Professional Documents
Culture Documents
Sales & Distribution Management
Sales & Distribution Management
Sales & Distribution Management
MANAGEMENT
COURSE WRITER
Prof. A. K. Sood Mr. Bikram Mohanty
EDITOR
Mr. Yogesh Bhosle
Acknowledgement
Every attempt has been made to trace the copyright holders of materials reproduced in this book. Should any
infringement have occurred, SCDL apologises for the same and will be pleased to make necessary corrections
in future editions of this book.
PREFACE
Sales and Distribution Management is an integral part of Marketing Management. Modern Sales and
Distribution Management is a complex and disciplined mix of: marketing skills, professional selling
and negotiation skills, people management skills (including selection, motivation, communicating and
training), sales strategy and tactical planning skills, data management and performance monitoring
skills (involving a high level of numeracy and experience in using computers to advantage) in sales
and customer management. This text is targeted at the professional sales managers who want to make
the most of the market opportunities; and develop the productivity of his or her team. Companies are
facing increased competition, with threats to many traditional markets and customer bases as supply
and purchases points in many market segments become more concentrated. To tackle the threats and
capitalise on opportunities the modern sales manager needs a far broader range of selling and managerial
skills, and experience than in past decades.
The aim is to provide some skill developing inputs that will enable the proactive sales manager to build
on this material in managing the sales team and sales environment more profitably and productively.
A. K. Sood
Mr. Bikram Mohanty
iii
ABOUT THE AUTHOR
Prof. A.K. Sood, a Management Consultant and a member of the Institute of Management Consultants
of India, provides training services to several organisations.
Mr. Sood has successfully combined a career in industry with teaching management courses in premier
Institutions of Management and Communications like Symbiosis Institute of Business Management,
Symbiosis Institute of Management Studies, Indsearch, I.M.E., Pune University, Vaikunth Mehta
National Institute of Cooperative Management and Sancheti Institute for Hospital Management
(Sancheti Institute for Orthopaedics & Rehabilitation) all of which he still retains associations with.
Prof. Sood is the Founder, Director of Institute for Sales Training, an organisation set up to provide
value to customers through education, job assistance, counselling and training programmes.
Mr. Bikram Mohanty has been visiting lecturer in various management schools. He has an experience
of 15 years of teaching at college level. His total experience in Marketing is for more than 15 years.
iv
CONTENTS
v
Unit No. Title Page No.
3 Effective Sales Executive 39 – 60
3.1 Introduction
3.2 Sales Representative
3.3 Changing Role of Field Sales Manager
3.4 Sales Manager – Responsibilities
3.5 Sales Management Competencies
3.6 Time Management of Sales Executives
3.7 The Sales Hierarchy Pyramid
3.8 The Sales Career Path
3.9 Sales Managers’ Relations with other Departments
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
4 Sales Planning and Budgeting and Forecasting 61 – 104
4.1 Introduction
4.2 Definitions of Planning
4.3 Meaning of Sales Planning
4.4 Characteristics of Sales Planning
4.5 Advantages of Planning
4.6 Levels of Planning
4.7 Sales Planning Process
4.8 Management by Objectives (MBO)
4.9 Sales Budgets
4.10 Sales Forecast
4.11 Factors in Sales Forecasting
4.12 Basic Concepts in Sales Forecasting
4.13 Sales Forecasting Approaches
4.14 Non-Quantitative Forecasting Techniques
4.15 Quantitative Forecasting Techniques
4.16 Evaluating Quantitative and Qualitative Techniques
4.17 Personal Computers and Sales Forecasting
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
vi
Unit No. Title Page No.
5 Sales Force Recruitment, Selection and Training 105 – 144
5.1 Introduction
5.2 Definition of Recruitment
5.3 Importance of Recruitment
5.4 The Recruitment Process
5.5 Selection Process
5.6 Sales Force Selection in Multinational Companies
5.7 Sales Force Socialisation
5.8 The Purpose of Sales Training
5.9 The Benefits of Sales Training
5.10 Effects of Lack of Training
5.11 Sales Training Program
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
6 Sales Quota and Compensating Sales Personnel 145 – 162
6.1 Introduction
6.2 Definitions of Sales Quota
6.3 Features of Sales Quota
6.4 Objectives/Importance of Sales Quota
6.5 Types of Quotas
6.6 Characteristics of Sales Jobs
6.7 Requirements of a Good Sales Compensation Plan
6.8 Devising a Sales Compensation Plan
6.9 Types of Compensation Plans
6.10 Fringe Benefits
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
vii
Unit No. Title Page No.
7 Leading and Motivating the Sales Personnel 163 – 186
7.1 Introduction
7.2 What is Leadership
7.3 Leadership and Management
7.4 Differences between a Manager and a Leader
7.5 Functions of a Leader
7.6 Leader Influence and Power
7.7 Principles of Leadership
7.8 Characteristics of an Effective Leader
7.9 Theories of Motivation
7.10 Motivating the Sales Force
7.11 Motivational Techniques
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
8 Evaluation and Control of Sales Force 187 – 204
8.1 Introduction
8.2 Marketing Audit
8.3 The Sales Audit
8.4 The 80:20 Principle
8.5 Iceberg Principle
8.6 What is Sales Analysis
8.7 Sales Analysis Framework
8.8 Marketing Cost Analysis
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
viii
Unit No. Title Page No.
9 Sales Territory 205 – 222
9.1 Introduction
9.2 Meaning of Sales Territory
9.3 Reasons for Establishing Sales Territories
9.4 Responsibility of Designing Sales Territories
9.5 Reasons for not Developing Sales Territories
9.6 Factors to be Considered while Designing Sales Territories
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
10 Key Account Management 223 – 242
10.1 Introduction
10.2 What is Key Account Management
10.3 Objectives of Key Account Management
10.4 Criteria of Defining a Key Account
10.5 Traditional and Key Account Paradigms
10.6 The Stages in Key Account Management
10.7 Future Trends and Challenges of Key Account Management
10.8 Benefits of Key Account Management
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
ix
Unit No. Title Page No.
Part - II
DISTRIBUTION MANAGEMENT
1 Introduction to Distribution Management 245 – 266
1.1 Introduction
1.2 Understanding Distribution Channels
1.3 Scope of Distribution Channels
1.4 Functions of Distribution Channels
1.5 Multiple Channels of Distribution
1.6 Types of Channel Members
1.7 Benefits Offered by Channel Members
1.8 Physical Distribution Management (PDM)
1.9 Systems or Total Approach to PDM
1.10 Distribution Resource Planning (DRP)
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
2 Retailing and Wholesaling 267 – 310
2.1 Introduction
2.2 What is Retailing
2.3 Functions of Retailers
2.4 Retail Formats
2.5 Retail Ownership
2.6 Retail Strategies
2.7 Technology in Retail
2.8 Radio Frequency Identification (RFID) in Retail
2.9 Challenges to Retailers
2.10 Wholesale Markets
2.11 Meaning of Wholesaling
2.12 Benefits of Wholesaling
2.13 Functions of Wholesalers
2.14 Wholesale Formats
2.15 Types of Wholesalers
2.16 Appointment of Distributors
2.17 Concerns of Wholesalers
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
x
Unit No. Title Page No.
3 Warehousing 311 – 336
3.1 Introduction
3.2 Meaning and Definition of Warehousing
3.3 Need for Warehousing
3.4 Types of Warehouses
3.5 Characteristics of Ideal Warehouse
3.6 Functions of Warehouse
3.7 Advantages of Warehouse
3.8 Activities in Warehouses
3.9 Warehouse Designing and Configuration
3.10 Distribution Center
3.11 Clearing and Forwarding Agents
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
4 Transportation 337 – 356
4.1 Introduction
4.2 Benefits of Transportation
4.3 Elements of Transportation Costs
4.4 Modes of Transport
4.5 Multimodal Transport
4.6 Containerisation
4.7 Factors in Selecting Mode of Transportation
4.8 Changing Practices and Priorities in Freight Transportation
Demand
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
xi
Unit No. Title Page No.
5 Distribution Channels in Services 357 – 378
5.1 Introduction
5.2 Distribution Channels in Services
5.3 Major Intermediaries for Service Industry
5.4 Distribution Channels in Banking Industry
5.5 Distribution Channels in Insurance Industry
5.6 Distribution Channels in Hotel Industry
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
6 Distribution Planning and Control 379 – 410
6.1 Introduction
6.2 Customer Service Levels
6.3 Developing Customer Service Policy
6.4 The Total Distribution Concept
6.5 Requirements of a Distribution Planning and Control System
6.6 Inventory Planning and Control
6.7 Transport Planning and Control
6.8 Warehouse Capacity Planning
6.9 Distribution Resource Planning and Control
6.10 Just-in-Time
6.11 Material Requirement Planning
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
7 Managing International Sales & Distribution 411 – 420
7.1 Introduction
7.2 Legality of Doing Business Internationally
7.3 Variations in Customers Trust
7.4 Selling in International Markets
7.5 Entry Strategies
7.6 Role of Logistic Companies
7.7 International Salesperson Profile
7.8 Payments terms
7.9 Exporting Documents
7.10
Factors for a Successful Manufacturer-Overseas Distributor
Relationship
7.11 International Shipment Process
Self-Assessment Questions
Suggested Reading
xii
PART - I
SALES MANAGEMENT
Introduction to Sales Management
UNIT
1
Structure:
1.1 Introduction
1.2 Evolution of Sales Management
1.3 Challenges to Sales Management
1.4 Definition of Sales Management
1.5 Objectives of Sales Management
1.6 Sales Management Process
1.7 Sales - A Challenging and Rewarding Career
1.8 Women in Sales
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
----------------------
1.1 INTRODUCTION
----------------------
Every organisation ultimately needs to sell its products. Therefore,
---------------------- to facilitate the same the organisation needs to deploy people to contact its
customers (sales personnel). Sales are a very dynamic function. This is so because
---------------------- the consumer/customer’s needs are constantly and continuously changing due
to change in the environment. Hence, the sales people need to overcome the
----------------------
obstacles and satisfy the customers by making the products available at the right
---------------------- place and at the right time. This leads us to understand that the sales function
is not a static but a dynamic function. The sales personnel need to be dynamic,
---------------------- alert, on the move and catalysts. They are the people who make things happen.
Therefore the sales management is a very dynamic function which involves
----------------------
generation of profits, reduction in operational costs and is looked up by the
---------------------- entire organisation as a revenue generating function of the organisation.
----------------------
It is certainly an era of change. Powerful forces are at work that are ----------------------
changing the way that salespeople and sales managers understand, prepare for, ----------------------
and accomplish their jobs. There is no going back. Some of the more important
competitive and customer related forces of change are discussed here below: ----------------------
Competition ----------------------
The 1980s and early 1990s were generally a seller’s market. Today, the
----------------------
number of competitors in most markets has phenomenally across the board for
all product categories. The key reasons for this development are globalization of ----------------------
markets, shorter product cycles, and evolution of this world into a boundryless
market. ----------------------
Globalisation ----------------------
Companies around the globe are feeling the effects of globalised ----------------------
competition. It is not unusual to compete with companies from other countries,
to use suppliers located in other parts of the world, or to sell to customers that ----------------------
are selling in other countries. Any of these situations may result in intensified
----------------------
competition and require that the sales force adjust from a local to a global focus.
Particularly in a country like India which has witnessed influx of multinationals ----------------------
in almost all the product categories, in products as well as services. Therefore,
there is a need to have a global perspective. For example, well-known companies ----------------------
such as Coca-Cola, Colgate-Palmolive, and Avon Products have changed the
----------------------
total perspective of selling and sales management. Chief Executives of such
companies know that their companies’ growth is likely to depend on how ----------------------
well they manage customer relationships in global markets. This means more
travelling, hiring the right people, defining new roles and duties, and developing ----------------------
a global perspective and world-class skills at addressing an increasingly eclectic
----------------------
sales force.
Shorter Product Cycles ----------------------
----------------------
State True or False.
1. The rate of technology transfer is increasing. ----------------------
----------------------
Activity 1 ----------------------
----------------------
Give five examples, which will explain how the consumers’ expectations
are changing and posing challenges to selling function. ----------------------
----------------------
1.4 DEFINITION OF SALES MANAGEMENT ----------------------
Sales management is defined as the planning, direction and control of ----------------------
personal selling, including recruiting, selecting, equipping, assigning routing,
supervising, paying and motivating as these tasks apply to the sales force. ----------------------
----------------------
1.5 OBJECTIVES OF SALES MANAGEMENT
----------------------
Sales Management is the revenue generating function of the organisation.
Sales managers make major contribution to reach the three general objectives ----------------------
of the sales management.
----------------------
●● Sales volume
●● Contribution to profit ----------------------
●● Continued growth ----------------------
Sales volumes and other objectives are decided on yearly basis. Once the
----------------------
Recruiting ----------------------
The first step in recruiting salespeople involves analysing the positions ----------------------
to be filled. This is often accomplished by sending an observer into the field,
who records the amount of time a salesperson must spend talking to customers, ----------------------
traveling, attending meetings, and doing paperwork. The observer then reports ----------------------
the findings to the sales manager, who uses the information to draft a detailed
job description. The observer might also report on the characteristics and ----------------------
needs of the buyers, since it can be important for salespeople to share these
characteristics. ----------------------
The manager may seek candidates through advertising, college recruiting, ----------------------
company sources, and employment agencies. Candidates are typically evaluated
----------------------
through personality tests, interviews, written applications, and background
checks. Research has shown that the two most important personality traits that ----------------------
salespeople can possess are empathy, which helps them relate to customers,
and drive, which motivates them to satisfy personal needs for accomplishment. ----------------------
Other important traits include maturity, appearance, communication skills, and
----------------------
technical knowledge related to the product or industry. Negative traits include
fear of rejection, distaste for travel, self-consciousness, and interest in artistic ----------------------
or creative originality.
----------------------
Training
----------------------
After recruiting a suitable sales force, the manager must determine how
much and what type of training to provide. Most sales training emphasises ----------------------
product, company and industry knowledge. Only about 25 per cent of the average
company training program, in fact, addresses personal selling techniques. Due ----------------------
to the high cost, many small businesses try to limit the amount of training they
----------------------
provide. The average cost of training a person to sell industrial products, for
example, commonly exceeds $30,000. Sales managers can however, achieve ----------------------
many benefits with competent training programs. For instance, research
indicates that training reduces employee turnover, thereby lowering the effective ----------------------
cost of hiring new workers. Good training can also improve customer relations,
----------------------
increase employee morale, and boost sales. Common training methods include
lectures, case studies, role playing, demonstrations, on-the-job training, and ----------------------
self-study courses. Ideally, training should be an ongoing process that continually
reinforces the company’s goals. ----------------------
Compensation ----------------------
After the sales force is in place, the manager must devise a means of ----------------------
compensating individuals. The ideal system of compensation reaches a balance
between the needs of the person (income, recognition, prestige, etc.) and the ----------------------
----------------------
1.7 SALES -ACHALLENGINGAND REWARDING CAREER
----------------------
Sales is one of the most exciting, financially rewarding and challenging
----------------------
of careers. Unlike many jobs, sales jobs are dynamic and hence lively, for it
---------------------- deals with human beings and their wants which are always changing. The sales
personnel have to face very uncertain and challenging situations because of the
---------------------- constant changes taking in the marketing environment. More often salespeople
are away from their company offices and from their superiors and working
----------------------
under tough conditions and taking decisions on their own. A wrong decision by
---------------------- the salesperson may put the company into losses. Hence he needs to be always
well informed, continuously analyse the environment and take judicious and
---------------------- rational decisions which increase his affectivity. Being in the selling profession
one necessarily has to undertake long journeys away from family under trying
----------------------
conditions. This in itself is a challenge since it puts lot of emotional stress on
---------------------- him and hence calls for lot of resolve and determination to overcome these
issues and always stay cheerful and motivated.
----------------------
A sales career is undoubtedly one of the surest and fastest routes to the
---------------------- top of an organisation. One survey of 1,708 top-level managers in Fortune 500
----------------------
1.8 WOMEN IN SALES
----------------------
Recent studies have found that some females have better selling skills.
Many women are more nurturing, have stronger listening skills and empathise ----------------------
better than males, “In sales, you have to be really people oriented,” “You have
to listen and understand to the client’s wants and needs. If you can empathise ----------------------
with what they are going through, you are going to do well in sales. Women are ----------------------
generally better at that than most men.”
----------------------
With females having more potential to be better salespeople, it is
little wonder why companies are hiring women to fill the vast majority of ----------------------
sales vacancies, a sales position is an important part of any company. Every
salesperson generates enough revenue to pay for nine other positions at most ----------------------
companies, according to Selling Power Magazine.
----------------------
The magazine also reported that sales is one of the most rapidly
expanding fields in the United States with about 12 million people currently ----------------------
in sales positions. The top 125 manufacturing companies employ 342,000
----------------------
sales people who produce $1.3 trillion in sales. The top 125 service companies
employ 625,000 sales people with over $1.1 trillion in sales. The amount of ----------------------
sales produced per salesperson across all companies’ averages $2.5 million per
year. Women have started to outnumber men in college sales courses. It was ----------------------
only 10 to 15 years ago when there were few, if any, women in any of his selling
----------------------
classes. The turnaround came when female alumni began to speak on college
campuses about their success in sales fields. Women see sales as a tremendous ----------------------
opportunity because of high pay and rapid advancement. In every field both
women and men are being hired in large numbers. ----------------------
In India too we now see around us that increasingly more and more women ----------------------
are joining management courses and taking sales as a career. The campus
recruitments indicate clearly women taking sales as a career is increasing by the ----------------------
day across the companies covering many industries. We have lot of examples
----------------------
around about women who have reached the top of selling career like Indira
Nooyi, President and CEO Pepsico, India. ----------------------
----------------------
---------------------- Write names of five women who have made to the top in the corporate
world.
----------------------
---------------------- Summary
----------------------
●● It can be seen that selling as a profession which was looked down in the
---------------------- earlier era has now become a sought after profession due to the challenges
it offers and rewards that are in store.
---------------------- ●● Today, sales management function is looked up as a revenue generating
---------------------- function and thus this function with all the odds contributes significantly to
the organisational success. No wonder that even women are increasingly
---------------------- seen undertaking management courses and opting sales as a career. With
all the challenges associated with the sales and sales management it is
---------------------- increasingly becoming a sought after profession.
----------------------
Keywords
----------------------
●● Boundaryless global markets: Is said so because of globalisation
----------------------
countries are opening their doors to multinational thereby integrating
---------------------- with world economy. Moreover technology has shrunk the world in size
thus making it a unified/boundryless market.
---------------------- ●● Competitive advantage: Advantage a company has over the competition
---------------------- due to some strength.
●● Downward trend: Is generally used when these is fall in sales from the
---------------------- normal levels.
---------------------- ●● Multinational: An organisation operating in more than one country.
---------------------- ●● Short Product Cycles: Due to continuous innovation in technology, new
products are going out of fashion due to introduction of new products
---------------------- there by reducing the lifestyle of existing products.
----------------------
Self-Assessment Questions
----------------------
1. Define sales management and discuss its objectives.
----------------------
2. Discuss the evolution of sales management.
---------------------- 3. “Selling - a challenging and rewarding sales career”. Do you agree?
Discuss.
----------------------
4. Discuss the sales management process.
----------------------
5. What are the various challenges to sales management? Discuss in details.
----------------------
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2
Structure:
2.1 Introduction
2.2 Meaning of Personal Selling
2.3 Nature of Personal Selling
2.4 Objectives of Personal Selling
2.5 Qualities of a Successful Salesperson
2.6 Classifying Selling Roles
2.7 Personal Selling Process
2.8 Advantages and Disadvantages of Personal Selling
2.9 Trends in Personal Selling
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
Personal Selling 19
Notes
Objectives
----------------------
After going through this unit, you will be able to:
----------------------
• Explain the nature of personal selling
----------------------
• Enumerate the objectives of personal selling
---------------------- • Classify personal selling
---------------------- • Describe the personal selling process
---------------------- • Define sales management
----------------------
2.1 INTRODUCTION
----------------------
Salesman’s sample case
----------------------
“… a solid wooden box; 26 inches in length, containing specially hollowed
---------------------- compartments having various types of axes, sword, blade, buttons etc.”
---------------------- Early sellers and traders were not held in high esteem. The Roman word
for salesman meant ‘Cheater’ and ‘Mercury’: the God of cunning and barter
---------------------- was regarded the patron deity of merchants and traders.
---------------------- The first salesmen in the U.S. were ‘Yankee Peddlers’ (pack peddlers),
who carried clothing, spicer and notions in backpacks from East Coast
---------------------- manufacturing centers to settlers in the western frontier regions. Many traders
---------------------- came to be viewed as shrewd; unprincipled tricksters who would not think twice
about putting sand in the sugar; dust in pepper and chicory in coffee.
----------------------
In the early 1800’s, some peddlers began to use horse drawn wagons and
---------------------- to stock heavier goods such as furniture, ammunition etc. Some of these wagon
peddlers settled in frontier villages and opened the first general stores and
---------------------- trading posts. The larger retailers travelled once or twice a year to the nearest
---------------------- major city to replenish their stock. Eventually, wholesalers and manufacturers
hired greeters; on drummers who would meet incoming trains and ships to beat
---------------------- their competition.
---------------------- Before 1860, there were fewer than 1000 travelling salesmen, many of
whom were credit investigators who also took orders for goods. By 1870, there
---------------------- were 7000; by 1880, 28000; and by 1900, 93000 travelling salesmen.
---------------------- Modern selling and sales management techniques were refined by
John Henry Patterson (1844-1922), widely regarded as the father of modern
----------------------
salesmanship. Patterson showed the other companies the way to turn a sales
---------------------- force into an effective tool for building sales and profits.
----------------------
2.2 MEANING OF PERSONAL SELLING
----------------------
Personal selling refers to the presentation of goods and services before
----------------------
the customers and convincing or persuading them to buy the products or
services. Personal selling is a promotional method in which one party (e.g., ----------------------
salesperson) uses skills and techniques for building personal relationships
with another party (e.g., those involved in a purchase decision) that results in ----------------------
both parties obtaining value. In most cases, the “value” for the salesperson is
----------------------
realised through the financial rewards of the sale while the customer’s “value”
is realised from the benefits obtained by consuming the product. However, ----------------------
getting a customer to purchase a product is not always the objective of
personal selling. For instance, selling may be used for the purpose of simply ----------------------
delivering information.
----------------------
As selling involves personal contact, this promotional method often
occurs through face-to-face meetings or via a telephone conversation, though ----------------------
newer technologies allow contact to take place over the Internet including using
----------------------
video conferencing or text messaging (e.g., online chat).
----------------------
2.3 NATURE OF PERSONAL SELLING
----------------------
The nature of Personal Selling gives marketers
----------------------
●● the greatest freedom to adjust a message to satisfy customers’informational
needs ----------------------
●● most precision, enabling marketers to focus on most promising leads vs. ----------------------
advertising, publicity and sales promotion
----------------------
●● give more information
----------------------
●● two way flow of information, interactivity.
●● to discover the strengths and weaknesses of new products and pass this ----------------------
information to the marketing department. ----------------------
●● highest cost. Businesses spend more on personal selling than on any other
form of promotional mix. ----------------------
Personal Selling 21
Notes ●● goals range from (a) finding prospects (b) convincing prospects
to buy and (c) keeping customers satisfied-help them pass the word
---------------------- along.
----------------------
As we noted above, worldwide millions of people have careers that fit
in the personal selling category. However, the actual functions carried out by ----------------------
someone in sales may be quite different. Below we discuss the four major
types of selling roles: order getters, order takers, order influencers, and sales ----------------------
Personal Selling 23
Notes support. It should be noted that these roles are not mutually exclusive and that a
salesperson can perform more than one and possibly all activities.
----------------------
Order getters
---------------------- The role most synonymous with selling is a position in which the
---------------------- salesperson is actively engaged in using their skills to obtain orders from
customers. Such roles can be further divided into:
---------------------- ●● New Business Development: A highly challenging yet potentially
---------------------- lucrative sales position is one where the main objective is to find new
customers. Sales jobs in this category are often in fields that are very
---------------------- competitive, but offer high rewards for those that are successful. The key
distinguishing factor of these positions is that once a sale is made new
---------------------- business salespeople pass customers on to others in their organisation
---------------------- who handle account maintenance. These positions include:
●● Business Equipment Sales: These salespeople are often found
----------------------
in industries where a company’s main profits come from the sale of
---------------------- supplies and services that come after an initial equipment purchase.
The key objective of business equipped salespeople is to get buyers to
---------------------- purchase the main piece of equipment for which supplies and service
are needed in order, for the equipment to function. For instance, in the
----------------------
photocopier industry certain salespeople only seek out new accounts
---------------------- and once a photocopier sale is made they pass along the account to
other sales personnel who handle the sales of maintenance and supply
---------------------- products.
---------------------- ●● Telemarketing: This category includes product sales over the phone,
whether aimed at business or consumer.
----------------------
●● Consumer Selling: Certain companies are very aggressive in their use
---------------------- of salespeople to build new consumer business. These include: retailers
selling certain high priced consumer products including furniture,
---------------------- electronics and clothing; housing products including real estate, security
---------------------- services, building replacement products (e.g., windows); and in-home
product sellers including those selling door-to-door and products sold
---------------------- at “home party” events such as cosmetics, kitchenware and decorative
products.
----------------------
●● Account Management: Most people engaged in sales are not only
---------------------- involved in gaining the initial order, but work to build and maintain
relationships with clients that are intended to last a long time.
----------------------
Salespeople involved in account management are found across a broad
---------------------- range of industries. Their responsibilities involve all aspects of building
customer relationships from initial sale to follow-up account servicing.
---------------------- These include:
---------------------- i) Business-to-Business Selling: These salespeople sell products
for business use with an emphasis on follow-up sales. In many
---------------------- cases, business-to-business salespeople have many different items
ii) Trade Selling: Sales professionals working for consumer product ----------------------
companies normally do not sell to the final user (i.e., consumer).
----------------------
Instead their role is focused on first getting distributors, such
wholesalers and retailers, to handle their products and once ----------------------
this is accomplished, helping distributors sell their product by
offering ideas for product advertising, in-store display and sales ----------------------
promotions.
----------------------
Order Influencers
----------------------
Some salespeople are not engaged in direct selling activities at all. That
is, they do not sell directly to the person who is the ultimate purchaser for ----------------------
their product. Instead these salespeople concentrate on selling activity that
targets those who influence purchases made by the final customer. The primary ----------------------
example of an order influencer is the missionary salesperson:
----------------------
●● Missionary: These salespeople are used in industries where customers
make purchases based on the advice or requirements of others. ----------------------
Two industries in which missionary selling is commonly found are ----------------------
pharmaceuticals, where salespeople, known as product detailers, discuss
products with doctors (influencers) who then write prescriptions for their ----------------------
patients (final customer) and higher education, where salespeople call on
college professors (influencers) who make requirements to students (final ----------------------
customer) for specific textbooks. ----------------------
Order Takers
----------------------
Selling does not always require a salesperson use methods designed to
encourage customers to make a purchase. In fact, the greatest number of people ----------------------
engaged in selling are not order getters, rather they are considered order takers.
In this role, salespeople primarily assist customers with a purchase in ways that ----------------------
are much less assertive than order getters. As might be expected, compensation ----------------------
for order takers is generally lower than that of order getters. Among those
serving an order taker role are: ----------------------
●● Retail Clerks: While some retail salespeople are involved in new business ----------------------
selling, the vast majority of retail employees handle order taking tasks,
which range from directing customers to products to handling customer ----------------------
checkout.
----------------------
●● Industrial Distributor Clerks: Industrial purchase situations, such as
distributors of building products, will also have clerks to handle customer ----------------------
purchases.
----------------------
●● Customer Service: Order taking is also handled in non face-to-face
ways through customer service personnel. Usually this occurs via phone ----------------------
Personal Selling 25
Notes conversations, though newer technologies now allow for these tasks to be
handled through electronic means such as online chat.
----------------------
Sales Support
---------------------- A final group involved in selling mostly assist with the selling activities
---------------------- of other sales professionals. These include:
Technical Specialists: When dealing with the sale of technical products,
----------------------
particularly in business markets, salespeople may need to draw on the expertise
---------------------- of others to assist with the process. This is particularly the case when the buying
party consists of a buying center. In Part 4: Business Buying Behaviour, we
---------------------- indicated that in business selling many people from different functional areas
may be involved in the purchase decision. If this buying center includes technical
----------------------
people, such as scientists and engineers, a salesperson.
---------------------- Office Support: Salespeople also may receive assistance from their
---------------------- company’s office staff in the form of creating promotional materials, setting up
sales appointments, finding sales leads, arranging meeting space or organizing
---------------------- trade shows exhibits.
----------------------
Check your Progress 3
----------------------
---------------------- Activity 1
----------------------
Mention few products in which the following types of personal selling takes
---------------------- place: a) Missionary Selling b) Trade Selling c) Consumer Selling.
----------------------
----------------------
2.7 PERSONAL SELLING PROCESS
---------------------- Personal selling has been defined as ‘that method of selling in which the
influence is exerted directly by the salesperson.
----------------------
Professional selling requires sales representatives to develop an efficient,
---------------------- systematic approach adaptable to the particular customer type and selling
situation.
----------------------
Seven major stages have been identified in the personal selling process:
----------------------
●● Prospecting
---------------------- ●● Pre-approach
---------------------- ●● Approaching the prospect
Personal Selling 27
Notes When the lead qualifies on all four criteria – need, ability, authority and
eligibility to buy – it can be declared a prospect.
----------------------
Now, we discuss the approaches to locate the prospects. There are as
---------------------- follows:
Major Prospecting Methods
----------------------
i) Centers of Influence: By joining country clubs, civic organisations,
---------------------- professional association, fraternal aides – and such other groups,
salespeople have the opportunity to meet influential people who may
----------------------
become customers or who can assist the sales representative in meeting
---------------------- potential customers.
---------------------- ii) Spatters: Sales associates or ‘spatters’ are people who seek out leads for
sales people and are sometimes paid a fee. The best spatters are current
---------------------- customers who provide referrals to potential prospects. Anyone who deals
with the public can be a spatter.
----------------------
iii) Endless Chain: Current customers and especially new buyers have a
---------------------- vested interest in praising your product because they want to alleviate
their own anxiety by justifying their purchases. They are even willing to
---------------------- provide testimonial letters as satisfied customers. By using these referrals,
---------------------- the sales representatives can develop an endless chain of leads. If the
satisfaction is not received by the customers the chain will break.
---------------------- iv) Observation: Organized observer like leading local newspapers can
---------------------- provide the sales persons with many leads. A change in peoples needs and
wants etc. are available here hence enabling the salespeople to seek leads.
----------------------
v) Advertising: Many sales organisation do not adequately follow up on
---------------------- direct telephone or letter enquiry from people who come across the
company’s advertisement in papers, the yellow pages, direct-mail and
---------------------- trade-magazine, popular magazines, bulletin boards, televisions, radios.
---------------------- Hence, all companies need a systematic response procedure for follow-up
on all inquiries because they are interested people: ‘hot prospects’.
----------------------
Cold Consulting: Cold consulting includes securing appointments and
---------------------- then calling them, can be fruitful as people who agree to give time are interested
and can qualify as prospects. Cold canvassing can be a very productive method
---------------------- of prospecting.
---------------------- 2. The Pre-approach
One way to help ensure a favourable initial reception is to ask your ----------------------
company’s top executive to set up an appointment with the prospect company’s
top executive so that the key members of the seller team can meet the buyer ----------------------
team’s key members. ----------------------
The other way can be by first sending a useful sales promotion gift along
with a personal letter and brochure providing basic product information in ----------------------
advance. ----------------------
After the appointments are fixed, the sales person must plan the sales call
----------------------
route so as to minimize travelling time and expenses.
3. Approaching the Prospect ----------------------
Depending upon the selling situation, there are several methods that can ----------------------
be used to approach the prospect. A buyer’s reaction to the sales person in the
initial minutes of the approach is critical to successful sales. This short time ----------------------
period is so important that it is treated as an individual step in the selling process ----------------------
and referred to as the approach.
The approach may differ from person to person, customer to customer, ----------------------
situation to situation or even product to product. ----------------------
The various types of approaches used are discussed here further :
----------------------
i) Introductory Approach: Salespeople never get a second chance to
make the first impression, so they should make sure their introduction is ----------------------
well thought out and smoothly executed. A friendly greeting, sincere but
----------------------
firm handshake and a genuine smile at the very outset creates a positive
reception. During the introduction, the sales representatives must identify ----------------------
themselves by company and also a business card should be presented to
give official and residential address. ----------------------
ii) Reference Approach: Mentioning the names of several satisfied ----------------------
Personal Selling 29
Notes customers who are respected by the prospect can be a compelling
approach, testimonial letters from satisfied customers can be a valuable
---------------------- asset in selling such products/services that involve high investment, a
social risk. But be sure to contact the referred person beforehand.
