Sales, Distribution and Supply Chain Management

Unit 5

Unit 5 Introduction to Distribution Management

Structure: 5.1 Introduction Objectives 5.2 Physical Distribution Management 5.3 Need for Distribution Management 5.4 Setting Distribution Objectives 5.5 Developing Channel Design Developing physical network strategy Reviewing distribution processes 5.6 Distribution Channel and its Objectives 5.7 Patterns of Distribution 5.8 Flows in Channels of Distribution 5.9 Logistics and its Importance Logistics activities Importance of logistics Operating objectives 5.10 Summary 5.11 Terminal Questions 5.12 Answers

5.1 Introduction
Distribution is the process that brings a product from production location to the consumer or the end user. The distribution process should follow all the rules of good marketing. As part of the marketing process, it has to satisfy customers needs. It must also help establish a stable and predictable market for the product and provide those participating in the distribution process an optimum design. The distribution process includes the major function of selling and coordination of all the functions involved in moving the product from the factory to the end user. Logistics has always been a central and essential feature of all economic activities. The concept of logistics as an integrative activity in business has developed within the last twenty years. Logistics management is a process
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of strategically managing the movement and storage of materials, parts and finished inventory from supplier through the firm and on to customers. Logistics is thus concerned with the management of physical distribution of material. It begins from sources of supply and ends at the point of consumption. It is, therefore, much wider in its reach than simply a concern with the movement of finished goods a commonly held view of physical distribution. After going through various aspects of sales management, you will now learn about another important related activity, distribution. Objectives: After studying this unit, you should be able to: Explain the concept of physical distribution management Identify the need of distribution management Describe logistics and its importance Explain the pattern of distribution

5.2 Physical Distribution Management

There are many decisions that must be taken, when a company organizes a channel or network of intermediaries, who take responsibility for the management of goods as they move from the producer to the consumer. Each channel member must be carefully selected and the company must decide what type of relationship it seeks with each of its intermediate partners. Having established such a network, the organisation must next consider how these goods can be efficiently transferred, in the physical sense, from the place of manufacture to the place of consumption. Physical Distribution Management (PDM) is concerned with ensuring the product is in the right place at the right time. It is now recognized that PDM is a critical area of overall supply chain management. Business logistical techniques can be applied to PDM so that costs and customer satisfaction are optimized. There is little point in making large savings in the cost of distribution if in the long run; sales are lost because of customer dissatisfaction. Similarly, it does not make economic sense to provide a level of service that is not required by the customer but leads to an erosion of profits. This cost/service balance is a basic dilemma that physical distribution managers face.
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The reason for the growing importance of PDM is the increasingly demanding nature of the business environment. In the past it was not uncommon for companies to hold large inventories of raw materials and components. Although industries and individual firms differ widely in their stockholding policies, nowadays, stock levels are kept to a minimum wherever possible. Holding stock is wasting working capital for it is not earning money for the company. To think of the logistical process merely in terms of transportation is much too narrow a view. Physical Distribution Management is concerned with the flow of goods from the receipt of an order until the goods are delivered to the customer. In addition to transportation, PDM involves close liaison with production planning, purchasing, order processing, material control and warehousing. All these areas must be managed so that they interact efficiently with each other to provide the level of service that the customer demands and at a cost that the company can afford. Components of physical distribution management There are four principal components of PDM and these are:

