slm-unit-11-mb0046

Marketing Management Unit 11

Sikkim Manipal University Page No. 207

Unit 11 Distribution Management

Structure:

11.1 Introduction

Learning Objectives

11.2 Need for Marketing Channels

11.2.1 Functions of marketing channels

11.3 Decisions involved in setting up the Channel

11.4 Channel Management Strategies

11.4.1 Managing and motivating channel members

11.4.2 Evaluating channel members

11.5 Introduction to Logistics Management

11.5.1 Major logistics functions

11.6 Introduction to Retailing

11.6.1 Characteristics of retailing

11.6.2 Functions of retailing

11.6.3 Types of retailing

11.7 Wholesaling

11.7.1 Functions of wholesalers

11.7.2 Types of wholesalers

11.8 Summary

11.9 Terminal Questions

11.10 Answers

11.11 Mini-Case

11.1 Introduction

Distribution of goods or services from the factory or the manufacturing unit

to the consumer provides strategic advantage to the company in the highly

competitive environment. Earlier people used to wait to get the products but

now companies make them available as and when the customer demands.

This is an opportunity as well as a challenge to the organizations to provide

the right product at the right place in the right time. Companies are also

emphasizing on how to reduce the cost in the supply chain. To meet the

cost reduction objectives, they are integrating their system with information

technology, outsourcing the distribution functions and streamlining the

supply chain. Use of technology and corporate interest in the distribution



management resulted in the evolution of professional retailing and

wholesaling in India. These above factors made distribution one of the

important components in planning the marketing strategies

Learning Objectives

After studying this unit, you will be able to

Explain the nature and functions of marketing channels.

Analyze the decisions involved in the distribution management.

Evaluate the different distribution strategies adopted by the company.

Understand the importance of logistics management.

Discuss the growth and scope of retailing and wholesaling.

11.2 Need for Marketing Channels

Marketing channels are a set of independent organizations comprising of

the marketing intermediaries who are involved in the distribution of the

goods or services from the factory to the consumption points at the right

time or even before the time.

For example, Haldiram, a company which produces snacks, chats and

sweets have two manufacturing locations at Delhi and Nagpur. The products

from Delhi will be sent to 25 C&F agents. These C&F agents distribute the

goods to 700 distributors, who in turn sell to 0.4 million retail outlets. In the

same way, goods reaches to 0.2 million retailers from Nagpur plant via 25

C&F’s and 375 distributors. Consumer buys Haldiram snacks throughout

India through these 0.6 million retailers.

Marketing channels will have marketing intermediaries such as the retailers,

wholesalers, agents, brokers, travelling agents, etc. Some companies do not

use these channels. They directly market their products to consumers. For

example, Dell computers ask its customers to login to the website, configure

their product, and order the same on the internet. Then a general question

arises as to why many companies use marketing channels and some do

not. In order to answer this question, we need to understand the functions

of marketing channels and how they are more beneficial than direct

marketing.



11.2.1 Functions of marketing channels

1. Helps in Physical distribution: Transporting goods and storing them in

the assigned warehouses or godowns.

2. Promotes Communication: Marketing intermediaries promote the

company’s products. Here channel member provides the information

regarding the products and pushes it to the customers.

3. Provides Information: Retailers and wholesalers collect the information

or feedbacks from the customers and provide the same to the company

or manufacturer.

4. Plays a key role in Title transforming: Marketing intermediaries purchase

the goods from the company and transform the title of goods or

ownership to the next channel intermediary or customer.

5. Supports Relationship management: Here marketing intermediaries try

to understand the needs of consumers, try to match his needs and

satisfy them.

Activity 1:

Visit a nearby retail shop and find out the functions it performs as a part

of the distribution channel.

11.3 Decisions involved in setting up a Channel

Marketers should consider various factors before deciding the particular

type of channel. It may be organizational or competitive factors. The type of

goods to be transported and stored will decide the length and intensity of

channel. To decide on the particular channels, marketer will have to take

into account the following factors.

1. Understanding the customer profile: Purchasing habits differ from

individual to individual. Individuals who face shortage of time would like

to purchase on the net (direct channel) and those who have abundant

time would like to go through the shopping experience. Some of them

would like to have variety of goods, while others want unique or

specialized products. Hence marketers should understand who are his

customers? How do they purchase and how often they purchase? For

example, customers don’t like to travel half a kilometer to purchase a



shampoo sachet, but they don’t mind travelling two kilometers while

purchasing durable goods.

