DL - Distribution and Logistics [OVERVIEW]

Distribution and Logistics

Introduction

Distribution has evolved throughout time from bartering and personal selling, to retailing and wholesaling to the now popular E-tailing and downloading of applications.

Let's look at a couple of examples:

Dell: The worldwide corporation Dell, Inc. initially made and sold computers to buyers by telephone. Michael Dell, a college student and computer whiz had an idea, to eliminate the retailer and sell directly to the consumer. Most computers at this point were being sold in a retail outlet. Offering customers a different option of distribution, and cheaper prices with better customer service allowed Dell to make a place for itself in the market.
FlatWorld: Entrepreneurs Jeff Shelstad and Eric Frank launched Flat World Knowledge. Shelstad and Frank believe they have found a way to add more value to the textbooks you buy. One of their strategies is to deliver their products via a distribution channel that's different from those used to sell traditional textbooks. Flat World offers textbooks to teachers and students online. The text books are cheaper and more versatile than a hard copy text book only available in bookstores.
Redbox: Redbox took over the movie rental market because of their innovative idea on distribution. Redbox vending machines are less expensive than opening and running a retail outlet, like Blockbuster used to. Redbox was able to locate its DVD vending machines in more places than Blockbuster could its stores. Customers are able to pick up a movie any time of day without having to go far. Redbox is also taking advantage streaming. You can stream a movie from the Redbox website as well as pick up a movie from one of the 42,000 locations.

All three of these companies have taken distribution to the next level, whether it is going back to basics like Dell did with personally selling computers or coming up with a whole new avenue of distribution like the movie vending machines Redbox created. Distribution has been an integral part in these companies making a profit over the years.

Essential Questions

What is the nature and scope of channel management?
What is the nature of channels of distribution?
What are the marketing functions of transportation and storage?
What are the common terms associated with buying and shipping?
What is the receiving process?
How is technology used in channel management?
How does distribution affect the cost of products?
What are the distinguishing characteristics of retailers, wholesalers, agents, and brokers?
How does customer service affect channel management?