----------------------
iii) Customer – Benefit Approach: Prospects, always seek to solve problems
---------------------- or obtain benefits through their purchases and generally they have one
predominant buying motive which the salesperson has to identify and
----------------------
then appeal to it.
---------------------- iv) Compliment Approach: A sincerely delivered compliment when subtly
---------------------- conveyed can be a positive approach and also sets a pleasant atmosphere
for the interview. Many prospects are anxious for a positive feedback or
---------------------- phase.
---------------------- Be careful not to indulge in flattery but deliver the compliment indirectly.
---------------------- v) Free gift Approach: For door to door salespeople, a sample of their
product or a small free incentive often helps them for a fair entry into the
---------------------- prospects’ home and for professional salespeople, a free seminar, a free
trial etc. can fetch them dividends. But legal and ethical guidance’s must
---------------------- not be violated in using this approach.
---------------------- vi) Question Approach: Questions that necessitate thoughtful considerations
by the prospects are often used in this approach. Asking questions involves
----------------------
the prospect in a two way communication since the responses are required.
---------------------- Such questions should evoke a thought process in the prospect which will
encourage both information and questions from the buyers thus making
---------------------- the sale quicker.
---------------------- vii) Ingredient Approach: Some salespeople like to carry a sample of their
product or at least a graphic mock-up when, first approaching prospects.
---------------------- This allows prospects to see exactly what the sales person is selling and
---------------------- permits smooth transition into the sales presentation.
viii) Dramatic Approach : Should the other approaches fail, the sales person
----------------------
can turn to a dramatic or attention getting gimmick.
---------------------- The danger here is that sometimes the prospect may dislike such blatant
---------------------- showmanship and become defensive. Only when sure that the prospect will
be receptive to it, should the salesperson resort to such gimmicks. Do not
---------------------- overdo it.
---------------------- Each prospect will project a different personality, but sales people can
usually classify prospects into one of the several basic categories, which aids in
---------------------- developing an appropriate selling strategy.
---------------------- Various communication tools can aid the sale representative in the sales
presentation by bringing into play more dramatically all the prospects senses:
---------------------- Right hearing, touch, smell, taste, etc.
ii) Formula: While permitting more prospect focus and participation, ----------------------
formula strategies still tend to emphasise product features rather than
customer needs. Here we have AIDA Principle– Attention, Interest, ----------------------
Desire and Action. ----------------------
iii) Problem Solution: While applying this strategy, the salesperson makes
----------------------
full use of his or her professional consultative selling abilities. This
approach is typically used with more technical selling, in which several ----------------------
solution or alternatives are used with explanation while a long run
relationship of trust, confidence and respect is developed. ----------------------
iv) Need Satisfaction: These strategies call for no talk about the product/ ----------------------
services until the sales representative has discovered what dominant
needs or wants the prospects have. Skillful questioning on part of the ----------------------
sales person reveals these. The prospect’s interests, opinions, personality,
----------------------
attitudes etc. enable the sales person to estimate the needs of the prospect.
This requires the sales person to be a patient, perceptive listener and ----------------------
observer of body language.
----------------------
v) Team Selling: As organization grows larger, buying becomes more
centralised and buying committees or centers are formed. The salesperson ----------------------
then acts on the coordination and contact person for the buyer team
which may consist of technical specialists in various fields. When the ----------------------
sales representative is dealing with a group of people influential in the
----------------------
purchasing process, team selling becomes necessary.
The sales team must be prepared to identify the dominant buying motives ----------------------
of each member of the group in one-on-one sale negotiations. ----------------------
Personal Selling 31
Notes vi) Depth Selling: In the depth selling strategy all the previously discussed
strategies are applied. Depth selling in a strategic mix of sales presentation;
---------------------- AIDA, need satisfaction and stimulus response. All these strategies may
have to be resorted in depth selling one after another or even at once.
----------------------
So, the effective use of this strategy requires a very bright and perceptive
---------------------- sales person.
----------------------
Check your Progress 4
----------------------
Possibly the most dramatic change to occur is as to how the salespeople ----------------------
function on a day-to-day basis. It involves the integration of customer
----------------------
relationship management (CRM) systems into the selling arena. CRM is the
name given to both the technology and the philosophy that drives companies to ----------------------
gain a better understanding of their customers with the goal of building stronger
long-term relationships. The essential requirement for an effective CRM system ----------------------
is the need for all customer contact points (e.g., salespeople, customer service,
----------------------
and websites) to gather information so that this can be shared with others in the
company. ----------------------
Personal Selling 33
Notes But CRM has faced some rough times within the sales force for the exact
reason of its importance. Salespeople must share their information. Salespeople
---------------------- have historically been very good at developing relationships and learning
about customers, but often loath sharing this since, in effect, information is
---------------------- what makes them important. In the minds of some salespeople, letting go of
---------------------- the information reduces their importance to the company. For example, some
salespeople feel that sharing all they know about a customer will make them
---------------------- expendable as a salesperson since a company can simply insert someone new
into their spot at anytime.
----------------------
While the attitude towards CRM has made its implementation difficult
---------------------- in many companies, salespeople should understand that it is not fading away.
CRM and information sharing has proven to be critical for maintaining strong
---------------------- customer relations and salespeople must learn to adapt to it.
---------------------- Electronic Sales Presentations
---------------------- Technology is also playing a major role in how sales professionals reach
prospects and existing customers. While audio/video conferencing has been
---------------------- available for many years using high-end telecommunication hookups, it has
only been within the last few years that improvements in Internet access speeds,
---------------------- computing power and meeting software have made this method for reaching
---------------------- customers a practical alternative to face-to-face sales meetings. These options
include:
---------------------- ●● Online Video Conferencing: Online conferencing essentially acts in
---------------------- the same way as telecommunications videoconferencing, with one big
exception; it is delivered over the Internet. Anyone who has an Internet
---------------------- connection knows that trying to deliver video over the Internet can be a
trying experience as video often appears to be slow, jittery and sometimes
---------------------- not even recognizable. But these problems are quickly disappearing and
---------------------- while real time Internet video conferencing (i.e., television quality video
and audio) is still not routinely accessible to most salespeople, this is
---------------------- expected to change.
---------------------- ●● Web/Phone Conferencing: To offset the problems associated with
Internet delivery of real time audio and video, many companies deliver
---------------------- sales presentations using a combination of web and telecommunications.
The most widely used services use the Internet, to deliver visual material
---------------------- (typically a slide presentation) and telecommunications, to allow for voice
---------------------- conversation. The process has a salesperson arrange for a conferencing
time with a prospect who enters the conference by: 1) using their web
---------------------- browser to gain access to the visual presentation and 2) using their
telephone to call into an audio conference. Splitting the visual and audio
---------------------- feeds allows for smoother presentations since the conference participants’
---------------------- computers need only process the visual material. It should be noted, that
while audio access is now being carried out over telephone connections,
---------------------- the emergence of telephone over the Internet (i.e., VOIP - Voice Over
Internet Protocol) may soon help resolve some of the problems that have
---------------------- been encountered when delivering both.
Personal Selling 35
Notes access company material to respond to questions such as how long it may take
to receive product if an order is placed.
----------------------
Additionally, there is a growing trend to make key business applications
---------------------- available through a browser rather than having programs loaded on a
salesperson’s computer. This allows for the application to be accessed from
---------------------- anywhere at anytime. For example, many companies have moved to web-based
CRM systems where simply having Internet access allows salespeople to enter
----------------------
and retrieve information. Also, many new office productivity applications, such
---------------------- as word processing and spreadsheets, are now becoming web-accessible.
New generation cell phones or smart phones along with other handheld
----------------------
devices, such as personal digital assistants (PDA), lighten the burden of carrying
---------------------- laptop computers. But because these handheld devices are web-enabled they
provide access to much of the same information as a standard computer. While
---------------------- the computing power of handheld devices is still underpowered compared to
conventional computers, the move to web-based computing may some day make
----------------------
the handheld the main instrument for inputting and outputting information.
---------------------- Use of Customer Sales Teams
---------------------- As we noted in our discussion of technical specialists, salespeople may
require the assistance of others in their organization to effectively deal with
---------------------- prospects. In fact, many companies are moving away from the traditional sale
---------------------- force arrangement, where a single salesperson handles nearly all communication
with an account, in favour of a team approach where multiple people are
---------------------- involved.
Keywords ----------------------
Personal Selling 37
Notes 4. Discuss the trends in personal selling.
5. Discuss various methods used in approaching the prospects.
----------------------
---------------------- 1. True
Check your Progress 3
----------------------
Fill in the blanks.
----------------------
1. Telemarketing category includes product sales over the phone, whether
---------------------- aimed at business or consumer.
Check your Progress 4
----------------------
State True or False.
----------------------
1. True
----------------------
2. True
---------------------- Check your Progress 5
---------------------- Fill in the blanks.
----------------------
----------------------
3
Structure:
3.1 Introduction
3.2 Sales Representative
3.3 Changing Role of Field Sales Manager
3.4 Sales Manager – Responsibilities
3.5 Sales Management Competencies
3.6 Time Management of Sales Executives
3.7 The Sales Hierarchy Pyramid
3.8 The Sales Career Path
3.9 Sales Managers’ Relations with other Departments
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
----------------------
3.1 INTRODUCTION
----------------------
A sales function is a revenue generating function for an organisation.
----------------------
Though it is one of the elements of marking mix, still it occupies a critical
---------------------- position in the organisation. Therefore, the sales function or the sales personnel
should live up to this reality and keep themselves fighting fit. Only such
---------------------- organisations or sales personnel would survive who have customers as their
---------------------- focus point. Salespeople need to get a deeper understanding of the customers
long-term needs and the overall business climate. As a result due to changing long
---------------------- term needs of the customers and constantly evolving marketing environment it
is the affectivity of the sales personnel that can keep the customers in the fold
---------------------- and generate revenues for the organisation.
---------------------- In today’s world, selling has become an exclusive club of highly skilled
---------------------- professionals where product knowledge and time management skills are the
basic requirements. Shedding the traditional selling practices, the sales people
---------------------- should develop the ability to think from the customer’s point of view and
understanding the customer’s agenda, buying cycle and best interests. This can
---------------------- be achieved by the exceptional salesperson who is busy defining the “basic
---------------------- skills of tomorrow”.
Ongoing research demonstrates that to day’s ‘average’ salesperson
----------------------
is just as effective as the high performer in explaining features and benefits
---------------------- effectively, relating a service or product to customer needs and closing a sale.
What is essential is the exceptional salesperson is busy defining the “basic skills
---------------------- of tomorrow”. Building an up-to-date foundation in sales competence does
mean sacrificing some old notions of what it takes to succeed in a competitive
----------------------
marketplace. For example, a salesperson can no longer just “win by knowing”.
---------------------- Every company needs to test their assumptions about what skills really contribute
to sales success.
----------------------
----------------------
In a process that can take several months, sales representatives present ----------------------
their product to a customer and negotiate the sale. Aided by a laptop computer
connected to the Internet, or other telecommunications device, they can make ----------------------
a persuasive audiovisual sales pitch and often can answer technical and non ----------------------
technical questions immediately.
----------------------
Frequently, sales representatives who lack technical expertise work as
a team with a technical expert. In this arrangement, the technical expert— ----------------------
sometimes a sales engineer attends the sales presentation to explain the
product and answer questions or concerns. The sales representative makes the ----------------------
preliminary contact with customers, introduces the company’s product, and ----------------------
closes the sale. The representative is then able to spend more time maintaining
and soliciting accounts and less time acquiring technical knowledge. After the ----------------------
sale, representatives may make follow-up visits to ensure that the equipment is
functioning properly and may even help train customers’ employees to operate ----------------------
---------------------- The background needed for sales jobs varies by product line and market.
Many employers hire individuals with previous sales experience who lack a
---------------------- college degree, but they increasingly prefer or require a bachelor’s degree because
job requirements have become more technical and analytical. Nevertheless, for
---------------------- some consumer products, factors such as sales ability, personality, and familiarity
---------------------- with brands are more important than the educational background. On the other
hand, firms selling complex, technical products may require a technical degree
---------------------- in addition to some sales experience. Many sales representatives attend seminars
in sales techniques or take courses in marketing, economics, communication,
---------------------- or even a foreign language to provide the extra edge needed to make sales. In
---------------------- general, companies are looking for the best and brightest individuals who have
the personality and desire to sell. Sales representatives need to be familiar with
---------------------- computer technology as computers are increasingly used in the workplace to
place and track orders and to monitor inventory levels.
----------------------
Sales representatives stay abreast of new products and the changing
---------------------- needs of their customers in a variety of ways. They attend trade shows at which
---------------------- new products and technologies are showcased. They also attend conferences
and conventions to meet other sales representatives and clients and discuss
---------------------- new product developments. In addition, the entire sales force may participate
in company-sponsored meetings to review sales performance, product
---------------------- development, sales goals, and profitability.
1. plan allocation of their personal time and other available resources to ----------------------
optimize performance against the expectations (frequently conflicting) of
----------------------
their employer, their customers and their suppliers.
2. gather information from customers, suppliers and their own employer in ----------------------
areas of needs and requirements. Needs would include organisation, job ----------------------
and personal needs within all three groups.
----------------------
3. gather information continuously on threats and opportunities as well
as emerging trends within their industry from sources outside their ----------------------
customers, suppliers and their own companies.
----------------------
4. analyse information from their three constituencies and outside sources to
formulate and develop solutions that increase economic value. ----------------------
6. keep their employer informed with respect to activities, results, and work ----------------------
in process, threats and opportunities.
----------------------
7. support the ongoing transaction management activity including
pre-sell activity, transaction activity and post-sell activity. As distribution ----------------------
companies evolve, the role of field sales in this activity shifts from primary ----------------------
to supportive.
----------------------
8. ensure that they maintain an ongoing training and development activity to
increase their knowledge and professional effectiveness. ----------------------
----------------------
Check your Progress 1
----------------------
Fill in the blanks.
----------------------
1. Frequently, sales representatives who lack _________ work as a team
with a technical expert. ----------------------
----------------------
---------------------- Help sales management in estimating future sales and setting sales quotas
in the sales representative’s assigned territory.
----------------------
3. Opportunity Managers
---------------------- They are sensitive to unsatisfied or even unrecognized customer needs and
---------------------- potential problems calling for new products, new markets or innovative
marketing mixes.
----------------------
4. Ongoing study of consumer buying behaviour
---------------------- They are aware of customer decision making processes and the motivations
---------------------- that influence the buyer to buy.
5. Intelligence gatherers
----------------------
They are alert and conscious about providing feedback from the field to
---------------------- headquarters marketing for strategic planning purposes.
---------------------- 6. Team Coordinators
---------------------- They effectively utilise their core specialty skills in market research,
engineering, finance, operations and customer services to solve customer
---------------------- problems.
---------------------- 7. Marketing Cost Analysts
---------------------- They are aware of the differential costs associated with selling separate
products to different customers and territories so that they can concentrate
---------------------- on profitable sales – not merely on sales volume.
----------------------
3.4 SALES MANAGER – RESPONSIBILITIES ----------------------
1. Sales Planning ----------------------
Planning is the core to the sales management function. It provides tactical
----------------------
and long term (Strategic direction). Sales planning at the top management-
CEO level have long term perspective-strategic in nature. Whereas the ----------------------
planning at the GM (sales) or Sales Managers level is more tactical that
is short term, say one year. Planning at the operational level that is at the ----------------------
Regional Manager, Zonal/Managers tends to be on monthly or weekly
----------------------
basis depending on the position in the hierarchy.
2. Budgeting ----------------------
Preparation of sales and associated budgets is core to the entire functioning ----------------------
---------------------- The sales function and therefore the sales team is the revenue generating
agency for the organisation. Therefore, success and growth of the
---------------------- organisation depends on the right people manning the sales function.
Hence, one of the most important functions of the sales manager is to
---------------------- recruit and select the right people for the right job. He needs to establish a
---------------------- set of required qualifications before beginning to recruit. He must prepare
a job description that lists specific tasks the salesperson should perform
---------------------- and analyse traits of the successful salespeople within the organisation. He
may use assessment centers for intense training environment that places
---------------------- candidates in realistic problem settings in which they give priorities to
---------------------- their activities, make and act on decisions. Recruitment should be a
continual activity aimed at reaching the best applicants.
----------------------
5. Training the Sales Force
----------------------
Sales is a very dynamic function. Sales personnel need to be highly
---------------------- flexible and adaptive to the ever changing market conditions. The changes
in the market place bring in very fast obsolescence. Therefore, it is very
---------------------- essential on the part of the sales personnel to observe, assimilate, learn
---------------------- and upgrade the selling skills. This calls for training and retraining on a
continuous basis. It is the responsibility of the sales manager to identify
---------------------- the training needs, identify the sales personnel who need the training,
design the training programs, identify the trainer etc. The sales personnel
---------------------- need to be trained in various areas like:
---------------------- • Product knowledge
---------------------- • Knowledge of the organisation
---------------------- • Knowledge of the competitors
---------------------- Activity 1
----------------------
List some of the qualities of a sales representative he/she should have.
----------------------
• maintains good rapport with the sales team and fosters open ----------------------
communications, collaboration, creativity, initiative, and
----------------------
appropriate risk taking
• adds value through communicating relevant selling ----------------------
experiences ----------------------
• helps salespeople to “look good” through two-way
communications. ----------------------
---------------------- • perceives clear personal and career goals and knows his/her
own values, feelings, and areas of strengths and weaknesses
----------------------
• analyses and learns from work and life experiences
----------------------
• unlearns/relearns continually as changed situations call for
---------------------- new skills and perspectives.
----------------------
3.6 TIME MANAGEMENT OF SALES EXECUTIVES
----------------------
Top Managers
----------------------
The role of the top management is strategic in nature. Participants in the
strategic planning process are CEO, Managing Directors, Functional Director, ----------------------
Presidents and Vice Presidents, General Manager, Sales Manager. At this ----------------------
level they focus on the company mission, goals and objectives. Therefore
much of the time at this level is spent on planning; followed by controlling ----------------------
and leading.
----------------------
Middle Managers
----------------------
At this level which is tactical in nature much emphasis is on formulating
strategies for achieving the goals and objectives set by the top managers. In ----------------------
this category, generally the likes of Regional Sales Manager, Divisional Sales
----------------------
Manager, Zonal Sales manager are placed. At this level the time spent at the
top is on leading, followed by planning and then by controlling, staffing and ----------------------
training 10% each of the executive time.
----------------------
First Line Managers
----------------------
At this level which is operational, the emphasis is more on implementation
of strategies formulated by top managers which calls for effective leading ----------------------
and staffing of competent sales people at the regional level. In this category
generally the likes of Area Sales Manager, Zonal Sales Managers are placed. ----------------------
Here the time spent is 25% each on training and leading, 15% each on planning ----------------------
and controlling and staffing takes 20% of the executive time.
----------------------
Top Planning Training Leading Controlling
Managers 35% 20% 5% 30% 20% ----------------------
----------------------
Fig. 3.1: Time Management of Sales Executives
----------------------
----------------------
----------------------
Fig. 3.2: The Sales Hierarchy Pyramid
---------------------- It can be seen that at the bottom of the pyramid are the non-managerial
---------------------- sales people, those who work in the administrative jobs, sales trainees and key
accounts of the company. At the first level are the first line sales managers who
---------------------- are designated as District Sales Managers, Area Managers. At the second or the
Middle level are Regional Sales Managers and Zonal Sales Managers. At the
---------------------- top level are National Sales Manager, Vice President of Marketing and Sales,
---------------------- President, Marketing and Sales and at the top is the Chief Executive Officer of
the organisation.
----------------------
3.8 THE SALES CAREER PATH
----------------------
President
----------------------
Vice President of Marketing
----------------------
National Sales Manager
----------------------
Zone Sales Manager
Salesperson
----------------------
Sales Trainee
----------------------
Fig. 3.3: The Sales Career Path
----------------------
Sales are a great way to start a career. It is important to understand how
---------------------- someone moves into the position of sales manager and what the opportunities
2. Manufacturing ----------------------
Manufacturing people are responsible for the smooth running of the ----------------------
----------------------
Summary
----------------------
●● The role of the sales representative is changing due to change in the
----------------------
environment. From purely selling he is now carrying out more of marketing
functions therefore he can be called a sales and marketing representative. ----------------------
A sales executive on the other hand is carrying out different roles like
market analyst and planner, sales forecaster, opportunity manager, ----------------------
on-going study of consumer buying behaviour, intelligence gatherer, team
----------------------
coordinator, establishing long term relationships and consultative selling.
●● The sales manager in order to cope up with the changing marketing ----------------------
environment needs to be a catalyst and hence has to have expertise in various
----------------------
skills like technology, developing self awareness and management skills,
global perspective, team building etc. He needs to excellent relationship ----------------------
with other departments in the organisation so as to keep the sales function
going on smoothly. ----------------------
----------------------
Keywords
----------------------
●● Front Line Managers: The first level of managers having direct
interaction with the field force and customers. ----------------------
●● Catalyst: A change agent. ----------------------
●● Sales Force Automation: Equipping the sales force with various selling
tools like lap top, various softwares like call reporting software, order ----------------------
tracking software etc. ----------------------
●● Sales Management Competencies: Sales management skills.
----------------------
---------------------- 1. False
----------------------
Suggested Reading
----------------------
1. Bowersox, Logistical Management: The Integrated Supply Chain Process.
---------------------- 2. Calvin, Robert J. Sales Management.
---------------------- 3. Chopra, Supply Chain Management.
---------------------- 4. Ghoshal, World Class in India. Penguin India.
---------------------- 5. Lamba, A.J. The Art of Retailing.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
4
Structure:
4.1 Introduction
4.2 Definitions of Planning
4.3 Meaning of Sales Planning
4.4 Characteristics of Sales Planning
4.5 Advantages of Planning
4.6 Levels of Planning
4.7 Sales Planning Process
4.8 Management by Objectives (MBO)
4.9 Sales Budgets
4.10 Sales Forecast
4.11 Factors in Sales Forecasting
4.12 Basic Concepts in Sales Forecasting
4.13 Sales Forecasting Approaches
4.14 Non-Quantitative Forecasting Techniques
4.15 Quantitative Forecasting Techniques
4.16 Evaluating Quantitative and Qualitative Techniques
4.17 Personal Computers and Sales Forecasting
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
----------------------
4.1 INTRODUCTION
----------------------
Planning is the basic function of the management with it starts the other
---------------------- functions of management.
---------------------- So long planning does not determine the objectives and the methods of
achieving these objectives, the other functions like organising, staffing, directing,
---------------------- controlling etc. cannot be performed effectively. Plan is a fundamental course
of action to achieve specified objectives. It is based on reliable information and
----------------------
it is not merely guesswork.
---------------------- Planning is deciding in advance about what is to be done, how it is to be
done, when it is to be done and by whom it is to be done. Deciding about all
----------------------
these things is called planning. Planning involves the selection of objectives,
---------------------- policies, procedures and programs to achieve the desired results. Planning is an
intellectual process which means thinking before doing. Planning is the primary
---------------------- function of the management and all other functions depend on it. A planner
should have far sightedness, imaginative skills and decision making capacity.
----------------------
Planning clarifies the objectives of the organisations and coordinates different
---------------------- activities. It helps to achieve economy in operation and helps to exercise control.
---------------------- Every single function in the organisation revolves around the sales plan.
Once the sales plan process is initiated all the other functions in the organisation
---------------------- like distribution, purchase, finance, HR etc. start initiating actions in their
departments to fulfill the sales volume requirement as indicated in the sales
---------------------- plan. These functions are depending solely on the sales plan and therefore
---------------------- inaccurate sales forecast will have an impact on these functions adversely.
Requirement of raw material, personnel, Investment in plant and machinery,
62 Sales and Distribution Management
making available the finances, training of personnel need to be planned which Notes
are solely dependent on the sales volumes as indicated in the sales plan. In case
the sales are projected on the lower side leading to more demand which will call ----------------------
for arranging all the materials on emergent basis leading to uncertain situation
in suppliers, loss due to higher prices of inputs procured in emergencies and ----------------------
ultimately loss of sale. In case the sales are projected on higher side, it will ----------------------
lead to production on the higher side leading to blockage of valuable inventory
attracting inventory carrying costs resulting in loss to the organisation. ----------------------
Since the marketing environment is dynamic and ever changing, there is ----------------------
a need for having flexibility in planning and budgeting. Planning and budgeting
should develop alternative courses of action, flexible budget figures and should ----------------------
be reviewed continuously in order to see that the sales volumes forecasted are
----------------------
met. It is therefore necessary to provided for tolerance in the sales forecasts.
Sales forecasting is the central part of the strategic planning process ----------------------
because the sales forecast becomes the key for all company planning, budgeting
----------------------
and operational decision making. A sales forecast is the starting point for sales
and marketing planning, production scheduling, cash-flow projections, financial ----------------------
planning, capital investment, procurement, inventory management, human
resource planning and budgeting. For example, before a production schedule ----------------------
can be developed, the company must know how much it expects to sell in the
----------------------
coming period. This production schedule, in turn, determines the material and
labour inputs as well as the product outputs for the period. The purchasing ----------------------
department must time purchase of supplies and materials according to sales
forecasts. If the forecast is too high, the result may be a large inventory of ----------------------
unsold goods, plant shutdowns, layoffs and deteriorating raw materials. On the
----------------------
other hand, too low a sales forecast can mean lost sales or even permanently
lost customers. Sales Managers must know how many new sales people to ----------------------
hire and what their operating budget will be. Reliable and valid forecasting
methods, improves the efficiency and effectiveness of the manager’s resource ----------------------
– allocation decisions.
----------------------
“Planning is deciding in advance what to do, how to do, when to do it, ----------------------
and who is to do it”.
----------------------
- Koontz and O Donnel
----------------------
“Planning is deciding in advance what is to be done”.
- Helmann ----------------------
“Planning is deciding in advance what is to be done. It involves the ----------------------
selection of objectives, policies, procedures and programs from among various
alternatives”. ----------------------
- M.E. Harley ----------------------
----------------------
Check your Progress 1
----------------------
----------------------
4.4 CHARACTERISTICS OF SALES PLANNING
----------------------
●● A sale planning is an intellectual activity. In sales planning questions like
---------------------- what, when, how and by whom are to be done etc. are answered.
---------------------- ●● A sale planning is the primary function of the sales management.
●● Sales plans are prepared keeping in view the present and expected changes ----------------------
in marketing plans and marketing environment.
----------------------
●● A sale planning is an important managerial function and it gives direction
----------------------
to various selling activities.
----------------------
●● It is a continuous process.
●● A sale planning is flexible and it requires necessary adjustments in ----------------------
response to changes in marketing environment. ----------------------
●● It affects the plans of production department, purchase department, ----------------------
finance department, personal department etc.
----------------------
●● A sale planning leads to efficiency and economy in various selling
activities and thus helps the organisation in utilizing its resource in the ----------------------
most effective manner.
----------------------
4.5 ADVANTAGES OF PLANNING ----------------------
●● When the whole sales organisation gets involved and participates as a ----------------------
team, the morals of its members can be improved.
----------------------
●● The efforts of the organisation are focused towards its goals and directed
accordingly to achieve them. ----------------------
●● The efforts of the sales force can be coordinated.
----------------------
●● The individual and collective standards, which help to evaluate the
performance, may be developed which helps in identifying deviations ----------------------
and take corrective action. ----------------------
●● Planning often results in economies of operations because time can be
taken to evaluate the alternatives and the most effective alternative can be ----------------------
identified for implementation. ----------------------
●● Careful planning is likely to reduce the potential for crisis and mistakes.
----------------------
●● Indirect benefits of sales planning may be as follows:
----------------------
a) Proper inventory levels can be maintained.
b) Production process may be smooth and under utilisation or over ----------------------
utilisation of plant and machinery is avoided. ----------------------
c) Procurements of raw material based on sales forecasts and planning
----------------------
can be made at the right time.
d) Customers can be served at the right time. ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Activity 1
----------------------
Competitors ----------------------
Sales forecasting is the central part of the planning process because the ----------------------
sales forecast becomes the key stone for all company planning, budgeting
and operational decision making. A sales forecast is the starting point ----------------------
for sales and marketing planning, production scheduling, cash-flow ----------------------
projections, financial planning, capital investment, procurement,
inventory management, human resource planning and budgeting. For ----------------------
example, before a production schedule can be developed, the company
must know how much it expects to sell in the coming period. This ----------------------
production schedule, in turn, determines the material and labor inputs ----------------------
as well as the product outputs for the period. The purchasing department
must time purchase of supplies and materials according to sales forecasts. ----------------------
If the forecast is too high, the result may be a large inventory of unsold
goods, plant shutdowns, layoffs and deteriorating raw materials. On ----------------------
the other hand, too low a sales forecast can mean lost sales or even ----------------------
permanently lost customers. Sales Managers must know how many new
sales people to hire and what their operating budget will be. Reliable and ----------------------
valid forecasting methods, improves the efficiency and effectiveness of
the manager’s resource - allocation decisions. ----------------------
Forecasts should be flexible so that they can adjust to the changing ----------------------
marketing environment. To be on safer side the organisations need to
develop alternative sales and budget figures based on different assumptions/ ----------------------
market scenarios so that their forecasts can be quickly changed in the face ----------------------
sudden changes
----------------------
----------------------
Existing Markets
----------------------
Market Product
---------------------- Penetration Development
----------------------
----------------------
New Markets
---------------------- Market
Development
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Fig. 4.3 : Boston Consulting Group Growth/Share Matrix
----------------------
●● Cash cows, units with high market share in a slow-growing industry.
These units typically generate cash in excess of the amount of cash ----------------------
needed to maintain the business. They are regarded as staid and boring,
----------------------
in a “mature” market, and every corporation would be thrilled to own
---------------------- MBO relies on the defining of objectives for each employee and then
to compare and to direct their performance against the objectives which
---------------------- have been set. It aims to increase the performance of the organisation by
matching organisational goals with the objectives of subordinates throughout
---------------------- the organisation. Ideally, employees receive strong input to identify their
---------------------- objectives, time lines for completion, etc. MBO includes continuous tracking
of the processes and providing feedback to reach the objectives.
----------------------
Management by Objectives was first outlined by Peter Drucker in 1954 in
---------------------- his book ‘The Practice of Management’. According to Drucker, managers should
avoid ‘the activity trap’, getting so involved in their day to day activities that
---------------------- they forget their main purpose or objective. One of the concepts of MBO was
that instead of just a few top-managers, all managers of a firm should participate
----------------------
in the strategic planning process, in order to improve the implementability of
---------------------- the plan.
---------------------- Supervisor
----------------------
Jointly Plan Individually act Jointly control
Set objectives Perform task Review results
---------------------- and Set Standards (subordinate) Discuss implementa-
Choose actions Provide support tions
---------------------- (Supervisor) Review MBO cycle
---------------------- Subordinate
----------------------
Capital budgets are directed towards proposed expenditures for new ----------------------
projects and often require special financing. The operating budgets are directed
towards achieving short-term operational goals of the organisation, for instance, ----------------------
production or profit goals in a business firm. Operating budgets may be ----------------------
sub-divided into various departmental or functional budgets.
----------------------
----------------------
Past sales figures and trend and the record of previous experience forms ----------------------
the most reliable guide as to future sales as the past performance is related
----------------------
to actual business conditions. However the other factors such as seasonal
fluctuations, growth of market, trade cycles etc., should not be lost sight of ----------------------
salesmen’s estimates. Salesmen are in a position to estimate the potential demand
of the customers more accurately because they come in direct contact with the ----------------------
customers. However, proper discount should be made for over-optimistic or too
----------------------
conservative estimates of the salesmen depending upon their temperament.
Plant Capacity: It should be the endeavour of the business to ensure proper ----------------------
utilisation of plant facilities and that the sale budget provides an economic and
----------------------
balanced production on the factory.
General trade prospects: The general trade prospects considerably affect ----------------------
the sales. Valuable information can be gathered in this connection from trade ----------------------
papers and magazines.
Orders on hand: In case of industries where production is quite a lengthy ----------------------
process, orders on hand also have a considerable influence in the amount of ----------------------
sales.
