Scm -II Final

7/31/2019 Scm -II Final

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Distribution & Distribution System in India

The task of distribution is the proess whereby thedemand identified has to be met with the requiredproduct or services through channelization of production

,stimulation and facilitation of the transaction.

It also involves the transfer of title along with the physicalprocurement of goods.

It is also important to assess how the distribution task isbeing performed in india.


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This task can be undertaken by measuring the numberof functionaries in each class, their organisation

strucure and their capital structure.The marginscharged by them would be a function of quantum ofgoods moved and the population served by them andservices rendered by them and would also assist in the

task of measuring their performance.The estimednumber of functionaries in each class and type ofmarket served by each of them is given as under:


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Sl.No.

Type of trade Rural Urban Combined

Number % Number % Number %

(1) (2) (3) (4) (5) (6) (7) (8)

1 Whole sale trade 46824 72.83 30380 38.51 77204 53.92

2 Retail trade 16520 25.70 43533 55.19 60053 41.94

3 Commission agents 909 1.41 4948 6.27 5857 4.09

4 Auctioneers 39 0.06 19 0.02 58 0.04

5 Other trade - - 3 0.00 3 0.00

6 All trade 64292 100.00

78883 100.00 143175 100.00

Estimated number of DTEs(Directory trade establishments) by type of trade and loc


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Table gives estimated number of DTEs by type of trade and location. Totalnumber of DTEs in the country, as estimated by the survey, was 1,43,175 of which64292 DTEs (44.9%) were located in rural India and the remaining 78883 DTEs

(55.1%) in urban India.

Among various types of trading establishments, wholesale trade had themaximum share (72.83%)in rural India so far as number of DTEs was concerned.However, in urban India, retail trade had the maximum share ( 55.19%) in totalnumber of DTEs.

The share of commission agents in total number of DTEs was found to be 1.41%for rural India and 6.27% for urban India. The share of other trade was found to be'nil" for rural India and negligible for urban India.


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Distribution LogisticsThe first task of the channel management is to

develop a pathway or a team/network of merchants

and agent business institutions for the flow of goodsand services( and their titles) from the point ofproduction to point of use.

Logistics means physical handling of products. Theterm physical distribution is also used in place oflogistics.


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he major elements of physical distribution are:

TransportationInventory MaintenanceOrder Processing

AcquisitionProtective packagingWarehousing

Materials HandlingInformation Management


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Physical distribution is the science of businesslogistics whereby the proper amount of right kind ofproduct is made available at the place where demand

exists.

Physical distribution is the link between manufacturingand utility creation.

Physical distribution involves the actual movement

and storage of goods after they are produced andbefore they are consumed.


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WarehousingWarehouses are the godowns for keeping and storing goods andproviding other related services in order to keep traders and ormanufacturers to preserve the goods in a scientific andsystematic manner so as to maintain their original value,quality

and usefullness.

The purpose of warehousing in the distribution logistics is toarrange placement of products and to provide storage facility tostore them, consolidate them with other and similarproducts,divide them into smaller quantities and to build upassortment of products.


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Warehousing Functions and ObjectivesThe basic warehousing functions traditionally have beenconsidered to be as follows (Tompkins and White, 1984):receiving;identification and sorting;

placing in storage;storage;retrieval from storage;order accumulation;

packing;shippingrecord keeping.


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In designing warehousing systems it is desirable tomaximizespace utilization;equipment utilization;labor utilization;

accessibility of all materials;protection of all materials.

Storing goods in adequate spacewith the properequipmentby well trained personnel in a properlyplanned layoutresults in maximum protectionofitems.


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The warehousing location could either be product orientedor market oriented.

The following factors influence warehouse location:Product type

Transportation costMarketsRentLabour Supply

TaxesGeographyCompetition


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Inventory Management/DecisionThe investment in inventory is very high in most of theundertakings engaged in manufacturing,wholesale and

retail trade.The amount of investment is sometimesmore in inventory than in other assets.A proper planning

of purchasing, handling, storing and accounting shouldform a part of inventory management.An efficient system on inventory management willdetermineWhat to purchase?How much to purchase?From where to purchase?Where to store?


