Book: Logistics / Larina

Distribution channels in logistics

Unlike marketing, which deals with identifying and stimulating demand, logistics is designed to satisfy the demand generated by marketing at minimal cost. However, due to the generality of the object of study, distribution logistics and marketing use general concepts. This also applies to distribution channels.

A distribution channel is a collection of enterprises and organizations through which products pass from the place of their manufacture to the place of consumption. In other words, a distribution channel is the way goods move from producer to consumer.

Depending on the size, capacity of the manufacturing enterprise, the variety of products and other factors, the distribution network may consist of one, several or many distribution channels, and different distribution channels of goods may differ in structure, types of resellers and intermediate warehouses, methods of delivery of goods, modes of transport, etc. The collection of distribution channels is called a distribution network.

The use of distribution channels provides manufacturers with certain advantages:

Saving financial resources for the distribution of products;

The possibility of investing the saved funds in the main production;

Selling products in more efficient ways;

High efficiency of ensuring wide availability of goods and bringing them to target markets;

Reduced workload for product distribution.

The chosen channels directly affect the speed, time, efficiency of movement and the safety of products during their delivery from the manufacturer to the final consumer. At the same time, the enterprises or persons that form the channel perform a number of important functions:

1) carry out research work to collect information necessary for planning the distribution of products and services;

2) stimulate sales by creating and disseminating information about goods;

3) establish contacts with regular customers;

4) adjust the product to the requirements of buyers;

5) conduct negotiations with potential consumers of products;

6) organize the movement of goods (transportation and storage);

7) finance the movement of goods through the distribution channel;

8) assume the risks associated with the operation of the channel.

All or part of these functions can be assumed by the manufacturer, then the costs of the manufacturer increase. Due to the specialization of intermediary organizations, they often perform the listed functions of distribution channels more efficiently.

Within the framework of logistics, the problem of civilized, economically justified mediation is considered. In general, the services of an intermediary are in demand if their cost is lower than their own costs for performing similar works offered by the intermediary. Thus, the question of who should perform the various distribution channel functions is a matter of relative efficiency. With the advent of the opportunity to perform functions more efficiently, the channel is being rebuilt.

However, when forming logistics channels, it must be remembered that the involvement of intermediaries, as a rule, lengthens the logistics chains.

In general, in distribution logistics, channels can be characterized by the number of their constituent levels. The level of distribution of the logistics flow is any intermediary participating in the logistics system that performs distribution functions, transforming material flows in the process of their movement to their final destination. The length of the channel is determined by the number of intermediate levels between the producer and the consumer.

The zero-level logistic channel includes a producer and a consumer, i.e. the distribution of the material flow is carried out directly by the manufacturer. Such channels are often used for the supply of industrial and technical products, especially if large quantities are purchased, as well as unique products. They provide for strict regulation of the delivery schedule and therefore allow to reduce production cycles and warehouse space.

One-, two- and more-tier logistics channels include one or more intermediaries. For example, a channel that includes a wholesaler, a small wholesaler, and a retail reseller is three-tiered. In multilevel channels, the distribution of material flows at the initial stage is carried out by the manufacturer, and then by intermediary structures.

From the standpoint of producers who generate material flows, the more levels a logistic channel has, the more difficulties in coordinating the functioning of all links to promote material flows to consumers.

Distribution channels can be horizontal or vertical.

Horizontal distribution channels are traditional channels and are composed of an independent manufacturer and one or more independent resellers. Each member of the channel is a separate enterprise that strives to ensure maximum profit for itself. The maximum possible profit of an individual member of the channel can be detrimental to the maximum profit of the system as a whole, since none of the channel members has full or sufficient control over the activities of the other members.

Vertical distribution channels are channels made up of a manufacturer and one or more intermediaries that act as one unified system. One of the channel members, as a rule, either owns the others, or grants them certain privileges. This member can be a manufacturer, wholesaler, or retail reseller. Vertical channels emerged as a means of controlling channel behavior. They are economical and eliminate duplication of functions performed by channel members.

The problem with managing distribution channels is that intermediary structures that are intermediate between producers and consumers do not always tend to shift relationships with producers. They prefer closer contact with consumers. Most intermediary structures want manufacturers to prove material flows to them and not interfere with logistics processes in the subsequent stages of moving these flows. The reason for this is that, in practice, manufacturers of commercial products often treat logistics intermediaries worse than their end users, whose requests, motivations and expectations are studied and satisfied. Thus, the needs of intermediate structures are often overlooked. Therefore, when organizing logistic ties with intermediaries in the field of distribution, such conflicting issues should be analyzed and taken into account. This has a positive effect on the efficiency of the logistics channel.

