Chapter 9 Distribution And Supply Chain Strategy PDF

**Chapter 9 DISTRIBUTION AND SUPPLY CHAIN STRATEGY** **[Objectives]** ***At the end of the chapter, the learners are able to:*** 1. Demonstrate the concept of a distribution channel; 2. Illustrate the elements of a distribution channel; 3. Support the advantages of a distribution channel in a...

**Chapter 9 DISTRIBUTION AND SUPPLY CHAIN STRATEGY** **[Objectives]** ***At the end of the chapter, the learners are able to:*** 1. Demonstrate the concept of a distribution channel; 2. Illustrate the elements of a distribution channel; 3. Support the advantages of a distribution channel in a company; 4. Critique the disadvantages of a distribution channel in a company; 5. Decide on the types of distribution intermediaries; 6. Appraise the different levels of distribution channels; 7. Evaluate the different levels of distribution coverage, 8. Critique the various issues involved in establishing distribution channels; 9. Internalize the factors in the selection of channels of distribution; 10. Teach the importance and functions of a supply chain management; 11. Illustrate the process of a supply chain management; and 12. Critique the various models of supply chain management. Distribution is one of the four components of the marketing mix, the other three being product, pricing and promotion. This marketing mix is also known commonly as the four Ps of marketing. It can consist of wholesalers, retailers, distributors and even the Internet itself. A distribution channel helps place a product in the hands of consumers, and it is a vital component of a marketing strategy. Supply chain strategy on the other hand, frequently focuses on reducing operational costs and maximizing efficiencies. The development and implementation of supply chain strategies must efficiently combine the management of all the players in a supply chain to manufacture and distribute products at least cost but still satisfying customers\' needs. These players consist of suppliers, manufacturers, distributors, and customers. In truth, it is a challenge for almost all companies to manage successfully their supply chains. **[WHAT IS A DISTRIBUTION CHANNEL?]** Simply, distribution is the process of bringing the products produced or service rendered by a company to the ultimate consumer. Several intermediaries are engaged in this procedure. This chain of intermediaries which helps in bringing the product from one intermediary to another prior to reaching the ultimate consumer is known as the distribution chain or distribution channel. Each intermediary has a definite role and need which the marketer provides. Distribution channels are the set of interdependent marketing institutions involved in the direction by which goods and services flow, or move from primary producers to ultimate consumers. This could be in the form of business-to- business (B2B) or businessto-customer (B2C) distribution. Distribution channels can be direct, or from the producer straight to the consumer. They could also be indirect, in which goods move from the producer, through an agent or agents, to the consumer. The distribution system involves two components such as below. **[Channels of distribution]** A channel of distribution is a route traced in the direct or indirect shift of possession of a product as it travels from producers to consumers. Known also as marketing channels, channels of distribution denote a process through which the products are moved from the main producers to the ultimate users. The channel members namely merchants, agents, wholesalers and retailers are middlemen in distribution and they carry out the entire marketing functions. These middlemen make possible the process of trade and generate time, place and possession utilities by matching and sorting method. Sorting enables satisfying or meeting the supply with consumers\' demand. (Discussed in details later in this chapter). **[Physical distribution -]** Is the cluster of activities connected with the supply of completed product from the production area to the end consumers. It considers several sales distribution channels like wholesale and retail. It also incorporates vital decision aspects such as customer service, inventory, materials, packaging, order processing, as well as transportation and logistics. The significance of physical distribution to a company may differ and is naturally linked with the kind of product and the essential it has to satisfying customers. Physical distribution must be managed systematically and considers key interrelated functions to provide rapid and efficient movement of products. companies to be successful in dynamic markets. Functions are interrelated since any decision made could affect other areas. Physical distribution looks after physical handling of goods and guarantees utmost customers\' services. It aims at providing delivery of right goods at the right distribution activities that covers: **[Order Processing -]** is regarded as the input to customer service and satisfaction. It consists of receiving, recording, filling, and assembling of products for shipping. A company normally receives orders from other companies, middlemen, or straight from customers via mail, email, fax, phone, or salesmen. It concerns with processing the orders quickly, accurately, and efficiently. The time frame starting from the receiving of an order to the date of sending off of products must be not too lengthy. If at all possible, the order recycle time must be done in eight-day period. However, the use of computer and computer networks, for quick and precise order processing, can save time, money and efforts for the company and enhances customer satisfaction. This electronic data processing may help minimize likelihood of mistake and lapse. Every company must institute the standard order procedure. In addition, the physical distribution has to be customeroriented. It begins with customer order. Order processing actually affects customer service in two ways which are: 1. ***Reordering time -*** This is the gap between two orders. 2. ***Consistency of delivery time -*** This is delivering products within the preset time. Fast order processing permits a company to realize savings in other parts of physical distribution. The final outcome of the process is the completion of a customer\'s order. Customer satisfaction is the good result of a dependable order fulfillment process. Order processing, mainly includes: 1. ***Order Preparation -*** This is the phase where a demand for a product turns into an indicator for a buyer to place an order. This step could be done manually, through online access to an ordering system, or making use of electronic data interchange systems linking a customer\'s internal order management system to that of a customary supplier. Whether done manually or online, it is essential to use standardized order forms to smoothen processing and reduce mistakes in encoding. 