Chapter8

CHAPTER 8CHAPTER 8

DDisisttributionribution Channels and Channels and Logistics ManagementLogistics Management

ObjectiveObjective: examining the nature and : examining the nature and role of the channels in attracting and role of the channels in attracting and

satisfying customers satisfying customers

The Nature of The Nature of Distribution ChannelsDistribution Channels

Distribution channels are intermediaries used Distribution channels are intermediaries used by the producers to bring their products to the by the producers to bring their products to the market.market.

Why? Because the use of intermediaries bring Why? Because the use of intermediaries bring greater efficiency in making goods available to greater efficiency in making goods available to target markets. In other words, they match the target markets. In other words, they match the supply with the demand.supply with the demand.

Most important benefit of using intermediaries Most important benefit of using intermediaries is that they provide economies. They reduce is that they provide economies. They reduce the amount of work that must be done by both the amount of work that must be done by both producers and consumers. producers and consumers.

How a distributor How a distributor reduces the number of reduces the number of channel transactionschannel transactions

A. Number of contacts B. Number of A. Number of contacts B. Number of contactscontacts

without a distributor with a distributorwithout a distributor with a distributor

Distribution Channel Distribution Channel FunctionsFunctions

A distribution channel A distribution channel moves goodsmoves goods from from producers to consumers. Therefore they;producers to consumers. Therefore they; give informationgive information about the product and consumers about the product and consumers promotepromote the offer the offer contactcontact with the consumers with the consumers matchmatch the offer with the consumer’s needs the offer with the consumer’s needs negotiatenegotiate with the buyers about the price and offer with the buyers about the price and offer physically physically distributedistribute (transport) the product (transport) the product may may financefinance the manufacturer to cover the costs of the the manufacturer to cover the costs of the

channel work therefore may channel work therefore may take risktake risk.. All these functions can be carried out by the All these functions can be carried out by the

manufacturers but they then increases their costs manufacturers but they then increases their costs and prices. and prices.

Number of Channel Number of Channel LevelsLevels

The number of intermediary levels used The number of intermediary levels used by the producers vary;by the producers vary; a a direct marketing channeldirect marketing channel; has no ; has no

intermediary levels. Here, the producer intermediary levels. Here, the producer sells directly to consumers e.g. Avon sells sells directly to consumers e.g. Avon sells their products door to door or through their products door to door or through home parties.home parties.

An An indirect marketing channelindirect marketing channel; contains 1 ; contains 1 (retailer) ,2 (wholesaler + retailer) or 3 (retailer) ,2 (wholesaler + retailer) or 3 (wholesaler + jobber + retailer) (wholesaler + jobber + retailer) intermediary levels.intermediary levels.

Channel Behavior Channel Behavior

All channel firms should work together to be All channel firms should work together to be successful. Each channel member is successful. Each channel member is dependent on the others e.g. a Ford dealer dependent on the others e.g. a Ford dealer (retailer) depends on the Ford Motor (retailer) depends on the Ford Motor Company to design cars that meet consumer Company to design cars that meet consumer needs. In turn, Ford depends on the dealer needs. In turn, Ford depends on the dealer to attract consumers, persuade them to buy to attract consumers, persuade them to buy Ford cars, and service cars after the sale. Ford cars, and service cars after the sale. The Ford dealer also depends on the other The Ford dealer also depends on the other dealers to create a good overall reputation dealers to create a good overall reputation for the entire distribution channel.for the entire distribution channel.

Although channel members are dependent Although channel members are dependent on one another, they often concentrate on on one another, they often concentrate on their short-term benefits. their short-term benefits. Channel conflictChannel conflict occurs when disagreement among channel occurs when disagreement among channel members on goals and roles - who should do members on goals and roles - who should do what and for what rewards.what and for what rewards. HHorizontalorizontal conflict conflict; occurs among firms at the ; occurs among firms at the

same level of the channel. In other words, one same level of the channel. In other words, one dealer may complain about the other. dealer may complain about the other.

Vertical conflictVertical conflict; occurs among different levels of ; occurs among different levels of the same channel. In other words, the producer the same channel. In other words, the producer may complain about its dealers or vise versa.may complain about its dealers or vise versa.

Conflict may be healthy or damaging for the Conflict may be healthy or damaging for the channel. Healthy competition would channel. Healthy competition would encourage dealers to improve their services.encourage dealers to improve their services.

