Chapter 16 Wholesaling And Physical Distribution Objectives • Understand nature of wholesaling in marketing channel • Explain wholesalers’ functions • Understand how wholesalers are classified • Recognize how physical distribution activities are integrated into channels and overall strategies • Discuss major objectives of physical distribution • Examine physical distribution functions of order processing, warehousing, and transportation • Discuss strategic implications of physical distribution systems Copyright © Houghton Mifflin Company. All rights reserved. 16 | 3 Major Wholesaling Functions Copyright © Houghton Mifflin Company. All rights reserved. 16 | 4 Service Provided By Wholesalers • Initiate sales contracts and sell diverse products • Financial assistance • Source of working capital • Information conduits in channel • Closer contact with retailer • Spread sales costs over many products • Help retailer select inventory Copyright © Houghton Mifflin Company. All rights reserved. 16 | 5 Types Of Wholesalers Copyright © Houghton Mifflin Company. All rights reserved. 16 | 6 Merchant Wholesalers Useful For: • • • • • • Market coverage Make sales contacts Store inventory Handle orders Collect market information Furnish customer support Copyright © Houghton Mifflin Company. All rights reserved. 16 | 7 Full-Service Wholesaler A merchant wholesaler that performs the widest range of wholesaling functions. Copyright © Houghton Mifflin Company. All rights reserved. 16 | 8 Customers Rely On Full-Service Wholesalers For: • • • • • Product availability Suitable assortments Breaking large quantities into small lots Financial assistance Technical advice/service Copyright © Houghton Mifflin Company. All rights reserved. 16 | 9 What are the potential advantages of using this company’s services? Reprinted with permission of MindShare Strategies, Inc. Copyright © Houghton Mifflin Company. All rights reserved. 16 | 10 General-Merchandise Wholesaler A full-service wholesaler with a wide product mix but limited depth within product lines Copyright © Houghton Mifflin Company. All rights reserved. 16 | 11 Products Of General-Merchandise Wholesalers • • • • • Drugs Nonperishable foods Cosmetics Detergents Tobacco Copyright © Houghton Mifflin Company. All rights reserved. 16 | 12 General-Line Wholesaler A full-service wholesaler that carries only a few product lines but many products within those lines. Copyright © Houghton Mifflin Company. All rights reserved. 16 | 13 Specialty-Line Wholesaler A full-service wholesaler that carries only a single product line or a few items within a product line Copyright © Houghton Mifflin Company. All rights reserved. 16 | 14 Rack Jobbers A type of specialty-line wholesalers that own and maintain display racks in supermarkets, drugstores, and discount and variety stores Copyright © Houghton Mifflin Company. All rights reserved. 16 | 15 Limited-Service Wholesaler A merchant wholesaler that provides some services and specializes in a few functions Copyright © Houghton Mifflin Company. All rights reserved. 16 | 16 Services Provided By Limited-Service Wholesalers Copyright © Houghton Mifflin Company. All rights reserved. 16 | 17 Cash-And-Carry Wholesaler A limited-service wholesaler whose customers pay cash and furnish transportation Copyright © Houghton Mifflin Company. All rights reserved. 16 | 18 Truck Wholesaler A limited-service wholesaler that transports products directly to customers for inspection and selection Copyright © Houghton Mifflin Company. All rights reserved. 16 | 19 Drop Shipper A limited-service wholesaler that takes title to goods and negotiates sales but never actually takes possession of products Copyright © Houghton Mifflin Company. All rights reserved. 16 | 20 Mail-Order Wholesaler A wholesaler who uses catalogs instead of a sales force to sell products to retail and business buyers Copyright © Houghton Mifflin Company. All rights reserved. 16 | 21 What type of wholesale is Premium Ingredients International Reprinted with permission of Premium Ingredients International Copyright © Houghton Mifflin Company. All rights reserved. 16 | 22 Agents And Brokers • Agent- intermediary that represents either buyers or sellers on a permanent basis • Broker- intermediary that brings buyers and sellers together temporarily Copyright © Houghton Mifflin Company. All rights reserved. 16 | 23 Types Of Agents And Brokers Copyright © Houghton Mifflin Company. All rights reserved. 16 | 24 Services Agents And Brokers Provide Copyright © Houghton Mifflin Company. All rights reserved. 16 | 25 Agents • Manufacturers’- independent that represents 2+ sellers and usually offers complete product lines • Selling- markets a whole product line or a manufacturer’s entire output • Commission merchant- receives foods on consignment from local sellers and negotiates sales in large, central markets Copyright © Houghton Mifflin Company. All rights reserved. 