Chapter 11

Distribution

Chapter Outline:-
❖ Distribution
❖ Types of Distribution Channels
❖ Functions of Channel Members
❖ Levels of Channel
❖ Types of Intermediaries
❖ Intensity of Distribution
❖ Factors affecting Choice of Distribution Channel
❖ Logistic Management
❖ Objective, Importance and Elements of Logistics
❖ Transportation, Warehousing and Inventory

11.1 Introduction:-
Distribution is less glamorous side of marketing especially when you compare this to advertising
which is more limelight hogging activity. Still you can’t ignore distribution as it is key external
resource. After all you need to make your products and services available to the places where
customers can buy them. It is vital for any company to succeed. It is bit easier in advanced
economies like USA, UK etc. It becomes a challenge and critical for a country like India where
lack of transportation, infrastructure and logistics facilities pose substantial challenge in front of
the marketers. Distributing to rural India is much more challenging but market there is too huge to
be ignored. HUL has done an excellent job in rural India and same is true for SBI also.

11.2 Definition:
Distribution or Place refers to the organizations or intermediaries involved in making a product
and services available to the customers from the manufacturer.

The definition can be understood with the help of an example. Suppose Nike has the manufacturing
unit set up in Indonesia/China. But the company has to make its product available in Russia, India,
Europe, and USA or let us say all around the whole world. All those who help in bringing shoes
to the consumer from the factories are the channel members who include wholesalers, retailers,
agents, brokers etc. They are called intermediaries, middlemen, dealers, resellers or distributors.

Distribution is about getting the product or service to the customer as conveniently as possible; it
deals with access and availability.

'Place' is concerned with various methods of transporting and storing goods, and then making them
available for the customer. Getting the right product to the right place at the right time involves
the distribution system. The choice of distribution method will depend on a variety of
circumstances. It will be more convenient for some manufacturers to sell to wholesalers then
selling to retailers, while others will prefer to sell directly to retailers or customers.

11.3 Functions of Channel Members

Earlier channel members were considered just the middle men but by the time they have evolved
as partners. They are the producer’s first customers and are partners. They add value to the
marketer’s offer. There are certain functions which are as under:

❖ Making Products Available:

This is the most basic and the obvious function. Manufacturers produce the products and sell
these to the wholesalers/retailers who in turn resell to the customers.

❖ Providing Information:

Intermediaries are critical here as they are a great source of information because they are close
to the consumers as compared to the manufacturer. Retailers can give you information like
which models are liked? Which models are moving fast, slow and so on?

❖ Physical possession:

The intermediaries take the physical possession of the products and then transfer this possession
and title to the consumers. If PepsiCo India sells 1100 packs of Lays to Big Bazaar, then Big
Bazaar has taken the physical possession of the products. Vast arrays of transportation
alternatives are available for intermediaries to manage the physical flow of the product to the
user.
 Figure 11.1: Basic Distribution channel Functions

❖ Financing:

Intermediaries indirectly finance the manufacturer by reducing the inventory thereby reducing
the burden of carrying cost and they directly finance the customers by giving goods on credit.

❖ Risk Taking:

Intermediaries not only take possession of the goods and transfer the title of the goods and
services to the consumers. But they also take the risk. They take the risk of not selling at all or
underselling, getting struck with the product, breakage risk during the transportation, pilferage
and theft risk, obsolescence and deterioration etc. Additional risk can come from uncollectable
customer accounts.

Imagine a situation that in a retail outlet, a kid breaks some bottles of jam in the store and
nobody notices. Whose loss is this? Now assume there is a sudden cyclone and no one shops.
Who has suffered loses here? Answer is intermediary. Hence, several risks are assumed by the
intermediaries and we should be thankful for that.
 ❖ Negotiation

Channel members also help in negotiation. In case of institutional purchase, negotiation is a must
be part of the whole purchasing exercise. This role is performed beautifully by the distribution
channel.

❖ Value-Added Services:

Intermediaries make the offer of the manufacturer more valuable by offering service that would
add value to the basic product. These services may include customer service, providing
accessories along with the main product, home delivery, financing options etc.

❖ Buying and Selling:

An intermediary buys products for resale to other intermediaries or to final business users. An
intermediary with a capable sales force supported by established warehouse distribution centers
would be a valuable channel addition.

❖ Storing:

Intermediaries make the arrangement for the storage of the products. They store the products to
satisfy customer purchase requirements in a timely manner.