Vertical Marketing Vertical Marketing SystemsSystems

Vertical Marketing Systems (VMS) Vertical Marketing Systems (VMS) consists of producers, wholesalers, and consists of producers, wholesalers, and retailers acting as a unified system - that retailers acting as a unified system - that seek to maximize profits for the whole seek to maximize profits for the whole channel.channel.

Here, one channel members owns the Here, one channel members owns the others, has contracts with them or use so others, has contracts with them or use so much power that they all cooperate.much power that they all cooperate.

Such systems occur to control channel Such systems occur to control channel behavior and manage channel conflict.behavior and manage channel conflict.

There are three major types of VMSs There are three major types of VMSs which has different means for setting which has different means for setting up leadership and power in the up leadership and power in the channel;channel; Corporate VMSCorporate VMS Contractual VMSContractual VMS

Wholesaler-sponsored voluntary chainsWholesaler-sponsored voluntary chains Retailer cooperativesRetailer cooperatives Franchise organizationsFranchise organizations

Administered VMSAdministered VMS

Types of Vertical Marketing Types of Vertical Marketing SystemsSystems

C orp ora teV M S

W h olesa le r-sp on soredvo lu n ta ry

ch a in s

R eta ile rcoop era tives

F ran ch iseorg an iza tion s

C on trac tu a lV M S

A d m in is te redV M S

V ertica lm arke tin g

sys tem s (V M S )

Corporate VMSCorporate VMS

In a corporate VMS, production and In a corporate VMS, production and distribution stages are combined distribution stages are combined under single ownership, in order to under single ownership, in order to manage cooperation and conflict manage cooperation and conflict management e.g. AT&T markets its management e.g. AT&T markets its products through its own chain of products through its own chain of distributors.distributors.

Contractual VMSContractual VMS

A contractual VMS consists of independent A contractual VMS consists of independent firms at different levels of production and firms at different levels of production and distribution who join together through distribution who join together through contracts to obtain more economies or contracts to obtain more economies or sales impact than each could achieve alone.sales impact than each could achieve alone.

There are three types of contractual VMSs;There are three types of contractual VMSs; wholesaler-sponsored voluntary chainswholesaler-sponsored voluntary chains; are ; are

contractual marketing systems in which contractual marketing systems in which wholesalers organize voluntary chains of wholesalers organize voluntary chains of independent retailers to help them compete independent retailers to help them compete with large corporate chain organizations. with large corporate chain organizations.

retailer cooperativesretailer cooperatives; are contractual marketing ; are contractual marketing systems in which retailers organize a new, jointly systems in which retailers organize a new, jointly owned business to carry on wholesaling and owned business to carry on wholesaling and possibly production.possibly production.

franchise organizationsfranchise organizations; are contractual ; are contractual marketing systems in which a channel member, marketing systems in which a channel member, called a franchiser, links several stages in the called a franchiser, links several stages in the production-distribution process. There are three production-distribution process. There are three forms of franchisees;forms of franchisees;

manufacturer-sponsored retailer franchise systemmanufacturer-sponsored retailer franchise system e.g. e.g. Ford licenses dealers to sell its cars. The dealers are Ford licenses dealers to sell its cars. The dealers are independent businesspeople who agree to meet various independent businesspeople who agree to meet various conditions of sales and service.conditions of sales and service.

manufacturer-sponsored wholesaler franchisee systemmanufacturer-sponsored wholesaler franchisee system e.g. Coca-Cola licenses bottlers (wholesalers) in varius e.g. Coca-Cola licenses bottlers (wholesalers) in varius markets who buy Coca-Cola syrup concentrate and then markets who buy Coca-Cola syrup concentrate and then carbonate, bottle and sell the finished product to carbonate, bottle and sell the finished product to retailers in local markets.retailers in local markets.

service-firm-sponsored retailer franchise systemservice-firm-sponsored retailer franchise system in which a service firm e.g. Hertz, Avis, in which a service firm e.g. Hertz, Avis, McDonald’s, Burger King, Holiday Inn, Ramada McDonald’s, Burger King, Holiday Inn, Ramada Inn licenses a system of retailers to bring its Inn licenses a system of retailers to bring its service to consumers.service to consumers.

