UNIT 1: INTRODUCTION

Distribution refers to the way in which something is shared out or spread over an area
or among a group. In statistics, it describes how values are spread or dispersed within a
dataset. In business, it relates to the process of delivering products or services to
consumers.
Distribution Management can be defined as planning, implementing, and
controlling of movement of products from the points of origin to the point of
consumption for providing satisfaction to consumers to achieve organizational goals.
OBJECTIVES OF DISTRIBUTION MANAGEMENT:
i. To Provide Better Customer Service: Ensuring products are delivered to customers
promptly and in good condition, which enhances overall satisfaction and builds
customer loyalty. Efficient distribution means meeting or exceeding customer
expectations regarding delivery times and product availability.
ii. To Increase Sales: Expanding the reach and accessibility of products to boost sales
and market presence. By strategically positioning products in various locations,
businesses can tap into new markets and increase their customer base, leading to
higher sales volumes.
iii. To Reduce Cost: Optimizing the distribution process to minimize expenses related to
storage, transportation, and handling. Efficient distribution systems reduce wastage,
lower inventory costs, and streamline operations, thereby improving the overall
profitability of the business.
iv. Promotion of Goods and Services: Utilizing distribution channels to effectively
market and advertise products, increasing visibility and demand. Distribution
networks can also serve as platforms for promotional activities, such as discounts and
special offers, to attract more customers.
v. Utility Creation: Enhancing the value of products by ensuring they are available at the
right place and time, in the desired quantities. This utility creation ensures that
customers find the products they need when they need them, thereby increasing
customer satisfaction and perceived value.
vi. Availability of Goods: Making sure products are readily available to meet customer
demands, avoiding stockouts, and ensuring consistent supply. Effective distribution
management ensures that inventory levels are maintained appropriately to prevent
shortages and overstock situations.
In conclusion, effective distribution management aims to create a balance between
providing excellent customer service, increasing sales, reducing costs, promoting
products, creating utility, and ensuring the availability of goods. By achieving these
objectives, businesses can enhance their competitive edge and ensure long-term
success.
DISTRIBUTION COVERAGE
Distribution Coverage refers to the strategy a company uses to make its products
available to consumers. There are three main types of distribution coverage: intensive,
selective, and exclusive.
i. Intensive Distribution (Mass Distribution): This strategy aims to provide maximum
product exposure by placing products in as many outlets as possible. It is commonly
used for everyday products such as snacks, beverages, and household items. The goal
is to ensure that consumers can easily purchase the product whenever and wherever
they need it.
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ii. Selective Distribution (Limited Distribution): In this strategy, a company uses a
limited number of outlets to sell its products. It is typically used for products that
require a higher degree of customer service or technical support, such as electronics
and home appliances. Selective distribution helps maintain a balance between
availability and exclusivity, ensuring that the product is available in key locations
without oversaturating the market.
iii. Exclusive Distribution (Franchised Distribution): This strategy involves granting
exclusive rights to a single distributor or a very limited number of distributors within
a particular geographic area. It is often used for luxury brands, high-end products, or
products requiring specialized knowledge. Exclusive distribution helps maintain a
high level of control over the brand's image and customer experience, ensuring that
the product is sold in a manner that aligns with the company's standards.
In summary, distribution coverage strategies vary based on the nature of the product
and the company's marketing goals. Intensive distribution aims for widespread
availability, selective distribution balances availability with exclusivity, and exclusive
distribution ensures control and premium positioning. These strategies help companies
reach their target market effectively and achieve their business objectives.
ASPECTS OF DISTRIBUTION MANAGEMENT:
i. Distribution Channel/ Marketing Channel
ii. Physical Distribution/ Logistic Management/ Market Logistics
DISTRIBUTION CHANNEL/ MARKETING CHANNEL
A distribution channel, also known as a marketing channel, is a pathway through which
products flow from producers to consumers. It involves various intermediaries who
perform essential functions to ensure the product reaches the end user effectively. These
channels can be categorized into two main types:
i. Manufacturers/Producers
Manufacturers or producers are the originators of the product. They are responsible for
creating or manufacturing goods, transforming raw materials into finished products that
are ready for the market. Their primary role is to produce and supply these products,
ensuring that they meet quality standards and are available in sufficient quantities to
meet market demand.
ii. Marketing Channels
Marketing channels involve intermediaries that facilitate the movement of products
from manufacturers to consumers. They can be categorized into two main types:
A. Functional Middlemen: These intermediaries do not take ownership of the
products but assist in the process of distribution by providing essential services.
They include:
• Agents and Brokers: They facilitate sales by bringing buyers and sellers together
and negotiating terms. Agents often have long-term relationships with the buyers
and sellers they represent, while brokers typically work on a short-term basis.
• Facilitators: They provide supporting services like transportation, warehousing,
financing, and insurance, ensuring the smooth flow of goods from producers to
consumers.
B. Merchant Middlemen: These intermediaries take title to and own the products they
sell. They include:

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 • Wholesalers: They buy products in bulk from manufacturers and sell them in
smaller quantities to retailers or other businesses. Wholesalers typically handle
storage, transportation, and order processing.
• Retailers: They sell products directly to the end consumers. Retailers can operate
through physical stores, online platforms, or a combination of both. They play a
crucial role in presenting and promoting products to consumers.
In summary, distribution channels are essential in connecting manufacturers with
consumers, with functional middlemen providing services to facilitate the distribution
process and merchant middlemen taking ownership of goods to sell them to end users.
These channels ensure that products are efficiently moved from production to
consumption.
PHYSICAL DISTRIBUTION/ LOGISTIC MANAGEMENT/ MARKET LOGISTICS
It refers to the processes involved in planning, implementing, and controlling the
efficient movement and storage of goods from the point of origin to the point of
consumption. It encompasses several key activities:
i. Order Processing
• Order Entry: Capturing customer order details into the system. This initiates the
logistics process.
• Order Handling: Managing the various steps of processing an order, including
verification, billing, and preparing items for dispatch.
• Order Delivery: Ensuring the order reaches the customer in a timely and accurate
manner.
ii. Warehousing
• Private and Public Warehouses: Private warehouses are owned by the company
using them, while public warehouses are rented out to multiple users.
• Number of Warehouses: Deciding how many warehouses are needed based on
demand and supply chain efficiency.
• Location of Warehouses: Strategic placement of warehouses to minimize costs
and improve delivery times.
iii. Material Handling
• Mechanical Handling: Use of machinery such as forklifts, conveyors, and
automated systems to move goods within a warehouse.
• Non-Mechanical Handling: Manual processes for handling goods, often used for
smaller or less frequent operations.
iv. Inventory Management
• Economic Order Quantity (EOQ): A formula used to determine the optimal order
quantity that minimizes total inventory costs.
• Re-Order Point: The inventory level at which a new order should be placed to
avoid stockouts.
• Safety Stock: Extra inventory kept on hand to mitigate the risk of stockouts due
to demand fluctuations or supply delays.
• Activity-Based Costing Analysis: A method of assigning costs to products and
services based on the resources they consume.
• Just In Time (JIT): An inventory strategy that aligns order arrivals with production
schedules to reduce holding costs.
• Transportation: Selection of the most efficient and cost-effective mode of
transportation (e.g., road, rail, air, sea) for moving goods.

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In summary, physical distribution/logistics management involves coordinating various
functions to ensure products are efficiently and effectively moved and stored from
production to consumption. This includes careful planning of order processing,
warehousing, material handling, inventory management, and transportation to achieve
optimal efficiency and customer satisfaction.

UNIT 2: FUNDAMENTALS OF MARKETING CHANNELS

Meaning of Marketing Channels
• A marketing channel is a group of people, organizations, and actions that work
together to move products from production to consumption.
• Marketing channels are the set of interdependent organizations involved in the
process of making product or service available for use or consumption.
Objectives of marketing channel
a) Make available of goods at a prescribed time to the place of consumer.
b) Maintain sustainability of the company
Role of Marketing Channels
• Information provider: Marketing channels are the source of marketing
information and keep the producer updated regarding the activities of
competitors. Retailers share information regarding the sales trend and patterns.
• Movement of goods/ Title transfer: Marketing channels move goods from factory
to the retail outlets going through various processes.
• Understand consumer behavior: Marketing channels provide deeper insights into
consumer behavior than research on consumer behavior can yield.
• Facilitate search: This function is carried forward by the agents where buyers and
sellers search for each other for the exchange of commodities.
• Proximity to consumers: This helps in reducing the burden of the producer as the
middlemen are close to the end-users of product.
Channel Structure for Consumer and Industrial Goods
A. Channel Structure for Consumers Products (Consumer Market)
1. Zero Level Channel: The zero-level channel is a direct sales model, where the
manufacturer sells directly to consumers with no intermediaries. This direct
channel structure reduces costs but can be more challenging for sales.
2. One level channel: In the one-level channel, the manufacturer sells to
consumers through retailers, who act as middlemen.
3. The Two-Level Channel: The two-level channel involves an additional
middleman – the wholesaler. The manufacturer sells to wholesalers, who then
sell to retailers, before reaching the final consumers. This traditional channel
structure increases costs but can be appropriate for wider market reach.
4. The Three level channel: The three-level channel is the longest, with agents,
wholesalers, and retailers all acting as intermediaries between the
manufacturer and consumers. This extensive channel structure increases costs
but can be suitable for international markets.
B. Channel Structure for Industrial Goods (Industrial Market)
1. Zero Level Channel: The zero-level channel is the most direct model, with the
manufacturer selling directly to industrial users without any middlemen. This

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 reduces costs and is suitable for heavy, expensive products like raw materials
and equipment.
2. One level channel: The one-level channel introduces industrial distributors or
sales agents as intermediaries between the manufacturer and industrial
users. This works well for less costly products like office supplies and spare
parts, allowing the manufacturer to focus on production.
3. Two Level Channel: The two-level channel involves both agents and industrial
distributors as intermediaries. This expands reach to larger industrial
markets, but increases distribution costs compared to the one-level channel.
Manufacturers may use this to leverage the expertise and customer
relationships of multiple intermediaries.
C. Channel Structure of Service
1. Zero Level Channel: The zero-level channel for services involves a direct
relationship between the service provider and the end consumer,
eliminating any intermediaries. This is common for professional services like
legal or accounting, where the provider interacts directly with the client.
2. One Level Channel: The one-level service channel introduces an
intermediary, such as a sales agent or broker, between the service provider
and the customer. This can help expand the service’s reach, but adds an extra
layer to the channel. Examples include travel agencies selling vacation
packages or insurance brokers connecting providers with customers.
Selection of Marketing Channels/Strategic Consideration in Channel Selection
I. Product Considerations:
• Unit Price: The price of the product can influence the choice of distribution
channels. Higher-priced products may require more specialized or direct
channels, while lower-priced products may be better suited for more extensive
distribution through intermediaries.
• Nature of Product: The physical characteristics, perishability, and complexity
of the product can impact the appropriate distribution channels. For example,
bulky or fragile products may require specialized transportation, while simple
products may be suitable for broader distribution.
II. Market Considerations:
• Types of Market: The nature of the target market, whether industrial,
consumer, or institutional, can guide the selection of distribution channels that
best reach and serve those customers.
• Target Customers: Understanding the target customers’ preferences, buying
behavior, and locations can help determine the most effective distribution
channels to access them.
• Concentration of Market: The geographic concentration or dispersion of the
target market can influence the choice between more centralized or
decentralized distribution channels
• Order Size: The typical order size from customers can affect the viability of
certain distribution channels. Larger orders may warrant more direct
distribution, while smaller orders may be better suited for intermediaries.
• Competition: Understanding the distribution strategies and channels used by
competitors can inform the marketer’s own channel selection to ensure
competitiveness and differentiation.
III. Objective Considerations:
• Control: The level of control the marketer wants to maintain over the
distribution process, pricing, and customer relationships can guide the choice
of distribution channels.
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 • Cost: The relative costs of using different distribution channels, including
transportation, storage, and intermediary commissions, must be carefully
evaluated.
IV. Middlemen Considerations:
• Availability of Middlemen: The presence and accessibility of suitable
intermediaries, such as wholesalers, retailers, or agents, can impact the
feasibility of certain distribution channels.
• Capacity of Middlemen: The ability of intermediaries to handle the volume,
logistics, and service requirements of the product or service must be assessed.
• Interest of Middlemen: The distribution considers willingness and motivation
of potential intermediaries to represent and the product or service is an
important consideration.
V. Company Considerations:
• Financial Position: The company’s financial resources and capabilities impact
the feasibility of different distribution channels.
• Company’s Ability: The company’s operational, technological, and managerial
capabilities determine its capacity to manage various distribution options.
• Company’s Goodwill: The company’s reputation and relationships with
potential intermediaries can influence their willingness to partner.
• Company’s Policy: The company’s overall objectives, strategies, and policies
guide the selection of appropriate distribution channels.
VI. Environmental Considerations:
• Legal Environment: The legal and regulatory framework governing
distribution practices must be taken into account
• Social Environment: Cultural norms, consumer preferences, and societal
attitudes can shape the suitability of certain distribution channels.
• Economic Environment: The prevailing economic conditions and market
trends can impact the viability of different distribution options.
Marketing Channel System: A marketing channel is the people, organizations and
activities that make goods and services available for use by consumers. Marketing
channel can be classified into Non-integrated/ Conventional marketing channel and
integrated marketing channel.
1) Non-integrated Channel (Conventional Marketing Channel): A distribution system
where channel members (producer, wholesaler, retailer) operate independently to
maximize their own profits, leading to potential conflicts and suboptimal
performance. There are two types of channels and they are :
a. Direct Channel: In a direct marketing channel, the producer sells products or
services directly to the end consumer without involving any intermediaries like
wholesalers or retailers. This allows the producer to have more control over the
customer experience and to capture the full margin on sales.
b. Indirect Channel: The indirect marketing channel involves one or more
intermediaries between the producer and the final customer. These
intermediaries can include:
• Wholesalers – who buy products from the producer and resell them to
retailers
• Retailers – who purchase products from wholesalers or directly from
producers and sell them to consumers
• Agents/Brokers – who facilitate transactions between producers and
wholesalers/retailers without taking ownership of the product

