INTRODUCTION TO LOGISTICS

MANAGEMENT
MODULE 5

Prepared by:
PRANAV R PAI
 TOPICS COVERED
•CUSTOMER SERVICE
•ELEMENTS OF CUSTOMER SERVICE
•ORDER CYCLE SYSTEM
•DISTRIBUTION CHANNELS
•DISTRIBUTION CHANNELS- FUNCTIONS PERFORMED
•DESIGNING DISTRIBUTION CHANNELS

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 CUSTOMER SERVICE
• CUSTOMER SERVICE CAN BE CONSIDERED AS A CAPABILITY OF SATISFYING NEEDS AND WANTS OF
CUSTOMERS, ESPECIALLY CONCERNING TIME AND PLACE , WITH USAGE OF LOGISTICS ACTIVITY SUCH AS
TRANSPORTATION, WAREHOUSING, INVENTORY MANAGEMENT, PACKAGING.
• QUALITY OF CUSTOMER SERVICE IS ONE OF THE BEST WAYS TO RETAIN AND GAIN CUSTOMERS
• CUSTOMER SERVICE IN LOGISTICS HAS A DIRECT IMPACT ON A FIRM’S MARKET SHARE, LOGISTICS COSTS,
AND PROFITABILITY.
• COMPANIES SHOULD ESTABLISH A CUSTOMER SERVICE STRATEGY AND FOCUS ON DESIGNING AN EFFICIENT
LOGISTICS SYSTEM TO BETTER SERVE CUSTOMER’S REQUIREMENTS AND SUSTAIN COMPETETIVE
ADVANTAGE.
• INTEGRATION OF LOGISTICS ACTIVITIES CREATES VALUE FOR CUSTOMERS. SCM HAS EMERGED AS A RESULT
OF INTEGRATION OF ACTIVITIES BETWEEN ENTERPRISES. IT OPTIMIZES VALUE ADDED BY ALL LINKS OF A
CHAIN TO A PRODUCT EXPECTED BY A CUSTOMER.
BASIC ELEMENTS
1. QUALITY: THE FUNCTIONALITY, PERFORMANCE AND TECHNICAL SPECIFICATION OF THE OFFER.
2. SERVICE: THE AVAILABILITY, SUPPORT AND COMMITMENT PROVIDED TO THECUSTOMER.
3. COST: THE CUSTOMER'S TRANSACTION COSTS INCLUDING PRICE AND LIFE CYCLE COSTS.
4. TIME: THE TIME TAKEN TO RESPOND TO CUSTOMER REQUIREMENTS. E.G. DELIVERY LEAD TIMES.
EACH OF THESE FOUR ELEMENTS REQUIRE A CONTINUOUS PROGRAMME OF IMPROVEMENT, INNOVATION AND
INVESTMENT TO ENSURE CONTINUED COMPETITIVE ADVANTAGE.
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 ELEMENTS OF CUSTOMER SERVICE
THESE THREE LEVELS COMMUNICATE WHAT IS TO BE DONE TO ACHIEVE CUSTOMER SATISFACTION, HOW IT IS TO
BE MEASURED AND HOW IT SHOULD BE VISUALIZED. THE LOGISTICS COMPONENTS OF CUSTOMER SERVICE
CAN BE CLASSIFIED AS
1. TRANSPORTATION-RELATED ELEMENTS- THE EMPHASIS IS ON THE SPECIFIC SERVICE PROVIDED, SUCH AS ON-
TIME DELIVERY.
2. FUNCTIONAL ATTRIBUTES- RELATED TO OVERALL ASPECTS OF ORDER FULFILLMENT, SUCH AS THE EASE OF
ORDER TAKING.
3. TRANSACTION ELEMENTS- REFLECT THE NATURE AND TIMING OF THE PARTICULAR SERVICE REQUIREMENTS,
AND INCLUDE:
 PRE-TRANSACTION ELEMENTS: THESE ARISE PRIOR TO THE ACTUAL TRANSACTION TAKING PLACE.
• WRITTEN CUSTOMER SERVICE POLICY - IS IT COMMUNICATED INTERNALLY AND EXTERNALLY? IS IT
UNDERSTOOD? IS IT SPECIFIC AND QUANTIFIED WHERE POSSIBLE?
• ACCESSIBILITY-ARE WE EASY TO CONTACT/DO BUSINESS WITH? IS THERE A SINGLE POINT OF CONTACT?
• ORGANIZATION STRUCTURE- IS THERE A CUSTOMER SERVICE MANAGEMENT STRUCTURE IN PLACE? WHAT
LEVEL OF CONTROL DO THEY HAVE OVER THEIR SERVICE PROCESS?
• SYSTEM FLEXIBILITY- CAN WE ADAPT OUR SERVICE DELIVERY SYSTEMS TO MEET PARTICULAR CUSTOMER
NEEDS?
• IT INCLUDES: METHOD OF ORDERING, SINGLE ORDER CONTACT POINT; ACCESSIBILITY OF ORDER PERSONNEL;
CUSTOMER EDUCATION, ORDER CONSTRAINTS.

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 TRANSACTIONAL ELEMENTS: THESE ARE DIRECTLY RELATED TO PHYSICAL TRANSACTION AND MOST
COMMONLY CONCERNED WITH DISTRIBUTION AND LOGISTICS.
• ORDER CYCLE TIME- WHAT IS THE ELAPSED TIME FROM ORDER TO DELIVERY? WHAT IS THE
RELIABILITY/VARIATION?
• INVENTORY AVAILABILITY- WHAT PERCENTAGE OF DEMAND FOR EACH ITEM CAN HE MET FROM
STOCK?
• ORDER FILL RATE -WHAT PROPORTION OF ORDERS ARE COMPLETELY FILLED WITHIN THE STATED LEAD
TIME?
• ORDER STATUS INFORMATION HOW LONG DOES IT TAKE US TO RESPOND TO A QUERY WITH THE
REQUIRED INFO? DO WE INFORM THE CUSTOMER OF PROBLEMS OR DO THEY CONTACT US?
• IT ALSO INCLUDES: CONDITION OF GOODS, ORDER PREPARATION, ORDER CONVENIENCE, ORDER
POSTPONEMENT, DELIVERY ALTERNATIVES, DELIVERY TIME, DELIVERY RELIABILITY, DELIVERY OF
COMPLETE ORDER, PRODUCT SUBSTITUTION.

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 POST-TRANSACTIONAL ELEMENTS: THESE INVOLVE THOSE ELEMENTS THAT OCCUR AFTER DELIVERY
HAS TAKEN PLACE.
• AVAILABILITY OF SPARES- WHAT ARE THE IN-STOCK LEVELS OF SERVICE PARTS?
• CALL-OUT TIME- HOW LONG DOES IT TAKE FOR THE ENGINEER TO ARRIVE AND WHAT IS THE ‘FIRST
CALL FIX RATE’?
• PRODUCT TRACING/WARRANTY- CAN WE IDENTIFY THE LOCATION OF INDIVIDUAL PRODUCTS ONCE
PURCHASED? CAN WE MAINTAIN/EXTEND THE WARRANTY TO CUSTOMERS EXPECTED LEVELS?
• CUSTOMER COMPLAINTS, CLAIMS, ETC.- HOW PROMPTLY DO WE DEAL WITH COMPLAINTS AND
RETURNS? DO WE MEASURE CUSTOMER SATISFACTION WITH OUR RESPONSE?
• IT ALSO INCLUDES: INVOICING PROCEDURES; INVOICING ACCURACY, ORDER STATUS INFORMATION,
RETURNS POLICY, REPAIRS, SERVICE, GRIEVANCE REDRESSAL PROCEDURES, PRODUCT INSTALLATION,
COMMISSIONING, TECHNICAL SNAGS, PRODUCT REPLACEMENT.