❖ Transporting:

Channel members take the responsibility of transporting the product from the place of
manufacturing to the place where it would be consumed. Of course here the channel members take
the help of the facilitators.

11.4 Types of Distribution Channels:

Distribution channels can be direct and indirect. A channel is said to be direct if it involves no
intermediary. There is a direct contact of manufacturer with the customers. A channel becomes
indirect if intermediaries are used between consumers and the manufacturer.

a) Direct Channel of Distribution:

This is also known as zero level distribution channel. This is the simplest and shortest channel in
which no middlemen is involved and producers directly sell their products to the consumers. It is
fast and economical channel of distribution. Under it, the producer or entrepreneur performs all
the marketing activities himself and has full control over distribution. A producer may sell directly
to consumers through door-to-door salesmen, direct mail or through his own retail stores. Big firms
adopt this channel to cut distribution costs and to sell industrial products of high value.

Manufacturer Customers

Figure 11.2: Direct Distribution Channel

b) Indirect Channel of Distribution

A channel is known as indirect if intermediaries are added between customers and manufacturers.
The added intermediaries can be wholesalers, retailers and distributors. Depending upon the
number of channel partners or members the channel is said to be 1 level, 2 levels and 3 levels.

Manufacturer Customers

Intermediaries

• Wholesalers
• Retailers
• Agents
• Brokers
• Manufacturer’s
Representatives
• Sales Branches

Figure 11.3: Indirect Distribution Channel

11.4-1 Levels of Channel:-

On the basis of number of channel members involved, there are four types of channel are possible
in the markets which are as follows:-

1. Zero Level:-

As the name represents, there is 0 or no intermediary present between the marketer and the
customers. It is also known as direct channel of distribution. Big firms adopt this channel to cut
distribution costs and to sell industrial products of high value.

Conditions in which Zero level distribution is feasible:-

• Zero level is feasible when customers’ transaction amount is high and customers are well
defined and customers insist on direct sales.
• The method suits for the technical and complex products as well where the buyer wants to
have the installation or demonstration from the manufacturer’s end. The situation is true
for industrial products hence this method accounts for majority of B2B transactions.
• Zero level distribution is used by the manufacturers who don’t have the financial
constraints and want to cut the distribution costs.
• Small producers and producers of perishable commodities also sell directly to local
consumers. This makes sense as longer the distribution channel, more the chances of
deterioration.
• Manufacturer wants the control over distribution and control of selling job is necessary.
Manufacturer also wants to ensure proper implementation of the total product package and
to guarantee a quick response to market conditions.

Examples:

• Expedia (the online travel site that can beat the rates of almost any travel agency, while
giving customers more choice and more detailed information on their vacation
destination)
• PropertyGuys.com (offers a DIY kit for homeowners who want to sell their houses
themselves)
 • iTunes (an online music purchasing platform that won’t have you sifting through a
jumble of jewel cases at your local HMV)
• Amazon.com (an online sales platform that allows small-scale buyers and sellers to
access a broad audience without the need for an expensive storefront or a custom
website)
• Dell and Amway.

2. One level distribution channel:-

This channel of distribution involves only one middleman called 'retailer'. Under it, the producer
sells his product to big retailers or retailers who buy goods in large quantities who in turn sell to
the ultimate consumers. This channel relieves the manufacturer from burden of selling the goods
himself and at the same time gives him some control over the process of distribution. This is often
suited for distribution of consumer durables and products of high value.

This method is useful when retailers are strong and carry a huge customer base. It also makes sense
to go for one level distribution channel when the cost of inventory is very high and would be very
expensive to use the wholesalers.

3. Two level distribution channel:-

This is the most common and traditional channel of distribution. Under it, two middlemen i.e.
wholesalers and retailers are involved. Here, the producer sells his product to wholesalers, who in
turn sell it to retailers. And retailers finally sell the product to the ultimate consumers. This channel
is suitable for the producers having limited finance, narrow product line and who needed expert
services and promotional support of wholesalers. This is mostly used for the products with widely
scattered market. Low cost low unit value products use the two level distribution channel.

4. Three level distribution channel:-

This is the longest channel of distribution in which three middlemen are involved. This is used
when the producer wants to be fully relieved of the problem of distribution and thus hands over
his entire output to the selling agents. The agents distribute the product among a few wholesalers.
Each wholesaler distributes the product among a number of retailers who finally sell it to the
ultimate consumers. This channel is suitable for wider distribution of various industrial products.
This method is also suitable in a situation when there are large numbers of small manufacturers
and retailers are there. Agents ensure the large supply of the product.

