Module 1

DSCM

MISSION VISION CORE VALUES

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Channel Strategy versus Logistics Management

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Channel Strategy versus Logistics Management

•Channel strategy is much broader and more basic component than

logistics management.
•Channel strategy is concerned with the entire process of setting up
and operating the contactual organization that is responsible for meeting
the firm’s distribution objectives.

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Channel Strategy versus Logistics Management

•Logistics management is more narrowly focused on providing product

availability at the appropriate times and places in the marketing channel.

•Usually, channel strategy must already be formulated before logistics

management can even be considered.

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Distribution through Intermediaries

Economic considerations in determining

whether intermediaries will appear in marketing
channel

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Why distributors or intermediaries should

appear in distribution channel?

ⓘ Start presenting to display the poll results on this slide.

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Distribution through Intermediaries

Specialization and Division of Labor

“Breaking down a complex task into smaller, less complex
ones and allocating them to parties who are specialist at
performing them, much greater efficiency result.”

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Distribution through Intermediaries

Contactual Efficiency
The level of negotiation effort between sellers and buyers
relative to achieving a distribution objective.
•Or it is the relationship between an input (negotiation effort)
and an output (distribution objective).

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The more the no. of intermediaries, higher is

the contactual efficiency in a FMCG
perspective

ⓘ Start presenting to display the poll results on this slide.

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Distribution through Intermediaries

The use of additional intermediaries will often increase the level of

contactual efficiency.

The use of wholesalers has eliminated the need for direct contact with
retailers, thereby greatly reducing the number of contacts needed.

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Traditional V/s Modern Channels

•Customers now expect far more and better channel choices for
gaining access to the vast array of products and services from all
over the planet –
•What(Possession Utility)
•When (Time Utility)
•Where (Place Utility)

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Electronic Channels

•Require the input of 4 types of companies to function effectively:

–Content Co’s
–Consumer Devices Co’s (Nokia, Samsung, Apple Blackberry etc.)
–Components/Equipment Co’s (Alcatel Lucent, Ericsson, CISCO, Avaya
–Conduit Co’s (BSNL, Bharti Airtel, Reliance Communications etc.)

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The Multi Channel Challenge

•Customer Expectations : High Channel Choice, flexibility,
excellent buying experience
1.Finding the optimal multi channel mix
2.Creating multi channel synergies
3.Avoiding multi channel conflicts
4.Gaining a sustainable competitive advantage via multi channel
strategy
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Multi Channel Synergies

Using one channel to enhance the effectiveness and efficiency of another
channel.

Reliance Retail bets big on multichannel initiatives

•Ambani said that the integration of advanced infrastructure built by Jio
and physical retail presence will help the company create a differentiated
omni-commerce model for its retail business

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Avoiding Multi-channel Conflict

1.Between Intermediaries (Same level and across levels).

Intermediaries view it as a zero sum game ( Horizontal
Conflict)

2.Manufacturer and Intermediary (Vertical Conflict)

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Levels of Distribution Channels

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Ancillary Structure

•The group of institutions (facilitating agencies) that

assists channel members in performing distribution
tasks.

•The role of facilitating agencies is one of providing

services to the channel members after the basic channel
decisions have already been made.
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Distribution 4.0

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Quick Recap

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Carrier Rider Relationships

•The most appropriate channel member to carry one’s product

to market is another manufacturer’s owned sales force and
distribution abilities, a relationship called piggybacking.
•Examples of this arrangement

- Tommy Hilfiger and Titan

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Paper Boat maker

posts 62% jump in
FY19 revenue

https://www.livemint.com/comp
anies/company-results/paper-
boat-maker-posts-62-jump-in-
fy19-revenue-
11575295955340.html

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•Why do not all manufacturers sell all products and services that they
make directly to all end-users?

2 Sources of impetus for channel Development & Change

•Demand Side Factors
–Facilitation of Search
–Adjustment of Assortment Discrepancy
•Supply Side Factors
–Routinization of Transaction
–Reduction in Number of Contacts

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Facilitation of Search

•The process of search is characterized by uncertainty on the part of both end

users and sellers.
•End-users are uncertain about where to find the products or services they want,
whereas sellers are uncertain about how to reach target end-users.
•If intermediaries did not exist
–Sellers without a known brand name would be unable to generate many sales.
–End users would not know whether to believe the claims made by manufactures
about the nature and quality of their products.

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Results

– Good quality juices being sold at affordable prices

– Turnover
•before Metro Rs. 6 Lacs per month,
•went up to Rs 11 Lacs per month – an 83% increase
– Kept prices at same low levels
– Diversified into non-traditional juices.