2. Determine the objectives on which channel is to be developed.

a. Reach: Company would like to make the goods available in most of

the retail outlets. So it, will adopt intensive distribution channel.

b. Profitability: Company wants to reduce the cost in the channels and

enhance their profitability. It will restructure the channel to optimum

level so that it can reduce the cost and increase the profit.

c. Differentiation: Company positions their products differently. When

most of the industry players follow conventional system, company

goes with new format of channels. For example, all computer

manufacturers were adopting dealer-retailer channel to sell their

products, but Dell started selling its product on the internet.

3. Identify type of channel members: Once the objectives are set on the

basis of company’s policies, it will analyze which types of channels are

most suitable. Merchants, agents and resellers are some intermediaries

involved in the distribution. Merchants are those who buy the product,

take title and resell the merchandise. Agents will find the customers,

negotiate with them, but do not take the title of the product. Facilitators

are the people who aid the distribution but do not negotiate or take the

title of the product.

4. Determining intensity of distribution: Intensity of distribution means how

many middlemen will be used at the wholesale and retail levels in a

particular territory. If the number of intermediaries is more, then the cost

of the channel will increase. However, if the number of intermediaries is

less, then company will not be able to meet all target customers.

Therefore company should adopt optimum number of intermediaries. On

the basis of how many intermediaries are required, company can adopt

any one of the following strategies.

a. Intensive distribution: A strategy in which company stocks goods in

more number of outlets. The intention is to make the goods available

near to the customer. For example, you can find Parle-G glucose

biscuits available in almost all the retail outlets in rural and urban

areas.



b. Selective distribution: A strategy in which company stocks goods in

limited number of retail outlets. For example, televisions are sold

only in selected retail outlets. TVs cannot be sold like toothpaste.

Onida TVs are available in electronic retail shops like Viveks, Girias,

Next, E-zone etc…

c. Exclusive distribution: In this type of channel format, marketer gives

only a limited number of dealers the exclusive right to distribute its

products in their territories. For example, a Kaya skin care solution of

Marico is marketed through exclusive distribution.

5. Assigning the responsibilities to channel members. Company should

define the territory in which the channel member should operate, at what

price he should sell, services he should perform, and how he should sell.

6. Selecting the criteria to evaluate the channel member: Company may

have different types of channel alternatives. It would like to choose any

one of the alternatives, which meets its objectives. Channels can be

evaluated in the design phase by the method called SCPCA.

a. Sales(S): The ability of each channel member to generate the sales

for company in a given period.

b. Cost(C): How much cost each channel alternative incurs? Which one

of the alternatives provides the optimum solution?

c. Profitability (P): Various channel alternatives available to the

company and their profitability shall be compared. Channel with

better profitability shall be selected.

d. Control (C): Every company would like to have better control over its

channel members. Alternative channels can be evaluated on the

basis of how much control each channel member desires. And how

much control the company is willing to provide.

e. Adaptability (A): Marketing is a dynamic world. Competition exerts

pressure on companies to relook at their practices and supply chain

continuously. The channel alternatives should be flexible enough to

meet the changing requirements. Whichever channel alternative

meets such objectives shall be selected.



11.4 Channel Management Strategies

In the previous section we discussed channel alternatives and identification

of proper channel for the organization. The proper channel which is selected

should be managed properly, motivated and evaluated against set

standards. Now we shall discuss what are the strategies companies are

following to meet their objectives.

11.4.1 Managing and motivating channel member

Nowadays companies are considering their channel members as partners.

These companies are asking its intermediaries to integrate their business

with them. Integrated business reduces the cost, increases the efficiency,

and helps in better customer service. Companies are adopting partner

relationship management (PRM) software to add value to their supply chain.

Partner relationship management @ AIRTEL

Partner Relationship Management

Bharti Airtel's requirements with respect to Partner Relationship

Management; Bharti Airtel partner engagement strategies focus on selecting

the most capable partners worldwide and continuously working with them to

enhance their capabilities in providing conforming goods or services, on

time. The fundamental criterion for selecting and developing a long-term

relationship with our partners is Best Value. Best Value applies not only to

product cost, but also to costs and risks of acquisition and materials

handling. Best Value, therefore includes the partner's service level,

contribution to initiatives, and conformance to quality on all the requirements

outlined in this manual.