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 CUSTOMER SERVICE FOR COMPETITIVENESS
• CUSTOMER SERVICE IS EVERYBODY'S BUSINESS.
• EFFECTIVE MARKETERS VIEW CUSTOMER SERVICE WITHIN THE LARGER CONTEXT OF CUSTOMER
RELATIONSHIP MARKETING.
• THE BUYER LOOKS FOR VALUE FOR THE MONEY HE IS SPENDING, WHILE THE SELLER IN DELIVERING SUPERIOR
CUSTOMER SERVICE LOOKS FOR TRADE OFF BETWEEN COST AND CUSTOMER SATISFACTION. IN LOGISTICS,
CUSTOMER SERVICE IS MORE THAN JUST THE TRANSPORTATION OF A SHIPMENT FROM POINT A TO POINT B.
• THE ROLE OF CUSTOMER SERVICE IS TO PROVIDE TIME UTILITY AND PLACE UTILITY IN THE TRANSFER OF
GOODS AND SERVICES BETWEEN BUYER AND SELLER.
• IT IS A MEASURE OF EFFECTIVENESS OF A LOGISTICS SYSTEM IN CREATING TIME AND PLACE UTILITIES OF THE
PRODUCT.
• IT IS ABOUT WORKING WITH THE CUSTOMER TO DELIVER INFO, OPTIONS AND EXPERTISE TO HELP THEM MAKE
THE RIGHT DECISIONS.
• IT IS ABOUT HELPING THE SUPPLIER TO UNDERSTAND THE TRENDS AND DYNAMICS IN THE MARKETS THAT CAN
IMPACT THE BUSINESS.
• THE MEANING OF CUSTOMER SERVICE VARIES WITH THE ORGANIZATION, THE PRODUCT IT IS MARKETING, AND
THE TRANSACTION PHASE IT IS UNDERGOING.
• IT IS A SET OF ACTIVITIES AND PROGRAMS DESIGNED AND IMPLEMENTED BY A BUSINESS FIRM TO MAKE THE
BUYING EXPERIENCE MORE REWARDING. THESE ACTIVITIES ENHANCE THE VALUE OF A PRODUCT OR SERVICE
THE CUSTOMER GETS FROM THE SELLER.

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VALUE ADDED CUSTOMER SERVICE IS LEVERAGED TO GAIN COMPETITIVE ADVANTAGE.
GOOD CUSTOMER SERVICE BUILDS CUSTOMER LOYALTY AMONG THE EXISTING CUSTOMERS AND GENERATES
POSITIVE WORD-OF-MOUTH COMMUNICATION, WHICH ATTRACTS NEW CUSTOMERS. IN OTHER WORDS,
CUSTOMER SERVICE IS THE BASE FOR ALL CUSTOMER RELATIONSHIP MANAGEMENT (CRM) PROGRAMS.
CUSTOMER SERVICE HAS NOW BECOME A COMPETITIVE WEAPON BECAUSE OF THE CONTINUAL INCREASE IN
CUSTOMER EXPECTATIONS; BUYERS EXPECT HIGHER LEVELS OF SERVICE FROM VENDORS. INCREASINGLY THE
POWER OF THE 'BRAND' IS DIMINISHING AS THE TECHNOLOGIES OF COMPETING PRODUCTS CONVERGE, THUS
MAKING PRODUCT DIFFERENCES DIFFICULT TO PERCEIVE. THERE ARE MANY COMPETING MODELS WHICH IN
REALITY ARE SUBSTITUTABLE AS FAR AS MOST WOULD-BE PURCHASERS ARE CONCERNED. APART FROM THE
PRICE OR 'IMAGE' PERCEPTIONS, CUSTOMERS ARE INFLUENCED MORE BY 'AVAILABILITY (IS THE PRODUCT IN
STOCK; CAN I HAVE IT NOW?)
MANY COMPANIES HAVE FORMAL SERVICE LEVEL AGREEMENTS (SLA) WITH THEIR CUSTOMERS. THEY ARE
NEGOTIATED AND AGREED BETWEEN THE PARTIES, AND THEY SET THE EXPECTATION AGAINST WHICH
SUBSEQUENT PERFORMANCE WILL BE MANAGED. INCREASINGLY THESE AGREEMENTS GO BEYOND SIMPLE
ISSUES OF DELIVERY LEAD TIMES AND RELIABILITY TO ENCOMPASS WIDER AREAS FOR COLLABORATION.
CUSTOMERS BASE THEIR EVALUATION OF A SERVICE ON THEIR PERCEPTIONS. THESE PERCEPTIONS ARE
AFFECTED BY THE ACTUAL SERVICE PROVIDED BY THE FIRM AND THE HIGH DEGREE OF INTANGIBILITY, WHICH
IS VERY HARD TO ACCURATELY EVALUATE. FIRMS THAT ARE ABLE TO MAP THESE GAPS ACCURATELY AND TRY
TO BRIDGE THEM WITH VALUE-ADDED SERVICE CAN SUCCEED IN ENHANCING THE CUSTOMER SATFACTION
LEVEL AND REMAIN COMPETITIVE.

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THE FOLLOWING ARE A FEW CUES AFFECTING CUSTOMER PERCEPTION OF SERVICE QUALITY.
1. COMPETENCE: THE INFORMATION PROVIDED BY THE FIRM THROUGH PRODUCT BROCHURES, MANUALS,
WEBSITES, SALES TALK ABOUT THE PRODUCT, AND THE SERVICE OFFERINGS OF THE FIRM.
2. RELIABILITY: DELIVERY OF THE PRODUCT OR SERVICES AS PROMISED IN TERMS OF PLACE, TIME, AND
QUALITY.
3. RESPONSIVENESS: RETURNING CUSTOMER CALLS, E-MAILS, FAXES, LETTERS, ON TIME AND RESOLVING
CUSTOMER PROBLEMS OR COMPLAINTS WITH SPEED DURING ALL THREE PHASES OF TRANSACTIONS.
4. TRANSACTION SECURITY: THE CONFIDENTIALITY OF CUSTOMER INFORMATION AND TRANSACTIONS.
5. TRUSTWORTHINESS: BUILT THROUGH EVOLVING POLICIES ON PRODUCT RETURN, WARRANTY AND
GUARANTEE AND HONORING COMMITMENTS.
6. ACCESS: THIS REFERS TO THE CASE WITH WHICH THE CUSTOMER WILL HAVE ACCESS TO INFORMATION ON
PRODUCTS AND SERVICES BEFORE PLACING AN ORDER, STATUS OF THE ORDER PLACED, AND THE STATUS OF
THE PRODUCT COMPLAINTS, CLAIMS AND DAMAGES IN THE POST-SALES PHASE.
INTERNAL OPERATIONS CAN BE OPTIMIZED BY ESTABLISHING SUPPLY AND DISTRIBUTION ARRANGEMENTS
THAT WOULD ENABLE TO MAXIMIZE PRODUCTION EFFICIENCY THIS WILL RESULT IN
MANUFACTURING/SHIPPING IN LARGE BATCHES IN THE WAY OF BECOMING A LOW-COST PRODUCER. BUT A
CUSTOMER-CENTRIC ORGANIZATION WILL DESIGN THE SUPPLY CHAIN AROUND THE NEEDS OF THE CUSTOMER
THE CHALLENGE IS TO DESIGN STRATEGIES FROM CUSTOMER BACKWARDS' (DEMAND CHAIN MANAGEMENT)
RATHER THAN FACTORY OUTWARDS

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 CUSTOMER SERVICE GAPS
A FIRM NEEDS TO BRIDGE SERVICE GAPS (BETWEEN PERCEPTION AND REALITY) TO IMPROVE CUSTOMER
SATISFACTION WITH THEIR SERVICES. THESE GAPS MAY ARISE DUE THE FOLLOWING:
• COMMUNICATION- THE ACTUAL SERVICE PROVIDED MAY BE DIFFERENT FROM WHAT IS COMMUNICATED
THROUGH A PROMOTIONAL OR ADVERTISING CAMPAIGN.
• STANDARDS ADOPTED - THE SERVICE STANDARDS ADOPTED MAY DIFFER FROM THE CUSTOMER'S
EXPECTATIONS.
• SERVICE DELIVERY- THE SERVICES PROVIDED MAY BE DIFFERENT FROM THE SERVICE STANDARDS OF THE
FIRM.
• CUSTOMER KNOWLEDGE THE FIRM MAY FAIL TO UNDERSTAND THE CUSTOMER'S PERCEPTION OF THE
SERVICE STANDARD.
THE FIRM'S AIM SHOULD BE TO BRIDGE THESE GAPS TO CREATE A WIDER BASE OF SATISFIED CUSTOMERS AND
TO STIMULATE THEM FOR REPEAT PURCHASES.

