IDIS 240 exam 1

Industrial Channel Design

Manufacturer → Distributor → End User

End User

A customer that does not resell the product in its present form

Three Types of Industrial End Users

OEM; MRO/Facilities; Contractors

OEM

Original Equipment Manufacturer

Why don't manufacturers sell directly to every industrial end user?

They would need to establish themselves in every market area; this is expensive to establish and maintain; large volume must be sold to be profitable; efficiency is essential

Customer Value

Form, Place, and Time

Form

One of the three components of customer value

Place

One of the three components of customer value

Time

One of the three components of customer value

Three Major Areas of Distribution Value

Knowledge, Financing, Logistics

Knowledge

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

Financing

Traditional lending, consignment, and extending credit

Logistics

Wait time, delivery time, local delivery, reverse logistics, breaking bulk, packaging, assortment, local access, and purchase time

Why is a supply chain needed?

Inadequate finances for necessary functions; customers' desire for product assortment; better rate of return on core business through outsourcing; contact efficiency

Contact Efficiency

The efficiency gained by using intermediaries to connect manufacturers and end users

Evolution of Distribution

Distributors became important because manufacturers could not effectively distribute products outside their own geographic areas

Distributor

An intermediary that bridges the gap between suppliers and customers

Five Specific Distributor Service Outputs

Selling; maintaining local inventory; extending credit; providing transportation; servicing products after sale

Selling

Providing technical and market information and understanding the customer's business to solve problems

Local Inventory

Maintaining products on the shelf for immediate delivery or pickup

Distributor Credit

Extending credit to industrial customers

Distributor Transportation

Providing transportation to the user's location

Post-Sale Service

Servicing products after they have been sold and sometimes after they have been installed

Why do distributors have channel power?

They can economically provide distribution functions; they leverage customer and manufacturer relationships; they provide value-added services

Distributor Value-Added Services

Product customization, modification, assembly, kitting, servicing, and aftermarket marketing/selling support

Major Trends Benefiting Distributors

Increasing value of information; mass customization; increased use of Just-In-Time inventory; reductions in number of vendors

Mass Customization

Product personalization

Just-In-Time Inventory

Products must be stored close to customers using JIT

Future Role of Distribution

Channel consolidation/acquisition; strategic alliances; key channel performance metrics; end-user purchasing strategies; technology

Successful Distributor

Continues to evolve from a traditional product/component supplier into a true business partner

Product-Based Purchasing

Distributor buys what can be sold at a profit; sales team determines to whom it can be sold

Customer-Based Purchasing

Distributor buys based on the requirements of the customers being served

Product-Based vs Customer-Based Purchasing

Product-based focuses on what can be sold profitably; customer-based focuses on customer requirements and desired service level at economical cost

Ways Purchasing Can Reduce Costs

Buying large quantities; purchasing before price increases; buying enough for freight allowance; cash discounts; promotional items; factory rebates; national buying groups

Receiving

An important distributor operation where materials are received accurately and in a timely manner

Why is receiving important?

Errors at receiving can cause incorrect inventory levels, incorrect purchase orders, stockouts, or inventory showing as available when it does not exist

Blind Check

A receiving check made without an invoice and then sent to purchasing for verification; most complete and thorough

Invoice Check

A receiving check using the invoice/packing slip; less expensive and time-consuming

Barcode Scanning

The fastest, most reliable, and most accurate receiving method; automatically cross-checked with the purchase order

Three Types of Distributor Sales

Counter Sales; Inside Sales; Outside Sales

Professional Selling / Problem-Solving Sales

Concerned with quality, product performance, availability, maintenance requirements, repair parts, product recycling, and post-sale service

Counter Sales

Sales where the salesperson provides information, answers technical questions, waits on the customer, fills the order, writes the invoice, and promotes the product/company

Inside Sales

Sales conducted by telephone/email without face-to-face interaction

Challenge of Inside Sales

No face-to-face interaction makes it harder because the representative cannot see the product or facial responses/cues

Outside Sales

Sales where the representative meets the customer in person at the customer's business

Outside Sales Representative

Should be a specialist in the customer's business area and use product knowledge to advise customers and solve problems

Sales Manager Responsibilities

Training, coordination, evaluation, technical expertise, setting goals/quotas, identifying important accounts/products, evaluating results, rewarding performance, and helping determine product lines/inventory

Order Filling

Also known as picking

Picking

The process of selecting the exact item and quantity for a customer order

Key to Order Filling

Accuracy

Consequences of Wrong Picking

Lower customer satisfaction, reshipping costs, and other RMA costs

Buy-Out

A purchase from another source, normally a local competitor, when merchandise ordered by a customer is unavailable in inventory

How can buy-outs be reduced?