Bharti Airtel's PRM Process comprises of the following steps

o Categorization

o Rewards & recognition

o Satisfaction level

o Communication

o Grievances

Categorization

Partner categorization is done on the following parameters

o Business Size

o Business Impact

o Business Model



o Type of product/item/service

o Type of Technology & Domain knowledge

o Performance status

Partner Categories are

o Privileged Partners – Registered, approved, have contracts, currently

supplying and delightful in every aspect of business engagement.

o Preferred Partners – Registered, approved, have contracts, supplying

with satisfactory performance

o Present Partners – Registered, approved, have contracts and currently

supplying

o Potential Partners – Registered & Approved but no contract with them.

Partner categorization is decided by the panel of experts from costing

and pricing vertical of SCM function. Based on the category type,

following privileges are given to partners

Parameters Privileged Partners

Preferred Partners

Present Partners

Potential Partner

Strategic Partner

Strategic Partnership can done

– –- –

Airtel Facilities for Partners

Office space, Canteen, Parking

–- – –

Risk Risk Sharing – – –

Advances Max. 5% of the buying within a fiscal and recovery in 12 equal installments

requirement justification

– –

Engagement Meetings

High Medium Need Based

–

New Business opportunities

Preferred Preferred Considered over potential

Considered over non registered

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Rewards and Recognition

Consistent performance is the basis for rewarding and recognizing Partners.

The reward and recognition criterion is partner performance score card. The

performance is analyzed for different partner categories.

Parameters

The list of parameters and their weightages are

Sl. No. Ranking Parameters Weightages

1 Cost 25

2 Quality 15

3 Delivery 15

4 Development / Innovation / New Technology 10

5 After Sales service / SLA 15

6 Responsiveness / Flexibility 10

7 BACKWARD Compatibility / Scalability 5

8 Systems and Processes 5

Differentiators

Key differentiators for the parameters are

SN Parameter Key Differentiators

1 Cost Beating Inflation

Alternate Sourcing

Value Engineering

Continuous Cost Reduction Y-on-Y

2 Quality Minimum Failure on Receipt

No infant Failure

First time Acceptance

Quality Certification

Consistent Quality in long run

Quality Culture initiatives

Minimum Outage

Eco Friendliness

3 Delivery On Time, as required

Consistency



Handling Challenges

Delivery in Exigency

4 Development / Innovation / New Technology

Value Engineering

Time to Market

Competitive advantage

Value for Money / Value Added

Focus on R & D

Additional Revenue Stream

Go to Market

5 After Sales service / SLA

No Outage

Spares Availability

Meeting TAT

Preventive Maintenance

Response Time

Resolution within SLA

Detect ability of the defects - online monitoring

24 X 7 Support

6 Responsiveness / Flexibility

Meeting Challenges

Speed of Response

Willingness to raise the bar

Understanding Customer needs

7 BACKWARD Compatibility / Scalability

Product Life Cycle - integration with Technology

Timely Investments

Breadth & Depth

Alignment with Airtel 's Strategy

8 Systems and Processes

Proactive Regulatory Compliance

Innovative Business Models implementation

Improvement Focus



Partners are selected based on the following criteria

o Covers all major categories

o Major share of business in the category

The scoring of each partner is carried by an evaluation team consisting of

key users. Scores are compiled and ranking is carried out.

Award Categories

The award categories are dynamic and primarily depend on Airtel's Key

thrust areas for the fiscal.

o Product

o Services

o Special

Award Announcement

Awards are announced and presented during the annual partnership meets.

Consistent & good performers are recognized whereas bad performances

are warned and punitive actions taken, as required, from time to time.

Partner Satisfaction

Partner Satisfaction is considered as an important tool by Bharti Airtel to

improve and further develop its internal processes and external processes

with partners in the supply chain network. Partner Satisfaction is considered

o As an element of supply chain management including partnership,

supply management and collaboration, quality management and reverse

marketing

o As an analogical element with customer satisfaction including marketing

research

o As analogical approach with 360° methodology.

In order to obtain an unbiased feedback, the survey is conducted by an

independent external agency. Survey parameters are jointly decided by

partner approval team and the agency. These surveys are conducted once

a year for selected Partners.

The confidentiality of the survey data is maintained by the agency and is not

disclosed to Bharti Airtel.

The outcome of the survey would include

o Area of improvements

o Internal Benchmarks



o Competition Benchmarking

o Best Practices

The results and feedback received from the partner satisfaction survey

would be used to improve partner engagement processes at all levels of the

organization. Partner touch-points would also be given feedbacks on their

interaction & support effectiveness.

Partner Grievances

Bharti Airtel recognizes Partners as one of the key stakeholders of its

business and hence it is important to address their grievances in a

transparent and structured manner. Issues related to ethics and integrity is

handled by Ombudsman Process as per the Bharti Airtel Code of Conduct

policy.