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 IMPORTANCE OF CUSTOMER SERVICE
EXCELLENT CUSTOMER SUPPORT IS LINKED TO CUSTOMER LOYALTY. THEREFORE IT IS IMPORTANT TO
CONSTANTLY IMPROVE IT FURTHER. SATISFIED CUSTOMERS SPEND MORE MONEY, REFER MORE CUSTOMERS
AND PATRONIZE BUSINESSES LONGER THAN UNSATISFIED CUSTOMERS.
THIS ALL LEADS TO MORE REVENUE FOR BUSINESSES THAT CAN KEEP THEIR CUSTOMERS SATISFIED.
THEREFORE, COMPANIES STRIVING TO MAXIMIZE REVENUE MUST SERIOUSLY CONSIDER INVESTING IN A
CUSTOMER SATISFACTION AND LOYALTY RESEARCH PROGRAM.
CUSTOMER LOYALTY IS AN IMPORTANT FACTOR IN EVERY BUSINESS, BECAUSE:
1. CUSTOMER SERVICE LEVEL MEASURES EFFECTIVENESS OF INTEGRATED LOGISTICS:
2. IMPROVED CUSTOMER SERVICE MAKES BUSINESS GROW,
3. IT MAKES CUSTOMERS LOYAL, BUILD PARTNERSHIPS AND PROVIDE ADDED VALUE TO CUSTOMERS.
4. IT PROVIDES EDGE IN COMPETITIVE BUSINESS.
FOLLOWING UP WITH YOUR CUSTOMERS AFTER THE SALE IS AN IMPORTANT PART OF PROVIDING GOOD
CUSTOMER SERVICE.
THE IMPORTANCE OF CUSTOMER RETENTION THROUGH BETTER CUSTOMER SERVICE LEAD TO A CONCEPT
CALLED 'LIFETIME VALUE’ OF A CUSTOMER, AS CALCULATED AS UNDER:
LIFETIME VALUE = AVERAGE TRANSACTION VALUE*YEARLY FREQUENCY OF PURCHASE*CUSTOMER LIFE
EXPECTANCY

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IF CUSTOMERS CAN BE PERSUADED TO REMAIN LOYAL TO A SUPPLIER, THEIR LIFETIME VALUE CAN BE
SIGNIFICANTLY INCREASED. THE LONGER THE CUSTOMER STAYS WITH A BUSINESS, THE MORE PROFITABLE
THEY BECOME.
A RETAINED CUSTOMER TYPICALLY COSTS LESS TO SELL TO AND TO SERVICE. ALSO AS THE RELATIONSHIP
DEVELOPS THERE IS A GREATER LIKELIHOOD THAT THEY WILL GIVE A GREATER PART OF THEIR BUSINESS TO A
SUPPLIER WHOM THEY ARE PREPARED TO TREAT AS A PARTNER.
A SIMPLE MEASURE OF CUSTOMER RETENTION IS TO ASK THE QUESTION: ‘HOW MANY OF THE CUSTOMERS THAT
WE HAD 12 MONTHS AGO WE STILL HAVE TODAY? THIS MEASURE IS THE REAL TEST OF CUSTOMER RETENTION.
IT CAN BE EXTENDED TO INCLUDE THE VALUE OF PURCHASES MADE BY THE RETAINED CUSTOMER BASE TO
ASSESS HOW SUCCESSFUL THE COMPANY HAS BEEN IN INCREASING THE LEVEL OF PURCHASING FROM THESE
ACCOUNTS.

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 CUSTOMER ORDER-CYCLE TIME
IT INCLUDES ALL OF THE ELAPSED TIME FROM THE PLACEMENT OF THE ORDER UNTIL THE PRODUCT IS
RECEIVED AND PLACED INTO CUSTOMER'S INVENTORY. IN LOGISTICS "NOTHING HAPPENS UNTIL SOMEBODY
ORDERS SOMETHING”.
CUSTOMER SERVICE FACILITATES ORDER PROCESSING, WHICH INCLUDES :CORRECT SHIPPING INFORMATION,
CORRECT PRODUCTS, HANDLING COMPLAINTS, REDUCING THE PROBABILITY OF COMPLAINTS & NICE AND
FRIENDLY PEOPLE, COMPONENTS OF CUSTOMER ORDER CYCLE INCLUDES:
1. ORDER PREPARATION: THE CUSTOMER FORMALLY REQUESTS THE PRODUCTS TO BE PURCHASED. IT MAY
INVOLVE: DETERMINING THE APPROPRIATE VENDOR, FILLING OUT AN ORDER FORM BY THE CUSTOMER OR A
SALES PERSON, DETERMINING THE STOCK AVAILABILITY, VOICE COMMUNICATION OF THE ORDER, MAKING
SELECTION FROM A COMPUTER MENU.
2. ORDER TRANSMITTAL: TRANSFERRING THE ORDER REQUEST FROM THE POINT OF ORIGIN TO THE PLACE
WHERE THE ORDER ENTRY CAN BE HANDLED. IT CAN BE DONE:
MANUALLY- PHYSICALLY CARRYING THE ORDER. IT IS SLOW BUT INEXPENSIVE.
ELECTRONICALLY- TOLL-FREE NUMBERS, INTERNET. COMMUNICATIONS. IT IS RELIABLE, ACCURATE, FAST AND
EXPENSIVE.
3. ORDER ENTRY - CHECKING ORDER INFORMATION ACCURACY. IT INCLUDES: ITEM DESCRIPTION, ITEM
NUMBER, QUANTITY, PRICE; CHECKING AVAILABILITY OF REQUESTED ITEMS; PREPARE BACK-ORDER OR ORDER
CANCELLATION OR DOCUMENTATION, IF NECESSARY; CHECKING CUSTOMER'S CREDIT STATUS, TRANSCRIBING
ORDER INFORMATION AS NECESSARY; BILLING.

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4. ORDER PROCESSING: NOTIFYING THE BUYER. IT INCLUDES: SCHEDULING THE SHIPMENT FOR DELIVERY.
PREPARE THE SHIPPING DOCUMENTATION, PRIORITIES CAN AFFECT SPEED OF ORDER PROCESSING.
5. WAREHOUSE PICKING & PACKING - ACQUIRE THE ITEMS THROUGH STOCK RETRIEVAL, PRODUCTION &
PURCHASING; PACKING THE ITEMS FOR SHIPMENT.
6. ORDER STATUS REPORTING - KEEP THE CUSTOMER INFORMED OF ANY DELAY IN PROCESSING OR DELIVERY. IT
INVOLVES: TRACING & TRACKING THE ORDER THROUGHOUT THE ENTIRE CYCLE; COMMUNICATING WITH THE
CUSTOMER AS TO WHERE THE ORDER MAY BE & WHEN IT MAY BE DELIVERED.
7. CUSTOMER DELIVERY & UNLOADING- DELIVER AS PER THE ORDER AT THE CUSTOMER'S SITE BY USING
EFFICIENT TRANSPORT SYSTEM AND UNLOADING THEM.

