IDIS Exam 1

Consumer Chanel Design

Manufacturer, Wholesaler, Retailer, Consumer, End User

Industrial Channel Design

Manufacturer, Master Distributor, Distributor, End User

Why don’t manufacturers just sell directly to end users

very expensive, large volume must be sold to be profitable, not efficient

End Users of Industrial Product

OEM, MRO, Contractors - dont resell in present form

Three parts of Distribution

Knowledge, Logistics, Financing

Knowledge

product knowledge, vendor knowledge, customer knowledge, financing knowledge, logistical knowledge, and product application

Financing

Traditional lending, consignment, extending credit

Logistics

wait time, delivery time, breaking bulk, packaging, assortment, local access

Levels of Distribution

intensive, selective, and exclusive
from most to least amount of retail outlets

Supply chain managment

a management system that coordinates and integrates all the activities performed by supply chain members into a seamless process, from the source to the point of consumption

Why is supply chain needed

• Inadequate finances for necessary functions (most companies can’t own the entire process)

• customers’ desire for product assortment (consumers want variety)

• better rate of return on core business (companies can specialize)

• contact “efficiency” (manufacturers sell to stores instead of consumers)

Five specific service outputs

• selling (providing information about the products)

• inventory (having enough product)

• credit (extending credit)

• transportation (providing transportation to users’ locations)

• servicing (maintaining products after they’ve been sold)

• SICTS

Why Distributors have channel power

• Economics of providing distribution functions (distributors can economically provide the needed services to get the product from the manufacturer to the end user)

• Distributors leverage customer and manufacturer relationships (they understand channel members’ needs)

• Distributors provide value-added services (provide customization, modification, assembly, kitting, and aftermarket marketing and selling support)

Trends benefitting distrbutors

• Increasing value of information (distributors have information about trends)

• Move towards mass customization (product personalization)

• Increase use of Just-In-Time Inventory

• Reduction in the number of vendors

Types of Purchasing

• Product based Purchasing (buy what can be sold at profit)

• Customer-Based Purchasing (buy based on the requirements of the customers)

Ways to check in receiving

• blind check (check products received without an invoice and send to purchasing to compare)

• Invoice check (check against the packing slip)

• Barcode scanning (fastest, most reliable, automatically cross-checked with purchase order)

Types of Sales

• counter sales

• inside telephone sales

• outside sales

Counter Sales

product display and counter separating customer from storage area

inside sales

No face-to-face interaction with customers

Outside sales

representative should be a specialist in the customer’s business area

Meets the customer in person at the customer’s business place

the manufacturers responsibility

• producing quality products

• maintaining consistent lead times

buy out

required when merchandise ordered by the customer is not available in inventory

Typically bought from local competitors to satisfy customer orders

Order filling (picking)

accurate and exact quantities, the picker should know the exact matching item and location

packing

After the sales order is picked, merchandise is packed in boxes or cartons so that it can be shipped

RFID enabled shipping and receiving

• Picked and packed in an LPN; RFID tag applied

• LPN detected as it passes through the dock and ship

• Order received and then released for picking; confirmation is processed

• LPN detected as it passes through receiving dock and receipt processed

Manufacturer Sales Representative

• Responsible for sales in a given territory

• may call on end users, distributors, specifiers, or agents

Manufacturers Agent

• Usually represents multiple companies, each of which has sales in a given territory that do not support a full salaried employee

• Usually complementary products

Factory-Owned Distributorship

• Started because a lack of other channels

• to be full service, must sell other manufacturers’ products

• GESCO

non-factory owned distributor

• full service with all functions of a distributor

• more independent than a manufacturer

3 PLs

• 3rd-party logistics provider

• Transportation - long-haul, short deliveries

• Warehousing: receiving, storing, picking and packing

• Providing information such as tracking and PODS

selling price

list price - trade discounts

net price

selling price - allowable discounts

net sale

actual money received after discounts and adjustment

cost of goods sold (COGS)

cost of merchandise + freight from manufacturer

FOB destination vs FOB shipping

FOB Destination: the seller owns the goods until they reach the buyer’s location and pays the freight charges

FOB Shipping Point: the buyer takes ownership as soon as the goods leave the seller’s location and pays the freight charges

Gross Margin

selling price - COGS - adjustments

percent gross margin

gross margin/selling price * 100

Margin vs Markup

• Margin: a percentage of the selling price, margin/selling price

• Markup: percentage of the COGS, margin/COGS

EBITDA

gross margin - operating expenses (OE) - SG&A

EBIT

EBITDA = depreciation and amortization

accounts receivable

money owed to the company by customers for goods sold on credit

DSO

the average number of days it takes to collect payment after a sale is made

What is GMROII and why is it important

gross margin return on inventory investment

Measures how many gross margin dollars are earned for every dollar invested in average inventory