16 | 26 Manufacturers’ Sales Branches And Offices • Sales Branch- manufacturer-owned intermediary that sells products and provides support services to the manufacturer’s sales force • Sales Office- manufacturer-owned operation that provides services normally associated with agents Copyright © Houghton Mifflin Company. All rights reserved. 16 | 27 The Nature of Physical Distribution Physical Distribution – Activities used to move products from producers to consumers and other end users Copyright © Houghton Mifflin Company. All rights reserved. 16 | 28 Goal Of Physical Distribution • Right Goods • Right Place • Right Time • Right Quantity • Right Support Services © Microsoft Power Point Clip Art Copyright © Houghton Mifflin Company. All rights reserved. 16 | 29 Outsourcing Contracting physical distribution tasks to third parties that do not have managerial authority within the marketing channel. News Article On Outsourcing Copyright © Houghton Mifflin Company. All rights reserved. 16 | 30 Physical Distribution Objectives • Meeting Customer Service Standards • Reducing Total Distribution Costs • Reducing Cycle Time Copyright © Houghton Mifflin Company. All rights reserved. 16 | 31 Proportional Cost of Each Physical Distribution Function From Davis Database, 2005. Reprinted by permission of Establish Inc./Herbert W. Davis and Company. Copyright © Houghton Mifflin Company. All rights reserved. 16 | 32 Cycle Time The time needed to complete a process. Copyright © Houghton Mifflin Company. All rights reserved. 16 | 33 Order Processing • Tasks – Order entry – Order handling – Order delivery • Electronic Data Interchange- computer integrated order processing with production, inventory, accounting, and transportation Copyright © Houghton Mifflin Company. All rights reserved. 16 | 34 Many organizations provide hardware and software to make order processing more accurate and efficient Reprinted with permission of Siemens L&A, Jonathan Stein Copyright © Houghton Mifflin Company. All rights reserved. 16 | 35 Inventory Management • Determining When To Order – Reorder point – Order lead time – Usage rate – Safety stock • Just-in-time – approach in which supplies arrive just when needed for production or resale Copyright © Houghton Mifflin Company. All rights reserved. 16 | 36 Materials Handling • Unit loading – one or more boxes placed on a pallet or skid • Containerization – consolidation of many items into a single large container Containerization Copyright © Houghton Mifflin Company. All rights reserved. 16 | 37 Types Of Warehousing • Private- company-operated facility • Public- business leases storage space and related physical distribution facilities to other firms • Distribution centers- large, centralized warehouse that focuses on moving rather than storing goods Overstock.com Copyright © Houghton Mifflin Company. All rights reserved. 16 | 38 Transportation Modes • Railroads • Trucks • Waterways • Air transport • Pipelines © Microsoft Power Point Clip Art © Microsoft Power Point Clip Art © Microsoft Power Point Clip Art Copyright © Houghton Mifflin Company. All rights reserved. 16 | 39 Proportion Of Intercity Freight Carried By Various Transportation Modes U.S. Bureau of the Census, Statistical Abstract of the United States, 2006 (Washington, DC: Government Printing Office, 2006) Copyright © Houghton Mifflin Company. All rights reserved. 16 | 40 Typical Transportation Modes For Various Products Copyright © Houghton Mifflin Company. All rights reserved. 16 | 41 Factors Considered In Choosing Transportation Mode • Cost • Speed • Dependability • Load Flexibility • Accessibility • Frequency Copyright © Houghton Mifflin Company. All rights reserved. © Microsoft Power Point Clip Art 16 | 42 Relative Ratings Of Transportation Modes By Selection Criteria Copyright © Houghton Mifflin Company. All rights reserved. 16 | 43 Coordinating Transportation • Intermodal- two or more modes used in combination • Freight forwarder- organization that consolidates shipments from several firms into lot sizes • Megacarrier- freight transportation firm that provides several modes of shipment Copyright © Houghton Mifflin Company. All rights reserved. 16 | 44 Odyssey meets customer needs by offering transportation options Reprinted with permission of Odyssey Logistics & Technology Corporation Copyright © Houghton Mifflin Company. All rights reserved. 16 | 45 Strategic Issues In Physical Distribution • • • • Evident in all elements of marketing mix Closes gap with customers Must be integrated Balances supply and demand in defined time period • No single system ideal • Changing customer needs and preferences Copyright © Houghton Mifflin Company. All rights reserved. 16 | 46