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