1.	Logistics / Larina
2.	Logistics development stages
3.	Modern logistics concept
4.	Purpose, tasks and functions of logistics
5.	Logistics types
6.	The essence and types of logistics systems
7.	Logistic chains
8.	Development stages of logistics systems
9.	Material flow and its characteristics
10.	Types of material flows
11.	Logistic operations
12.	The essence and objectives of procurement logistics
13.	Make or buy task
14.	Supplier selection
15.	Determining the economic size of the order
16.	Just-in-time supply system in procurement logistics
17.	Manufacturing logistics concept
18.	Logistic concept of production organization
19.	Material management approaches in production logistics
20.	Logistic concept "MRP"
21.	Micrologic system KANBAN
22.	Micro-logistics concept "Optimized production technology"
23.	Micro-logistics concept "Lean production"
24.

Product distribution channels. Channel functions

Most manufacturers offer their products to the market through intermediaries. Each of them strives to form its own distribution channel.

A distribution channel is the path that goods travel from producers to consumers. It eliminates long-term gaps in time, place and ownership that separate goods and services from those who would like to use them. Distribution channel members perform a number of very important functions:

1. Research work - gathering information needed to plan and facilitate exchange.

2. Promotion of sales - the creation and distribution of promotional communications about the product.

3. Establishing contacts - establishing and maintaining communication with potential buyers.

4. Adjustment of the product - adjusting the product to the requirements of buyers. This applies to activities such as production, sorting, assembly and packaging.

5. Conducting negotiations - attempts to agree on prices and other conditions for the subsequent implementation of the act of transfer of ownership or possession.

6. Organization of commodity circulation - transportation and warehousing of goods.

7. Funding - research and use of funds to cover the costs of the operation of the channel.

8. Risk-taking - taking responsibility for the functioning of the channel.

The performance of the first five functions contributes to the conclusion of transactions, and the remaining three - the completion of already concluded transactions.

The question is not whether these functions need to be performed — necessary and necessary — but rather, who should perform them. All these functions have three common properties: they absorb scarce resources, they can often be better performed due to specialization, they can be performed by different members of the channel. If the manufacturer fulfills some of them, his costs increase accordingly, which means that prices should be higher. When some of the functions are transferred to intermediaries, the costs, and hence the producer's prices, are lower. The intermediaries in this case must charge additional fees to cover their costs of organizing the work. The question of who should perform the various functions inherent in a channel is essentially a question of relative performance and effectiveness. If it becomes possible to perform functions more efficiently, the channel will be rebuilt accordingly.

Number of channel levels

Distribution channels can be characterized by the number of their constituent levels.

The level of the distribution channel is any intermediary who performs this or that work to bring the product and the ownership right to it to the end customer. Since some work is done by both the manufacturer and the end user, they are also part of any channel. The length of the channel is indicated by the number of intermediate levels available in it.

A zero-level channel (direct marketing channel) consists of a manufacturer selling a product directly to consumers. The three main direct selling methods are peddling, mail order and manufacturer-owned stores. Avon salesmen sell cosmetics to housewives by peddling. Franklin Mint sells collectibles through the mail-order business, and Singer sells its sewing machines through its own stores.

A sibling channel includes one intermediary. In consumer markets, this intermediary is usually a retailer, and in industrial markets it is often a sales agent or broker.

The duplex channel includes two intermediaries. In consumer markets, these intermediaries are usually wholesalers and retailers; in industrial markets, these can be industrial distributors and dealers.

The three-level channel includes three intermediaries. For example, in the meat processing industry, there is usually a small wholesaler between the wholesaler and the retailer. Small wholesalers buy goods from large wholesalers and resell them to small retailers that large wholesalers usually do not service.

There are channels with many levels, but they are less common. From the point of view of producers, the more levels a distribution channel has, the less control it has.

Choice of options for distribution channels.

When forming a distribution channel, the first place is given to the decision on the channel structure, i.e. the number of levels and the specific composition of the channel's members. The distribution channels are characterized by their length and width. Length the channel is determined by the number of independent intermediaries (or levels of distribution), consistently carrying out the promotion of goods.

Forms of bringing the goods to the consumer:

Direct communications through the door-to-door system, (zero-level channel) in which the goods are delivered from the supplier to the consumer, bypassing warehouses and storages. This form is used when purchasing a large batch of products or purchasing unique products. It allows you to minimize transport costs and the costs of intermediate storage of goods. Direct connections are effective only when serving closely located consumers.