Figure 5.1: Principal Components of PDM

Order Processing: Order processing is the first of the four stages in the logistical process. The efficiency of order processing has a direct effect on lead times. Orders are received from the sales team through the sales department. Many companies establish regular supply routes that remain relatively stable over a period of time ensuring that the supplier performs
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satisfactorily. Very often contracts are drawn up and repeat orders (forming part of the initial contract) are made at regular intervals during the contract period. Taken to its logical conclusion this effectively does away with ordering and leads to what is called partnership sourcing. This is an agreement between the buyer and seller to supply a particular product or commodity as and when required without the necessity of negotiating a new contract every time an order is placed. Order-processing systems should function quickly and accurately. Other departments in the company need to know as quickly as possible that an order has been placed and the customer must have rapid confirmation of the orders receipt and the precise delivery time. Even before products are manufactured and sold the level of office efficiency is a major contributor to a companys image. When buyers review their suppliers, efficiency of order processing is an important factor in their evaluation. Inventory: Inventory, or stock management, is a critical area of PDM because stock levels have a direct effect on levels of service and customer satisfaction. The optimum stock level is a function of the type of market in which the company operates. Few companies can say that they never run out of stock, but if stock-outs happen regularly then market share will be lost to more efficient competitors. The key lies in ascertaining the re-order point. Carrying stock at levels below the re-order point might ultimately mean a stock-out, whereas too high stock levels are unnecessary and expensive to maintain. Stocks represent opportunity costs that occur because of constant competition for the companys limited resources. If the companys marketing strategy requires that high stock levels be maintained, this should be justified by a profit contribution that will exceed the extra stock carrying costs. Warehousing: Many companies function adequately with their own on-site warehouses from where goods are dispatched direct to customers. When a firm markets goods that are ordered regularly, but in small quantities, it becomes more logical to locate warehouses strategically around the country. Transportation can be carried out in bulk from the place of manufacture to respective warehouses where stocks wait ready for further distribution to the customers. This system is used by large retail chains, except that the warehouses and transportation are owned and operated for
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them by logistics experts. Levels of service will of course increase when number of warehouse locations increases, but cost will increase accordingly. Again, an optimum strategy must be established that reflects the desired level of service. Transportation: Transportation usually represents the bulk of distribution cost. It is usually easy to calculate because it can be related directly to weight or numbers of units. Costs must be carefully controlled through the mode of transport selected amongst alternatives, and these must be constantly reviewed. The patterns of retailing that have developed, and the pressure caused by low stock holding and short lead times, have made road transport indispensable. When the volume of goods being transported reaches a certain level some companies purchase their own vehicles, rather than using the services of haulage contractors. However, some large retail chains have now entrusted all their warehousing and transport to specialist logistics companies. For some types of goods, transport by rail still has advantages. When leadtime is a less critical element of marketing effort, or when lowering transport costs is a major objective, this mode of transport becomes viable. Similarly, when goods are hazardous or bulky in relation to value, and produced in large volumes then rail transport is advantageous. Rail transport is also suitable for light goods that require speedy delivery (e.g. letter and parcel post). Except where goods are highly perishable or valuable in relation to their weight, air transport is not usually an attractive transport alternative. For long-distance overseas routes air transport is popular. Here, it has the advantage of quick delivery compared to sea transport, and without the cost of bulky and expensive packaging needed for sea transportation, as well as higher insurance costs. Self assessment questions 1. Distribution of _________ plays an important role in the sales system. 2. _________ usually represents the bulk of distribution cost.

5.3 Need for Distribution Management

Distribution of goods and services plays an important role in the sales system. Distribution system varies from company to company and region to
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region. The distribution system gives strength to the company by helping to increase the reach of the product to various parts of the region, country or even in foreign markets. An effective distribution system helps in making available goods in the right quantity at the right time when they are required and giving a reasonable earning to those who are associated with the distribution system like wholesalers, retailers, departmental stores, etc. This approach, summarized in the Andersen Consulting Distribution Strategy Pyramid, focuses on answering the following strategic questions: Given the value proposition, who are the end customers and, therefore, what are the distribution objectives? What channel structure will achieve these distribution objectives at the lowest cost to serve? How do we manage our physical network to achieve objectives at lowest costs? What processes and organization structure will help sustain the distribution networks performance? This approach aims to: Ensure that a companys distribution strategy is based on zero-based distribution objectives derived from end customer needs Ensures complete integration across channel structure and supporting processes with the zero based distribution objectives and Results in the lowest cost to serve across product markets.