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The purpose of inventory management is to keep the stock insuch a way that neither there is overstocking nor understocking.

For proper management of inventory levels, two issues need

attention and analysis.

Order Quantity: How much to order?

Order Point: When to place the order?


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Tranportation DecisionsTransportation seeks to move goods from points ofproduction to points of sale and consumption in the required

quantity, at the right time and at a reasonable cost.

Modes of Transporatations

RoadwaysRailwaysAirwaysSeaways


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Selection of Transportation mode

The following factors are considered while selecting a transportation mode:

The strengts and weaknesses of the company in terms of marketing,financial andproduction resources.

The prevailing market characteristics,including the competitivescenario,geographical and territorial structure.

Brand equity of companys products in the eyes of customers to bear with astock out situation.


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Product features and suitability to various modes of

trannsportation such as weight.size,shape etc.

Quantity to be transported each time.

Distance to be covered.

Total transportation cost of various modes of transportation.

Carrier performance in terms ofspeed,availability,flexibility,frequency,reliability,safety, claimsettlement procedure and logistical service capabilities.


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Total Distribution Costs

These costs are very much influenced by the interrelationships between the following

categories of costs:

Procurement costsInventory carrying costsTransportation costs (i.e. freight, shipping insurance etc.)

Management should develop an understanding of the trade-offs that must be madebetween the above categories.

Changes in one element of the distribution system can have a dramatic, and oftenunexpected effect on other elements of the system and upon the system as a whole.

Trading companies aiming to change one or more elements should seriously consider toperform a costs analysis prior to any change and to assess the impact such change onother individual elements and upon the system as a whole by bringing together, thevarious types of distribution cost and the effects of proposed changes in one area ofdistribution.


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Customer Service

Customer service is the provision of service to customers before, during and after apurchase.

Customerservice is a series of activities designed to enhance the level of customersatisfaction that is, the feeling that a product or service has met the customerexpectation."

Customer service provides a differential advantage to a firm and influences productsprice if customers are williing to pay more for better service.
http://en.wikipedia.org/wiki/Service_%28economics%29http://en.wikipedia.org/wiki/Customerhttp://en.wikipedia.org/wiki/Customerhttp://en.wikipedia.org/wiki/Service_%28economics%29


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Customer service is usually measured in terms of the

Level of product availabilitySpeed and ConsistencyCommunication between seller and customer


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Availability:

Customer service is measured by the availability of inventory with in a specified ordercycle time.

Order Cycle:It is important to understand the time gap between between the customers orderplacement and receipt of the product.The speed and consistency of the order cycleinfluence the amount of inventory held throughout the supply chain. Therefore, thespeed and consistency of order cycle are the prime factors in channel design.

Communication:It refers to firms ability to provide timely information to the customer about order status,order tracking, order confirmation, product substitution, product shortages and productinformation requests. The ability of channel members to provide good communicationsystems(Automated Information Systems) is a major factor in channel design.


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Distribution Analysis, Control and Management


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In case of physical distribution system, the three major

components are.

TransportationA set of inventories

A set of fixed facilities at which goods are stored


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Each of these components has a major activity to perform or anobjective to achieve.

For example-The transportation sub system has to achieve theobjective of moving the goods to the consumption pointsthrough the shortest route with in the specified Parameters of

time & cost.


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The objectives of the physical distribution system can be any one of the following

Improve Customer service level at the present level of expenditureReduce the costs while maintaining the present level of customer service


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Pre transaction Transaction Post transaction

(i)Written statement of policy(ii) Statements in hand of

customer

(iii) Organisational Structure

(iv) System flexibilty

(i) Stockout level(ii) Order Cycle

(iii) Time

(iv) Transportation,shipment

(i) Installation,Warranty,repairs

(ii) Customer Claims

(iii) Temporary

replacement of

products during

repairs


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Risk Return Analysis

Every independent businessman is interested in maximizing hisreturns and minimizing his risks. He calculates the return on thebasis of return on the capital employed whereas he estimates the

risk by .

(a)deviation in his earnings on capital(b) the degree of effort required to achieve the mean earning

(c) the degree of capital input he must make in order to getthe desired return.