All other grievances are monitored, reviewed and resolved by Supply Chain

Council. This council comprises of senior members of the supply chain

function.

Partner identity is kept confidential in case of sensitive grievances like

integrity issues.

Types of grievances

Grievances are broadly classified into the following categories

o Payments

o Dispute/Disagreement in business

o Unethical/Integrity/Code of Conduct violations

There are different channels through which Partners can register their

grievances

o Partner Portal (to be activated soon)

o E-mails to helpdesk

Overview of Partner grievances handling process is given below

Partner Grievance Handling Stages

Partner registers grievance through available channels

Receive the grievance and forward to respective teams.

Analyse the grievance and come out with action plan and then

implementation of the action plan.

Partners are communicated on the action taken.



Partner Communication

This section outlines Bharti Airtel requirements with respect to Partner

Communication. Bharti Airtel believes that Communication is the nerve line

for any partnership and focuses on establishing a transparent, two-way and

trusting relationship with all partners.

Communication with partners is done at different levels

o Functional Directors - Conceptualization of requirement, delivery timing

and KPI's

o User Owner - Delivery as per specification, timeline and usage

requirement

o Supply Chain Team - Commercial and Contractual Agreements

o Governance Team - Code of Conduct, Contractual Obligations and

Ethical Issues

Three types of communications are considered

o Strategic

o Operational

o Need Based

11.4.2 Evaluating Channel Members

The channel members need to be evaluated on a regular basis to assess

their performance. In case of Airtel, cellular service provider channel

members are evaluated on the basis of -

SN Ranking Parameters Weightages

1 Cost 25

2 Quality 15

3 Delivery 15

4 Development / Innovation / New Technology 10

5 After Sales service / SLA 15

6 Responsiveness / Flexibility 10

7 BACKWARD Compatibility / Scalability 5

8 Systems and Processes 5

11.5 Introduction to Logistics Management

Providing the right product at the right place in the right time is a challenging

task. Marketing managers are developing or outsourcing the better storage



and transportation facilities to make goods available to customers at the

right time. Therefore in the modern marketing, the study of movement of

goods (Logistics management) becomes prominent.

According to Philip Kotler, logistics management is

‘The tasks involved in planning, implementing, and controlling the physical

flow of materials, final goods and related information from points of origin to

points of consumption to meet customer requirements at a profit’.

The above definition clearly shows that logistics management involves

moving of the products and materials from suppliers to the factory (Inbound

logistics), and moving the product from the factory to resellers and to

customers (Out bound logistics). This stream of study involving the suppliers

and reverse distribution (returning products to factory) in the logistics

management is nowadays considered as supply chain management.

Supply chain management is the process of flow of goods, information and

fund from supplier’s supplier to consumer (supplier’s supplier- supplier-

factory- intermediaries- consumers) effectively and efficiently.

Supply chain management@ Airtel (adopted from www.airtel.in )

Bharti Airtel understands the importance of partners to remain competitive in

a dynamic business environment. As a step in that direction, the Supply

Chain (SCM) function has been created with a mandate to develop partner

relationships to maximize mutual opportunities for growth and profitability.

The SCM organization has a central core team of supply chain subject

matter experts and execution teams operating under different business

divisions across the country.

Supply Chain Characteristics Bharti Airtel Approach

Number & Structure Fewer; Clustered

Procurement personnel Limited

Outsourcing Strategic

Nature of Interactions Cooperative, positive-sum

Relationship focus Mutually-beneficial

Relationship focus Performance

Contract length Long-term

Pricing practices Target costing

Field Code Changed

http://www.airtel.in/



Price Changes Downward

Quality Designed-in

Delivery Smaller Quantities (JIT)

Inventory buffers Minimized, eliminated

Communication Extensive; multi-level

Communication Collaborative; two-way

Role in development Substantial

Production flexibility High

Technology sharing Extensive

Dedicated investments Substantial

Mutual commitment High

Governance Self-governing

Future Expectations Considerable

11.5.1 Major logistics functions

a. Warehousing: Goods produced at the factory may not be consumed

simultaneously. Therefore companies need to store the goods for future

consumption to take place. Companies able to use proper warehousing

facilities enhance their operation efficiency. Warehousing can also be

used as hub where goods come to the facility and cross docked.

