Chapter 11

Distribution

The elements involved in transporting, making available, coordinating, and planning the movement of products. These activities include making the products available to consumers, as well as providing necessary inputs to the organization.

Intermediary

Any entity that operates between one part of the distribution process and another.

Third-Party

Intermediary Any intermediary that is contracted to perform a function rather than being owned and controlled by the organization.

Wholesaler

A business customer who takes possession of large quantities of a supplier's product and resells it and/or distributes it to smaller wholesale, retail, and consumer customers.

Warehousing

The physical structure in which quantities of goods are stored for distribution, as well as the coordination and organization of that storage.

Distributor

Someone who has the legal right to supply a particular product in a particular geographic area. Distributors may not take physical possession of the product, but instead use third-party warehousing.

Retailer

An entity that sells products directly to consumers. Retailers may be owned or controlled by another entity in the distribution chain, or may be

independent.

Rack lobber

A kind of distributor who works with many suppliers, representing and merchandising their products to a large number of smaller, more diverse

retail customers.

Agent

General term for anyone who is not directly employed by an organization but who represents it in a sales or distribution capacity. Typically, these intermediaries are paid a percentage tee of any sales orders as compensation.

Broker

Type of agent who typically will set up and arrange sales, and even develop new customers, but who does not physically handle, distribute, or trans-

port the product.

Sales Force

Whether employed directly by the organization or as part of an independent sales force, these players are key to establishing customers and taking orders for products.

Supply Chain

The entire process of production and distribution--the series of interlinked steps and processes (and the management of that process) from supplier ultimately to consumer. Sometimes limited to the supply and production part of the process only.

Logistics

The managerial process of tracking, coordinating, planning, and executing all parts of the supply chain from materials and ingredients ordering through production and distribution. It includes all elements of production, including buying, forecasting, scheduling, and planning.

Form Value

The role of the distribution chain that ensures that customers and consumers can find the product in the quantity and size they prefer.

Place Value

The role of the distribution chain that ensures that customers and consumers can find the product where they wish, need, or expect.

Time Value

The role of the distribution chain that ensures that customers and consumers can find the product at a time that is convenient or when they need it.

Access Value

The role of the distribution chain that provide producers access to particular distribution chains or new markets.

Control Value

The role of the distribution chain that takes ownership and oversight for the management of a product through the distribution network.

Promotional Value

The role of the distribution chain in helping to support promotional marketing activity in the distribution channel.

Financial Value

The role of the distribution chain in either financing supplier activities or enabling the supplier to obtain financing from a financial institution. Customer Service Value The role of the distribution chain in assisting with customer service issues.

Information Value

The role of the distribution chain in providing product information to end consumers, and consumer and competitive intormation back to the supplier.

Price/Margin Value

The role of the distribution chain that enables the producer to provide a value-based price to the end consumer while each player in the chain still can work profitably.

Expertise Value

The role of the distribution chain that ensures that products requiring special handling or service are appropriately addressed.

Legal/Regulatory/Licensing Value

The role of the distribution chain that ensures that all legal, regulatory, or licensing requirements are met.

Security Value

The role of the distribution chain that ensures that products of great value or that may be the target of competitive spies are kept secure and safe.

Storage Value

The role of the distribution chain that aids in storing and warehousing quantities of finished goods, allowing for greater levels of production.

Form Cost

The distribution cost associated with having to develop potentially less efficient forms and quantities of products for specific channels of distribution.

Place Cost

The distribution cost associated with having to support multiple outlets for the distribution of products to consumers.

Time Cost

The distribution cost associated with having to deal with products that are time sensitive due to relevance, expiration, or product quality.

Access Cost

The distribution cost associated with obtaining access to new accounts or markets.

Control Cost

The distribution cost associated with having to either give up control to other elements of the distribution chain, or compensate others in the chain for their responsibility in taking control of the product.

Promotional Cost

The distribution cost associated with having to finance any promotional activities supported by the distribution chain.

Finance Cost

This cost is not different than obtaining financing from a bank or other lender. If a distributor contributes to the financial health or startup of the organization, then the distributor will expect a return on that investment, whether through interest charges or some other financial consideration.