Key Terms

Agent - A business unit (person or company) that negotiates purchases, sales, or both but does not take title to the goods in which it deals.
Basic Stock List - An assortment plan for staple merchandise that is continuously maintained in stock, usually for a period of a year or more.
Carload - The shipment by rail of a full load. This usually qualifies for lower freight rate than smaller shipments.
Channel of Distribution - An organized network (system) of agencies and institutions which, in combination, perform all the functions required to link producers with end customers to accomplish the marketing task.
Consignment - A method of selling whereby a manufacturer provides an intermediary with the merchandise while retaining title to the goods. The intermediary is free to sell the product and to pay only for goods actually sold.
Contract Carriers - A contract carrier performs transportation services on a selected basis after receiving authorization in the form of a permit. The contract refers to the agreement between the shipper and a contract carrier.
Distribution Center - A facility for the receipt, storage, and redistribution of goods to company stores or to customers. It may be operated by retailers, manufacturers, or distribution specialists.
Dollar Control - The control of sales, stocks, markdowns, and markups in terms of dollars rather than in terms of pieces or items.
Drop Shippers - Limited-function wholesalers known as drop shippers seldom take physical possession of the goods. They often specialize in heavy or bulky commodities that require the economies of volume shipment. The drop shipper buys the car-load, but does not take physical possession. The order, or drop shipment, is shipped direct from the supplier to the customer.
E-marketplace - an internet location owned by a company or consortium which allows other companies or individuals to get new suppliers or buyers for their products as well as develop trading networks which makes negotiating, settlement and delivery easier and more efficient.
E-tailing - The sale of goods and services through the Internet to consumers.
Exclusive Distribution - A form of market coverage in which a product is distributed through one particular wholesaler or retailer in a given market area.
Exempt Carriers - A transportation provider not subject to direct regulation regarding operating rights or pricing policies. It must, however, comply with licensing and safety laws. If engaged in interstate movement, the carrier must publish its rates.
Freight Forwarders - The freight forwarder combines small shipments from different shippers into larger shipments for scale economies in the purchase of intercity or international transportation. The freight forwarder functions as a wholesaler of transportation services.
Indirect Distribution - A channel whereby goods and services are sold indirectly from producers through independent middlemen to final users.
Intensive Distribution - A form of market coverage in which a product is distributed through all available wholesalers or retailers who stock and sell the product in a given market area.
Inventory - Goods or merchandise available for resale
Inventory Management - The process of acquiring and maintaining a proper assortment of merchandise while keeping ordering, shipping, handling, and other related costs in check.
Inventory Turnover - The number of times average inventory is sold during a specified time period (usually one year).
Just-In-Time (JIT) Inventory System - An inventory management system that relies upon receiving necessary inventory in the exact quantity and at a specified time to support manufacturing schedules.
Memorandum Buying - A special form of indefinite future dating under which the title of the merchandise passes to the buyer, and the buyer assumes all risk of ownership.
Model Stock List - An assortment of merchandise indicating in very general terms (product lines, colors, and size distribution) what should be carried in a particular merchandise category.
Never-out List - Key items or best sellers listed separately from a model stock plan or basic stock list, or that are especially identified on the basic stock list by colored stars or other suitable means. It is sometimes referred to as a list of key items, checking-list item, or best-seller list.
Open-to-buy (OTB) - The residual balance of current purchase allotments total planned purchases for a period, less receipts and merchandise on order.
Perpetual Inventory System - A stock control system that is designed to keep continuous track of all additions and deletions to inventory.
Physical Distribution - A concept or approach to managing the finished goods inventory of the firm. Typically it includes transportation, warehousing, inventory, and order processing functions of the firm.
Physical Inventory System - An inventory determined by actual count and evidenced by a listing of quantity, weight, or measure. It is usually compiled in dollars as well as units
Pre-retailing - The practice of determining prices and placing them on a copy of the purchase order at the time that goods are bought (orders placed).
Private Carriers - A corporate-owned and corporate-managed transportation capability. Private carriage usually refers to trucking, but corporate ownership of other modes is also found in rail and water transportation.
Private Warehouse - A private, or corporate, warehouse is a facility that is operated by the buyer or the seller of the product. It may be used to store raw materials in anticipation of production, work in process, or finished goods awaiting shipment to the buyer
Public Warehouse - A for-hire facility that is available to any business requiring storage or handling of goods. The public warehouse usually operates on a monthly contract and charges for storage plus a handling fee for receiving goods and moving goods out of storage.
Rack Jobbers - A wholesale middleman operating principally in the food trade, supplying certain classes of merchandise that do not fit into the regular routine of food store merchandise resource contacts. The rack jobber commonly places display racks in retail stores providing an opening inventory on a consignment or on a guaranteed-sale basis, periodically checks the stock, and replenishes inventories. The term is somewhat archaic with trade acceptance of the term service merchandiser.
Retailers - A merchant middleman who is engaged primarily in selling to ultimate consumers. One retailer may operate a number of establishments.
Selective Distribution - A form of market coverage in which a product is distributed through a limited number of wholesalers or retailers in a given market area.
Spot Check Method - This is used particularly in receiving operations when goods come in for reshipping to branch stores in packing cartons. Certain cartons are opened in the receiving area of the central distribution point and spot checked for quality and quantity.
Stock-keeping unit (SKU) - A specific unit of inventory that is carried as a separate identifiable unit. A pint bottle and a quart bottle of the same product would be separate SKUs for inventory purposes
Ton-mile - A transportation term denoting the movement of one ton, i.e., 2,000 pounds, one mile
Transportation - A marketing function that adds time and place utility to the product by moving it from where it is made to where it is purchased and used. It includes all intermediate steps in the process.
Unit Control - The control of stock in terms of merchandise units rather than in terms of dollar value.
Want Slips - A slip on which the salesperson records customer requests for items that cannot be supplied from stock.
Wholesalers - A merchant establishment operated by a concern that is primarily engaged in buying, taking title to, usually storing and physically handling goods in large quantities, and reselling the goods (usually in smaller quantities) to retailers or to industrial or business users.

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