5.4 Setting Distribution Objectives

What are distribution objectives? For a product market, they are defined in terms of availability of the product (for example, percentage of total outlets reached). Most companies do not explicitly set distribution objectives. Of those that do, distribution objectives often have no linkage to end customer requirements. Often companies fail to ask questions like, How many and what kind of outlets do you need, to be available to a given target audience and their buyer behavior? There are also regional differences in category development to be taken into account. For instance, will extending distribution in a region with a low level of category development help me boost sales? Finally, the objectives should take note of the marketing initiatives planned for the year.
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In most FMCG (Fast Moving Consumer Goods) categories, distribution objectives are heavily focused on retail availability; how many outlets and what kind of outlets. In prescription drugs, the objectives would include, apart from outlet availability, coverage for doctors. Agro chemicals, on the other hand, may require objectives in terms of share of tonnage by leading wholesalers. The end customer is the last entity in the supply chain that makes the brand decision. For FMCG industries, where the end customer is the consumer, retail availability becomes the distribution objective. In prescription drugs, however, the end customer is the prescribing doctor. Thus, the objectives need to ensure appropriate coverage of doctors, without which no amount of wholesale push will drive volumes.

Distribution Objectives STRATEGY Channel Design Network Strategy

STRUCTURE

Intermediate Management

Warehouses and Transport

Materials Management

PROCESS IT Policies and Procedures Facilities and Equipment IMPLEMENTATION Channel Management

Figure 5.2: The Andersen Consulting Distribution Strategy Pyramid

In agro chemicals, distribution objectives depend largely on the land holding pattern in the market. Markets with large land holdings and geographic concentration require focus on a smaller number of large wholesalers
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whereas those with small land holdings and geographical fragmentation require availability to a large number of small traders. Distribution extension decisions depend upon relative category development by the market. In a highly penetrated market, it is not possible to drive off take merely by increasing availability beyond a point. Similarly, in a low penetration market, merely increasing availability without addressing the fundamental drivers of low penetration may not lead to volume growth. The Distribution Development Index (DDI) is defined as the availability of a brand/category in the market relative to that of a benchmark brand/category. The Category Development Index (CDI) is defined as the per capita consumption of the category in that market relative to the national per capita consumption of the category. The relative level of DDI and CDI will determine the extent of the opportunity to actually extend distribution (Figure 5.3).

High Distribution Development Low

Concentrate on demand generation activities

Concentrate on quality of distribution, service level, frequency etc.

Develop integrated sales and marketing package

Extend distribution immediately

Low

High Category Development

Figure 5.3

Activity 1: Distribution is a key component of proper selling process. Examine the role played by a distribution manager in any manufacturing organization.

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Self Assessment Questions 3. An effective _________ helps in making available goods in the right quantity at the right time when they are required. 4. In most FMCG (Fast Moving Consumer Goods) categories, distribution objectives are heavily focused on retail _________.

5.5 Developing Channel Design

A number of companies do not develop a channel structure; they inherit it. Channel structures are thus often considered a consequence of the industry. Companies that do review their channel structures do not attempt to do so from the point of view of minimizing distribution costs. The Pyramid recommends a comprehensive review of channel structure from the perspective of achieving distribution objectives at the lowest cost.
Distribution Processes Setting/Achieving Distribution Objectives Setting up distribution strategy with alternatives Controlling Distribution

Inventory management through a periodic review of network Integrated supply chain planning Demand forecasting based on consumer trend secondary Monitoring of trade spends Monitoring of distributor

Consistently lower inventory levels in changing demand

Setting distribution objectives in line with the demand potential Achieving distribution objectives by ensuring the right mix of direct coverage and reach

Lower inventories Lower trade spends (no attempts to boost sales where demand) Controlling trade spends Controlling distributor expenses and service evils to prevent distributors from making sales.

An optimal channel design requires the organisation to understand the following: What activities and functions need to be performed? (e.g. Redistribution, stocking, collections and disbursements to company). Which channel intermediaries can perform these functions? (e.g. C&F agents, distributors, wholesalers)
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What are the service level requirements that channel intermediaries require from an organisation? (e.g. credit, inventory levels, infrastructure, and lead times from order placement to receipt of goods) What are the service levels that an organisation would require from our channel intermediaries? (e.g. number of outlets covered, frequency of coverage, etc.)