2. ***Order Transmittal -*** When the order is firmed up, the customer conveys the order information to the supplier either manually, sent through email, or clicking a confirmation key when making online order, or using Electronic Data Interchange (EDI) systems. Once received, the seller prompts the process in serving the order. 3. ***Order Entry -*** This is the step where the seller validates the information prior to serving the ordered items. Details checked include order date, payment terms, item/s, order quantity, unit price, and other important information. Stock availability, accuracy of information, credit balance, back orders, order withdrawal, transcription, and billing are also checked. The accounts receivable system is a reference for order entry since customer credit or payment status is required to clear the order to be served. Customer feedback is also vital especially when the order cannot be served as anticipated by the customer, for suchlike reason of product unavailable, delivery date not possible, and credit or payment hindrance. 4. ***Order Filling -*** Once the order is cleared, the preparation process starts and may entail product repossession, production or purchase. Retrieval of the product from a warehouse is prompted by a pick slip. Pick slip is a report employed to collect all the items that are written on a sales order. Once the items have been ready, a shipping confirmation is produced to document the number of items actually singled out and packed for delivery coming from the order. At this phase, information established functions as the details of the delivery documents and the final bill for the customer. 5. ***Order Delivery -*** At this point, shipping records and the timetable of delivery are set. Agreements about shipping logistics and insurance for damage or loss in handling are essential concerns for order delivery. However, the most vital purpose of this step is to satisfy the delivery timetable approved by the customer. 6. ***Order Status -*** Reporting It is very important to make available to the customer the condition of the order after this has been sent for delivery. This begins with the tracing of the order once released from the warehouse. Order tracing/ tracking technologies like laser-beam bar-coding, and GPS applications are being used by logistics companies like FedEx, UPS, the invoice, which contains the order details and the charges, is also released at this stage, and invoice transmittal may be done manually or electronically via email or any online B2B application. **[Packaging]** also has an essential function to do in supply chain management. It shields products from breakage, helps in wellorganized distribution, and conveys messages about products to the consumers. It is one of the key product advertisers in a competitive market. Actually, in recent times packaging design has developed into an established communication authority on its own. Nowadays, most customers understand that packaging is a serious and main factor in the forming a successful brand personality. Packaging is vital for the following reasons: 1. ***Protection -*** During the distribution journey, well-designed packaging guarantees a sufficient shield for the product from a lot of mechanical, manual, and environmental exposures it will come across. Numerous companies perform basic package testing. This testing replicates the delivery surroundings in a laboratory to simulate and foresee problems to avoid upcoming failures. However, when packages are planned not considering the distribution setting to supply enough safety, the most often results are numerous damages and returns. On the contrary, while inappropriate packaging could be harmful to a product, too much packaging can acquire extra expenses also, such as higher transportation expenses and bigger material costs. 2. ***Containment -*** In-transit damages need to be reduced. Hence, a product should be designed to be enclosed in a sequence of increasingly larger packages. Packaging usually starts from primary box, carton, can or bottle. Then comes the secondary packaging such as cases and pallets before it is shipped to its destination using transportation like van, truck, and plane or rail/container car. Every last containers have definite space vacant and may cause damage as the product moves or stops along its travel. 3. ***Communication -*** Packaging provides a type of direct and indirect marketing. Most likely the product\'s primary and secondary packaging has its name and logo. Obviously, packaging of consumer goods has a high marketing value. Well-designed packaging can enhance visibility and the attractiveness of a product that makes it more sellable and can promote the proper brand awareness. It is significant in retail sales, where the right packaging design can magnetize the consumer\'s eye and make the product noticeable next to a shelf of the competitor\'s product. The package could be the selling point for numerous consumers by conveying a sense of quality while also mirrors the product\'s brand image. **[Warehousing]** These days, expected demand is the basis of production. Hence, finished products are stocked or preserved securely for the potential demand. In order to balance demand and supply, warehousing is essentially important. Agricultural products, for instance, which has a continuing demand all over the year need to be warehoused because of its seasonal production. Warehousing helps in continuous production and marketing of any product, therefore, adding value to customer satisfaction. Although closely interrelated, storage and warehousing are not similar vocabularies. Holding and preserving products from the time of their production until their sale is known as storage. In contrast, warehousing is a much broader concept that includes storage and other functions like assembling, breaking the volume, shipping based on the need of middlemen, sorting and classification, supplying market intelligence, arranging product for reshipping, and so on. Warehouses may be categorized on the basis of commodity and of ownership. On the basis of commodity stored, there can be: a. ***Special commodity warehouses -*** These offer facility for storing