PRODUCERS OF CONSUMER GOODS

AGENTS
AGENTS

WHOLESLERS
WHOLESALERS

RETAILER RETAILER RETAILER RETAILERS

ULTIMATE CONSUMERS

Figure 11.4: Consumer channels

PRODUCERS OF BUSINESS GOODS

AGENTS AGENTS

DISTRIBUTORS/ DISTRIBUTORS/
MERCHANT MERCHANT
WHOLESALERS WHOLESALERS

BUSINESS USERS

Figure 11.5: Business Channels

11.5 Types of Intermediaries/channel members:

The various types of intermediaries are mentioned in the diagram given above. But most
commonly used those of all are wholesalers and retailers.

❖ Wholesaler:-

A wholesaler is someone who buys from the manufacturer and sells to other retailers. Typically
wholesalers buy in bulk so they keep little margin for themselves. Wholesalers are very important
for a country like India especially in rural India where transportation and logistics are the major
problems.

The major functions performed by the retailers include the following:

✓ They break down 'bulk' into smaller packages for resale by a retailer.
✓ They buy from producers and resell to retailers. They take ownership or 'title' to goods.
✓ They provide storage facilities. Manufacturers sell on to a wholesaler that will store it
and eventually resell to a retailer.
✓ A wholesaler will often take on the some of the marketing responsibilities. Many
produce their own brochures and use their own telesales operations.

❖ 2.2.2 Retailer:-

This is the most visible face of the distribution system. Retailers are the institutions or people who
buy from the wholesalers in small quantity and then sell products to the consumers. They deal in
smaller quantities so they charge a higher margin. India has the largest number of retailers in the
world. Majority of the people are in the unorganized retail. It can be understood by the reluctance
of the government in allowing FDI here in India because of fear of unemployment. Off late in
India too retailers like Shopper’s Stop, Big Bazaar and Life Style have emerged as strong brand
themselves.

Major functions performed by the retailers are as follows:

✓ Retailers maintain a much stronger personal relationship with the consumer.

 ✓ The retailer holds the assortment of brands and products.
✓ Retailers offer credit to the customers.
✓ Products and services are promoted and merchandised by the retailer.

**Wholesalers and Retailers are known as merchant intermediaries as they take the title of the
product.

❖ Agents/ Brokers:-

Agents are the channel partners that make producers meeting with the resellers or the buyers.
Agents are mainly used in international markets. An agent typically secures an order for a producer
and will take a commission. They don’t take the title of the goods and work on the commission
basis. This means that capital is not tied up in goods. However, a 'stockist agent' will hold
consignment stock but the title will remain with the producer. This approach is used where goods
need to get into a market soon after the order is placed e.g. foodstuffs.

Some disadvantages associated with using agents as channel partners are that agents are very
expensive to train. It becomes difficult to keep a control over them and they are difficult to
motivate.

Agents are normally used in international marketing. One can also find the use of agents in
insurance, tickets for entertainment, accommodation, etc. Perhaps the most common example of
an agent would be a travel agency. They never own the holidays or credit the full amount of the
sale to their business. Instead, they act as a link between the holiday resort and the consumer,
taking a commission on the sales.

❖ Manufacture’s representative

These are the intermediaries who do not take title to the products and do not hold inventory of the
products. These are usually limited to defined geographic areas and typically represent several
companies in the same geographic area. They sell noncompeting, but complementary products.
These are compensated on the basis of commission.
 ❖ Sales Branches

Sales branches are the part of the manufacturer’s organization situated either on-site or off site.
These branches don’t carry the inventory and their role is to sell the organization’s products.

❖ Channel Transaction facilitators

These are the organizations which neither take title nor carry inventory. These provide services
such as storage, transportation, or arranging of sales. These organizations can be independent
warehouses, carriers or manufacturer’s representatives.

11.6 Intensity of distribution/Width of the channel:

On the basis of market coverage, a channel can be of three types:

1) Intensive Distribution:

This is a kind of distribution system that uses to place its product or services in as many outlets as
possible. A company sells through as many outlets as possible, so that the consumers encounter
the product virtually everywhere they go. In this channel, little manufacturer control is there. This
method is suitable where a customer has a choice to choose from a number of brands. It happens
normally in case of convenience goods. The goods supplied here are of low value and are
frequently purchased. Normally this system requires a long channel of distribution.