Nowadays many companies are assigning this work to specialized

players in ware housing. Hence warehousing itself grew like separate

industry. Below is an example of how Barista, a coffee chain company

used the services of Safe Express (Logistics Company) to improve their

competitiveness.

b. Inventory management: Organizations need to store the goods required

for day to day operation. They cannot store high inventory as stock piles

up and cost also increases. They are not sure of demand fluctuation and

its impact on the inventory, so they do not want take risk by carrying little

inventory. For example, Safe Express which provides inventory solution

to Barista replenishes the goods on daily basis so that Barista can

maintain zero inventory space in their outlets.

c. Transportation: The goods need to be carried from one place to another.



Transporters ship the goods from supplier location to factory and from

factory to customer. They use different modes to perform the function.

The different modes are

i. Air transportation.

ii. Water transportation.

iii. Surface transportation.

iv. Pipelines and

v. Internet carriers.

i. Air transportation: This mode of transportation is used to transport

perishable goods thorough airplanes or helicopters. The dominant

characteristics of this mode are quick delivery, premium pricing and

limited quantity transportation. For example, fruits, vegetables, fish

etc. are the products that are transported using air transport.

ii. Water transportation: This is the slowest but most cost efficient mode

of transportation which involves ocean liners and ships. It can carry

wide varieties of goods but it can reach only limited places. This

mode is usually suited for bulky, low value non perishable goods. For

example, furniture, automobiles etc. will have to be transported

through water ways.

iii. Surface transportation: This mode is again divided as highway

transportation and rail transportation. It can carry wide variety of

assortments. In case of rail transportation it can carry bulky products

while in highway transportation it is of high value goods. For

example, rice, two-wheelers, etc. can be transported using rail and

roadways.

iv. Pipelines: This mode is excellent in meeting delivery schedules as it

is having fewer obstacles. The drawback of this type of

transportation mode is, it carries very limited variety of products and

covers very limited geographic space. The cost of the transportation

is very low. The most suitable products for this mode are oil, natural

gas and slurries products.

v. Internet carriers: This mode is used to carry digital products from

producer to consumer via satellite enabled modem or telephone

wires. Software companies, education institutions etc. are very few

service providers who are using this mode of transport.



Self Assessment Questions

1. A Strategy in which Company stores goods in maximum number of

Retail Outlets is _____________.

2. In Exclusive Distribution, maximum number of retailers enjoy the right

to sell in their Territory.

A. True B. False

3. SCPCA method is used to Analyze

a. Channel Motivation

b. Channel Design.

c. Inventory Management In Channel

d. All of the Above.

4. __________ Mode of Transport is used to transport goods like oil.

5. Internet is _____________ type of transportation mode.

11.6 Introduction to Retailing

Retail sector has witnessed tremendous growth in the last few years. The

major factors which drive the retail boom are change in consumer profile

and demographics, increase in the number of international brands available

in the Indian market, economic implications of the government, increasing

urbanization, credit availability, improvement in the infrastructure, increasing

investments in technology and real estate. The Indian retail market, which is

the fifth largest retail destination globally, according to industry estimates is

estimated to grow from US$ 330 billion in 2007 to US$ 427 billion by 2010

and US$ 637 billion by 2015. Simultaneously, organized retail which

presently accounts for 4 per cent of the total market is likely to increase its

share to 22 per cent by 2010.

As per Associated Chambers of Commerce and Industry of India

(ASSOCHAM), the overall retail market is expected to grow by 36%. The

organized sector is expected to register growth amounting to Rs 150 billion

by 2008. Retail is amongst the fastest growing sectors in the country and

India ranks 1st, ahead of Russia, in terms of emerging markets’ potential in

retail.

11.6.1 Characteristics of retailing

i. Direct interaction with customers. Retailer is the final link between



company and customer. Retailer understands the need of the

customer and provides the proper solution to him. For example,

neighborhood grocery store person knows his customer profile

better. He reminds the customer of what to purchase and provides

credit.

ii. Purchased in small quantity: Customer purchases small quantity of

merchandise at the retail store. Even if customer purchases less

quantity he will purchase it frequently. This has led to better

relationship between customer and retailer.

iii. Tool of marketing communication: Companies use retailer location

for point of purchase displays. They also encourage retailer to

promote the products through word of mouth communication.

11.6.2 Functions of retailing

i. Sorting: Retailers arrange the items in proper order so that customer

can easily identify the goods or services that he needs.

ii. Breaking bulk: The process of unpacking big packets into small

packets. Retailer will perform this function as customer may not be

able to purchase large quantity of goods and services.

iii. Holding stock: Retailer works as storage facility to organizations.