Seasonal fluctuations: Past experience will be the best guide in this ----------------------
respect. However, efforts should be made to minimize the effects of seasonal ----------------------
fluctuations by giving special concessions or off-season discounts thus
increasing the volume of sales. ----------------------
Potential market: Market research should be carried out for ascertaining ----------------------
the potential market, for the company’s products on the basis of expected
population growth, purchasing power of consumers and buying habits of the ----------------------
people.
----------------------
Availability of material and supply: Adequate supply of raw materials and
other supplies must be ensured before drafting the sales program. ----------------------
----------------------
----------------------
• May lead to micro management, offering less time and energy for ----------------------
the things that really matter.
----------------------
• Does it really lead to a material shift in the use of resources?
----------------------
Check your Progress 3 ----------------------
----------------------
Fill in the blanks.
1. A ____________ is a plan expressed in quantitative, usually monetary ----------------------
terms, covering a specific period of time, usually one year. ----------------------
2. A _____________ budget aim is to achieve an optimal allocation
of resources that incremental and other budgeting systems cannot ----------------------
achieve. ----------------------
----------------------
4.10 SALES FORECAST
----------------------
The sales forecast is a prediction of a business’s unit and dollars sales
for some future period of time, up to several years or more. These forecasts are ----------------------
generally based primarily on recent sales trends, competitive developments, and ----------------------
economic trends in the industry, region, and/or nation in which the organisation
conducts business. Sales forecasting is management’s primary tool for predicting ----------------------
the volume of attainable sales. Therefore, the whole budget process hinges on
an accurate, timely sales forecast. ----------------------
----------------------
4.11 FACTORS IN SALES FORECASTING
---------------------- Sales forecasts are conditional in that a company prepares the forecast
prior to developing strategic and tactical plans. The forecast of sales potential
---------------------- may cause management to adjust some of its assumptions about production
and marketing if the forecast indicates that: 1) current production capacity is
---------------------- inadequate or excessive, and 2) sales and marketing efforts need revisions.
---------------------- Management, therefore, has the opportunity to examine a series of alternate
plans that propose changes in resource commitments (such as plant capacity,
---------------------- promotional programs, and market activities), changes in prices and/or changes
in production scheduling.
82 Sales and Distribution Management
Through forecasting, the company determines markets for products, Notes
plans corporate strategy, develops sales quotas, determines the number and
allocation of salespeople, decides on distribution channels, prices products or ----------------------
services, analyses products and product potential in different markets, decides
on product features, determines profit and sales potential for different products, ----------------------
constructs advertising budgets, determines the potential benefits of sales ----------------------
promotion programs, decides on the use of various elements of the marketing
mix, sets production volume and standards, chooses suppliers, defines financing ----------------------
needs, and determines inventory standards. For the forecasting to be accurate,
managers need to consider all of the following factors: ----------------------
Forecasting also considers the competitive position of the company with ----------------------
respect to its market share; research and development; quality of service,
----------------------
pricing and financing policies; and public image. In addition, forecasters
also evaluate the quality and quantity of the customer base to determine ----------------------
brand loyalty, response to promotional efforts, economic viability, and
credit worthiness. ----------------------
4. General Economic Conditions ----------------------
Although consumer markets are often characterized as being increasingly ----------------------
susceptible to segmentation in recent years, the condition of the overall
economy is still a primary determinant of general sales volume, even in ----------------------
many niche markets. Forecasters incorporate relevant data that correlate
well or demonstrate a causal relationship with sales volume. ----------------------
---------------------- If the prices for products have changed over the years, changes in
dollar volume of sales may not correlate well with volume of units. At
---------------------- one point in time when demand is strong, a company raises its prices.
At another time, a company may engage in discounting to draw down
---------------------- inventories. Therefore, accountants devise a price index for each year
---------------------- which compensates for price increases. By dividing the dollar volume
by the price indexes, a company can track its “true” volume growth. This
---------------------- process is similar to an inflation index, which provides prices in constant
dollars. As a result, management is able to compare the price-adjusted
---------------------- dollar sales volumes.
---------------------- 6. Secular Trends
---------------------- The secular trend depicts: 1) general economic performance, or 2) the
performance of the specific product for all companies. If a company’s
----------------------
trend line rises more rapidly than the secular trend line, a company would
---------------------- be experiencing a more rapid growth in the rate of sales. Conversely, if
a company’s trend line is below the secular trend line, its performance
---------------------- is below the market’s average. Management also uses this type of
comparison to evaluate and control annual performance.
----------------------
7. Trend Variations
----------------------
Although the secular trend represents the average for the industry, it may
---------------------- not be “normal” for a particular company. The comparison of company
---------------------- trends to secular trends may indicate that the company is serving a
specialised market, or that the company is not faring well. Forecasters
---------------------- study the underlying assumptions of trend variations to understand the
important relationships in determining the volume of sales. Although
---------------------- markets may be strong, the sales force might need to be adjusted.
---------------------- 8. “Intra-company” Trends
---------------------- By analysing month-to-month trends and seasonal variations over both the
long and short-terms, small business owners and managers can adjust the
----------------------
sales forecast to anticipate variations that historically repeat themselves
---------------------- during budget periods. Management may then construct a budget reflecting
these variations, perhaps increasing volume discounts during traditionally
---------------------- slow periods, exploring new territories, or having sales representatives
solicit product and service ideas from current customers.
----------------------
9. Product Trends
----------------------
Forecasters also trend individual products, using indexes to adjust for
---------------------- seasonal fluctuations and price changes. Product trends are important for
---------------------- understanding the life cycle of a product.
----------------------
----------------------
4.13 SALES FORECASTING APPROACHES
----------------------
There are four categories of sales forecasting approaches. Forecasting
---------------------- techniques can also be grouped into quantitative and non-quantitative
---------------------- approaches.
1) Judgement Methods
----------------------
2) Counting Methods
----------------------
3) Time-Series Analysis
---------------------- 4) Causal Association Methods
---------------------- Forecasting techniques can also be grouped into quantitative and non-
quantitative approaches
----------------------
1. Non-quantitative Forecasting Techniques
---------------------- A. Judgement Methods include
---------------------- a) The jury of executive opinion
---------------------- b) The Delphi Method and
c) The sales force composite
----------------------
B. Counting Methods include
----------------------
a) Surveys of customer’s buying intentions and
---------------------- b) Test marketing.
---------------------- 2. Quantitative Techniques
---------------------- C. Time-series techniques include
---------------------- a) Decomposition
b) Moving averages
----------------------
c) Exponential smoothing and
----------------------
d) Box-Jenkins
----------------------
----------------------
----------------------
---------------------- Disadvantages
a. Its major disadvantage is the length of time needed to develop
---------------------- the consensus sales-forecast, sometimes two methods or
---------------------- more.
----------------------
State True or False.
----------------------
1. The advantage of ______________ developed is that a forecast can
be easily and quickly. ----------------------
2. ______________ is used for estimating sales for a new product since ----------------------
no historical sales data is available.
----------------------
4.15 QUANTITATIVE FORECASTING TECHNIQUES ----------------------
----------------------
---------------------- ii) It requires a large number of historical data points for effective use.
iii) It has proved to be no better than other, less mathematical forecasting
---------------------- methods.
---------------------- Applications
---------------------- Its most successful application have been in Production, Inventory Control
and Financial Forecasts.
---------------------- (2) Causal or Association Methods
---------------------- Instead of predicting directly on the basis of judgment or historical or
historical data, causal – forecasting methods attempt to find the factors
----------------------
that affect sales and to determine – regression method is one type of
---------------------- causal method.
(a) Correlation - Regression Analysis
----------------------
In correlation analysis, variables are studied simultaneously to see
---------------------- whether they are interrelated or move together in some way. This
technique tries to find correlations without implying cause and
----------------------
----------------------
Source
----------------------
----------------------
(ii) Negative
(i) Positive
relationship
----------------------
relationship
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
---------------------- Y = a+bX
---------------------- b = n ΣXY- ΣXY
n (ΣX2) - (ΣX)2
----------------------
4 (650) - 10 (239)
---------------------- 4 (30) - (10)2
---------------------- a = Y– b X
---------------------- = 59.75 - 10.5 (2.Σ) = 33.5
Y = 33.5 + 10.5X
----------------------
= 33.5 + 10.5 (5) = 86 Units
----------------------
The regression equation Y = 33.5 + 10.5 X can be used to predict sales for
---------------------- 5th year by multiplying the trend of 10.5 by 5 and adding the constant term 33.5,
yielding a forecast of 86. Simple regression describes the relationship between a
----------------------
single independent variable and a dependent variable. In our example, we have
---------------------- used time as the independent variable and sales as the dependent variable. More
realistically, sales are probably associated with several independent variables.
---------------------- (e.g., advertising expenditures, number of sales calls, prices, or interest rates).
Multiple regressions is a tool that can be employed to forecast the effect on sales
----------------------
of several independent variables… “such as advertising expenditures, number
---------------------- of sales calls, prices, or interest rates.”
Advantages of Multiple – Regression Analysis
----------------------
i) One of the most objective methods used in sales forecasting is that it
---------------------- forces the forecaster to consider multiple factors influencing sales and to
quantify any assumptions being made.
----------------------
ii) Causal relationships are determined between a company’s sales and
---------------------- various independent factors influencing those sales.
---------------------- iii) The method specifies the degree of reliability of relationships between the
dependent and independent variables.
---------------------- iv) When good leading indicators are used as independent variables, turning
---------------------- points for a company’s sales can be estimated.
----------------------
Advantages ----------------------
----------------------
---------------------- ii) Econometric models are incapable of measuring all the impacts of
all the possible forces affecting sales.
----------------------
iii) A large amount of historical data is needed because of the great
---------------------- number of variables included in the model. Econometric Models
are often used in conjunction with other forecasting techniques to
----------------------
project industry sales or general economic conditions. Perhaps, the
---------------------- greatest value of econometric models is their potential for estimating
future events.
----------------------
Input-Output Models
----------------------
More appropriate for forecasting sales of industrial goods than consumer
---------------------- goods, input-output models are matrices that show the amount of input required
from each industry for a specified output of another industry. Input-output
---------------------- models are very tedious and expensive to develop, but they can provide good
intermediate and long-range forecasts for industries such as metals power
----------------------
utilities and automobiles. Due to the difficulty in constructing large input-output
---------------------- models, companies usually turn to external experts for help.
---------------------- b) Accuracy – The forecasting method must provide results that are
sufficiently accurate for the purpose desired. Most forecasts contain
---------------------- inaccuracies but still furnish valuable information for managerial
---------------------- Activity 2
----------------------
Visit the library and study the report of FICCI on media and entertainment
---------------------- industry in India. List the methodology followed for forecasting the potential
of the industry.
----------------------
---------------------- Summary
---------------------- ●● Planning is all about deciding today about the future. Plans may be
---------------------- short-term or long-term. Planning is very essential because without
planning one may not know how to go, where to go, when to do and so on.
---------------------- Though it takes considerable time, it results in systematic efforts leading
to tremendous benefits by way of efficient and effective working.
----------------------
●● Tactical planning is of short-term nature generally one to two years.
---------------------- However strategic planning, having long-term perspective of the business
may stretch up to five to ten years. In both the cases the organisations
---------------------- need to study the environment critically, be always alert to the changes
in the marketing environment, grab the opportunities and overcome the
----------------------
challenges.
---------------------- ●● The elements of planning process are situational analysis, establishing
goals and objectives, determining market potentials, forecasting sales,
----------------------
selecting growth strategies, developing detailed activities, allocating
---------------------- resources, implementing and controlling the plan and taking corrective
actions are very important from the sales manager’s perspectives since it
---------------------- is he who is working on the issues on an on going basis.
---------------------- ●● By dividing the sales plan and allocating the same to all individual sales
personnel, territories, customers, areas, zones and regions sales budgets
---------------------- help the sales managers in planning, coordinating, and controlling selling
activities.
----------------------
---------------------- 1. True
Check your Progress 3
----------------------
Fill in the blanks.
----------------------
1. A budget is a plan expressed in quantitative, usually monetary terms,
---------------------- covering a specific period of time, usually one year.
2. A zero-based budget aim is to achieve an optimal allocation of resources
----------------------
that incremental and other budgeting systems cannot achieve.
----------------------
----------------------
----------------------
Suggested Reading
----------------------
1. Bowersox, Logistical Management: The Integrated Supply Chain Process.
----------------------
2. Calvin, Robert J. Sales Management.
----------------------
3. Chopra, Supply Chain Management.
4. Ghoshal, World Class in India. Penguin India. ----------------------
----------------------
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5
Structure:
5.1 Introduction
5.2 Definition of Recruitment
5.3 Importance of Recruitment
5.4 The Recruitment Process
5.5 Selection Process
5.6 Sales Force Selection in Multinational Companies
5.7 Sales Force Socialisation
5.8 The Purpose of Sales Training
5.9 The Benefits of Sales Training
5.10 Effects of Lack of Training
5.11 Sales Training Program
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
Over the years sales force recruitment has become even more important. ----------------------
This is because
----------------------
●● The cost of hiring and training has increased dramatically; and because,
equal employment opportunity (EEO) legislation has made hiring and ----------------------
termination decisions more complicated and more difficult. ----------------------
So, due to the critical importance of recruiting; sales managers should
----------------------
have an effective system for finding and selecting sales personnel.
----------------------
At the heart of successful sales force operation is the selection of good
sales people. The performance levels of an average and a top sales person can ----------------------
be quite different. In a typical sales force, the top 30% of the sales people might
bring in 60% of the sales. Careful salesperson selection can thus greatly increase ----------------------
overall sales force performance.
----------------------
An effective selection program cannot exist without a well-planned
and well-operated system for recruiting applicants. A poor recruiting system ----------------------
may make an organisation to hire people who do not actually meet its needs; ----------------------
because the recruiting system has not generated enough qualified applicants and
a selection must be made immediately from the available applicants. ----------------------
The importance of planned recruiting is even more obvious when the costs ----------------------
associated with selecting and training sales people are examined. Direct costs,
such as maintaining; recruiting teams and placing recruiting advertisement are ----------------------
increasing rapidly. ----------------------
Management should view the recruitment and selection process, as a
----------------------
sub-system of sales force management and evaluate it in terms of total cost.
To ensure that new recruits have the aptitude necessary to be successful ----------------------
in a particular type of sales job, certain procedures should be followed in the
----------------------
recruitment process.
----------------------
The steps involved in the recruiting process are as follows:
●● Conducting Job Analysis ----------------------
●● Selection ----------------------
A. Conducting Job Analysis ----------------------
Before a company can search for a particular type of salespersons, it must
----------------------
know something about the sales job to be filled. To aid in the process,
a job analysis should be conducted to identify the duties; requirements; ----------------------
responsibilities and conditions involved in the job.
----------------------
A proper Job Analysis involves these steps:
1. Analyse the environment in which the salesperson is to work. ----------------------
Communicating ----------------------
This section of the job description refers to the time the sales representative ----------------------
spends acting as a liaison between the customer and your company. For
example, how much of the sales person’s job should be devoted to writing ----------------------
sales call reports? How much time should be spent on researching the
----------------------
industry and/or competitor’s products and services?
----------------------
Miscellaneous
This section covers all responsibilities not listed elsewhere, such as ----------------------
time spent attending team meetings, attending and conducting training
----------------------
sessions, etc.
The job description is probably the most important single tool used in ----------------------
managing the sales force. It is used not only in hiring but also in managing ----------------------
and sometimes as a basis for firing salespeople.
It provides and helps ----------------------
---------------------- Recruiting is not equally important in all firms. The quality of sales people
needed, the rate of turnover expected and a firm’s financial position are
---------------------- just a few of the factors that account for the difference.
---------------------- When high-caliber sales people are needed more applicants must be
screened before the one meeting the hiring specifications is formed. With
---------------------- firms that experience a high rate of turnover, a continuous recruiting
program is required. Firms that are financially stable may be able to
----------------------
employ travelling recruiting teams, whereas financially troubled firms
---------------------- may rely heavily on advertisement.
a) Persons within the company: Companies often recruit sales people ----------------------
from other departments, such as production, engineering and from the
non-selling section of sales department. The people are already familiar ----------------------
with company policies. Besides, sales managers know the people and are ----------------------
aware of their sales potentials.
----------------------
Hiring people from within can lift morale because a transfer to sales is
often viewed as a promotion. Recommendations from the present sales ----------------------
force and sales executives usually yield better prospects than those of
other employees because the people in sales understand the needed ----------------------
qualifications.
----------------------
b) Competitors: Sales people recruited from competitors are trained, have
experience in selling similar products to similar markets and should be ----------------------
ready to sell almost immediately. But usually a premium must be paid in ----------------------
order to attract them from their present jobs.
Recruiting competitor’s sales people may however bring other problems. ----------------------
Although their people are highly trained and know the market and the ----------------------
product very well, it is often hard for them to unlearn old practices. They
many not be compatible with the new organisation and management. ----------------------
Often, it is almost impossible to assess accurately why someone is looking
or another job. Good sales managers must be able to evaluate effectively ----------------------
the information they get. ----------------------
c) Non-competing Companies: Non-competing firms can provide a good
----------------------
source of trained and experienced sales people, especially if they are
selling similar products or selling to the same market. Even though, some ----------------------
recruits may be unfamiliar with the recruiting firm’s product line, they do
have selling experience and require less training. ----------------------
Companies that have either vendors or customers of the recruiting firm ----------------------
can also be an excellent source of candidates. Recruitment from these
sources already have some knowledge of the company from having sold ----------------------
to or purchased from it; their familiarity reduces the time it will take to ----------------------
make them productive employees. Another advantage of recruits from
their sources is that they are already familiar with the industry. ----------------------
d) Educational Institutions: High schools; adult evening classes, business ----------------------
colleges and universities are all excellent sources of sales recruits. While
most college graduates lack specific sales experience, they have the ----------------------
----------------------
State True or False.
----------------------
1. The result of a formal job analysis is a job description.
2. The job description is probably the most important single tool used in ----------------------
managing the sales force. ----------------------
----------------------
Activity 1
----------------------
1. State five qualities you have observed of the salesman during your ----------------------
last visit to a departmental store.
----------------------
----------------------
5.5 SELECTION PROCESS
----------------------
A successful recruitment campaign results in a good number of applicants.
The next task is to select the most suitable persons from these applicants. The ----------------------
selection process involves the following steps:
----------------------
●● Initial screening.
●● Formal application form ----------------------
●● Tests ----------------------
●● Comprehensive interview ----------------------
●● Reference checks
----------------------
●● Physical examination
----------------------
●● Making the selection
Initial Screening ----------------------
Based on the job description and job specifications some of the applicants ----------------------
can be eliminated in the initial screening interview. During the interview the
interviewer can discuss with the applicants various aspects of the job in detail, ----------------------
----------------------
Thus, appropriate selection procedure as described above, and their skillful ----------------------
execution, result in greater selling efficiency. A higher – grade salesperson is
----------------------
produced, and the advantages of having such employees cannot be underlined:
better work quality, improved market coverage, superior customer relations ----------------------
and a lower ratio of selling expense. Good selection fits the right person to the
right job, thereby increasing job satisfaction and reducing the cost of personnel ----------------------
turnover.
----------------------
Making the Selection
----------------------
When all other steps have been completed in the selection process, the
company must decide whether or not to hire each applicant. The company must ----------------------
review everything known about a particular applicant. The applicant’s goal and
ambitions must be matched against present and future opportunities, challenges ----------------------
and other types of rewards that are offered by the job and the company. Seasoned ----------------------
sales executives should give consideration to intuitions as well as to facts. If any
uneasy feelings about candidates exist, the candidate should be called back for ----------------------
another interview, and additional reference checks should be done. If a company
follows the logical sequence of a well planned recruiting and selection system, ----------------------
the executive’s intuitions will soon be transformed into objective criteria that ----------------------
can be used to compare applicants and make decisions among them.
A decision to hire is followed by a formal offer, with no unspecified ----------------------
details or surprises; the terms should be in writing for the protection of both the ----------------------
recruit and the firm. If a chosen candidate has lots of reservations about the job,
sales manager should not attempt persuasion. Such applicants are not likely to ----------------------
give the company their best efforts.
----------------------
----------------------
----------------------
5.6 SALES FORCE SELECTION IN MULTINATIONAL
---------------------- COMPANIES
----------------------
A growing concern of many U.S. corporations is selecting qualified
---------------------- salespeople for their international markets. As U.S. companies go overseas
to sell their products, they soon realise how different the selling environment
---------------------- and the markets are from those in the United State. Differences in ethnic
compensations, religious orientations, social class and education complicate
----------------------
the sales force selection process for multinational corporations. A study of
---------------------- sales force recruiters at multinational companies discovered some differences
between the ranking of various sales person selection criteria for overseas
---------------------- markets and the ranking for U.S. markets. For e.g., education is more important
in overseas markets and selection criteria such as social class, religion, and
----------------------
ethnicity – which are seldom used in the United States – account for as much as
---------------------- 25% of the sales hiring abroad.
The sales force selection process in KRUPP INDUSTRIES INDIA
----------------------
LIMITED, which is a multinational company, is as follows:
---------------------- a) Advertisement: At the outset, the advertisements for the job in question
---------------------- are framed. The advertisement contains the nature of the job, the
qualifications of the people required, last date for sending in résumé’s etc.
---------------------- b) Collection of Resume: In this next step, the resume of the applicants are
---------------------- collected in an orderly manner for the sake of convenience and reduce the
work load.
----------------------
c) Screening of Resume: All the applicants who apply for a particular post
---------------------- may not be called for interview, because, in some cases, the resume of the
candidate may not match the job requirement. Thus, such applications are
---------------------- screened out.
---------------------- d) Written Test: In case the job profile is such that it calls for technical
know-how, a written test is designed and conducted.
----------------------
e) Group Discussion: The next step in the selection process is the conduction
---------------------- of group discussions. Group Discussions not only give us information
about the amount of knowledge one has, but also helps the observer to pass
---------------------- a judgement on the candidates way of functioning in a group situation.
----------------------
5.7 SALES FORCE SOCIALISATION
----------------------
Once the process of recruiting and selecting the new salesperson is
complete, that person must be integrated into the organisation. The proper ----------------------
introduction of the recruit to the company practices, procedures and philosophy
and to the social aspects of the job is crucial in achieving a return on the sizeable ----------------------
investment made during the selection process. ----------------------
A study of sales force socialisation suggest that the firm’s efforts in
recruiting, selecting and training, all play an important part in the socialisation ----------------------
process. 189 of the least experienced sales persons from different companies ----------------------
were surveyed. The results of the survey imply that
----------------------
(a) if recruiters give the prospective employee a realistic picture of the sales
job, the chances for job satisfaction are enhanced, ----------------------
(b) better training and initiation to the job lead to greater job satisfaction, and
----------------------
(3) sales recruits whose personal needs and skills are compatible with the
firm and the job should be selected. ----------------------
There are basically, two levels of SOCIALISATION. The first level is the
----------------------
Initial Socialisation and the second level is the extended socialization.
Initial Socialisation ----------------------
This preliminary exposure to the firm begin with the recruiting and ----------------------
selection process and ends with the initial orientation of the salesperson to
the firm’s procedures and policies. It occurs during recruiting, selecting and ----------------------
introductory training. ----------------------
Recruiting: Most firms begin the socialisation process by sending the
----------------------
sales candidate, recruiting literature which details the company’s philosophy
and the role of the salesperson in the organisation. ----------------------
Selection: The interview process can give both the candidate and the ----------------------
recruiter some idea of how the new salesperson will respond to the socialisation
efforts of the company. For e.g., sales force of “Electronic Data Systems” (EDS) ----------------------
is expected to dress conservatively. By conforming to this dress pattern, the
recruiter signals the company’s expectations to the recruit. This may yield clues ----------------------
about the organisations philosophy and the structure of the company. Small ----------------------
firms may not be able to afford the expense of such high-quality recruiting
materials like brochures and lengthy interview processes, thus when small ----------------------
firms recruit sales-people, a principal owner of the firm is often involved in the
interviewing process. Thus, the candidate can get first hand information about ----------------------
the owner’s philosophy of running the business and the role of the sales force. ----------------------
Introductory Training: After completing the recruiting and selection
----------------------
process, the new recruit has some notion of the firm’s corporate philosophy
----------------------
----------------------
----------------------
5.8 THE PURPOSE OF SALES TRAINING
----------------------
The purpose of training is to develop the abilities of an individual, to
satisfy current and future manpower needs, supplement education for higher ----------------------
responsibilities.
----------------------
The pressure for better trained executives combined with the need to full
the gap in executive shortage causes an emphasis for executive development ----------------------
programs.
----------------------
The shift to mechanization and computerization has led to an additional
requirement to develop multi-disciplinary interdependence. With the essentiality ----------------------
of meeting specific targets, a certain standard of performance is required.
----------------------
However performance level may turn out to be inadequate.
These performance problems may arise due to ----------------------
●● introduction of new, advanced, technical or other systems. ----------------------
●● lack of identification, communication or agreement of standards.
----------------------
●● uncertainty regarding level of authority and responsibility.
----------------------
The adaptation to meet such situations is by training and retraining.
Training is a critical activity since it helps in improving skills, attitudes and ----------------------
knowledge. The only area of possible differential advantage for an organisation
over the others is the quality of human inputs - people’s skills, capabilities, ----------------------
accomplishments and activities.
----------------------
●● Training is the process by which individuals acquire these - through
practical experience, knowledge, skills and attitudes. ----------------------
●● Learning is a psychological process in humans, which definitely affects ----------------------
their behaviour. Learning implies a conscious attempt towards imbibing
knowledge. ----------------------
One of the principles of learning is ‘reinforcement’ which is defined as ----------------------
anything that increases the strength of behaviour through training.
----------------------
Training is a planned process to modify attitudes, knowledge, skills and
behaviour through learning experience to achieve performance in any activity ----------------------
or range of activities. Its purpose in the work situation is to develop the abilities
of an individual and to supplement education. It is a means of upgrading ----------------------
performance.
Sales Force Recruitment, Selection and Training 125
Notes Sales training may be defined as those things which are done to help
salespeople gain mastery in the skills, concepts, behaviours, and attitudes that
---------------------- will enhance their expertise in influencing prospects to make positive purchasing
decisions. Sales training concentrates on how prospective sellers and buyers
---------------------- interact. It provides tools and techniques that help salespeople learn what they
---------------------- must know in order to persuasively present their goods or services to buyers in
terms that buyers will understand and ultimately respond to.
----------------------
Effects of Lack of Training
---------------------- When sales training is deficient, several negative outcomes are likely to
personnel working toward different goals.
----------------------
Next, sales people can lack confidence in their ability to market the
---------------------- company’s products or services. They may experience frustration and low
morale. They may also fall back to the old tried-and-true ways of selling.
----------------------
These are the methods that didn’t work very well back in the good old days and
---------------------- haven’t gotten any more effective in the interim. When this happens, chances
are excellent that sales quotas will not be met and revenue goals will not be
---------------------- achieved.
---------------------- Finally, support personnel may be ill prepared to perform their jobs. For
example, install the product; respond to customer service calls, etc. When this
---------------------- happens, customer satisfaction falls below acceptable levels and a loss of profit
---------------------- is the likely result.
Finally, support personnel may be ill prepared to perform their jobs. For ----------------------
example, install the product; respond to customer service calls, etc. When this
happens, customer satisfaction falls below acceptable levels and a loss of profit ----------------------
is the likely result. ----------------------
----------------------
----------------------
----------------------
Sales trainers today are emphasising the customer more than ever in their ----------------------
training programs. In the new selling environment of the 1990s, customers are
highly knowledgeable and professional, and they have greater demands and ----------------------
expectations than they did in the past. Consequently, an effective sales training ----------------------
program must go beyond the basics. It is no longer enough merely to teach sales
people to overcome customer objections; sales people must be trained to create ----------------------
cooperative partnerships with their customers.
----------------------
---------------------- iii) Can be used for small groups only. Larger groups could mean
non-participants who could distract players.
----------------------
4. Impromptu Discussion
---------------------- Also called sales seminar or buzz session, it involves the trainer/leader
making a brief oral presentation on an everyday problem followed by a
----------------------
give and take discussion.
---------------------- Merits
---------------------- i) Understanding of problems which could otherwise be acquired only
through long personal experience.
----------------------
ii) Learn the importance of analysis and ability to handle specific
---------------------- situations rather than fixed selling rules and principles.
---------------------- iii) Active participation of all trainees.
---------------------- Demerits
i) Requires considerable time.
----------------------
ii) Discussion could drift to extraneous subjects unless there is an
---------------------- effective leader.
---------------------- 5. Gaming
----------------------
----------------------
ii) Some minimum time required to generate successful decision and ----------------------
to provide the desired learning experience.
----------------------
iii) Game designs based on ordinary decision making processes so
unusual/novel approaches may be stiffed. ----------------------
iv) Poorly designed programs may teach trainees something’s which ----------------------
they shouldn’t.
----------------------
All the above mentioned methods are group oriented or classroom training.
There are some individual training methods designed for appropriate ----------------------
conditions. They are
----------------------
6. On-The-Job-Training
----------------------
This method is one-on-one, face to face coaching involving showing,
practicing and evaluating. This form of Training is continuously given ----------------------
during the entire service.
----------------------
Merits
i) Develops trainee’s skills in making sales presentations, answering ----------------------
objections and closing sales.
----------------------
ii) If individualized for each trainee’s ability and skill, immediate
improvement in performance can be obtained. ----------------------
Demerits ----------------------
i) Unqualified coaches could develop not just skills but bad habits in ----------------------
trainees.
----------------------
ii) Requires a lot of time and effort and money.
7. Correspondence Course ----------------------
This can be used for initial and continuing training and is basically self ----------------------
study.
----------------------
----------------------
Line Sales Executives (sales managers, senior sales representatives, field ----------------------
supervisors and division managers) are people best suited to train trainees, since
they are usually highly respected by sales trainees and carry more authority in ----------------------
name ‘executive’. Trainees look up to line sales executives and try harder to ----------------------
determine exactly what is expected from them and more easily learn the art of
selling the way line sales executives want them to. A rapport is created between ----------------------
them creating a positive learning environment and line sales executives are in a
better position to judge the performance of their own trainees. ----------------------
Using line sales executives to train does have some disadvantages. One of ----------------------
the major disadvantages is the line executives’ lack of time. The responsibilities
----------------------
sales executives and managers have often do not allow them to play enough
attention to the training function, and this can be harmful to trainee morale and ----------------------
enthusiasm. To overcome the problem of time, the training function should be
a specific duty with a proper time allotment. ----------------------
Decentralized training can involve one or more different types of training ----------------------
such as office instruction, use of experienced sales people. On-the-job training
----------------------
usually takes place while the trainee is actually working in the field; this gives
trainees the chance to learn and be productive at the same time. ----------------------
Timing of Training Program ----------------------
Although training should be a continual process, management must decide
----------------------
when training should be stressed. There are two philosophies concerning the
timing of sales training programs. Some executives believe that no one should ----------------------
be placed in the selling field until he or she is thoroughly trained to sell. The
other philosophy suggests evaluating the new sales person’s desire and ability ----------------------
to sell before spending money and time on actual training. Thus, recruits are
----------------------
placed in the field with minimum information concerning selling and are then
evaluated on the basis of how well they do, considering their lack of actual ----------------------
training.
----------------------
Training Aids and Instructional Material
To successfully carry out a sales training program, trainers should give ----------------------
much consideration to training aids and instructional materials. Training aids ----------------------
are manuals, other printed materials and sight or sound equipment. Manuals or
workbooks are used most in formal training programs for groups, supplements ----------------------
the training program by being a study guide for the trainee. Other printed
materials used are company bulletins, sales and product handbooks, standard ----------------------
texts, and technical and trade publications. Any or all of these can be used to ----------------------
supplement the training methods and content. Training aids are blackboards,
posters, motion-picture projectors, tape recorders, video tape recorders and ----------------------
other playback equipment.
----------------------
Evaluating Training Program
----------------------
Once a sales training program has been carried out, it is essential that
the programs effectiveness be evaluated. That is, the sales manager must ----------------------
determine how well overall objectives and specific goals have been met. As
companies spend more and more money on sales training each year, they are ----------------------
---------------------- Activity 2
----------------------
Suppose you are a sales manager for a company manufacturing Television
---------------------- sets. You want to recruit a fresh management graduate as a sales executive.
You want to train him and prepare him for field sales job. Identify 1) four
---------------------- training needs, 2) two training objectives.