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The concept of risk and return analysis is integral to the processof investing and finance. All financial decisions invlove some risk.You may expect to get a return of 15% per annum in yourinvestment but the risk of "not able to achieve 15% return" willalways be there.

Return is simply a reward for investment as all investmentsinvolve some risk.

The greater the risk, the greater the return expected.


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The objective of risk and return analysis is to maximize the returnby creating a balance of risk

For example, in case of working capital management, the lessinventory you keep, the higher the expected return as less of yourmoney is locked as asset.; but you also have a increased risk ofrunning out of raw material when you actually need it for production ormaintenance. Which means you loose sale. Thus all companies triesvery hard to maintain the minimum level of inventory without affectingproduction.


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Controlling Channel members

Controlling is the process of taking steps to bring actual results anddesired results closer together

It follows from the definition that in order to control..

Establish performance standards

Measure the performance against these standards

To take corrective measures to correct any deviations


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Control issues are nothing but control problems and may ariseon account of any one of the three reasons

When the objectives of the firm and the wholesalers are not aligned

When the tasks are not clearly defined

When the intermediaries do not possess the required characteristics.


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Problem Area__

The entire channel system might be functioning profitably yet an

individual channel member may not be performing according to theaccepted norms of the channel.

In this case, we have to review and control the performance of thischannel member otherwise the rest of the members may not

perform as per the norms.

Therefore it becomes necessary to control not only thechannel system but also individual channel members.


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There exist three conventional methods for the purpose of controlling.These are contract, power and structure.

ContractContract can be defined as An agreement enforceable by law.

It may be in writing or oral or even implied.

In relatively long term commercial relationships like channel contracts,the agreement is generally put in writing so as to impartclarity and avoid ambiguity.

Power

Power is another tool available for controlling the channel of distribution.Power arises out of dependency of one member with another such that eitherone of them or both members are capable of affecting the achievement ofobjectives of the other.


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Reward Power(when the company decides to assign a greater sales quotafor a particular retailer on a premium product in shortage)

Coercive Power(It is a sort of punishment given to the memberi.e sanctions granted to a member are of a negative nature)


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StructureThe third tool available for control is the structure of the system andalso the structure of the intermediary institution.

Longer the channel, lower the control

i.e larger the number of members lower the control.


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It is for this reason, analysis begin with

Net Profit /sales X sales/Assets X Assets/Owned capital X 100

N.P/ SALESThis indicates profit margin made by the companyon the sales made by the company

SALES/ASSETS--- This indicates the capital employed as a base necessary torealize the expected sales.

ASSETS/OWNED CAPITAL----This indicates from where the money to beemployed must come from.


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Some of the other controllable variables are:

Inventory Turnover:Sales Turnover/Inventory------- This is very significant working capital ratiobecause it gives a brief idea about the operating cycle of the firm i.ehow many times is inventory converted into sales during a particular year.

Accounts ReceivablesThis ratio tells us what quantum of money is outstanding and for how long.

Accounts Payable:This ratio gives us a clear picture of the amount of money payable andhow often these payments have to be made.


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For Analysing the labour productivity, we use the following ratios;

Turnover to Employees:Turnover/No.of Employees-----

This ratio indicates how many employees are required to achieve thegiven level of TURNOVER.

By helping us in predicting future employee relationship and

For control purposes by knowing the T.O. per employee,we can compare with past performance.

Customer to Employees= No of Customers/No.of Employees

This ratio indicates the number of employees necessary to serve a givenset of customers within the geographical layout.

Order to Employee Ratio= No of orders/No. of Employees


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Establishing standards and control

In order to control it is necessary to have some measure against which we can compare

the performance. If we want to establish criteria for the purpose of control it is necessaryto fully understand the purpose for which these standards have to be developed.Basically it is necessary to control

CHANNEL STRUCTURECHANNEL MEMBERS

Therefore standards to be established should be capable of measuring the performanceof the structure and performance of the individual channel members.

Factors affecting standards for CHANNEL STRUCTURE

1-Measurement of size of the potential trading area2-sales potential for each trading area3- Potential for product in any trading area4- Salesman required to achieve this potential5-Calculation of Cost6-Comparison of real figure with budgeted figure

E l ti f h l b l d di d( it I)

Scm -II Final

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