PartSixDistributionDecisions16WholesalingandPhysicalDistributionCopyright©HoughtonMifflinCompany.Allrightsreserved.16|2Objectives1.Tounderstandthenatureofwholesalinginthemarketingchannel2.Toexplainwholesalers’functions3.Tounderstandhowwholesalersareclassified4.TorecognizehowphysicaldistributionactivitiesareintegratedintomarketingchannelsandoverallmarketingstrategiesCopyright©HoughtonMifflinCompany.Allrightsreserved.16|3Objectives5.Toexaminethemajorphysicaldistributionfunctionsoforderprocessing,inventorymanagement,materialshandling,warehousing,andtransportation6.TodiscussthestrategicimplicationsofphysicaldistributionsystemsCopyright©HoughtonMifflinCompany.Allrightsreserved.16|4ChapterOutline•TheNatureofWholesaling•TypesofWholesalers•TheNatureofPhysicalDistribution•FunctionsofPhysicalDistribution•StrategicIssuesinDistributionCopyright©HoughtonMifflinCompany.Allrightsreserved.16|5TheNatureofWholesaling•Wholesaling–Transactionsinwhichproductsareboughtforresale,formakingotherproducts,orforgeneralbusinessoperations•Wholesaler–Anindividualororganizationthatfacilitatesandexpediteswholesaletransactions•Handlesthephysicaldistributionofgoods•FurnisheschannelinformationtofacilitateandmanagethesupplychannelCopyright©HoughtonMifflinCompany.Allrightsreserved.16|6Copyright©HoughtonMifflinCompany.Allrightsreserved.16|7TheNatureofWholesaling(cont’d)•ServicesProvidedbyWholesalers–Serveasanextensionoftheproducer’ssalesforcethroughcontactwithsuppliersandretailers–Lendfinancialassistanceforthedistributionchannel•Transportingandwarehousinginventories•Assumingcreditrisksofbuyers/customers•Purchasingproducers’entireoutput:convertingproducer’soutputimmediatelytoworkingcapital•ChannelinginformationfromandtosellersandbuyersCopyright©HoughtonMifflinCompany.Allrightsreserved.16|8TheNatureofWholesaling(cont’d)•AdvantagesinUtilizingWholesalers–Haveclosercontactwithretailers–Arelessexpensiveandmoreefficientthanmaintaininganindependentsalesforce–Canspreadsellingcostsovermoreproducts–Canassistinselectingoptimuminventory–Areexpertsinnegotiatingfinalpurchases–Areknowledgeableaboutsourcesofsupply–PerformphysicaldistributionactivitiesefficientlyCopyright©HoughtonMifflinCompany.Allrightsreserved.16|9TypesofWholesalers•MerchantWholesalers–Independentlyownedbusinessesthattaketitletogoods,assumeownershiprisks,andbuyandresellproductstootherwholesalers,businesscustomers,orretailers•Providemarketcoverage•Makesalescontacts•Storeinventory•Handleorders•Collectmarketinformation•FurnishcustomersupportCopyright©HoughtonMifflinCompany.Allrightsreserved.16|10TypesofMerchantWholesalersFIGURE16.1Copyright©HoughtonMifflinCompany.Allrightsreserved.16|11TypesofFull-ServiceWholesalersGeneral-MerchandiseWholesalersFull-servicewholesalerswithawideproductmixbutlimiteddepthwithinproductlinesLimited-LineWholesalersFull-servicewholesalersthatcarryonlyafewproductlinesbutmanyproductswithinthoselinesSpecialty-LineWholesalersFull-servicewholesalersthatcarryonlyasingleproductlineorafewitemswithinaproductlineCopyright©HoughtonMifflinCompany.Allrightsreserved.16|12Copyright©HoughtonMifflinCompany.Allrightsreserved.16|13TypesofAgentsandBrokersFIGURE16.2Copyright©HoughtonMifflinCompany.Allrightsreserved.16|14Copyright©HoughtonMifflinCompany.Allrightsreserved.16|15TypesofWholesalers(cont’d)•Manufacturers’SalesBranchesandOffices–Salesbranches•Manufacturer-ownedintermediariesthatsellproductsandprovidesupportservicestothemanufacturer’ssalesforce–Salesoffices•Manufacturer-ownedoperationsthatprovideservicesnormallyassociatedwithagentsCopyright©HoughtonMifflinCompany.Allrightsreserved.16|16TheNatureofPhysicalDistribution•PhysicalDistribution(Logistics)–Activitiesusedtomoveproductsfromproducerstoconsumersandotherendusers•Orderprocessing•Inventorymanagement•Materialhandling•Warehousing•Transportation•Outsourcing–ContractingphysicaldistributiontaskstothirdpartieswithspecializedlogisticsskillswhodonothavemanagerialauthoritywithinthemarketingchannelCopyright©HoughtonMifflinCompany.Allrightsreserved.16|17ProportionalCostofEachPhysicalDistributionFunctionasaPercentageofTotalDistributionCostsFIGURE16.3Source:HerbertW.DavisandCompany/Establish,Inc.,FortLee,NJ.DavisDatabase,June2004,©2004byHerbertW.DavisandCompany/Establish,Inc.Copyright©HoughtonMifflinCompany.Allrightsreserved.16|18TheNatureofPhysicalDistribution(cont’d)•PhysicalDistributionObjectives–Meetingsstandardsofcustomerservicefor•Timelinessoforderfulfillment•Accuracyoforderfulfillment–Reducingtotaldistributioncosts•Inventorylevelsagainstwarehousingcosts•Materialscostsversustransportationcosts•Distributioncostsagainstcustomerservicestandards•Overallgoalistoachievethelowesttotaldistributioncostcompatiblewiththefirm’scustomerserviceobjectives.–Reducingcycle(processcompletion)time•FasterprocessesforincreasedcustomerserviceCopyright©HoughtonMifflinCompany.Allrightsreserved.16|19FunctionsofPhysicalDistribution•OrderProcessing–Thereceiptand