Price/Margin

The distribution cost associated with having to use intermediaries, which has an impact on margin and possibly on the ultimate price the consumer sees.

Customer Service Cost

Every intermediary is also an opportunity for poor or unsatisfactory service for which the producer must take responsibility even if bevond its control

Information Cost

The need to share information with intermediaries and risk private or proprietary information being revealed.

Expertise Cost

The distribution cost associated with having to use expensive, well-trained, licensed specialists to handle or service certain products.

Legal/Regulatory Cost

The distribution cost associated with contracts, approvals, and sometimes regulatory oversight of the distribution chain.

Loss -Damage-Theft Cost

The distribution cost associated with loss, theft, or damage to items while in the distribution chain.

Storage Cost

The distribution cost associated with having to store or relocate finished goods.

Intensity of Distribution

How focused, widespread, or exclusive marketers choose to be in using distribution to further their marketing goals.

Broad or Mass Distribution

Making products widely available in a large number of forms of distribution. Products are usually targeted to a very broad range of consumers.

Selective Distribution

Making products available in a limited, tightly controlled number of distribution channels. May be used to make the distribution channel distinctive.

Exclusive Distribution

Making products available at a very small number of distribution points either because the target is small, the product is rare or unique, or to command even greater distinction and value.

Vertical Distribution

The process and structure through which products pass from the producer or supplier to the consumer.

Independent Vertical Distribution

A form of vertical distribution in which in which all of the players in the model are independently owned and controlled.

Integrated Vertical Distribution

A form of vertical distribution in which all of the players in the model are owned by one of the players (usually the manufacturer or producer)

Contractual Vertical Distribution

A form of vertical distribution in which all of the players in the model are independent but are legally and contractually bound to one another, sometimes exclusively.

Franchise Model

A form of contractual vertical distribution in which one player contracts with another to use its brand, formula, and licences in return for support, training, and sharing of expenses.

Franchisor

The party who offers and owns the franchise.

Franchisee

The party who takes and operates the franchise.

Administered Vertical Distribution

A form of vertical distribution in which all of the players are independent but one is dominant and directs the activities of the

other members of the channel.

Distribution Channel

Conflict A situation where a producer / supplier must deal with multiple channels of distribution, and consider all of the issues and factors

that might lead to problems.

Traceability

The increasing demand, by some socially conscious consumers and organizations, that the distribution chain be able to identify the origin and chain of

distribution for all products--in some cases for health and safety reasons

in others for ethical or legal reasons.

Outsourcing/Offshoring

The controversial but common practice of using cheaper sources of production than where the products are sold. Sometimes associated with issues regarding low wages and poor working conditions.

End-to-End Supply Chain

The portion of the distribution chain involved in input supply and production.

Order Processing

A supply chain function involving physically inputting a product order into the order system and tracking it through the supply chain.

Inventory Management

A supply chain function involving tracking and controlling not only a suitable amount of storage space, but also managing which items move in and out and when.

Just-in-Time (JIT) Inventory Management

An inventory management system designed to ensure that only the minimum amount of needed inputs is available for

production at a scheduled time

reducing warehousing costs and improving efficiency

Logistics

The science and craft of making all the parts of the supply, production, and distribution systems work together smoothly and efficiently.

Logistics Management

Encompasses everything from scheduling to ordering to transportation, physical distribution, storage, inventory management, and all of

the elements that make each of those phases work.

Customs

The paperwork, regulatory oversight, and payment of custom's duties or tariffs involved in importing or exporting product to or from a toreign country Clearances In addition to any customs duties, tariffs, or taxes, some items require special clearances, licences,and approvals to travel from one country to another. For some products, the issue is product safety; for others it is a question of legal restrictions on the products themselves (e.g., firearms).

Free on Board (FOB)

The contractual determination of when and where ownership of the product passes through the distribution chain.

Accessibility

What percentage of organizations in an area can be reached by a particular mode of transport; how many and how widespread the destinations are that this mode of transport can reach.

Capability

What types and forms of products a mode of transportation can carry.

Intermodal

A functional aspect of the transportation and distribution network that allows a product to easily move from one form of transport to another as part of

a larger distribution plan.