2) Selective Distribution:

This distribution system goes for few retail outlets. Here some manufacturer control is there over
the channel. It works for the products in which the customers can shop around for a product
means they have brand preference and can travel or visit to a particular outlet to buy that.

3) Exclusive distribution:

Manufacturer appoints one or a few dealers within an area. This system is used for consumer
specialty goods and major industrial equipment. This system creates image of exclusiveness for
the product. Here the manufacturer can exert full control over the channel. Example: Armani
Suites, Louis Vuitton.
11.7 Factors Affecting Channel Decisions
The selection of distribution is affected by many of factors, which play significant role while
choosing the channel for distribution. These are explained as under:

11.7-1 Product Specific factors:

The type and nature of the product will determine the distribution channel used by the company.
It includes the following:

• Type of Product

What is the type of product in which a manufacturer is dealing will determine the distribution
channel. Industrial products will have a direct distribution channel because of technicality,
requirement of after sales services and complexity involved while the consumer products would
have longer distribution channel because of wide range of customers dispersed geographically and
frequency of purchase. The consumer products of technical nature like TV, Oven, Geyser, PC’s,
and Laptops etc are generally sold through retailers.

Perishable products like meat, bread, milk would have shorter distribution channel while the
durables like furniture can have the longer distribution channel.

• Positioning of the product

The image of the product in the target customer’s mind will decide the distribution channel used
by the firm. The products having the mass appeal will have a longer distribution channel while the
premium image products will have the shorter distribution channel.

• Unit value and usage of the product

Products of low unit value and of common use are generally sold through middlemen, whereas,
expensive consumer goods and industrial products are sold directly by the producer himself.

11.7-2 Market Specific Factors:-

Markets affect the type of distribution channel used. It includes the following:
 • Geographical Concentration of the market

If the number of prospective customers in market is small or the market for the product is
geographically concentrated or located in a limited area, direct selling is more suitable. While in
case of a large number of potential customers, use of middlemen becomes necessary.

• Size of the order

If the customers place order for the product in big lots, direct selling is preferred. But, if the product
is sold in small quantities, middlemen are used to distribute such products.

• Type of Customer

Distribution channel’s choice also gets affected by the type of customers being served by the firm.
If industrial customers are there, they would go for shorter channel of distribution while the normal
or the end consumers can get their products through the longer distribution system. For instance,
computers will be sold direct to organizations but through resellers to end customers.

• Consumer Behavior

The distribution channel gets affected by the behavior of the consumers. It includes what they
think how their product should be delivered to them. Here it is important to analyze from where
they would love to shop for the products? It requires the complete understanding of the behavior
of the customers in terms of information and product needs.

11.7-3 Internal Considerations/ Firm specific Factors

The producer or the manufacturing firm itself affects the distribution channel used. It includes
the following:

• Control over the distribution

The philosophy of the management of the firm will determine the distribution channel used by
the firm. If the firm wants to have stiff control over the distribution, it should go for direct
distribution channel. If the firm can loosen the control over distribution, then it may think of
longer distribution channel. Financial condition of the firm will also determine the distribution
channel used. A financially sound firm can go for direct distribution channel.
 • Cost and Profit Considerations

The cost considerations and profit margins play a great role in shaping the distribution channel
decision. Each channel member added will eat into your profit and add up the cost of the product.
A low profit margin, high volume company will have a longer distribution channel. While a high
profit margin, low volume company will have shorter channel of distribution.

• Range of Products manufactured

A manufacturer producing a wide range of products may find it economical to set up his own retail
outlets and sell directly to the consumers. On the other hand, firms producing a narrow range of
products may distribute their products through wholesalers and retailers.

• Demand of the product

If the demand for the product is high, more number of channels may be used to profitably distribute
the product to maximum number of customers. But, if the demand is low only a few channels
would be sufficient.

• Desired channel members’ availability

The nature and the type of the middlemen required by the firm and its availability also affect the
choice of the distribution channel. A company prefers a middleman who can maximize the volume
of sales of their product and also offers other services like storage, promotion as well as after sale
services. When the desired types of middlemen are not available, the manufacturer will have to
establish his own distribution network.