up special types of commodities, such as cotton, potato, grain, tanks for liquid products, explosive product warehouses, and other similar types. b. ***Cold storage warehouses -*** These provide facility for storing fresh and consumable products, like fish, flowers, vegetable, fruits, and so on. **[Based on ownership, there may be different types of warehouses,] [namely:]** a. ***Private warehouses -*** These are owned by private individual, or companies. They are either owned by retailers and wholesalers, or by manufacturers. Finished products are stored by retailers and wholesalers while raw materials, provision, tools and equipment, and finished products are stored by manufacturers. b. ***Cooperative warehouses -*** These are owned by two or more private parties on cooperative basis to use storage facility together. c. ***Public warehouses -*** These are owned by local authorities like municipality, or by the city and national governments. These warehouses are utilized by public/traders as well as by government. Traders can use these warehouses on the rentals set by the government. Government uses these warehouses to purchase and preserve stock of certain necessary commodities. d. ***Household warehouses -*** These are provisional in nature owned by household/ family to store and shelter furniture, paintings, furs, tapestry, and the likes. e. ***Bonded warehouses -*** These are used to store product until fee is completed or documents are furnished. They are located close to ports for export and import businesses. ***Transportation*** is an indispensable component of physical distribution. It entails combining the advantages of every transportation method through adoption of various containers and physical handling ways to allow shifting among different types of carriers. +-----------------------+-----------------------+-----------------------+ | **Type of Carrier** | **Description** | **How it Looks like** | +=======================+=======================+=======================+ | **Piggy Back** | It is used to place | | | | containers in railway | | | | flat cars and then | | | | load the containers | | | | on motor vehicles. | | +-----------------------+-----------------------+-----------------------+ | | It is normally used |  | | | if the containers are | | | | off loaded to water | | | | carriers. | | +-----------------------+-----------------------+-----------------------+ | | It is a combination | | | | of road and | | | | | | | | water transport | | | | during switch of | | | | containers between | | | | air and truck | | | | carriers. | | +-----------------------+-----------------------+-----------------------+ The marketing manager has to decide on the mode or combinations of transportation modes that ought to be used to transport products from warehouse to customers. The decision should consider lower transportation cost but more level of customer satisfaction. Transportation involves two parties which are the carriers and shippers. Carriers are those companies that offer transportation facilities to others. These carriers make available transportation services by road, rail, water, air and underground pipes. On the other hand, shippers are those companies and individuals like manufacturers, middlemen, customers, and others to whom the carriers supply transportation services. There are various regulations when it comes to transportation of products for different modes of transportation which must be known to both the carriers and shippers. Transportation creates the place utility particularly in today\'s global marketing. Marketer must consider transportation decision cautiously. The key issues which a marketer needs to consider are the following: 1. ***Mode of transportation -*** This decision is connected in the choice of a fitting mode of transportation. Road, railway, water, air, and pipeline are the main modes of transportation. The appropriate mode of transportation should be chosen based on financial capacity, need, time available and suitability in general. 2. ***Costs and availability -*** A company must choose a mode of transportation that is the most appropriate and lower in cost. Likewise, the mode must be easily obtainable. 3. ***Suitability and credibility -*** The mode of transportation must be appropriate to the products and company\'s internal situation in general. It must also be dependable. 4. ***Relations -*** In the age of relationship marketing, the marketer must continue the long-term profitable relations with different transport agencies. A company has to carry out numerous activities to create and preserve healthy and gainful relations with the transport agencies. 5. ***Legal provisions and restrictions -*** A company has to take transportation decisions within boundary of current legal provisions. Knowledge of legal provisions is indispensable. 6. ***Ownership -*** These subject deals with whether a company should possess, contract, or employ transportation means. Depending upon a company\'s competence and requirements, it may be the owner of its own means of transportation, may undergo the contracts, or may rent such facilities. **[Inventory control]** is the stock of goods intended for the future sales. It can also be described as pool of goods held in stock in expectation of sales. When demand is unpredictable, an accurate forecast is not feasible. Thus, the main rationale of holding inventory is to assure market demand always. The company continuously maintains enough stocks of products to satisfy customer orders without delay. It is regarded as a connection between ordering and production. Inventory management is the management of noncapitalized assets (inventory) and stock items. Asan element of supply chain management, inventory management oversees the stream of goods coming from manufacturers to warehouses and from these mentioned facilities to point of sale. Inventory management helps facilitate demand formation and consumer satisfaction. **[There are three types of costs that are connected with inventory,] [which are:]** 1. ***Holding costs (or carrying costs) -*** This consist of warehousing and storage costs, costs of capital tied up in inventory, costs of price decrease, obsolescence, spoilage, pilferages, and taxes and insurance on inventory. Once inventory level increases, these charges follow. Some companies often make small quantities but frequent orders to reduce carrying costs. 