----------------------
---------------------- Summary
---------------------- ●● All things being equal, it is the people who make or break the company. It
is the personnel working for the company who through their commitment
---------------------- and dedication take the organisations to glory. The sales function,
dynamic that it is, assumes critical significance. Sales function is the
---------------------- revenue generation function of the company. It is the sales personnel who
---------------------- bring the sales revenues to the organisation. Hence right man for the right
job becomes critical and calls for judicious recruitment and selection
---------------------- of the sales personnel. In addition other factors like increased cost of
----------------------
2. Group Training methods are appropriate for introductory and orientation ----------------------
sessions.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
6
Structure:
6.1 Introduction
6.2 Definitions of Sales Quota
6.3 Features of Sales Quota
6.4 Objectives/Importance of Sales Quota
6.5 Types of Quotas
6.6 Characteristics of Sales Jobs
6.7 Requirements of a Good Sales Compensation Plan
6.8 Devising a Sales Compensation Plan
6.9 Types of Compensation Plans
6.10 Fringe Benefits
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
----------------------
6.1 INTRODUCTION
----------------------
Sales Quota is quantitative sales objective assigned to salesman or sales
---------------------- territories. Quota always has time dimension. Quota specifies sales goals in
quantitative terms, to be achieved in specified time period. Quota can be in
---------------------- the form of sales volume in units, expense quota, gross margin quota, quota
for selling activities or any combination thereof. Quotas are decided for each
----------------------
territory, each product and for each sales personnel. After deciding on the sales
---------------------- budget, management decides how much of estimated sales should come from
each territory, how much expenses should be incurred in each territory. For each
---------------------- territory and each sales personnel management decides quantitative objectives
known as quota. Quotas are also used for developing effective compensation
----------------------
plans, motivating the sales force and evaluating performance of different sales
---------------------- personnel. Quotas identify strong and weak points of various territories and
sales personnel. Quotas are used for evaluating the performance of different
---------------------- sales personnel and territories, quotas set goals for each salesman, territory and
product. The sales quotas assigned to sales personnel are the building blocks of
----------------------
the organisations sales plan.
---------------------- A sales quota is a goal; it is a target you expect your sales staff to meet
---------------------- with. It must be a target they expect to meet as well. Each must understand the
importance of their target and how it fits in as part of your total business plan.
---------------------- To succeed you must have a set of attainable objectives. When you wrote your
business plan, it is to be hoped you established specific sales and profit targets.
---------------------- To meet these objectives, you do it the way you build a brick wall, one brick at
---------------------- a time; you reach your income goals one sale at a time. The sales quotas you
assign to your sales staff are the building blocks of your business plan.
---------------------- ●● Don’t make the time period longer than a month or it will invite
---------------------- procrastination and lose its effectiveness.
●● A quota, to be effective, must be achievable. Otherwise, don’t use them.
---------------------- Quotas that are impossible to meet are ignored. Unrealistic quotas will
---------------------- make you look foolish.
“A sales quota is the sales goal set for a product, geographical area or sales ----------------------
representative. It is primarily a managerial device for defining and stimulating ----------------------
sales efforts”.
----------------------
- Philips Kotler
“Sales quota is a quantitative goal assigned to a specific marketing unit ----------------------
such as to a salesman or to a sales territory.”
----------------------
- Cundiff and Still
----------------------
6.3 FEATURES OF SALES QUOTA ----------------------
●● Sales quotas can be of various types. ----------------------
●● Sales quota serves as standards with which the actual sales/selling ----------------------
expenses can be compared.
----------------------
●● Sales quota can be set for different products, salesman or different
geographical territory. ----------------------
●● It is a motivational tool for salesman/dealers. If they achieve the quota ----------------------
fixed for them they feel motivated and are entitled to various financial and
non-financial incentives. ----------------------
●● Quota setting requires study of market conditions in the sales territory. ----------------------
These market conditions refer to level of competition, sales potential,
income of customers, fashion, tastes and preferences of customers etc. ----------------------
●● Setting sales quota requires sales forecasting. ----------------------
●● Sales quota can be fixed for statistical and non-statistical techniques. It is ----------------------
a complex task.
----------------------
●● Sales quota is a managerial tool for directing and controlling sales
activities in a desired direction. It helps to administer compensation plans ----------------------
and identify efficient and inefficient salesman/dealers.
----------------------
●● Sales quota is set for a specific time period. The time period is usually
one year. ----------------------
---------------------- 2. To control Selling Expenses: Expense quotas are also fixed for different
marketing areas and sales force. Expense quota can be decided in terms
---------------------- of amount or as a percentage of sales. Sales personnel who incur selling
expenses within the quota are given incentives. Expense quota help to
---------------------- improve selling efficiency and to control wasteful selling expenses. It
---------------------- leads to optimum utilization of selling expenses.
3. Act as standards for Measuring Performance: With the help of quotas
----------------------
organisations are in a position to compare the performance of various
---------------------- marketing units, sales personnel, dealers, distributors, area, zone, region
or a territory. By comparing the actual performance with the quota,
---------------------- the organisations come to know about the under performance or over
performance of various territories, personnel etc. This comparison
----------------------
enables the organisations find out weak performers and takes corrective
---------------------- action on time. Organisations use these figures also to compare the
current performance with the corresponding period in the previous year,
---------------------- to ascertain the extent of growth achieved.
---------------------- 4. Serves as a basis for Sales Compensation Plan: Quotas by enabling
the comparison with the actual performance brings out the extent of
---------------------- achievement of various sales personnel, regions, zones, territories, dealers,
distributors etc. create a base for awarding the performers. In companies
----------------------
where the incentives are decided on the basis of performance, calculation
---------------------- of achievements helps reward those who have achieved over and above
the quota and penalize those who have not achieved. It therefore serves
---------------------- as a motivating tool both for those achieving and those who have not
achieved.
----------------------
5. Acts as a Control Tool: By deciding upon the quantum of expenditure
---------------------- to be incurred by each sales personnel and the sales units like the region,
branch, territory, zone etc. the quotas act as a deterrent for spending
----------------------
more. Again in many organisations, economizing in the expenses and
---------------------- optimizing the sales efforts special incentives/rewards are given the
sales personnel. Thus, the quotas go a long way in controlling the sales
---------------------- personnel’s activities.
----------------------
----------------------
A Quota that focuses on the activities in which sales representatives are ----------------------
----------------------
----------------------
Check your Progress 3
----------------------
6.7 REQUIREMENTS OF A GOOD SALES
---------------------- COMPENSATION PLAN
---------------------- A good sales compensation plan meets seven requirements.
---------------------- ●● First, it provides a living wage, preferably in the form of a secure income.
Individuals worried about money matters do not concentrate on doing
---------------------- their jobs well.
---------------------- ●● Second, the plan fits with the rest of the motivational program – it does
not conflict with other motivational factors, such as the intangible feeling
---------------------- of belonging to the sales team.
---------------------- ●● Third, the plan is fair – it does not penalize sales personnel because of
●● What are the pros and cons of departing from industry or community ----------------------
patterns?
----------------------
If there is a company wide format for evaluation program, it should
take into account the current rates for sales positions in the community and ----------------------
industry. A program for setting compensation of sales personnel is sound only ----------------------
if it considers the relation of external compensation practices to those of the
company. ----------------------
Determine Compensation Level ----------------------
Management must determine the amount of compensation a sales person ----------------------
should receive on a average. Although the compensation level might be set
through individual bargaining or on an arbitrary judgement basis, neither ----------------------
expedient is recommended. Management should be certain whether the caliber
of the present sales force measures up to what the company would like to have. ----------------------
Another compensation consideration is the compensation amount the company ----------------------
can afford to pay.
----------------------
In some companies, company wide formal job evaluation programs are
used to decide compensation levels for sales position. ----------------------
Provide for the Various Compensation Components ----------------------
A sales compensation plan has as many as four basic components:
----------------------
●● A fixed component, either a salary or a drawing account, to provide some
stability of income; ----------------------
----------------------
6.9 TYPES OF COMPENSATION PLANS
----------------------
There are three basic patterns: straight salary, straight commission and
----------------------
salary plus incentive. In all three patterns are there and income is entirely
---------------------- separate from expense allowances or reimbursement.
Straight Salary
----------------------
Here the sales manager buys a unit of the salesman’s working time,
---------------------- regardless of sales volume and regardless of performance. This is fixed
1. Straight salary, straight commission and salary plus incentive are the ----------------------
types of _______________.
----------------------
----------------------
Activity 1
----------------------
Compare the compensation plan for the following industries and list the ----------------------
ratio of the components of fixed/variable/fringe benefits in each of them:
Telecom, Automobile, Banking, Trading ----------------------
----------------------
6.10 FRINGE BENEFITS ----------------------
Types of fringe benefits are ----------------------
●● Company car ----------------------
●● Supplemental life insurance and medical insurance
----------------------
●● Tax-return preparation
----------------------
●● Personal tax and financial planning
●● Low or no interest loans ----------------------
----------------------
----------------------
----------------------
----------------------
●● Fringe Benefit: An employment benefit given in addition to one’s wage
or salary. ----------------------
●● Industry: Concerns primarily engaged in the same kind of economic
activity are classified in the same industry regardless of their types of ----------------------
ownership (such as sole proprietorship, partnership or corporation). ----------------------
●● Procrastination: To put off doing something especially out of carelessness
or laziness. ----------------------
●● Sales Territory: A segment of firm’s market assigned to a sales person or ----------------------
a group of sale people.
----------------------
Self-Assessment Questions ----------------------
----------------------
Answers to Check your Progress
----------------------
Check your Progress 1
Fill in the blanks. ----------------------
1. Sales quota is an effective tool for directing, controlling and motivating ----------------------
the sales force.
----------------------
Check your Progress 2
----------------------
State True or False.
----------------------
1. True
----------------------
Check your Progress 3
State True or False. ----------------------
1. True ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
7
Structure:
7.1 Introduction
7.2 What is Leadership
7.3 Leadership and Management
7.4 Differences between a Manager and a Leader
7.5 Functions of a Leader
7.6 Leader Influence and Power
7.7 Principles of Leadership
7.8 Characteristics of an Effective Leader
7.9 Theories of Motivation
7.10 Motivating the Sales Force
7.11 Motivational Techniques
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
----------------------
7.1 INTRODUCTION
----------------------
Successful sales organisations usually have one critical asset that
---------------------- significantly differentiates them from unsuccessful organizations. That asset
is effective leadership. Leadership occurs in a sales organisation when the
---------------------- sales manager attempts to influence the sales force’s behaviour towards the
accomplishment of the organisation’s goals. Much research has been conducted
----------------------
in an effort to find out what makes a person an effective leader. The major
---------------------- categories of research have focused on trait theory, behavioural theory and
contingency theory.
----------------------
Each of these theories use a different set of characteristics to assess
---------------------- leadership styles. One of the basic elements of leadership is communication.
At its most basic level leadership is two – way communication between people.
---------------------- Communication is a way of transferring ideas, facts, thoughts and values from
---------------------- one person to another. Thus, it is an essential component of leadership. People
including sales people and sales managers, communicate both verbally and
---------------------- non-verbally. Sales managers and sales people must understand the dimensions
of both verbal and non-verbal expression and work to overcome barriers to
---------------------- communication. Effective sales managers will skillfully use the linkage
---------------------- between motivation, communication and leadership to increase the sales force
productivity.
----------------------
----------------------
7.3 LEADERSHIP AND MANAGEMENT
----------------------
Management is a learned process where as leadership is an emotional
process. In management process sub-ordinates are guided in the performance ----------------------
of formally prescribed duties towards the achievement of organisational goal.
----------------------
In leadership process, the people are moved in some direction through
non-coercive means. Thus a person can be a leader, manager both or none. ----------------------
A sales organisation is a reflection of its leader. Deficiency in sales people ----------------------
or in their performance can usually be traced to inadequacy in sales management,
while superior performance is generally the result of outstanding leadership. ----------------------
----------------------
7.4 DIFFERENCES BETWEEN A MANAGER AND
A LEADER ----------------------
----------------------
----------------------
----------------------
Fill in the blanks.
----------------------
1. Leadership is the activity of _______________ people to strive
willingly for group objectives. ----------------------
----------------------
Activity 1 ----------------------
Identify a close associate such as a brother, sister, friend, colleague etc. ----------------------
and list down five leadership qualities he/she has and three qualities which
----------------------
he/she needs to develop.
----------------------
----------------------
----------------------
---------------------- Depends upon the leader’s ability to inspire and to connect with other
influential people.
---------------------- Expert Power
---------------------- Is based on the leader’s skills, knowledge and special abilities.
---------------------- Sales managers can influence the behaviour of their salespeople by using
the various sources of power. The major behaviours that can be affected include
---------------------- commitment compliance and resistance.
---------------------- Commitment occurs when salespeople are enthusiastic about carrying out
the sales manager’s request and make a maximum effort to do so.
----------------------
Various sources of sales manager’s power and their effect on sales person
---------------------- behaviour.
----------------------
Check your Progress 3
----------------------
State True or False. ----------------------
1. Formal leadership is the exercise of influence over others by someone
in an official position of authority. ----------------------
----------------------
7.7 PRINCIPLES OF LEADERSHIP ----------------------
1. Be technically proficient: As a leader, you must know your job and have ----------------------
a solid familiarity with your employees’ tasks.
----------------------
2. Seek responsibility and take responsibility for your actions: Search
for ways to guide your organisation to new heights. When things go ----------------------
wrong, they always do sooner or later - do not blame others. Analyse the
----------------------
situation, take corrective action, and move on to the next challenge.
3. Make sound and timely decisions: Use good problem solving, decision ----------------------
making, and planning tools. ----------------------
4. Set the example: Be a good role model for your employees. They must
----------------------
not only hear what they are expected to do, but also see. We must become
the change we want to see - Mahatma Gandhi ----------------------
5. Know your people and look out for their well-being: Know human
----------------------
nature and the importance of sincerely caring for your workers.
6. Keep your workers informed: Know how to communicate with not ----------------------
only them, but also seniors and other key people. ----------------------
7. Develop a sense of responsibility in your workers: Help to develop
good character traits that will help them carry out their professional ----------------------
responsibilities. ----------------------
8. Ensure that tasks are understood, supervised and accomplished:
----------------------
Communication is the key to this responsibility.
9. Train as a team: Although many so called leaders call their organisation, ----------------------
----------------------
7.8 CHARACTERISTICS OF AN EFFECTIVE LEADER
----------------------
1. Listening
----------------------
Leaders have traditionally been valued for their communication and
---------------------- decision-making skills. Although these are also important skills for the
servant-leader, they need to be reinforced by a deep commitment to
---------------------- listening intently to others. The servant-leader seeks to identify the will
of a group and helps to clarify that will. He or she listens receptively
----------------------
to what is being said and unsaid. Listening also encompasses getting
---------------------- in touch with one’s own inner voice. Listening, coupled with periods
of reflection, are essential to the growth and well-being of the servant-
---------------------- leader.
---------------------- 2. Empathy
---------------------- The leader strives to understand and empathise with others. People need
to be accepted and recognized for their special and unique spirits. One
---------------------- assumes the good intentions of co-workers and colleagues and does not
reject them as people, even when one may be forced to refuse to accept
---------------------- certain behaviours or performance. The most successful servant-leaders
---------------------- are those who have become skilled empathetic listeners.
3. Healing
----------------------
The healing of relationships is a powerful force for transformation
---------------------- and integration. One of the great strengths of servant-leadership is the
potential for healing one’s self and one’s relationship to others. Many
----------------------
people have broken spirits and have suffered from a variety of emotional
---------------------- hurts. Although this is a part of being human, servant-leaders recognise
that they have an opportunity to help make whole those with whom they
---------------------- come in contact. In his essay, The Servant as Leader, Greenleaf writes,
“There is something subtle communicated to one who is being served
----------------------
and led if, implicit in the compact between servant-leader and led, is the
---------------------- understanding that the search for wholeness is something they share.”
----------------------
----------------------
----------------------
Check your Progress 5
----------------------
State True or False. ----------------------
1. Praise and recognition are placed in the Theory X category and are
----------------------
considered stronger motivators than money.
----------------------
Motivating salespeople requires the skill of getting them to achieve their ----------------------
objectives while at the same time finding satisfaction from the job. This is the ----------------------
biggest challenge any sales manager faces. To successfully motivate the sales
force the sales managers need to understand the sales force in all respects. ----------------------
Understanding the sales force from the following perspectives facilitates
designing a appropriate motivational program: ----------------------
Motivational speakers widely make use of tapes, videos and seminars ----------------------
as a very effective motivational training tool. The purpose is to bring out the
----------------------
latent inner strengths of participants and apply to their jobs. These motivational
techniques have various benefits. ----------------------
●● Increase the productivity of sales personnel.
----------------------
●● Short and entertaining to keep the interest, so agents internalize the
behaviour. ----------------------
●● Keeps your training message consistent. ----------------------
●● Your sales people will gain the techniques, motivation and confidence to
prospect. ----------------------
---------------------- There is a strong evidence that team prizes are more effective than
individual prizes. For example, it is a good idea to divide a sales staff into two
---------------------- teams and give a major prize to winning team members and nice consolation
prizes to members on the second-place team.
----------------------
Full-Staff Contests
----------------------
It is also a very good idea to have a prize for all members of a sales staff
---------------------- if a sales department reaches a goal. In this manner a sales staff is competing
against itself, and everyone helps everyone else to improve the department’s
---------------------- performance. The full-staff contest is perhaps the best type of competition; it
reinforces the notion that the enemy is outside, not inside. Full-staff contests
----------------------
are being used by many companies to reward sales staffs for exceeding yearly
---------------------- ●● Over-selling
●● Post-contest slump
----------------------
It’s a well known fact that if you announce a sales contest too early your
---------------------- salespeople will hold on some sales and put them into the contest orders. One
way to defeat this is to announce a contest as retroactive to a prior date. That
---------------------- way your sales team will always sell to their potential, knowing that you’ll
---------------------- never penalize them.
In their pursuit to win and earn prizes the sales personnel over sell during
----------------------
the contest period. As a result there is lot of dumping of products with the dealers/
---------------------- distributors and may result in straining the organisational relationships with
them. The immediate time period after the sales contest will face a slump in the
---------------------- sales due to excessive dumping in the sales period. To overcome this company
should choose such time for the contest that the period after the contest; say a
----------------------
month or two would in any way be a slack period for the company. This slack
---------------------- time can be used to sending the sales people to take vacation or for training etc.
----------------------
----------------------
---------------------- ●● Exploration
●● Establishment
----------------------
●● Maintenance
---------------------- ●● Disengagement
---------------------- The motivational needs at the different stages are different. The sales
managers need to understand these changing requirement and design appropriate
---------------------- motivators to keep the sales personal motivate through out his career. Following
exhibit illustrates how they sales personnel need to be motivated through out
----------------------
their careers.
---------------------- Motivating salespeople throughout their career
---------------------- Career State Characteristics of Salesperson Sales Force Motivator
----------------------
----------------------
---------------------- As a sales manager, identify five objectives which you would like to achieve
through the sales contest being developed for your sales team.
----------------------
---------------------- Summary
----------------------
●● Effective leadership to a great extent differentiates successful and
---------------------- unsuccessful organisations. It is the process of influencing and supporting
the people. The sales manager by being a effective leader should be
---------------------- guiding, supporting, evaluating and controlling the activities of the sales
force. The sales managers, as leaders may be one of the various styles like
----------------------
autocratic, paternalistic, consultative, democratic and laissez fair type.
---------------------- ●● It is generally observed that however best the efforts are people tend to fail
most of the time. This is truer especially in the sales function. Motivation
---------------------- sustains positive energy among the sales people.
---------------------- ●● There are various theories of motivation which includes Maslow’s Need
Theory, Herzberg’s Two Factor Theory, Achievement and Goal Setting
---------------------- Theory which speak differently how the people get motivated and the
---------------------- different reasons.
●● There’re are various motivational tools employed by the sales
---------------------- organisations 1) using motivational tapes, videos, and seminars 2) selling
---------------------- to sales representatives as individuals 3) sales contests 4) creating a value
based motivated organisational culture. Motivation is an ongoing process
---------------------- hence the managers need to understand the changing motivational needs
with the changes in the career growth path of the sales personnel and
---------------------- design appropriate motivational tools.
----------------------
Keywords
----------------------
●● Legitimate Power: Derives from formally delegated authority and is
---------------------- recognized by others as necessary in achieving organisational objectives.
---------------------- It is based on a person’s position in a hierarchy.
●● Reward Power: Involves the ability to provide sub-ordinates with various
---------------------- benefits including money, praise or promotion.
---------------------- ●● Coercive Power: Comes from the ability to punish or withhold reward. It
is based on obtaining compliance through fear of punishment.
----------------------
●● Referent Power: Depends upon the leader’s ability to inspire and to
---------------------- connect with other influential people.
●● Intrinsic Motivation: Occurs when people are internally motivated
----------------------
to do something because it either brings them pleasure, they think it is
---------------------- important, or they feel that what they are learning is morally significant.
----------------------
Self-Assessment Questions
----------------------
1. Define leadership.
----------------------
2. Distinguish between leader and manager.
----------------------
3. Discuss various functions of a leader.
4. What types of various powers does the leader exercise? Discuss. ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
8
Structure:
8.1 Introduction
8.2 Marketing Audit
8.3 The Sales Audit
8.4 The 80:20 Principle
8.5 Iceberg Principle
8.6 What is Sales Analysis
8.7 Sales Analysis Framework
8.8 Marketing Cost Analysis
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
----------------------
---------------------- Sales personnel and all the members of the sales organisation up to the
sales manager plan and implement their sales plans and then analyse the sales
---------------------- data to determine if the sales team has reached the objectives. The past sales
and current data are used, compared to formulate their future sales plans. The
---------------------- achievement of the planned sales objective is the indication of the effectiveness
---------------------- of the sales force and the overall marketing efforts. The generation of desired
profits gives an indication that the sales have been achieved as per plan but also
---------------------- the expenses have been as per budgets. Unless the organisation earns profits in
the long run it cannot survive not withstanding how efficiently the sale force is
---------------------- managed.
---------------------- Profits for regions, zones, territories, for individual sales persons,
customers and at the aggregate level can be determined by using sales and
----------------------
marketing cost analysis. Therefore, the data on all the marketing inputs is
---------------------- of immense value to the sales managers which help them in taking rational
decisions. Such information is becoming basis for more and more organisations
---------------------- for planning their sales and marketing efforts. Sales and cost analysis will not
actually identify problems for the sales or marketing managers, but if done
----------------------
properly indicate the presence of the problems. The identification of the areas
---------------------- where the problem exists may facilitate changes resulting in improvement of
profits and sales.
----------------------
---------------------- The marketing audit is an evaluative tool to appraise the entire marketing
operation in a systematic and comprehensive manner. It is used to evaluate
---------------------- the degree the marketing function is integrated with company operations by
examining corporate marketing objectives, procedures and methods and by
---------------------- tracing areas of responsibility for their implementation. The marketing audit is
---------------------- designed to evaluate the total marketing operation, as opposed to singling out
----------------------
Check your Progress 1
----------------------
Fill in the blanks.
----------------------
1. The purpose of a Sales Audit is to give sales management feedback
on how to ______________ and _____________ people. ----------------------
2. Sales management must design a plan on how to improve performance ----------------------
and how to implement changes that are indicated by the ___________.
----------------------
----------------------
8.4 THE 80:20 PRINCIPLE
----------------------
In 1906, Italian economist Vilfredo Pareto created a mathematical formula
to describe the unequal distribution of wealth in his country, observing that ----------------------
twenty per cent of the people owned eighty per cent of the wealth. In the late
----------------------
1940s, Dr. Joseph M. Juran inaccurately attributed the 80/20 Rule
to Pareto, calling it Pareto’s Principle. While it may be misnamed, Pareto’s ----------------------
Principle or Pareto’s Law as it is sometimes called can be a very effective tool
----------------------
to help manage effectively.
After Pareto made his observation and created his formula, many ----------------------
others observed similar phenomena in their own areas of expertise. Quality ----------------------
Management pioneer, Dr. Joseph Juran, working in the US in the 1930s and 40s
recognised a universal principle he called the “vital few and trivial many” and ----------------------
reduced it to writing.
----------------------
The 80/20 Rule means that in anything a few (20 percent) are vital and
many (80 per cent) are trivial. In Pareto’s case it meant 20 per cent of the people ----------------------
----------------------
----------------------
---------------------- 1. The major use of sales analysis is to detect strengths and weaknesses
in the sales effort
----------------------
----------------------
Organisational
Type of Sales Type of Analysis
Level of Analysis ----------------------
Sales Organisation Total Sales Comparisons
Zones Type of Product within organisation ----------------------
Regions Type of Account with forecasts
Districts Type of ----------------------
Territories Distribution with previous period
Accounts Order Size with industry competitors
----------------------
Fig. 8.1: Sales Analysis Framework ----------------------
1. Analysis on the basis of the total sales volume
----------------------
The sales analysis starts with the analysis of the total sales for the
organisation for the current year and as well as the past years. The analysis can ----------------------
be for total dollar sales or total unit sales, product wise etc. This analysis of the ----------------------
past sales and the comparison give insight into how the company’s aggregate
sales figures for different products, total sales value are growing. Further it ----------------------
also gives an insight into the growth figures over the years which bring out the
direction in which the sales are moving. ----------------------
However while analysing the sales at the aggregate level the managers ----------------------
should always keep in mind the iceberg principle. The analysis at the aggregate
----------------------
level give the health of the sales but do not give insight into the performance of
the regions, territories of which all of them might not have done well. Table 8.1 ----------------------
gives us an idea as to how the industry is growing, the share of xyz company to
the industry sales so on. ----------------------
Table 8.1 : ABC Company Sales vs Industry Sales vs. (in Crore$) ----------------------
---------------------- ●● But in reality district 4 at 63% has faired very poorly whereas district 1 is
very close to quota at 97%
---------------------- ●● Performance wise district 5 appears to be the best with effective ness
index at 112 and growth @ 15% and market share at 27%.
----------------------
3. Sales Analysis by Representatives
----------------------
Table8.2 : ABC Company West Region Sales Rep. Performance (000$)
----------------------
Sales Representative Quota Actual Performance index
---------------------- Actual sales/quota
SR 1. 9.50 9.44 0.99
----------------------
SR 2. 10.80 10.08 0.93
---------------------- SR 3. 9.00 8.52 0.94
SR 4. 9.80 9.50 0.97
----------------------
SR 5. 12.60 10.10 0.80
---------------------- SR 6. 10.30 10.36 1.00
---------------------- TOTAL 62.00 58.00 0.94
----------------------
----------------------
----------------------
----------------------
Check your Progress 3
----------------------
Fill in the blanks.
----------------------
1. Sales analysis starts with the __________________ for the
organisation for the current year as well as the past years. ----------------------
----------------------
8.8 MARKETING COST ANALYSIS ----------------------
Marketing Cost Analysis also called Distribution Cost Analysis goes ----------------------
beyond sales volume analysis to investigate those selling expenses (Marketing
Costs) incurred in generating sales volume and thereby, determine the relative ----------------------
Profit contribution of segments have been worked out in Tables 8.3 and 8.4 ----------------------
----------------------
Check your Progress 4
----------------------
Fill in the blanks.
----------------------
1. Contribution Margin can be calculated by deducting cost of goods
sold from ______________ . ----------------------
----------------------
Activity 1 ----------------------
----------------------
Develop a sales analysis framework for a product and service company.
----------------------
----------------------
----------------------
----------------------
----------------------
---------------------- Keywords
---------------------- ●● Product Line : It is a collection of products, offered by a firm, that satisfy
similar needs for different target audiences. Thus, all products within a
----------------------
product line are related, but may vary in terms of size, colour, quality etc.
---------------------- ●● Performance Index : Percentage achievement of the budget.
---------------------- ●● 80:20 Principle : The Pareto Principle, also known as the 80-20 Rule,
states that a small number of causes (20%) is responsible for a large
---------------------- percentage (80%) of the effect. Also Known As: 80-20 Rule, Pareto’s
Law, Pareto’s Principle. The Pareto Principle is generally applied to
---------------------- vendors or customers in a retail setting. This rule assumes that 20% of the
---------------------- customers generate 80% of the sales, or that 80% of merchandise comes
from 20% of the vendors.
---------------------- ●● Variance Analysis : An analysis of the variation in the outcomes of an
---------------------- experiment to assess the contribution of each variable to the variation.
----------------------
Answers to Check your Progress
----------------------
Check your Progress 1
----------------------
Fill in the blanks.
----------------------
1. The purpose of a Sales Audit is to give sales management feedback on
how to evaluate and coach people. ----------------------
2. Sales management must design a plan on how to improve performance ----------------------
and how to implement changes that are indicated by the Sales Audit.
----------------------
Check your Progress 2
State True or False. ----------------------
1. True ----------------------
Check your Progress 3 ----------------------
Fill in the blanks. ----------------------
1. Sales analysis starts with the analysis of the total sales for the organisation
----------------------
for the current year as well as the past years.
Check your Progress 4 ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
9
Structure:
9.1 Introduction
9.2 Meaning of Sales Territory
9.3 Reasons for Establishing Sales Territories
9.4 Responsibility of Designing Sales Territories
9.5 Reasons for not Developing Sales Territories
9.6 Factors to be Considered while Designing Sales Territories
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
---------------------- Sales personnel are a very crucial resource deployed with the sales
manager. Therefore, it is his duty to ensure that he has in his team optimum
---------------------- number of people and is utilized properly. The sales manager through the territory
planning has to ensure affectivity of the sales personnel, ensure achievement
---------------------- of sales budgets and at the same time keep the sales force highly motivated.
---------------------- This calls for effective planning of the sales territories so that each of the sales
person in the team is given a well defined and balanced territory, well defined
---------------------- set of customers which the sales personnel is in a position effectively manage
in the available time.
----------------------
----------------------
----------------------
Check your Progress 1
---------------------- In spite of its stated advantages, developing sales territories does have
disadvantages. First, salespeople may be more motivated if they are not
---------------------- restricted by a particular territory and can develop customers wherever they
find them. In the chemical industry, for example, salespeople may be allowed to
---------------------- sell to any potential customer. However, after the sale is made, other company
---------------------- salespeople are not allowed to contact that client. Second, the company may be
too small to be concerned with segmenting the market into sales areas. Third,
---------------------- management may not want to take the time, or may not have the know-how,
for territorial development. Fourth, personal friendship may be the basis for
---------------------- attracting customers. For example, life insurance salespeople may first sell
---------------------- Once sales managers have selected the basic control unit or units and
carefully analysed salespeople’s workload, they are ready to determine how to
---------------------- design the sales territories.
---------------------- Step One: Forecast sales and determine sales potentials. Using the
forecasting methods discussed in Unit 5, the firm forecasts sales for its total
---------------------- market and for each geographic region. Sales potentials are also considered.
---------------------- Step Two: Determine the sales volume needed for each territory. Next,
management determines the level of sales needed to support each territory.
---------------------- Consideration must be given to all costs associated with the territory, including
---------------------- the salesperson’s salary and expenses.
Step Three: Determine the number of territories. The following are
----------------------
several ways to determine the number of territories needed to sell and service a
---------------------- firm’s market. The breakdown approach is the simplest. Steps 4 to 6 then will
be discussed.
----------------------
Once a firm determines the number, location, and size of customers and ----------------------
prospects, it needs to determine the frequency of sales calls and amount of time
----------------------
a call takes by using such data as:
●● Time required for each sales call. ----------------------
---------------------- The unprofitable accounts would not be called on; the key accounts and
regular accounts become target customers. Once the accounts have been broadly
---------------------- classified, categories or types of accounts can be defined in such terms as extra
large (key), large, medium and small-this will be referred to as the ELMS
----------------------
system. For example, management may divide the 3,000 accounts in the firm’s
---------------------- total market into these four basic sales categories, as shown in Table 9.2. As
can be seen from the table, although relatively few extra large or large accounts
---------------------- exist, these quite often account for 80 percent of a company’s profitable sales
even though they represent only 20 per cent of the total number of accounts.
----------------------
This is referred to as the 80/20 principle. Eighty per cent of a firm’s sales come
---------------------- from 20 per cent of customers.
----------------------
----------------------
----------------------
----------------------
----------------------
This method is simple and straightforward. Its main drawbacks are that ----------------------
salespeople are not alike in their abilities and that all customers do not have ----------------------
similar characteristics and requirements. For example, all salespeople would
not be able to average six daily calls. However, the method can be used in ----------------------
conjunction with management’s knowledge of its market.
----------------------
To revise the number of existing territories, some firms use the incremental
method. It is based on the assumption that an additional territory can be added ----------------------
if profit contributions from sales in the territory exceed the costs of the territory.