11.8 Logistics Management

Logistics as an important function of marketing ensures the flow of goods and services between
point of origin and the point of use in order to meet the requirements of customers or corporations.
It is a channel of supply chain that adds value of time and place utility to the product or service.
Logistics involves the integration of information, transportation, inventory, warehousing, material
handling, and packaging, and often security.
This can involve anything from consumer goods such as food, to IT materials, to aerospace and
defense equipment. Logistic management plays an important role in automobile manufacturing
industry. Toyota is one of the successful companies and created a profitable margin by controlling
cost through logistic management over the years. Logistic is defined as a business planning
framework for the management of material, service information and capital flows. It includes the
increasingly complex information, communication and control systems required in today’s
business environment.

Managing the flow and storage of material goods between people and places is known as logistics
management.

It is the process of planning, implementing and controlling the effective and efficient flow and
storage of goods/services from the point of origin to the point of consumption for the purpose of
conforming to the customer requirements.

Material Flow

Raw Procurement Manufacturing Distributor

Material operations
Supplier

Customer

Information Flow

Figure 11.6: Diagram showing Typical Logistics Arrangement

11.8-1 Objective of Logistics Management:

The main objective is to link the market place, the distributors, manufacturer and the procurement
so as to fulfill the customer requirements at a reasonable cost. Although the only objective is not
to reduce the cost of the supply chain but also ensures the delivery of the product at right place,
time, quality, quantity, condition to the right customers. In other words the logistics management
needs to ensure the 7 R’s which are as follows.

Seven R’s of Logistics:

Logistic consist of seven Rs which are:

• Right Cost
• Right Place
• Right Time
• Right Quantity
• Right Condition
• Right Product
• Right Customer

Logistics system aims to make the seven critical component of marketing RIGHT. Right cost says
that cost of the item being distributed should be justified. It should not increase on account of
ineffective distribution. Right place says the product should be made available at a place where it
is required and customers can easily locate. Time is very important aspect of distribution. The
product should reach within the stipulated time to the customer. This becomes gain very important
in case of perishable products. Distribution should also ensure the right quantity as required. It
should result minimum wastage of the material and should reach the customer in the intact
condition. Each product requires special and different distribution conditions and settings, so
logistics should carry the right product. Lastly it should reach to the right customer.

11.8-2 Importance of logistics management:

1) Making the product and services avaliable to the customers

Logistics help in making the products and services available to the customers in time and in the
right condition.

2) Logistics make significant part of cost and expenditures

Logistics costs can be 6-7% of the gross sales for an individual organization. It can be up to 15%
for sectors like cements and bulk material. So it becomes important to manage this function.
3) Logistics gives a Sustainable Competitive Advantage (SCA)
Logistics not only helps the company getting its products and services available to the customers
but it also helps a company to gain strategic advantage over its competitors. Just recall the example
of Wal Mart and Dell.

11.8-3 Elements of Logistics:

There are eight activities that need to be discussed for an effective and efficient logistics system.
These activities are explained as under:

❖ Production Planning

Production planning means acquisition and allocation of limited resources to production activities
so as to satisfy customer demand over a specified time horizon. The objective here is to develop a
plan that meets demand at minimum cost or that fills the demand that maximizes profit. Production
planning is one of the crucial activities in logistic. It affects the budget of procurement directly
which in turn affects the cost. Any wastes while production like overproduction, defects, excess
of inventory and over processing (using more energy) will cause a significant loss to the company.

❖ Storage and Warehouse

Warehouse is the place where raw material and finished goods are stored. Warehouse size has to
suit the size of a company to prevent underuse of the assets. Goods are stored in warehouse before
they are moved to next place. Warehouse is to store inventory such as finished goods and raw
material to enable them to perform optimally although after a long period of storing. Warehouse
has the function of keeping inventory in a safe and optimum mode to eliminate unnecessary wastes
that can be prevented.

Warehouses act as buffers against fluctuating demand as these hold stocks so that more economic
production runs can take place and enable materials to be held in case shortage of supply.

❖ Procurement

Procurement is the inbound activity in a supply chain where inbound is the activity of purchasing
raw material. In involves activities like purchase planning, standard determination, specification
development, supplier search and selection, value analysis, pricing and negotiations, making the
purchase, supply agreements, inventory control and stores etc. It is an important activity as it
affects the expenses and production of a company directly. Procurement is normally done from
local supplier in order to provide an efficient performance and also contribute to the local
community.