Administered VMSAdministered VMS

A vertical marketing system that A vertical marketing system that coordinates production and distribution coordinates production and distribution stages, not through common ownership or stages, not through common ownership or contractual ties, but through the size and contractual ties, but through the size and power of one of the parties e.g. Procter & power of one of the parties e.g. Procter & Gamble, Kraft, Campbell Soup (or Gamble, Kraft, Campbell Soup (or retailers like Wal-Mart, Toys `R` Us) are retailers like Wal-Mart, Toys `R` Us) are very strong that they can command very strong that they can command special displays, shelf space, promotions special displays, shelf space, promotions and prices form the other parties.and prices form the other parties.

Horizontal Marketing Horizontal Marketing SystemsSystems

HorHorizontal marketing systems is a channel izontal marketing systems is a channel arrangement in which two or more companies arrangement in which two or more companies at one level join together to follow a new at one level join together to follow a new marketing opportunity.marketing opportunity.

The major benefit is that companies combine The major benefit is that companies combine their capital, production capabilities, marketing their capital, production capabilities, marketing resources and therefore accomplish more.resources and therefore accomplish more.

Companies might join forces with competitors Companies might join forces with competitors or noncompetitors. They might work with each or noncompetitors. They might work with each other on a temporary or permanent basis or other on a temporary or permanent basis or they may create a separate company.they may create a separate company.

E.g. Coca-Cola and Nestle formed a E.g. Coca-Cola and Nestle formed a joint venture to market ready-to-drink joint venture to market ready-to-drink coffee and tea worldwide. Coke coffee and tea worldwide. Coke provided worldwide provided worldwide experinceexperince in in marketing and distribution beverages marketing and distribution beverages and Nestle contributed two established and Nestle contributed two established brand names - Nescafe and Nestea.brand names - Nescafe and Nestea.

Hybrid Marketing Hybrid Marketing SystemsSystems

Hybrid marketing systems is also called Hybrid marketing systems is also called multichannel distribution systems where the multichannel distribution systems where the company uses several marketing channels company uses several marketing channels (e.g. direct mail - telemarketing, retailers, (e.g. direct mail - telemarketing, retailers, distributors, dealers, own sales force) to sell distributors, dealers, own sales force) to sell its products to different customer segments.its products to different customer segments.

E.g. IBM uses its own sales force + IBM E.g. IBM uses its own sales force + IBM direct which is the catalog and telemarketing direct which is the catalog and telemarketing operation of IBM + independent IBM dealers operation of IBM + independent IBM dealers + IBM dealers for business segments + large + IBM dealers for business segments + large retailers like Wal-Mart.retailers like Wal-Mart.

The major benefit is that when the The major benefit is that when the company has large and complex company has large and complex markets (consumers) the company can markets (consumers) the company can expand its sales and market coverage expand its sales and market coverage by providing services to the specific by providing services to the specific needs of diverse customer segments.needs of diverse customer segments.

The disadvantage is that they are The disadvantage is that they are harder to control and generate more harder to control and generate more conflict.conflict.

Channel Design Channel Design DecisionsDecisions

Designing a channel system include;Designing a channel system include; analyzing consumer service needsanalyzing consumer service needs setting the channel objectives and setting the channel objectives and

constraintsconstraints identifying the major channel identifying the major channel

alternativesalternatives evaluating the major alternativesevaluating the major alternatives

Analyzing Consumer Service Analyzing Consumer Service NeedsNeeds

Designing the distribution channel Designing the distribution channel begins with determining what (e.g. begins with determining what (e.g. convenient location to buy the convenient location to buy the products, immediate delivery, credit, products, immediate delivery, credit, repairs, long-term warranty…) the repairs, long-term warranty…) the consumers want from the channel. consumers want from the channel.

The company must balance the The company must balance the consumer service needs with the consumer service needs with the feasibility and costs plus prices.feasibility and costs plus prices.

Setting the Channel Objectives Setting the Channel Objectives and Constraintsand Constraints

The company must decide which segments to The company must decide which segments to target and the best channels to use in each target and the best channels to use in each segment. Here, the objective of the company segment. Here, the objective of the company is to minimize the total channel cost.is to minimize the total channel cost.