Thus, territories are added until the incremental profit contribution from the last ----------------------
additional territory equals the territory’s incremental cost. To use this approach, ----------------------
management must know (i) the sales potential of an area, (ii) the selling costs,
and (iii) the costs of production and distribution. ----------------------
----------------------
----------------------
----------------------
In this example, a territory can be added to the sales force because ----------------------
forecasted sales exceeded costs, leaving a profit contribution of Rs. 8,500. ----------------------
However, this conclusion is based on the assumptions that the increase in sales
was due to the added salesperson and that the creation of a new territory would ----------------------
not affect other territories.
----------------------
This method is particularly appropriate for the firm expanding its markets
into previously uncovered or understaffed areas. The major element to consider ----------------------
is the territory’s total incremental or marginal cost relative to its incremental
----------------------
or marginal revenue. Although it is assumed the cost of hiring an additional
salesperson will be the same as the cost of the existing salespeople, the new ----------------------
salesperson’s sales will be lower than those of other salespeople in the region.
This is true because the region’s sales potential will decrease faster than ----------------------
sales will increase as salespeople are added. Thus, as shown in Table 9.5, as
----------------------
salespeople are added, the profit generated by each new salesperson decreases.
Personnel in this sales region could be increased to 11 salespeople for a net ----------------------
profit contribution of Rs. 1,000. Beyond this, a loss occurs even though sales
are increasing. The addition of the 12th person increases sales by Rs. 80,000 but ----------------------
causes a profit loss of Rs.5,000.
----------------------
The drawbacks to using the incremental method center on the difficulties of
estimating marginal sales directly produced by the added salesperson, marginal ----------------------
costs, and production and distribution costs. This method is theoretically
----------------------
attractive but sometimes impractical because of the difficulty of making these
estimates. ----------------------
Step Four: Tentatively establish territories. New territories now can ----------------------
be tentatively formed. If possible, each territory should have the same sales
potential. This helps in properly evaluating and compensating salespeople. ----------------------
The entire market can be divided into regions, regions into districts, and ----------------------
districts into sales territories. Contiguous territorial control units can be used to
form one territory. If a company selling nationally has 18 salespeople, it might ----------------------
use states to form territories. If it is a regional office-supply firm selling in
several states, it could use countries and cities as its basic control unit. ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Major city pattern 1-Downtown ----------------------
----------------------
2 3
----------------------
1
----------------------
5 4
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
hopscotch cloverleaf
----------------------
Fig. 9.1: Major City Routing Pattern
With the example territories and focal point above, the cloverleaf routes ----------------------
would probably require less travel time if such routing is possible on existing ----------------------
roads.
The above circular area was divided into five equally sized territories ----------------------
with a focal point at the center. A route to visit customers in the territories was ----------------------
then drawn in either a circular clover leaf pattern or in a hopscotch pattern. This
way of making territories and of routing sales calls would be appropriate if, ----------------------
say, five salespeople reported to a common office in the center. It would also be
appropriate if, say, a single salesperson was assigned to a remote territory and ----------------------
must divide the territory into five daily routes to visit customers once per week. ----------------------
Territories with a Central Focal Point : The Ray Sweep Method
----------------------
In the above example, all territories met at a central point. This could be
a centralized office out of which all salespeople work. This sort of design could ----------------------
also be appropriate for a route salesperson who must visit customers once per
----------------------
week, with a Monday route, a Tuesday route, and so on.
To generate territories of approximately equal workload, divide the total ----------------------
Summary ----------------------
●● Managing time and territory is the most important factor to be considered ----------------------
when carrying out their selling duties. The sales territory is a group of
----------------------
customers or a geographic area assigned to a sales person. It is usually
developed by the sales manager. ----------------------
●● Developing sales territories has advantages as well as disadvantages. Sales
----------------------
people may be more motivated if they are unrestricted, or the company
may be too small to justify segmenting the market. Also, the manager ----------------------
may not want or have the knowledge to develop territories.
----------------------
●● Sales force objectives are converted into individual sales territorial goals.
The design of a territory is important to successful selling. Territorial ----------------------
boundaries are based on states, cities, metropolitan areas, trading areas or
based on major accounts. ----------------------
●● The three main influences affecting the sales personnel’s workload are ----------------------
nature of job, intensity of market coverage and products sold.
----------------------
●● Before designing the sales territories, managers must consider six factors.
First, they must forecast and determine the sales volume needed for ----------------------
each territory. Next, they must determine the number of territories. They
can use the breakdown approach or the equalized workload. Once the ----------------------
number and location of customers are determined, the key accounts must
----------------------
be established by their equal sales potentials. Managers determine the
number of accounts for each territory by dividing the number of accounts ----------------------
by the number of sales people in each territory. The last step is to finalize
territories and draw boundary lines. ----------------------
●● The customer contact plan includes scheduling sales calls and routing a ----------------------
salesperson’s movement around the territory. Routes should be planned
carefully so no time is wasted in travelling. The telephone can be used to ----------------------
save time.
----------------------
Keywords ----------------------
----------------------
----------------------
----------------------
10
Structure:
10.1 Introduction
10.2 What is Key Account Management
10.3 Objectives of Key Account Management
10.4 Criteria of Defining a Key Account
10.5 Traditional and Key Account Paradigms
10.6 The Stages in Key Account Management
10.7 Future Trends and Challenges of Key Account Management
10.8 Benefits of Key Account Management
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
----------------------
10.1 INTRODUCTION
----------------------
Key Account Management is the strategic marketing approach which
---------------------- provides an effective, practical and rather simple method for companies interested
---------------------- in increasing their profits by correct customer and relationship management. In
companies in which data is decentralized in business units, the implementation
---------------------- of a Key Account program passes through the accounts selection problem, and
through the implementation process, that can be understood like a Knowledge
---------------------- Discovery in Database process where the goal is to search for accounts under
---------------------- given restrictions in the marketing utility function.
Since the globalization and the maturity of business markets have
---------------------- increased the buying power of customers, one of the Strategic Marketing goals
---------------------- is to identify appropriate marketing tools to analyse customer management
and marketing operations. The concept of Key Account Management (KAM)
---------------------- emerged from the Strategic Marketing with the purpose of providing an effective,
practical and rather simple method for companies interested in increasing their
---------------------- profits by right customer and relationship management. Despite this approach
---------------------- has become usual in business-to-business marketing relationship, most retailers
and service companies have been greatly benefited from it, building a portfolio
---------------------- of Key Accounts by Key Account Management (KAM) is a natural development
of customer focus and relationship marketing in business-to-business markets.
---------------------- It can offer critical opportunities for profit enhancement for both the seller and
---------------------- the buyer, if it is managed with integrity and imagination. The scope of KAM
is widening and at the same time becoming more complex. This means that
---------------------- the skills of those involved, both at strategic and operational levels, need to be
continuously updated and developed.
----------------------
The need for Key Accounts Management (KAM) arises from the
---------------------- consolidation of buying points, in industrial and retail organisations. Within
industrial and commercial organisations buying is becoming more professional
----------------------
and concentrated, with concern for greater efficiency in supply chain
---------------------- management, improved margins, reducing costs and so on.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
10.3 OBJECTIVES OF KEY ACCOUNT MANAGEMENT
----------------------
Marketing and Sales
----------------------
●● Improved customer insight
●● Understanding of customer needs ----------------------
●● Understanding of usage patterns ----------------------
●● Better product knowledge
----------------------
●● Better access to marketing material
●● Better competitor information ----------------------
●● Improved performance information ----------------------
●● Measurable goals
----------------------
●● Link between Business Plan strategy and Customer strategy
Customer ----------------------
●● Better product information ----------------------
●● Better information on services
----------------------
●● Better understanding of reimbursement
●● Better product benefits knowledge ----------------------
●● Ability to raise individual profile ----------------------
●● Increased end users
●● Provide resource input ----------------------
----------------------
10.4 CRITERIA OF DEFINING A KEY ACCOUNT
----------------------
Key account classification criteria
----------------------
●● Customers responsible for example 80% of revenue.
●● Customer with over for example Rs. 1.5 crores sales per year. ----------------------
●● Customer with potential of for example factor: Rs.2 crores sales within ----------------------
2 years.
●● Customer generating for example Rs.8,00,000 profit. ----------------------
●● Customer responsible for example 2% or more of the market in units or ----------------------
value.
●● Customer with contribution for example above 5% ----------------------
Key accounts typically purchase a very large volume from the supplier. ----------------------
Further, exchange between buyers and seller extend beyond a ‘core product,’
as sellers augment the product to provide additional services and support ----------------------
not usually available to other customers. Enhancing customer value through ----------------------
programs such as vendor managed inventory, joint production planning and
scheduling for just-in time (JIT), inventory management, and collaborative ----------------------
quality improvement efforts requires significant commitments by a seller.
----------------------
In key account relationships, the focus of exchanging parties is usually
broader than that involved in traditional sales exchanges. Whereas traditional ----------------------
sales management objectives typically concentrate on increasing revenue, key
----------------------
account relationships involve more multifaceted goals. For example, firms may
engage in closer relationships to lower total costs to both sides by reducing ----------------------
seller’s selling and servicing costs and the buyers acquisition costs. Other
benefits of KAM include the management of uncertainty and/or dependence ----------------------
and the establishment of control over the direction of an industry.
----------------------
In order to deliver a broader base of value effectively to large and important
customers, the interpersonal contact between the buying and selling firms must ----------------------
extend beyond the salesperson-purchasing agent/decision maker relationship.
----------------------
Key account relationships are typically long-term, involve high
interdependence and demand high levels of commitment from both parties. ----------------------
The seller’s dependence may initially emerge from the high purchase volume
----------------------
and demands placed by the customer. But if the seller learns more about the
customer’s operations, provides extra services and effectively delivers a higher ----------------------
level of role performance, the buyer’s switching cost and dependence are raised.
One of the primary objectives of many key account management programs is ----------------------
to provide value and thus keep a buying firm from viewing the exchanges as a
----------------------
commodity purchase.
----------------------
10.6 THE STAGES IN KEY ACCOUNT MANAGEMENT
----------------------
The main stages in key account management are summarized in figure.
This highlights that managing major customers is a lot more than just calling to ----------------------
make presentations. In fact, the frequency of presentations to major accounts is ----------------------
low, but the allocation of time in developing an understanding of their business,
building relationships with a network of decision makers and influencers, and ----------------------
monitoring their performance against agreed objectives is large. A key account
manager will typically have a small portfolio of accounts to manage. While ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Fill in the blanks.
State True or False. ----------------------
1. In the trade channel mapping stage, the action taken is like using of ----------------------
knowledge in developing presentation strategies.
----------------------
---------------------- Compared to the past, the changes that are taking place in word economy
are happening at mind boggling place. The world is reduced to a seamless market.
---------------------- Therefore, in the past where one country would look to be a large market, today
the world looks like a big village. Thanks to the technology which has increased
----------------------
interaction of organisations with their customers, globalisation of customers,
---------------------- increase in sales, marketing and service efficiencies using automation tools.
---------------------- Over the last 15-20 years there has been a evolution in supplier-base
management. In the first stage supplier base reduction, customers focused on
---------------------- buying the same components or parts from fewer suppliers. Now customers are
further reducing their suppliers and dealing directly with only their designated
---------------------- primary suppliers. They accept these primary suppliers, in turn, to take on the
---------------------- responsibility of monitoring and managing secondary/other smaller suppliers. In
order to continue being suppliers to their key accounts, primary suppliers have
---------------------- to redefine significantly the scope of these relationships, taking on additional
roles and responsibility. For example, one industrial customer now expect its
---------------------- electrical component supplier also to manage the customer’s physical plant
---------------------- service operations. Seller needs to make conscious decisions about whether
it is worthwhile for them to take on these additional responsibilities and they
---------------------- must understand how these decisions could affect their ability to serve other
customers.
----------------------
The second trend is emergence of global customers. As a result of
---------------------- globalization and lateral movement of organisations across the continents
they have been transformed from being a regional, national organisation to
----------------------
a multinational organisation having world wide presence. In most cases, the
---------------------- global organisations, in their quest to maintain standardisation in the quality of
their products and services source the products centrally but want the vendors
---------------------- to supply the products locally. These organisations are inclined to deal with
only such supplying organisations that are prepared to make substantial global
----------------------
investments.
---------------------- Therefore, understanding the implications of developing global service
---------------------- will be a very critical area for sellers. It is therefore not wise to conclude that
going global is to scaling up national level KAM programs. To service such
---------------------- global organisations the companies therefore need to develop a sales force
with global outlook dedicated to support key accounts. Since the operations
---------------------- would have international implications involving different countries therefore
---------------------- understanding the local country regulations, market conditions cultures and
competitive situations in different markets is a must. This is definitely going to
---------------------- make the key account management a very complex and complicated task.
---------------------- The third trend is increased use of the internet. The internet has the
potential to redefine interactivity in various stages of buyer-seller transactions.
---------------------- For example, customer can now use the internet to access any information that is
----------------------
----------------------
Activity 1
----------------------
---------------------- Design a key account management strategy for selling of office furniture to
Ministry of Finance, Government of India.
----------------------
----------------------
----------------------
----------------------
●● Key Account Management (KAM) is one of the approaches calling for ----------------------
customer focus of such customers which are strategically important for the
----------------------
organisation. Key Account Management (KAM) is a natural development
of customer focus and relationship marketing in business-to-business ----------------------
markets. The need for Key Accounts Management (KAM) arises from
the consolidation of buying points, in industrial and retail organisations. ----------------------
●● There are various objectives of Key Account Management like Improved ----------------------
customer insight understanding of customer needs, understanding of usage
patterns, better product knowledge, better access to marketing material, ----------------------
better competitor information, improved performance information,
----------------------
measurable goals, and link between Business plan strategy and customer
strategy for sales and marketing organisations. For the customers the ----------------------
benefits are better product information, better information on services,
better understanding of reimbursement, better product benefit knowledge, ----------------------
ability to raise individual profile and increased end users.
----------------------
●● There are six states in key customer management. They are trade channel
mapping, developing key account profiles, getting to know the buyer, ----------------------
account penetration and development, setting key account sales objectives
----------------------
and key account negotiating.
●● Compared to the past the changes that are taking place in word economy ----------------------
are happening at mind boggling place. The world is reduced to a seamless
market. Therefore, in the past where one country would look to be a large ----------------------
market, today the world looks like a big village. Thanks to the technology ----------------------
which has increased interaction of organisations with their customers,
globalisation of customers, increase in sales, marketing and service ----------------------
efficiencies using automation tools.
----------------------
●● The trends challenging KAM are supplier base reduction, customers
focused on buying the same components or parts from fewer suppliers. ----------------------
The second trend is emergence of global customers. The third trend is
increased use of the internet. The internet has the potential to redefine ----------------------
interactivity in various stages of buyer-seller transactions. Lastly, recent ----------------------
advances in the power of computing hardware and software and the
availability of communications technologies. ----------------------
●● The benefits of key account management are increase sales effectiveness ----------------------
by pursuing high potential accounts and opportunities, increase market
share and revenue within existing accounts, increase profitability ----------------------
through development of the appropriate product and service offering for
the customer, provide opportunities to contribute to the success of the ----------------------
customer, improve customer retention through stronger relationships and ----------------------
increased client satisfaction that facilitate the allocation of marketing and
sales resources ----------------------
----------------------
----------------------
Suggested Reading
----------------------
1. Bowersox, Logistical Management: The Integrated Supply Chain Process.
---------------------- 2. Calvin, Robert J. Sales Management.
---------------------- 3. Chopra, Supply Chain Management.
4. Ghoshal, World Class in India. Penguin India.
----------------------
5. Lamba, A.J. The Art of Retailing.
---------------------- 6. Scheuing, Kurtz, Johnson. Sales Management: Concepts, Practices and
Cases.
242 Sales and Distribution Management
PART - II
DISTRIBUTION MANAGEMENT
Introduction to Distribution Management
UNIT
1
Structure:
1.1 Introduction
1.2 Understanding Distribution Channels
1.3 Scope of Distribution Channels
1.4 Functions of Distribution Channels
1.5 Multiple Channels of Distribution
1.6 Types of Channel Members
1.7 Benefits Offered by Channel Members
1.8 Physical Distribution Management (PDM)
1.9 Systems or Total Approach to PDM
1.10 Distribution Resource Planning (DRP)
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
----------------------
1.1 INTRODUCTION
----------------------
Marketing channels always emerge from the demands of a marketplace.
----------------------
However, markets and their needs are always changing. It’s true, that marketing
---------------------- channels operate in a state of continuous evolution and transformation.
Channels of distribution must constantly adapt in response to changes in the
---------------------- global marketplace. Remember - Nothing endures but change.
---------------------- At the beginning of the nineteenth century, most goods were produced
on farms. The point-of-production had to be close to the point of-consumption.
---------------------- But soon afterward, the Industrial Revolution prompted a major shift in the
American populace from rural communities to emerging cities. These urban
----------------------
centers produced markets that needed larger and more diverse bundles of goods
---------------------- and services. At the same time, burgeoning industrialisation required a larger
assortment of production resources, ranging from raw materials to machinery
---------------------- parts. The transportation, assembly and reshipment of these goods emerged as
a critical part of production.
----------------------
During the 1940s, the U.S. gross national product (GNP) grew at an
---------------------- extraordinary rate. After World War II ended, inventories of goods began to
stockpile as market demand leveled off. The costs of dormant inventories-
----------------------
goods not immediately convertible into cash-rose exponentially. Advancements
---------------------- in production and distribution methods now focused on cost-containment,
inventory control and asset management. Marketers soon shifted from a
---------------------- production to a sales orientation. Attitudes like “a good product will sell itself”
or “we can sell whatever we make” receded. Marketers confronted the need to
----------------------
expand sales and advertising expenditures to convince individual customers
---------------------- to buy their specific brands. The classic four Ps classification of marketing
mix variables-product, price, promotion and place-emerged as a marketing
---------------------- principle. Distribution issues were relegated to the place domain.
---------------------- This new selling orientation inspired the development of new
intermediaries, as manufacturers sought new ways to expand market coverage
---------------------- to an increasingly mobile population. The selling orientation required that more
---------------------- “A business that does not manufacture its own products but purchases and
resells these products”.
----------------------
Since the distributors are expected to meet the demands of the retailers,
---------------------- they always maintain stocks, which are generally paid, to replenish the
stocks as required by the retailers.
----------------------
3) Retailer
----------------------
The terminal point in the channel is the retailer who sells goods and
---------------------- services directly to the customer for their personal, non-business use.
---------------------- The term distribution channel is often used interchangeably with “sales
channel” or “marketing channel”, i.e. in addition to distribution or selling
---------------------- of products they carry out lot of marketing functions negotiation, sales
promotion, take the title of goods, give feedback to the organisation, market
----------------------
development etc.
---------------------- Therefore it can be said that distributors include “All enterprises
---------------------- that sell products to retailers and other merchants, industrial, institutional,
and commercial users-but do not sell in significant amounts to the ultimate
---------------------- customer”.
----------------------
Check your Progress 1
----------------------
----------------------
1.3 SCOPE OF DISTRIBUTION CHANNELS
----------------------
According to the above definition, most companies that are involved with
---------------------- the disbursement of raw materials and finished products, belong in one sense or
another, to the distribution industry. Distribution involves a number of activities
----------------------
centered around physical flow of goods and information. At one time the term
---------------------- distribution applied only to the outbound side of supply chain management, but
it now includes both inbound and outbound. Management of the inbound flow
---------------------- involves these elements:
---------------------- ●● Material planning and control
----------------------
1.4 FUNCTIONS OF DISTRIBUTION CHANNELS ----------------------
There are a number of critical functions performed by the channel ----------------------
distributor. Ross describes these functions as:
----------------------
1. Product acquisition : This means acquiring products in a finished or semi-
finished state from either a manufacturer or through another distributor ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Fig. 1.1 : Multiple Channels & distribution ----------------------
Channel activities may be carried out by the marketer or the marketer may ----------------------
seek specialist organisations to assist with certain functions. We can classify
----------------------
specialist organisations into two broad categories: resellers and speciality
service firms. ----------------------
----------------------
Check your Progress 3
----------------------
Fill in the blanks. ----------------------
1. The distributors are the ______________ of the company.
----------------------
2. Companies depend on distributors to _____________ that can help to
improve the product. ----------------------
----------------------
----------------------
----------------------
Check your Progress 4
----------------------
State True or False.
----------------------
1. The distribution process begins when a supplier gives an order to a
customer. ----------------------
----------------------
The need for more detailed distribution planning led to the emergence of ----------------------
distribution requirements planning (DRP) during the 1970s. DRP is a widely ----------------------
used and potentially powerful technique for helping outbound logistics systems
to manage and minimise inbound inventories. This concept extended the time- ----------------------
phase order point found in material requirements planning (MRP) logic to the
management of channel inventory. By the 1980s DRP had become a standard ----------------------
approach for planning and controlling distribution logistics activities and had ----------------------
evolved into distribution resource planning. The concept now embraces all
business functions in the supply channel, not just inventory and logistics and is ----------------------
termed DRP II.
----------------------
DRP is usually used with an MRP system, although most DRP models
are more comprehensive than stand-alone MRP models and can schedule ----------------------
transportation. The underlying rationale for DRP is to more accurately fore-cast
----------------------
demand and then use that information to develop delivery schedules. This way,
distribution firms can minimise inbound inventory by using MRP in conjunction ----------------------
with other schedules.
----------------------
One of the key elements of DRP is the DRP table, which includes the
following elements: ----------------------
●● Forecast demand for each stock-keeping unit (SKU) ----------------------
●● Current inventory level of the SKU
----------------------
●● Target safety stock
----------------------
●● Recommended replenishment quantity
----------------------
●● Replenishment lead time.
The concept of DRP very closely mimics the logic of MRP. As with MRP, ----------------------
gross requirements consist of actual customer orders, forecasted demand or ----------------------
some combination of both. Scheduled receipts are the goods, the distributor
expects to receive from orders that already have been released, while goods that ----------------------
already are received and entered into inventory constitute the on-hand inventory
balance. Subtracting scheduled receipts and on-hand inventory from gross ----------------------
----------------------
Activity 1
----------------------
---------------------- Visit the market in your vicinity and describe the distribution channel
structure for FMCG products.
----------------------
---------------------- Summary
---------------------- ●● Distribution channels have evolved over a period of time. Due to the
---------------------- constant evolution in the marketing environment, innovations and
advancements in the technology, growing consumer demand for all the
---------------------- products across the board, it became essential to reach consumers over a
wide geographical area. Hence the evolution of distribution channels over
---------------------- period of time.
---------------------- ●● The structure of distribution channel consists of manufacturer, distributor
and retailer. the scope of distribution channels involve material planning
---------------------- and control purchasing, receiving, physical management of materials
via warehousing and storage, materials handling, order processing,
----------------------
warehousing and storage, finished goods management, material handling
---------------------- and packaging, shipping and transportation.
●● The functions of distribution channel include product acquisition, product
----------------------
movement, product transaction, sorting, accumulating, allocation,
---------------------- assorting and bulk breaking in addition to performing the functions
----------------------
----------------------
2
Structure:
2.1 Introduction
2.2 What is Retailing
2.3 Functions of Retailers
2.4 Retail Formats
2.5 Retail Ownership
2.6 Retail Strategies
2.7 Technology in Retail
2.8 Radio Frequency Identification (RFID) in Retail
2.9 Challenges to Retailers
2.10 Wholesale Markets
2.11 Meaning of Wholesaling
2.12 Benefits of Wholesaling
2.13 Functions of Wholesalers
2.14 Wholesale Formats
2.15 Types of Wholesalers
2.16 Appointment of Distributors
2.17 Concerns of Wholesalers
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
----------------------
2.1 INTRODUCTION
----------------------
Retail is the industry we live with day in day out. A retailer is a part
---------------------- and parcel of our day to day life. With eleven million retailers in the country,
Retailing consists of all activities involved in selling goods and services to the
---------------------- ultimate consumers for final consumption. Retailer by making the products
available to the consumers within arms length at the right time confers the time
----------------------
and place utility to the consumers. By undertaking various functions the retailer
---------------------- adds value to the consumers. On the other hand by taking part in various flows,
is of immense value to the manufacturers in making the products available to the
---------------------- consumers. India is known as a country of retailers. In our country retail is the
second largest sector next to agriculture. Retail sector approximately employs
----------------------
around eight percent of total workforce of the country. The retail sector is highly
---------------------- fragmented in terms of ownership and is dominated by the traditional formats.
---------------------- Wholesaling comprises all the activities involved in selling goods and
services to the intermediaries in the distribution channel for resale or for making
---------------------- other products or for general business operations. For example, a retailer buys
products from the wholesalers for resale to the consumers or a baker buys wheat
---------------------- flour for baking breads or an organisation might buy various raw materials for
---------------------- making further finished products. Firms primarily engaged in wholesaling
activity are called wholesalers. Wholesalers by participating in all the channel
---------------------- flows render invaluable service both to the manufacturers on the one hand and
the retailers on the other.
----------------------
----------------------
Is a type of retail mix that the retailer adopts, which includes the following ----------------------
factors:
----------------------
●● The nature of merchandise and services offered
----------------------
●● The pricing policy
●● The retailers approach to advertising and promotional programs ----------------------
●● The choice of location preferred ----------------------
●● Size of the store
----------------------
Deciding on retail format is the most essential component of retail strategy.
----------------------
Since we have presented ways in which retailers can be classified, we can
now use these categories to distinguish general formats or business models that ----------------------
best describes a retail operation. These categories are designed to identify the
primary format, a retailer follows. In some cases, particular with the advent of ----------------------
the internet, a retailer will be involved in more than one format. ----------------------
1. Mom-and-Pop
----------------------
Represent the small, individually owned and operated retail outlet. In many
cases, these are family-run businesses catering to the local community. ----------------------
For example the kirana, general stores, pan/bidi shops etc.
----------------------
2. Convenience Stores
----------------------
As the name implies these general merchandise retailers cater to offering
customers an easy purchase experience. Convenience is offered in many ----------------------
ways which includes through easily accessible store locations, small
store size that allows for quick shopping, and fast checkout. The product ----------------------
selection offered by these retailers is very limited and pricing can be high.
----------------------
They provide high level of convenience and sell mostly food and
essential items. Product is usually priced low and easy to obtain. Offer ----------------------
limited variety of assortment. The stores are conveniently located and
----------------------
the checkout if speedier. Stores are usually 1500 to 8000 sq. ft. in area.
Modern version of POP & MOM grocery stores. The products sold have ----------------------
following characteristics:
----------------------
• Low cost items.
• Regularly consumed. ----------------------
----------------------
Activity 1 ----------------------
----------------------
Give the names of two stores the following categories in your city:
----------------------
a) Convenience stores b) Departmental Stores c) Franchisee
d) Consumer co-operatives ----------------------
----------------------
2.5 RETAIL OWNERSHIP
----------------------
1. Individually Owned and Operated ----------------------
Under this ownership structure, an individual or corporate entity owns
----------------------
and operates one or a very small number of outlets. Single ownership of
retail outlets most frequently occurs with small retail stores, though there ----------------------
are some cases, for instance in the automotive or furniture industries,
where single ownership involves very large outlets. For example the ----------------------
various retail stores we see around us which are individually owned like
----------------------
the kirana and general stores in our locality.
----------------------
----------------------
i. Stand-Alone - These are retail outlets that do not have other ----------------------
retail outlets connected.
----------------------
ii. Strip-Shopping Center - A retail arrangement with two or
more outlets physically, connected or that share physical ----------------------
resources (e.g., share parking lot). ----------------------
iii. Shopping Area - A local center of retail operations containing
----------------------
many retail outlets that may or may not be physically
connected but are in close proximity to each other such as a ----------------------
city shopping district.
----------------------
iv. Regional Shopping Mall - Consists of a large self-contained
shopping area with many connected outlets. ----------------------
b) Non-Store Sellers ----------------------
A fast growing method used by retailers to sell products, is through ----------------------
methods that do not have customers physically visiting a retail
outlet. In fact, in many cases, customers make their purchase from ----------------------
within their own homes.
----------------------
i. Online Sellers - The fastest growing retail distribution method
allows consumer to purchase products via the internet. In ----------------------
most cases, delivery is then handled by a third-party shipping
----------------------
service.
ii. Direct Marketers - Retailers that are principally selling via ----------------------
direct methods, may have a primary location that receives ----------------------
----------------------
----------------------
Retailing is all about giving experience which a consumer should cherish ----------------------
and continue patronising the retail chain. The large retailers like Wall Mart,
----------------------
Tesco, Sears, A&P have global presence with thousands of retail stores, stock
keeping units running into thousands, suppliers spread across the globe, ----------------------
millions of workers and millions of transactions every day. Operations of such
dimension cannot be carried out manually. This calls for use of technology in ----------------------
each and every function thereby increasing the operational efficiency and at the
----------------------
end of the day giving a shopping experience to the customers which alone leads
to profit. ----------------------
1. Product information/ordering kiosk ----------------------
The product information/ordering kiosk is an easy-to-use computer ----------------------
and touch-screen video display that provides shoppers with additional
information about products in the store as well as offering an expanded ----------------------
selection of items that can be special ordered. If a product is available
----------------------
in the store, the kiosk prints a map of the store and highlights the item’s
location. ----------------------
2. Frequent shopper kiosk ----------------------
The frequent shopper kiosk consists of a computer and touch-screen video
display located near the entrance of the retail store. When consumers ----------------------
insert a frequent shopper card into the kiosk, it displays a customised ----------------------
set of products and promotions based on the shopper’s past purchases.
It can also display recipes, special offers, samples and sweepstakes ----------------------
opportunities. The system automatically deducts electronic coupons at
checkout.This frequent shopper kiosk provides tailored information about ----------------------
products, specials and promotional items. ----------------------
3. Virtual display Case
----------------------
The “virtual display case” is a large-screen, rear-projection video display
and computer graphics system which shows realistic, three-dimensional ----------------------
images of shelves stocked with products. Located near a store’s entrance, ----------------------
it allows customers to view and purchase a wider selection of items than
could be carried in the store itself. Consumers wear a pair of 3-D glasses, ----------------------
available in a bin on the side of the display, to view the stereo images. The
device has a hand-held controller and joystick that allows consumers to ----------------------
---------------------- Consumers enter a private scanning booth, where a computer uses video
cameras to take body measurements from several angles and then generates
---------------------- a 3-D model. Consumers can then select from a variety of clothing styles
in assorted colors and the computer will show them an image of their
---------------------- body wearing the finished clothing. When consumers see something they
---------------------- like, they can order the clothes, which will be custom-manufactured for
their unique measurements.
----------------------
7. Self scanning
---------------------- The self-scanning system is a hand-held product barcode reader, similar
---------------------- in size and shape to a wireless telephone handset. It is used by consumers
to scan and tally their purchases while shopping. Consumers obtain a
---------------------- scanner from a dispenser rack by swiping their store-issued identification
8. Self-checkout ----------------------
----------------------
----------------------
For food and drug, notification could be sent when RFID-tagged ----------------------
merchandise was approaching an expiration date, becoming obsolete to ----------------------
newer models or seasonal change, or ‘going bad’ as indicated by sensors
attached to the merchandise. Store personnel could move that time- ----------------------
sensitive merchandise to the front of the shelf, reduce its price to promote
faster sale, or ship it to a store with greater demand. ----------------------
Store could use RFID tag readers to authenticate merchandise received ----------------------
from suppliers or from customers doing returns. This of course acts for
the customer’s protection as well as the protection of the store against ----------------------
defective merchandise in its inventory. ----------------------
----------------------
---------------------- RFID can be used in conjunction with electronic shelf labels to automate
pricing based on the number of items on the shelf (and available from
---------------------- the stockroom) and rules set up by store. For example, if the store were
trying to clear out items, RFID could be used to automatically reduce
----------------------
prices based on inventory remaining to be sold at any point of time.
---------------------- Alternatively, when certain popular items were in short supply (e.g., at
Christmas time), the price can be automatically raised. The new price
---------------------- would automatically be associated with the item at checkout.
---------------------- 11. PDA-based shopping lists that interact with RFID tagged merchandise
and store map
----------------------
If the shopper came into the store with a shopping list on a mobile
---------------------- electronic device, such as a personal digital assistant, the shopper could
transmit the list to the store. The store would then use RFID to locate
---------------------- the shopper (identified by an RFID tagged hand-held device or loyalty
card) and the RFID tagged items on the list. It would transmit to the
----------------------
mobile device a path for finding the things on the list. The shopper could
---------------------- be alerted to items on the list and associated promotions as they were
approached. Based on shopper characteristics stored on a database, the
---------------------- system could suggest either the most direct route or one that takes the
shopper past items that may be of interest even though they were not on
----------------------
the list.
----------------------
----------------------
----------------------
State True or False.