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 DISTRIBUTION CHANNELS
DISTRIBUTION REFERS TO THE STEPS TAKEN TO MOVE AND STORE A PRODUCT FROM THE SUPPLIER STAGE TO A
CUSTOMER STAGE IN THE SUPPLY CHAIN. DISTRIBUTION OCCURS BETWEEN EVERY PAIR OF STAGES IN THE
SUPPLY CHAIN. RAW MATERIALS AND COMPONENTS ARE MOVED FROM SUPPLIERS TO MANUFACTURERS,
WHEREAS FINISHED PRODUCTS ARE MOVED FROM THE MANUFACTURER TO THE END CONSUMER.
DISTRIBUTION IS A KEY DRIVER OF THE OVERALL PROFITABILITY OF A FIRM BECAUSE IT AFFECTS BOTH THE
SUPPLY CHAIN COST AND THE CUSTOMER VALUE DIRECTLY.
DISTRIBUTION IS ONE OF THE FOUR ELEMENTS OF THE MARKETING MIX, DISTRIBUTION IS HERE CALLED
PHYSICAL DISTRIBUTION OR PLACE.
DISTRIBUTION IS THE PROCESS OF DELIVERING THE PRODUCTS MANUFACTURED BY A FIRM TO THE END USER.
CHANNEL STRATEGY SHOULD BE CONSISTENT WITH OVERALL MARKETING OBJECTIVES AND WITH THE REST OF
THE MARKETING MIX.
VARIOUS INTERMEDIARIES ARE INVOLVED IN THIS PROCESS. THIS CHAIN OF INTERMEDIARIES, WHICH HELPS IN
TRANSFERRING THE PRODUCT FROM ONE INTERMEDIARY TO THE NEXT BEFORE IT REACHES THE END USER FOR
CONSUMPTION, IS CALLED THE DISTRIBUTION CHAIN OR DISTRIBUTION CHANNEL.
INTERMEDIARIES OFTEN PERFORM THE NEEDED FUNCTIONS AT A LOWER COST THAN EITHER THE CUSTOMER
OR THE MANUFACTURER COULD BY THEMSELVES.

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CHANNEL MEMBERS ADD PLACE UTILITY- HAVING THE PRODUCT WHERE CUSTOMERS CAN BUY IT; AND TIME
UTILITY HAVING THE PRODUCT AVAILABLE WHEN THE CUSTOMER WANTS IT.
THE GOODS ARE PRODUCED AT ONE PLACE BUT THE CUSTOMERS ARE SCATTERED OVER A WIDE GEOGRAPHICAL
AREA. THE PRODUCER TAKES THE HELP OF SOME INTERMEDIARIES TO DISTRIBUTE HIS GOODS.
INTERMEDIARIES PROVIDE VALUE TO PRODUCERS BECAUSE THEY OFTEN HAVE EXPERTISE IN CERTAIN AREAS
THAT PRODUCERS DO NOT HAVE, LIKE MARKETING. PACKAGING. FINANCING, STORAGE, DELIVERY,
MERCHANDISING AND PERSONAL SELLING.
FUNCTIONS OF DISTRIBUTION CHANNELS
THE PRIMARY FUNCTION OF A DISTRIBUTION CHANNEL IS TO BRIDGE THE GAP BETWEEN PRODUCTION AND
CONSUMPTION. THEY MATCH SUPPLY AND DEMAND. INTERMEDIARIES ARE EFFICIENT IN MAKING GOODS
AVAILABLE TO THE TARGET MARKETS. OTHER FUNCTION INCLUDES:
1. SORTING - MIDDLEMEN OBTAIN THE SUPPLIES OF GOODS FROM VARIOUS SUPPLIERS AND SORT THEM OUT
INTO SIMILAR GROUPS ON THE BASIS OF SIZE, QUALITY ETC.
2. ACCUMULATION- IN ORDER TO ENSURE A CONTINUOUS SUPPLY OF GOODS, MIDDLEMEN MAINTAIN A LARGE
VOLUME OF STOCK.
3. ALLOCATION. IT INVOLVES PACKING OF THE SORTED GOODS INTO SMALL MARKETABLE LOTS LIKE 1KG, 500
GMS, 250 GMS ETC.

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4. BREAKING BULK- DISTRIBUTION CHANNELS CAN SELL SMALLER QUANTITIES, EVEN THOUGH THE PRODUCER
MADE THOUSANDS.
5. CONSOLIDATION AND DISTRIBUTION - CONSUMERS OFTEN PREFER TO BUY A WIDE VARIETY OF CONSUMER
GOODS AT ONE TIME AND PLACE. RETAIL STORES STOCK AND DISPLAY A GREAT NUMBER OF DIFFERENT
PRODUCTS. THIS LOWERS CARRYING AND TRANSPORTATION COSTS.
6. PROVIDING MARKETING INFORMATION- COMPANIES RELY ON MARKET RESEARCH TO DETERMINE THEIR
TARGET MARKETS' NEEDS.
7. FACILITATING FUNCTIONS- THEY OFFER CREDIT TO CUSTOMERS AND ACCEPT RETURNED MERCHANDISE.
THEY ALSO ADVERTISE AND PROMOTE PRODUCTS THROUGH SPECIAL DISPLAYS, SALES PRICES AND INCLUSION
IN ADS AND FLIERS. THEY UNDERTAKE MAINTENANCE AND REPAIR SERVICES, AND THEY OFTEN ARE TRAINED
AND SUPPORTED BY THE MANUFACTURER. DISTRIBUTION CHANNELS MAY EVEN ADD VALUE TO PRODUCTS
BEFORE DISTRIBUTING THE CUSTOMERS.
8. CUSTOMER RELATIONSHIPS CONSUMERS OFTEN TRUST DISTRIBUTION CHANNELS MORE THAN THEY DO
MANUFACTURERS. THEY EXPECT THESE CHANNELS TO PROVIDE OBJECTIVE INFORMATION ABOUT PRODUCTS
AND ORIGINATING COMPANIES. DISTRIBUTION CHANNELS COMMUNICATE WITH CUSTOMERS AND PERFORM
TRANSACTION FUNCTIONS. THEY ALSO PROVIDE MARKETING AND SALES SUPPORT ASSISTANCE. BECAUSE THEY
ARE CLOSER TO CUSTOMERS AND END USERS, THEY CAN PROVIDE MANUFACTURERS WITH INFORMATION ON
CUSTOMER PREFERENCES.

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9. ASSORTING- MIDDLEMEN OBTAIN A VARIETY OF GOODS FROM DIFFERENT MANUFACTURERS AND PROVIDE
THEM TO THE CUSTOMERS IN THE COMBINATION DESIRED BY THEM.
10. PRODUCT PROMOTION- SALES PROMOTIONAL ACTIVITIES ARE MOSTLY PERFORMED BY THE PRODUCER BUT
SOMETIMES MIDDLEMEN ALSO PARTICIPATE IN THESE ACTIVITIES LIKE SPECIAL DISPLAYS, DISCOUNTS ETC.
11 NEGOTIATION - MIDDLEMEN NEGOTIATE THE PRICE, QUALITY, GUARANTEE AND OTHER RELATED MATTERS
ABOUT A PRODUCT WITH THE PRODUCER AS WELL A CUSTOMER. DIFFERENT PRICES ARE PAID BY THE
WHOLESALER, RETAILER AND CONSUMERS BASED ON NEGOTIATION.
12. FINANCING & RISK TAKING - MOVING PRODUCTS THROUGH A CHANNEL COSTS MONEY. WHEN CHANNEL
MEMBERS WORK TOGETHER TO FINANCE ACTIVITIES AND TO ASSUME FINANCIAL RISKS, CHANNELS WILL BE
MORE EFFECTIVE.
MIDDLEMEN BEAR THE RISK FROM DAMAGE OR SPOILAGE OF GOODS ETC. WHEN THE GOODS ARE
TRANSPORTED FROM ONE PLACE TO ANOTHER OR WHEN THEY ARE STORED IN THE WAREHOUSES.