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 2) Integrated Marketing Channel: A distribution system where channel members
coordinate their strategies and activities to optimize overall channel performance.
Integration can take the form of vertical marketing systems, horizontal marketing
systems, or multi-channel marketing systems.
a) Vertical Marketing System: In a vertical marketing system, there is coordination
and integration between different levels of the distribution channel, such as the
manufacturer, wholesaler, and retailer. This allows the channel members to work
together in a more efficient and aligned manner. There are three main types of
vertical marketing systems
• Corporate Vertical Channel: In a corporate vertical channel, a single firm
owns and controls the entire distribution process, allowing high control over
the channel and brand reputation.
• Contractual Vertical Channel: Independent firms collaborate through formal
contracts, gaining integration benefits without full ownership, as seen in
franchising.
• Administered Vertical Channel: Without formal contracts, the activities of
channel members are influenced by the power and dominance of a single
member, which coordinates partner behaviours through market leverage.
b) Horizontal Marketing System: This involves collaboration between companies at
the same channel level, such as manufacturers or retailers. The goal is to
leverage combined capabilities and resources to expand into new market
opportunities.
c) Multi-Channel Marketing System: This allows a company to reach customers
through multiple sales channels, like its own website, third-party online retailers,
and physical stores. The benefits include increased market coverage and more
customized selling approaches for different customer segments.
Power of Channel members: Power is defined as an ability of one channel member (A)
to get another channel member(B) to do something it otherwise would not have done
Some of the power of different channel members is discussed below:
• Backend or Product Power: Manufacturers with powerful brands can force
dealers to carry less profitable lines, as dealers have little choice but to offer the
popular brands.
• Middle or Wholesale Power: Wholesalers who control distribution in an area can
bargain with manufacturers due to their reach and the dependence of smaller
retailers on them.
• Front or Retailer Power: Large retailers can command major concessions from
companies by placing large orders or threatening to boycott products with
unsatisfactory margins.
Types/Sources of Channel Power
Channel Power: It refers to the ability of any one channel member to alter or modify
the behavior of other members in the distribution channel.
Type/ source of Channel Power
• Reward Power: The ability of the channel principal to provide financial and other
benefits to channel members, such as incentives and awards, to motivate desired
behavior.
• Coercion Power: The ability of the channel principal to punish or penalize channel
members for non-compliance, relying on the fear of negative consequences.

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 • Expert Power: The specialized knowledge and expertise of the channel principal
that makes them a trusted advisor to channel partners.
• Legitimacy Power: The sense of power based on the channel principal’s formal
authority and recognized position within the distribution system.
• Referent Power: The interpersonal skills and charisma of the channel principal that
inspire confidence, trust, and loyalty from channel members.
Recent Trends in Marketing Channels
• Symbiotic Marketing: A marketing method in which one manufacturer sells its
finished product to another for resale under the second manufacturer’s label where
that manufacturer already has access to the market through a well-established
distribution system.
• Third Party Logistics (3PL): Third Party Logistics (3PL) refers to the outsourcing of e-
commerce logistics processes to a third-party business. This includes the
management of inventory, warehousing, and order fulfillment. 3PL providers offer
e-commerce merchants the tools and infrastructure to automate their retail order
fulfillment, allowing them to accomplish more without having to build out extensive
logistics operations on their own. Logistics, in this context, encompasses the overall
process of managing how resources are acquired, stored, and transported to their
final destination. By leveraging a 3PL provider, e-commerce companies can focus on
their core business activities while leaving the logistics challenges to the experts
who specialize in this area.

• Multi-Channel Marketing Systems: Multi-Channel Marketing Systems involve

interacting with customers across various direct and indirect channels to sell
products and services. This provides customers with more ways to get information
and make purchases. Using channels like stores, websites, apps, and social media
allows companies to reach customers through their preferred channels and ensure
a consistent brand experience
• Multi-Level Marketing (MLM): It is a strategy used by some direct sales companies,
also known as network marketing or pyramid selling. MLM is a controversial
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 marketing approach where the company’s revenue comes from a non-salaried
workforce selling its products, and participant earnings are derived from a pyramid-
shaped or binary compensation system.
• E-marketing: It is the process of planning and executing the conception,
distribution, promotion, and pricing of products and services in a computerized,
network environment. It involves leveraging digital technologies and channels to
reach and engage with customers.
• Direct marketing: It refers to the promotion of products or services directly to the
target audience through various marketing channels. This technique allows
businesses to interact with potential customers directly without using
intermediaries like newspapers or retailers, fostering a more personalized and
targeted approach to marketing.
Channel Reduction and Elimination
Channel Reduction and Elimination refers to the process of reducing or eliminating
certain marketing channels or distribution methods. This can occur due to various
reasons:
• Excess Number: When there are too many marketing channels or intermediaries
involved, leading to inefficiencies and redundancies.
• Superfluous: When certain channels or intermediaries are deemed unnecessary
or providing little value, they may be reduced or eliminated.
• Anti-social Activities: If a particular channel or intermediary is engaged in
unethical or harmful practices, it may be targeted for elimination to maintain
brand reputation and integrity.
• Limiting consumers’ choice: In some cases, reducing or eliminating certain
channels may limit the options available to consumers, which could be seen as a
drawback of this strategy.

UNIT 3.... CLASSIFICATION OF MARKETING CHANNELS

Marketing Channels are the pathways through which products move from producers
to consumers, involving intermediaries like wholesalers and retailers to facilitate
distribution and sales.
THERE ARE TWO TYPES OF MERCHANT MIDDLEMEN: WHOLESALERS & RETAILERS.
WHOLESALERS
Wholesalers are intermediaries that buy goods in bulk from manufacturers or producers
and sell them in smaller quantities to retailers, other businesses, or industrial users. They
play a crucial role in the supply chain by ensuring that products are distributed efficiently
and cost-effectively from producers to end users.
CHARACTERISTICS OF WHOLESALERS
i. Bulk Purchasing: Wholesalers buy large quantities of goods from manufacturers or
producers, benefiting from economies of scale and lower unit costs.
ii. Storage and Warehousing: They often have extensive storage facilities to hold
inventory until it is needed by retailers or other customers. This helps manage
supply and demand fluctuations.

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 iii. Distribution and Logistics: Wholesalers handle the transportation and distribution
of products, ensuring timely delivery to various locations. They optimize logistics to
reduce costs and improve efficiency.
iv. Breaking Bulk: Wholesalers break down large quantities of goods into smaller, more
manageable lots that are suitable for sale to retailers or smaller businesses, making
it easier for these entities to purchase and manage inventory.
v. Market Knowledge: They possess in-depth knowledge of the market, including
customer preferences, demand trends, and competitive dynamics. This expertise
helps them advise manufacturers on product offerings and retailers on inventory
management.
In summary, wholesalers serve as a vital link between manufacturers and retailers,
providing storage, distribution, and market insights while enabling smaller quantities of
goods to reach various markets effectively.
ROLES/ CONTRIBUTIONS OF WHOLESALERS
i. Bulk Buying and Bulk Breaking: Wholesalers purchase large quantities of goods
from manufacturers and then break them down into smaller quantities for resale to
retailers or other businesses. This allows for economies of scale and reduces the
purchasing burden on smaller buyers.
ii. Distribution of Products: They facilitate the distribution of products from
manufacturers to retailers or end-users, ensuring that goods reach the market
efficiently.
iii. Financing: Wholesalers often provide credit to retailers, allowing them to purchase
goods on a deferred payment basis. This financial support helps retailers manage
their cash flow and inventory levels.
iv. Transportation Facilities: They typically have their own transportation resources or
logistics networks to handle the movement of goods from manufacturers to their
own warehouses and then to retailers.
v. Warehousing Facilities: Wholesalers maintain warehouses where they store
products in bulk before distributing them. This helps in managing inventory and
ensuring a steady supply of goods.
vi. Provides Information: They offer valuable market insights and product information
to both manufacturers and retailers, helping them make informed decisions.
vii. Promotion of Goods: Wholesalers often assist in the promotion of goods by creating
marketing campaigns, offering special deals, and providing advertising support to
retailers.
viii. Market Information: They gather and analyze market trends and customer
preferences, which can be useful for manufacturers and retailers to adjust their
strategies.
Thus, wholesalers play a crucial role in the supply chain by facilitating bulk transactions,
supporting financing, managing logistics, and offering market insights. Their
contributions help streamline the distribution process, reduce costs, and provide
valuable support to both manufacturers and retailers.
TYPES/ CLASSIFICATION OF WHOLESALERS
A. MERCHANT WHOLESALERS: Own the goods and take title to them.
a. Full-Service Wholesalers: Offer a complete range of services including
warehousing, transportation, and credit.
i. General Merchandise Wholesalers: Handle a broad range of products.
ii. Limited Line Wholesalers: Specialize in a narrower range of products.

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 • Cash and Carry Wholesalers: Buyers pay cash and handle their own
transportation.
• Truck Wholesalers: Deliver products directly to retailers.
• Drop Shippers: Arrange for goods to be shipped directly from the manufacturer
to the buyer.
• Rack Jobbers: Maintain and restock product displays in retail stores.
B. AGENT WHOLESALERS: Do not own the goods but facilitate transactions between
buyers and sellers.
• Brokers: Bring buyers and sellers together for a fee but don’t take title to the
goods.
• Selling Agents: Manage all marketing and sales for manufacturers and may
represent multiple producers.
• Manufacturing Agents: Represent manufacturers to find buyers and handle sales.
• Commission Merchants: Handle goods on consignment and earn a commission
on sales.
This classification helps businesses choose the type of wholesaler that best suits their
needs for distribution and sales.
RETAILERS
Retailers are the businesses or individuals that sell goods and services directly to
consumers for personal use. They act as the final link in the distribution chain, offering
products in smaller quantities and providing a range of services such as customer
support and product selection.
ROLES OF RETAILERS TO MANUFACTURERS AND WHOLESALERS
Retailers play a crucial role in the supply chain by bridging the gap between
manufacturers/wholesalers and consumers. Here’s how they contribute:
i. Bulk Buying and Selling: Retailers purchase products in bulk from wholesalers or
manufacturers and sell them in smaller quantities to individual consumers. This
allows manufacturers and wholesalers to focus on large-scale distribution while
retailers handle individual sales.
ii. Financing Facilities: Retailers often provide credit facilities to consumers, allowing
them to make purchases on installment plans. This financing support can drive
higher sales and attract more customers.
iii. Market Information: Retailers gather valuable insights on consumer preferences and
market trends. This information helps manufacturers and wholesalers understand
demand and adjust their production or inventory strategies accordingly.
iv. Promotion: Retailers engage in marketing and promotional activities to attract
customers. They often run sales, discounts, and advertising campaigns, which help
drive consumer interest and boost sales for manufacturers and wholesalers.
v. Customer Service: Retailers offer customer service and support, addressing
consumer inquiries, handling returns, and providing product recommendations. This
direct interaction with consumers enhances the overall shopping experience and
builds customer loyalty.
In short, retailers are essential in delivering products to consumers, providing financing
options, offering market insights, and executing promotional activities. Their direct
engagement with customers and focus on service help to drive sales and improve the
effectiveness of the supply chain.