Retailer holds inventory to meet the day to day needs of consumer.

iv. Channels of communication: Retailer promotes the company product

through word of mouth communication. The retailer location is also

used for point of purchase display.

v. Transportation: Retailer undertakes door delivery order in case of

durable goods. This feature is now adopted by the small grocery

stores also.

11.6.3 Type of retailing

A. Store retailing: The mode of retailing where a store is essential in a

particular location to do business. Store retailing can be performed in

different formats. They are

1) Specialty store: The stores carry large amount of merchandise but in

limited product lines like Textile store or furniture store. For example,



Tanishq, jewelery retail store.

2) Department store: In this retail format, apparel, home furnishing and

consumables goods and services are sold. Each of the formats is

considered as a different department and managed in the retail

store. For example, Shoppers Stop of Raheja group.

3) Supermarkets: According to Philip Kotler supermarkets are a

relatively large, low cost, low margin, high volume, self service

operation designed to serve the consumer’s total needs for food and

household products. For example, Food World of RPG group.

4) Convenience store: These stores are very near to customer

residence; usually carry or hold day to day products of high turnover

at premium price. For example, Reliance Fresh

5) Discount store: These stores sell products at low prices with low

margin. The store achieves their profit by generating high volumes.

Subhiksha, a south India based retailer follows this format.

6) Off price retailers: This type of retailer buys the goods at less than

wholesale prices. These products are sold at lesser than retail

prices. For example, factory outlets in Marathahalli, Bangalore.

7) Super stores: These are very large stores where customer can

purchase food and non food products. The super store includes



category killers that carry large merchandise in a particular category.

For example, Nalli sarees which carries a large variety of sarees in

their stores. Another type of super store format which exists in India

is Hypermarkets. These retail outlets have huge space and carry

large merchandise. For example, Reliance Mart in Ahmedabad.

B. Non store retailing: The mode of retailing where a company uses

electronic media or direct selling medium to sell their products. For

example, direct selling, Telemarketing, Automatic vending, online

retailing and direct marketing. These examples will be discussed in

detail in the Unit 13.

11.7 Wholesaling

According to Philip Kotler wholesaling is ‘All activities involved in selling

goods and services to those buying for resale or business use’.

Wholesale trading in India is changing in character. Since pre-

Independence, it has been dominated by the traditional caste-specific

trading community. However, today, foreign investors seem to be making a

beeline for this traditional trade. Government approved Rs 256.79 crore

worth of investment in the last three months. The Foreign Investment

Promotion Board (FIPB) had approved 100 FDI proposals, out of which 33

are proposals to undertake wholesale trading in India by foreign companies.

These are in a wide range of product categories – from shoes to animal

feed, from color TVs and electrical equipments to hardware for doors and

windows, to name a few. This is revolutionary change in the wholesale

business because earlier foreign companies looking at wholesale trading in



India were mainly interested in importing products to sell in the Indian

market. But now these companies are coming in purely as trading firms and

sourcing and selling domestically only. This may pose strong competition to

the local trading population. The single largest investor in wholesale trading

to have got Government approval is Cargill Holding BV of Holland, which is

poised to invest Rs 238 crore for trading in commodities including food

grains and animal feed, and other industrial commodities. Similarly, Sharp

Corporation of Japan, which already has a manufacturing base in India, will

now start trading in color TVs, VCRs and similar items from other

manufacturers as well. The UK-based Randox Laboratories, whose

products were earlier imported by domestic importers, will now be setting up

its own subsidiary with an investment of Rs 15.5 crore for importing its own

products and undertaking wholesale trading in them.

11.7.1 Functions of wholesaler

1) Selling: Wholesalers have well defined network of retailers. Hence, they

can sell the company product in the large area.

2) Bulk breaking: Wholesalers buy the product in large quantities and send

in small quantities to retailers.

3) Warehousing: Wholesalers have huge space to store the goods. They

help in reducing the inventory cost to the company.

4) Transportation: Some companies have agreements with wholesalers on

transporting the goods to retailers.

5) Credit and risk taking: Wholesalers provide credit to the retailers. By

doing this they take the risk of finance as well as products.

6) Information: Wholesalers provide the information to company on

retailers’ purchase, retail market characteristics.

Activity 2:

Make a list of wholesalers in your locality and identify the various

tasks they perform with respect to the products they deal with.

11.7.2 Types of wholesalers

Merchant wholesalers. These are independently owned wholesalers who

take the risk of possessing the titles. Often they are classified on the basis

of product line. Full service wholesalers perform all the above mentioned



functions. Limited service wholesalers offer controlled services to retailers

and customers. For example cash and carry business of METRO in

Bangalore.

