Complex Distribution Arrangement

(Structural Separation and

Postponement)

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 Content
• What is Retailing?
• Functions of Retailer
• Types of Retailers
• What is Wholesaling?
• Functions of the Wholesaler
• Types of Wholesalers

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 Definitions
• Retailing: refers to the business activity of
selling goods or services to the final consumer.
• Retailer: is one whose business firms sells
mainly to the final consumers.

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 Functions of Retailer

• They provide convenience;

• They provide guarantee and service;
• They provide financing of transactions;
• They perform promotional activities;
• They perform storage function;
• They perform intelligence service for the
manufacturer; and
• They serves as buying agent of the consumers.

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 Types of Retailers

1. By sales volume
2. By product mix offered
3. By form of ownership
4. By method of operation

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 1. By sales volume
• can classify as:
– Small
– Medium
– Large

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 2. By product mix offered
• General Merchandise stores
– are those that carry a large variety of product line.
• Department stores
• Variety Stores
• Specialty Stores
– are those which carry only a specific line of
products.
• Single line specialty store
• Limited-line specialty store

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 3. By form of ownership
• Corporate chain store
– composed of two or more outlets that are owned
commonly by a person or a group of persons
selling similar product
• Independent stores
– are owned and operated by independent retailers.
• Franchise stores
– is an independent retailer given the right to sell
his products in a definite market area

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 4. By method of operation
• Full Service Retailer
– are stores where assistance in a variety of ways is extended to the
costumers
• Supermarkets
– large department stores which offers a variety of goods.
• Discount Stores
– are self-service retailers that sells a wide variety of goods at less than
traditional retail prices.
• Nonstore Retailers
– refer to those who sell outside of the store. They may be classified as:
• at home retailers
• telephone retailers
• vending machine retailers
• mail-order retailer
• mail-order retailers
• internet retailers
• cellphone service retailers
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 What is Wholesaling?
• Wholesaling: refers to all activities involved in
selling goods and services to those who intend
to resell or use the same for producing goods
or services.

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 Functions of the Wholesaler
1. anticipating customer needs;
2. selling and promotion;
3. financing;
4. storage;
5. breaking bulk;
6. transportation;
7. risk-taking

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 Types of Wholesalers
1. Full Function Wholesalers
2. Limited function wholesalers
3. Industrial wholesalers

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 1. Full Function Wholesalers
A. Merchant Wholesalers: Merchant wholesalers can be
classified into:
• the general line merchant wholesaler who carry a general
assortment of goods; and
• the specialty line merchant wholesaler who carry only a
limited number of lines.
B. Sales office and branches
C. Agents
• manufacturer’s agents: sell only a portion of a
manufacturer’s output.
• selling agents: are required to sell the firm’s entire output.

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 2. Limited function wholesalers
• Limited function wholesalers: provide only some
wholesaling functions, like order taking and
processing. They may be classified as follows:
– drop shippers
– truck distributors
– mail-order wholesalers
– cash-and-carry wholesalers
– cooperatives
– rack jobbers

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 3. Industrial wholesalers
The following types of wholesalers serve the industrial
market:
1. those also serving the retailers:
a. sales branches
b. brokers
c. manufacturer’s agents
d. combination houses
2. industrial distributors serving only the industrial market:
a. general line wholesalers: carry complete assortment of
goods in a single line.
b. specialty line wholesaler: scarry only limited range of
products in a given line

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 Structural separation
• Structural separation refers to a company’s
retail business, which deals directly with
customers, being separated from its network
business, which operates its infrastructure.

• A process of splitting an electric utility into

subsidiaries, so that the same company is not
involved in producing energy and delivering it
to customers.

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• A well known example of separation in
telecommunications – and one generally considered a
success - is that of AT&T from the Regional Bell
Operating Companies (RBOCs) in the United States in
1984. With this action, not only were the local
operations of AT&T structurally separated from its long
distance and international operations, but ownership
of the two groups of companies was separated by
means of a share swap. With their ownership separate
from AT&T, the RBOCs (or Baby Bells) no longer had an
incentive to favour AT&T over its long distance
competitors. Therefore, all long distance competitors
obtained access to local telecommunications services
from RBOCs on similar, non-discriminatory terms. The
divestiture also eliminated concerns about anti-
competitive cross-subsidies between AT&T's local and
long distance operations.
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 Postponement
• Postponement is as an operations design
principle to mitigate the negative impact of
product variety on operational performance.
• Is based on the principle of seeking to design
products using common platforms,
components or modules but where the final
assembly or customization does not take place
until the final market destination and/or
customer requirement is known

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• Local differences in customers and customers’
requirements are significant (tastes, language,
standards, preferences)
• The concept of postponement was developed
by Alderson in 1950[5] and represented a
place, where differentiation of product take
place
• Later, in 1965, the theory of postponement
and speculation was developed by Bucklin,
who suggested different managerial
speculation decisions based on time and place
of differentiation basing on inventory situation
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 Zinn and Bowersox (1988) introduced
5 types of postponement
Five forms with examples are listed below:

• Manufacturing postponement means that manufacturing

activities are initiated by pulling raw materials from raw
material inventory when actual orders are coming. It means
that the system doesn’t start to produce unless there is a
hard order. This also called make-to-order approach.
• Examples:Paint is blended in needed color in the store
• Print-on-demand of books or burn-on-demand of CD/DVD
by publisher
• Dyeing fabrics
• Grinding coffee beans in supermarket

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• Assembly postponement is relevant for companies with
modular product design. Having the base materials
(modules) it is possible to construct various end-products.
Good example of assembly postponement made by
customer itself is Swedish store IKEA, where customers
assembly comfortable furniture based on different
modules. Examples:
– Assembly-to-order of cars, computers, laptops, etc.
– Dell business model

• Packaging postponement is when goods, that might be

stored in different packages (size of package, etc.) are not
packaged till the last moment. This allow to store finished
products unpacked and minimize the risks of excessive
stocks. Examples:
– The same core product in different package sizes
– Co-packaging

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• Labeling postponement is when product
differentiation take place only by putting the
labels on the package. This type of postponement
is useful, when companies use different markets.
Examples:
– Private labels of the retailers
– Printing labels “best before”
– Printing informative labels in language of country
where product is going to be sold
• Time postponement, where finished products
are shipped only when there is an order from
ultimate customer. Examples:
– Centralized warehouse instead of many decentralized
warehouses.

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 Benefits of Postponement

• Improving customer satisfaction and

improvement
• Inventory reduction
• Improved order fulfillment
• Lesser obsolescence
• Reduced level of discounted sales
• Reduced risk for loosed sales / loosed goodwill
• Reduced costs for manufacturing, purchasing,
transport

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 Costs of Postponement

• Increased product development costs

• Increased manufacturing costs (re-design of
production process in order to implement
postponement)
• Cost related with change of sourcing,
distribution, transportation, etc.

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•

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