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ROLES OF RETAILERS FOR CONSUMERS
i. Assemble Goods: Retailers collect and organize a wide variety of products from
different manufacturers and wholesalers. This assembly allows consumers to
access multiple products and brands in one place, saving them time and effort.
ii. Provides Information: Retailers offer valuable product information, including
features, benefits, and comparisons. They help consumers understand the options
available, make informed choices, and select products that best meet their needs.
iii. Provides Service: Retailers enhance the shopping experience by offering
additional services such as product demonstrations, expert advice, after-sales
support, and easy returns or exchanges. These services ensure customer
satisfaction and build trust.
iv. Credit Facilities: Many retailers provide credit options, allowing consumers to
purchase goods on credit and pay over time. This flexibility can help consumers
manage their finances better and make larger purchases more feasible.
v. Convenience: Retailers provide convenience through their locations, operating
hours, and online shopping options. By being accessible and offering a user-
friendly shopping experience, they make it easier for consumers to obtain the
products they need.
In short, retailers are pivotal in connecting consumers with products by assembling a
diverse range of goods, offering comprehensive information and services, providing
credit facilities, and ensuring convenience. Their roles significantly enhance the shopping
experience and address various consumer needs, making them a vital component of the
retail landscape.
TYPES/ CLASSIFICATIONS OF RETAILERS
Here’s a brief overview of the types of retailers:
A. TRADITIONAL RETAILERS
i. Specialty Store: Focuses on a specific category of products, offering a deep
assortment within that category (e.g., electronics stores, bookstores).
ii. Department Store: Offers a wide range of products across various categories,
typically organized into departments (e.g., Macy’s, Nordstrom).
iii. Supermarkets: Large stores that primarily sell food and groceries, along with
some non-food items (e.g., Kroger, Safeway).
iv. Hypermarkets: Very large retail spaces that combine a supermarket and a
department store, offering a broad range of products including groceries,
electronics, and clothing (e.g., Walmart, Carrefour).
v. Variety Stores: Sell a broad assortment of inexpensive goods, often including
household items, toys, and stationery (e.g., Dollar Tree).
vi. Convenience Stores: Small stores located in convenient locations that offer a
limited selection of everyday items, often with extended hours (e.g., 7-Eleven).
B. MASS MERCHANDISERS
i. Discount Houses or Stores: Offer products at lower prices by focusing on high
volume and reducing costs (e.g., Target).
ii. Off-Price Retailers: Sell branded goods at discounted prices, often from previous
seasons or overstock (e.g., TJ Maxx, Ross).
iii. Catalog Showroom: Provide a catalog of products that customers can order and
have delivered, often featuring larger items (e.g., IKEA’s catalog service).
C. NON-STORES RETAILERS
i. Direct Marketing: Involves selling products directly to consumers through
methods such as mail orders, telemarketing, or online platforms.
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 ii. Vending Machines: Automated machines that sell products such as snacks,
drinks, and small items directly to consumers.
iii. Personal Sales at Home: Retailing that occurs through home parties or personal
demonstrations, often by independent representatives (e.g., Tupperware
parties).
iv. Retailing Services: Services that offer convenience, such as delivery services or
online shopping platforms, without a physical store presence.
In conclusion, retailers are classified based on their operational models and product
offerings. Traditional retailers focus on physical stores with specific formats and
categories. Mass merchandisers offer goods at lower prices or through discount models.
Non-store retailers use innovative methods like direct marketing and automated vending
to reach consumers. Each type plays a unique role in the retail landscape, catering to
different consumer needs and shopping preferences.
FUNCTIONAL/ AGENT MIDDLEMEN
These are intermediaries who facilitate transactions between buyers and sellers without
taking ownership of the goods. They perform specific functions to help in the distribution
and sale of products.
ROLES/ CONTRIBUTIONS OF AGENT MIDDLEMEN
i. Brokers: Facilitate deals between buyers and sellers, earning a commission for
their services without taking ownership of the goods.
ii. Selling Agents: Represent manufacturers or sellers, handling all aspects of
marketing and selling their products, often on an exclusive basis.
iii. Manufacturing Agents: Work on behalf of manufacturers to find buyers and
manage sales, typically covering specific territories or markets.
iv. Commission Merchants: Handle goods on consignment, selling them on behalf of
the owner and earning a commission on the sales.
v. Export Agents: Specialize in managing the sale and shipment of goods to
international markets, handling export regulations and logistics.
Thus, functional or agent middlemen are crucial in the distribution process as they
facilitate transactions, manage sales, and handle specific functions without taking
ownership of the goods. Their roles help streamline the sales process, reach new
markets, and ensure efficient transactions between producers and buyers.
TYPES/ CLASSIFICATIONS OF AGENT MIDDLEMEN
i. Factors: Agents who specialize in purchasing and selling goods on behalf of their
clients, often handling credit and financial matters.
ii. Brokers: Facilitate transactions between buyers and sellers for a commission,
without taking ownership of the goods. They bring parties together and help
negotiate deals.
iii. Commission Agents: Handle goods on consignment, selling them on behalf of the
owner and earning a commission on the sales.
iv. Del Credere Agents: Similar to commission agents but also guarantee payment to
the principal, taking on the risk of non-payment by buyers.
v. Auctioneers: Conduct auctions to sell goods to the highest bidder, managing the
bidding process and earning a commission from the sale.
vi. Manufacturer's Agents: Represent manufacturers to find buyers and manage
sales, often working on a commission basis and covering specific regions or
industries.

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 vii. Selling Agents: Manage all aspects of marketing and selling for manufacturers or
suppliers, often on an exclusive basis.
viii. Packing and Forwarding Agents: Specialize in packing goods for shipment and
arranging transportation, ensuring proper handling and delivery.
ix. Warehouses: Though not traditional agents, they store goods for manufacturers
or wholesalers, playing a key role in logistics and distribution.
x. Export and Import Agents: Handle the sale and shipment of goods across borders,
managing export and import regulations and logistics.
xi. Purchasing Agents: Buy goods on behalf of other businesses or individuals,
negotiating prices and terms to secure favorable deals.
In conclusion, agent middlemen play a vital role in the supply chain by facilitating
transactions, managing sales and logistics, and representing various parties. Each type
has specific functions, from handling financial matters and guaranteeing payment to
managing exports and imports. Their contributions help streamline processes, reduce
risks, and enhance efficiency in distribution and sales.

UNIT 4: MANAGING MARKETING CHANNELS

Channel conflict: channel conflict exists within the channel if one channel member
perceives another channel member to be engaged in behavior that prevents or impedes
from attaining its goal
TYPES OF CHANNEL CONFLICT
i. Vertical Channel Conflict: Channel conflicts arise between the different levels of
channel members within the same channel is called vertical channel. For example,
conflict between the producer and distributer, or between wholesales and the
retailers.
ii. Horizontal Channel Conflicts: Channel conflicts arise between same levels of channel
members within the same channel is known as horizontal channel conflicts. For
example, the conflict between two or more wholesalers, between two or more
retailers of more producers who handle similar type of products.
iii. Multi-Channel Conflicts: It refers to disagreements among members in separate
marketing channels. This type of conflict exists when the producer has established
two or more different channels to sell the product to the same target market. For
example, a computer company may have its own retail showroom, and authorized
dealers, and also sells online.
CHANNEL COORDINATION (OR SUPPLY CHAIN COORDINATION): aims at improving
supply chain performance by aligning the plans and the objectives of individual
enterprises. It usually focuses on inventory management and ordering decisions in
distributed inter-company settings. The sales manager has to ensure that the channel
system he is operating is well coordinated as follows:
a. The interests of all the channel members are protected.
b. The actions of all channel members are in line with the overall objectives of
channel
c. The channel flows are streamlined to deliver the customer service objectives as
desired by the end customers.

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 METHODS OF CHANNEL CONFLICT MANAGEMENT
i. Modification in Goals: Channel conflict can be resolved by modifying or defining new
goal that support to both channel members. MBO methods can be used for goal
modification.
ii. Improved Communication System: Effective communication system helps to
manage the conflict because it reduces the misunderstanding between channel
members. Poor communication can create uncertainty which leads to conflict among
the channel members.
iii. Channel Restructuring: When conflict becomes chronic or acute and unmanageable
it is a better option to modify and restructure the channel. People can be exchanged
between channel levels to manage conflict.
iv. Mediation: Channel conflict can be managed through keeping a mediator between
channel members to resolve the dispute and to reach at new agreement.
Conciliation, Bargaining, and arbitration can also be used to resolve conflict.
v. Politics: Conflict can be managed with the help of political leader or workers who
involved in some association. This tactic is mostly used by retailers who form their
associations to deal with wholesalers and manufacturers. They use coercive methods
to force the manufacturer to accept their terms and conditions.
CHANNEL INFORMATION SYSTEM: Channel information system is the set of well-
planned routines, procedures, decision rules and the infrastructure to collect process
and transmit data concerning sales of products and services through an intermediary to
end consumers.
Objectives of Channel Coordination System:
i. To provide timely information for decision-making.
ii. Operational data is the bases for planning channel and evaluating the
performance of the channel
iii. Operational planning includes forecasting and providing the information to
achieve the forecast.
iv. Evaluation is concerned with reviewing the results achieved and checking whether
the performance is satisfactory or not.
LEVELS/COMPONENTS /ELEMENTS OF CHANNEL INFORMATION SYSTEM:
i. Transaction Processing System (TPS): The TPS within a channel information system is
required to process routine transactions. It is typically used by workers with operational-
level duties in the channel. One of the main applications of a TPS is at the retailer level or
at single level. At the manufactures and distributor's level TPS could be used for order
processing and order tracking
ii. Knowledge Work Systems (KWS): KWS can be used to process documents at the clerical
level such as invoices, reconciliation statements, stock verification repots and transport
documents. KWS should be able to generate tables and graphs which aid in periodic review
to the channel performance at various level of the sales organization in a firm
iii. Management Information System (MIS): MIS can be used by the middle management. MIS
component to the channel management systems is always essential for coordination and
control of channel activities. The MIS conducts analysis of transactions and helps to develop
in depth knowledge for decisions
iv. Executive Support System (ESS): ESS can be used by top-level management. It helps to
develop decisions of a strategic nature related to the channel management activities of a
firm. It addresses non-routine decisions requiring judgement, evaluation, and insight,
because there is no agreed-on procedure for arriving at a solution

15
DESIGNING/PROCESS A CHANNEL INFORMATION SYSTEM:
i. Develop Objective for the Channel Information System: The designing of a
channel information system requires well-thought-out and clear-cut objectives at
the start. The channel information objectives include delivering the most
appropriate information to the most appropriate element of the channel, in the
most appropriate time and in the most appropriate form.
ii. Conduct a Channel Flow Analysis: Before the CIS is designed, it is important to
analyze the different flows in the channel. For e.g. Flow of goods, flow of
payments, and flow of ownership have to be tracked, such that all those who are
involved in these flows are identified and their exact roles understood.
iii. Analyze Hardware, Software, and Communication Network Options: In this
digitalized era, it is difficult to design a non-IT- based CIS in practice. In some cases,
some components of this CIS need not be IT-based and could be manually done or
accomplished. At this stage, it is therefore important to assess the type and of the
hardware, software, network and the personnel required to meet all the
information needs from the sources identified
iv. Identification of the Information Sources: Once the information needs are
identified, the next step is identifying the source from which each listed
information can be collected and devise methods of collecting this information.
Often the Transaction Processing System (TPS) is the source from which each type
of information can be collected.
v. Develop a Cost Analysis: Based on the results of the information source analysis
and the analysis of the hardware, software, and networking options, it is now
possible to develop an initial cost analysis. The involvement of the top manager
and other decision makers may be required to conduct the final cost analysis of
CIS.
vi. Finalize the Channel Design: After the level of investment is approved, the design
of the CIS can be finalized. The final design will specify the type of information to
be collected to each of elements in the channel, the sources from which the
information will be collected, the databases to be created, and the procedures to
be adopted to collect and process information.

