep / Retailers)
Direct contact of wholesalers & retailers with consumer.
Direct contact of wholesaler & retailer with C&F / Depot.
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Identify the areas of Conflict
Channels competing with each other.
Channels serving the same customer.
Deteriorating profits of a channel member is leading toencroachment.
Will decline of channel harm the manufacturer?
Use decision making practice to solve channel conflict.
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Conflict situations
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Horizontal conflict
1. Conflict due to Multi brands outlets, exclusive showrooms,company showrooms
i.e.-- same merchandise available in all stores.
no exclusivity of territory of retailers.
Vertical conflict
1. Internet sales are conflicting with all channels.2. Company is selling directly to customers.
Customer satisfaction
1. Customers want high quality with competing price.2. Customer not shifting shop due to price difference.
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How to resolve channel conflict???
ANY SUGGESTIONS ??
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Conflict & Channel Efficiency
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y
Can conflict increaseefficiency?Does conflictdecreaseefficiency?
Does conflict haveany affect?
How does conflictaffect channel
efficiency?
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Effects of Channel Conflicts
1. Negative Effect
2. No Effect or
3. Positive Effect .
Effects of Channel Conflict
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Effects of Channel Conflict
1. Negative Effect: Reduced Efficiency
As the level of conflict increases,
Channel efficiency declines
Effects of Channel Conflict
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Effects of Channel Conflict
2.No Effect: Efficiency Remains Constant
Exists in channels characterized byhigh level of dependency amongmembers
Channel efficiency is not affected
Effects of Channel Conflict
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Effects of Channel Conflict
3. Positive Effect: Efficiency Increased
Conflict might drive for eitheror both members to reappraise theirpolicies
Channel efficiency increases
Managing Channel Conflict
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Managing Channel ConflictDetectingconflict
Appraising the
effect ofconflict
ResolvingconflictManagingConflict
Detecting Channel Conflict
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g
Regularly survey other membersperceptions of firms performance
Perform marketing channel audit
Form distributors advisory councilsor channel members committees
OR
OR
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Transport
Types
1. Rail
2. Road.
3. Air.
4. Water.5. Door to door service.
6. Courier.
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Transportation Modes
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RailCost-effective for shipping bulk products,
WaterLow cost for shipping bulky, low-value,
non perishable goods, slowest form.
Truck
Most important carrier for consumergoods, flexible.
AirHigh cost, ideal when speed is needed or
distant markets have to be reached
PipelineCarry petroleum based products,
very low cost, requires little energy.
p
InternetWeb sites have products available, used
especially for services.100
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Routes of Goods
Goods atshippers
Freightforwarderwarehouse
Airterminal
planeair
Freight
forwarderwarehouse
Goods at
consignees
Containerterminal
vesselsea May
changetranspor-
tationmodes
truck
landrailway
land barge
mid-streampierbulk goodssea
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Logistics
While distribution channel movesresponsibility and information through thechain.
Logistics covers the physical movement ofgoods.
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Importance of logistics
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Logistics amounts to > 10% of the cost of goods.
It impacts the quality of goods.
Facilitates marketing (ease in handling, storage, meets statuaryrequirements.
Economics in manufacturing can be increased by time andlocation shifts. E.g. food industry--
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Principle of logistics
Larger the loadlesser the cost.
Effective logistics requires total cost to be considered.
Packed good to be carried for effective transportation &to reduce the cost. ( Container in rail & road transport.)
Improvement in Weight : Bulk ratio.
Higher the value : weight ratio TPT. Cost will be higher.
Vertical storage.
Optimum storage space utilization. Shortest route may not be most economical route.
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Functions of logistics.
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Packing & unpacking.
Breaking bulk.
Handling & collection of delivery material.
Documentation & transfer of ownership / insurance. Transportation.
Warehousing and storage.
Route planning.
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Distribution & logistics.
The distribution system moves the responsibility andinformation through the chain.