----------------------
1. RFID allows virtually simultaneous and instantaneous reading of
multiple tags in the vicinity of the reader. ----------------------
----------------------
2.9 CHALLENGES TO RETAILERS ----------------------
Retailers are faced with many challenges as they attempt to be successful. ----------------------
The key areas include:
----------------------
1. Customer Satisfaction - Retailers know that satisfied customers are
loyal customers. Consequently, retailers must develop strategies intended ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
As we see, the wholesale markets around us, we find that wholesale ----------------------
market is part of every city; town and all the product categories across the board ----------------------
have their respective wholesale markets. These whole sellers sell products of
all the companies in the industry in a particular product category and such ----------------------
many traders located in close proximity of each other comprises of wholesale
markets. For example we see around us wholesale market for grains, stationery, ----------------------
garments, hosiery, automobiles spare parts etc. Such wholesalers do not buy ----------------------
products directly from the company but source them from the distributors. Say
for example a wholesaler selling products like general merchandise including ----------------------
Colgate tooth paste will buy products from the distributor for the company
of his area. However there are certain product category where the company ----------------------
supplies products directly to the wholesalers who are called dealers or stockist ----------------------
who in turn sell to smaller traders and or retailers.
----------------------
----------------------
----------------------
2.12 BENEFITS OF WHOLESALING
----------------------
The benefits wholesalers offer to members of the channel can be
----------------------
significant. However specific benefits vary by type of wholesaler. Yet there are
---------------------- two particular benefits - one for suppliers and one for retailers.
Provide Access to Products
----------------------
Wholesalers are in business to provide products and services to buyers
---------------------- (e.g., retailers) who either cannot purchase directly from suppliers because
their purchase quantities are too low to meet the supplier’s minimum order
----------------------
requirements or, if they purchase directly from suppliers, will pay higher
---------------------- prices compared to bigger retailers who obtain better pricing by purchasing
in greater quantities. Since wholesalers sell to a large number of buyers their
---------------------- order quantities may match those of large retailers thus allowing them to obtain
lower prices from suppliers. Wholesalers can then pass these lower prices along
----------------------
to their buyers, which can enable smaller retailers to remain competitive with
---------------------- larger rivals. In this way transacting through wholesalers is often the only way
certain retailers can stay in business.
----------------------
Provide Access to Markets
---------------------- Providing smaller retailers access to products they cannot acquire without
---------------------- wholesaler help offers a benefit for suppliers as well since it opens additional
market opportunities for suppliers. Namely, suppliers can have their products
---------------------- purchased and made available for sale across a wide number of retail outlets.
More importantly, for a company offering a new product, convincing a few
---------------------- wholesalers to stock a new product may make it easier to gain traction in the
---------------------- market as the wholesaler can yield power with the smaller retailers convincing
Wholesalers are successful only if they are able to serve the needs of their ----------------------
customers, who may be retailers or other wholesalers. Some of the marketing
functions provided by wholesalers to their buyers are: ----------------------
---------------------- As the name suggests, truck wholesaling operations are primarily run
out of a truck that is stocked with products. These wholesalers often
---------------------- have assigned geographic territories where they regularly visit buyer’s
locations. In most cases, these wholesalers offer specialty product lines
---------------------- with many being found in the retail food industry and the industrial
---------------------- markets.
7. Rack Jobber
----------------------
Similar to truck wholesalers, the rack jobber also sells from a truck.
---------------------- However, the main difference is that rack jobbers are assigned and
---------------------- manage space (i.e., racks) within a retailer’s store. The rack jobber is
then responsible for maintaining inventory and may even handle other
---------------------- marketing duties such as setting product price. This form of wholesaling
is most prominent with magasines, candy, bakery and health-and-beauty
---------------------- products. In some trades, the name rack jobber is being replaced by the
---------------------- name service merchandiser.
8. Drop Shipper
----------------------
Wholesalers in this category never take physical possession of products,
---------------------- though they do take ownership. Essentially they are shipping coordinators
---------------------- who receive orders from customers and then place the order with a product
supplier. Shipping is then arranged so that the supplier ships directly to
---------------------- the drop shipper’s customer. Drop shipping is often most useful when
very large orders are placed where transportation and product handling
---------------------- costs are high if there are too many distribution points.
---------------------- Broker
---------------------- A far less obvious type of wholesaler is the broker, who is responsible for
bringing buyers and sellers together. However, brokers do not take ownership
---------------------- of products and often never handle the product. Brokers are paid based on a
pre-negotiated percentage of the sale (i.e., commission) by the side that hires
----------------------
their services.
---------------------- In most cases, the relationship that develops between the broker and the
buyer and seller is short-term and only lasts through the purchase. Brokers can
----------------------
be found in the food industry, importing/exporting and real estate.
---------------------- Agent
---------------------- Similar to brokers, agents also bring buyers and seller together though
they tend to work for clients for an extended period of time. As with brokers,
---------------------- agents generally are paid on commission. A common type of agent is the
---------------------- Manufacturers’ Representative who essentially assumes the role of a sales force
----------------------
2.15 TYPES OF WHOLESALERS
----------------------
Wholesalers can be categorised based on the following parameters.
----------------------
1. Products carried
2. Promotional activities ----------------------
----------------------
----------------------
2.16 APPOINTMENT OF DISTRIBUTORS
----------------------
1. Factors to be taken into consideration while appointing distributors.
----------------------
a) Size of sales force
----------------------
• How many field personnel does the distributor have?
---------------------- • What are their short and long-term expansion plans, if any?
---------------------- • Would they need to expand to accommodate your account
properly? If so, would they be willing to do so?
----------------------
b) Sales Record
----------------------
• Has their sales growth been consistent? If not, why not? Try
---------------------- to determine sales growth for the past five years.
---------------------- • What are their sales objectives for the next year? How were
they determined?
----------------------
c) Territorial Analysis
----------------------
• What territory do they cover?
---------------------- • Do they have branch offices in the territory to be covered? If
---------------------- so, are they located where your sales prospects are greatest?
• Do they have plans to open additional offices?
----------------------
d) Product Mix
----------------------
• How many product lines do they represent?
----------------------
• Are these product lines compatible with yours?
---------------------- • Would there be any conflict of interest?
---------------------- • Do they represent any other Australian firms? If so, which
ones?
300 Sales and Distribution Management
• If necessary, would they be willing to alter their product mix Notes
to accommodate yours?
----------------------
• What would be the minimum sales volume needed to justify
handling your line? Are their sales projections realistic? ----------------------
e) Facilities and equipment ----------------------
• Do they have adequate warehouse facilities?
----------------------
• Do they have computers? If so, are they compatible with
yours? ----------------------
• What communications equipment do they have? Fax, modem, ----------------------
etc.
----------------------
f) Marketing Policies
----------------------
• How are the sales staff compensated?
• Do they run motivation and incentive programs? ----------------------
h) That the company will make sure of regular supply of the products to the ----------------------
distributor based upon the projected indent submitted by the distributor to ----------------------
the company
----------------------
i) The company will not be responsible for Irregular supply or no supply,
for any reason beyond its control including reasons in the nature of force ----------------------
majore.
----------------------
j) The prices applicable for the dispatches would be as prevailing as on the
date of dispatch. ----------------------
k) The company shall provide to you the companies official prices list from ----------------------
time ti time. That the company pricelist to be provided from time to time
will finalise the rates. ----------------------
----------------------
----------------------
Check your Progress 8
----------------------
Fill in the blanks. ----------------------
1. The wholesalers have been part and parcel of the ____________
----------------------
process of ages.
----------------------
----------------------
---------------------- Visit the wholesale agriculture produce/grocery market in your city and
describe the functions performed by a wholesaler.
----------------------
---------------------- Summary
---------------------- ●● Retailing is defined as selling products to consumers for their personal
use. A retailer is a reseller (i.e., obtains product from one party in order
----------------------
to sell to another) from which a consumer purchases products. Retailer
---------------------- carries out various functions like bulk breaking, buying and building
assortments, inventory holding, risk bearing, information and feedback,
---------------------- after sales service and educating the customers.
---------------------- ●● Retail format is a type of retail mix that the retailer adopts, which includes
the nature of merchandise and services offered, the pricing policy, the
---------------------- retailers approach to advertising and promotional programs, the choice
of location preferred and the size of the store. The various retail formats
----------------------
include mom and pop stores, convenience stores, discount stores,
---------------------- specialty stores, category killers, warehouse stores/clubs, super markets,
departmental stores, franchisee, consumer cooperatives etc.
----------------------
●● The various strategies perused by the retailers include pricing strategy,
---------------------- target market strategy, location strategy, service strategy and promotion
strategy. The strategies vary depending upon the business format in which
---------------------- the retailers wants to be in. The various technologies used by the retailers
include product information/ordering kiosk, frequent shoppers kiosk,
----------------------
virtual display case, electronic point of sale (Pos) signage, body scanning,
---------------------- self scanning and self checkout etc.
●● Radio Frequency Identification (RFID) information to be read by radio
----------------------
waves from a tag without requiring line of sight scanning; virtually
---------------------- simultaneous and instantaneous reading of multiple tags in the vicinity
of the reader and each tag can have a unique code that ultimately allows
---------------------- every tagged item to be individually accounted for. RFID bestows various
benefits like, store management alerted to out-of-place items, reduced need
----------------------
to check merchandise carried by customer into store, monitoring controlled
---------------------- substances and rejection of counterfeit or fraudulent merchandise etc.,
ability to acquire right products, product presentation, innovative layout
---------------------- and designs of the stores, providing convenient and accessible locations
and keeping pace with the technology.
----------------------
●● Retailing is all about giving shopping experience to the consumers. The
---------------------- fact that the environment and the consumer’s needs and preferences keep
on changing, puts a lot of pressure on the retailers to match the customer’s
---------------------- expectations. The various challenges therefore they face include ensuring
---------------------- customer satisfaction on an ongoing basis.
Keywords ----------------------
● Stand-Alone: These are retail outlets that do not have other retail outlets ----------------------
connected.
----------------------
● UPC: Universal Product Code.
----------------------
● Disintermediation: Reducing the intermediaries’ from the distribution
channel. ----------------------
● JIT: Just in time, a concept being followed by the organisations so as to ----------------------
reduce the inventory and increase operational efficiency.
---------------------- 6. What do you understand by the term RFID? Discuss its role in retail.
7. What are wholesale markets? Discuss the benefits of the wholesale
---------------------- markets.
---------------------- 8. What is wholesaling? Discuss various functions of the wholesalers.
---------------------- 9. Discuss various functions of wholesalers.
---------------------- 10. Explain various wholesale formats.
---------------------- 11. Discuss the various factors that need to be taken into consideration while
appointing the distributors.
----------------------
12. Discuss the various concerns of the wholesalers.
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3
Structure:
3.1 Introduction
3.2 Meaning and Definition of Warehousing
3.3 Need for Warehousing
3.4 Types of Warehouses
3.5 Characteristics of Ideal Warehouse
3.6 Functions of Warehouse
3.7 Advantages of Warehouse
3.8 Activities in Warehouses
3.9 Warehouse Designing and Configuration
3.10 Distribution Center
3.11 Clearing and Forwarding Agents
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
Warehousing 311
Notes
Objectives
----------------------
After going through this unit, you will be able to:
----------------------
• Explain the meaning and need of warehousing
----------------------
• Identify types of warehouses
---------------------- • Specify the characteristics of ideal warehouses
---------------------- • Describe the functions and advantages of warehouses
---------------------- • Define warehouse designing and configuration
----------------------
3.1 INTRODUCTION
----------------------
We use variety of products in our daily life. However we are oblivious
---------------------- to the reality as to how all the products are made available to us continuously,
---------------------- to us within our arms length, and as and when we want. Is it possible to supply
us the various products for our consumption unless the goods are warehoused
---------------------- or stored? The products are manufactured by the companies and they need to
distribute/sell sell the products through out the country. Is it possible to sell the
---------------------- products directly? No it is not! The products need to be warehoused so that they
---------------------- are made available as and when required by the customers. Though we do not
realise it, it is a fact that warehouses play a direct or indirect role in the entire
---------------------- business activity by being a element in the supply value chain.
----------------------
3.2 MEANING AND DEFINITION OF WAREHOUSING
----------------------
We need different types of goods in our day-to-day life. We may buy
---------------------- some of these items in bulk and store them in our house. Similarly, businessmen
also need a variety of goods for their use. Some of them may not be available
---------------------- all the time. But, they need those items throughout the year without any break.
---------------------- Take the example of a sugar factory. It needs sugarcane as raw material for
production of sugar. You know that sugarcane is produced during a particular
---------------------- period of the year. Since sugar production takes place throughout the year,
there is a need to supply sugarcane continuously. But how is it possible? Here
---------------------- storage of sugarcane in sufficient quantity is required. Again, after production
---------------------- of sugar it requires some time for sale or distribution. Thus, the need for
storage arises both for raw material as well as finished products. Storage
---------------------- involves proper arrangement for preserving goods from the time of their
production or purchase till the actual use. When this storage is done on a large
---------------------- scale and in a specified manner it is called ‘warehousing’. The place where
---------------------- goods are kept is called ‘warehouse’. The person in-charge of warehouse is
called ‘warehouse-keeper’.
----------------------
Warehousing 313
Notes consumption, so that without making any delay, these goods are made
available to the consumers at the time of their need.
----------------------
5. Continuous Production
---------------------- Manufacturers keep on producing continuously to meet future demand.
Hence Continuous production of goods in factories calls for purchase of
----------------------
raw materials in huge quantities. Therefore there it is required to keep
---------------------- sufficient quantity of stock of raw material in the warehouse to ensure
continuous production.
----------------------
6. Price Stabilisation
---------------------- To maintain a reasonable level of the price of the goods in the market, there
---------------------- is a need to keep sufficient stock in the warehouses. Scarcity in supply of
goods may increase their price in the market. Again, excess production
---------------------- and supply may also lead to fall in prices of the product. By maintaining a
balance between demand and supply of goods, warehousing leads to price
---------------------- stabilisation.
----------------------
Check your Progress 1
----------------------
----------------------
Check your Progress 2
----------------------
State True or False. ----------------------
1. Co-operative Warehouses are owned, managed and controlled by
co- operative societies. ----------------------
----------------------
In the above section, you have learnt about different types of warehouses. ----------------------
In each of these warehouses, adequate arrangements are made to keep the goods
----------------------
in proper conditions.
However, any warehouse is said be an ideal warehouse, if it possesses ----------------------
certain characteristics, which are given below: ----------------------
●● Warehouse should be located at a convenient place near highways, railway ----------------------
stations, airports and seaports where goods can be loaded and unloaded
easily. ----------------------
●● Mechanical appliances should be there to load and unload the goods. This ----------------------
reduces the wastages in handling and also minimises handling costs.
----------------------
●● Adequate space should be available inside the building to keep the goods
in proper order. ----------------------
Warehousing 315
Notes ●● Sufficient parking space should be there inside the premises to facilitate
easy and quick loading and unloading of goods.
----------------------
●● Round the clock security arrangement should be there to avoid theft of
---------------------- goods.
●● The building should be fitted with latest fire-fighting equipments to avoid
----------------------
loss of goods due to fire.
----------------------
3.6 FUNCTIONS OF WAREHOUSE
----------------------
You have learnt that warehouses preserve goods on a large-scale in a
---------------------- systematic and orderly manner. They provide protection to goods against heat,
---------------------- wind, storm, moisture, etc. and also cut down losses due to spoilage, wastage
etc. This is the basic function of every warehouse. In addition to this, warehouses
---------------------- now a day also perform a variety of other functions. In this section, let us learn
about the various functions of warehouses.
----------------------
Warehouses perform the following functions.
----------------------
1. Storage of goods - The basic function of warehouses is to store large
---------------------- stock of goods. These goods are stored from the time of their production
or purchase till their consumption or use.
----------------------
2. Protection of goods - A warehouse provides protection to goods from
---------------------- loss or damage due to heat, dust, wind and moisture, etc. It makes special
arrangements for different products according to their nature. It cuts down
----------------------
losses due to spoilage and wastage during storage.
---------------------- 3. Risk bearing - Warehouses take over the risks incidental to storage of
---------------------- goods. Once goods are handed over to the warehouse-keeper for storage,
the responsibility of these goods passes on to the warehouse-keeper. Thus,
---------------------- the risk of loss or damage to goods in storage is borne by the warehouse-
keeper. Since it is bound to return the goods in good condition, the
---------------------- warehouse becomes responsible for any loss, theft or damage, etc. Thus,
---------------------- it takes all precautions to prevent any mishap.
4. Financing - When goods are deposited in any warehouse, the depositor
----------------------
gets a receipt, which acts as a proof about the deposit of goods. The
---------------------- warehouses can also issue a document in favor of the owner of the
goods, which is called warehouse-keeper’s warrant. This warrant is a
---------------------- document of title and can be transferred by simple endorsement and
delivery. So while the goods are in custody of the warehouse-keeper, the
----------------------
businessmen can obtain loans from banks and other financial institutions
---------------------- keeping this warrant as security. In some cases, warehouses also give
advances of money to the depositors for a short period keeping their
---------------------- goods as security.
---------------------- 5. Processing - Certain commodities are not consumed in the form they are
produced. Processing is required to make them consumable. For example,
---------------------- paddy is polished, timber is seasoned and fruits are ripened, etc.
----------------------
3.7 ADVANTAGES OF WAREHOUSE ----------------------
Warehouse offers many advantages to the business community. Whether ----------------------
it is industry or trade, it provides a number of benefits which are listed below.
1. Protection and Preservation of goods - Warehouse provides necessary ----------------------
facilities to the businessmen for storing their goods, when they are not ----------------------
required for sale. It provides protection to the stocks ensures their safety
and prevents wastage. It minimises losses from breakage, deterioration ----------------------
in quality, spoilage etc. Warehouses usually adopt latest technologies to
avoid losses, as far as possible. ----------------------
2. Regular flow of goods - Many commodities like rice, wheat etc. are ----------------------
produced during a particular season but are consumed throughout the
----------------------
year. Warehousing ensures regular supply of such seasonal commodities
throughout the year. ----------------------
3. Continuity in production - Warehouse enables the manufacturers to
----------------------
carry on production continuously without bothering about the storage
of raw materials. It helps to provide seasonal raw material without any ----------------------
break, for production of finished goods.
----------------------
4. Convenient location - Warehouses are generally located at convenient
places near road, rail or waterways to facilitate movement of goods. ----------------------
Convenient location reduces the cost of transportation.
----------------------
5. Easy handling - Modern warehouses are generally fitted with mechanical
appliances to handle the goods. Heavy and bulky goods can be loaded ----------------------
and unloaded by using modern machines, which reduces cost of handling
----------------------
Warehousing 317
Notes such goods. Mechanical handling also minimises wastage during loading
and unloading.
----------------------
6. Useful for small businessmen - Construction of own warehouse requires
---------------------- heavy capital investment, which small businessmen cannot afford. In this
situation, by paying a nominal amount as rent, they can preserve their raw
---------------------- materials as well as finished products in public warehouses.
---------------------- 7. Creation of employment - Warehouses create employment opportunities
both for skilled and unskilled workers in every part of the country. It is a
----------------------
source of income for the people, to improve their standards of living.
----------------------
8. Facilitates sale of goods - Various steps necessary for sale of goods such
---------------------- as inspection of goods by the prospective buyers, grading, branding,
packaging and labeling can be carried on by the warehouses. Ownership of
---------------------- goods can be easily transferred to the buyer by transferring the warehouse
keeper’s warrant.
----------------------
9. Availability of finance - Loans can be easily raised from banks and
---------------------- other financial institutions against the security of the warehouse-keeper’s
---------------------- warrant. In some cases, warehouses also provide advance to the depositors
of goods on keeping the goods as security.
----------------------
10. Reduces risk of loss - Goods in warehouses are well guarded and
---------------------- preserved. The warehouses can economically employ security staff to
avoid theft, use insecticides for preservation and provide cold storage
---------------------- facility for perishable items. They can install fire-fighting equipment to
---------------------- avoid fire. The goods stored can also be insured for compensation in case
of loss.
----------------------
Warehousing 319
Notes mounted ESFR (Early Suppression Fast Response) sprinkler
systems are used, which alleviate the need for expensive in-rack
---------------------- sprinkler systems.
---------------------- d) Storage areas can include temperature-controlled space and secured
areas. Secured areas (usually fenced, enclosed and secured within
---------------------- the warehouse) are used for high value and controlled substances.
Similar secured areas are used to separate in-bond storage from the
----------------------
rest of the warehouse.
---------------------- 3. Pick Operations
---------------------- Individual items from cartons may need to be picked to fulfill an order.
This is accomplished through pick and pack operations in the warehouse.
---------------------- In this area, racks contain open cartons of the products required. Workers
guided by handheld or cart mounted RF devices collect the items required
----------------------
and place them in a shipping carton (the size of which is often determined
---------------------- by the warehouse computer). Cartons then move, generally by conveyor
to final packing and shipping. The higher ceiling heights of the new
---------------------- warehouses enable the creation of mezzanine space in the building,
increasing the available floor space. Pick and pack operations can occur
----------------------
in these mezzanine locations.
---------------------- 4. Value Added and Production Line Activities
---------------------- As previously discussed, a variety of value added activities and production
can occur within the warehouse structure. Production lines and value added
---------------------- activities are located in a specific area of the building, with conveyors or
---------------------- forklifts bringing the necessary material to the area. Conveyors or forklifts
also move the finished product to outbound shipped.
---------------------- Computer screens and printed orders instruct the workers as to the services
---------------------- to be performed, including the needed inputs and the required finished
products. Similar to pick and pack operations, these activities can occur
---------------------- both on the main floor and the mezzanine space in the warehouse.
---------------------- 5. Shipping
The last stop in the warehouse is the Shipping Department. Prior to
----------------------
reaching this department, outbound loads have been checked for accuracy,
---------------------- received their final packaging (including such functions as insertion of
foam peanuts, taping, shrink wrapping and palletising) and are ready to
---------------------- be handed off to outbound trucking services.
---------------------- Automated weight checking is increasingly used to check the accuracy
of the outbound shipments. The conveyor line passes through a “Check
---------------------- Weight” station where each carton is weighed. The computer automatically
---------------------- checks the weight of the carton against the estimated weight of the contents
and carton. If the weight matches, the carton proceeds to final packaging.
---------------------- If the weight does not match, then the carton is shunted to a station to be
manually checked. Outbound shipments leave the warehouse in a variety
---------------------- of ways, including:
----------------------
3.9 WARESHOUSE DESIGNING AND CONFIGURATION
----------------------
A. Types of Spaces
----------------------
Depending on the program of the warehouse being designed, space types
may vary dramatically. ----------------------
• Storage Space ----------------------
• Office Space
----------------------
• Loading Docks for shipping and receiving
----------------------
• Light Industrial Space
• Computer Centers ----------------------
Warehousing 321
Notes B. Space Configurations
Warehouses should be designed based on current and future needs.
----------------------
1. Facilitate changes in business/agency growth and size/population of
---------------------- office and warehouse spaces within the building. Warehouse space
should be easily adapted to new functions such as office (on ground
----------------------
or upper levels), computer centers or light industrial/fabrication.
---------------------- 2. Accommodate need for future loading docks, truck space and car
---------------------- parking spaces if space configuration changes through effective site
design.
---------------------- 3. Address material handling technologies and business practice,
---------------------- such as “just-in-time” storage, which have fundamentally changed
operation of warehouses and distribution centers and will continue
---------------------- to do so.
---------------------- 4. Include roof design with built-in extra structural capacity to handle
addition of future rooftop equipment.
----------------------
5. Be designed with fire protection capacity to accommodate storage
---------------------- of materials with a greater fire hazard, especially needed with high
plastic product content or packaging, and plastic shrink-wrapped
---------------------- pallets.
---------------------- 6. Maximise utilisation of space while providing adequate circulation
paths for personnel and material handling equipment such as forklift
---------------------- trucks.
---------------------- 7. Use higher bays to take advantage of height allowances in the space.
---------------------- 8. Optimise layout and configuration for the warehouse operation,
including efficient circulation and material handling and storage
---------------------- processes.
---------------------- 9. Relate interior and exterior receiving and shipping operations to the
process flow of goods through the warehouse.
----------------------
10. Receiving and shipping are best separated to avoid congestion at
---------------------- the loading dock areas in the building and in the truck maneuvering
areas.
----------------------
11. Alternative material handling methods will determine other building
---------------------- aspects, such as aisle widths, lighting design, need for mezzanine
space, fire protection and egress design. Businesses will often use
----------------------
different methods of storage handling simultaneously for different
---------------------- products.
Warehousing 323
Notes 12. Dock widths and areas inside exterior doors leading to dock space
must be planned for maneuverability of forklift trucks and other
---------------------- expected types of material handling equipment. Consider using a
non-slip finish on the concrete floor near loading areas for safety.
----------------------
D. Energy-Efficient
----------------------
1. Be designed with passive solar concepts solar geometry and building
---------------------- load requirements in mind.
2. Possess light colored roof to reflect a large percentage of solar
----------------------
radiation, reducing HVAC loads and energy consumption. First cost
---------------------- is also reduced, due to the smaller plant size required. When a large
roof area is anticipated, this effect can be significant, especially
---------------------- for temperature controlled warehouses. Greater heat reflection will
increase worker productivity in the summer.
----------------------
3. Be planned with interior dock space in colder climates to reduce
---------------------- energy consumption and provide more tolerable winter working
---------------------- conditions for dock workers.
4. Use ceiling mounted fans to reduce heat stratification and provide
---------------------- air movement, thus increasing worker comfort in both summer and
---------------------- winter. Mount fans above highest forklift level for worker safety.
5. Consider specifying white painted metal roof decking, thereby
---------------------- increasing ceiling surface reflectivity, lighting efficiency and worker
---------------------- comfort without any added energy cost.
6. Use energy-efficient fixtures, systems, and appliances, e.g., motion
----------------------
sensor instant-on lighting systems, wherever feasible.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
E. Safety/Security of Personnel and Material
---------------------- • Address the traditional life-safety and health concerns common to
all buildings, including measures to prevent occupational injuries
----------------------
and illnesses (work-related musculoskeletal disorders (WMSD),
---------------------- trips, falls, etc.), ensure electrical safety, and eliminate exposure
to hazardous materials. The following operations have historically
---------------------- contributed to significant numbers of warehouse injuries and are
considered to be the most hazardous: docks, powered industrial
----------------------
trucks, conveyors, material storage, manual lifting/handling, roof
----------------------
Warehousing 325
Notes Examples of warehouse designs
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Fig. 3.1: Example of Warehouse Designs (1)
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Fig. 3.2: Example of Warehouse Designs (2)
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Fig. 3.3: Example of Warehouse Designs (3)
----------------------
3.10 DISTRIBUTION CENTER
----------------------
A distribution center for a set of products is a warehouse or other
----------------------
specialised building with refrigeration or air conditioning which is stocked with
products to be re-distributed to retailers or wholesalers. ----------------------
Distribution centers are foundation of a retailing network. They allow a ----------------------
retail location to stock vast numbers of products without incurring an explosion
in transportation costs. The way a typical distribution network operates is to ----------------------
have centers setup throughout a commercial market. Each center will then
service a number of stores. Large distributions centers for companies such as ----------------------
Wal-Mart service 50-125 stores. Suppliers will ship truckloads of products to ----------------------
the distribution center. The distribution center will then store the product until
needed by the retail location and ship the proper quantity. ----------------------
Because a large retailer might sell tens of thousands of products from ----------------------
thousands of vendors, it would be impossibly inefficient to try to ship each
product directly from each vendor to each store. Many retailers own and run ----------------------
their distribution networks, while smaller retailers may outsource this function
to dedicated logistics firms that coordinate the distribution of products for a ----------------------
number of companies. A distribution center can be co-located at a logistics ----------------------
center.
----------------------
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----------------------
Warehousing 327
Notes
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Fig. 3.4 : A Wal-Mart distribution center along an Interstate highway in
---------------------- Utah (U.S.)
---------------------- 1) Size and scale of the distribution Center
Large distribution centers might receive and ship more than ten thousand
----------------------
truckloads each year, with an individual store receiving only a couple
---------------------- trucks per week up to 20, 30 or more per week. The distribution centers
can range in size from less than 50,000 square feet up to the largest
---------------------- approaching 2 million square feet.
---------------------- 2) Storage
Once a full pallet must be broken apart, the costs of handling the product ----------------------
can increase quickly. Many distribution centers use large sortation systems
----------------------
with miles of conveyor to move product through the facility and into a
truck. They also may have automated equipment for de-palletising and ----------------------
re-palletising product. Some of the most sophisticated systems can convey
product straight into storage racks and then convey out of the racks to ----------------------
trucks, all automatically. With a wide variety of product sizes and weights,
----------------------
these systems are designed to handle a specific range of products. Very
large/small or heavy/light products require varying degrees of manual ----------------------
handling.
----------------------
As the process of handling involves more steps and is more manual, the
cost increases. Storing products instead of receiving and immediately ----------------------
shipping them, adds cost. Firms must determine where lost sales from not
having product on the shelves are balanced by the increased handling and ----------------------
storage costs. ----------------------
Products that cannot be handled by automatic equipment also add costs.
----------------------
Some of the largest products may require more than one person to
manually unload and load these into trucks. This process can be very time ----------------------
consuming and costly and must be offset by higher prices.
----------------------
4) Distribution Center Organisation
----------------------
All distribution centers have three main areas and may have additional
specialised areas. The three main areas are the receiving dock, the storage ----------------------
area and the shipping dock. In small organisations it is possible for the
receiving and shipping functions to occur side by side, but in large centers, ----------------------
separating these areas simplifies the process. Often a distribution center
----------------------
will have dedicated dock doors for each store in its shipping area. The
receiving area can also be specialised based on the handling characteristics ----------------------
of freight being received, whether the product is going into storage or is
going straight to a store or by the type of vehicle delivering the product. ----------------------
Other departments that a distribution center may have include: ----------------------
●● Transportation – arranges and coordinates shipments in and out of the ----------------------
DC.
----------------------
●● Repackaging – breaks open bulk packages and repackages assortments
for individual stores. ----------------------
●● Dedicated Product Departments – divisions can be based on handling ----------------------
characteristics or storage characteristics. For example, refrigerated and
non-refrigerator. ----------------------
Warehousing 329
Notes Distribution Centers also have a variety of supporting departments. These
include human resources maintenance/facilities operations, production control
---------------------- and accounting.
---------------------- A distribution center will have a General Manager that manages the
facility. This individual will then have a number of department managers that
---------------------- report directly to them. Each department is then composed of supervisors and
warehouse workers. The jobs of a warehouse worker can include:
----------------------
●● Receiver - unloads trucks, either with or without equipment.
----------------------
●● Pallet Mover - transports pallets with equipment from one area of a plant
---------------------- to another.
---------------------- ●● Stocker - puts product into racks, either on forklifts or by hand.
---------------------- ●● Order Picker - picks product from the racks to send to a store, either on
forklifts or by hand.
----------------------
●● Packer - repackaged product from bulk boxes into assortments for
---------------------- individual stores.
---------------------- Therefore over a period of time a new service came into being known
as C&F agents – Clearing and Forwarding Agents who took over all the
---------------------- responsibilities and functions of maintaining and managing the warehousing
operations on behalf of the their principles ie, the companies. The number of
---------------------- C&F agents for a state depends on the size of the state and the volume of the
---------------------- business. A medium to small company may have one each for every political
state. On the other hand large companies may have minimum one for smaller
----------------------
This agreement is entered in to on this ……….day of …..year 2007 at ….. by and ----------------------
between :-ABC Trading Pvt. Ltd. Registered office ………………………………
----------------------
Factory at Plot No. 103 XYZ Industrial area ——————— (name of the
town/city) herein after referred to as the Company ----------------------
M/s. ……………………………………… ----------------------
…………………………………………… ----------------------
……………………………………………
----------------------
Here in after referred to as C & F Agent (Consignee & Forwarding Agent) Where
as the Company wanted to appoint C & F Agent for stocking & dispatching to ----------------------
distributors the –———————brand of products (here in after referred as ----------------------
the “Products”) belonging to the company for the state of ……………………
and the company has agreed to do business with C & F Agent on the following ----------------------
terms and conditions:-
----------------------
1. This C & F Agent agreement is effective from the …………. day of
…….. 2007 for a period of one year. This agreement may be renewed ----------------------
after mutual agreement between the company and the C & F Agent.
