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4.Tip 4. Look for alternatives in transport. Where you are using road transport, will delivery 14) ________ allow the use of rail? Are there customer groups where delivery lead times can be renegotiated and cheaper modes of transport utilized? Environmental concerns and escalating fuel costs are focusing attention on transport needs. Understanding your freight profile and the options available will allow you to drive improvement without jeopardizing service to your customers.
3. Summarize the information represented in the video.
Unit 4. Channels of distribution.
Words to remember:
break-bulk – тарно-штучные грузы broker – брокер
to bypass – обходить
cash-and-carry – продажа за наличный расчёт без доставки на дом, магазин самообслуживания
to confine – ограничить
to consolidate – объединять consumption – потребление to enhance – улучшать expertise – знание дела feedback – обратная связь
finished goods – готовая продукция
to incorporate – включать, объединять intermediary – посредник
legislation – законодательство mail order – товары почтой
multiuser – многопользовательский
one-off product – товары, изготовленные по специальному заказу own-account distribution – внутреннее распределение
sales potential – потенциал продаж
to tailor – приспосабливать, адаптировать third-party logistics – логистика "третьей стороны" transaction (adj) – операционный
to transfer the products – передавать товары
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to trunk – загружать в полуприцеп-фургон to underutilize – недостаточно использовать voluntary – добровольный
I. Read the text and do exercises.
Physical distribution channel is the term used to describe the method and means by which a product or a group of products are physically transferred, or distributed, from their point of production to the point at which they are made available to the final customer. In general, this end point is a retail outlet, shop or factory, but it may also be the customer's house, because some channels bypass the shop and go direct to the consumer.
In addition to the physical distribution channel, another type of channel exists. This is known as the trading or transaction channel. The trading channel is also concerned with the product, and with the fact that it is being transferred from the point of production to the point of consumption. The trading channel, however, is concerned with the non-physical aspects of this transfer. These aspects concern the sequence of negotiation, the buying and selling of the product, and the ownership of the goods as they are transferred through the various distribution systems.
One of the more fundamental issues of distribution planning is regarding the choice and selection of these channels. The question that arises, for both physical and trading channels, is whether the producer should transfer the product directly to the consumer, or whether intermediaries should be used. These intermediaries are, at the final stage, very likely to be retailers, but for some of the other links in the supply chain it is now very usual to consider a third-party operator to undertake the operation.
There are several alternative physical channels of distribution that can be used, and a combination of these maybe incorporated within a channel structure:
•Manufacturer direct to retail store (as a general rule, this channel is only used when full vehicle loads are being delivered).
•Manufacturer via manufacturer's distribution operation to retail store. This was one of the classic physical distribution channels and the most common channel for many years. Here, the manufacturer or supplier holds its products in a finished goods warehouse, a central distribution centre (CDC) or a series of regional distribution centres (RDCs). The products are trunked (line-hauled) in large vehicles to the sites, where they are stored and then broken down into individual
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orders that are delivered to retail stores on the supplier's retail delivery vehicles. This type of channel is still commonly used by the brewing industry.
•Manufacturer via retailer distribution centre to retail store. This channel consists of manufacturers supplying their products to national distribution centres (NDCs) or RDCs, which are sites run by the retail organizations. These centres act as consolidation points, as goods from the various manufacturers and suppliers are consolidated at the site. The retailers then use their own delivery vehicles to deliver full vehicle loads of all the different manufacturers' products to their own stores. In the UK, this type of distribution channel grew in importance during the 1980s as a direct result of the growth of the large multiple retail organizations that are now a feature of the high street and of the large retail parks. Most retailers now use third parties to run these final delivery operations.
•Manufacturer to wholesaler to retail shop. Wholesalers have acted as the intermediaries in distribution chains for many years, providing the link between the manufacturer and the small retailers' shops. However, this physical distribution channel has altered in recent years with the development of wholesale organizations or voluntary chains. These wholesaler organizations are known as 'symbol' groups in the grocery trade. They were generally begun on the basis of securing a price advantage by buying in bulk from manufacturers or suppliers. One consequence of this has been the development of an important physical distribution channel because the wholesalers use their own distribution centres and vehicle fleets.