Besides the target market, the company’s Besides the target market, the company’s channel objectives are influenced by;channel objectives are influenced by; the nature of its productthe nature of its product, e.g. perishable products , e.g. perishable products

require more direct marketing to avoid delays and require more direct marketing to avoid delays and too much handling.too much handling.

company characteristicscompany characteristics, e.g. the company’s size , e.g. the company’s size and financial situation determine which functions and financial situation determine which functions it canit can

handle, how many channels it can use, which transportation handle, how many channels it can use, which transportation can be used…can be used…

characteristics of intermediariescharacteristics of intermediaries, intermediaries differ in , intermediaries differ in their abilities to handle promotions, customer contact, their abilities to handle promotions, customer contact, storage and credit e.g. the company’s own sales force is storage and credit e.g. the company’s own sales force is more intense in selling.more intense in selling.

competitors’ channelcompetitors’ channel, some companies may prefer to , some companies may prefer to compete in or near the same outlets that carry competitors’ compete in or near the same outlets that carry competitors’ products, some may not e.g. Burger King wants to locate products, some may not e.g. Burger King wants to locate near McDonald’s near McDonald’s

environmental factorsenvironmental factors, economic conditions and legal , economic conditions and legal constraints affect channel design decisions e.g. in a constraints affect channel design decisions e.g. in a depressed economy, producers want to distribute their depressed economy, producers want to distribute their goods in the most economical way, using shorter channels.goods in the most economical way, using shorter channels.

Identifying Major AlternativesIdentifying Major Alternatives

After the channel objective have been After the channel objective have been determined, the company should identify determined, the company should identify its major channel alternatives in terms of its major channel alternatives in terms of (1) types of intermediaries, (2) number of (1) types of intermediaries, (2) number of intermediaries, and (3) the intermediaries, and (3) the responsibilities of each channel member.responsibilities of each channel member.

Types of IntermediariesTypes of Intermediaries

A firm should identify the types of channel A firm should identify the types of channel members that are available to carry out members that are available to carry out its channel work.its channel work.

Number of Marketing IntermediariesNumber of Marketing Intermediaries

Companies must also determine the number Companies must also determine the number of channel members to use. There are three of channel members to use. There are three strategies;strategies; intensive distributionintensive distribution; is a strategy in which ; is a strategy in which

companies stock their products in as many outlets companies stock their products in as many outlets as possible. Convenience products and common as possible. Convenience products and common raw materials must be available where and when raw materials must be available where and when consumers want them e.g. toothpaste, candy… consumers want them e.g. toothpaste, candy… Procter & Gamble, Coca-Cola distributes its Procter & Gamble, Coca-Cola distributes its products in this way. Here, the advantages are products in this way. Here, the advantages are maximum brand exposure and consumer maximum brand exposure and consumer convenience.convenience.

exclusive distributionexclusive distribution; is a strategy (opposite to ; is a strategy (opposite to intensive distribution) in which the producer gives intensive distribution) in which the producer gives only a limited number of dealers the exclusive right only a limited number of dealers the exclusive right toto

distribute its products in their territories. Often distribute its products in their territories. Often found in new automobiles and prestige women’s found in new automobiles and prestige women’s clothing e.g. Rolls-Royce. Here, the advantages are clothing e.g. Rolls-Royce. Here, the advantages are establishing image and getting higher markups.establishing image and getting higher markups.

selective distributionselective distribution; (is between intensive and ; (is between intensive and exclusive distribution) is a strategy in which the exclusive distribution) is a strategy in which the company uses more than one but fewer than all of company uses more than one but fewer than all of the intermediaries. Most television, furniture brands the intermediaries. Most television, furniture brands are distributed in this way. Here, the advantages are distributed in this way. Here, the advantages are; it provides good market coverage with more are; it provides good market coverage with more control and less cost than intensive distribution + it control and less cost than intensive distribution + it does not spread its efforts over many outlets as in does not spread its efforts over many outlets as in intensive distribution.intensive distribution.

Responsibilities of Channel MembersResponsibilities of Channel Members

The producer and intermediaries must agree The producer and intermediaries must agree on price policies, discounts, territories, and on price policies, discounts, territories, and servicesservices

to be performed by each party. E.g. to be performed by each party. E.g. McDonald’s provides franchisees with McDonald’s provides franchisees with promotional support, training, promotional support, training, management assistance, in turn, management assistance, in turn, franchisees must meet company franchisees must meet company standards for physical facilities, buy standards for physical facilities, buy specific food products...specific food products...