Better forecasting

Packing

After an order is picked, merchandise is packed in boxes/cartons so it can be shipped

Purpose of Packing

Prevent damage to merchandise

Shipping Options

Freight lines for out-of-town customers; delivery department for local customers; will-call locations for customer pickup

Will Call

A location where the customer can pick up an order

Manufacturer Motivations

Product design, research, engineering, production, market size, market share, and large-volume runs

Manufacturer Responsibilities

Produce quality products; maintain consistent lead times; create markets; make end-user/specifier calls; advertise; provide catalogs; provide technical information/training; protect the channel; understand value and compensate channel partners

Manufacturer Sales Representative

Responsible for sales in a given territory and may call on end users, distributors, specifiers, or agents

Other Names for Manufacturer Sales Representative

Manufacturer Representative, Outside Sales Representative, Sales Representative, Account Manager, Sales Engineer, Field Application Engineer

Manufacturer Sales Representative Skills

Product knowledge, market knowledge, negotiation skills, teaching skills, understanding relationships/partnerships, and position development

Manufacturer's Agent

Similar to a manufacturer sales representative but usually represents multiple companies whose sales in a territory do not support a full salaried employee

Manufacturer's Agent Customers

May call on distributors, end users, specifiers, and manufacturers

Manufacturer's Agent Inventory

Typically does not stock inventory

Why does a manufacturer use an agent?

The agent can represent multiple companies when individual companies do not have enough sales in a territory to support a full salaried employee

Factory-Owned Distributorship

A distributor owned by a manufacturer

Why was the factory-owned distributorship started?

Lack of other channels and the need to obtain representation

Factory-Owned Distributorship Full-Service Requirement

To be full service, it must sell products from other manufacturers

Non-Factory-Owned Distributor

A full-service distributor that is more independent than a manufacturer

Advantages of a Non-Factory-Owned Distributor

Better ability to tailor product mix and provide representation to new products/manufacturers

3PL

Third-Party Logistics

3PL Transportation Services

Long haul, short deliveries, and hot shots

3PL Warehousing Services

Receiving, storing, picking, and packing

3PL Information Services

Tracking and proof of delivery (PODs)

Complete Logistics Function

Transportation/warehousing/information plus deciding the level and location of inventory

3PL Global Shipping

Customs, ports, and carriers

Other Supply Chain Members

Banks, integrators, architects, engineers, designers, and modifiers

Distribution Levels

Exclusive, Selective, Intensive

Exclusive Distribution

One of the three levels of distribution

Selective Distribution

One of the three levels of distribution

Intensive Distribution

One of the three levels of distribution

Supply Chain Management

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

Goal of Supply Chain Management

Enhanced customer and economic value

List Price

The listed/original price

Selling Price

List price minus trade discounts

Net Price

Selling price minus allowable discounts, such as cash discounts

Net Sale

Actual money received after discounts and adjustments

COGS

Cost of Goods Sold

COGS Formula

Cost of merchandise + freight from manufacturer

Freight

Free on board (FOB); can involve destination vs shipping point

Trade Discount

A discount applied to the list price to determine selling price

Cash Discount

An allowable discount applied to selling price to determine net price

Special Order

A terminology item covered in the distributor pricing section

Minimum Order vs Freight Allowed

A pricing/ordering consideration covered in the terminology section

Claims

Billing or shipping errors, shortages, or similar issues

Returns

Products returned to the seller

Gross Margin (GM)

Selling price − COGS − adjustments

Percent Gross Margin

Gross margin expressed as a percentage

Markup

The amount added to cost to determine selling price