Wholesale and Distribution

8/3/2019 Wholesale and Distribution

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WholesaleWholesale and Distribution:and Distribution:

Markets and InstitutionsMarkets and Institutions

Prof. Rushen ChahalProf. Rushen Chahal



Wholesaling andWholesaling and

WholesalersWholesalers

yy WholesalingWholesaling::The sale, and all activities directly relatedto the sale, of goods and services to businesses andother organizations for resale, use in producing othergoods or services, or operating an organization.

yy Wholesaling middlemenWholesaling middlemen or intermediariesintermediaries are firmsprimarily in wholesaling.

y The gap between (a) producer and (b) retailer and/orusers is filled by a wholesaling middleman that canpool the orders of many buyers and furnish a marketfor the small producer.

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More AboutMore About

WholesalingWholesalingy Wholesaling brings to distribution economies of skills,

scale, and transactions.

Wholesaling skills are concentrated in the hands of wholesaling middlemen so there is less duplication of

effort on the part of producers. Ec onomies of sc ale result from the specialization of

wholesaling middlemen performing functions thatmight require several small departments withinproducing firms.

Tr ansact ion ec onomies result from the fewer number of transactions that are needed between producers andretailers.

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A

A B

B C

C D

D

6

65

54

43

32

21

1

Four producers each sell directly to sixretailers, resulting in 24 transactions:

PRODUCERS

RETAILERS



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A

A B

B C

C D

D

6

65

54

43

32

21

1

Four producers use the same wholesaling middleman,

reducing the number of transactions to 10:

WHOLESALING INTERMEDIARIES

WHOLESALING INTERMEDIARIES

PRODUCERS

RETAILERS



Categories of WholesalersCategories of Wholesalersyy merchant wholesalersmerchant wholesalers take title to the

products that they handle; perform wide rangeof services

yy

manufacturers· sales branchesmanufacturers· sales branches and officesand offices areowned and operated by the manufacturers

yy agents and brokersagents and brokers negotiate sales but do nottake title to the products they sell

yy primary products dealersprimary products dealers deal primarily in rawmaterials such as agricultural products

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WHOLESALING INTERMEDIARIESWHOLESALING INTERMEDIARIES

Independently

owned

Take title to

products

being

distributed.

Full

service

Truck

jobbers

Drop

shippers

MERCHANT

WHOLESALERS,

INCLUDING:

CHARACTER-

ISTICS

Independently

owned

Do not take

title to

products

beingdistributed

Actively

negotiate

sale or

purchase

of products

Manu-

facturers¶

agents

Brokers

CHARACTER-

ISTICS

MANUFACTURERS¶

SALES FACILITIES,

INCLUDING:

CHARACTER-

ISTICS

Owned and

operated by

manu-

facturers

Perform

salesfunction

Branches

(carry stocks

of merchan-

dise being

distributed)

Offices (donot carry

stocks)

AGENTS AND

BROKERS:



Merchant WholesalersMerchant Wholesalers

yy fullfull--service wholesalersservice wholesalers perform a wide range of services for the suppliers they represent

y they take title to the products that they carry

y

they generally operate warehouses, createassortments, and arrange delivery

y they buy in very large quantities and sell to smallcustomers in the assortments they need

y other wholesalers include truck jobberstruck jobbers anddrop shippersdrop shippers

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Manufacturers· Sales BranchesManufacturers· Sales Branches

yy Manufacturer·s sales branch:Manufacturer·s sales branch:An establishment thatengages primarily in wholesaling and is owned andoperated by a manufacturer but is physicallyseparated from manufacturing plants.

A manufacturer·s sales branch carries a stock of the product being sold.

A manufacturer·s sales office does not.

yy

Primary Product Dealers:Primary Product Dealers:Resellers of primaryproducts-- fish, vegetables, grains.

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Agent WholesalersAgent Wholesalers

y these are independent businesses which may

represent a number of suppliers

y they do not take title to the products they sell

yy manufacturers· agentsmanufacturers· agents are generally smaller firms

that operate on commission; they are usually

assigned to a specific territory

yy brokersbrokers often do not work on a continuing basis

with suppliers but will bring buyers and sellers

together; may not ever see the product

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More Agent MiddlemenMore Agent Middlemen

yy Commission MerchantsCommission Merchants set aside the

product, often physically handle it,

determine price and conditions of sale,

complete the sale

yy Auction CompaniesAuction Companies assemble buyers,

sellers and product, allow for buyers to

inspect product, allow the transactionsto be completed

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Even More Agent MiddlemenEven More Agent Middlemen

yy Selling AgentsSelling Agents take over the entire

marketing responsibility from clients and

market their entire output

yy Import/Export AgentsImport/Export Agents bring together

buyers and sellers in different countries

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Nature and Importance of Nature and Importance of