❖ Packaging

Packaging is the activity where raw material or finished goods are to be protected from the
damages that can occur during transportation or handling and storing in warehouse. Other than
that, packaging can also differentiate the goods by labeling. Different inventory has different
material to protect or wrap. The way of packaging will also determine the quantity of goods to be
transported in a time. Proper packaging will not only reduce the rate of spoilage but also allows a
larger quantity of goods to be transported in one time.

❖ Materials Handling

Material Handling is the movement, storage, control and protection of materials, goods and
products throughout the process of manufacturing, distribution, consumption and disposal. The
focus is on the methods, mechanical equipment, systems and related controls used to achieve these
functions. Material handling will affect the company business as it may alter the efficiency and
spoilage rate.

Material handling systems range from simple pallet rack and shelving projects, to complex
conveyor belt and Automated Storage and Retrieval Systems (AS/RS). Material handling can
also consist of sorting and picking as well as automatic guided vehicles. The most common
material handling equipment is forklift truck, which commonly found in warehouses or docks.
Forklift truck has a range of sizes for different purposes. A well management of material
handling can help company to save cost in term of manpower and also minimize error or reduce
spoilage rate when presenting to customers.

❖ Transportation

Transportation plays an important roles in logistic as it is the only activity that carries goods from
one place to another. The aim of the transportation should be to assure that goods reach on the
right time and the right place. Transportation modes consist of air, land and sea mode. Normally
various modes will use together to complete a transportation.

❖ Customer Service

Companies need to maintain the relationship with the customers to obtain sales after sales. For the
same, company should be ready to provide the services required by the customers at any phase of
purchase. There are few elements such as time, dependability, communications and convenience
to determine standards of customer service provided. The customer services will not only add
value to the transaction but will also create a partnership with the customers. This would result
locking-up customers in the form of relationship.

Customer service can be considered as the feedback of a company performance where with
customer service, company can prevent stock-out, reduce order cycle, and upgrade distribution
system in flexibility to meet unexpected needs and response time and quality of service after sales.

❖ Order Fulfillment

Order fulfillment refers to processing order of customers efficiently to deliver the goods to
customers in right time, right price, right quantity, right condition, right product and also right
customer. Back order will occur in the case where orders are not completed in the first time. This
will cause to reprocess order including rearrangement of transportation to the same customer. It
will add on the cost. Any delay between the activities will probably cause the customer order
information to be delayed too. Stock-out will also cause back orders. It will then have the chain
reaction where might loss of sales and also loss of customer. To fulfill customers’ orders, it will
need a smooth linkage between logistics activities.

11.9 TRANSPORTATION, WAREHOUSING AND INVENTORY – THE MOST

IMPORTANT FUNCTIONS
Although logistics takes in to the consideration all the factors explained above but the most
important are transportation, warehousing and inventory. These are explained in detail as under:
11.9-1Transportation:

This is the most important function of logistics management that is concerned with making the
products and services available to the customers. The main functions of Transportation are:

• It helps in movement of goods from one place to another.

• It also helps in mobilizing the labor and capital and widens the market for a product.
• It stabilizes the demand and price of product by supplying products from a surplus area to
the area of deficit or shortage.
• It enables the customers to enjoy the benefits of goods not produced locally.
• It creates place and time utility by providing product at a right time and right place.
• It helps in development of industries as without transportation industries would not be in a
position to procure raw material and distribute products efficiently.
• It provides employment to large number of people.

Transportation Modes:
Transportation modes consist of air, land and sea mode. Normally various modes will use together
to complete a transportation.

Classification of Transport:

T
R LAND
A
N
S
P
O
R
WATER
T
A
T
I
O
N AIR

Figure 11.7: Transportation Modes

1) LAND TRANSPORT:
This includes pathways, roadways, railways and tramways. The way for these kinds of transport
is land. Pathways are the oldest form of transport found in hilly areas, forest areas and remote
areas. These pathways are used by human beings and animals to carry the goods.

a) Road Transport: This is the most ancient form of transport. The transportation is done on
the road with the help of vehicles.
b) Rail Transport: The transportation is being done with the help of railways. Although it
requires really use investment to lay the railway tracks but it is the chief medium of
transportation. Indian railway is the second largest network in the world but it suffers from
built in efficiencies. There is a great need for support facilities for loading unloading
equipments and delivery.