Evaluating the Major Evaluating the Major AlternativesAlternatives

In order to select the channel that In order to select the channel that satisfysatisfy the the company objectives in the best way, each company objectives in the best way, each alternative should be evaluated by using;alternative should be evaluated by using;

economic criteriaeconomic criteria; the company compares the ; the company compares the projected profits and costs of each channel.projected profits and costs of each channel.

control issuescontrol issues; the company prefers to keep ; the company prefers to keep the channel where it has the highest control.the channel where it has the highest control.

adaptive criteriaadaptive criteria; the company prefers to ; the company prefers to keep the channel which is the most flexible to keep the channel which is the most flexible to the changing marketing environment.the changing marketing environment.

Designing International Designing International Distribution ChannelsDistribution Channels

Channel systems can vary from Channel systems can vary from country to country. Each country country to country. Each country may have its own unique distribution may have its own unique distribution system. International marketers system. International marketers have to adapt their channel have to adapt their channel strategies to the existing structures strategies to the existing structures within each country.within each country.

Physical Distribution and Physical Distribution and Logistics ManagementLogistics Management

Companies must decide on the best way Companies must decide on the best way to store, handle and move their to store, handle and move their products and services so that they are products and services so that they are available to customers in the right available to customers in the right amount, at the right time, and in the amount, at the right time, and in the right place.right place.

Logistics effectiveness has a major Logistics effectiveness has a major impact on (1) customer satisfaction and impact on (1) customer satisfaction and (2) company costs (15% of the product’s (2) company costs (15% of the product’s price).price).

Nature and Importance of Nature and Importance of Physical Distribution and Physical Distribution and

Marketing LogisticsMarketing Logistics Physical distribution or marketing logistics Physical distribution or marketing logistics

includes planning, implementation, and includes planning, implementation, and controlling the physical flow of materials, controlling the physical flow of materials, final goods, and related information from final goods, and related information from points of origin to points of consumption to points of origin to points of consumption to meet customer requirements at a profit.meet customer requirements at a profit.

Market logistic thinking starts with the Market logistic thinking starts with the marketplace and works backwards to the marketplace and works backwards to the factory. Logistics deal with (1) outbound factory. Logistics deal with (1) outbound distribution - moving products from the distribution - moving products from the factory to customers, factory to customers,

and (2) inbound distribution - moving and (2) inbound distribution - moving products and materials from suppliers products and materials from suppliers to the factory.to the factory.

The logistics manager’s task is to The logistics manager’s task is to coordinate the whole-channel physical coordinate the whole-channel physical distribution system - the activities of distribution system - the activities of suppliers, purchasing agents, suppliers, purchasing agents, marketers, channel members and marketers, channel members and customers.customers.

Goals of the Logistics Goals of the Logistics SystemSystem

The goal of the marketing logistics system The goal of the marketing logistics system should be to provide a targeted level of should be to provide a targeted level of customer service at the least cost. customer service at the least cost.

Here, the objective is to maximize profits, Here, the objective is to maximize profits, not the sales. So, the company must not the sales. So, the company must compare the benefits of providing higher compare the benefits of providing higher levels of service with the costs. Some levels of service with the costs. Some companies may offer less services and companies may offer less services and charge less, but others may offer more charge less, but others may offer more services than its competitors and charge services than its competitors and charge higher prices to cover their costs.higher prices to cover their costs.

Major Logistics FunctionsMajor Logistics Functions

The major logistics functions The major logistics functions include;include;

order processingorder processing warehousingwarehousing inventory managementinventory management transportationtransportation

Order ProcessingOrder Processing

Orders can be submitted in many Orders can be submitted in many ways; by mail, telephone, through ways; by mail, telephone, through salespeople, or via computer. salespeople, or via computer.

Order processing systems prepare Order processing systems prepare invoices and order information. The invoices and order information. The warehouse receives instructions to warehouse receives instructions to pack and ship the ordered items. pack and ship the ordered items. And bills send out.And bills send out.

WarehousingWarehousing

Every company stores its goods while they Every company stores its goods while they wait to be sold.wait to be sold.

A company must decide on (1) how many A company must decide on (1) how many and (2) what types of warehouses it needs and (2) what types of warehouses it needs and (3) where they will be located. and (3) where they will be located.

The company might own private warehouses The company might own private warehouses or rent space in public warehouses or both.or rent space in public warehouses or both.