2. ***Casts of stock out or shortage -*** These consist of loss of sales when a desired item of a customer is not available; costs of back orders; or costs connected to stopping the production line due to shortage of supplies or component parts. These expenses are the most complicated to calculate. However, they should be computed since they represent the costs acquired by customers when an inventory policy weakens. 3. ***Ordering costs -*** These are fees related to preparing and placing an order, such as expenses associated to personnel in purchasing department, communications, and the handling of pertinent paper work. These also include transportation, insurances and wastage during movement; costs of receiving, inspecting, and handling materials. Making these costs lower could be attained by means of placing small quantity of orders, each for a big quantity. Total yearly need of inventory, ordering size, and ordering level at which to place new order must be carefully decided on by a company. Issues such as ordering size (how much to order) and ordering level (when to order) must be accurately determined. The maximum and minimum quantity of order should also be considered. In inventory management, both ordering and carrying costs are very important expenses though they are negatively related. When low stock or inventory is maintained, carrying cost is low but because of frequent order in smaller number, ordering cost becomes high. **[The most accepted technique to decide optimum size of order is] [Economic Ordering Quantity, which can be solved by using] [following formula:]**  **Where:** A - Annual sales, O - Ordering costs, C - Carrying costs Sometimes, ordering level is decided through trial and error or by graphical method. The level of inventory at which costs are lowest, is used as ordering size. ***Customer service -*** is purposely designed for satisfying consumers. It is standardized and intended to provide the needs of customers well. Good customer service varies from company to company. Some of the key characteristics of good customer consist of a speedy reply time to customer requests, answering to all feedback and requests (both positive or negative), self- service assistance documents and FAQs, a smooth process for getting in touch with a customer support representative, a readiness to say sorry and recompense for errors, considerate solutions to problems, and useful advice customers can apply to discover and grow up. As an example, a customer satisfaction approach of Pizza Hut is to deliver customer pizzas after 30 minutes of placing an order. An additional approach is to get the pizza order for \"free\" if not delivered on the time promised. Possibly, this approach had delighted and empowered its customers so that they do not only keep coming back but refer family and friends to become customers, too. Once this kind of customer service standards is set in place, the physical distribution system is then planned to achieve these goals. This is a way of putting the products within the reach customer\'s desire and demand. ELEMENTS OF A DISTRIBUTION CHANNEL ================================== Both products and services may pass through a distribution channel and reach the final user. For example, a non-physical commodity such as lodging provided by the hotel industry to its customers is a type of service. Directly, a hotel may book rooms for customers. However, the hotel may also function as an indirect channel such as tour operators, travel agents, or airlines. Here are the elements of a distribution channel: 1. ***Path way -*** Distribution channels are a trail by which products and services stream from manufacturers to customers. 2. ***Flow -*** Goods and services are streamed down to final consumers in either sequential or directional ways. 3. ***Composition -*** It is composed of intermediaries (discussed later) known also as middlemen who take part in the flow willingly. 4. ***Objectives -*** The manufacturer focuses on accomplishing the marketing objective/s of the company, although within the flow, channel members make every effort to attain equally satisfactory objective. 5. ***Leader -*** The manufacturing company serves as the head of the channel and oversees the flow. The channel members and their behavior though are commonly synchronized by up to standard code of conduct, trade customer and or contracted provision. 6. ***Functions -*** The intermediaries ease the transfer of ownership and control of goods and services from marketers to consumers as part of their roles. ADVANTAGES OF A DISTRIBUTION CHANNEL ==================================== A channel is a pipeline through which flows on its way to the consumers. The marketing manager places company\'s products into the marketing channels and it goes into the hands of several marketing people until reaching the final consumer who is the other end of the channel. Simply, channels of distribution fill the big gap between producers and the consumers. Hence, a channel of distribution serves as a connection between the manufacturers and the consumers. There are several factors that a customer thinks of when buying a product such as delivery and availability which are directly influenced by channel members. Likewise, a marketer too while deciding his distribution channel members must determine the valueadded of this member to the product. As a marketer, he must evaluate the benefits received as against the money paid for employing the services of this intermediary. These benefits include the following, namely: 1. ***Cost saving -*** The members of distribution channel are expert in what they do and perform at least cost compared when companies are trying to manage the whole distribution channel all by itself. 2. ***Time saving -*** Both costs and time of delivery are trimmed down because of efficiency and the experience of the channel members. For example, with a grocery wholesaler as part of the distribution chain, any small store will just wait to receive deliveries in the amounts needed at an appropriate time. With this, there is a lot of savings in cost and time. 3. ***Customer convenience -*** A lot of convenience in their shopping is provided to customers because of the distribution chain. Channel distribution allows customers to buy from numerous suppliers the different goods that they may order. Since items needed by customers are in one retail store. It is also time efficient for customers to have a channel distribution where they can find the items they need. 4. ***Customers can buy in small quantities -*** Although retailers buy in bulk, they resell items in small units known as bulk breaking. Bulk breaking is splitting in small quantities and trade. Retailers purchase in bulk quantities from the manufacturer or wholesaler. The customers therefore have the benefit of buying in smaller quantities and they also get a share of the profit the retailer makes when he buys in bulk from the supplier. 