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 TYPES OR LEVELS OF THE DISTRIBUTION CHANNELS
1. DIRECT CHANNEL OR ZERO LEVEL - WHEN THE PRODUCER DIRECTLY SELLS THE GOODS TO THE CUSTOMERS
WITHOUT INVOLVING ANY INTERMEDIARY, IT IS KNOWN AS DIRECT CHANNEL OR ZERO LEVEL CHANNELS. IT
IS THE SIMPLEST AND THE SHORTEST MODE OF DISTRIBUTION.
SELLING THROUGH POST, INTERNET OR DOOR TO DOOR SELLING, COMPANY OWNED RETAIL OUTLETS
TELEMARKETING ETC. ARE THE EXAMPLES OF THIS CHANNEL.
2. INDIRECT CHANNEL: WHEN A PRODUCER EMPLOYS ONE OR MORE MIDDLEMEN TO DISTRIBUTE GOODS, IT IS
KNOWN AS INDIRECT CHANNEL.
 MANUFACTURER-RETAILER-CONSUMER (ONE-LEVEL CHANNEL)- THIS CHANNEL INVOLVES THE USE OF ONE
MIDDLEMAN I.E. RETAILER WHO IN TURS SELLS THEM TO THE ULTIMATE CUSTOMERS IT IS USUALLY ADOPTED
FOR SPECIALTY GOODS.
 MANUFACTURER-WHOLESALER-RETAILER-CUSTOMER (TWO-LEVEL CHANNELS)- UNDER THIS CHANNEL,
WHOLESALER AND RETAILER ACT AS A LINK BETWEEN THE MANUFACTURER AND THE CUSTOMER. THIS IS
THE MOST COMMONLY USED CHANNEL FOR DISTRIBUTING FMCG GOODS.
 MANUFACTURER-AGENT-WHOLESALER-RETAILER-CONSUMER (THREE-LEVEL CHANNELS) THIS LEVEL
COMPRISES OF THREE MIDDLEMEN I.E. AGENT, WHOLESALER AND THE RETAILER. THE MANUFACTURERS
SUPPLY THE GOODS TO THEIR AGENTS WHO IN TURN SUPPLY THEM TO WHOLESALERS AND RETAILERS. THIS
LEVEL IS USUALLY USED WHEN A MANUFACTURER DEALS IN LIMITED PRODUCTS AND YET WANTS TO COVER
A WIDE MARKET.

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 ADVANTAGES INTERMEDIARIES IN THE DISTRIBUTION
CHANNEL
 TIME SAVING
TIME OF DELIVERY IS REDUCED DUE TO EFFICIENCY AND EXPERIENCE OF THE INTERMEDIARIES. FOR EXAMPLE, IF A
GROCERY STORE WERE TO RECEIVE DIRECT DELIVERY OF GOODS FROM EVERY MANUFACTURER THE RESULT
WOULD HAVE BEEN A CHAOS. EVERYDAY HUNDREDS OF TRUCKS WOULD LINE UP OUTSIDE THE STORE TO DELIVER
PRODUCTS. THE STORE MAY NOT HAVE ENOUGH SPACE FOR STORING ALL THEIR PRODUCTS AND THIS WOULD ADD
TO THE CHAOS. IF A GROCERY WHOLESALER IS INCLUDED IN THE DISTRIBUTION CHAIN, THE PROBLEM IS SOLVED.
THIS WHOLESALER WILL HAVE A WAREHOUSE WHERE BE CAN STORE BULK SHIPMENTS. THE GROCERY STORE NOW
RECEIVES DELIVERIES FROM THE WHOLESALER IN AMOUNTS REQUIRED AND AT A SUITABLE TIME AND OFTEN IN A
SINGLE TRUCK. IN THIS WAY COST AS WELL AS TIME IS SAVED.
 CUSTOMER CONVENIENCE
INCLUDING MEMBERS IN THE DISTRIBUTION CHAIN PROVIDES CUSTOMER WITH A LOT OF CONVENIENCE IN THEIR
SHOPPING. IF EVERY MANUFACTURER OWNED ITS OWN GROCERY STORE THEN CUSTOMERS WOULD HAVE TO VISIT
MULTIPLE GROCERY STORES TO COMPLETE THEIR SHOPPING LIST. THIS WOULD BE EXTREMELY TIME-CONSUMING
AS WELL AS TAXING FOR THE CUSTOMER. THUS, CHANNEL DISTRIBUTION PROVIDES ACCUMULATING AND
ASSORTING SERVICES, WHICH MEANS THEY PURCHASE FROM MANY SUPPLIERS THE VARIOUS GOODS THAT A
CUSTOMER MAY DEMAND. CUSTOMERS CAN FIND ALL THAT THEY NEED IN ONE RETAIL STORE AND THE RETAILER,
SAVING TIME.
 COST SAVING
THE INTERMEDIARIESARE SPECIALIZED IN WHAT THEY DO AND PERFORM AT MUCH LOWER COSTS THAN
COMPANIES TRYING TO IN THE ENTIRE DISTRIBUTION CHANNEL ALL BY ITSELF.

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 CUSTOMERS CAN BUY IN SMALL QUANTITIES
RETAILERS BUY IN BULK QUANTITIES FROM THE MANUFACTURER OR WHOLESALER. THIS IS MORE COST EFFECTIVE
THAN BUYING IN SMALL QUANTITIES. HOWEVER THEY RESELL IN SMALLER QUANTITIES TO THEIR CUSTOMERS.
THIS PHENOMENON OF BREAKING BULK QUANTITIES AND SELLING THEM IN SMALLER QUANTITIES IS KNOWN AS
BULK BREAKING. THE CUSTOMERS THEREFORE HAVE THE BENEFIT OF BUYING IN SMALLER QUANTITIES AND THEY
GET A SHARE OF THE PROFIT THE RETAILER MAKES WHEN HE BUYS IT BULK FROM THE SUPPLIER.
 RESELLERS HELP IN BOOSTING SALES
RESELLERS OFTEN USE PERSUASIVE TECHNIQUES TO PERSUADE CUSTOMERS INTO BUYING A PRODUCT THEREBY
INCREASING SALES FOR THAT PRODUCT. THEY OFTEN MAKE USE OF VARIOUS PROMOTIONAL OFFERS AND SPECIAL
PRODUCT DISPLAYS TO ENTICE CUSTOMERS INTO BUYING CERTAIN PRODUCTS.
 CUSTOMERS RECEIVE FINANCIAL SUPPORT
RESELLERS OFFER FINANCE PROGRAMS TO THEIR CUSTOMERS WHICH MAKE PAYMENT EASIER FOR THE CUSTOMER.
CUSTOMERS CAN BUY ON CREDIT, BUY USING A PAYMENT PLAN ETC
 RESELLERS PROVIDE VALUABLE INFORMATION
MANUFACTURERS WHO INCLUDE RESELLERS FOR SELLING THEIR PRODUCTS RELY ON THEM TO PROVIDE
INFORMATION WHICH WILL HELP IN IMPROVING THE PRODUCT OR IN INCREASING ITS SALE. HIGH LEVEL CHANNEL
MEMBERS OFTEN PROVIDE SALES DATA. ON ALL OTHER OCCASIONS THE MANUFACTURER CAN ALWAYS RELY ON
THE RESELLER TO PROVIDE HIM WITH CUSTOMER FEEDBACK.

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 DISADVANTAGES OF INTERMEDIARIES IN THE DISTRIBUTION CHANNEL
 REVENUE LOSS
THE MANUFACTURER SELLS HIS PRODUCT TO THE INTERMEDIARIES AT COSTS LOWER THAN THE PRICE AT WHICH
THESE MIDDLEMEN SELL TO THE FINAL CUSTOMERS. THEREFORE THE MANUFACTURER GOES FOR A LOSS IN
REVENUE. THE INTERMEDIARIES WOULD NEVER OFFER THEIR SERVICES TO THE MANUFACTURER UNLESS THEY
MADE A PROFIT OUT OF SELLING HIS PRODUCTS. THE MANUFACTURER COULD HAVE SOLD AT THIS FINAL PRICE AND
MADE GREATER PROFIT IF HE HAD BEEN MANAGING THE DISTRIBUTION ALL BY HIMSELF.
 LOSS OF COMMUNICATION CONTROL
ALONG WITH LOSS OVER THE REVENUE THE MANUFACTURER ALSO LOSES CONTROL OVER WHAT MESSAGE IS BEING
CONVEYED TO THE FINAL CUSTOMERS. THE RESELLER MAY ENGAGE IN PERSONAL SELLING IN ORDER TO INCREASE
THE PRODUCT SALE AND COMMUNICATE ABOUT THE PRODUCT TO HIS CUSTOMERS. HE MIGHT EXAGGERATE ABOUT
THE BENEFITS OF THE PRODUCT THIS MAY LEAD TO MISCOMMUNICATION PROBLEMS WITH END USERS. THE
MARKETER MAY PROVIDE TRAINING TO THE SALESPERSONS OF RETAIL OUTLETS BUT ON THE WHOLE HE HAS NO
CONTROL ON THE FINAL MESSAGE CONVEYED.