Given service level requirements of the company and the intermediary, what minimum returns should intermediaries be making for them to deliver sustainable distribution objectives at the least cost? With C and F agents, it will be per cent commission/flat fees, with distributors/ wholesalers; it will be gross margins, return on investment. Optimal channel designs are heavily dependent on distribution objectives and the functions that need to be performed to achieve these. For typical FMCG categories, availability in over 5 lakh outlets requires services of credit, readily available stock and redistribution. This would typically require 1,500-2,000 distributors who, in turn, would need to be serviced by depots/CFAs for inventory freight economies. Multinational FMCG players have thus established that the lowest cost distribution channel is the factory CFA distributor (wholesale) retailer route. For high value medical diagnostics products, where the customer base is a few hundred hospitals and diagnostics labs, the key service requirements are high credit, low supply lead times/inventories (since most products have a limited shelf life) and cold chain transportation and stocking. 5.5.1 Developing physical network strategy Most companies take the location and capacities of their depots and manufacturing units as given. The Pyramid recommends a comprehensive optimization exercise for the TDC of distribution. This requires the optimal channel design to be populated with a plan for the flow of goods and information in terms of the following: How many facilities (manufacturing units/depots/CFAs) are needed and where? Which customers/regions and which product lines should be served from each facility? How much inventory should be maintained in each facility?
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The populated network needs to be optimized with respect to the total delivered cost of distribution. Using linear optimization, several companies have managed to cut distribution costs by as much as 1015%.

5.5.2 Reviewing distribution processes Most companies do not monitor the ability of the distribution network to achieve distribution objectives, or the cost of distribution. The Pyramid recommends continuous monitoring of the ability of the distribution network to achieve objectives at the lowest cost through robust action oriented monitoring processes. A two step approach is required to formalize these principles. It is a onetime exercise to bring the distribution system (strategy, structure, processes) in line with distribution objectives. Subsequently, annual reviews of the distribution system, as a part of the annual strategic planning process, should be undertaken.

5.6 Distribution Channel and its Objectives

Channel of distribution is a path traced in the direct or indirect transfer of the title to a product as it moves from a producer to ultimate consumers or industrial users. EW Cundiff and RS Still The course taken in the transfer of the title to a commodity constitutes its channel of distribution. It is the route taken by the title to a product in its passage from its first owner, an agricultural producer, or a manufacturer, as the case may be, to the last owner, the ultimate consumer or the business user. Beckman and Others A channel of distribution or marketing channel is a structure of intracompany organisation, units and intra-company agents and dealers, wholesalers and retailers through which a commodity product or service is marketed. American Marketing Association

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The various objectives of channel of distribution are: To ensure availability of products at the point of sale To build channel members loyalty To stimulate channel members to put greater selling efforts To develop managerial efficiency in channel organisation To identify your organisation at the buyer level To have an efficient and effective distribution system, to make your products and services available readily, regularly, equitably and in a fresh form. Self Assessment Questions 5. _________ are often considered a consequence of the industry. 6. To ensure availability of products at the point of sale is the objectives of channel of distribution. (True/False) 7. Channel of distribution should be readily available. (True/False)

5.7 Patterns of Distribution

After a producer has selected the type of channel that makes the most sense for his products, the next step is to determine the level of distribution intensity, which specifies the number of marketing intermediaries that will carry the products. Depending on a firms product, objectives and customers, the levels of intensity may differ from case to case. Also, distribution intensity is frequently modified as a product progresses through its life cycle. Marketers have three basic levels of intensity to choose from: Intensive, Selective and Exclusive. Intensive Distribution: A channel strategy that seeks to make products available in as many appropriate places as possible. For example, producers of convenience goods and certain raw materials aim to stock their products in as many outlets as possible; you will find FMCG products all almost all departmental stores. Selective Distribution: A channel strategy that limits availability of products to a few carefully selected outlets in a given market area. For example, certain ethical pharmaceutical products require that intermediaries are capable of offering advice as to the use and limitations of the product, so such products might be restricted to pharmacies.
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Exclusive Distribution: An extreme case of selective distribution in which only one outlet in a market territory is allowed to carry a product or a product line. For example, car manufacturers have such arrangements with their dealers. With the arrangement goes a stipulation by the manufacturer that the distributor is able to uphold appropriate repair, service and warranty handling facilities.