UNIT-5 CHANNEL PLANNING

Channel planning is a decision to determine the needed adjustment or Changes to be in
the channel structure, functions and relationship after a Thorough analysis of strength
and weakness of the company for Competitive advantages.
Process of Channel Planning:
i. Complete Understanding of Existing Channel Conditions and Challenges: To
determine the process of channel planning firstly, it is necessary to understand the
present condition of existing channel. There are different types of distribution
channel. Producers should firstly understand the nature of product, their Current
standing in the market, the behavior of the consumers.
ii. Conduct Competitor Channel Analysis: The second step of channel planning
process is to conduct competitor channel analysis. It is important to examine the
marketing strategies of competitors in stimulating demand and the marketing
programs to support their channels.
iii. Assess Opportunities in Existing Channels: This is the third step of channel
planning process. Assessment of opportunities in existing channel is possible as a
result of the insights gained from a complete understanding of existing channel
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 conditions and challenges (step 1) and from conducting competitor channel
analysis (step 2). In this stage, immediate changes in specific channel strategies,
tactics and policies may be warranted.
iv. Develop a Near-Term Plan of Attack: - In this stage, short-term channel plan and
policies are established based on feedback from channel members and competitor
analysis. Making changes at this stage of the process in not risk-free, however,
because a policy could be established now that is difficult to alter later in the face
of more complete information.
v. Conduct Gap Analysis: - Gap analysis is performed by comparing three system.
The three systems are 'an ideal (customer-driven) system', 'the existing system'
and 'a management bounded system'. The ideal system is the yardstick with total
quality management, the existing system is the existing delivery structure of the
firm and the management bounded system is the system for the satisfaction to
the end-user by providing quality services
vi. Identify and Develop Strategic Options:- This stage begins with a check on the
validity of management's prejudices. Here, the objectives and constraints must be
presented to individuals within and outside the company to assess management's
preferences and perceptions. One of the purposes of step six is to identify and
develop strategic options relate with the desire of the end-users
vii. Conduct Qualitative and Quantitative End-User Analysis: The seventh step,
conducting qualitative and quantitative channel research is generally undertaken
to solve a specific problem that business managers have already encountered with
products, market standing, infrastructure, consumers relationship and willingness
of purchase etc.
viii. Develop an Ideal Channel System: The final step of the process is to develop an
ideal channel system. Having understood the needs of the customers with regard
to the channel service outputs from the analysis of the customer's and
competitor's level of service output offerings, the channel designer would be
having a fair idea about the objectives to be set for the service that is valued by
the customer. The ideal system is the yardstick or synonymous with total quality
management, if actually constructed and properly managed, would satisfy end-
users.
CHANNEL DESIGN: Channel design refers to those decisions involving the development
of new marketing channels where none had existed before or to the modification of
existing channels. Channel design is presented as a decision faced by the marketer, and
it includes either setting up channels from scratch or modifying existing channels.
Types of Channel Design:
i. Vertical Channel Design: Vertical channel design is one in which the members of
a distribution channel (producers, wholesalers, and retailers) work together as a
unified group in order to meet the consumer needs.
ii. Horizontal Channel Design: Horizontal channel design is the merger of two
unrelated companies that have come together to exploit the market opportunities
better by this tie-up. By working together companies can combine their capital,
production capabilities, or marketing activities to sustain and to achieve
opportunities in the business. For example, Nike and Apple have entered into a
partnership.
iii. Hybrid (Multi-Channel) Channel Design: Hybrid channel design in one which
involves different group of intermediaries. For example, if uses of two or more
channels to distribute same products.

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FACTORS IN CHANNEL DESIGNING:
i. Efficiency: Efficiency is the (often measurable) ability to avoid wasting materials,
energy, effort, money, and time in doing something or in producing a desired
result. Channel should be designed in such a way that utilizes the optimum
resources. The standard definition of input process output applies here also. The
major channel is the effort required to achieve a desired service level. The inputs
could relate to the number of people involved. The inventory support, the financial
implications like credit.
ii. Effectiveness: Effectiveness is the degree to which something is successful in
producing the desired result. The designed channel should produce the desired
result for all the channel member, else its ineffective. This is the analysis of how
will the channel system meets its objectives. For an existing system this data is
readily available for a new channel design this can be can only be estimated.
iii. Capacity: Capacity is the maximum amount that something can contain. The
bigger the capacity of the channel members more beneficial to the organization.
The purpose of this factor is obvious If the channel has been designed for a current
volume of business handling a specific number of customers, it should still be
effective when, example, the volume doubles and the number of customers go up
by another 50% similarly when the demand for the company product suddenly
goes off at the end of the month or festive season, the channel system would Still
work well.
iv. Agility: Agility is the ability to move quickly and easily. All the channel members
should be as flexible as possible to adapt according to the situation. This is the
ability to handle changing demand patterns new customers new products or pack
sizes. For example, C&FA is expected to handle very high-volume changes at the
end of each month and should be prepared to handle this rush.
v. Consistency: Consistent is consistent behavior or treatment. All the channel
members should perform consistently to achieve the organizational goals. The
channel network should deliver the same level of service today after day all month
after month without fail. This keeps the customer satisfaction labels at a high level
and will not allow customers to stray and hence is an important factor in the
working of the channel network.
SETTING CHANNELS POLICIES AND STRATEGIES:
i. Market Coverage: Sales policy of any company whether selling fast- moving
consumer goods (FMCG), industrial products or services dictates that all market,
with potential for doing business need to be serviced. Resource limitations
prevent the same level of service for all market.
ii. Customer Coverage: After deciding the list of market to be served, it is necessary
to decide the customers, (Wholesalers, Retailers, and institutions- those who buy
the product for their own consumption and not for resale). The basic rule for
coverage includes:
• Every customer needs to be visited at least once in the month
• Every call on a customer needs to be made productive
• A customer cannot be visited by two distributors for the same product.
• The owner of the distributor firm has to visit the key customers personally
apart from the visit by his salesmen.
iii. Pricing: This is probably the most critical issue when dealing with the channel
partners. Whether they are on contract or independent like all Businessman they
want prices which are favorable to give them the highest margin, there is however
a limit to the margins which can be provided as every such is effective in price for

18
 the product to be paid by the consumer most of the times what competition does
decide the prices that can operate in the market.
iv. Product Lines: A product line is a group of related products under a single brand
sold by the same company. Companies sell multiple product lines under their
various brands. Companies of the expand their offerings by adding to existing
product lines, because consumers are more likely to purchase products from
brands with which they are already familiar.
v. Selection of Channel Members: Companies have no choice in the use of channels
already in the market like wholesalers, retailers, chemists, transporters,
warehouse leasing companies, spare parts Dealers for all equipment, hotels,
restaurants. The question of selection arises depending on the intensity of
distribution and in case companies want to set up their own distribution network
of C &FA's and distributors.
The selection process consists of three basic steps;
• Finding prospective channel members.
• Applying selection criteria to determine whether these members are suitable.
• Securing prospective members for the channel.
vi. Termination of Channel Partners: Termination of a contracted channel partner is
the most painful part of doing business with other parties. It is reported only when
the partner is unable to meet the objectives of the company or has been caught
in this honest business practice.
vii. Ownership of the Channel: Ownership does not just mean the investment in the
business: it includes taking responsibility for developing the business of the
channel principle who has contracted a channel member to work for it. It considers
all the statutory obligations like abiding by various acts, sales tax implications and
so on. Most of these obligations are specifically covered in a contract. However,
there are unwritten rules of behavior come into force by tradition and convention,
which are also expected to be followed.
viii. Legal Constraints: Various rules and regulations of the existing country should be
taken into consideration while setting channel policies and strategies so that both
parties in the distribution do not have any issue later.

UNIT 6 SUPPLY CHAIN MANAGEMENT

Supply chain system is an organized system that enables companies to efficiently handle
the low of good from suppliers to customers. The supply chain consists of all states
involved directly or indirectly, in fulfilling a customer's request. Supply chain network of
organization:
1. Upstream (inbound Channel Activities): The company with a set of firms that
supply the raw material components, parts, information, finance and expertise
needed to create a product or service.
2. Downstream (Outbound Channel Activities): Marketing channel partners such as
wholesalers and retailers which plays a vital connection between the firm and its
customers.
Supply chain management is a set of synchronized decisions and activities utilized to
efficient and integrate supplier, manufacturers, warehouses, transportation, retailers
and customers so that the right product or service is distributed at right quantity, at right
time. The objective of SCM is to achieve a sustainable, competitive advantage.

19
Flows of Supply Chain System:
1. Product Flow: Product Flow includes the movement of goods from supplier to
consumer (internal as well as external) this is possible through various
warehouses among distributors, dealers and retailers. Product flow also involves
returns/ rejections (Reverse Flow) from consumers to supplier. Generally, Product
moves typically from Supplier to Customer.
2. Money/Finance Flow: On the basis of the invoice raised by the supplier, the
consumer examines the order for correctness. If the claims are correct, money
flows from the consumer to the respective Supplier. Whereas, Discount, cash
schemes flow from supplier to customer.
3. Information flow: Supply chain management involves sharing information like
quotes, purchase orders, schedules, complaints, and performance reports
between customers and suppliers. Suppliers also share offers, order
confirmations, dispatch details, inventory reports, and invoices. Regular
interaction between producers and consumers is essential, with distributors,
dealers, retailers, and logistics providers also involved in the process.
4. The value flow: The value flow in a supply chain involves a series of processes that
add value to the end consumer. Each stage, from production to distribution, adds
value to products or services. Even at the retailer stage, value is added by making
products available conveniently. The value chain consists of interconnected
activities needed to bring a product from conception through production and
delivery to customers, ending with disposal.
5. Flow of risk: Supply chain risks arise from uncertainties in demand, supply, price,
and lead time. These risks can lead to financial losses and include disruptions,
price volatility, poor quality, process failures, infrastructure deficiencies, natural
disasters, and reputational damage. Additional risk factors are cash flow
constraints, inventory financing, and delayed payments. Risks can be internal or
external and affect product, financial, information, or value flows.
VALUE CHAIN ANALYSIS IN SUPPLY CHAIN: The value chain is a concept from business
management that was first described and popularized by Michael Porter in 1985. A Value
Chain is a chain of activities for a firm operating in a specific industry. In other word,
Value chain analysis's views the organization as sequential process of value creating
activities to design, produce, market, deliver and support a firm's products. Products
pass through all activities of the chain in order and at each activity the product gains
some value.
Porter's Value Chain Analysis: Porter's Value Chain Analysis is a tool used to analyze a
company's internal activities to understand how they contribute to creating value for
customers. It divides these activities into two categories: primary and support activities.
1. The primary activities: Porter's Value Chain Analysis outlines five primary activities
that are crucial for creating value and gaining a competitive advantage. These
activities are;
a) Inbound Logistics: This involves receiving, storing, and distributing raw materials
and inputs. Activities include warehousing, inventory control, material handling,
and transportation scheduling. Efficient inbound logistics ensures timely and
cost-effective receipt of inputs, which is crucial for smooth production processes.
b) Operations: Operations are the processes that transform raw materials and
inputs into finished products or services. This includes manufacturing, packaging,
assembly, and equipment maintenance. Streamlining operations can lead to
higher efficiency, lower production costs, and improved product quality.
c) Outbound Logistics: This includes activities related to storing and distributing the
final products to customers. It involves warehousing, order fulfillment,