Both has advantages and disadvantages. Both has advantages and disadvantages. Owning a private warehouseOwning a private warehouse;; bring more controlbring more control

ties up capitalties up capital is less flexible if locations changeis less flexible if locations change

On the other hand, On the other hand, public warehousespublic warehouses;; charge for rented spacecharge for rented space provide additional services for inspecting, provide additional services for inspecting,

packaging, shipping and invoicing goods but at a packaging, shipping and invoicing goods but at a costcost

offer wide choice of locations and warehouse typesoffer wide choice of locations and warehouse types Basic types of warehouses are; (1) storage Basic types of warehouses are; (1) storage

warehouses and (2) distribution centers. warehouses and (2) distribution centers. storage warehousestorage warehousess store goods for moderate to store goods for moderate to

long periodslong periods distribution centersdistribution centers are designed to move goods are designed to move goods

rather than just store them. They are large and rather than just store them. They are large and automated warehouses desinged to receive goods automated warehouses desinged to receive goods from suppliers, take orders and deliver goods to from suppliers, take orders and deliver goods to customers. customers.

InventoryInventory

Inventory decisions involve (1) when to order and (2) Inventory decisions involve (1) when to order and (2) how much to order.how much to order.

In deciding when to order, the company must think of In deciding when to order, the company must think of the risks of running out of stock and costs of carrying the risks of running out of stock and costs of carrying too much.too much.

In deciding how much to order, the company must In deciding how much to order, the company must think of order-processing costs and inventory-carrying think of order-processing costs and inventory-carrying costs.costs.

Just-in-time logisticJust-in-time logistic systems are used by some systems are used by some companies in which the producers carry only small companies in which the producers carry only small inventories only enough for a few days of operations. inventories only enough for a few days of operations. Such systems result in savings in inventory carrying Such systems result in savings in inventory carrying and handling costs.and handling costs.

TransportationTransportation

The choice of transportation carriers affects (1) The choice of transportation carriers affects (1) the pricing of products, (2) delivery the pricing of products, (2) delivery performance, (3) condition of the goods when performance, (3) condition of the goods when they arrive - all affect customer satisfaction.they arrive - all affect customer satisfaction.

In shipping goods, there are five transportation In shipping goods, there are five transportation modes: rail, water, truck, pipeline, and air.modes: rail, water, truck, pipeline, and air. RailRail; is the most cost-effective mode for shipping ; is the most cost-effective mode for shipping

large amounts products e.g. coal, farm and forest large amounts products e.g. coal, farm and forest products over long distances.products over long distances.

TruckTruck; trucks are very flexible in their routing and ; trucks are very flexible in their routing and time scheduling. They can move goods door to door, time scheduling. They can move goods door to door, savingsaving

the need to transfer goods from truck to rail and the need to transfer goods from truck to rail and back again. They are efficient for short hauls of back again. They are efficient for short hauls of high-value products. They can offer faster high-value products. They can offer faster service.service.

WaterWater; the cost is very low for shipping bulky, ; the cost is very low for shipping bulky, low-value, nonperishable products e.g. coal, oil, low-value, nonperishable products e.g. coal, oil, metallic ores. It is the slowest mode and affected metallic ores. It is the slowest mode and affected by the weather.by the weather.

PipelinePipeline; are specialized means of shipping ; are specialized means of shipping petroleum, natural gas and chemicals from petroleum, natural gas and chemicals from sources to markets. It costs less than rail but sources to markets. It costs less than rail but more than water. more than water.

AirAir; costs higher than rail and truck but ideal ; costs higher than rail and truck but ideal when speed is needed and distant markets have when speed is needed and distant markets have to be reached. Products are perishables (fresh to be reached. Products are perishables (fresh fish, cut flowers), high-value, low-bulk items fish, cut flowers), high-value, low-bulk items (technical instruments, jewellery).(technical instruments, jewellery).

In choosing a transportation mode, In choosing a transportation mode, shippers consider five criteria; (1) shippers consider five criteria; (1) speed - door to door delivery time, (2) speed - door to door delivery time, (2) meeting schedules on time, (3) ability meeting schedules on time, (3) ability to handle various products, (4) number to handle various products, (4) number of geographic points served, (5) cost of geographic points served, (5) cost per tone-mile.per tone-mile.