5. ***Resellers\' help in boost sales -*** Most resellers make use of convincing ways to win over customers in purchasing a product. These techniques could be in the form of some promotional offers and special product displays. They are able to increase the sales of a particular product. 6. ***Customers obtain financial support -*** Most of the times resellers provide easy payment schemes to their customers for financial support. In the Philippines there are a lot of choices when it comes to credit cards. Lately, there is Home Credit which also supports those customers buying under a credit payment plan. 7. ***Resellers supply helpful information -*** Resellers are big help for manufacturers. Not only that manufacturers rely on resellers in selling their products but also supply beneficial information for product improvement or increase sales intentions. Sales figure and customer feedback are usually provided by resellers to manufacturers. DISADVANTAGES OF A DISTRIBUTION CHANNEL ======================================= Using multiple marketing channels can boost a company\'s sales and its exposure to consumers. However, it comes with a cost. Here are the disadvantages of including intermediaries in the distribution channel: 1. ***Revenue loss -*** Obviously, manufacturers have to sell their products in lower price so that middlemen would have a share of profit through markup. Simply, retailers will be selling the product at a price beyond at which it was purchased. For that reason, the manufacturer would experience a slash in revenue. Had it been that the manufacturer himself sold the product at its final price, he could have gained greater profit. 2. ***Loss of communication and control -*** Besides not gaining more revenue, the manufacturer may also lose the power on what message is being communicated to the end customers. As an option, the reseller may employ personal selling to boost product sale and promote the product to his customers. The danger might be inflating concerning the benefits of the product which may result to miscommunication issues with final users. Training of the salespersons of retail outlets could be the solution but in general, the company has no power on the ultimate message transmitted. 3. ***Loss of product significance -*** The significance set to a manufacturer\'s product by the distribution channel members is not under the manufacturer\'s power. In some instances, such as delays in transportation, the product loses its significance in the channel and the sales suffer. In the same way a competitor\'s product may benefit from greater significance as the channel members may be obtaining a bigger promotional incentive. TYPES OF DISTRIBUTION INTERMEDIARIES ==================================== Intermediaries, also well-known as middlemen, are a very essential component of a company\'s distribution channel. It is almost unfeasible for a business to operate without any middlemen. These intermediaries make possible the delivery of products and services to the final consumers except for direct marketing which has a \"level zero\" channel. Basically, there are four broad groups of intermediaries which are: ***Agents and Brokers*** are individuals or companies that act as representatives for manufacturers. They do not take title to services but take possession of the product in the distribution process. They are able to gain profits from fees or commissions. The two forms of intermediaries carry out many similar functions but are different from each other in several ways. Selling agents have contractual authority to trade a company\'s output. Agents know the market better than the company, thus they are normally entrusted with influence over prices, terms, and conditions of sale. In contrast to a sale force, the selling agent usually has no protective limits but represents the service company in all areas. Purchasing agents are commonly hired by companies and individuals to find art, antiques, and odd jewelry. Facilitating agents assist with the marketing process by adding knowledge or support such as financial services, risk taking, or transportation. Brokers convey buyers and sellers together while assisting in negotiation. They are compensated by the party who hired them, rarely become involved in financing or assuming risk, and are not longterm representatives of buyers or sellers. The most familiar examples are real estate brokers, insurance brokers, and security brokers. ***Wholesalers/Wholesaling*** is the selling of commodities to everyone either to a person or an organization but not to the final consumers of those goods. Wholesalers make easier the transport, preparations of quantity, storage, and sale of products intended for final customers. Wholesalers are very significant in a number of industries, such as automobiles, grocery products, plumbing supplies, electrical supplies, and taw farm produce. They are chiefly essential to the business operations of small retailers. Wholesalers purchase products in big quantities from several different manufacturers. Once they obtain title to the goods, they store these items in warehouses and sell them to retailers. Through holding stock, wholesalers allow manufacturers to make available products to customers in different areas without spending money in their own warehousing facilities. Wholesalers also assist manufacturers trim down their logistics costs by means of delivering stock to retailers or providing stores an assortment of services. There are two broad types of wholesalers, namely: 1. ***Full-service wholesaler -*** Full-service wholesalers perform all the functions of a wholesaler. They provide various services to customers. They buy and sell goods, divide them, make arrangements of transportation and warehouse, make arrangement of finance, provide credit facility, bear risk, help in promotional activities, collect market information etc. They provide different facilities to both producers and retailers. Full-service merchandise wholesalers can be divided in three classes as follows: ***General wholesalers -*** General wholesalers usually buy large quantities of products from one or more suppliers. They aim to add value to these suppliers by reselling in lesser quantities to distributors, retailers and resellers. This type of wholesaler will often have numerous suppliers adding variety to their product