20
 transportation, and distribution management. Effective outbound logistics
ensure that products reach customers promptly and in good condition,
enhancing customer satisfaction.
d) Marketing and Sales: Marketing and sales activities aim to create awareness
about the product and persuade customers to purchase it. This includes
advertising, promotions, sales force management, pricing strategies, and market
research. These activities help generate demand and increase market share.
e) Service: This involves providing after-sales support and services to customers.
Activities include installation, repair, training, customer support, and warranty
services. High-quality service helps build customer loyalty, repeat business, and
a positive reputation for the company.
2. Support activities: Porter's Value Chain Analysis identifies four support activities
that help primary activities work more efficiently. These support activities provide
the necessary background to ensure that primary activities can perform effectively
and create value. The support activities are:
a) Procurement: Procurement involves the acquisition of goods and services that the
company needs to carry out its operations. This includes sourcing raw materials,
negotiating with suppliers, and purchasing equipment and other resources.
Efficient procurement ensures that the company gets the best quality materials at
the best prices, which helps in cost reduction and quality improvement.
b) Technology Development: Technology development refers to activities related to
research and development, innovation, and the implementation of new
technologies. This includes improving production processes, developing new
products, and enhancing existing products. Effective technology development can
lead to increased efficiency, reduced costs, and a competitive advantage through
innovation.
c) Human Resource Management: Human resource management (HRM) involves
recruiting, hiring, training, and managing employees. This includes activities like
performance management, employee development, compensation, and benefits
administration. Strong HRM ensures that the company attracts and retains
talented employees, maintains a motivated workforce, and fosters a positive
organizational culture.
d) Firm Infrastructure: Firm infrastructure includes the company's organizational
structure, management systems, financial planning, legal support, and overall
governance. It encompasses activities such as strategic planning, quality
management, accounting, and legal compliance. A solid infrastructure ensures
that the company operates smoothly and efficiently, providing the necessary
support for all other activities
PURCHASING IN SUPPLY CHAIN SYSTEM: Purchasing in a supply chain ensures the
timely supply of goods, materials, and equipment for smooth production and sales. It
involves buying the right items at the right time and in the right quantity. If purchasing
fails, the business risks not meeting production needs or customer demand. Thus,
purchasing focuses on inbound or upstream activities.
Role of Purchasing in Supply Chain System: Purchasing plays a crucial role in the supply
chain system by ensuring that the necessary goods, materials, and equipment are
acquired to support production and sales. Here are the KEY ROLES:

21
 i. Access to Supply Markets: Purchasing can gather key info about new technologies,
materials, and market changes. This helps the company adjust its strategy to seize
market opportunities.
ii. Needs and Supplier Analysis: Purchasing evaluates current performance and
costs, then creates a plan to improve efficiency and save money. They also assess
if the company is using the right suppliers and explore alternatives.
iii. Supplier Development and Relationship Management: Purchasing can enhance
company success by developing new and existing suppliers and involving them
early in product development to reduce time-to-market and boost innovation.
iv. Relationship Between Purchasing and Other Functions: Purchasing supports
various departments and becomes integral in major decisions when it adds value
to other areas.
v. Supplier Selection and Evaluation: Choosing the best supplier involves assessing
multiple factors and often requires cross-functional team input to make effective
decisions.
ESSENTIALS IN SUPPLY CHAIN MANAGEMENT WHICH MAYBRING COMPETITIVE
ADVANTAGES: Supply chain management is one of the sources of competitive
advantage of the company. Supply chain management encompassed the planning and
management of all activities involved in sourcing and procurement, conversion and all
logistics management activities. Importantly, it also includes coordination and
collaboration with channel partners, which can. be suppliers, intermediaries, third-party
service providers, customers.
1. Efficient Consumer Response (ECR): is a strategy in the grocery industry where
manufacturers, wholesalers, and retailers collaborate to lower costs and
inventories while enhancing the availability of high-quality, fresh products for
consumers.
2. Category Management is a retail strategy that groups similar products together
and manages them as a unit. Instead of focusing on individual brands, it aims to
optimize the performance of entire product categories.
3. Continuous Replenishment is a supply chain strategy where suppliers frequently
restock retailers to ensure smooth operations and reduce inventory fluctuations.
In this Vendor Managed Inventory (VMI) system, the supplier controls the timing
and amount of inventory replenishment.
4. Quick Response Logistics allows retailers and manufacturers to share inventory
needs in near real-time. This method helps retailers keep shelves stocked and
manufacturers manage assembly lines more efficiently, boosting supply chain
performance and cutting costs.
5. Handling functional and innovative products: Functional products have stable,
predictable demand and long life-cycles, while innovative products have
fluctuating demand and short life cycles. Innovative products, like the iPad at
launch, can command high profit margins due to their uniqueness. Supply chains
for functional products focus on cost-efficiency, while those for innovative
products must manage time and place effectively.
6. Benchmarking involves comparing a company's logistics or supply chain
performance with competitors or industry leaders to understand and improve
processes. It’s key for enhancing overall organizational performance.

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UNIT 7 PHYSICAL DISTRIBUTION AND LOGISTICS MANAGEMENT

Physical distribution is the physical flow of products from the place of manufacturers to
place of target market according to market demand. It is all about moving and storing
the products and finally making them available to the consumers.
Components of Physical Distribution:
1. Order Processing; Involve receiving order, handling the received order, granting
ofcredit for the item ordered, generating invoice, dispatching oforder and collecting
the bills.
2. Material Handling; Refers to the activities that are associated with the movement
ofgoods from the site of manufacturing till it is loaded to the transport. Proper
material handling results in minimizing the wastage ofgoods during transport,
reduces unnecessary movement of goods, facilitates quick order processing and
efficient goods movement.
3. Inventory Management and Control; Refers to the process of efficient control of
goods that are stored in the warehouses. Maintain adequate levels of inventory in
order to ensureuninterrupted fulfillment of orders.
i. Control of Inventory Level: Organization should keep right size of inventory in
the warehouse or showroom to meet the market demand regularly.
• Critical Inventory Level (Minimum, Maximum and Re-order level):
Organization should consider various factors for fixing criticallevels such as:
consumption rate, safety stocks needed, delivery time needed, cost of carrying
and storage, and external environment.
• Economic Order Quantity (EOQ): Economic order quantity (EQ) is the volume
of order size in which ordering cost and inventory carrying costs are at
minimum.
• ABC Analysis: Types of inventories are classified according to their annual
consumption cost or inventory value in order to minimize the inventory
inspection cost.
• Just-In-Time (JIT): Just-in-time refers inventories are received just in time to
be used up by production. This technique helps to reduce the storing cost as
well as no need of investment in advance.
ii. Control of Inventory Cost: Control of main inventory cost consists of:
• Order Processing Costs: The all costs which are related with getting the
inventory. They are ordering receiving cost, order analysis cost, storage cost,
inspection cost etc.
• Carrying Costs/Holding Cost: They are the cost of carrying inventory. They are
cost of capital, taxes, insurance and obsolescence.
• Stock Out Costs: If organization needs to purchase the inventory in high price
due to shortage of inventory in the stock that is called stock out cost.
4. Transportation: Transportation is the carrying goods and people from one place to
another place through means of transportation such as truck, van, bus etc. It
creates place utility of products. It is basic infrastructure of overall development.
The modes of transportation that are adopted by the businesses areroad, railways,
airways, water transport and pipelines. The choice of the mode of transportation
depends on the type of goods being transported, their availability, reliability and
the level of safetyoffered by the mode.

23
 5. Warehousing: Deals with the storing of goods in proper condition till the time it is
ordered by the customer. Warehouses act as centers of storage and by providing
thefunctionality it helps businesses meet the demands of customers.
a) Public Warehouse: Public warehouses are the ones owned by the government
or semi- government bodies.
b) Private Warehouse: Private warehouses are privately owned by large retail
corporations, wholesalers, manufacturers or distributors.
c) Bonded warehouse: The warehouse where imported products are stored until
the time of payment of custom duty. Such warehouse is made by the
government or public body.
6. Location Analysis: Analyzing the appropriate location to establish the factory,
warehouse and showroom considering cost, safety and convenience.
LOGISTICS MANAGEMENT: Refers to the acquisition, storage and transportation of
inventory from its origin to its destination. Involves maintaining the inventory, resources
and related information, and getting the goods to the right location at the right time and
to the right customer.
ROLE OF PHYSICAL DISTRIBUTION MANAGEMENT IN MARKETING:
1. Regular Production of Product: Regular production of product as market
requirement is very essential task for any organization/ manufacturer to get
success. In order to make new or final product, manufacturer needs to collect
required raw materials from different places through transportation means and
put them in the warehouse as a result regular production of product can be done
easily and smoothly.
2. Regular Supply of Final Product: Regular supply of product to target market is
very essential to meet the customer’s demand. It depends on the effective
physical distribution function. Organization estimates the market demand of any
product and put the right quantity of product at warehouse as a result regular
supply of product to target market can be done effectively through transportation
means.
3. Makes Product Accessibility: Physical distribution makes products accessible to
target customers. Products are delivered at right place, at right time and at right
quantity. Various activities of physical distribution like order processing, material
handling, warehousing, inventory management, warehousing and transportation
support to product accessibility.
4. Reduce the Monopoly Market: Monopoly market situation is not favorable the
consumers. Physical distribution reduces the monopoly market situation through
supplying the product in the market where supply is lower than the demand.
Consumers can get the right product at right price at right time with the help of
physical distribution function.
5. Price Stability: Price stability can be maintained in the market through physical
distribution function because it reduces the monopoly market situation. This
function supplies the product at right price in the market as market demand. It
leads to saving in time, efforts and cost through doing physical function such as
order processing, material handling, inventory management, transportation and
warehousing.
6. Customer Satisfaction: The main focus of marketing is customer satisfaction.
Organizational goal cannot be achieved without customer satisfaction. This
function supplies the right product at right price, at right quantity and to right
customer and it creates both time and place utility of product as a result, customer
satisfaction is possible.

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VALUE OF CUSTOMER SERVICE IN LOGISTICS MANAGEMENT: Means benefit of
customer service in logistic management. Refers to importance of customer service in
logistic management. following are the value of customer service in logistic
management:
1. Customer satisfaction and retention: customer satisfaction is crucial for business
success, driving sales and market share. In logistics, customer satisfaction hinges
on quality service. Satisfaction occurs when customers' expectations match their
perceptions of the service. Satisfied customers often make repeat purchases,
benefiting the organization. Thus, logistics management must design and provide
services that meet customer needs, ensuring all services are customer-oriented
2. Customer Retention: The main challenge of 21st-century marketing is retaining
customers. Delighted customers, whose expectations exceed their perceptions,
are loyal and stay with the organization. Logistics management must design
services that meet customer expectations to retain them.
3. Build the Brand Image: Brand image is an intangible asset. Quality customer
service in logistics enhances brand image by delighting customers. Services should
be reliable, accurate, cost-effective, and timely to attract new customers and
increase sales and profitability.
4. Face Market Competition: In a globalized market, quality customer service is key
to facing competition. Logistics services must be reliable, accurate, cost-effective,
timely, and complaint-free. Building customer trust helps compete effectively.
5. Increase Profitability: Profitability depends on customer satisfaction and
retention. Logistics must offer quality, customized services to satisfy and retain
customers, increasing long-term profitability.
6. Sustainable Growth of Business: Sustainable business growth relies on quality
services and customer satisfaction. Regular purchases from satisfied customers
drive revenue. Logistics should develop and offer services that meet customer
needs to support sustainable growth.
PHYSICAL DISTRIBUTION AND LOGISTICS FUNCTIONAL DECISIONS:
Physical distribution and logistics functional decisions refer to those decisions that are
taken about the functions of transportation, warehousing and storage, inventory, order
processing, materials handling, and logistic information.
A. TRANSPORTATION DECISIONS: Refers to those decisions that are related with the
decision aboutthe selection of mode of transportation and its strategies thatsupport
for effective distribution of products to market.
Concept of Transportation: Carrying goods and people from one place to another
through means of transportation. Creates place utility of products.
Functions of Transportation:
• It supplies the product regularly from the place of production to market.
• It meets customers' needs and wants regularly.
• It reduces the monopoly market through supplying the productregularly.
• It makes stable to the price of product.
• It carries people from one place to another place.
Roles of Transportation: Transportation helps for regular supplying of product and
service, for regular production of products, to fulfill the needs and wants of
customers, makes easy for expansion of the market, in mass production and stability
of prices, in the growth of business organizations, in industrial and agricultural
development, provides employment opportunity, in social and cultural development,
in economic development of nation.