5.8 Flows in Channels of Distribution

A flow is a set of functions performed in sequence by channel members. In the flow process, producers, wholesalers, retailers and consumers are linked. The functions that need to be necessarily performed in a channel system include transfer of ownership through transportation, order processing, inventory carrying, storage, sorting negotiations and promotions. The same function in a given channel system, may be performed at more than one level and, in such a case, the workload for the function would need to be shared between channel members. A channel symbolizes the path for the movement of title, possession and payment for goods and services. Figure 5.4 gives a representation of these marketing flows:
Produ- cers Possession Title Promotion Negotiation Financing Ordering Possession Title Promotion Retailers Possession Title Promotion Consumer

Negotiation Financing

Negotiation Financing Risk Bearing Ordering Payment Information

Whole- salers Risk Bearing

Risk Bearing

Ordering Payment Information

Payment Information

Figure 5.4: Marketing Flows in a Channel System

Activity 2: Give some more examples of companies (and sectors) that use the above given patterns of distribution. Find out about any one companys (out of the given examples) distribution channel in detail.

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Self Assessment Questions 8. Marketers have three basic levels of intensity to choose from Intensive, Selective and Exclusive. (True/False) 9. In _______ producers, wholesalers, retailers and consumers are linked.

5.9 Logistics and its Importance

Logistics management deals with receiving, handling, movement, storage and delivery of material, services and finished product in an SCM system. Logistics is required both at the beginning and at the end of it. (Figure 5.5)

Figure 5.5: Domain of Logistics

As Coyle puts it, logistics is the part of supply chain process that plans, implements and controls the efficient, effective flow & storage of goods, services and related information from point of origin to point of consumption for the purpose of conforming to consumer requirements. Logistics include the following role (Figure 5.6).