choice and selection for their customers. This type of wholesaler may resell products from a number of different industries and in several different categories. For example, there are wholesalers who hold an extensive range of non-perishable products such as hardware, electrical supplies, plumbing supplies, furniture, drugs. cosmetics, and automobile equipment. These wholesalers were initially developed to supply the early retailers or the general stones. Now, with their wide line of co convenience and shopping products, they provide Items to hardware stores, drugstores, electric appliance shops, and small department stores. ***Limited-line wholesaler -*** This wholesaler deals in the trade of goods of only certain product line. These wholesalers usually give specialized services to small-business owners which full-service wholesalers may not be able deal with. Since limited-line wholesalers take up a market niche, they are small and medium-size businesses. They normally purchase from full-service wholesalers and then sell to other limited function wholesalers and small retail businesses. Limited function wholesalers cannot at all times contend with full-service wholesalers on selection, but they trade off for this shortcoming by giving more retailers extra flexibility and by buying surplus inventory from fullservice wholesalers at a cheap price. ***Specialty wholesalers -*** This type of wholesalers carried a very narrow variety of products and resell them in a particular industry or product category, but may have products from several suppliers. They often are familiar about the ultimate target markets in their channel. Usually, specialty wholesalers have good product expertise and good pricing since they concentrate in a specific industry or product type. For instance, a consumer product specialty wholesaler may hold just organic foods rather than a complete line of grocery items. Or a specialty wholesaler may carry and sell just automotive items to targeted mass merchandisers. Another example is a used car wholesaler who sells directly to customers or to other used car dealers. He is specialized in used cars and knows the ins and outs of selling a used car to consumers or giving a face-lift to the used cars. 2. ***Limited-service wholesaler -*** Limited-service wholesaler is such a merchant wholesaler who takes rights and ownership of goods. But he performs only some selected functions of those that are generally performed by a wholesaler. This type of wholesaler does not perform all the functions like a full-service wholesaler. Limited-service wholesalers can be divided into cash and carry wholesaler, truck wholesaler, rack jobber, drop shipper, mail-order wholesaler etc. ***Cash-and-carry wholesalers -*** These wholesalers neither sell goods on credit to customers, nor provide transport facility. They operate in cash basis. Retailers and other customers go to the warehouses of cash and carry wholesalers shouldering the means of transportation by themselves, load the goods they desire and pay cash to the wholesalers. Some retailers, like small auto repair shops, are very small to be supplied profitably by a full-service wholesaler. These wholesalers can function at lower cost because the retailers occupy a lot of wholesaling functions already. Using cash- and-carry outlets may allow the small retailer to remain in business. These cash-and-carry operators are particularly widespread in less-developed nations where very small retailers manage the mass of retail dealings. ***Truck wholesalers -*** Truck wholesalers give transportation facility for moving goods to the customers for inspection and selection. Usually, these wholesalers apply a certain standard path and offer facilities to retailers or customers to find out their needs. These middlemen sell goods in small number. They arrange the transport of goods for customers on their own ownership. Truck wholesalers trade fresh goods such as fruits, fish, vegetables and other similar items to small food stores. Such wholesalers also sell chips, tobacco made goods, and the rest. The major attribute of truck wholesalers is to supply limited services for hand cash. Their storehouse is the truck itself. ***Drop ship wholesalers -*** These wholesalers complete the sale of a product but will have it transported from their suppliers directly to their customers without essentially handling the goods. They take ownership of the products they sell, however they do not in reality handle, store, or transport them. These wholesalers are primarily concerned in just selling. They get orders from wholesalers, retailers, or other business users and forward these orders to producers. Afterward the producer dispatches the order straight to the customers. Since drop-shippers do not have to physically handle the products, prod their operating costs are lower. Drop- shippers normally sell products in very large quantity that added handling cost would be expensive and maybe hurtful. ***Mail-order wholesaler's -*** Mail-order wholesalers sell goods to retailers, industrial buyers and institutional customers using catalogs which they send to them via mail. The customers study the catalogs and mail order for essential products. Then wholesalers deliver demanded products to them through mail. As the mail order wholesalers' dwell in a small place of the entire wholesaling, it is considered to be a different category due to its distinctive features. By and large, mail order wholesalers trade cosmetics, special goods, motor parts, and other similar goods to retailers and other customers through mail. They also wholesale light consumer goods in small number through mail. ***Distributors,*** just like wholesalers' distributors take title of the product, stock it, and trade it off at a profit to retailers or other intermediaries. Though, the main distinction is that distributors have exclusive arrangements with manufacturers and do not carry competing products. Generally, they maintain a closer relationship with manufacturers. They may perhaps be part of a franchise, which offers only the products of one manufacturer. They make available important warehousing and logistical roles for manufacturers. There are several types of distributors, which are: 1. ***Exclusive distributors -*** Exclusive distribution is a contract between a supplier and a retailer awarding the retailer exclusive rights in a definite geographical area to sell the supplier\'s product. Hence, exclusive distributors have the rights to sell the products in definite set territories only. They have exclusivity only in pre-defined countries. However, these rights can be removed from them if they do not meet sales targets or if someone with a better option approached the manufacturer. This type of distributor is used when the manufacturer has a niche market and product with targeted consumers. There will typically be only one exclusive distributor for every territory. Luxury automobile companies, designer clothing or even pricey mobile phone brands are possible to make the best of this distribution. 