Brokers and agents: These wholesalers do not take the title of goods and

perform few functions. Brokers have knowledge of buyer and seller, and

bring both to the negotiation. Agents represent the company or retailer or

customer on a permanent basis.

Self Assessment Questions

6. Tanishq is an example for __________ type of store.

7. Discount store sells the product at low price and high margin

a) True b) False

8. Hypermarkets are examples of

a) Discount store

b) Department store

c) Super markets

d) Super stores.

9. Direct selling is a type of retailing

a) True b) False

10. Cash and carry business is an example of

a) Full service merchant wholesaler.

b) Limited service merchant wholesaler.

c) Agent

d) Broker.

11.8 Summary

Marketing channels perform physical distribution, transportation,

warehousing, financing and risk taking functions.

Channels are designed on the basis of reach, profitability and

differentiation objectives.

Companies decide the number of marketing intermediaries on intensity

required. They may use intensive distribution, exclusive distribution or

selective distribution.



SCPCA method is used to evaluate the channel design.

Three major logistics functions performed are warehousing, inventory

management and transportation of goods.

Specialty stores carry large amount of merchandise but in a limited

product lines like textile or furniture product lines.

Wholesaling is defined as ‘All activities involved in selling goods and

services to those buying for resale or business use’

List of Key terms

Marketing channels

Marketing intermediaries

Channel management

Logistics

Retail

Wholesalers

11.9 Terminal Questions

1. Discuss the decisions involved in setting up marketing channels.

2. Explain the functions of marketing channels.

3. Describe the major logistics functions with examples.

4. Write a note on retailing.

5. Explain the different types of wholesalers.

11.10 Answers

Answers to Self Assessment Questions:

1. Intensive distribution.

2. False

3. Channel design

4. Pipeline

5. Satellite

6. Specialty

7. False.

8. Super store.

9. True

10. Limited service wholesaler



Answer to Terminal Questions:

1. Refer 11.3

2. Refer 11.2.1

3. Refer 11.5.1

4. Refer 11.6

5. Refer 11.7

11.11 Mini-Case

Better Late than ever

Safe Express is on right time with front, the mocha and crackers. Its Just-In-

Time Management ensures minimal inventory for the Barista chain of coffee

bars. Both parties are involved in a win-win situation

Barista, one of the favored outlets for coffee and snacks in the Indian sub-

continent, is a good example of transparency in supply chain management

operations. In fact, it would be a good case study to highlight as to how a

logistics service provider can make his operations transparent to the

consumer oriented company, in this case, the Barista chain of coffee shops.

For the newly established Barista outlets in Indian cities, warehousing the

supplies at posh locations in the heart of the city is a costly proposition.

Leading logistics company Safe Express has taken over as third party

logistics (3pl) partner to supply each Barista outlet in different Indian cities

their ingredients for that just right coffee cup, Just-In-Time, (JIT). This will

leave Barista absolutely free of any investment and recurring costs for

logistics and warehouse management.

Warehouse management is the latest area where companies are trying to

cut the costs and dilute the level of resources employed to that area.

Outsourcing logistics is a trend that started with the large supermarket chain

in the United States and Canada. For the supermarket in North America,

logistics is a non-entity as far as the operations workflow chart goes. They

just concentrate on the maintenance of the shelf space. The JIT operations

aided by weather forecasting are fully carried out by third party logistics

providers.

Safe Express, with considerable expertise in Supply Chain Management,

looks after the distribution and inventory requirement of Barista outlets



operating from its mother warehouse in Delhi. This mother warehouse

further supports three regional warehouses in Mumbai, Calcutta and

Bangalore. Barista currently operates 82 outlets across 11 cities in India. It

is serving around 15,000 people every day, and by the look of things, this is

just the beginning of a bigger wave. With a new outlet opening every 10

days, Barista expects to have 175 coffee bars by 2003.

In such a scenario, how does Barista manage its supply chain? This, of

course, is not its core business but is still critical to its success. The answer

lies in their logistics and Supply Chain Management Company, Safe

Express. Safe Express, India's largest express company, offers complete

logistics management solutions to Barista and in a way contributes to giving

the Barista customer a world class coffee experience at a much better price.

A typical Barista outlet world is 1000 sq-ft store with seats around a table.

Around 95 per cent of the space is occupied by around 60 seats and the

rest of it is the administration utility corner required for processing orders.