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Adjustment of Assortment Discrepancy

•Sorting out. This involves breaking down a heterogeneous supply into separate stocks that are
relatively homogeneous. (For example, a vegetable vendor sorts by size and grade.)
•Accumulation. The intermediary brings similar stock from a number of sources together into a
larger homogeneous supply. (Wholesalers accumulate varied goods for retailers, and retailers
accumulate goods for consumers.)
•Allocation. This refers to breaking a homogeneous supply down into smaller and smaller lots.
Allocating at the wholesale level is referred to as breaking bulk. (For example, goods received in
carton loads are sold in cases lots. A buyer of case lots in turn sells individual units.)
•Assorting. This is the building up of an assortment of products for resale in association with
each other. (Wholesalers build assortments of goods for retailers, and retailers build assortments
for consumers.)

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SUPPLY SIDE FACTORS

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1. Routinization of Transactions

•Each purchase transaction involves ordering, valuating, and paying for goods and
services.
•The buyer and seller must agree on the amount, mode, and timing of payment.
•These costs of distribution can be minimized if the transactions are routinized;
otherwise, every transaction is subject to bargaining, with an accompanying loss
of efficiency.
•Routinization leads to efficiencies in the execution of channel activities.

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Metro Cash and Carry in a hurry to digitise India's

kirana stores
2 min read . Updated: 05 Aug 2019, 06:41 PM IST

New Delhi: Local arm of German wholesaler retailer Metro Cash and Carry said it has
launched an app for kirana stores, allowing traditional retailers that buy from Metro to use
the app to order stock, keep a check on inventory, and facilitate payments, as the retailer
hopes to capitalise on the country’s huge kirana ecosystem and wade off competition from
the likes of Reliance Retail that recently announced its plans to digitise India’s
neighbourhood grocery stores.

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1.1 ERP- Sales & Distribution Modules

•It is a whole system of activities that standardizes the management of

business documents, such as purchase orders, invoices, payments, and the
like, between distribution channel members.
•Although EDI has rather large fixed costs, significant economies of scale
mean that
–Large companies that have many repeated transactions with their channel
partners reduce their total costs of distribution through using ERP
–Increasing the accuracy of processing trading documents.
•The extent of cost reduction is 1/100th of a paper P.O.
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1.2 Continuous Replenishment Programs(CRP)

•Important trend in inventory management in channels.
•First used by mass-merchandisers in USA.
•manufacturing and retailing partners involved in CRP share inventory and stocking
information to ensure that a product is neither under stocked nor overstocked on the retail
shelf and that the right array of retail products is stocked.
•Shipments typically increase in frequency but decrease in size per shipment.
•This leads to lower inventories in the system and higher turnaround, both sources of
increased channel profitability.
•A routinized and mature relationship between channel partners is a must to make CRP a
success
•CRP must be customized to each channel relationship to guarantee maximum savings.

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•Walmart uses 5 day exponential moving averages for

continuous replenishment programs.
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What comes to your mind when you think

about Exponential Moving Average?

ⓘ Start presenting to display the poll results on this slide.

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Channel Member Functions

•Gather information about potential & current customers, competitors and other actors and forces
in the marketing environment.
•Develop and disseminate persuasive communications to stimulate purchasing.
•Reach agreements on price and terms so that transfer of ownership and other possessions can
be effected.
•Acquire funds to finance inventories at different levels in the marketing channel.
•Assume risks connected with carrying out (Cost of Risk 24-26%)
•Provide for successive storage & movement of physical products.
•Provide for buyers’ payment of their bills through banks & other financial institutions.
•Oversee actual transfer of ownership from one organization or person to another.

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Quick Facts - ITC

•The total number of ITC employees stood at 27,279 as on March 31, 2019.
•For 2018-19, ITC has reported a revenue of ₹45,784.39 crore and a net profit of
₹12,464.32 crore.
•ITC's gross sales value for FY 2018-19 was at ₹75,309 crore.
•The company, which gets around half revenue from cigarette segment, is expanding
its portfolio into the food and FMCG segment as part of its diversification process.
•As part of that, ITC has launched over 50 new FMCG products in 2018-19 across
categories, which includes foods, personal care, education and stationery products,
agarbatti and matches.

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Quick Facts - ITC

•Some of its brands such as Aashirvaad, under which ITC

mainly sells wheat flour has now a consumer spend of
₹4,500 crore.
•While Sunfeast is over ₹3,800 crore brand, Bingo is
nearly₹2,500 crore and Classmate and YiPPee! are over
₹1,000 crore each.

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