Channels of Distribution in Retail
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Transcript of Channels of Distribution in Retail
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CHANNELS OF DISTRIBUTION
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1Channels of Distribution
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Learning Objectives
Functions of a retailer in channel
Supply Chain Efficiency
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A Typical Channel of Distribution
Manufacturer
Wholesaler
Final
Consumer
Retailer
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The Retailers Role in the Sorting Process
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Functions of Retailing
Sorting
Breaking bulk
Holding stock
Channel of communication
Transport
Additional services
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Distribution Models in India
Distribution models in India vary by number of layers in the channel, the
intermediariesused, and the numberof channel partners.
Every model requires manufacturers to trade-off between degree of control
and their reach.
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Typical Flows of Goods and Promotion in
FMCG Retailing
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Distribution Channels in India
The Indian supply chain is more dependent on middlemen rather than on the
retailers unlike their counterparts in modern economies.
This over-dependence can be attributed to the lack of power of retailers in the
channel.
Retailers should have more involvement in supply chain management, whereas,
in practice, Indian retailers have nothing to do with supply chain management.
The promotional effort to reach the retailers will have to come through at least
three middlemen. This means that retailers are unreachable for direct promotion
by the manufacturers.
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What is a Supply Chain?
Warehousing
Warehousing
Transportation
Transportation
Vendors/plants/portsTransportation
Factory
Transportation Retailers / customers
Information
flows
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The Marketing Functions
A channel must perform eight marketing functions:
Buying, Selling, Storing, Transporting
Sorting, Financing, Information gathering, Risk taking
A marketing function does not have to be shifted in its
entirety to another institution or to the consumer but can
be divided among several entities.
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Global Optimization
Retail is the last point in the value chain.
Retailers provide assortments, hence deal with a
large number of suppliers.
The supply chain of big retailers is a complexnetwork of facilities dispersed over large geography
Different facilities in the supply chain frequently have
different, conflicting objectives
The supply chain is a dynamic system that evolvesover time
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Channel Width
Intensive distribution
Means that all possible retailers are used in a tradearea.
Selective distribution
Means that a moderate number of retailers are usedin a trade area.
Exclusive distribution
Means only one retailer is used to cover a tradingarea.
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Comparing Distribution Types
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Role of Retailer in Marketing
Channel
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Retailer
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Channels of Distribution
Enjoy Substantial Channel Power
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Retailers Act as Buying Agents
for Customers Rather than asSelling Agents for Suppliers
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Retailers Often Operate onLow Price / Low Margin
Model
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Retailers Operate in
Saturated Markets andFight for Market Share
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Hence, The Need to Reduce
Distribution Costs
Distribution
Costs
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Distribution Costs Often Account for a Significant
Percentage of the Final Price of Products
Sometimes Distribution Costsare Higherthan the Manufacturing
Cost or the Costs of Raw
Materials and Component Parts
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Some Examples...
Autos Software Apparels Electronics Packaged Foods
Distribution
Manufacturing
Raw Materials
and
Components
15%
40%
45%
25%
65%
10%
28%
19%
53%
30%
30%
40%
41%
33%
26%
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Retail Supply Chain
The biggest and the best
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Wal-Mart US Cross-dock distribution center
Situated at Bentonville, Arkansas
1.2 million-square feet
On one side- Wal-Mart trailer trucks drop off boxes of merchandize from
thousands of suppliers
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Contd
An electric eye reads the bar codes / RFID tags on each carton
Electric arms at each stream reach out and guide the boxes to the outbound
streams as per the particular stores orders
Waiting Wal-Mart trucks rush these to the respective stores across US
where they will be put on shelf
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What is cross docking ???
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Cross-docking is a practice in logistics of unloading materials from an
incoming semi-trailer truck or railroad car and loading these materials
directly into outbound trucks, trailers, or rail cars, with little or no storage
in between. This may be done to change type of conveyance, to sort
material intended for different destinations, or to combine material from
different origins into transport vehicles (or containers) with the same, or
similar destination.
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Advantages of cross docking in retail
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Streamlines the supply chain from point of origin to point of sale
Reduces handling costs, operating costs, and the storage of inventory
Products get to the distributor and consequently to the customer faster Reduces, or eliminates warehousing costs
May increase available retail sales space.
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Factors affecting the use of cross-docking in Retail
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Cross-docking is dependent on continuous communication between
suppliers, distribution centers, and all points of sale.
Customer and supplier geographyparticularly when a single corporate
customer has many multiple branches or using points
Freight costs for the commodities being transported Cost of inventory in transit
Complexity of loads
Handling methods
Logistics software integration between supplier(s), vendor, and shipper Tracking of inventory in transit
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Supply integration
A consumer lifts a product, the cashier scans it and a signal will go out
across Wal-Martglobal network to the supplier.
This will prompt him to make or pack another one of that item and ship it
into the Wal-Mart supply chain
It is like an orchestratheWal-Mart symphony with no finale.
Non-stop delivery, sorting, packing, distribution, buying, manufacturing,
reordering,delivery,sorting,packing.
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Scale of operations
One companyHP sells more than 400,000 computers through 4500 Wal-
Mart stores in one day during Christmas season
2.5 billiongeneral merchandizecartonsmove every year through their SC
Wal-Mart does not make a single thing. All it makes is a hyper-efficient
SupplyChain
Delivers material across the globeinvolving multitude of suppliers, port
operators, custom brokers, forwarders, and carriers very, very hard to
duplicate
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Simple mathematics
To sell cheap, they had to buy cheaper
Only option, buy direct from manufacturers
Manufacturerswere not ready to ship to multiple Wal-Mart stores
Wal-Mart got their own trucks. Cost was roughly 3% more for own
distribution and logistics
Purchasing cost was 5% less. Wal-Mart could cut costs by 3% and scale-up
thevolumes.
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