Distribution Control
Dr. Khaled EL Sakty
Salma Elsayed
Distribution Planning and Control
Introduction
▪ Distributors are key factors in most marketing systems.
▪ They are organizations that buy products from hundreds of manufacturers and resell them to their customers.
▪ They sell standard products and financial benefits.
▪ Distributors usually specialize in a class of products, such as electronics, foodstuffs, pharmaceuticals, clothing.
▪ They usually provide faster delivery, and better terms and conditions than the manufacturer.
▪ Distributors are usually the largest channel organizations.
▪ Many distributors are national, with several warehouses and sales offices.
01 Defining the distribution function Agenda
02 Distribution systems
03 Basic Distribution Formats
04 The Role of Distribution Channel
05 Channel service outputs
06 Distribution Channel Inventory Flow
07 Channel Selection
1- Defining the distribution function
▪ It is important to separate the term distributor from the term distribution.
▪ Distributor refers to the channel entities that act as intermediaries between manufacturers and end-use customers
▪ Distribution refers to a process and not a channel entity.
The key points of the definitions are:
1. Distribution is a set of activities performed by various entities associated with the movement of finished goods from
producer to the customer.
2. Distribution includes the functions performed by inbound and outbound activities.
3. Distribution processes include the structuring of communications networks
4. Distribution often involves the use of field warehouses that make channel inventory management and delivery to the
customer more efficient.
2. Distribution systems
Distribution systems
Centralized
Direct Distribution
Distribution
Echelon delivery based Decentralized
distribution Distribution
Distribution systems
Direct Distribution
▪ Manufacturer retains close control over product.
▪ The expense of operating channel warehouses is avoided.
▪ Market-place information is quickly made available.
▪ Distribution cost is high due to multiple location delivery.
Echelon delivery based distribution
▪ Products are available to the customer on an on demand basis.
▪ With minimal delivery times
▪ High cost of running and stocking the echelon channel.
Distribution systems
Centralized Distribution Decentralized Distribution
▪ Fewer channel warehouses. ▪ Increased costs to support channel warehouses.
▪ Contain minimal safety stocks. ▪ Warehouses must bear the cost of local safety stocks.
▪ Reduced operating overheads. ▪ Transportation costs increase.
▪ Economies of scale. ▪ Total system costs increase
▪ Decreased inbound transportation costs.
▪ Targeted service levels.
▪ Minimizing total system cost.
National Distributors
▪ They are large businesses with annual sales running into the billions of dollars.
▪ Many of them are public corporations.
▪ Their executives are primarily Bureaucrats, far removed from day-to-day operations.
▪ Operating decisions are influenced by pressures from a handful of their largest suppliers and customers.
▪ The rest of their suppliers and customers must accept their policies and procedures for conducting business
Regional Distributors
▪ They are medium-sized businesses.
▪ Regional Distributors have fewer customers and represent fewer product lines than National Distributors.
▪ Their executives work more closely with their customers and with their suppliers than do their counterparts at
National Distributors.
▪ However, Regional Distributors often receive less favourable pricing and less technical support from the largest
manufacturers because their volume of business is relatively low.
▪ As a result, they are more approachable to the less well-established manufacturers.
3. Basic Distribution Formats
Processed Based Model
▪ The manufacturer operates as a single value-added delivery.
▪ the objective of this strategy is to achieve optimal efficiencies and productivities by directly managing production
and distribution functions as a single integrated system.
Market Based Model
▪ It is concerned with managing a limited set of functions across a multidivisional or a multiple-enterprise channel.
▪ The object is to execute joint product shipments to customers originating across the enterprise or to facilitate sales
and coordination by a single-order invoice.
Channel Based Model
▪ A manufacturer seeks to manage the distribution process by forming alliances with wholesalers and retailers.
▪ Enterprises that employ this strategy typically have large amounts of finished goods in the channel.
Alternative Distribution Channel Formats
Manufacturer-Based
Channel Formats
Miscellaneous Channel Merchant Wholesaler
Formats Channel Formats
e-Business Formats
Distribution Distribution Service
Channel Channel Formats
Buyer-Initiated Formats Distribution Retail Formats
Exporting and Importing
Channel Formats
4. The Role of Distribution Channel
4. The Role of Distribution Channel
Distribution channels are formed to solve three critical distribution problems
Functional performance
Reduced complexity
Specialization
4. The Role of Distribution Channel
Functional performance
▪ Increasing the efficiency of time
▪ Increasing the efficiency of place utility
▪ Increasing the efficiency of delivery utility
▪ Product availability
▪ Functions of exchange and fulfilment
▪ Facilitate the flow of products, services, and information
Specialization
▪ Many channels contain intermediaries that specialize in one or more of the elements of distribution, such as cross-
docking or transportation.
