1 Unit 2 -- Distribution

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

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

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

5 Merchant Intermediaries b b Wholesalers - Purchase large quantities of goods from manufacturers, store the goods, and resell them to other businesses retailers institutions electronic retail outletsgovernments vending servicesmanufacturers professional usersother wholesalers commercial users

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

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

8 Physical Distribution b b The process of transporting, storing, and handling goods to make them available to customers b b Third largest expense for most businesses b b Includes: freight transportationorder processing warehouse site selectionwarehousing materials handlingcustomer service protective packaginginventory control

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

10 Trucking b b Common Carriers b b Contract Carriers b b Private Carriers b b Exempt Carriers

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

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

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

14 Waterways b b Internal Waterways b b Intracoastal Waterways b b International Waterways

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

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

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

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

19 Warehousing b b Private Warehouses b b Public Warehouses b b Distribution Centers b b Bonded Warehouses

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

21 Purchasing Situations b b New Task Purchase b b Modified Rebuy b b Straight Rebuy

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

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

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

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

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

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