Logistics system comprises of handling, storage,transportation, documentation, physical movement ofgoods.
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Logistic process The stimulus to logistic process is the customer order.
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What is required
Product, specification
Quantity & packing
Special features*
Delivery
When required
Whom to ship & destination
Mode of shipment
Price to be charged
Whether
(cost +Insurance +Freight)
WhetherFree at a particular point
Discounts andtaxes to be charged.
Documentation
Inspection report
Excise pass
Shippingdocuments
Mode of payment
Letter of credit
Documentsthru bank
Advance paymentOr credit
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Inputs for logistics
Product
Material handlingfacilities
container / carrier
Product to be:-
1. Packed2. Marked
3. Certifiedfor shipping
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The activities of Logistics
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Handling
Storage
Transportation
Documentation
Demurrage
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Output of logistics end result
Product delivered
At the right place At the right time In good condition
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Th S l Ch i f M f t i C
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The Supply Chain of a Manufacturing Company
Logistics Integration for Customer
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Logistics Integration for Customer
Satisfaction, Distribution Cost, Control and
Customer Service
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Customer Satisfaction
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Customer Satisfaction
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Logistics Integration forCustomer Satisfaction
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Customer Satisfaction
Leads to customer satisfaction through superiorcustomer service.
Organizational objectives of P [Productivity],Q [Quality],C[Cost],D [Delivery],E [Employee Morale],F [Flexibility],S
[Safety],H [Health],E [Environment] are set to meetcustomer expectations of Q,C,D.
Q, C, S, H, E are parts of must be quality that a customerexpects. Logistics addresses D, F objectives which lead
to customer satisfaction through superior customerservice
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How logistics lead to customerti f ti ?
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satisfaction?
1. Rapid response
Logistics should ensure that the supplier is able torespond to the change in the demand very fast.
Entire production should change from traditionalpush system to pull system to facilitate rapidresponse.
IT helps management in producing and delivering
goods when the consumer needs them. Thisresults into reduction of inventory and exposes alloperational deficiencies.
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2. Minimum variance Logistics is expected to minimize events like
delays due to obstacles in information flow, trafficsnarls, acts of god, wrong dispatches, damage intransit, thereby minimize and improve on OTD or
On Time Delivery3. Quality
If the quality of product fails logistics will have toship the product out of customers premises and
repeat the logistics operation again. This adds tocosts and customer dissatisfaction. Hencelogistics should contribute to TQM initiative ofmanagement.
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4. Life cycle support- Logistics function isexpected to provide life cycle support to theproduct after sale. This includes
a) After sales serviceb) Reverse logistics or Product recall
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a) After sales service: the service support needed
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a) After sales service: the service support neededby the product once it is sold during its life cycle
b) Reverse logistics or Product recall as a result of Rigid quality standards [critical in case of contaminated
products which can cause environmental hazard]
Transit damage [leaking containers containing hazardousmaterial]
Product expiration dating
Rigid laws prohibiting unscientific disposal of itemsassociated with product [packaging]
Rigid laws making recycling mandatory Erroneous order processing by supplier
Reverse logistics is an important component of logisticsplanning
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Distribution costs
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Analysis of distribution cost may be made onthe following lines:
Product or Product lines Individual customers or Group of customers
Channels of distribution
Salesmen
Geographical area or territories
Terms of sales
Order sizes 120
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Elements of Total cost in Physical
Distribution Systems
Total Distribution CostTDC = TC + FC + CC + IC + HC +
PC + MC
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TC - Transport Cost
(Substantial Fixed Cost element) Capacity to match volumes
Centralised Distribution
Route Planning Optimal Schedules
Use of software
Railways, Airways ,Seaway cost
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FC Facility Cost
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FC Facility Cost Warehousing, capital cost and running cost
related to infrastructure and internalsystems to store and pick up stocks
Use of Information Systems, Electronic DataInterchange
Warehouse Management System like radiolinks. Reduction in wage bill Refer to HR
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CC C i i C
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CC Communication Cost Cost associated with communication
through the chain. These are administrativecosts
IC Inventory Cost Direct capital cost for goods purchased and
Opportunity cost for carrying inventory.These are cost associated with maintenanceand replenishment of inventory
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HC Handling Cost
Cost associated with Damage, Pilferage,Deterioration of stocks
PC Packaging Cost
Repacking, shrink wrapping, pallets, boxes,containers, tapes, labels etc
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MC
Management Cost Cost associated Management of the chain.