2. ***Intensive Distributors -*** This type of distributor is normally employed when the manufacturer wants to sell their products as fast as possible using the widest feasible channel. Intensive distributors perform with numerous vendors and typically sell high quantities of goods at lower prices and bring in lower margins. This type of distributor works best in industries where customers return back and forth between brands when their first preference is not on hand. This type of intensive distributor can be a very valuable route to market enabling goods to be distributed through the channel to the final consumer fast. Manufacturers can benefit from improved cash flow. 3. ***Selective Distributors -*** The companies who hire intensive distributors prefer their products in as many places as possible, but the companies who work with selective distributors do not. These brands pick and choose the retailers they would like to carry their products, and then hire a distributor to transport products and provide high quality customer service to them. This type of distributor usually works in niche industries where the retail outlets are limited. For example, a car parts manufacturer would not be able to sell to grocery outlets, so they may work with a selective distributor who can sell and service the niche retailers that do sell their products. This type of distribution is where manufacturers select specialized distributors who are experienced at distributing their products. Manufacturers/vendors may restrict the number of retailers that a distributor can supply to in order to effectively reach the target market, maintain a high level of service and retain high retail pricing maximizing profit margins for the partial distribution channel. 4. ***Direct Distributors -*** Direct store distributors sell products directly to the store rather than delivering them to the retailer\'s distribution center. These distributors have faster turnaround times, so they can effortlessly replenish items that are selling faster than the store estimated. Retailers typically desire working with direct distributors because of their speedy service and ability to meet demand. However, direct distributors face some downsides. First, they are restricted to their own physical storage capacity ordered by their sales volumes. Second, they are possible to have much less marketing publicity and much higher marketing costs which may in reality balance any saving prepared by not using other types of distributors. 5. ***Indirect Distributors -*** This type of distributor uses a network of wholesalers, retailers and resellers to distribute their products to consumers, and is the most common type of distributor. Indirect distribution enables manufacturers/ vendors to give attention on production while the distributors center on generating sales. The distributors sell to their current customer base of resellers/retailers with whom they have good relationships allowing prompt sales and distribution of products. With this type of distribution, there may also be over one distributor per area. ***Retailers*** come in a variety of shapes and sizes such as a corner grocery store in the neighborhood, or large chains like Save More, Puregold and Shopwise. No matter what size, retailers buy products from intermediaries in order to sell them straight to final consumer certainly for a profit. Big independent stores and retail chains, on the other hand, sell products to both consumers and businesses. Through choosing their partner retailers, manufacturers are able to distribute their products to various places in the country particularly to smaller consumers whose needs they cannot provide directly. Retailers normally store goods coming from various suppliers, even competitive brands in similar product category. Hence, manufacturers should offer attractive incentives and discounts to them in support to their effort of pushing their products for bigger sales. Here are various types of retailers, which are: ***1. Retailers without fixed shops -*** These are retailers who do not have fixed place to do business so they consider moving around to sell their products. Here are several types of these retailers: a. ***Street hawkers -*** These are those vendors who hold their products in cycles, tricycles or handcarts. They travel from one place to another in selling their products. b. ***Cheap jacks -*** These vendors typically sell in a specific place. However, when they discover better business prospects in some other place, they move to such a place. c. ***Street vendors -*** They are the sellers who do business in busy streets or on walkways. Such people can be normally seen near railway stations or bus terminals. Fruits, flowers, and vegetables are the goods usually sold by these retailers. ***2. Fixed-shop Retailers -*** These are retailers who have set a shop and have a permanent place for business. Here are the various types of fixed shop retailers, which are: a. ***Street stall holders -*** Street stallholders construct their stalls where there is heavy pedestrian traffic. Having chosen a place with so much caution, they keep that place permanently. They buy their supplies from wholesalers and suppliers operating in that area. The street stallholders sell varieties of products such as pen, torch lights, nail cutters, time pieces, socks, belts, locks, small tools, and the likes. They exhibit their products in such a manner that they draw the interest of customers. They also place decorations on their shops to make them more eye-catching. b. ***General stores -*** General shops sell goods that are necessary for everyday use. These shops sell a broad range of products such as gift articles, biscuits, plastics, foot wear, grains, soap, edible oil, chocolates, stationery items and other similar items. General shops pay salespeople who are well trained in selling. Shops are situated in convenient places. Usually, customers purchase from general shops for their monthly necessities. At times, customers are given credit facility and free home delivery when they buy from these