25
 Modes of transportation are various types such as: road transportation, rail
transportation, air transportation, and water transportation. Each transportation
mode has its own benefits and limitation:
Land Transportation: In this transportation, transportation means are moved on the
land for carrying goods and people from one place to another place. It can be
classified into two types;
a. Road Transportation: Transportation means that are moves on the road to carry
people and products and any other things, are known as road transportation. The
means of road transportation are various types such as Truck, bus, taxi, tempo, car,
jeep, tractor, bike, tonga etc.
• Merits of Road Transportation: Widely available means of transportation,
provides door to door facilityPeople can choose as their need and budget.
• Demerits of Road Transportation: Variation in fare, not appropriate for very long
distance.
b. Rail or Train Transportation: Rail or train that moves on the iron track for carrying
people and products or things from one place to another place is known as rail
transportation. Generally, rail transportation is operated and controlled by the
government. It has plays very vital role for development of the nation.
• Merits of Rail Transportation: High carrying capacity, Low fare in comparison to
road transportation.
• Demerits of Rail Transportation: Monopoly market, because private sector has
no authority to run, no flexibility, because it leaves from its own station and
schedules only.
c. Air Transportation: The means of air transpiration fly over the sky. For example,
airplanes, jets, helicopters, and drones are air transportation. Air transport is a fast
and efficient system which is especially suited for long distance movements. So, it
is appropriate for emergency situation and also suitable for very long distance. It
can be categorized into two types: one is domestic air transport and another is
international air transport.
• Merits of Air Transport: appropriate for very long distance, it is appropriate for
emergency situation.
• Demerits of Air Transportation: It is not appropriate for economically
marginalized people, its carrying capacity is limited, highly affected by the
weather
d. Water Transportation: Water transportation carries the people and goods from
one place to another place by the means of water transportation like boats and
ships etc. Water transportation means operating in the rivers, lakes, canal and
oceans. It can be classified into two types one is inland water transportation and
another is ocean water transportation.
• Merits of Water Transportation: It is the least expensive, it has high carried
capacity
• Demerits of Water Transportation: It has slow speed, it is not appropriate for land
lock country
e. Pipelines: Pipelines are specialized carriers that transport products like petrol,
curde oil natural gases, water etc. from the wells to the refineries and from there
to the distribution centres. This mode is relatively inexpensive as it involves a
minimum of handling and labour costs.
• Merits: needs very little maintenance, Pipelines are safe, environmentally
friendly.
• Demerits: capacity cannot be increased once it is laid, is difficult to make security
arrangements for pipelines

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Selection of Modes of Transportation:
➢ Reliability and Predictability: Dependability of the mode of transportation,
Punctuality, Frequency of delays and cancellations.
➢ Comfort and Amenities: Comfort level during the journey, Availability of seating,
Amenities such as air conditioning, Wi-Fi, etc
➢ Environmental Impact: Carbon footprint and emissions, Impact on air quality,
Energy efficiency.
➢ Safety: Accident rates and safety records, Exposure to risks during the journey.
➢ Flexibility and Freedom: Flexibility to change routes and schedules, Ability to make
stops along the way.
➢ Health and Well-being: Physical activity involved, Exposure to pollution and other
health hazards.
➢ Space and Capacity: Passenger capacity, Cargo capacity (if applicable).
Evaluation Factors of Modes of Transportation: The choice of the suitable
transportation mode depends on following criteria as given by Afaf Haial, Loubna
Benabbou andAbdelaziz Berrado, 2021, which as shown below:
1. Customers/Suppliers Density and Distance (C1): This criterion should also be
considered when deciding on the degree of temporal aggregation to use when
supplying customers. Moreover, the selection of the mode to ship goods depends
on the accessibility and the geographic location of the customers/ suppliers.
2. Shipment Size (C2): Decision-makers should take into consideration the weight,
density, and shape of the products as well as its packaging in choosing the
appropriate transportation mode. For instance, lightweight products can be
transported by land or air, while heavier products are suited for railroads or
waterways.
3. Product Characteristics (C3): This criterion is involved with product-related
features: Requirements associated with the type of freight to ship, such as goods
for fast consumption (highly perishable) or frozen products.
4. Delivery Time (C4): Duration of the overall transportation process.
5. Total Cost (C5): This contains all cost factors that are involved in the
transportation process. Transportation cost for shipment of products from source
to destination. Cost of damages to freight incurred at the transportation or trans
shipment stages. Information system cost to provide coordinated transportation.
6. Flexiblity (C6): This criterion handles the unexpected changes in demand during
the transportation, capacity flexibility, and routes flexibility, like the ability to
meet the unexpected changes in demand, the ability to change the volume and
weight capacity of the transportation vehicles, the ability to change the
transportation route at any time during transportation.
7. safety Criteria (C7): This involves the safety problems related to the
transportation process. In these criteria, the probability of avoiding damage and
loss of quality of goods and the accidental rate in a determined time period are
considered.
Transportation Strategies: Refers to action plan of an organization about the
transportation system by which resources, goods and services can be transported
effectively.
1. Customer Requirement: The transportation program must reflect and meet the
customers' needs. The time and service aspects of transportation plays a vital role
in distribution.
2. Shipment Must Move Timely: Customers shipments be delivered as they require,
on the date needed, by the carrier preferred, in the proper shipping packaging

27
 method and complete, both shipped complete and delivered complete and in
good order.
3. Mode of Selection: The mode, transit time, inventory and service impact, and
freight charges are the consideration.
4. Carrier Relationship: Volume creates carrier/ forwarder attention and
competitive interest and develops carrier alliances to meet the supply chain
service requirements.
5. Measuring/Benchmarking: Measuring means comparing performance versus
standards. Freight cost data tied with sales and shipping data makes a great
database for budgeting and managing costs. It provides data for negotiations,
developing good freight costs for sales and accounting, for studies and other
purposes. Benchmarking means learning what other companies do-the best
practices.
6. System to Drive Integration with Partners: Building a trading partner with
connectivity to a global partner network allows to connect with the network to
gain seamless connectivity between the internal system and extended supply
chain.
Recent Trends in Transportation:
1. Cloud-Based Systems Adoption: Strategic for reducing cost, mitigating risk, and
achieving scalability. Match organizational security needs with provider
capabilities. Analyze provider's security policies, transparency, and practices.
Understand technical aspects of data and traffic flow. Document roles and
responsibilities of the provider. Leverage certifications and compliances from the
provider.
2. Integrated, Frictionless Travel: A contactless travel experience utilizes technology
to ensure a smooth, seamless journey. Driven by mobile advancements and apps,
it gained prominence during the pandemic to enhance safety. Contactless
payments, enabled by tapping cards or mobile devices, further streamlined the
process.
3. Visibility and Anti-Theft GPS: Provide real-time visibility into the location and the
status of assetssuch as vehicles, drivers, and assets. Tracking the movement of
assets, businesses can optimize assetutilization, prevent loss or theft, and also
improve overall operationalefficiency.
4. Self-Driving Trucks: A self-driving truck, also known as an autonomous truck or
robo-truck, is an application of self-driving technology aiming to create trucks that
can operate without human input. Alongside light, medium, and heavy-duty
trucks, many companies are developing self-driving technology in semi trucks to
automate highway driving in the delivery process.
5. Regulation Compliance: The transportation sector is subject to varying degrees of
governmentregulation depending on mode and geography. Some modes of
transport have seen a shift in focus from economic (right-of-entry) barriers to
safety-based regulatory regimes. Other modes remain subject to a myriad of local,
regional and nationalrestrictions and significant technical regulation.
6. Address Delivery: The address to which the Goods are to be delivered, or the
Services areto be provided, as specified in the Contract.
7. Drone Delivery: Using flying drones as a means of delivering packages from
retailers to customers.

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B. WAREHOUSING AND STORAGE DECISION: A process of storing goods in a warehouse
for the purpose of distribution, sale, or manufacturing. Creates time utility of
product.
Function of Warehouse:
a) Storage of Goods: The basic function of warehouses is to store large stock of
finished goods, semi-finished goods and raw materials. These goods are stored
from the time of their production or purchase till their consumption or use. It
makes it easy for regular production of goods and fulfill the marker demand
regularly.
b) Protection of Goods: A warehouse provides protection of goods quality and
quantity from loss or damage due to heat, dust, wind and moisture, etc. It makes
special arrangements for different products according to their nature. It cuts down
losses due to spoilage and wastage during storage.
c) Risk Bearing: Warehouses take over the risks incidental to storage of goods. Once
goods are handed over to the warehouse-keeper for storage, the responsibility of
these goods passes on to the warehouse-keeper. Thus, the risk of loss or damage
to goods in storage is borne by the warehouse keeper.
d) Meet the Market Demand Regularly: it helps to produce the regularly through
keeping the required size of semi finished product and raw materials in the ware
house. If goods are stored in the warehouse, it can be supplied immediately in the
market as market demand.
e) Grading and Branding: On request warehouses also perform the functions of
grading and branding of goods on behalf of the manufacturer, wholesaler or the
importer of goods. It also provides facilities for mixing, blending and packaging of
goods for the convenience of handling and sale.
Roles of warehouse:
1. Provides Storage Facility: Warehouses provides space for storing surplus goods
of businesses. All the goods which are not needed immediately in the market are
stored in warehouses till heirdemand arises.
2. Maintain Regular Supply: Warehouses ensurethe regular supply of goods in the
market without any interruption. It avoids all shortages like situation and stores a
large number of goods safely from the production until their consumption.
3. Mass Production: Companies are able to do large-scale production of their
products due to the presence of large warehouses. All the surplus goods are
stored safely and at economical prices in warehouses.
4. Price Stabilization: Warehouses reduce the fluctuations in the prices of the goods.
It stabilizes the product prices by holding on goods when their supply exceeds in
the market whereas releasing them as their supply is less than the demand in the
market.
5. Generates Employment: Warehousing helps in generating large employment in
the country. There are large numbers of skilled and unskilled peoples who are
involved in the operations of different warehouses.
Types of warehouses:
1. Public warehouse: The warehouse that is invested, operated and controled by the
public body is called public warehouse. For example, warehouse that is made by
the Municipality, national trading limited. It follows the government rules and
regulations.
2. Private warehouse: The warehouse that is invested, build, operated and
controlled by the private sector is called private warehouse. Private warehouse is
made by the business organization for business Use.

29
 3. Bonded warehouse: The warehouse where imported products are stored until
the time of payment of custom duty. Such warehouse is made by the government
or public body. In Nepal, this warehouse facility is provided by the National
trading limited.
Warehouse strategies: is important that warehouses employ strategy to ensure an
efficient operation and ultimately business success. A warehouse strategy involves many
important decisions such as the investment and operation costs that make up the
logistics overhead.
1. Customer-Focused: To keep pace with the moving target known as customer
demand, companies need to build flexibility into their warehouse operations so
that they are ready to give customers whatever they want, whenever they want
it.
2. Create a Flexible Warehouse Design: To build flexibility into warehouse design,
leading practices companies take a "team-build" approach to the design process
by involving all departments concerned, including engineering, information
systems, finance, marketing, customer service, purchasing, manufacturing and
warehouse operations.
3. Use a Warehouse Management System: For most warehousing operations, the
right warehouse management system (WMS) software serves as the vital bridge
linking production, scheduling, shipment planning and order fulfillment
systems.WMS manages warehouse resources, that is, space, labor, equipment,
tasks and material flow, to move inventory to market most efficiently.
4. Reengineer Warehouse Operations: To keep up with marketplace demands for
efficient consumer response and just in-time (TI) delivery, companies across the
boardactivelyseekingopportunities to speed product flow along the supply chain.
Recognizing the warehouse as a critical agent in supply Chain efficiency, leading
practices benchmark current warehouse operations and establishing targets for
improvement.
5. Outsource Warehousing Functions: To reduce costs, as well as to better meet the
growing customer demands for JIT service, companies are divesting themselves of
their private warehouses in favor of third-party options. When choosing among
third-party options, companies prefer to lease a third-party warehouse to store
steady inventory but rent public warehouses to solve emergency and
temporary storage needs.
Selection of Warehouse: location, access, storage area, association membership,
employees, processes, risk, technology.
C. INVENTORY CONTROL: inventory Control means ensuring the availability of desired
inventory of required quality and quantity to various departments when needed.
Types of Inventories:
a) Raw Inventory: raw materials and semi-finished products supplied by another
firm which are raw materials for the present inventory.Ex. Round bars, angles,
channels, etc.
b) In process or (Work in Progress: WIP) Inventory: These are semi-finished good at
various stages of the manufacturing cycle.
c) Finished inventory: Ready for dispatch.
d) Indirect inventory: Include those inventories which are needed for repair,
maintenance and operation during manufacturing e.g. lubricating oil, machine
spares, grease, etc.
e) Tool Inventory: Include both standard and special tools.