Ranging from security system to storageconditions to HR, Finance and almost
everything where managerial input isneeded
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Control and Customer Service
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Definition of Customer Service
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Definition of Customer Service
Customer service is the fulfillment process, theprocess to meet consumer demand as a whole.
The process includes records requests manually
or electronically, payment, selection of goods,delivery and provision of goods, as well asproviding service to users of goods, alsoregulates the handling of goods returned to the
consumer at the time of complaint. Customer service is a process for providing
significant value added benefit to the supplychain in a cost-effective way.
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Logistics planning in customer service
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THE IMPORTANCE OFCUSTOMER SERVICE
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CUSTOMER SERVICE
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THE IMPORTANCE OF CUSTOMERSERVICE
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Effect on Service Sales
Effect on Customer Service
- Increasing customer loyalty
- Maintain good relations with customers bycreating customer satisfaction.
- The cost of maintaining existing customers ischeaper than getting new customers (6X fold cost)
ServiceImprovement
Improvement:Volume Price
Reputation
IncreasedMarketShare
IncreasedProfit
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THE COMPONENTS OF CUSTOMERSERVICE
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SERVICE
Pre-transaction elements: customer service factorsthat arise prior to the actual transaction taking place
Transaction elements: the elements directly relatedto the physical transaction and are those that are
most commonly concerned with distribution andlogistics.
Post-transaction elements: these involve thoseelements that occur after the delivery has taken place
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Pre-transaction elements
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Is the determination of customer service strategies to beimplemented, provide a written record of customer servicepolicies. For example, specify how the item is sent afterthe order is received, set the procedure returns (backorder), and method of delivery so customers know whatservices will be obtained.
written customer service policy;
accessibility of order personnel;
single order contact point;
organizational structure;
method of ordering;
order size constraints;
system flexibility;
transaction elements.
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Transaction elements
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Is a determination concerning the implementation of the strategy
delivery of goods / products to the consumer. This element is adirect result of the delivery of goods to customers, manageinventory levels, and selecting means of transport.
order cycle time (cycle time from orders / d order received)
order preparation;
inventory availability;
delivery alternatives;
delivery time;
delivery reliability;
delivery of complete order;
condition of goods;
order status information.
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Post-transaction elements
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Determination procedure is performed services to support
products manufactured on the market. For example, toprotect consumers from defective products, providingreturns, guarantees reinstatement, warrants, and listeningto consumer complaints.
availability of spares; call-out time;
invoicing procedures;
invoicing accuracy;
product tracing/warranty;
returns policy; customer complaints and procedures;
claims procedures.
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MULTIFUNCTIONAL DIMENSIONSof Customer service
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of Customer service
1. Time usually order fulfilment cycle time;2. Dependability guaranteed fixed delivery
times of accurate, undamaged orders;
3. Communications ease of order taking,and queries response;
4. Flexibility the ability to recognize andrespond to a customer's changing needs.
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CONCEPTUAL MODELS OFSERVICE QUALITY
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SERVICE QUALITY
Service quality is a measure of the extent towhich the customer is experiencing the levelof service that he or she is expecting.
Service quality is that it is the matchbetween what the customer expects andwhat the customer experiences.