----------------------
2. That the C & F Agent shall ensure the regular and timely supply of
products to the various distributors/ stockiest/ customers in his territory. ----------------------
3. That the products will be supplied to the C & F Agent on the basis of F.O.R ----------------------
warehouse at………………….on stock transfer bases from company to
its godown. The C & F Agent will bill to distributors as per the guidelines ----------------------
of the company. ----------------------
4. That the company will dispatch the material against the security of C & F
Agent to its deposit on receiving ‘F’ form or any other form as applicable ----------------------
for sales tax etc. ----------------------
5. That the C & F Agent will look after all business interest of the company
----------------------
in his assigned territory.
6. That the C & F Agent will act as custodian of goods of the company. ----------------------
Warehousing 331
Notes 7. That the C & F Agent will stock the goods with proper inventory and shall
keep stock register and other such books of accounts necessary by the
---------------------- law.
---------------------- 8. That the C & F Agent shall ensure safe & sound position of goods so that
goods may not be damaged or stolen.
----------------------
9. That the C & F Agent will get the orders from distributors along with
---------------------- cheque or D.D. He will supply the goods to distributors and send, deposit
the cheque / D.D in the company’s bank account locally.
----------------------
10. He shall undertake liaisoning and maintain good relations with
---------------------- Government and its various departments and ensure smooth working.
---------------------- 11. That C & F Agent should oversee the activities of the company staff and
inform on any abnormalities.
----------------------
12. That the C & F Agent should display goods & promotional material in his
---------------------- office.
---------------------- 13. That the C & F Agent will keep a sign board of the company where stocks
are lying.
----------------------
14. That the C & F Agent will work on behalf of the company in the acts and
----------------------
manner directed by the Co.
---------------------- 15. That the C & F Agent will not deal the competitive products during the
---------------------- currency of this agreement.
16. That the C & F Agent will act as per the instructions & guide lines issued
----------------------
by the Company from time to time.
---------------------- 17. That the C & F Agent for his various services rendered will get —%
---------------------- commission on the total sale in his territory.
18. That the C & F Agent will deposit a security of Rs…………..with the
----------------------
company. The company shall interest at the rate of —% PA interest on the
---------------------- security deposit.
---------------------- 19. That the C & F Agent will be given 2% as office/godown rent, loading
unloading, courier, phone, fax, charges and 1% as freight charges up to
---------------------- distributors godown.
---------------------- 20. That the C&F agent shall make provision of office space for the company
field staff
----------------------
21. That company sales force will work in consultation with C & F Agent.
----------------------
22. That in case of termination the security amount along with bank interest
---------------------- will be refunded clearing all accounts and goods will be taken back. All
the claims will be settled within 30 days of termination/term notice.
----------------------
23. That in case of either of the parties desiring to discontinue the agreement
---------------------- 60 days notice is necessary from both the parties.
Activity 1 ----------------------
----------------------
Visit the website of Central Warehousing Corporation and note down the
functions performed by the warehouse. ----------------------
----------------------
Summary ----------------------
●● The need for warehousing arises due to Seasonal production of goods, ----------------------
Seasonal Demand; Large-scale Production, Quick Supply, Continuous
Production. Price Stabilisation etc. Characteristics of an ideal warehouse ----------------------
are convenient location, use of mechanical devices for handling goods,
adequate space for storage of goods; cold storage facility for perishable ----------------------
items, protection of goods from sunlight, rain, wind, dust, moisture and ----------------------
pests; sufficient parking space for vehicles, round the clock security,
availability of fire fighting equipment. The warehouses perform various ----------------------
functions like storage of goods, protection of goods, risk bearing, financing,
processing, and grading, branding, transportation etc. advantages of ----------------------
warehouses include protection and preservation of goods, regular flow ----------------------
of goods, continuity in production, convenient location, easy handling,
useful for small businesses, creation of employment etc. ----------------------
●● The various types of warehouses include private, public, bonded, ----------------------
government, co-operative etc. The various activities that take place in the
warehouses, amongst others, include receiving, temporary storage, pick ----------------------
operations, value added and production line activities, shipping, returns
----------------------
processing etc.
●● A distribution center for a set of products is a warehouse or other ----------------------
specialised building with refrigeration or air conditioning which is
----------------------
stocked with products to be re-distributed to retailers or wholesalers.
Distribution centers are foundation of a retailing network. They allow ----------------------
a retail location to stock vast numbers of products without incurring an
explosion in transportation costs. The way a typical distribution network ----------------------
operates is to have centers setup throughout a commercial market. Each
----------------------
center will then service a number of stores. Large distributions centers for
Warehousing 333
Notes companies such as Wal-Mart service 50-125 stores. Suppliers will ship
truckloads of products to the distribution center. The distribution center
---------------------- will then store the product until needed by the retail location and ship the
proper quantity.
----------------------
●● C & F agents have come to establish themselves as a warehousing service
---------------------- and are playing a crucial role in the supply chain. Increasingly more and
more companies are dispensing with their own godowns and outsourcing
----------------------
the warehousing services managed professionally by the Clearing and
---------------------- Forwarding Agents.
----------------------
Keywords
----------------------
● Clearing and Forwarding Agents: An organisation engaged in
---------------------- providing warehousing and related services to interested manufacturing
organisations at a remuneration mutually agreed upon.
----------------------
● Distribution center: Is a warehouse or other specialised building with
---------------------- refrigeration or air conditioning which is stocked with products to be
re-distributed to retailers or wholesalers.
----------------------
● Lead time: Time taken from the time of placement of order and receipt
---------------------- of the material.
----------------------
Self-Assessment Questions
----------------------
1. What is meant by warehousing?
----------------------
2. Explain the need for warehousing.
---------------------- 3. Describe any six characteristics of an ideal warehouse.
---------------------- 4. Classify the various types of warehouses. Explain them briefly.
---------------------- 5. Distinguish between public and private warehouse.
6. Explain the functions of warehouses.
----------------------
7. What is a distribution center? Discuss the various aspects of distribution
---------------------- center.
---------------------- 8. What do you understand by C&F agent? List any five functions of C& F
agents.
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Warehousing 335
Notes
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4
Structure:
4.1 Introduction
4.2 Benefits of Transportation
4.3 Elements of Transportation Costs
4.4 Modes of Transport
4.5 Multimodal Transport
4.6 Containerisation
4.7 Factors in selecting Mode of Transportation
4.8 Changing Practices and Priorities in Freight Transportation Demand
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
Transportation 337
Notes
Objectives
----------------------
After going through this unit, you will be able to:
----------------------
• State the benefits of transportation
----------------------
• List the elements of transportation costs
---------------------- • Discuss various modes of transport
---------------------- • Explain the concept of multi modal transport
---------------------- • Elaborate on the concept of containerisation
----------------------
4.1 INTRODUCTION
----------------------
Transportation leads to movement of people and goods from one location
---------------------- to another. Throughout history, the economic wealth and military power of a
---------------------- people or a nation have been closely tied to efficient methods of transportation.
Transportation provides access to natural resources and promotes trade,
---------------------- allowing a nation to accumulate wealth and power. Transportation systems and
the routes they use have greatly influenced both how and where people live.
---------------------- Reliable transportation allows a population to expand throughout a country’s
---------------------- territory and to live comfortably in remote areas far from factories and farms.
Transportation is vital to a nation’s economy. Reducing the costs of transporting
---------------------- natural resources to production sites and moving finished goods to markets is
one of the key factors in economic competition. The transportation industry is
---------------------- the largest industry in the world. It includes the manufacture and distribution
---------------------- of vehicles, the production and distribution of fuel and the provision of
transportation services.
----------------------
In developing economies like India and China, due to huge population
---------------------- leading to greater consumption calls for intensive distribution of products,
transportation is a link between the places of production and places of
---------------------- consumption. Hence a transportation system supported by proper infrastructure
leads to tremendous opportunities for accelerating the growth of industrialisation
----------------------
of the nation. In the context of the Indian economy, which is composed of large
---------------------- coastlines, hilly as well as plain terrains and presence of all types of minerals
and the agriculture, calls for various types of transportation facilities inclusive
---------------------- of Road, Rail, Water and also Air transport? In the light of the liberalisation
of the economy and the resultant influx FDI and rapid industrialisation has
----------------------
posed lot of opportunities and responsibilities on the transportation sector in
---------------------- the country.
----------------------
----------------------
1. It serves as a link between the place of production and the place of ----------------------
consumption. By making the products available at the right time, it not
----------------------
only satisfies the current demand but also meets with the future demand.
2. It helps in moving the men, materials, machines, tools and consumables ----------------------
required in the production from the place of its production/availability ----------------------
to the place of production of further products and thus in the process
facilitates the production. ----------------------
3. By making the movement of tools of production, it facilitates all round ----------------------
development of the economy including the economically and industrially
backward areas. ----------------------
The other micro and macro economic benefits of transportation are as ----------------------
follows:
----------------------
1. Benefits from supply of transport services.
----------------------
• Income from transport operations (fares and wages)
• Access to wider distribution markets and niches ----------------------
----------------------
Transportation 339
Notes 4.3 ELEMENTS OF TRANSPORTATION COSTS
---------------------- In any organisation, transportation cost is one of the major components
of the overall cost of the product. It thus becomes a critical financial element
----------------------
of the overall cost of operation. Therefore it is very necessary to have a proper
---------------------- understanding of the transportation costs. The transportation costs comprises of
various elements like tariff of mode of transport, cost involved in the transit of
---------------------- the goods, obsolescence costs, transit insurance cost etc.
---------------------- a) Tariff cost
---------------------- This includes cost of transportation of goods from one location to
another location. The cost involved may vary depending on the mode of
---------------------- the transportation like airways, railways, roadways etc. Further the cost
---------------------- will vary depending on the nature of product too. The cost undergoes a
upward change depending upon the urgency of the transportation. For
---------------------- example, even within transportation by road, the transportation by Gati
or faster service may be more compared to the normal transportation.
---------------------- The freight charges increase or decrease depending upon the transit time
---------------------- i.e., more the transit time, higher the tariff rates and lower the transit
time, lower the tariff. Under Indian conditions, longer the destination
---------------------- more the goods undergo transshipment thereby increasing the cost of
transportation.
----------------------
b) Cost due to transit time
----------------------
What is transported, though they are tangible products, in essence it
---------------------- is money. When the goods are transported, in fact it is money which
is blocked in the inventory. The inventory thus becomes dead during
---------------------- the transit time since neither can it be sold nor can be deployed for any
---------------------- profitable use thus leading to opportunity cost. Thus it can be seen that
it is not only the tariff cost but the inventory carrying cost adds to the
---------------------- total cost and thus becomes a significant portion of the overall cost. The
more the transit time, the more the cost and vice versa. For example,
---------------------- a organisation based at Mumbai selling products to its customers at
---------------------- Mumbai itself, it can do so at very minimum transportation. On the
other hand, if the organisation transports the goods to their customers
---------------------- at Guwahati, the transit time is going to be longer and so increased cost
due to increase in transit time.
----------------------
c) Packaging cost
----------------------
The time involved and the way the products are handled enroute,
---------------------- to protect the products for damage, wear and tear, pilferage, special
protective packaging become a requirement which further adds to the
---------------------- total transportation cost. For example, goods are transported by road from
---------------------- Mumbai to Guwahati. The goods undergo transshipment at more than
two places where they are unloaded in the transporters warehouse and
---------------------- then reloaded in different truck for onward journey. The entire operation
----------------------
Fill in the blanks.
----------------------
1. Tariff cost, packaging cost, obsolescence costs are the elements
______________. ----------------------
----------------------
4.4 MODES OF TRANSPORT ----------------------
a) Air Transport ----------------------
When goods are transported by air, the mode of transport is called air ----------------------
transport. This mode of transport is relatively new and the least preferred one
due to heavy cost involved. One most important advantage of this mode of ----------------------
transport however is the speed.
----------------------
Where as the other modes of transport like rail or road take considerable
time, the air transport because of its speed takes few hours to reach the destination. ----------------------
Therefore this mode of transport is used in commodities which are highly
----------------------
perishable or is used in case of meeting urgent requirements like components
in case of break down of plant and machinery. Due to globalisation and the ----------------------
growing importance of meeting the time schedules, this mode of transport is
gaining lot of importance and its usage is increasing gradually. ----------------------
Advantages of Air transport ----------------------
●● It is the fastest mode of transport. ----------------------
Transportation 341
Notes ●● It is very useful in transporting goods and passengers to the area, which
are not accessible by any other means.
----------------------
●● It is the most convenient mode of transport during natural calamities.
---------------------- ●● It provides vital support to the national security and defense.
---------------------- Limitations of air transport
---------------------- ●● It is relatively more expensive mode of transport.
●● It is not suitable for transporting heavy and bulky goods.
----------------------
●● It is affected by adverse weather conditions.
----------------------
●● It is not suitable for short distance travel.
----------------------
●● In case of accidents, it results in heavy losses of goods, property and life.
---------------------- b) Seaways/Waterways
---------------------- These are oldest methods of transportation. When the goods are transported
by ship through water, it is called seaways transportation. In the light of the
---------------------- globalisation and integration of the world economy and growing international
---------------------- commerce, more so in the light of the development of containerisation,
transportation by sea is on the rise. Due to the economy associated with sea
---------------------- transportation, this mode is becoming increasingly popular. However one major
disadvantage of this mode is its slow speed.
----------------------
Water transport refers to movement of goods and passengers on waterways
---------------------- by using various means like boats, steamers, launches, ships, etc. With the help
of these means, goods and passengers are carried to different places, both within
----------------------
as well as outside the country. Within the country, rivers and canals facilitate
---------------------- the movement of boats, launches, etc. Since the goods and passengers move
inside the country, this type of transport is called inland water transport. When
---------------------- the different means of transport are used to carry goods and passengers on the
sea route, it is termed as ocean transport. Let us know further about these two
----------------------
types of water transport.
---------------------- I. Inland water transport
---------------------- Inland water transport use boats, launches, barges, streamers, etc., to
carry goods and passengers on river and canal routes. These routes are
---------------------- called inland waterways and are used in domestic or home trade to carry
---------------------- bulky goods. Passenger transport through waterways is not so popular in
our country. Inland water transport system exists only in few states like
---------------------- West Bengal, Andhra Pradesh, Assam, Tamil Nadu, etc.
---------------------- II. Ocean transport
Ocean transport refers to movement of goods and passengers with the
----------------------
help of ships through sea or ocean waterways. It plays an important role
---------------------- in the development of international trade. It is also used for transporting
goods and passengers in the coastal areas. Ocean transport has its fixed
---------------------- route, which links almost all the countries of the world.
Transportation 343
Notes i. Man driven
ii. Animal driven; and
----------------------
iii. Motor driven
----------------------
We quite often see individuals carrying goods on their head or back, in
---------------------- bicycles or on thelas, move from one place to other. People also ride a bicycle or
use rickshaw to travel short distances. We also find animal driven vehicles like
----------------------
carts (drawn by bullocks, camels, horses, donkeys, etc.) used in rural areas to
---------------------- carry crops, straw, fodder and sometimes even people. Sometimes even animals
are directly used to carry goods from one place to another.
----------------------
In areas, which are normally covered with snow throughout the year, we
---------------------- find sledges pulled by dogs used to carry both passengers and goods.
---------------------- Compared with man driven and animal-driven means of road transport,
motor driven means of transport have become more important over the years.
---------------------- This is due to their speedy movement and larger carrying capacity. Extension of
roads to every corner of the country has also enhanced the use of motor driven
----------------------
transport. The types of motor vehicles used to carry goods and passengers
---------------------- include auto-rickshaws, scooters, vans, buses, tempos and trucks, etc. In
Kolkata, tramway also forms part of road transport for carrying passengers.
----------------------
As far as cost is concerned, it lies somewhere between the air and rail
---------------------- transport. Due to increase in the road infrastructure in India, need to connect
the rural areas with the urban centers to transport the food grains and other
---------------------- commodities, road transportation and its flexibility in operation and the quality
---------------------- of responsiveness, road transport has become the lifeline of any economy.
Advantages of Road transport
----------------------
●● It is a relatively cheaper mode of transport as compared to other modes.
----------------------
●● Perishable goods can be transported at a faster speed by road carriers over
---------------------- a short distance.
---------------------- ●● It is a flexible mode of transport as loading and unloading is possible at
any destination. It provides door-to-door service.
----------------------
●● It helps people to travel and carry goods from one place to another, in
---------------------- places which are not connected by other means of transport like hilly
areas.
----------------------
Limitations of Road transport
----------------------
●● Due to limited carrying capacity road transport is not economical for long
---------------------- distance transportation of goods.
---------------------- ●● Transportation of heavy goods or goods in bulk by road involves high
cost.
----------------------
●● It is affected by adverse weather conditions. Floods, rain, landslide, etc.,
---------------------- sometimes create obstructions to road transport.
●● Its operation is less affected by adverse weathers conditions like rain, ----------------------
floods, fog, etc.
----------------------
●● It is cost effective for transporting bulk commodities like coal, cement,
steel, fertilisers, petroleum products right from the place of production to ----------------------
the destination.
----------------------
Limitations of Railway transport
----------------------
●● It is relatively expensive for carrying goods and passengers over short
distances. ----------------------
●● It is not available in remote parts of the country. ----------------------
●● It provides service according to fixed time schedule and is not flexible for
loading or unloading of goods at any place. ----------------------
----------------------
Transportation 345
Notes 4.5 MULTIMODAL TRANSPORT
---------------------- The concept of international multimodal transport covers the door-to-door
---------------------- movement of goods under the responsibility of a single transport operator. The
emergence of the container technology and of the multimodal transport concept
---------------------- came from and facilitated growing international trade. Trade and transport are
inextricably linked. Efficient transport services are a prerequisite to successful
---------------------- trading.
---------------------- International transport generally implies the use of various transport
links (interfaces and modes), each link corresponding to a transfer, storage or
----------------------
transport operation either in the country of origin, in a transit country or in the
---------------------- country of final destination.
This situation has created a number of problems over the years, as more
----------------------
and more shippers are realising that this new concept is involving the effective
---------------------- participation of various transport mode operators but does not always make
clear who is responsible for delivering cargo at destination in safe conditions,
---------------------- according to agreed schedules.
---------------------- Considering the variety of cultures, languages and commercial practices
at both ends of a trade, and the resulting complexity of assembling such an
---------------------- international transport operation, it would appear reasonable to a trader to let
---------------------- one qualified operator organise and be responsible and accountable for the
entire transport chain.
----------------------
Beginning from the present unimodal transport conditions and legal
---------------------- environment, transport operators have developed transport systems to fulfill
customers’ requirements, offering competitive services and thereby making
---------------------- trade more efficient by offering multimodal transport services to their
clients. Since the introduction of containerisation and the later development
----------------------
of EDI, international trade has increasingly demanded efficient commercial
---------------------- transactions. To take advantage of the potential offered by the new technologies,
the international trading community updated its uniform commercial practices
---------------------- regarding trading terms, letters of credit and multimodal transport documents.
---------------------- Multimodal transport implies the safe and efficient movement of goods,
where the MTO accepts the corresponding responsibility from door-to-door.
---------------------- With technological development of transport means and operations, as well as
---------------------- in communications, coupled with liberalisation in the provision of services,
more and more transport operators are able to provide such safe and efficient
---------------------- transport. These services are increasingly market-segment oriented rather than
transport mode oriented.
----------------------
The absence of international rules governing the successive carriage of
---------------------- goods resulted in peculiar problems in the matter of carriers’ responsibility and
the liability for loss of or damage to the goods occurring in the course of a
----------------------
multimodal transport operation.
----------------------
----------------------
4.6 CONTAINERISATION
----------------------
0ne of the elements in the multi modal transportation is containerisation.
Containerisation refers to movement of goods in containers. Generally inter- ----------------------
modal systems are structured around the use of containers. A container is a
----------------------
specially designed metal box that resembles a trailer without wheels. It generally
measures 8 feet by 8.5m feet by 20 feet or 40 feet. The 20 feet containers are a ----------------------
standard unit, with ship capacity.
----------------------
Under the containerisation concept, goods of any type are packed into a
container at any location and placed on wheels and moved either by rail or road ----------------------
to the destination. In case of international transport the containers are moved
to the port by road or rail, placed on the ship for transportation to the intended ----------------------
destination. When the ship reaches the destination port, the containers are then
----------------------
transported back to the customers either by road or rail.
Advantages of containerisation ----------------------
Transportation 347
Notes
Check your Progress 2
----------------------
----------------------
4.7 FACTORS IN SELECTING MODE OF
---------------------- TRANSPORTATION
---------------------- The increasingly competitive environment in which firms must operate
has fundamentally altered the use of freight transportation services and
----------------------
infrastructure. Businesses view freight transportation as a means for better
---------------------- serving customers, for better supporting their operations and for reducing
costs. Businesses view freight transportation in terms of what it achieves for
---------------------- their firms, rather than as trucks, trains, vessels and aircraft. In fact, the actual
physical movement and routing of cargo are increasingly likely to be handled
----------------------
by a 3PL on behalf of the firm.
---------------------- Firms now seek five qualities in their freight transportation service –
reliability, transit time, efficiency and cost and damage minimisation.
----------------------
1. Reliability is defined as consistently ensuring that goods are delivered
---------------------- on the specified date at the specified time in the specified amount in
---------------------- the specified condition. Reliability is often written into contracts with
transportation providers with exacting specifications – often requiring
---------------------- meeting delivery targets close to 100 percent of the time. The penalties
can be severe, ranging from monetary fines to loss of the work.
----------------------
2. Transit Time is also a consideration. With JIT, the movement of goods
---------------------- replaced inventory and often, had to be moved quickly. However,
overnight shipment is expensive. Accordingly, with more advanced
---------------------- planning, an emphasis on reliability and better communications and
---------------------- information technology, the objective of JIT has matured and is now to
simultaneously reduce inventory and transportation costs. As long as
---------------------- shipments arrive when specified, they do not have to travel overnight.
---------------------- Reliability combined with a known transit time is sometimes referred
to as “time definite service.” Time definite service now extends from
---------------------- the highest priced commodity to the lowest priced bulk commodity. It
is a common element in inventory management for businesses. For
---------------------- transportation providers, meeting time definite service requirements can
---------------------- impact the modes and routes used. The availability of effective intermodal
connectors can also influence these choices.
----------------------
3. Efficiency refers to optimally using transportation equipment so as to
---------------------- minimise costs. Efficiency is often left to the transportation providers
to achieve. However, efficiency objectives can impact a shipper’s
---------------------- purchase and use of transportation services, including modes and routes.
4. Cost has always been a consideration in freight movement that is, ----------------------
obtaining the lowest possible cost for moving goods. Central to
----------------------
business’ efforts to better manage transportation and distribution and
their acceptance of outsourcing of services has been a drive toward ----------------------
greater productivity and closer examination of the entire production and
supply chain, as well as the administrative functions. As companies face ----------------------
growing competition domestically and globally, efforts have increased
----------------------
to get total freight logistics cost down and achieve better returns on
assets. ----------------------
However, there are new considerations regarding cost. For example, ----------------------
shippers focus on the overall cost of moving a shipment from origin to
destination, regardless of the number of modes involved. The overall ----------------------
cost often now encompasses both the supply chain to a firm and the
----------------------
distribution channel to its customers. In addition, shippers now consider
cost within the framework of reliability, transit time and efficiency. Within ----------------------
this framework, reliability and quality service can be more important that
obtaining the lowest cost. ----------------------
Transportation 349
Notes 5. Damage Minimisation and Safety is also a “given” in freight movement.
It is no use to a company, if the goods arrive damaged. Different modes
---------------------- and equipment types have different “ride” characteristics. Accordingly,
companies may select certain modes to minimise damage to shipments,
---------------------- as well as minimise delays. Similarly, shippers and transportation
---------------------- providers have become more cognisant of safety considerations in freight
movement, leading to improved driver training, new handling procedures
---------------------- and changes in equipment designs.
----------------------
Check your Progress 3
----------------------
----------------------
4.8 CHANGING PRACTICES AND PRIORITIES IN
---------------------- FREIGHT TRANSPORTATION DEMAND
---------------------- The global economy is undergoing changes as dramatic as the industrial
revolution. These changing business practices are a reflection of major
----------------------
evolutions in key economic sectors, such as manufacturing and trade.
---------------------- The nature of transportation demand has also changed to meet the new
---------------------- needs of businesses and consumers. In addition, businesses now recognise that
innovative distribution systems can be a key competitive factor. Accordingly,
---------------------- transportation is now viewed as one of the crucial components of doing business.
Performance is measured in terms of reliability, transit time, efficiency and
---------------------- quality of service. Translated into infrastructure requirements, these trends
---------------------- heighten the need for effective intermodal connectors.
Changing business practices include :
----------------------
1. Departure from traditional manufacturing
----------------------
To regain their competitiveness, companies have modernised their
---------------------- manufacturing and distribution systems, as well as downsising and
restructuring their operations. Traditional manufacturing industries have
----------------------
also become more technology intensive. Manufacturers are continually
---------------------- searching for opportunities to restructure their operations, consolidate
production at fewer, lower cost locations closer to major consumer markets
---------------------- etc. Manufacturing industries increasingly also rely on multinational
production.
----------------------
In the new global economy, manufacturers must be able to efficiently
---------------------- move raw materials, partially assembled products and finished goods to
Transportation 351
Notes assembly plant, the inventory costs in storage and transit are kept to a
minimum, thereby reducing warehouse and carrying costs. JIT requires
---------------------- more frequent, smaller shipments, emphasising reliability.
---------------------- The emphasis on reduced inventory levels, JIT delivery, quality and
quick response, means a significant change in the nature of transportation
---------------------- demand. First, it requires more frequent, smaller shipments. Secondly, it
---------------------- means that the transportation infrastructure must be able to function with
sufficient reliability, so that businesses can count on their deliveries being
---------------------- on-time, without being affected by congestion at airports, highways,
intermodal terminals or ports.
----------------------
4. Reducing the length of product cycles
----------------------
Transportation and distribution requirements are also evolving as
---------------------- companies place greater importance on reducing ‘cycle time,’ i.e., the
time that it takes for a company to respond to changes in the market. For
---------------------- example in the garment industry, seasons and changing fashions demand
---------------------- quick turnaround if a company is to remain competitive. Cycle times are
increasingly important as they provide a competitive advantage.
----------------------
Competition to reduce the time necessary for producing or distributing
---------------------- goods is as significant as price or style competition. Products that do not
move quickly through the distribution system can become obsolete, due
---------------------- to lower priced new products or changes in style. For several industries,
including auto parts, electrical components and apparel, the need for a
----------------------
reduction in time for products to move from concept to manufacturing to
---------------------- the selling floor requires more frequent and smaller size shipments, even
if transport costs are higher.
----------------------
5. ‘Lean manufacturing’
----------------------
The essence of “lean manufacturing” is low work-in-process supported
---------------------- by multi-disciplinary teams. Low work-in-process is expected to result
in quality improvement, since work-around options are limited and low
---------------------- work-in-process forces shorter cycle times, because fewer items are
---------------------- worked in parallel. The lean manufacturing model is based on many
of the underlying principles of JIT production. A critical distinction,
---------------------- however, is in the focus on low work-in-process rather than JIT delivery
as a strategic factor, so the intent is not only to have parts or intermediate
---------------------- products delivered just in time for final production, but producing those
---------------------- intermediate products just in time. A highly reliable, cost efficient
transportation system is a prerequisite for these types of operations.
----------------------
6. The emergence of high technology and knowledge-based industries
----------------------
The composition of the manufacturing sector has changed significantly.
---------------------- Basic industries have declined, as new industries have emerged. These
new industries are characterised by the ‘knowledge-intensity’ and the
---------------------- ‘technological innovation’ of their products. The physical inputs and
Transportation 353
Notes channels which have become increasingly specialised for industry/
commodity clusters, reverse logistics is similarly customised to individual
---------------------- firms and businesses. Nevertheless, the processes add freight flows and
considerations to the transportation system.
----------------------
9. The globalisation of the economy
----------------------
With more multinational production and foreign trade, the economies of
---------------------- all countries are increasingly intertwined. In many industries, the trend has
been towards one global market. For many firms, transportation costs can
---------------------- define the economical reach of their products in the global marketplace.
An efficient transportation, logistics and distribution system can increase
----------------------
the market for a product or a a service, thereby achieving economies of
---------------------- scale that results in increased competitiveness and profitability.
10. Focusing on core competencies within a firm
----------------------
As businesses continue to pursue strategies to improve their
---------------------- competitiveness in world markets, they have simultaneously focused
---------------------- in their core competencies. As a result, increasingly businesses are
outsourcing many functions (including accounting, payroll, engineering,
---------------------- information, computer, legal, travel and other business services) in order to
reallocate their resources toward their core business. One of the functions
---------------------- being outsourced is freight distribution. In this manner, significant cost
---------------------- cuts can be achieved, redeploying capital (by not financing truck fleets
and buildings for warehousing and distribution purposes).
---------------------- Third-party logistics companies (3PL) have emerged to fulfill a range
---------------------- of distribution and logistics functions including trucking, warehousing,
billing, inventory management and fleet maintenance. Some rail, truckload
---------------------- and less-than-truckload (LTL) firms, in particular, have diversified to
provide such services; newly created logistics firms have also formed to
---------------------- serve a market niche or tailor a service to a firm’s specific needs. These
---------------------- third parties have increasing control over the flow of goods – the modes
used and the routes taken.
----------------------
---------------------- Activity 1
---------------------- Using internet and sources, find out the various types of container ports
existent in India.
----------------------
----------------------
Summary
----------------------
●● Transportation plays a critical role in our day to day lives. Transportation
---------------------- is a link between the places of production and places of consumption.
Hence a transportation system supported by proper infrastructure leads to
---------------------- tremendous opportunities for accelerating the growth of industrialisation
---------------------- of the nation.
----------------------
----------------------
Transportation 355
Notes
Self-Assessment Questions
----------------------
1. What is meant by transport? Describe its importance in business.
---------------------- 2. Describe the advantages and disadvantages of Railway transport.
---------------------- 3. Explain the various types of Road transport.
----------------------
5
Structure:
5.1 Introduction
5.2 Distribution Channels in Services
5.3 Major Intermediaries for Service Industry
5.4 Distribution Channels in Banking Industry
5.5 Distribution Channels in Insurance Industry
5.6 Distribution Channels in Hotel Industry
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
----------------------
5.1 INTRODUCTION
----------------------
The Industrial Revolution of Great Britain which took place in eighteenth
----------------------
century revolutionised the way production took place. There was change from
---------------------- man made production to mechanised production. Manufacturing being a very
complex process, it needs support of various services, to start with financial
---------------------- services to finance the business and the transportation to carry the material to
the consumption centers. Thus the Industrial Revolution gave birth to financial
----------------------
services and transport services.
---------------------- The industrial revolution led to increased production, consumption,
employment and generation of wealth. This resulted in increase in purchasing
----------------------
power and which gave rise to services like entertainment, travel, leisure. The
---------------------- ever increasing inventions and the resultant complexities in production process
and managing of larger organisations and the resulting growing importance
---------------------- of services like banking, insurance, investment and legal were pointers to the
bright future for the services industry.
----------------------
Products are tangible objects. Products have various attributes, features,
---------------------- sizes, shapes. They can be held, touched, smelt, tasted, measured etc. The
---------------------- product delivers an experience which is tangible in nature. Products can be
transported, stored, sold or consumed at a later date. Products are manufactured
---------------------- to specifications hence products tend to be standardised. There is transfer of
ownership.
----------------------
On the other hand, services tend to be intangible, heterogeneous and
---------------------- perishable and call for simultaneous production and consumption. Thus due to
the various uncertainties in the production, delivery and consumption, there is
---------------------- no transfer of ownership.
---------------------- The marketing of services and the various activities involved in it are
therefore different from the marketing of goods. The service firms therefore tend
---------------------- to be different in orientation from the firms manufacturing goods and different
---------------------- approach to various elements of marketing elements including the distribution
of their services.
----------------------
All the organisations, institutions and persons participating in the process ----------------------
of distribution are known as channels of distribution. The various participants
----------------------
in the process of distribution are:
●● The service provider ----------------------
●● Intermediaries ----------------------
●● Customers
----------------------
The length of the channel or the number of participants in the process of
distribution will vary from service to service. There are certain types of services ----------------------
in which the channel would be the shortest. For example the services of a doctor
----------------------
or a lawyer. Where as there are services like tour and travels which involve the
agents as the intermediaries or in certain services like shares and real estate, we ----------------------
know that the agents and brokers act as intermediaries.