30
 f) Miscellaneous inventories: Office stationeries and other consumable items.
Costs Associated with inventories: purchase cost, capital cost, ordering cost, inventory
carrying cost, shortage cost or stock out cost.
Functions of Inventory control:
➢ To meet anticipated demand.
➢ To smoothen production requirements.
➢ To decouple operations.
➢ To protect against stock-outs.
Importance of Inventory Control:
a) Reducing Risk of Production Shortages: Firms mostly manufacture goods with
hundreds of components. The entire production operation can be halted if any of
these are missing. To avoid the shortage of raw material the firm can maintain
larger inventories.
b) Reducing Order Cost: Where a firm places an order, it incurs certain expenses.
Different forms have to be completed. Approvals have to be obtained, and goods
that arrive must be accepted, inspected and counted. These costs will vary with
the number of orders placed. Smaller the inventories lesser the capital needed to
carry inventories.
c) Minimise the Blockage of Financial Resources: The importance of inventory
control is to minimize the blockage of financial resources. It reduces the
unnecessary tying up of capital in excess inventories. It also improves the liquidity
position of the firm.
d) Avoiding Lost Sales: Most firms would lose business without goods on hand.
Generally, a firm must be prepared to deliver goods on demand. By ensuring
timely availability of an adequate supply of goods, inventory control helps the firm
as well as consumers.
e) Gaining Quantity Discounts: While making bulk purchases many suppliers will
reduce the price of supplies and component supplies will reduce the price of
supplies and component parts. The large orders may allow the firm to achieve
discounts on a regular basis. These discounts in turn reduce the cost of goods and
increase the profits.
Factors Influencing Inventory Level:
The Rate of Inventory Turnover: The rate of inventory turnover is the time period within
which inventory completes the cycle of production and sales. When the turnover rate is
high, investment in inventories tends to below.
a) Types of Products: Durable products are more susceptible to inventory holding as
the risk of perishability and obsolescence is less. Perishable and fashion goods are
not stocked in large amount. Thus, the type of product also influences the
inventory level.
b) Stock Out Costs: Stockout costs exercise considerable influence on the holding of
stock in an organisation. These include loss of sales it there were no stock of
finished goods, cost of production, stoppageof material and work-in-progress,
stocks and costs associated with placing urgent orders for replenishment.
c) Determination of Safety Stock: Uncertainty in demand is also one of the factors
which affects. The determination of safety stocks.
d) Financial Position of the Firm: Financial position of the firm has significant
influence on inventory levels. financially sound company may buy materials in

31
 bulk and hold them for futureuse. A firm starved of funds cannot maintain large
stocks.
e) Inventory Policy and Attitude of Management: The inventory policy and attitude
of management also influence the inventory level.
Inventories Control Methods/Techniques:
1. Economic Order Quantity (Optimal Order Quantity): The Economic order quantity
(EQ) refers to the optimal order size that will result in the lowest total of order and
carrying costs for an item of inventory given its expected usage, carrying cost and
ordinary cost. By calculating an economic order quantity, the firm attempts to
determine the order size that will minimize the total inventory costs. It has some
following assumptions:
Constant or uniform demand, Independent orders, Instantaneous delivery,
Constant ordering costs, Constant carrying costs.
It can be calculated from following formula;
The formula of EOQ is,
EOQ (Units) = V2AO/C,
Where,
A = Annual requirements
O= Ordering cost per order
C = Carrying cost per unit per year
2. ABC Analysis of Inventories: The ABC inventory control technique is based on the
principle that a small portion of the items may typically represent the bulk of money
value of the total inventory used in the production process, while a relatively large
number of items may from a small part of the money value of stores.
Advantages of ABC Analysis
• It ensures a closer and a stricter control over such items, which are having a sizable
investment in there.
• It releases working capital, which would otherwise have been locked up for a more
profitable channel of investment.
• It reduces inventory-carrying cost.
3. Budgetary Control System: Budgetary control is a tool of management used to plan,
carry- out and control the operations of business. It establishes pre-determined
objectives and provides the basis for measuring performance against these
objectives. Under this system the number of units of the materials to produce a
finished product and the level of inventory to be maintained and the quantities to
be purchased during the period are all pre-determined. It is an effective method of
controlling activities of the business unit since it provides standards against which
actual performance is measured.
4. Minimum-Maximum System: This is one of the oldest methods used in most of the
business for controlling inventories. It is essential that proper control should be
exercised on the level of the inventory to be maintained. Efficient management of
inventory demands that both over and under-investment in stock be avoided.
According to this, a maximum level of inventory based upon the demand and the
minimum level to prevent out-of-stock conditions for each item of stock are
established. An order is placed when the minimum level is reached which will bring
the quantity to the maximum level.
5. Just-in-time (JIT)): Just-in-time refers to inventories are received just in time to be
used up by production. This is Japanese technique of quality management. This
technique helps to reduce the storing cost as well as no need of investment in
advance. This helps to improve product quality.

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D. ORDER PROCESSING: Order processing is the function of order receiving, order
handling, and order filling. Receiving the order from customer is the first function. It
is the process or workflow from order placement to delivery for fulfilling the order of
customers. Order processing is done manually or through electronic devices or
automated order processing or from both.
Steps in Order Processing: Order processing includes five main steps from order
placement to delivery and sometimes continues on if a customer starts a return
process.
1. Order Receiving and Placement; Orders can be received by phone, in person, or
online. Manually taken orders need accurate entry into an online system.
Automated orders require updated and maintained software. Order details are sent
to an Order Management System (OMS) for processing.
2. Order Management System (OMS); OMS determines the best fulfillment center
based on delivery address and item availability. Orders may be split between
multiple locations to ensure faster delivery.
3. Picking Inventory: Collect specified quantities of items to satisfy customer orders.
Strategies:
➢ Piece picking: One order at a time.
➢ Zone picking: Each picker handles a warehouse zone.
➢ Batch picking: Pickers collect items for multiple orders simultaneously.
➢ Methods: Manual (using slips / spreadsheets) or automated (using
barcodes/scanners/robots).
4. Sorting: Separate picked items according to their destination. Ensures all items are
present and in good condition for shipping.
5. Packing: Pack items into appropriate shipping boxes. Weigh and label packages
with recipient addresses and delivery instructions. Use cost-effective packaging
with manageable dimensions and weights.
6. Shipping: Transport orders to their final destination. Orders can be shipped directly
or consolidated with others to nearby locations. Use reliable tracking systems for
monitoring orders Follow up with customers post-delivery to ensure satisfaction
Functions of Order Processing:
1. Order Preparation: Gather product/service information and request purchase.
Determine vendor, fill out order forms, check stock, communicate via phone, or
use computer menus.
2. Order Transmittal: Transfer order from origin to entry point. Methods: Manual
(mailing, physical delivery by sales staff), Electronic (toll-free numbers, data
phones, fax, satellite communications) Ensure reliability, accuracy, and speed.
3. Order Entry: Check item availability and customer credit. Transcribe order
information and handle billing. Use technology (bar codes, optical scanners,
computers) for efficiency.
4. Order Filling: Parallel with order entry. Activities: Retrieve items, pack for
shipment, schedule delivery, prepare shipping documentation. Priority rules:
First-received, shortest processing time, priority numbers, smaller orders first,
earliest promised delivery date, least time before delivery.
5. Order Status Reporting: Inform customers of delays and track orders throughout
the cycle. Communicate order status to customers.
E. MATERIAL HANDLING: The movement of materials and goods from one location to
another. Includes protecting, storing, and controlling the materials, from
manufacturing to distribution.

33
 Function of Material Handling: Moving, Storage, Selection
Objectives/Importance/Roles of Material Handling:
1. Reduced Cost Using Material Handling: The primary goal of material handling is
to lower production costs. A significant portion of total production cost goes to
material procurement, storage, and movement, all of which are vital to the
production process. Companies seek optimized material used to reduce costs.
Using advanced methods can significantly cut production expenses.
2. Reduced Waste of Material: material handling not only concerns about the
movement of material but also takes care of placing orders of the right amount,
making the use of the material at the right time, keeping the right amount of
inventory, and moving material using better techniques ' and with caution. All of
this is taken care of to reduce the wastage of material.
3. Improved Work Condition: Before the inclusion of technology, all movement and
storage works were done manually. Some labors were responsible for performing
these tasks. They were responsible for all the loading and unloading work.
4. Enhanced Distribution: It helps in the reduction of damage to products during
shipping and handling. In addition to this, it also concerns the storage location of
the material. A proper storage location reduced the chances of material gets
damaged in the storage house.
5. Improved Flow of Material: it concerns with the smooth flow of material in the
organization. It improves the circulation of material in the organization as a result
of Which material stays for less time in the warehouse and is used for production
at earliest.
6. Workers' Safety: The last but not least objective is the safety of workers. Poor
material handling can result in accidents in the factory, which are very risky for
workers working there.
Methods of Material Handling: Material handling methods should be used as nature of
product, size of product, available resources and layout design, distances from one
location to another location, cost of handling, safety factor, time consumption of
materials handling etc. Generally, methods of materials handling are grouped into two
types;
1. Manual Material Handling: In manual material handling, workers lift, carry, deliver,
and empty materials by hand. This method is slow, causing production delays and
underutilizing efficient machinery. It is also hazardous, straining workers' shoulders
and lower backs, reducing their work capacity, and increasing the risk of accidents
and serious injuries. This negatively impacts workers' health and the organization's
overall productivity, while also adding financial burdens due to injuries.
2. Semi-Automated Material Handling: In semi-automated material handling,
workers use machinery, trollies, and trams to assist with material movement. This
method, popularized with the advent of technology, serves as a good alternative to
manual handling. It reduces physical strain on workers and speeds up production.
Workers still handle loading and unloading, but use equipment to move materials.
This approach is cost-effective, requiring fewer workers and reducing accident rates
and medical expenses.
3. Automated Material Handling: Automated material handling uses machines and
robots to perform tasks, reducing or eliminating manual work. In developed
countries like Japan, robots have largely replaced human workers in many
industries. The advantages include increased production speed—robots work 100
times faster than humans—and reduced accident risk, as workers control robots
from safe, comfortable conditions. Automation also lowers production costs by