Physical Distribution (PD)Physical Distribution (PD)

yy Physical distribution:Physical distribution: All activities

concerned with moving the right amount

of the right products to the right place at

the right time.

y Physical distribution can be used

strategically to strengthen a firm·s market

position

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The Systems ApproachThe Systems Approach

to PD Managementto PD Managementy Manipulating the five elements of the PD system

to create an environment which delivers the bestcustomer service at the most reasonable (notnecessarily lowest)Total Cost

AsTotal Cost is decreased, so is customerservice

AsTotal Cost increases, so does customerservice

The goal is to find a balance to deliver theservice level desired by the target market

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Impact on Marketing Strategy of aImpact on Marketing Strategy of a

Good PD PlanGood PD Plan Improve customer service.

Reduce distribution cost.

Create time and place utilities ³ storage creates

time utility, and transporting the goods to wherethey are desired creates place utility.

Stabilize prices by storing products or moving

them to other markets.

Influence channel decisions.

Control shipping costs.

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Physical DistributionPhysical Distribution

ManagementManagementy Physical distribution management: Development and

operation of processes resulting in effective andefficient physical flow of products.

y An effective physical-distribution system is built

around five interdependent subsystems:

Order processingOrder processing ³ procedures for handling andfilling orders should cover billing, granting credit,preparing invoices, and collecting past-due accounts.

Inventory controlInventory control ³ the goal is to minimize bothinvestment and fluctuations in inventories, while fillingcustomers· orders promptly and accurately.

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MoreTasks in PDMoreTasks in PD

ManagementManagement

yy Inventory location and warehousingInventory location and warehousing ³ decisionsmust be made about size, location, handling, andtransporting of inventories.

yy

Materials handlingMaterials handling ³ proper equipment canminimize losses from breakage, spoilage, and theftand can reduce handling costs as well as timerequired for handling.

yy TransportationTransportation ³ shipping products to customersinvolves decisions on both the form of transportation and particular carriers.

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Market Response SystemsMarket Response Systems

Market response systems encompass several methodsthat manufacturers, food distributors, and grocers areusing to cut waste:

y Continuous replenishment ³ manufacturers useinformation from stores· scanners to replenish agrocer·s inventory.

yy Electronic data interchange (EDI)Electronic data interchange (EDI) ³ orders andinvoices move from computer to computer rather

than through the mail.

y Electronic funds transfer ³ money moves withoutcheques or cash.

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Customer Service and Economic OrderCustomer Service and Economic Order

Quantity (EOQ)Quantity (EOQ)yy InventoryInventory size is determined by balancing costs and

desired levels of customer service.

yy Economic order quantity (EOQ)Economic order quantity (EOQ) is the volume at whichinventory-carrying costs plus order-processing costs areat a minimum.

As order size increases, inventory-carrying costs goup and order-processing costs go down.

The actual order quantity is often higher than EOQ.

This trade-off provides a desired level of customerservice while at the same time lowering inventorycosts.

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More About Market ResponseMore About Market Response

SystemsSystemsy Cross-docking ³ manufacturers build

displays on pallets so they can be moved

directly into stores with little handling in

the warehouse or store.

y Category management ³ sales and

demographic information are used to

determine optimal assortments and shelf space allocations.

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Benefits of Market Response SystemsBenefits of Market Response Systems

y Cuts time ³ inventory sits in

warehouse.

y

Fewer out-of-stock experiences forconsumers.

y Potentially lower prices.

y Potential industry-wide savings of $30

billion annually.

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WarehousingWarehousing

yy Public warehousePublic warehouse: provides storage andhandling to various firms for a fee

yy Private warehousePrivate warehouse: is owned and

operated by a single firm, useful if: Volume is year-round and large, and has

special storage requirements

yy Distribution Centre:Distribution Centre: a single, larger

storage facility which includes an orderprocessing and distribution function

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Materials HandlingMaterials Handling

yy Materials HandlingMaterials Handling - proper equipment

can minimize losses from breakage,

spoilage, and theft and can reduce

handling costs as well as time required forhandling.

yy ContainerizationContainerization - cargo-handling system

that has become standard practice inphysical distribution

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TransportationTransportation

y May include more than one method ² intermodalintermodal (such as boat-truck-train-truck)

Piggyback Piggyback : truck/train

Fishyback:Fishyback: truck/ship

y Specialized facilitators:

Freight forwardersFreight forwarders PackagePackage--delivery firmsdelivery firms

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Wholesale and Distribution