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 DESIGNING OF DISTRIBUTION CHANNEL
PERFORMANCE OF A DISTRIBUTION NETWORK SHOULD BE EVALUATED ALONG TWO DIMENSIONS:
1. CUSTOMER NEEDS THAT ARE MET.
2. COST OF MEETING CUSTOMER NEEDS.
A FIRM MUST EVALUATE THE IMPACT ON CUSTOMER SERVICE AND COST AS IT COMPARES DIFFERENT DISTRIBUTION
NETWORK OPTIONS. THE CUSTOMER NEEDS THAT ARE MET, INFLUENCE THE COMPANY'S REVENUES, WHICH ALONG
WITH COST DECIDE THE PROFITABILITY OF THE DELIVERY NETWORK. ALTHOUGH CUSTOMER VALUE IS IMPACTED
BY:
→ RESPONSE TIME- THE AMOUNT OF TIME IT TAKES FOR A CUSTOMER TO RECEIVE AN ORDER.
→ PRODUCT VARIETY - THE NUMBER OF DIFFERENT PRODUCTS/CONFIGURATIONS THAT ARE OFFERED BY THE
DISTRIBUTION NETWORK.
→ PRODUCT AVAILABILITY- THE PROBABILITY OF HAVING A PRODUCT IN STOCK WHEN A CUSTOMER ORDER
ARRIVES.
→ CUSTOMER EXPERIENCE- THE EASE WITH WHICH CUSTOMERS CAN PLACE AND RECEIVE ORDERS AND THE
EXTENT TO WHICH THIS EXPERIENCE IS CUSTOMIZED. IT ALSO INCLUDES PURELY EXPERIENTIAL ASPECTS, SUCH AS
THE POSSIBILITY OF GETTING A CUP OF COFFEE AND THE VALUE THAT THE SALES STAFF PROVIDES.
→ TIME TO MARKET- THE TIME IT TAKES TO BRING A NEW PRODUCT TO THE MARKET.
→ ORDER VISIBILITY- THE ABILITY OF CUSTOMERS TO TRACK THEIR ORDERS FROM PLACEMENT TO DELIVERY
→ RETURNABILITY- THE EASE WITH WHICH A CUSTOMER CAN RETURN UNSATISFACTORY MERCHANDISE AND THE
ABILITY OF THE NETWORK TO HANDLE SUCH RETURNS.
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DESIGNING DISTRIBUTION CHANNEL IS A KEY FACTOR TO GAIN DIFFERENTIAL ADVANTAGE. THE FIRST STEP IN
DESIGNING A DISTRIBUTION CHANNEL FOR A GIVEN PRODUCT IS TO DETERMINE WHAT OBJECTIVES THE CHANNEL
MUST ACCOMPLISH AND THEIR RELATIVE IMPORTANCE. CHANNEL DESIGN INVOLVES THE DEVELOPMENT OF NEW
MARKETING CHANNELS WHERE NONE HAD EXISTED BEFORE OR MODIFICATION ALREADY EXISTING CHANNELS.
DESIGNING A CHANNEL SYSTEM CALLS FOR:
1. ANALYZING CUSTOMER NEEDS
IN DESIGNING THE DISTRIBUTION CHANNEL, MARKETER MUST UNDERSTAND THE OUTPUT LEVELS DESIRED BY THE
TARGET CUSTOMER.
A. LOT SIZE- THE NUMBER OF UNITS THE CHANNEL PERMITS A TYPICAL CUSTOMER TO PURCHASE ON ONE
OCCASION.
B. WAITING TIME- THE AVERAGE TIME CUSTOMERS OF THAT CHANNEL WAIT FOR RECEIPT OF THE GOODS.
C. SPATIAL CONVENIENCE- THE DEGREE TO WHICH THE MARKETING CHANNEL MAKES IT EASY FOR CUSTOMERS TO
PURCHASE THE PRODUCT.
D. PRODUCT VARIETY- THE ASSORTMENT RANGE PROVIDED BY THE MARKETING CHANNEL. NORMALLY CUSTOMER
PREFER GREATER ASSORTMENT BECAUSE MORE CHOICES INCREASE THE CHANCE OF FINDING WHAT THEY NEED.
E. SERVICE BACKUP- THE ADD-ON SERVICES (CREDIT, DELIVERY, INSTALLATION,REPAIRS) PROVIDED BY THE
CHANNEL.

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2. ESTABLISHING CHANNEL OBJECTIVES:
CHANNEL OBJECTIVES SHOULD BE STATED IN TERMS OF TARGETED SERVICE OUTPUT LEVELS. CHANNELS SHOULD
ARRANGE THEIR FUNCTIONAL TASKS TO MINIMIZE TOTAL CHANNEL COSTS WITH RESPECT TO DESIRED LEVELS OF
SERVICE OUTPUTS. CHANNEL OBJECTIVES VARY WITH PRODUCT CHARACTERISTICS. FOR EXAMPLE, PERISHABLE
PRODUCTS REQUIRE MORE DIRECT MARKETING. BULKY PRODUCTS, SUCH AS BUILDING MATERIALS, REQUIRE
CHANNELS THAT MINIMIZE THE SHIPPING DISTANCE AND THE AMOUNT OF HANDLING IN THE MOVEMENT FROM
PRODUCER TO CONSUMER. BESIDES TARGET MARKET, THE COMPANY'S CHANNEL OBJECTIVES ARE INFLUENCED BY:
A. THE NATURE OF ITS PRODUCT- PERISHABLE PRODUCTS REQUIRE MORE DIRECT MARKETING TO AVOID DELAYS
AND TOO MUCH HANDLING.
B. COMPANY CHARACTERISTICS - THE COMPANY'S SIZE AND FINANCIAL SITUATION DETERMINE WHICH FUNCTIONS
IT CAN HANDLE, HOW MANY CHANNELS IT CAN USE, WHICH TRANSPORTATION CAN BE USED.
C. CHARACTERISTICS OF INTERMEDIARIES- INTERMEDIARIES DIFFER IN THE ABILITIES TO HANDLE PROMOTIONS,
CUSTOMER CONTACT, STORAGE, AVAILABILITY, COSTS, & SERVICES ETC
D. COMPETITORS' CHANNEL- SOME COMPANIES MAY PREFER TO COMPETE IN OR NEAR THE SAME OUTLETS THAT
CARRY COMPETITORS PRODUCTS, SOME MAY NOT. EG: BURGER KING WANTS TO LOCATE NEAR MCDONALD'S.
E. ENVIRONMENTAL FACTORS: ECONOMIC CONDITIONS AND LEGAL CONSTRAINTS AFFECT CHANNEL DESIGN
DECISIONS.

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3. IDENTIFYING & EVALUATING THE MAJOR CHANNEL ALTERNATIVES.
THE FIRMS NEED TO IDENTIFY THE TYPES OF INTERMEDIARIES AVAILABLE TO CARRY ON ITS CHANNEL WORK.
INTERMEDIARIES ARE INDIVIDUALS OR BUSINESSES THAT MAKE IT POSSIBLE FOR THE PRODUCT TO MAKE FROM
THE MANUFACTURER TO THE END USER, ESSENTIALLY FACILITATING THE SALES PROCESS.
I. TYPES OF INTERMEDIARIES
A. AGENT- AN INDEPENDENT INDIVIDUAL OR COMPANY WHOSE MAIN FUNCTION IS TO ACT AS THE PRIMARY SELLING
ARM OF THE PRODUCER AND REPRESENT THE PRODUCER TO USERS. SELLING AGENTS ARE APPOINTED ON A
CONTRACTUAL BASIS FOR SELLING A COMPANY'S PRODUCTS TO CLIENTS IN LIEU OF AN ELABORATE SALES
ORGANIZATION.
THEY ARE CONTRACTED NOT TO SELL THE COMPETITOR'S PRODUCTS. HOWEVER, THEY CAN SELL COMPLEMENTARY
PRODUCTS. AGENTS TAKE POSSESSION OF PRODUCTS BUT DO NOT ACTUALLY OWN THEM. AGENTS USUALLY MAKE
PROFITS FROM COMMISSIONS OR FEES PAID FOR THE SERVICES THEY PROVIDE TO THE PRODUCER AND USERS.
B. WHOLESALERS- INDEPENDENTLY OWNED FIRMS THAT TAKE TITLE TO THE MERCHANDISE THEY HANDLE. THEY
OWN THE PRODUCTS THEY SELL. THEY PURCHASE PRODUCT IN BULK AND STORE IT UNTIL THEY CAN RESELL. THEY
GENERALLY SELL THE PRODUCT TO OTHER INTERMEDIARIES, USUALLY RETAILERS FOR A PROFIT.
WHOLESALERS ARE QUITE COMMON IN CONSUMER GOODS INDUSTRY. THEY USUALLY HAVE A NETWORK OF
WAREHOUSES TO STORE GOODS AT DIFFERENT MARKET LOCATIONS. THEY COLLECT ORDERS FROM RETAILERS AND
LARGE CUSTOMERS (INSTITUTIONAL) AND ARE USUALLY INTERESTED IN VOLUME SALES ONLY. THESE CHANNEL
MEMBERS ARE AN IMPORTANT COMMUNICATION LINK PROVIDING USEFUL MARKET INFORMATION TO THE
MANUFACTURER. THEY ARE A DOMINANT SOURCE FOR RETAILERS OF MASS-DISTRIBUTED CONSUMER PRODUCTS.
THEIR LOGISTICAL NEEDS ARE LARGE QUANTITY CONSIGNMENTS AT INTERVALS CONFORMING TO THEIR
SCHEDULES. THEY PREFER FREIGHT CONSOLIDATION FOR LOWER PER UNIT TRANSPORTATION CHARGES AND WORK
ON SCALE ECONOMIES.