Figure 5.6: Role of Logistics Sikkim Manipal University Page No. 106

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Logistics is that part of the supply chain process that plans, implements and controls the effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption, in order to meet the customer's requirements. 5.9.1 Logistics activities The various logistics activities are: Customers service Demand forecasting Distribution communication Inventory control Material handling Order processing Part and service support Plant and warehouse side selection Procurement Packaging Return goods handling Salvage and scrap disposal Traffic and transportation Warehousing and storage Few areas of business involve the complexity or span the geography typical of logistics. Logistics is concerned with getting products and services wherever they are needed whenever they are required. Most consumers take a high level of logistical competency for granted. When they go to store, they expect products to be available and be fresh. It is rather difficult to visualize any marketing or manufacturing without logistical support. Logistics has been carried out since the beginning of civilization it is hardly new. However, implementing best practice of logistics has become one of the most exciting and challenging operational areas of business and public sector management. Logistics is the designing and managing of a system in order to control the flow of material throughout a corporation. This is a very important part of an international company because of geographical barriers. Logistics of an
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international company includes movement of raw materials, coordinating flows into and out of different countries, choices of transportation, and cost of the transportation, packaging the product for shipment, storing the product, and managing the entire process. 5.9.2 Importance of logistics Logistics has gained importance due to the following trends: Transportation costs have risen rapidly due to the rise in oil prices Production efficiency has scaled new heights Fundamental changes in inventory Proliferating product lines Computer technology Increased use of computers Increase in public concern about the product. Growth of several new, large retail chains or mass merchandise with large demands and very sophisticated logistics services, bypassing traditional channels and distribution Economic regulation reduction Increase in power of retailers Globalization The interrelation of different logistic elements and their costs should be based on total cost rather than individual costs. 5.9.3 Operating objectives In case of logistical system design and administration, the firm must simultaneously achieve at least six different operational objectives. These operational objectives, which are the primary determinants of logistical performance, should include rapid response, minimum variance, minimum inventory, movement consolidation, quality and life-cycle support. Rapid Response: Rapid response is concerned with a firm's ability to satisfy customer service requirements in a timely manner. Information technology has increased the capability to postpone logistical operations to the latest possible time and then accomplishes rapid delivery of required inventory. The result is elimination of excessive inventories traditionally stocked in anticipation of customer requirements. Rapid response capability shifts operational emphasis from an anticipatory posture based on
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forecasting and inventory stocking to responding to customer requirements on a shipment-to-shipment basis. Because inventory is typically not moved in a time-based system until customer requirements are known and performance is committed, little tolerance exists for operational deficiencies. Minimum Variance: Variance is an unexpected event that disrupts performance of the system. Variance may result from any aspect of logistical operations. Delays in expected time of customer order receipt, an unexpected disruption in manufacturing, goods arriving damaged at a customer's location, or delivery to an incorrect location. These result in a time disruption in operations that must be resolved. Potential reduction of variance relates to both internal and external operations. Operating areas of a logistical system are subject to potential variance. The traditional solution to accommodate variance was to establish safety stock inventory or use high-cost premium transportation. These practices, given their expense and associated risk, have been replaced by using information technology to achieve positive logistics control. To the extent, variances are minimized; logistical productivity improves as a result of economical operations. Hence a basic objective of overall logistical performance is to minimize variance. Minimum Inventory: The aim of minimum variance involves assets, commitment and relative turn velocity. Total commitment is the financial value of inventory deployed throughout the logistical system. Turn velocity involves the rate of inventory usage over a period of time. High turn rates, coupled with inventory availability, means that assets devoted to inventory are being utilized effectively. The aim is to reduce inventory deployment to the least level consistent with customer service goals to achieve the least overall total logistics cost. Zero inventories have become increasingly important as managers seek to reduce inventory storage. The reality of reengineering a system is that operational defects do not become apparent until inventories are reduced to their least possible level. The goal of eliminating all inventories is attractive; it is important to note that inventory can and does facilitate some important benefits in a logistical system. Inventories can provide improved return on investment when they result in economies of scale in manufacturing or procurement. The aim is to reduce and manage inventory to the lowest possible level while simultaneously achieving desired operating aim.
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To achieve the aim of minimum inventory, the logistical system design should control commitment and turn velocity for the entire firm, not only for each business location. Consolidated Movement: The most important logistical costs are transportation. Transportation cost is directly proportional to the type of product, size of shipment, and distance. Logistical systems that feature premium services depend on high-speed, small-shipment transportation. Premium transportation is typically high-cost. To decrease transportation cost, it is desirable to achieve movement consolidation. The larger the overall shipment and the longer the distance it is transported, the lower is the transportation cost per unit. To achieve this, it requires innovative programmes to group small shipments for consolidated movement. These kinds of programmes must be facilitated by working arrangements that transcend the overall supply chain. Improvement in Quality: Another logistical aim is to seek continuous improvement in quality. Total Quality Management (TQM) has become a major commitment in all departments of industry. Total commitment to TQM is one of the major forces which contribute to the logistics. In case a product becomes defective or if service promises are not kept, value is added by the logistics. Logistical costs, once increased, cannot be reversed. When quality fails, the logistical performance typically needs to be reversed and then repeated. Logistics itself must perform to the required quality standards. The challenge of achieving zero defect logistical performance is illustrated by the fact that logistical operations typically must be performed across a wide geographical area at all times of the day and night. The quality challenge is illustrated by the fact that most logistical work is performed due to supervisor's vision. Reworking a customer's order due to incorrect shipment or due to in-transit damage is more costly than performing it right the first time. Logistics is a main part of developing and maintaining continuous TQM improvement. Life-cycle Support: The final logistical aim is life-cycle support. Very few items are sold without some guarantee that the product will perform as advertised over a period. The normal value-added inventory flow toward customers must be reversed. Product recall is an important competency that results from increasing rigid quality standards, product expiration dating and
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responsibility for hazardous consequences. Return logistics requirements also result from the increasing number of laws prohibiting disposal and encouraging recycling of beverage containers and packaging materials. The most important aspect of reverse logistical operations is the need for maximum control when a potential health liability exists. A recall programme is similar to a strategy of maximum customer service that must be executed regardless of cost. The operational requirements of reverse logistics range from lowest total cost, such as returning bottles for recycling, to maximum performance solutions for critical recalls. The important point is that sound logistical strategy cannot be formulated without careful review of reverse logistical requirements. The importance of service support logistics changes directly with the product and buyer. This applies especially to firms marketing consumer durables or industrial equipment. The commitment to life-cycle support constitutes a demanding operational requirement as well as one of the largest costs of logistical operations. Reverse logistical competency, as a result of worldwide attention to environmental concerns, requires the capacity to recycle ingredients and packaging materials. Activity 3: How inventory affects the strategy of retail organization? Discuss various factors of distribution management in retail organization. Self Assessment Questions 10. _________ has become a major commitment in all departments of industry. 11. _________ is directly proportional to the type of product, size of shipment, and distance.