shops. c. ***Specialty shops -*** Specialty shops sell a specific range of products. These shops do not deal in all kinds of goods. Simply, they sell only one line of goods such as books, leather goods, toys, watches, electronic goods, furniture, kitchen articles, and so on. Customers while buying from specialty shops enjoy a wide choice of goods. d. ***Second-hand dealers -*** These retailers trade only second-hand goods such as books, furniture, television sets, radios, cloth, and other similar items. Customers who do not have enough money to buy new goods at market price buy second-hand products at cheaper prices. Second goods dealers do not provide any warranty for the goods they sell. Booksale is quite famous for selling second-hand books. e. ***Automated selling -*** Automated selling is a new sales channel for retailers and brands to reach customers in an innovative, exciting and non- traditional way. Milk, soft drinks and coffee are some of the products usually sold through coin-operated machines which deliver the goods without the aid of any person. LEVELS OF DISTRIBUTION CHANNELS =============================== Distribution channels can be exemplified by the number of intermediary levels that separate the manufacturer from the end consumer. The choice of a particular distribution channel is determined by factors related to market size, buyer behavior and organization\'s characteristics. Each layer of distribution intermediaries that performs some work in bringing the product to its final consumer is a channel level. ***Zero-Level Channel -*** A zero-level channel, known also as direct marketing channel has no intermediary levels. In this channel structure, manufacturer usually sells merchandise straight to customers. Also referred to as direct channel, good examples include KFC, McDonalds and Hush Puppies which manufacture and sell their goods through their own retail outlets. Likewise, mail order selling, internet selling and selling through own sales force, such as Amazon are examples of direct selling or zero level channel. ***One-Level Channel -*** A one-level channel contains one selling intermediary. In consumer markets, this is usually a retailer. An example of this can be insurance in which there is an insurance agent between the insurance company and the customer. Even e-commerce is an excellent one channel level illustration, in which the companies tie up directly with e-commerce portals and then sell in the market. ***Two-Level Channel -*** A two-level channel consists of two intermediary levels which are a wholesaler and a retailer. A wholesaler normally purchases and stores big quantities of goods from several manufacturers and then breaks into the mass deliveries to provide retailers with smaller quantities. For small retailers with inadequate financial resources and order quantities, the use of wholesalers makes economic sense. This agreement tends to work paramount where the retail channel is not dominated by a small number of large, leading retailers who have a back-up to cut out the wholesaler. Distribution of drugs or pharmaceuticals in the Philippines is a typical example of such arrangement. ***Three-Level Channel -*** A third-level channel, as the name implies, encompasses three intermediary levels which consist of a wholesaler, a retailer and a jobber. In the poultry industry, products like mutton, chicken, and eggs are first sold to wholesalers. Wholesalers then sell the items to jobbers, who sell to small and unorganized retailers. Another good example is selling ice cream in the marketplace. Because of the manufacturing levels required, ice cream markets have agents who store the ice cream in refrigerated cold rooms. These ice creams are then moved to local distributors who also have refrigerated cold rooms. The distributors then ship ice cream to local dealers who will have 10-15 small freezers. Finally, ice cream is transported to the retailer who will have 1-2 freezer of each company. ***Levels Of Distribution Coverage -*** A marketer has to bring to mind the various factors before he settles on the exact level of distribution coverage. It is clearly known that distribution constantly raises company expenses. A part of this expense is covered by the customer like shipping costs but the remaining cannot be shouldered by the customer such as cost for additional salespeople. The marketer can decide on the accurate level of distribution through balancing between the sales profits made with the cost gained in realizing said profit. There are three levels of distribution coverage which are: ***[Mass coverage]*** is also known as intensive distribution. This level of distribution coverage distributes products widely in nearly all locations in which that type of product is sold. It is appropriate for lowpriced products that have huge consumer demand to very large target markets. A product such as Coca-Cola is a typical example. Coke is available in a wide variety of locations including grocery stores, convenience stores, vending machines, hotels and many, many more. However, the distribution cost for such products is very high to offset with very high sales volume. In ***[selective coverage]***, the product distribution is limited to certain selected locations. This is the case of products with a smaller market size. At the same time, the logic of this strategy is also tied to the nature of the product\'s target market. Products with selective coverage appeal to smaller more focused target markets. Accordingly, because the market size is smaller, the number of locations required to sustain the distribution of the product is fewer. Television, home appliances, and furniture brands are also popularly distributed using this method. ***[Exclusive coverage]*** is ideal for products that have target relatively smaller markets, for example are high-end products which have very narrow customer size. These customers are often have discriminating taste for products and seek to satisfy their needs with high-quality, expensive products. In addition, these customers of highend products need a high level of customer service for satisfying and helping them from the channel member from whom they purchase. Hence, these characteristics of the product and of the target market led marketer to very select stores or exclusive group of resellers. Another type of exclusive distribution may not entail high-end products but rather is found only in company-owned stores. These products may or may not be very expensive, yet these are only available in company outlets so they are distributed exclusively.