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C. DISTRIBUTORS
DISTRIBUTORS ARE SIMILAR TO WHOLESALERS, BUT WITH ONE KEY DIFFERENCE. WHOLESALERS WILL CARRY A
VARIETY OF COMPETING PRODUCTS, FOR INSTANCE PEPSI AND COKE PRODUCTS, WHEREAS DISTRIBUTER ONLY
CARRIES COMPLEMENTARY PRODUCT LINES, EITHER PEPSI OR COKE PRODUCTS. DISTRIBUTORS USUALLY MAINTAIN
CLOSE RELATIONSHIPS WITH THEIR SUPPLIERS AND CUSTOMERS. DISTRIBUTORS WILL TAKE TITLE TO PRODUCTS
AND STORE THEM UNTIL THEY ARE SOLD.
D. RETAILERS
A RETAILER TAKES TITLE TO, OR PURCHASES, PRODUCTS FROM OTHER MARKET INTERMEDIARIES. THIS IS THE LAST
LINK IN THE DISTRIBUTION NETWORK PRECEDING THE CONSUMER. RETAILERS ARE COMMONLY ENGAGED IN
SELLING MASS-DISTRIBUTED CONSUMER PRODUCTS. THEY BUY THE MATERIALS FROM WHOLESALERS IN SMALL
QUANTITIES. THEY USUALLY HAVE VERY LIMITED FINANCES TO INVEST IN THE BUSINESS. RETAILERS NORMALLY
PURCHASE GOODS FROM THE WHOLESALERS EITHER ON CREDIT OR AGAINST CASH DEPENDING ON THEIR MUTUAL
RELATIONSHIP AND THE PREVAILING TRENDS IN THE INDUSTRY.
THEIR LOGISTICS REQUIREMENT IS FREQUENT SUPPLIES IN SMALL QUANTITIES. RETAILERS CANNOT KEEP A LARGE
INVENTORY BECAUSE OF THEIR LIMITED FINANCIAL CAPACITY. THEY CAN BE INDEPENDENTLY OWNED AND
OPERATED, LIKE SMALL "MOM AND POP" STORES, OR THEY CAN BE PART OF A LARGE CHAIN, LIKE WALMART. THE
RETAILER WILL SELL THE PRODUCTS IT HAS PURCHASED DIRECTLY TO THE END USER FOR A PROFIT. THEIR METHOD
OF OPERATION COULD BE LOW MARGIN/HIGH TURNOVER OR HIGH MARGIN/LOW TURNOVER. NON-STONE RETAILING
INCLUDES: DIRECT SELLING. MAIL-ORDER CATALOGS, TV SHOPPING, VENDING MACHINES, AND WEB SITES.

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E. C&F AGENTS (CARRYING AND FORWARDING AGENTS)
C&F AGENTS WORKS AS A MEDIATOR BETWEEN THE MANUFACTURER/TRADER AND OTHER CHANNEL MEMBERS LIKE
WHOLESALERS, DISTRIBUTORS, RETAILERS, CUSTOMS, TRANSPORTERS, ETC. IT PROVIDES THE SPACE TO
MANUFACTURERS TO STORE THE GOODS AND DISPATCH TO OTHER MIDDLEMEN AS PER THE MANUFACTURER'S
INSTRUCTIONS. C&F AGENTS DOES NOT TAKE ANY DISPATCH DECISION. IT FOLLOWS THE INSTRUCTIONS OF THE
MANUFACTURER. THE OWNERSHIP OF INVENTORY LIES WITH THE MANUFACTURER. THE CHANNEL MEMBERS PLACE
ORDER TO THE MANUFACTURER, WHO IN TURN INSTRUCTS C&FA IN THAT PARTICULAR REGION TO DISPATCH THE
MATERIAL TO CHANNEL MEMBERS.
II. NUMBER OF INTERMEDIARIES NEEDED:
COMPANIES HAVE TO DECIDE ON THE NUMBER OF INTERMEDIARIES TO USE. THREE STRATEGIES AVAILABLE
a. SELECTIVE DISTRIBUTION - ONLY SOME AVAILABLE OUTLETS IN AREA ARE CHOSEN TO DISTRIBUTE A PRODUCT.
THE COMPANY DOES NOT HAVE TO DISSIPATE ITS EFFORTS OVER TOO MANY OUTLETS, IT ENABLES THE
PRODUCER TO GAIN ADEQUATE MARKET COVERAGE WITH MORE CONTROL AND LESS COST THAN INTENSIVE
DISTRIBUTION. IT IS APPROPRIATE FOR SHOPPING PRODUCTS, WHICH CONSUMERS ARE WILLING TO SPEND MORE
TIME VISITING SEVERAL RETAIL OUTLETS TO COMPART PRICES, DESIGNS, STYLES, AND OTHER FEATURES OF
THESE PRODUCTS. NIKE IS A GOOD EXAMPLE OF SELECTIVE DISTRIBUTION
b. INTENSIVE DISTRIBUTION- THE USE OF ALL AVAILABLE OUTLETS TO DISTRIBUTE A PRODUCT. IT IS SUITABLE FOR
CONVENIENCE PRODUCTS, SUCH AS SOFT DRINKS, BREAD, CANDY, NEWSPAPERS, ETC. BECAUSE THEY HAVE HIGH
REPLACEMENT RATE AND REQUIRE ALMOST NO SERVICE. MULTIPLE CHANNELS (I.E CONVENIENCE STORES,
SERVICE STATIONS, SUPERMARKETS, DISCOUNT STORE) ARE USED TO SELL THESE PRODUCTS. AVAILABILITY OF
THESE PRODUCTS IS MORE IMPORTANT THAN THE NATURE OF THE OUTLET. FOR CONVENIENCE OF CONSUMERS,
STORE MUST BE LOCATED NEARBY AND MINIMUM TIME WILL BE NECESSARY TO SEARCH FOR THE PRODUCT AT
THE STORE.