5.10 Summary
The task of distribution is concerned with the exchange process and gears itself to matching the demand and supply within a given periphery. It is important to assess how the distribution task is being performed in India. This task can be undertaken by measuring the number of functionaries in each class, their organizational structure and their capital structure.
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The profit margin charged by them would be a function of the quantum of goods moved. The population served by them and services rendered by them would also assist in the task of measuring their performance. It improves customer satisfaction directly through rapid response and minimum variance and indirectly through minimum inventory, consolidated movement, improvement in quality and life cycle support. It creates value by giving the desired level of value at the least possible cost. Logistic is that part of the supply chain process that manages the flow of goods, information and other resources, including energy and people, between the point of origin and the point of consumption in order to meet the requirements of consumers. Glossary Transportation: Transportation usually represents the bulk of distribution cost. Inventory: The optimum stock level is a function of the type of market in which the company operates. Channel of Distribution: Channel of distribution is a path traced in the direct or indirect transfer of the title to a product as it moves from a producer to ultimate consumers or industrial users. TQM: Total Quality Management that means Continuous improvement in quality. Intensive Distribution: A channel strategy that seeks to make products available in as many appropriate places as possible.

5.11 Terminal Questions

1. What do you mean by physical distribution management? Discuss various components of physical distribution management. 2. Describe logistics in distribution. Also explain various logistics activities in the distribution management. 3. Explain the flow in channel of distribution. 4. Describe the importance of logistics.

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5.12 Answers
Answers to Self Assessment Questions 1. Goods and services 2. Transportation 3. Distribution system 4. Availability 5. Channel structures 6. True 7. True 8. True 9. Flow process 10. Total quality management 11. Transportation cost Answers to Terminal Questions 1. Refer to 5.2 Warehouse 2. Refer to 5.6 Customer service 3. Refer to 5.10 Transfer of ownership through transportation 4. Refer to 5.6 Transportation cost

Mini-case
RAYMOND A Success Story that Began Six Decades Ago In 1944, Raymond changed hands to become a member of the JK Organisation. Traditional product lines were dropped and high quality became the watchword, also the diversification programme got a head start. Backed by sound R&D, newer non-traditional blends of natural and manmade fibres were introduced. The result: greater consumer satisfaction, both at home and abroad. 1964 marked the beginning of vertical integration at Raymond. In 1968, a ready-made garment plant was set up. Within 18 months, Raymond had become Indias only exporter of sophisticated trousers and suits to the most sophisticated markets of the world. In 1979, Raymond established a new unit at Jalgaon with REPCO spinning machines with the latest in worsted spinning technology. In the early 50s, a completely new field Engineer Files. Today it is the second largest file making company in the world and about 50% of its production is exported to almost all the countries of the world. JK (Mumbai) Ltd., another Raymond establishment was established in 1948. The company enjoys leadership in
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the domestic market for its line of manufacture, namely mens ready-made garments. Currently its products are marketed throughout India under the brand name Park Avenue. In 1966, Raymond joined hands with Helene Curtis (International) to manufacture high quality cosmetics and toiletries and the Park Avenue range of exclusive mens toiletries was started. In 1979, Raymond commenced work on a cement project. Today, it has a capacity of 12 lakh tonnes per year. This plant is the most efficient in the country, both in terms of overall productivity and energy consumption. Overseas, Raymonds multinational line includes a composite textile mill and a ready-made garment plant in Kenya, and a steel file plant in Indonesia. Raymond today is one of the leaders in exporting Indian wool-worsted and blended textiles. From a small order in 1956, Raymond is, today, a major player in the global market. It has carved a niche for itself in the fiercely competitive market. Today Raymond is a symbol of excellence and quality throughout the country and stands as Indias premier textile manufacturer. It has a turnover of Rs. 6 billion, a family of more than 6000 employees, high-tech manufacturing units and an annual output exceeding 15 million metres of pure wool, wool blended and polyester-viscose fabrics, and 0.5 million pieces of blankets and shawls. Its got an extensive distribution network, including 150 Raymond retail shops, Indias finest mens shops in over 70 cities. Questions 1. What are the channels of distribution available for M/s Raymonds? 2. Critically analyse the Raymonds Retail shops success story.

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