2) WATER TRANSPORT
This is one of the most primitive methods used. Globally, shipping moves 95% of international
trade, though India’s share is miniscule. Earlier people used to trade with each other through
waterways like rivers, lakes and oceans.

Transportation through waterways is done by using tankers, bulk carriers, container ships and
specified multipurpose vessels and offshore supply vessels. The water transportation can be done
with the help of rivers, channels, lakes that lie between the national boundaries. The transportation
can be done through the ocean that may include the shipping within the nation that is known as
coastal shipping or it may also be used in international trade which is known as overseas shipping.

3) AIR TRANSPORT
The movement of goods through air is known as air transport. Air logistics include air cargo,
express, courier and documents. Air transport has low share in indie’s logistics scene. Key players
in Air transport are airline industry, freight forwarders / consolidators and integrated service
providers like fed ex, UPS, DHL and TNT etc.
11.9-2 Warehousing
Products are not only need to be moved from one place to another but also to be preserved or stored
till the time they are consumed. This storage or preservation function is known as warehousing.
The place where the products are stored before their final consumption is known as warehouse.

The purpose of warehousing is to provide the desired level of customer service where it has been
promised at the lowest possible cost. Warehousing is that part of company’s logistics that not only
stores the items (raw material, work in progress, finished items, tools etc) at and between the point
of origin and consumption but also provides the information about the status and items being stored
in the warehouse to the management.

Functions of warehousing:-
Warehousing is an indispensable function of logistics and performs various functions like:-

• It supports the customer service policy of the firm by providing customer service as desired
and promised. E.g. if the service policy says items would be delivered to the major
customers twice a week, the stocks have to be kept in a warehouse close to the customers’
location.
• To maintain an uninterrupted supply of goods. It also acts as temporary storage for
materials that need to be recycled or disposed off.
• Warehouses act as the control centers for monitoring the goods. It tells management about
the status of items in store.
• To achieve the transportation economy, warehouses are used. Full trucks loads are
dispatched to the distribution center and stored there.
• Warehouses are used as a buffer to support changing market conditions and sudden change
in demand.
• It’s not possible to have the production units close to every market. Warehouses thus
overcome this time and space differential.
• To provide the customers the right kind of product at right time and at right place.
Distribution Warehousing:
Distribution warehouses are the network of warehouses set up close to the customer locations to
service markets better at minimum cost. These warehouses could be company owned distribution
centers, depots or C&FAs (carrying and forwarding agents). The location of these distribution
warehousing could be:-

• Market Positioned (warehouses are located nearest to the final customers)

• Production Positioned (warehouses are located close to the production facilities or supply
sources)
• Intermediately Positioned (warehouses are located at mid point location between the final
customer and the producer.)

11.9-3 Inventory Management

Inventory is an idle stock of physical goods that contain economic value, and are held in various
forms by an organization in its custody awaiting packing, processing, transformation, use or sale
in a future point of time.

Any organization which is into production, trading, sale and service of a product will necessarily
hold stock of various physical resources to aid in future consumption and sale. While inventory is
a necessary evil of any such business, it may be noted that the organizations hold inventories for
various reasons, which include speculative purposes, functional purposes, physical necessities etc.

Types of Inventory
Inventory of materials occurs at various stages and departments of an organization. A
manufacturing organization holds inventory of raw materials and consumables required for
production. It also holds inventory of semi-finished goods at various stages in the plant with
various departments. Finished goods inventory is held at plant, FG Stores, distribution centers etc.
Further both raw materials and finished goods those that are in transit at various locations also
form a part of inventory depending upon who owns the inventory at the particular juncture.
Finished goods inventory is held by the organization at various stocking points or with dealers and
stockiest until it reaches the market and end customers.
Besides Raw materials and finished goods, organizations also hold inventories of spare parts to
service the products. Defective products, defective parts and scrap also form a part of inventory as
long as these items are inventoried in the books of the company and have economic value.

Inventory Management and Control:

Inventory in any organization can run in thousands of part numbers or classifications and millions
of part numbers in quantity. Therefore inventory is required to be classified with some logic to be
able to manage the same.

❖ ABC Classification

In most of the organizations inventory is categorized according to ABC Classification Method,

which is based on Pareto principle. Here the inventory is classified based on the value of the units.
The principle applied here is based on 80/20 principles. Accordingly the classification can be as
under:

• A Category Items: - 20% of items contribute to 80% of revenue.