▪ Specialisation aims to increase the velocity of goods and value-added services.
▪ By reducing costs associated with selling, sorting, transporting, carrying inventory, warehousing, order processing,
and credit.
4. The Role of Distribution Channel
Reduced complexity
An intermediary can substantially reduce the number of transactions, information, and product flows between producers and
customers.
Product Transaction =P*C
=3*5
Customer = 15
Product Transaction =P+C
=3+5
Customer =8
4. The Role of Distribution Channel
Reduced complexity
▪ Channel intermediaries assist in the routinization of business functions and product sorting.
▪ Routinization refers to the establishment of policies and procedures that provide channel members with common goals,
channel arrangements, and expectations
▪ Sorting is defined as a group of activities associated with transforming products and product quantities acquired from
producers into the assortments and lot sizes demanded by the marketplace.
▪ The “sorting” process can be broken down into four primary functions:
1. Sorting out. This process is defined as separating a heterogeneous group of products, often acquired from multiple
suppliers, into homogeneous subgroups. .
2. Accumulation. the channel intermediary combines homogeneous stocks of products into larger groups of supply.
3. Allocation. This form of sorting breaks down large lots of products into smaller lots for sale.
4. Assorting. distributors mix similar or functionally related items into assortments to meet customer demand.
5. CHANNEL SERVICE OUTPUTS
5. Channel service outputs
Distribution channels exist because they perform four critical service outputs.
Bulk- Spatial
breaking convenience
Length of
Product
waiting and
variety
delivery time
Other functions of distribution channels
01 02 03 04
▪ Selling and promoting ▪ Postponement ▪ Transportation ▪ Warehousing
08 07 06 05
▪ Product possession ▪ Marketing information ▪ Merchandising ▪ Sequencing
Other functions of distribution channels
09 10 11 12
▪ Risk ▪ Negotiations ▪ Ordering Flow ▪ Payment Flow
15 14 13
▪ Management Services and Consulting ▪ Information services ▪ Financing
06 Distribution Channel Inventory Flow
▪ The decision to stock inventory at any particular channel echelon is a serious management decision.
▪ It must be carefully considered by cost and service trade-off analysis.
▪ Management methods such as:
✓ Lean
✓ make-to-order production
✓ structure of the channel warehouse system
✓ outsourcing of operations, and other factors.
Channel Inventory Flow
Demand Flow
Customer Shipping Return order / Scrap
Channel resupply
Manufacturing Order Order Documents / Rework
order
Obsolete /
In-transit /
Stores Production Finished Goods Damaged /
Delivery
Rework
Finished Goods
Components / WIP Finished Goods , Distribution
Components /
Raw Materials / Inventory Service parts Inventories
Raw Materials /
MRO
MRO
Inventory Flow
Inventory and Demand Flows
Demand Flow
Derived independent
Demand Demand
Dependent
Demand
Materials Channel
Producer Retailer End Customer
Supplier intermediaries
Inventory Flow
7. Channel Selection
Selection process is to maximize customer responsiveness while optimizing company profits and lowering operations costs.
Four-step Selection Process
1. Facility selection issues
2. Modelling choices
3. Assembling the network
4. Confirming the network
22 SELECTION ISSUES
1. corporate objectives
2. customer service -level
3. global economic conditions
4. country -level political stability
5. government regulations
6. location of markets
7. exchange rates and currency risks
8. local cultural
9. climate
10. Labor availability, costs, wages, and union strength
11. proximity to competitors
22 SELECTION ISSUES
12. proximity to suppliers and customers
13. facility cost and size
14. availability and accessibility of transportation modes 15. proximity to highway systems
16. communications infrastructure
17. Local taxes and fees
18. environmental regulations
19. Cost and availability of utilities
20. Government incentives
21. Community resources (police, fire, public transportation, and affordable, housing )
22. Management
THANK YOU
Salma Elsayed