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C. EXCLUSIVE DISTRIBUTION- AN INDEPENDENT INDIVIDUAL OR COMPANY WHOSE MAIN FUNCTION IS TO ACT AS THE
PRIMARY SELLING ARM OF THE PRODUCER AND REPRESENT THE PRODUCER TO USERS. USUALLY APPLIES TO SPECIALTY
PRODUCTS AND LIMITED DISTRIBUTION OUTLETS.
III. TERMS & RESPONSIBILITIES OF EACH CHANNEL MEMBER:
EACH CHANNEL MEMBER MUST BE TREATED RESPECTFULLY AND GIVEN THE OPPORTUNITY TO BE PROFITABLE. THE MAIN
ELEMENTS ARE:
• PRICE POLICY- PRICE LIST, SCHEDULE OF DISCOUNT AND ALLOWANCES.
• CONDITIONS OF SALE - PAYMENT TERMS AND PRODUCERS GUARANTEES.
• DISTRIBUTOR'S TERRITORIAL RIGHTS- DISTRIBUTOR'S TERRITORIES AND THE TERMS UNDER WHICH THE PRODUCER WILL
ENFRANCHISE OTHER DISTRIBUTORS.
• MUTUAL SERVICES & RESPONSIBILITIES- PARTICULARLY IN FRANCHISED AND EXCLUSIVELY-AGENCY CHANNELS.
FRANCHISER PROVIDES PROMOTIONAL SUPPORT TRAINING, RECORD KEEPING SYSTEM
IV. EVALUATING THE MAJOR ALTERNATIVES:
EACH CHANNEL ALTERNATIVE NEEDS TO BE EVALUATED AGAINST:
• ECONOMIC CRITERIA- COMPANY NEED TO ESTIMATE THE COSTS OF SELLING DIFFERENT VOLUMES THROUGH EACH
CHANNEL AND THE NEXT STEP IS COMPARING SALES AND COSTS. A COMPANY COMPARES THE LIKELY SALES, COSTS AND
PROFITABILITY OF DIFFERENT CHANNEL ALTERNATIVES
• CONTROL CRITERIA- THE COMPANY MUST ALSO CONSIDER CONTROL ISSUES. USING INTERMEDIARIES USUALLY MEANS
GIVING THEM SOME CONTROL OVER THE MARKETING OF THE PRODUCT, AND SOME INTERMEDIARIES TAKE MORE
CONTROL THAN OTHERS.
• ADAPTIVE CRITERIA- CHANNELS OFTEN INVOLVE LONG TERM COMMITMENTS, YET THE COMPANY WANTS TO KEEP THE
CHANNEL FLEXIBLE SO THAT IT CAN ADAPT TO ENVIRONMENTAL CHANGES. A CHANNEL INVOLVING LONG TERM
COMMITMENTS SHOULD BE GREATLY SUPERIOR ON ECONOMIC AND CONTROL GROUNDS.
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 REVERSE LOGISTICS
 "RL IS THE PROCESS OF PLANNING, IMPLEMENTING, AND CONTROLLING THE EFFICIENT, COST EFFECTIVE FLOW OF
RAW MATERIALS, IN-PROCESS INVENTORY, FINISHED GOODS AND RELATED INFO FROM THE POINT OF
CONSUMPTION TO THE POINT OF ORIGIN FOR THE PURPOSE OF RECAPTURING VALUE OR PROPER DISPOSAL".
 "RL IS THE MANAGEMENT OF ALL THE ACTIVITIES INVOLVED IN THE FLOW OF GOODS, DEMAND INFORMATION
AND MONEY IN THE OPPOSITE DIRECTION OF THE PRIMARY LOGISTICS FLOW, A REDUCTION IN THE GENERATION
OF WASTE, AND THE MANAGEMENT OF THE COLLECTION, TRANSPORT, DISPOSAL, AND RECYCLING OF
HAZARDOUS AS WELL AS NON-HAZARDOUS WASTE IN A WAY THAT MAXIMIZES THE LONG TERM PROFITABILITY OF
THE BUSINESS."
REVERSE LOGISTICS STANDS FOR ALL OPERATIONS RELATED TO THE REUSE OF PRODUCTS AND MATERIALS. IT IS
THE PROCESS OF MOVING GOODS FROM THEIR TYPICAL FINAL DESTINATION FOR THE PURPOSE OF CAPTURING
VALUE, OR PROPER DISPOSAL.
REMANUFACTURING AND REFURBISHING ACTIVITIES ALSO MAY BE INCLUDED IN THE DEFINITION OF REVERSE
LOGISTICS. RL IMPLIES THE RETURN OF WASTE PRODUCT AND PACKAGING FOR REUSE. RECYCLING AND DISPOSAL,
AND TODAY THIS ACTIVITY IS A CRUCIAL PART OF GREEN LOGISTICS.
THE RL PROCESS INCLUDES THE MANAGEMENT AND THE SALE OF SURPLUS AS WELL AS RETURNED EQUIPMENT.
NORMALLY, LOGISTICS DEAL WITH EVENTS THAT BRING THE PRODUCT TOWARDS THE CUSTOMER. IN RL, THE
RESOURCE GOES AT LEAST ONE STEP BACK IN THE SUPPLY CHAIN. FOR INSTANCE, GOODS MOVE FROM THE
CUSTOMER TO THE DISTRIBUTOR OR TO THE MANUFACTURER.

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 REVERSE LOGISTICS CAN INCLUDE:
A. DAMAGED MERCHANDISE, B. SEASONAL INVENTORY, C. RESTOCK, D. SALVAGE,
E. RECALLS, F. RECYCLING, G. HAZARDOUS MATERIALS, H. OBSOLETE EQUIPMENT DISPOSITION I. ASSET RECOVERY
REVERSE LOGISTICS IS RAPIDLY BECOMING AN INTEGRAL COMPONENT OF RETAILER’S AND MANUFACTURER’S
PROFITABILITY AND COMPETITIVE POSITION. PRODUCT RETURNS ARE THE MOST COMMON ASPECT OF REVERSE
LOGISTICS. INDUSTRIES WHERE RETURNS ARE A LARGER PORTION OF OPERATIONAL COST TEND TO HAVE BETTER
REVERSE LOGISTICS SYSTEMS AND PROCESSES IN PLACE.
SUCCESSFUL RETAILERS UNDERSTAND THAT MANAGING REVERSE LOGISTICS EFFECTIVELY WILL HAVE A POSITIVE
IMPACT ON THEIR BOTTOM LINE. INDUSTRIES THAT HAVE NOT HAD TO SPEND MUCH TIME AND ENERGY ADDRESSING
RETURN ISSUES ARE NOW TRYING TO MAKE MAJOR IMPROVEMENTS.
NOWADAYS, RL IS DEVELOPING RATHER FAST BECAUSE AS THE VOLUME OF WASTE BEING RECYCLED AND REUSED
HAS GROWN, THE RANGE OF NEW WASTE MANAGEMENT SYSTEMS IS BEING EXPANDED AND GOVERNMENT
REGULATIONS ARE BEING INTENSIFIED. THE CONCEPT OF RL IS AN INTEGRATION OF SOCIAL AND ENVIRONMENTAL
ASPECTS BECAUSE PEOPLE'S WELL-BEING AND SATISFACTION AND ALSO THE PROTECTION OF THE ENVIRONMENT
ARE MAIN IDEAS OF REVERSE PROCESSES.

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 COMPARISONS BETWEEN FORWARD AND REVERSE LOGISTICS
FORWARD LOGISTICS REVERSE LOGISTICS

FORECASTING RELATIVELY STRAIGHTFORWARD FORECASTING MORE DIFFICULT

ONE TOO MANY DISTRIBUTION POINTS MANY TO ONE DISTRIBUTION POINTS

PRODUCT QUALITY UNIFORM PRODUCT QUALITY NOT UNIFORM

PRODUCT PACKAGING UNIFORM PRODUCT PACKAGING OFTEN DAMAGED

DESTINATION/ROUTING CLEAR DESTINATION/ROUTING UNCLEAR

PRICING RELATIVELY UNIFORM PRICING DEPENDENT ON MANY FACTORS

IMPORTANCE OF SPEED RECOGNIZED SPEED OFTEN NOT CONSIDERED A PRIORITY

FORWARD DISTRIBUTION COSTS EASILY VISIBLE REVERSE COSTS LESS DIRECTLY VISIBLE

INVENTORY MANAGEMENT CONSISTENT INVENTORY MANAGEMENT NOT CONSISTENT

PRODUCT LIFE CYCLE MANAGEABLE PRODUCT LIFECYCLE ISSUES MORE COMPLEX

NEGOTIATION BETWEEN PARTIES STRAIGHTFORWARD NEGOTIATIONS COMPLICATED BY SEVERAL FACTORS

MARKETING METHODS WELL KNOWN MARKETING COMPLICATED BY SEVERAL FACTORS

VISIBILITY OF PROCESS MORE TRANSPARENT VISIBILITY OF PROCESS LESS TRANSPARENT

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