Service quality =nsExpectatioDesired100xePerformancPerceived
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LOGISTICS
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The Increased Importance of Logistics
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A Reduction in Economic Regulation
Recognition by Prominent Non-Logisticians Technological Advances
The Growing Power of Retailers
Globalization of Trade
Three objectives of logistics strategy:
Cost reduction (variable costs)
Capital reduction (investment, fixed costs)
Service Improvement (may be at odds withthe above two objectives).
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Management actions
Planning Implementation Control
Inputs into logistics
Outputs of
logistics
Components oflogistics management :
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Marketing
orientation
(competitive
advantage)
Time and
place utility
Efficient
movement to
customer
Proprietary
asset
Natural resources
(land, facilities,
and equipments)
Human resources
Financial resources
Information
resources
Logistics Activities
Customer Service
Demand forecasting
Distributioncommunications
Inventory control
Material handling
Order Processing
Parts and servicesupport
Plant andwarehouse siteselection
Procurement
Packaging
Return goods
handlingSalvage and scrapdisposal
Traffic andtransportation
Warehousing and
Raw
materials
In-process
inventory
Finished
goods
Inputs into logistics
Suppliers
Logistics management
Customers
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Logistics activities can be divided into three
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gcategories:
ProductionStorageTransportation
The term Resource applies to all of the
factors of production, including materials(e.g., Iron, fabric, parts), equipment (e.g.,machines or vehicles), energy (e.g., oil,coal, electricity) and labor.
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INVENTORY: Fundamental logistics questions are (1) when should a
resource (material, machine or labor) be put in inventory and takenout of inventory; and (2) where should a resource be stored.
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The when question includes the general topics ofeconomic-order-
quantity models, safety stock models and seasonal models, andspecialized topics of fleet management, and personnel planning.
The where questions includes the topic ofinventory echelons.
Some of the important inventory questions are:
(a) How much does it cost to store resources in inventory?
(b) How much safety stock should be carried in inventory to preventagainst running out of a resource?
(c) How much inventory should be carried in order to smooth outseasonal variations in demand?
(d) Where should replacement parts be stored in multi-echeloninventory system?
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Logistics - Science of managing (controlling) the movement and
storage of goods (or people) from acquisition to consumption.
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Goods: Raw Materials Final products, and everything in between.
Logistics for services & people similar to goods logistics.
Ex. Police, fire, ambulance, passenger airlines, taxi cabs, etc.
Movement = Transportation (between locations).
Storage = Inventory, Warehousing (at locations).
Difference between acquisition and consumption is a matter of spaceand time.
NOTE: Logistics does not dealwith Technology of Production,such as the design of machines and vehicles and the design offinished products.
Focus: Best way to overcome space and time that separates acquisition
and consumption.
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Five Business Systems - Tightly InterconnectedWithin The OrganizationManagement
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MeasurementDecisions
ManagementSystems
RewardDecisions
StrategicDecisions
Transportation
Decisions
SourcingDecisions
InventoryDecisions
Logistics
Systems{Price
DecisionsPromotionDecisions
MarketingSystems
ProductDecisions
Place (How,where, how
much)
}ProductionScheduling
Decisions
ProductionCapacityDecisions
Shop FloorDecisions
Manufacturing
Systems}
ProductDesign
Decisions
ProcessDesign
Decisions EngineeringSystems}
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Activities and Logistics Decisions
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Transportationrate and contract negotiation
mode and service selectionrouting and scheduling
Inventoriesfinished goods policiessupply schedulingshort term forecasting
Warehousingprivate vs. publicspace determinationwarehouse configurationStock layout and dock designstock placementCross-docking
Facility Locationdetermining location, number
and size of facilities
allocating demand to facilities
Customer Servicedetermining customer wantsdetermining customerresponse to service changes
Materials Handlingequipment selectionequipment replacementorder picking procedures
Packaging designOrder Processing
order procedure determinationProduction Scheduling
aggregate productionquantities
sequencing and timing ofproduction runs
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Logistics Planning
Decide what, when, how in three levels:
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Strategic long range > 1 year
Tactical - < 1 year horizon Operational frequently on hourly or daily basis
Examples of Decisions
Type Strategic Tactical Operational
Location
Transportation
Order Processing(CS)
#Facilities, size,location
Mode
Selecting orderentry system
Inventorypositioning
Seasonal ServiceMix
Priority rules forcustomers
Routing
ReplenishmentQty and timing
Expediting orders
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The Logistics (Strategic) Planning Triangle
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Which mode?Which carrier?
