Distribution Chapter 21 & 22

Distribution – How it Works The PLACE aspect of the 4 P’s Channel of distribution – path a product takes from producer to final user  Business use – Industrial user  Personal use – Consumer Ex: Shampoo  Hair salon – industrial user  Retail sells to you – consumer Goods shipped are often called freight or cargo Small packages are referred to as parcels

Channel Members Intermediaries – MIDDLEMAN - businesses involved in sales transactions that move products from manufacturer to final user  Add value to the product  Merchant – takes title to the goods (wholesalers and retailers)  Agent – receive a commission to bring buyers and sellers together Indirect Channel  Involves one or more intermediaries Direct Channel  Goods sold directly from producer to customer  Ex: selling from a farmer’s roadside stand; telemarketing

Intermediaries Wholesalers - Buy goods from manufacturers and sell to retailers  Rack jobbers – manage inventory and merchandising for retailers; Ex: cards, cosmetics, CDs in retail stores  Drop shippers – own the goods they sell but don’t physically handle the product Retailers - Sell goods to the final consumer for personal use  Brick-and-mortar – sell from their own physical store  Vending machines, direct mail/catalog, e-tailing Agents - Do not own the goods they sell  Bring buyers and sellers together; Paid on commission  Brokers - Ex: Real estate agents

Distribution Intensity Exclusive – sole dealer in an area, prestige, high profit margin, high control for manufacturer  Integrated Distribution – manuf. and sell own products Gap, Bath and Body Works Selective – limited # of outlets Intensive – complete market coverage, goal is to sell to as many customers as possible E-Commerce – use of Internet (e-marketplace)  B2B  In 2004, Internet travel bookings = $54M (23% of industry)

Nature and Scope of Physical Distribution Physical Distribution  All activities that help ensure that the right amount of product is being delivered to the right place at the right time Also known as LOGISTICS  Order processing  Transporting  Storing  Stock Handling  Inventory Control

Types of Transportation Trucking Common Carriers provide services to any business in its operating for a fee Contract Carriers provide equipment and drivers for specific routes; business does not have to invest in equipment Private Carriers transport goods for an individual business Exempt Carriers are free from regulation and normally carry agricultural products

Intercity vs. Interstate Intercity – shipping goods between two locations in one city  Ex. Shipping from Ga. Power in Atlanta to Coca-Cola in Atlanta Interstate – shipping goods between two states  Shipping from Atlanta to New York

Trucking Advantages  Convenient  Reduce packaging costs because goods require less packaging  Fast Disadvantages  Susceptible to delays  Subject to size and weight restrictions depending upon state

Rail Transportation Trains transport nearly 38% of total intercity ton-miles of freight  Ton-mile is the movement of one ton of freight per mile Trains move heavy and bulky freight such as coal, steel, and lumber

Rail Transportation Pricing and Delivery Services  Piggyback – carrying loaded trucks over land  Fishyback – shipping loaded trucks over water on ships and barrages  Carload - minimum number of pounds of freight needed to fill a boxcar  A package (pool) arrangement allows several carriers who are sending items to combine them  Diversion-in-transit service allows the redirection of cars

Rail Transportation Advantages  Relatively low costs due to large quantities  Seldom slowed or stopped by bad weather Disadvantages  Lack of flexibility Only pick up and drop off at specific locations Only reach certain places

Water Transportation Oldest method of transporting merchandise US Maritime Commission regulates U.S. water transportation Advantage  Low cost – cheapest form of freight transportation Disadvantages  Slowest form  Buyers located away from ports must use other forms of transportation as well  Affected by bad weather

Pipelines Owned by companies who use them More than 200,000 miles in U.S. Transport oil from fields to refineries Carry 20% of the ton-miles of freight transported in the U.S. Advantages  Minimal damage  Not subject to weather delays Disadvantages  High initial investment  Moves slow

Air Less than 1% of the total ton-miles of freight shipped High value products; low weight products (mail, medicine) Regulated by FAA Advantages  Speed – reduces inventory expenses and storage costs Disadvantages  Most costly form of distribution(2 x truck rates)  Mechanical breakdowns and delays due to weather

What happens to the goods when they arrive? Receiving Process – When a truck arrives at the retailer, a receiving clerk must check the items against the order. Items are then stored Inventory – goods that are stored for future sales