The inventory space is zero per cent and a set amount of supplies ranging

from paper cups to coffee beans are replenished on daily basis. The daily

replenishment ensures minimum order quantities. The efficiency of supply

chain, in such a case, becomes a critical issue and hence requires the best

of logistics management.

Safe Express, with its hands fully into Supply Chain Management looks after

the distribution and inventory requirement of Barista outlets operating from

its mother warehouse in Delhi, Which further supports three regional

warehouses in Mumbai, Calcutta and Bangalore.

The above four warehouses cater to the supplies for the outlets in the

respective cities as well as the whole of that region's outlets. So Delhi's

mother warehouse is the biggest of the four supplying the remaining three at

Mumbai, Calcutta and Bangalore, as well as all the four regions' demands.

All three regional warehouses in Mumbai, Calcutta and Bangalore have one-

week stock for fast moving items and three-week stock for slow moving

items.

The Safe Express logistics strategy focuses on reducing product response

time, thereby ensuring that the customer's demand is met at the right time,

right place and at the right cost. The key lies in understanding the customer



demand pattern, tracking transit time reliability, capturing real time data and

through continuous replenishment. Any supply chain strategy has to dovetail

with the business strategy. The two have to be in tandem and there has to

be a perfect alignment between them, which is exactly what Safe Express

aims to do. So with Safe Express in charge of Barista's supply chain

operations, the much-desired cup of coffee will never be late, will never be

unavailable.

How the supply chain in this new venture is going to be in a win-win

situation is something worthwhile to contemplate, given the rich experience

that Safe Express has. Safe Express Barista tie up is an example for those

who are trying to get familiar with the role of third party logistics or what is

popularly known as 3PL partner's role in Supply Chain Management in the

current business environment.

As globalization catches up, outsourcing is getting more and more popular

as a business strategy. In the supply chain management, 3PL is a proven

practice worldwide and is gaining acceptance now in India as well. Ideally, a

3PL partner should unburden a client of its logistics tensions. At the same

time, a 3PL partner must prove credentials by way of ensuring cost

rationalization as a measurement of his performance.

Safe Express as an expert 3PL solution provider is exactly trying to be the

same role model that purists of Supply Chain Management philosophy talk

of i.e., to really unburden Barista of its logistics tensions through expert

logistics manpower, optimum utilization of resources, including manpower,

space, infrastructure, etc.

Barista stands to gain from Safe Express' faster TAT for all performance

indicators, handling expertise of consignment, products in general.

Currently, Safe Express is having a nationwide network of over 425

metropolitan cities and townships with state-of-the-art infrastructure, backed

by cutting edge Information Technology, systems and warehousing space

exceeding one million square feet. The company has more than 2,000 all

weatherproof IICL V containerized vehicles, covering 750 routes, through 20

hubs and super hubs. Being a frontline 3PL company its domain knowledge

of all aspects including statutory, functional, operational, logistical and

managerial will also go a long way in maintaining smooth operations. And

no doubt it will boost cost effective partnership.



Further, Safe Express has the capability to suggest business models

packaging parameters, reduction of logistics costs, as a value addition to its

customers. Domestically, Safe Express is the largest 3PL-service provider

with over 40 customers in the 3PL area. Meaning Safe Express can not only

carry expertise and experience in 3PL, but also can bring in these

experiences to best use in whichever of the crunch area client is requiring,

as bulk of its expertise comes from Indian context.

Safe Express is streamlining its warehouse management too by developing

innovative software and web tracking facilities. It has offered to create

warehouse space for Barista to offer effective warehouse management

system and complete MIS solutions. It will be offering its solutions through

in-house WMS software, which has been developed and customized on the

Tally based platform. The end result is a completely, web compatible

solution for cargo and warehouse management. This shall be utilized

wherever there is a gap of reports/analysis in the Barista system, if any.

Safe Express has also offered Barista a completely web based waybill

tracking system for online delivery tracking of consignments. Safe Express

has adopted state of the art information technology applications to leverage

value added services. The company provides on-line real time information

through its unique track and trace system. Safe Express has also pioneered

a perfect blend of 'Radio Trunking' technology, along with V-SAT links and

satellite communication for monitoring route vehicles and intra city runs

through a Global Positioning System. Strategic Alliances with Supply Chain

Management Software Organizations provides a cutting edge for a holistic

service. In the end that cup of coffee tastes doubly good.

Considering all the above facets and strategies, a logistics expert with your

assistance wants to note down the strengths and opportunities of the Safe

Express.

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Documents

sikkim manipal

supply chain

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company stocks

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scpca method

wholesale