Which route?
Shipment size andfrequency?
Where?, Howmany? What size?
Allocation?
Strategy/Controlsystem?
How much?
Where?
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Transport Fundamentals
Most important component of logistics cost.Usually 1/3 - 2/3 of total cost
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Transport involves equipment (trucks, planes, trains, boats, pipeline), people (drivers, loaders & un-loaders), and decisions (routing, timing, quantities, equipment size,
transport mode).
When deciding the transport mode for a given productthere are several things to consider:
Mode price Transit time and variability (reliability) Potential for loss or damage.
NOTE: In developing countries we often find it necessary tolocate production close to both markets and resources,while in countries with developed distribution systems peoplecan live in places far from production and resources.
Usually 1/3 - 2/3 of total cost.
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Air
Rapidly growing segment of transportation industry
Single-mode Service Choices and Issues
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Rapidly growing segment of transportation industryLightweight, small items [Products: Perishable and time sensitive
goods: Flowers, produce, electronics, mail, emergency shipments,documents, etc.]Quick, reliable, expensiveOften combined with trucking operations
Rail
Low cost, high-volume [Products: Heavy industry, minerals,chemicals, agricultural products, autos, etc.]Improving flexibilityintermodal service
TruckMost used modeFlexible, small loads [Products: Medium and light manufacturing,food, clothing, all retail goods]Trucks can go door-to-door as opposed to planes and trains 152
WaterOne of oldest means of transportLow-cost, high-volume, slow
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Bulky, heavy and/or large items (Products: Nonperishable bulk
cargo - Liquids, minerals, grain, petroleum, lumber, etc )]Standardized shipping containers improve serviceCombined with trucking & rail for complete systemsInternational trade
PipelinePrimarily for oil & refined oil productsSlurry lines carry coal or kaolinHigh capital investmentLow operating costsCan cross difficult terrainHighly reliable; Low product losses
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Transport Cost Characteristics Rail
High fixed costs low variable costs
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High fixed costs, low variable costs
High volumes result in lower per unit (variable) costs
Highway
Lower fixed costs (dont need to own or maintain roads)
Higher unit costs than rail due to lower capacity per truck
Terminal expenses and line-haul expenses
Water
High terminal (port) costs and high equipment costs (both fixed)
Very low unit costs
Air
Substantial fixed costs
Variable costs depend highly on distance traveled Pipeline
Highest proportion of fixed cost of any mode due to pipeline ownershipand maintenance and extremely low variable costs
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Vehicle Routing:
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- Separate single origin and destination:Once we have selected a transport mode and have goods that
need to go from point A to point B, we must decide how toroute a vehicle (or vehicles) from point A to point B.
Given a map of all of our route choices between A and B wecan create a network representing these choices Theproblem then reduces to the problem of finding theshortest pathin the network from point A to B.
This is a well solved problem that can use Dijkstras Algorithm
for quick solution of small to medium (several thousandnodes) sized problems.
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Vehicle Routing:
Multiple Origin and Destination Points
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Suppose we have multiple sources and multiple destinations,
that each destination requires some integer number of truckloads,
and that none of the sources have capacity restrictions [No
Capacity Restriction].
In this case we can simply apply the transportation methodof
linear programming to determine the assignment of sources to
destinations.Sources Destinations
- Multiple Origin and Destination Points
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- Coincident Origin and Destination: The TSP
Vehicle Routing:
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If a vehicle must deliver to more than two customers, we
must decide the order in which we will visit those customers soas to minimize the total cost of making the delivery.