34
 reducing the need for many workers and decreasing expenses related to wages and
medical care.
Equipment of Materials Handling:
1. Storage and Handling Equipment: Storage equipment, typically non-automated,
is used to hold or buffer materials during downtimes, such as pauses in
transportation or long-term storage. Common storage items include pallets,
shelves, and racks for orderly stacking. Companies enhance efficiency by
designing proprietary packaging to conserve space in inventory.
2. Engineered Systems: Engineered systems, often automated, enable cohesive
storage and transportation. An example is the Automated Storage and Retrieval
System (AS/RS), which includes racks, aisles, and shelves accessed by a shuttle
system. This mechanized cherry picker can be operated manually or fully
automated to quickly locate and retrieve stored items.
3. Industrial Material Handling Trucks: Industrial trucks, including hand-operated
trucks, pallet jacks, and forklifts, are used to transport materials. They come with
features like forks or flat surfaces for lifting, and some require separate loading
equipment. Trucks can be manual or powered, and operated by walking or riding.
Stack trucks are for stacking items, while non-stack trucks are primarily for
transportation.
4. Bulk Material Handling Equipment: Bulk material handling involves storing,
transporting, and controlling loose materials like food, liquids, or minerals.
Equipment includes conveyor belts, elevators for moving large quantities, and
drums and hoppers for packaged materials
Selection of Material Handling: Selection of Material Handling equipment is an
important decision as it affects both cost and efficiency of handling system.
1. Properties of the Materials: Whether it is solid, liquid or gas, and in what size,
shape and weight it is to be moved, are important considerations and can already
lead to a preliminary elimination from the range of available equipment under
review.
2. Cost Consideration: This is one of the most important considerations. The above
factors can help to narrow the range of suitable equipment, while costing can help
in making a final decision.
3. Nature of Operations: Selection of equipment also depends on nature of
operations like whether handling is temporary of permanent, whether the flow is
continuous or intermittent and material flow pattern-vertical or horizontal.
4. Engineering Faciors: Selection of equipment also depends on engineering factors
like door and ceiling dimensions, floor space, floor conditions and structural
strength.
5. Equipment Reliability: Reliability of the equipment and supplier reputation and
the after-sale service also plays an important role in selecting material handling
equipment.
F. LOGISTICS INFORMATION MANAGEMENT: Logistic information system is nothing
but a part of the Management Information System to manage, control and measure
the logistical activities. These activities occur within the organization or as well as
overall across the supply chain. Logistics information systems are important for
achieving logistics efficiency and effectiveness. In an enterprise, logistics information
system seeks to achieve the following:

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 • It ensures of logistics functional operations into a process pursuing customer
satisfaction at the lowest total cost.
• Information system facilitates planning and control of the logistical activities
related to order fulfillment.
• It makes the firm more competitive, by making better tactical and strategic
decision for the benefits of the firm and its customer.
• Helps provide customers information regarding product availability, order status,
and delivery schedules promoting customers’ service.
Difference between Supply Chain Management and Logistic Management:
Supply Chain Management (SCM) is the handling of the flow of goods and services from
the raw manufacturing of the product through to the consumption by the consumer.
Logistics management is a supply chain management component that is used to meet
customer demands through the planning, control and implementation of the effective
movement and storage of related information, goods and services from origin to
destination.
• Inbound Logistics: The activities which are concerned with the procurement of
material, handling, storage and transportation
• Outbound Logistics: The activities which are concerned with the collection,
maintenance, and distribution or delivery to the final consumer.
The following are the major differences between logistics and supply chain
management:
1. The flow and storage of goods inside and outside the firm are known as Logistics.
The movement and integration of supply chain activities are known as Supply
Chain Management.
2. Logistics focus on the efficient and cost-effective delivery of goods to the
customer and supply chain management controls the development of raw
materials into finished goods that move from the supplier to producer to
warehouse to retailers and/or consumers.
3. The main aim of Logistics is full customer satisfaction. Conversely, the main aim
behind Supply Chain Management is to gain a substantial competitive advantage.
4. There is only one organization involved in Logistics while some organizations are
involved in Supply Chain Management.
5. Supply Chain Management is a new concept as compared to Logistics.
6. Logistics is only an activity of Supply Chain Management.

UNIT-8 DISTRIBUTION MANAGEMENT IN NEPAL

Transportation in Nepal
Nepal is a landlocked country, and 83% part of its territory is covered with hills and
mountains. Transportation system is one of the main infrastructures for overall
development of the nation. Development in the sectors of industry, commerce, market,
education, health, tourism, agriculture, social services and security is only possible when
there is an easy access. But Nepalese transportation system is not so sound due to high
mountains, hills, deep valleys and rivers. Construction road in such places is very difficult
and requires a sound budget. Transportation in Nepal is highly affected by existing
topographical condition of the country.

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Mode of Transportation in Nepal
a) Containers: Containers are commonly used for transporting goods, especially in
international trade. Nepal uses container trucks and ships goods via Indian ports, as
it is a landlocked country. Ensures safe, efficient, and cost-effective transportation of
goods, particularly for exports and imports. Could be moved seamlessly between
ships, trucks and trains.
Types:
i. Dry Storage Containers: Standard containers used for general cargo, available in
sizes like 20ft and 40ft.
ii. Flat Rack Containers: Used for oversized cargo, such as machinery or vehicles,
with collapsible sides.
iii. Open Top Containers: Ideal for cargo that exceeds standard container height,
these have a removable top.
iv. Refrigerated Containers (Reefers): Equipped with refrigeration units to transport
perishable goods like food and pharmaceuticals.
v. Tank Containers: Designed for liquid cargo, including chemicals and food products,
made of strong steel and other anticorrosive materials.
vi. Open Side Containers: Allow for easier loading and unloading, with doors on the
side.
vii. Insulated or Thermal Containers: Used for goods that need to be kept at a
consistent temperature, different from reefers as they don't provide refrigeration.
viii. Ventilated Containers: Have ventilation openings for transporting products like
coffee or cocoa beans that require air circulation.
b) Railway Transportation: Nepal has a minimal railway network, with only a few
operational lines. Railway services mainly connect Nepal with India, facilitating the
movement of goods and people.
c) Trucks and Lorries: Trucks and lorries are the main mode of road transportation in
Nepal. The country's mountainous terrain makes road transport challenging but
essential for reaching remote areas. Used extensively for transporting goods,
including agricultural products, consumer goods, and construction materials.
d) Ropeway: Nepal has a history of using ropeways, especially in hilly and mountainous
regions. Though less common now, ropeways are still used in some areas for
transporting goods and passengers, particularly where road access is difficult.
Ropeways are also used for tourism, providing access to scenic viewpoints and
religious sites.
e) Air Transportation: Nepal has several domestic and one international airport
(Tribhuvan International Airport in Kathmandu). Air transport is crucial due to the
challenging terrain and lack of road infrastructure in many regions. Plays a significant
role in tourism and the transport of goods, including perishable items and essential
supplies.
f) Pipeline: Any products, especially liquid and gas are transported from one place to
another place through the pipe is called pipeline transportation. Limited to petroleum
products. A significant development is the Motihari-Amlekhgunj Petroleum Pipeline,
which transports fuel from India to Nepal. Pipelines provide a more efficient and safer
way to transport fuel compared to road transport.

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Role of Government sector in Distribution Management
a) Role of Government in Physical Infrastructure: Develops and maintains roads,
bridges, airports, seaports, and railways. Facilitates economic growth and regional
connectivity. Reduces logistical costs and enhances accessibility.
b) Role of Government in Different Modes of Transportation: Regulates and supports
road, rail, air, and water transport. Involves setting standards, safety regulations,
and providing subsidies or incentives to promote the development of these sectors.
Facilitates international trade through cross-border transport agreements.
c) Role of Government in Warehousing Facilities: National trading limited has
provided facilities of bonded warehouse in Nepal. Establishes and regulates
warehousing for essential commodities. Ensures quality and safety standards.
Maintains storage for food grains, fertilizers, and petroleum products.
d) Role of Nepal Food Corporation (NFC): Procures, stores, and distributes food grains.
Maintains food security and stabilizes market prices. Distributes food to remote and
food-deficient areas.
e) Roles of Agricultural Inputs Corporation (AIC): Supplies agricultural inputs like
seeds, fertilizers, and pesticides. Provides subsidized rates to farmers. Supports
agricultural productivity and research. Imports agricultural inputs from the global
tender.
f) Role of Salt Trading Corporation: Import salt at reasonable rates and manage its
distribution all over Nepal. Import and distribute other essential commodities.
Ensures availability and price stability of key goods. Prevents iodine deficiency
disorders.
g) Roles of Nepal Oil Corporation (NOC) in Distribution System: Manages import,
storage, and distribution of petroleum products. Maintains fuel pricing and strategic
reserves. Ensures energy security and stability.
h) Role of Wholesalers and Retailers in Nepal’s Distribution Management: Regular
distribution of goods; Bulk buying and bulk breaking of goods; Transportation
facilities; Warehouse facilities; Promotion of goods; Financial facilities; Market
information; Selection facilities; Support in market coverage
Problems and Challenges in Distribution System of Nepal
a) Difficult Topography: Nepal's mountainous terrain and difficult topography
create logistical challenges. The rugged landscape makes the construction and
maintenance of roads and other infrastructure costly and time-consuming. This
results in limited access to remote areas, increasing transportation costs and
delays.
b) Landlocked Character: As a landlocked country, Nepal lacks direct access to sea
routes, which complicates international trade. Goods must be transported
through neighboring countries, mainly India, which adds layers of complexity,
costs, and dependency on foreign transit agreements. Delays at border crossings
and customs can further hinder the efficiency of distribution.
c) Scarce Domestic Productions: Limited domestic production capacity means that
Nepal relies heavily on imports to meet the demand for various goods. This
dependency on external sources makes the country vulnerable to international
market fluctuations and supply chain disruptions.
d) Import-Based Economy: The heavy reliance on imports affects the balance of
trade and can lead to economic vulnerabilities. Fluctuating exchange rates,
changes in international policies, and global supply chain disruptions can have a
significant impact on the availability and pricing of goods in Nepal.

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 e) Lack of Proper Rules and Regulations: Inefficiencies in regulatory frameworks
can hinder the smooth functioning of the distribution system. Inconsistent or
unclear regulations, bureaucratic red tape, and corruption can create barriers for
businesses and disrupt the supply chain.
f) Lack of Visionary Decisions with Planners and Decision Makers: Short-term
planning and a lack of strategic vision can lead to inadequate infrastructure
development, insufficient investment in key sectors, and missed opportunities
for economic growth.
Practices of Distribution Management in Nepal
a) Distribution Channel/Marketing channel for product and services: In Nepal,
distribution channels are diverse: direct channels are used by local producers for
direct sales to consumers, while traditional channels involving manufacturers,
wholesalers, retailers, and consumers are common for domestic sales. Three-level
channels facilitate international trade, and direct or one-level channels are employed
for services like education and healthcare. Industrial products use both direct sales
and indirect channels. Online marketing has become prevalent, particularly in urban
areas, during the COVID-19 pandemic.
b) Order processing: Order processing includes receiving orders, checking product
availability, and preparing items for dispatch. It must be done quickly and accurately
to avoid cancellations and ensure customer satisfaction. In Nepal, this process is often
weak and needs improvement to boost business efficiency and success.
c) Mode of transportation: The transportation modes in Nepal include road, air, and
limited rail and water transport. The mountainous terrain and underdeveloped
infrastructure pose challenges, making road transport the most prevalent mode.
However, air transport is essential for remote areas, especially in the Himalayan
region. The country also uses small boats in areas with significant rivers and lakes,
but this is less common for commercial distribution.
d) Warehousing: Warehousing in Nepal involves storage facilities for goods, which
may be temperature-controlled for perishable items or standard storage for dry
goods. Warehouses are typically located near major cities and trading hubs like
Kathmandu, Pokhara, and Biratnagar, ensuring that products are easily accessible
for distribution. The country is also developing specialized logistics parks to
improve warehousing and distribution efficiency.
e) Packaging facilities: Packaging in Nepal serves several purposes, including protecting
products during transit, providing information, and branding. The facilities vary from
basic manual packaging setups to more advanced automated systems, depending on
the industry. For example, the food and beverage industry often require packaging
that ensures product safety and extends shelf life, while handicrafts may need
specialized packaging to preserve delicate items.
f) Material handling: Material handling in Nepal involves both mechanical and non-
mechanical methods. Mechanical handling includes the use of forklifts, conveyor
belts, and cranes, mainly in larger warehouses and manufacturing units. Non-
mechanical handling involves manual labor, which is common in smaller businesses
and rural areas. The choice between the two depends on the scale of operations, cost
considerations, and the nature of the goods being handled.
g) Inventory management and control: Inventory management in Nepal is critical for
maintaining the balance between supply and demand. Businesses use various
inventory control systems, ranging from basic manual tracking to sophisticated
software solutions, depending on the size and nature of the business. Effective
inventory management helps minimize holding costs, avoid stockouts, and ensure
timely availability of products.

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