•Manufacturer to cash-and-carry wholesaler to retail shop. Another important development in wholesaling has been the introduction of cash-and-carry businesses. These are usually built around a wholesale organization and consist of small independent shops collecting their orders from regional wholesalers, rather than having them delivered. The increase in cash-and-carry facilities has arisen as many suppliers will not deliver direct to small shops because the order quantities are very small.
•Manufacturer via third-party distribution service to retail shop. Third-party distribution or the distribution service industry has grown very rapidly indeed in recent years. In the UK, the industry has grown for a number of reasons, the main ones being the extensive rise in distribution costs and the constantly changing and more restrictive distribution legislation that has occurred. Thus, a number of
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companies have developed a particular expertise in warehousing and distribution. These companies consist of those offering general distribution services as well as those that concentrate on providing a 'specialist' service for one type of product (e.g. china and glass, hanging garments) or for one client company.
•Manufacturer via small parcels carrier to retail shop. Very similar to the previous physical distribution channel, these companies provide a 'specialist' distribution service where the 'product' is any small parcel. There has been an explosion in the 1980s and 1990s of small parcels companies, specializing particularly in next-day delivery. The competition generated by these companies has been quite fierce.
•Manufacturer via broker to retail shop. This is a relatively rare type of channel, and may sometimes be a trading channel and not a physical distribution channel. A broker is similar to a wholesaler in that it acts as intermediary between manufacturer and retailer. Its role is different, however, because it is often more concerned with the marketing of a series of products, and not really with their physical distribution. Thus, a broker may use third-party distributors, or it may have its own warehouse and delivery system.
•Mail order. The use of mail order or catalogue shopping has become very popular. Goods are ordered by catalogue, and delivered to the home by post or parcels carrier. The physical distribution channel is thus from manufacturer to mail order house as a conventional trunking (line-haul) operation, and then to the consumer's home by post or parcels carrier, bypassing the retail store.
•Factory direct to home. The direct factory-to-home channel is a relatively rare alternative. It can occur by direct selling methods, often as a result of newspaper advertising. It is also commonly used for one-off products that are specially made and do not need to be stocked in a warehouse to provide a particular level of service to the customer.
•Internet and shopping from home. There is now an important development in shopping from home via the internet. Initial physical distribution channels were similar to those used by mail order operations —by post and parcels carrier.
•Factory to factory/business to business. The factory-to-factory or business-to- business channel is an extremely important one, as it includes all of the movement of industrial products, of which there are very many. This may cover raw materials, components, part-assembled products, etc. Options vary according to the type and
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size of product and order, may range from full loads to small parcels, and may be undertaken by the manufacturers themselves or by a third party. It can be seen from the list of alternative channels that the channel structures can differ very markedly from one company to another. The main differences are:
•the types of intermediaries;
•the number of levels of intermediaries (how many companies handle the product);
•the intensity of distribution at each level (i.e. are all or just selective intermediaries used at the different levels?).
Channel objectives will necessarily differ from one company to another, but it is possible to define a number of general points that are likely to be relevant. These should normally be considered by a company in the course of its distribution planning process to ensure that the most appropriate channel structure is developed.
The main points that need to be addressed are as follows:
•to make the product readily available to the market consumers at which it is aimed.
•to enhance the prospect of sales being made (the product should be 'visible, accessible and attractively displayed').
•to achieve co-operation with regard to any relevant distribution factors (these factors may be from the supplier's or the receiver's point of view, and include minimum order sizes, unit load types, product handling characteristics, materials handling aids, delivery access (e.g. vehicle size) and delivery time constraints, etc.)
•to achieve a given level of service.
•to minimize logistics and total costs.
•to receive fast and accurate feedback of information.
It is also necessary to consider characteristics of the channel itself. There are two different factors that are important. Firstly, does the channel being considered serve or supply the customer in the way required? A simple example might be a new grocery product that needs to be demonstrated or tested in the shop. There would be no point in distributing this product through a small self-service store where no facilities can be provided for a demonstration. Secondly, how efficient is the channel being considered? Efficiency may include a number of different features related to sales or distribution. These might include the sales potential in the outlets served, the size of orders placed, the frequency of delivery required, etc.