----------------------
The broad options for the marketers in distribution of services are as
follows: ----------------------
Form of Channel Type of service ----------------------
Direct Sales Accounting Services
----------------------
Producer-Consumer Management Consultancy Services
Design and Technical Services ----------------------
Dieting Services ----------------------
Eye care Services ----------------------
Hair Fashioning Services
----------------------
Health care Services
Legal Services ----------------------
Agents or Brokers Insurance services ----------------------
Producer-Agent-Consumer Tour and Travel Services
----------------------
Hotel Reservation Services
Ticketing Services ----------------------
Advertising Services ----------------------
Seller & Buyer Agent & Broker Stocks and Shares Brokers
----------------------
Commodity Brokers
Real Estate ----------------------
---------------------- ●● Group marketing efforts will see to it that the impact of every advertising
rand is maximised. By way of example, an advertising spend of Rs. 5000
---------------------- per month, when pooled with similar contributions by say, 50 members
of a network, creates a sizable marketing fund, while Rs. 5000 spent in
----------------------
isolation by an independent operator is unlikely to make any impact at all.
---------------------- ●● The combined purchasing power of the network will help franchisees to
---------------------- secure preferential deals with key suppliers. Although this will vary from
industry to industry, it is not at all uncommon that savings achieved by
---------------------- franchisees through access to bulk deals pay the lion share of ongoing
franchise fees. One more advantage comes to mind, intangible perhaps
---------------------- but of no less importance. It can be best summed up by the well-worn
---------------------- phrase ‘To be in business for yourself but not by yourself’.
Disadvantages for the franchisee’s viewpoint
----------------------
Cost: Franchisees are expected to pay an up front fee as well as ongoing
----------------------
fees. Setup costs, to may be above average, as the franchisor, having invested
---------------------- a great deal of money into the development of the corporate image, will not
permit shortcuts. On the other hand, discerning consumers may well be attracted
---------------------- by an image exuding professionalism all-round and break even may be reached
ATMs though operational in the country for quite some time, are expected ----------------------
to make a big head-way in India. It has been estimated that there are around
400,000 ATMs worldwide out of which 100,000 are located in Japan alone. The ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Fig. 5.2: Multi Channel Retail Banking
Source: PPT-Customer focus banking-the UTI experience-Hemant Kaul,
----------------------
Sr. Vice President, Retail Banking, UTI.
----------------------
5.5 DISTRIBUTION CHANNELS IN INSURANCE ----------------------
INDUSTRY
----------------------
Agents
----------------------
Today’s insurance agent has to know which product will appeal to the
customer and also know his competitor’s products in the same space to be an ----------------------
effective salesman who can sell his company, the product and himself to the
customer. To the average customer, every new company is the same. Perceptions ----------------------
about the public sector companies are also cemented in his mind. While the
----------------------
public sector companies are able to attract agents, they continue to suffer from
high attrition rates due to indiscriminate agent appointment. ----------------------
The most successful of these companies’ tied agents are hardly of the elite
----------------------
variety of salesman. They are still the neighbourhood do goobers - the postman,
the schoolteacher, and the shopkeeper - who know the people and are themselves ----------------------
known in the community. The challenge here is the lack of knowledge of the
competitive market and the inability to do intelligent comparisons with the ----------------------
competitor’s products. Educating and training these agents is a serious challenge
----------------------
for the insurance company.
Bancassurance ----------------------
Bancassurance is the distribution of insurance products through a bank’s ----------------------
distribution channels. It is a service that can fulfill both banking and insurance
needs at the same time. Bancassurance as a concept first began in India when ----------------------
---------------------- In this model, the insurance company or its representative is not the entity
marketing the products. The insurance cover is sold by an automobile/credit
---------------------- card company as an add-on product leveraging the brand of the retailer. The risk
is carried by the insurance company, which underwrites it. Products like creditor
----------------------
insurance, automobile insurance, and credit card related insurance could be
---------------------- distributed using this channel. This model can be adopted in all market segments
for the lines of business mentioned. It is already prevalent in some areas like
---------------------- credit card insurance and crop insurance for agricultural loans. Products like
creditor insurance, automobile insurance and credit card related insurance could
----------------------
be distributed using this channel. What makes these arrangements attractive is
---------------------- the low distribution cost and captive customer base. However, repeat business
or renewal of business cannot be assured. In the life segment, group creditor
---------------------- insurance may be the most suitable product for this channel.
----------------------
5.6 DISTRIBUTION CHANNELS IN HOTEL INDUSTRY
----------------------
Traditionally in the absence of any reservation, the customer would
---------------------- directly visit the hotel and seek accommodation. In case of upcountry
---------------------- destinations within the country like ours the customers would approach the
hotel for accommodation over telephone or through telegram or alternatively
---------------------- through the travel agent.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Fig. 5.3 : Electronic distribution Channels in Hotel Industry
----------------------
Telephone, Fax & E-mail
Bookings by telephone and fax are not normally considered as electronic ----------------------
distribution channels, but they are and not only because they are electronic ----------------------
devices. Customers can use several communication channels when making one
reservation. For example, many people will find your hotel on the internet, but ----------------------
telephone you to make the reservation.
----------------------
Search Engines
----------------------
Most customers who are looking for hotel accommodation via the internet
begin their search using a search engine. 86% of all Internet searches are done ----------------------
using one of four main search engines. These are Yahoo! (26 percent), Google
(23 percent), AOL (20 percent), MSN (17 percent). Other search engines include ----------------------
Alta Vista, Ask Jeeves, Alltheweb, Looksmart, Lycos, etc.
----------------------
People also search the internet using directories, which are compiled
by humans and organised into specific categories. Search engines, on the ----------------------
other hand, automatically find, list and deliver website links, without human
----------------------
involvement.
When somebody uses a search engine to look for accommodation in your ----------------------
area they will find either your hotel’s website or a travel intermediary. Since
----------------------
you pay a com mission or discount on every booking made through a travel
intermediary it is to the hotels advantage that they find your hotels website first. ----------------------
Since very few people will look past the first three pages of search engine results
it is important to optimise your website for the search engines and promote it ----------------------
properly so that it shows up high on the list of search engine results. A good
----------------------
hotel website listed in the top of the results for keywords concerning the hotels
destination can result in a spectacular increase in bookings. ----------------------
----------------------
----------------------
----------------------
----------------------
---------------------- Activity 1
----------------------
Visit IRDA website and find out the composition of life insurance business
---------------------- done through various distribution channels in India.s
----------------------
Summary
----------------------
●● The marketing of services and the various activities involved in it are
----------------------
different from the marketing of goods. The service firms therefore need to
---------------------- be different in orientation from the firms manufacturing goods and have
different approach to various elements of marketing elements including
---------------------- the distribution of their services.
---------------------- ●● All the organisations, institutions and persons participating in the
process of distribution are known as channels of distribution. The
---------------------- various participants in the process of distribution are 1) service provider
---------------------- 2) Intermediaries 3) Customers.
●● The major intermediaries used in distribution of services are: 1) Franchises
----------------------
2) Electronic and 3) Agents/Brokers.
----------------------
●● The banking industry in addition to the traditional distribution of their
---------------------- services through the bank branches, due to evolution in information
and communication technology are more and more adopting electronic
---------------------- channels of distribution like Automated Teller Machines (ATM), Virtual
Bank, Home Banking, Electronic Funds Transfer at Point of Sale
----------------------
(EFTPOS), Electronic Data Interchange (EDI), smart cards etc.
---------------------- ●● The insurance industry in additional to the traditional agent as a selling
---------------------- intermediary are going into more and more innovative methods of
distribution of insurance services like work site marketing, internet,
---------------------- invisible insurer, brokers etc.
----------------------
● GDS Representatives: A GDS representative is a company that will put
you on the GDS system, usually for a sign-up charge plus a commission ----------------------
on each booking made through the system.
----------------------
● Bancassurance: Is the distribution of insurance products through a
bank’s distribution channels. ----------------------
● Invisible Insurer: The insurance cover is sold by an automobile/credit ----------------------
card company as an add-on product leveraging the brand of the retailer.
● Franchise: A franchise is an agreement or license between two parties ----------------------
which gives a person or group of people (the franchisee) the rights to ----------------------
market a product or service using the trademark of another business (the
franchisor). ----------------------
----------------------
Self-Assessment Questions
----------------------
1. What is franchising? Discuss the types and benefits of franchising.
----------------------
2. Discuss the advantage of electronic channels.
3. Explain the benefits of using brokers/agents. ----------------------
1. Travel websites are websites that act as intermediaries between the ----------------------
customers and the hotel.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
6
Structure:
6.1 Introduction
6.2 Customer Service Levels
6.3 Developing Customer Service Policy
6.4 The Total Distribution Concept
6.5 Requirements of a Distribution Planning and Control System
6.6 Inventory Planning and Control
6.7 Transport Planning and Control
6.8 Warehouse Capacity Planning
6.9 Distribution Resource Planning and Control
6.10 Just-in-Time
6.11 Material Requirement Planning
Summary
Key Words
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
----------------------
6.2 CUSTOMER SERVICE LEVELS
----------------------
The level of customer service provided by a company is part of the
---------------------- marketing mix. In some instances, a company offers an exceptionally high
Given the need to deliver a level of customer service which is acceptable ----------------------
to the market and the level of cost which can be incurred in doing so, it is ----------------------
important to approach the establishment of a customer service policy in a
systematic way. A six-step procedure is recommended as follows: ----------------------
1. Identify the key aspects of service: This step involves determining ----------------------
which aspects of service are important to customers, otherwise resources
can be misdirected. It is also necessary to find out how customers measure ----------------------
service levels. Marketing research and the organisations’ sales force can
help in identifying key service elements and how these are measured. ----------------------
---------------------- 5. Develop cost-effective customer service packages for each of the main
market segments : Targets should be established for each element of the
---------------------- service packages, e.g. 80 percent of parts will be available from stock
or will be dispatched within 3 working days, a minimum of 98 out of
----------------------
100 orders will be delivered without damaged items, 90 percent of all
---------------------- orders will be delivered complete. Such standards have to be based upon
a careful assessment of the organisation’s capabilities, the attendant costs
---------------------- and what is acceptable to customers.
---------------------- 6. Establish monitoring and control procedures : Once standards have
been established, the organisation must put into place monitoring systems
---------------------- to check on what is actually being achieved so that remedial action can be
---------------------- taken at an early stage. Feedback on the levels of service being achieved
should be given to personnel involved in delivering the service. Such
---------------------- feedback can be a powerful motivation.
----------------------
6.4 THE TOTAL DISTRIBUTION CONCEPT
----------------------
The total distribution concept and the total cost approach are widely
---------------------- applied by managers of physical distribution. They are based on the notion
that all elements of physical distribution are so interdependent that a decision
---------------------- made about one element will impact on some or all the others. Thus, for
---------------------- example, the decision to reduce the number of depots operated by a grain
merchant may well reduce costs associated with staffing, wastage, and
---------------------- inventory levels but will also increase transportation costs. The real question
is whether the savings in one area match exceed or fall short of the increased
---------------------- costs in another.
---------------------- Since, in general, physical distribution managers appreciate that their
challenge is to minimize the total costs of the distribution system, rather than
---------------------- the costs of a particular element they tend to employ the total cost concept. To
----------------------
----------------------
----------------------
----------------------
Number of depots
Number of depots
----------------------
Fig. 6.2: The effect of increasing the number of warehouses upon total ----------------------
storage costs
----------------------
Transportation costs: As can be seen in figure 6.2 , the increase in storage
costs may be offset, either in whole or in part, by savings made in transportation ----------------------
costs As the number of warehouses increases, unit transport costs decline due to
lower mileages being travelled by delivery vehicles. ----------------------
----------------------
----------------------
---------------------- Fig. 6.3: The effect of increasing the number of warehouses on total
transport costs
----------------------
For most manufacturers and producers, transportation is the major
---------------------- physical distribution cost.
---------------------- Inventory carrying costs: The cost of maintaining sufficient stocks to
meet any level of demand is usually prohibitive. Instead, the firm seeks to reach
----------------------
a balance between inventory carrying costs and an acceptable level of customer
---------------------- service.
---------------------- Supplies can be made against specific requirements or for stock. This
section deals with supplies made for stock and this offers many challenges.
----------------------
●● Product availability must be ensured while overstocking must be avoided
---------------------- despite the changes in the market - new products by competitors which
make the existing products of the suppliers obsolete, a sudden spurt in
---------------------- demand, transportation problems, promotions and deals.
----------------------
Check your Progress 2 ----------------------
----------------------
The management of inventory can have a major impact upon the
profitability of an organisation. If inventory levels are too low then there is the ----------------------
risk of stock outs, i.e., the inability to meet an order. This can result in a loss
of revenues, profits and customer goodwill. On the other hand if the inventory ----------------------
----------------------
Cost per unit ($)
----------------------
----------------------
----------------------
o
---------------------- Order quantity Order quantity Order quantity
1. Orders are booked by the field sales force by directly contacting the ----------------------
distributors, dealers, wholesalers, etc. Orders booked form the basis for
----------------------
sales forecasts for the next month and future months.
2. Market surveys are conducted to establish the demand, customer needs ----------------------
and preferences - what is needed.
----------------------
3. Surveys of retail outlets determine the actual product movement and
whether the primary sales to the distributors and others really reflect the ----------------------
actual customer demand or whether inventories are building up in the
----------------------
pipe-line.
The production plan for the month for each time is worked out as shown ----------------------
below. For every product, each size and each type of packaging in which it is
----------------------
required will constitute separate items.
For each item comments ----------------------
Opening stock at the The starting point has to be some place from where ----------------------
beginning of the month timely and reliable information can be obtained.
(say at supplier’s) ----------------------
Warehouse across the This could be the suppliers’ or the distributor’s ----------------------
total area being served warehouse. Normally manufacturers try to
achieve zero month end inventory in their ----------------------
godowns and ship all the production to the
----------------------
distributor.
Forecasted sales for the Forecasting is done in number of ways: Using ----------------------
coming month (made by statistical techniques like exponential smoothing
the supplier) Target set for the month + backlog, if any ----------------------
Estimate of sales considering special marketing ----------------------
actions like advertising, sales promotions,
appointments of new dealers etc. ----------------------
To realize the forecast, selling effort will be
required by the supplier’s sales person. If sales ----------------------
are not as per forecast, the inventory builds up at ----------------------
the suppliers end.
Closing inventory (at the Supplies to be made = forecasted sales - opening ----------------------
suppliers warehouses) inventory + closing inventory
----------------------
Supplies to be made Closing inventory figures must be taken into
during the month account. ----------------------
(worked out by the
supplier) ----------------------
Planned change in the product, packaging and ----------------------
price.
Shelf life and expiry dates. ----------------------
---------------------- It can be seen that only the purchase price and perhaps the estimated
period of ownership, if the firm has a set replacement policy, will be fixed
---------------------- figures whereas the others will need to be estimated. In these circumstances it is
sometimes useful to obtain estimates of depreciation from other sources. These
----------------------
might include:
---------------------- ●● vehicle distributors, although these may tend to be optimistic or even
---------------------- exaggerated
●● other vehicle operators
----------------------
●● vehicle insurers and/or
----------------------
●● Financial institutions who give loans for the purpose of purchasing
---------------------- vehicles.
---------------------- Unitisation in physical distribution
---------------------- There are two aspects of unitisation of physical loads and these are
palletisation and containerization. Both palletisation and containerization serve
---------------------- to reduce damage to agricultural and food products whilst these are in transit,
and to increase the efficiency of the distribution system as a whole.
----------------------
In international trade, there is a widespread adoption of a standard pallet
---------------------- size of 100cm × 120cm. Any exporter who ignores this standard when trading
---------------------- with countries that have adopted the standard will probably incur additional
costs because of the need to repalletise the load. The argument in favour of a
---------------------- standard pallet size is simply that the operations of each of the parties in the
physical distribution system will be more efficient if they all work to a common
---------------------- pallet size. Ships, Lorries, rail freight cars, aircraft holds and warehouses can
---------------------- be designed to handle the standard pallet size and achieve maximum utilisation
of space15.
----------------------
The introduction of trailer size containers has allowed various forms of
---------------------- transportation to integrate their services since these units are interchangeable
between different modes of transport. Containerization has made possible the
---------------------- transfer of loads between ships direct on to road and rail-based carriers and, of
course, between road and rail. The main advantages of containerization are the
----------------------
minimization of damage to the goods, little or no pilferage and handling times
---------------------- reduced to 50 percent of those achieved with other systems.
----------------------
Capital Variable Capital Variable Capital Variable
costs costs costs costs costs costs ----------------------
Of ----------------------
space associated tools and associated Insurance associated
----------------------
Interest and training Interest training costs Interest and training ----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
a ----------------------
x km
----------------------
----------------------
b
National Foods Retailer B ----------------------
Depot
----------------------
Fig. 6.5: The savings method ----------------------
The distances between the depot at O and retailers A and B are a and b
----------------------
respectively. If two vehicles were used to make the two deliveries separately,
the total distance traveled would be 2a + 2b. Alternatively, if only one vehicle ----------------------
were used to make the two deliveries the distance covered over the round-trip is
a + b + x. The saving achieved by assigning one vehicle to the round trip would ----------------------
be (2a + 2b) - (a + b + x) = a+b - x. More generally, the savings method formula
----------------------
is denoted as:
Sij = doi + doj - dij ----------------------
where, ----------------------
Sij = distance saved by linking together any two delivery points i and j. ----------------------
doi = distance between depot O and delivery point i
----------------------
doj = distance between depot O and delivery point j
----------------------
dij = distance between the delivery points i and j
Where there are more than two delivery points a matrix of distances saved ----------------------
is developed. This matrix displays the distances between all delivery points and
----------------------
between the depot, or factory, or farm, and each delivery point. The first link to
be chosen will be the one showing the largest saving, given two deliveries. The ----------------------
sum of the orders for these two deliveries will be checked against the vehicle
capacity and drivers’ time constraints. If the initial linking leaves spare vehicle ----------------------
and driver capacity then it might be possible to add other delivery points to the
----------------------
link by selecting the next biggest saving. Again a check is carried out to ensure
that neither vehicle capacity nor drivers’ time constraints is exceeded by the ----------------------
new combination of deliveries. The process continues to the point where all
deliveries are scheduled or the available vehicles are fully utilised. ----------------------
To better understand the method of calculating the savings accrued from ----------------------
linking deliveries, consider the hypothetical data in figure.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
---------------------- Fig. 6.6: Applying the savings method to a vehicle scheduling problem
---------------------- (Note: Numbers in brackets indicate the order size)
Maximum driving day : 8 hours
----------------------
Maximum Working Day : 11 hours
----------------------
Average speed : 30kph
---------------------- Maximum Vehicle Capacity : 100 units
---------------------- Multi-trip turn-around time : 30 minutes
---------------------- Delivery time per unit : 2 minutes
First route selected: OCDO is 67km with 88 (units) = 5.16 hours
----------------------
Second route selected: OABO is 54 km with 82 units= 4.53 hours
----------------------
Total Working time for both routes (including turn-around time) = 10.19 hours
---------------------- Total Driving Time for both routes = 4.03 hours
---------------------- O
O
---------------------- 23 A A
23 A A
11 20 B 14 B
---------------------- 11 20 B 14 B
24 40 30 C 7 15 C
24 40 30 C 7 15 C
---------------------- 18 25 27 25 D 16 2 17 D
18 25 27 25 D 16 2 17 D
---------------------- Distance Matrix (km) Savings Matrix (km)
Distance Matrix (km) Savings Matrix (km)
---------------------- Fig. 6.7: The savings method matrices
---------------------- The savings matrix shows that route O - C - D - O gives the maximum
savings in terms of distance to be travelled (17 km). To service this route 88
----------------------
units of product have to be carried and this is well within the vehicle’s carrying
---------------------- capacity. It would take 5.16 hours to complete this route (2.23 hours driving and
2.93 hours to unload the 88 units). Once this route has been completed, retailers
---------------------- A and B are left awaiting delivery. The O - A - B - O route takes 4.53 hours
to complete and can be undertaken within the time and capacity constraint.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Fig. 6.8: The simplified delivery service
As orders are received, a log is built up for each delivery point sub-area. ----------------------
Vehicle loads are built up starting at the remotest sub-area and working inwards ----------------------
to the depot.
----------------------
The individual responsible for vehicle scheduling will only start to
combine loads intended for different sub-areas when those territories are in ----------------------
close proximity to the depot (e.g., A1 to G1). The principal advantage of SDS is
that the delivery system is made more efficient by following convenient routes ----------------------
which minimize delays caused by continually crossing difficult terrain. It is a
----------------------
method that is especially well suited to developing countries where roads are
often poor. ----------------------
Transit ----------------------
Transit is an acronym for Time Routing and Scheduling of Industrial
----------------------
Transport. Like SDS, TRANSIT makes use of maps. The sales territory is
overlaid with a grid with each square representing 10km square are allocated; ----------------------
as are driving times are allocated within each square. When this is done the
scheduler follows a set procedure: ----------------------
----------------------
Fill in the blanks.
----------------------
1. Distribution is usually a sizeable component of ______________.
2. The simplified delivery service model (SDS) involves the ----------------------
_______________ of the marketing territory into subareas. ----------------------
----------------------
6.8 WAREHOUSE CAPACITY PLANNING
----------------------
Warehouse planning is required to meet the following objectives:
----------------------
1. Minimum handling at the warehouse.
----------------------
2. Easy identification and movement by lots, i.e., separate access to each
individual lot even if the product is the same. ----------------------
Weeks ----------------------
0 1 2 3 4 5 6 7 8 ----------------------
Opening Stock 280
----------------------
Sales - - 30 70 100 100 - 30 70
----------------------
Order Release - - - - 400 - - - -
Order arrival - - - - - - 400 - - ----------------------
Lost orders (20) ----------------------
Closing stock 280 280 250 180 80 - 400 370 300
----------------------
DRP System
----------------------
Weeks
0 1 2 3 4 5 6 7 8 ----------------------
Opening Stock 280 ----------------------
Expected Sales - - 30 70 100 100 - 30 70
----------------------
Order Release - - - 400 - - - - -
Order arrival - - - - - 400 - - - ----------------------
---------------------- Weeks
0 1 2 3 4 5 6 7 8
----------------------
Opening Stock 280
----------------------
Sales - 100 50 - 50 - 30 70 100
---------------------- Order Release - - 400 - - -
---------------------- Order arrival - - - - 400 -
Closing stock 280 180 130 130 80 80 50 380 280
----------------------
Av. stocks 314 units
----------------------
DRP System
---------------------- Weeks
---------------------- 0 1 2 3 4 5 6 7 8
---------------------- Opening Stock 280
Expected Sales - 100 50 - 50 - 30 70 100
----------------------
Order Release - - - - - 400 - - -
----------------------
Order arrival - - - - - - - 400 -
---------------------- Closing stock 280 180 130 130 80 80 50 380 280
---------------------- Av. stocks 180 units
---------------------- Note: Stocks not required in one location can be diverted to where there is need.
5. Through bar coding, the sales of individual items can be tracked and
----------------------
appropriate action taken based on the sales trends- fast or slow movement.
---------------------- 6. Ordering, invoicing and payments are controlled on a month-to-month
basis rather than on an order-to-order basis. Control is against the weekly
----------------------
schedules. There is consolidation of the ordering process - all items for all
---------------------- locations are reviewed at the same time. Re-ordering is not dependent on
items reaching the re-ordering level or on sales persons collecting order
---------------------- for the field.
---------------------- 7. Demand uncertainty is reduced as more customers attempt to forecast
their requirements.
----------------------
8. Operating costs are reduced and production stability is increased.
---------------------- 9. It results in better service to the customers. Sales persons can concentrate
---------------------- on problem solving, developing new customers and identifying new
opportunities rather than on routine order taking.
----------------------
10. Shipping and warehousing capacity planning is improved.
---------------------- Note: The term SKU (Stock Keeping Unit) is sometimes also used to indicate
an item which is stocked.
----------------------
The purpose of JIT is to eliminate all production activities which do not ----------------------
directly add value to the product. The just-in-time (JIT) concept was developed
----------------------
with manufacturing in mind but it has implications for distribution. Whilst the
organizations that have implemented this system tend to be large enterprises, ----------------------
the system also has implications for the smaller and middle-sized firms who
may be their competitors, suppliers or customers. ----------------------
----------------------
----------------------
Activity 1 ----------------------
----------------------
Visit the nearest beverages distributor and note down the vehicle route
planning followed for distribution in the city. ----------------------
----------------------
6.11 MATERIAL REQUIREMENT PLANNING
----------------------
The materials requirement planning system (MRP) most commonly ----------------------
found in modern manufacturing or processing concerns is based on the
Japanese Kanban system. MRP is a computerized inventory control system ----------------------
intended to minimize the investment in manufacturing/processing materials and
components, consistent with matching production levels to current demand. ----------------------
The word Kanban translates as ‘visible record’ which may be a ticket, ----------------------
job or route card, or a computer code. A computer is used to plan production
over several periods and using the Kanban system automatically triggers the ----------------------
production or purchase of components or materials at the time they are required ----------------------
for the manufacturing or processing of the finished product.
----------------------
All materials or components are lodged in specially designed containers
which have two Kanban cards attached to them. Those responsible for the ----------------------
production or supply of the material or the component will make use of the
P-Kanban whereas the users of those materials or components will use the ----------------------
C-Kanban (C = conveyance). Each container is conveyed between the work areas
----------------------
of the materials/parts producers and users with one kanban being exchanged for
another along the way. The production of a part can only be undertaken if there ----------------------
is a P-Kanban to authorise it. In the absence of a P-Kanban the workforce will
engage in other activities such as cleaning, maintenance, training etc. ----------------------
The Kanban system removes the need for managers to forecast (or guess) ----------------------
what level of materials or parts must be held in stock to meet production/
processing requirements and thereby reduces inventories. Kanban is intended ----------------------
to work within the context of a just-in-time production program. Oakland says
----------------------
that:
“A JIT program can succeed without a Kanban-based operation, but ----------------------
Kanbans will not function effectively independently of JIT.”
----------------------
----------------------
---------------------- ●● Total distribution costs involve both materials management and physical
distribution. An efficient system of materials management can be a potent
---------------------- marketing instrument, as can an efficient physical distribution system.
As well as helping to control costs, these two areas of management
---------------------- can contribute greatly to the level of customer service achieved by the
---------------------- organisation. The level of service offered by an organisation can be as
important, sometimes more important, to its prospective customers
---------------------- than any other attribute which it might possess. The levels of service
are very much influenced by procurement costs, inventory carrying
---------------------- costs, and transportation costs. Management needs to understand the
---------------------- interrelationships between these categories of cost and to develop an
understanding of the trade-offs that must be made between them. There
---------------------- are a number of current developments in the field of logistics management
which are likely to have a major impact on the way in which this function
---------------------- is managed in the future. These developments include: the drive by
---------------------- retailers to account for direct product profitability, the move towards
just-in-time materials and product supply and the evolving methodology
---------------------- of materials requirement planning.
---------------------- ●● Inventories are a major cost element in the management of physical
distribution and as such must be carefully controlled. Managers are
---------------------- required to find the economic balance between order processing costs
and stockholding costs. At the same time, they need to consider order
----------------------
cycles, fluctuations in demand and the size of the safety stock required. In
---------------------- transport management the key issues relate to the efficient and effective
scheduling and routing of vehicles. Three of the most commonly used
---------------------- models are the savings method, the simplified delivery service model
and TRANSIT. Each of these is aimed at reducing the time and cost of
----------------------
delivery and the improvement of customer service levels.
----------------------
----------------------
----------------------
----------------------
● Demand Pull: This means that only the actual materials required for a
production run are drawn from suppliers and this eliminates inventories. ----------------------
● Economic order quantity: Economic order quantity (also known as the
----------------------
Wilson EOQ Model or simply the EOQ Model) is a model that defines
the optimal quantity to order that minimizes total variable costs required ----------------------
to order and hold inventory.
----------------------
● Kanban: Visible record which may be a ticket, job or route card, or a
computer code. ----------------------
● Materials requirement planning: MRP is a computerized inventory ----------------------
control system intended to minimize the investment in manufacturing/
processing materials and components, consistent with matching ----------------------
production levels to current demand.
----------------------
----------------------
----------------------
----------------------
---------------------- 2. The simplified delivery service model (SDS) involves the geographical
division of the marketing territory into subareas.
---------------------- Check your Progress 5
---------------------- Fill in the blanks.
---------------------- 1. The purpose of Just in Time (JIT) is to eliminate all production activities,
which do not directly add value to the product.
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
7
Structure:
7.1 Introduction
7.2 Legality of Doing Business Internationally
7.3 Variations in Customers Trust
7.4 Selling in International Markets
7.5 Entry Strategies
7.6 Role of Logistic Companies
7.7 International Salesperson Profile
7.8 Payments terms
7.9 Exporting Documents
7.10 Factors for a Successful Manufacturer-Overseas Distributor relationship
7.11 International Shipment Process
Self-Assessment Questions
Suggested Reading
---------------------- Opening Case: M/s. Dando is a leading manufacturing and sole supplier of
solar panels in India to the largest solar services provider in Africa. The solar
---------------------- panel rarely requires any replacement for 25 years & hence the business is
always with the largest service provider. Also the panels are the most critical
----------------------
in the solar business & deliveries of these panels should be on time as the
---------------------- competition in the market is intense. Looking at the maintenance the contracts
are usually made for a year.
----------------------
Discuss what the company’s distribution set-up should be for the African
---------------------- market.
---------------------- Whenever organizations deal in doing business where the companies are
from different countries knowledge of law in case of disputes helps in the ease of
---------------------- getting things done. Though most of the laws are clearly stated in the contracts
and are even documented sometimes it really becomes a messy and expensive
---------------------- affair in case of disputes. While most countries insist that the disputes will be
---------------------- as per the prevailing laws they also insist that their local courts will have a final
decision and a say which will be binding on the organizations. Sometimes the
---------------------- contracts are written in local language and then translated in English or any
other language deemed by the country.
----------------------
Protection of intellectual rights in today’s competitive world is another
---------------------- important aspect for organizations in doing business on international markets.
Most developing countries do not enforce these rights well or are lax in enforcing
---------------------- them which has a loss to the original manufacturer. Designs, trademarks and
---------------------- copyrights are well protected under international laws which broke will face
hefty sanctions.
---------------------- United States has very strict regulations for safety, pollutions etc. The laws
---------------------- in united states are not only stringent but are also enforced to the bottom level
which can trace the manufacturer, raw material supplier, manufacturing date,
---------------------- batch number which helps the country in recalling the product from geographic
area or even a specific raw material supplier or a batch. There are many instances
---------------------- where the products are been recalled due to various reasons from automobiles,
---------------------- drugs, infant products and so on. Recent recall in drug industries involving
cough syrup from African continent is also an example from India.
----------------------
----------------------
7.3 VARIATIONS IN CUSTOMERS TRUST
T Licensing K
----------------------
R Franchising
----------------------
O
---------------------- Contract Manufacturing
L
---------------------- Strategic Alliance
----------------------
----------------------
----------------------
7.8 PAYMENTS TERMS
----------------------
1. Ex Works: Price at manufacturer’s factory gates.
----------------------
2. FOT – Free on Truck: Price of product – packed, palletized, containerized
and loaded on truck at manufacturer’s factory gates. ----------------------
3. FAS – Free Alongside: Price at quay besides ship including port charges ----------------------
and not including loading charges.
4. FOB – Free on Board: Price of product – packed, palletized, containerized ----------------------
and loaded on ship (including all shipment, port and loading charges) ----------------------
5. C&F – Cost and Freight: FOB price plus cost of freight at the destination,
but not charges at discharge port, import duties and local taxes as ----------------------
applicable. ----------------------
6. CIF – Cost Insurance and Freight: C&F price plus insurance charge from
----------------------
manufacturer’s factory to final destination (including marine insurance.
Certain high-value products need faster and safer travel like air. Though ----------------------
costly but then work economical as the price and value of such products may
----------------------
change based on international prices. Example like gold, diamonds etc.
The most common way of payments is use of Letter of Credit (LC) as it ----------------------
ensures safety and comfort to both the parties involved.
----------------------
---------------------- The outcome lies in divided loyalties, seller-buyer atmosphere and unclear
future intentions.
---------------------- The remedial actions are offering incentives, having open and frank
---------------------- discussions, providing support schemes and continuous interactions.
2. Geographic, Economic and cultural gaps:
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The outcome lies in communication blocks, negative attitudes and
---------------------- problems in physical distribution.
---------------------- The remedial actions are establishing well managed communication
programe along with two way visits with clients.
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3. Legal and Regulatory Structures difference:
---------------------- The outcome lies in vertical trading restrictions and dismissal difficulties.
---------------------- The remedial actions are complete compliance of law, framing a strong
distributor agreement.
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