• B Category Items: - 30% of items contribute to 15% of revenue.
• C Category Items: - 50% of items contribute to 5% of revenue

A Category Items: Helps one identify these stocks as high value items and ensure tight control in
terms of process control, physical security as well as audit frequency. It helps the managers and
inventory planners to maintain accurate records and draw management’s attention to the issue on
hand to facilitate instant decision-making.

B Category Items: These can be given second priority with lesser frequency of review and less
tightly controls with adequate documentation, audit controls in place.

C Category Items: Can be managed with basic and simple records. Inventory quantities can be
larger with very few periodic reviews.

As mentioned earlier also, inventory adds to the cost of operations and has to be minimized without
sacrificing the efficiency of the operations. So, inventory control becomes important. Inventory
has two different dimensions to it. On one level it is physical and involves physical transactions
and movement of inventory. While on the other hand, inventory is recognizable by the book stock
and the system stocks maintained. This necessitates inventory control mechanism to be
implemented to ensure the book stocks and the physical stocks match at all times.

Inventory control is exercised through inventory audits and cycle counts. Cycle count refers to the
process of counting inventory items available in physical locations. Depending upon the nature of
inventory, number of transactions and the value of items, cycle count can be carried on periodically
or perpetually. An inventory audit essentially comprises of auditing the books stocks and
transactions and matching physical stocks with the book stock.

Summary:
This chapter deals with distribution which is about getting the product or service to the customer
as conveniently as possible; it deals with access and availability. Functions of distribution were
also discusses which included availability, financing, information, promotion, credit facility etc.
Distribution strategy was discussed in detail that banked upon levels of distribution which are 0,
1, 2 and 3 levels. There are various factors that affect channel decisions like product characteristics,
market characteristics, consumer behavior etc. It also deals with the type of intermediaries which
are wholesalers, retailers, brokers etc. Intensity of distribution namely selective, exclusive and
intensive was discussed in detail. Logistic Management was also discussed. Logistics management
is always achieving the seven R’s to bring the biggest profit to company. Logistics has the function
not only controlling cost but also managing the production line and maintaining relationship with
customers to take care of the business.

Review Questions:
Q.1 Explain the term distribution. Also explain the functions performed by the distribution.

Q.2 What do you mean by the term distribution channel? Explain the various types of channels
used by a firm.

Q.3 What do you mean by the terms wholesalers and retailers. Explain their functions.

Q.4 What are the factors affecting distribution channel of a firm?

Q.5 Explain the distribution channel strategy in detail.

Q.6 Explain the selective, exclusive and intensive distribution system with examples.

Q.7 What do you mean by the term Logistic Management? Explain its functions.

Q.8 Explain the importance of transportation. Also explain various modes of transportation.

Case Study:
Titan: Handling Distribution

Titan Industries is in talks with a number of international watch brands for an exclusive licensing
agreement to market and distribute them in India. Though the names of the brands have not been
finalized yet, they were mostly fashion brands in the price segment of Rs. 5,000 and Rs.15, 000.
The company already has a sub-licensing agreement with Tommy Hilfiger to market its watches
in India.

The company is also looking at further spreading its wings to the international markets. Titan
plans to set up stores in Russia. South Africa and Indonesia. Titan is already present in 30
international markets such as Singapore, Thailand, Malaysia, Mauritius, Spain, Portugal and
Greece.

On the retail front, apart from adding 60 stores (which would be a mix of World of Titan,
Timezone and Sonata stores), the company is also planning to look at new formats, such as setting
up 20 Fast Track kiosks in malls across the country. These kiosks are targeted to draw attention
of young consumers who usually walk into malls for window-shopping. This segment normally
doesn't walk into a shop but walks around the mall.

The company has also experimented with an only women's watch store, Raga Store, at the Eva
Mall (a women's only mall) in Bangalore. If the concept works, the company looks to open more
such stores across the country.

Questions:
1. "Titan's plan to distribute international watch brands in India", What is your opinion about
Titan's diversification. Is it right or a wrong step? Will it affect the sales of its own premium
brands? Comment on it?

2. "Titan plans to open 20 fast Track Kiosks in malls across the country to attract young
consumers. But in current scenario young consumers are mostly attracted to premium model of
cell phones, which has a facility of clock/watch on screen itself". Do you think this expansion will
be a viable option for Titan after knowing the above consumer behavior? Give your opinion on
this subject?