We first suppose that any time that we make a delivery tocustomers we are able to make use of only a single vehicle,i.e., that vehicle capacity of our only truck is never an issue.
In this case, we need to dispatch a single vehicle from ourdepot to n- 1 customers, with the vehicle returning to thedepot following its final delivery.
This is the well-known Traveling Salesman Problem(TSP).The TSP has been well studied and solved for problem
instances involving thousands of nodes. We can formulate theTSP as follows:
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Questions about the TSP
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Given a problem with nnodes, how many distinct feasible tours
exist? How many arcs will the network have?
How many xijvariables will we have?
How could we quantify the number of subtour elimination
constraints? The complexity of the TSP has led to several heuristic or
approximate methods for finding good feasible solutions. Thesimplest solution we might think of is that of the nearestneighbor.
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Vehicle Routing: TSP, inventory routing, and vehiclerouting
Traveling Salesman Problem (TSP): salesman visits n cities ati i
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minimum cost
vehicle routing problem (VRP): m vehicles with capacity todeliver to n customers who have volume requirement, timewindows, etc.
Inventory Routing: m vehicle to delivery to n customer withtime windows, vehicle and storage capacity constraints, and un-specified amount to be delivered.
Points to remember:
1. Load points closest together on the same truck
2. Build routes starting with points farther from depot first
3. Fill the largest vehicle to capacity first
4. Routes should not cross5. Form teardrop pattern routes.
6. Plan pickups during deliveries, not after all deliveries havebeen made.
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Vehicle Routing
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Find best vehicle route(s) to serve a set of orders from
customers.
Best route may be minimum cost, minimum distance, or
minimum travel time.
Orders may be Delivery from depot to customer. Pickup at customer and return to depot.
Pickup at one place and deliver to anotherplace.
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Logisticscontribution to corporate goals
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g
Revenues :: Positioning of stocks in locations forreliable & swift delivery for higher sales revenue.
Expenses :: Cost incurring activities viz- transportationwarehousing and inventory- to be considered in totality.
Capital investment :: for improved customer satisfactionand lower logistics cost
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Core components for integration
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To achieve channel integration managementmust design and implement a logistics
system which coordinates with thecomponents of the entire system, so as togive a given level of customer service, at theenquired cost.
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JIT - just in time logistics system
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Purchasing
Transportation.
Warehousing.
Inventory control.
Production.
Quality control.
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Distribution cost
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Time for which the inventory is held in transit.
The space required.
Ware housing cost.
Transportation cost.
Labour cost. Documentation cost ( Specially for international trade)
Damage & Claim
In bound & out bound logistics.
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Cost control A managements perspective
Difficult to control issues involved.
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Higher cost passed to customer. ( where freight & insurance is
charged extra) Major cost improvement comes from technology than
managements action.
Cost reductions not visible.
Value additions can be done in:-1. Reduction in delivery time.
2. Less errors , damages and losses.
3. Better packing, merchandising, training.
4. More effective attention to problems, maintenance, spareparts requirements and service
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Channel Integration
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Channel integration is not vertical integration, requiring ownership. It is streamlining physical and information flow by re-engineering the
distribution process.
It is achieved through range of information and telecommunicationtechnologies.
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Linking sales & distribution
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Sales management and distribution can not exist /operate / performwithout each other.
To achieve sales revenue , sales growth, sales management plansstrategies and action plan.
The distribution management executes these plans.
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Role
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Sales management Strategy for effective coverage
of markets & outlets.
Strategy to handle customer
complaints
Planning of local
advertisement and salespromotion
Distribution management--- Follow up call plan.
Make customer call productive.
Use multi channel approach
Prompt action at customer interfacelevel.
If problem persists-involve seniorsales & service people.
Coordination of distribution channels
Responsibility with distribution
channel. Expenses shared between company &