In the case when consumers are located at a distance from suppliers or in several regions, the delivery of goods through warehouses (centers) of supplier enterprises... Sales agents, accepting an order for the supply of products, do not send it to the central sales office, from where it is sent to one of the company's enterprises, but directly to the nearest distribution center.

The next form of bringing goods to consumers is using the services of wholesale intermediaries... Suppliers use the services of wholesalers when selling products for industrial and technical purposes. This form is used mainly for the purpose of expanding sales markets and reducing costs, if necessary, organize an additional channel for the sale of the same product in different markets, when goods of standard quality are supplied in large quantities, etc.

In recent years, such a form of relations between wholesale intermediaries and industrial enterprises has also become widespread, when the first are assigned operations for the maintenance of equipment located at the consumer's premises. In this case, manufacturers are exempted from the need to have personnel to carry out such operations. Industrial equipment, raw materials and semi-finished products can be traded through commodity exchanges using brokers and agents.

Width distribution channels are characterized by the number of independent participants at each level. A firm may take various possible approaches to addressing the issue of the number of intermediaries. When identifying possible options for distribution channels, it is necessary to determine the type of intermediaries used. Their classification takes into account two criteria: on whose behalf the intermediary works and at whose expense it conducts its operations.

There are four types of intermediaries.

1. Dealers- wholesale, less often retail, intermediaries who conduct transactions on their own behalf and at their own expense. They purchase goods under a supply agreement, become the owners of the goods after paying for delivery and sell these goods to consumers.

2. Distributors- wholesale and retail intermediaries conducting operations on behalf of the manufacturer and at their own expense. The manufacturer grants the distributor the right to sell their products in a certain territory and for a certain time. The distributor is not the owner of the product. Under the contract, he acquires the right to sell it.

3. Commission agents- wholesale and retail intermediaries conducting operations on their own behalf and at the expense of the manufacturer. The agent is not the owner of the product. For the services rendered, he is paid remuneration in the form of a percentage of the transaction amount.

4. Brokers- intermediaries in the conclusion of transactions, bringing contractors together. Brokers do not own the products, do not dispose of the products. They act on the basis of instructions and facilitate the completion of the transaction. They are rewarded only for products sold.

After choosing the types of intermediaries in the distribution channel, it is necessary to determine the number of these intermediaries. Marketing has developed three approaches to solving this problem: intensive distribution, exclusive distribution, and selective distribution.

Intensive distribution involves the provision of stocks of products in the largest possible number of trade enterprises.

Exclusive distribution assumes a deliberately limited number of intermediaries who trade these products within the marketing territories.

Selective distribution is a cross between intensive and exclusive distribution methods. Selective distribution allows the manufacturer to achieve the required market coverage with tighter control and at lower costs than organizing intensive distribution.

However, in the general case, the choice of one or another channel depends on the ratio of three factors: the number of points of sale of the goods, distribution costs, the degree of control over the goods in the process of their "movement" along the channel to the final consumer ... If the distribution chain is short, the manufacturer retains more control over the product, but is usually able to reach a smaller sector of the market and in addition bears all the costs associated with warehousing, transportation and marketing. A longer chain increases the sector's market coverage and lowers producer costs, but the distribution process becomes more complex and therefore less controllable.

Length and width of distribution channels.

The distribution channel is the path that goods move from producers to consumers. It eliminates long-term gaps in time, place and ownership that separate goods and services from those who would like to use them.

Distribution channels are characterized by their the length and width. The length of the distribution channel is the main indicator and is determined by the number of links. The channel width is determined by the number of participants in each link of the distribution channel. In this case, the producer of the goods is the initial, and the consumers are the final links of the channel. The challenge is to determine the number of intermediate links. To select the length and width of the channel, it is customary to use the following criteria.

• Income criterion. Direct channels provide the opportunity for more sales and profits, because the proceeds come without intermediaries, and the company intensifies its efforts on the products they produce.
• Cost criterion. Direct delivery to a retailer is justified when the additional cost to achieve the appropriate level of sales is less than the additional cost associated with advertising.
• Flexibility criterion. The formation of distribution channels is a dynamic process that requires constant refinement.
• Control criterion. The more intermediaries participate in the distribution of an enterprise, the less control it has.

One of the main stages considered is determination of distribution channel parameters ... These parameters are length (length) and width. Under channel length imply the number of intermediate links that carry out the work of moving the goods from the producer to the consumer.

The length of the distribution channel can be characterized by the number of levels that make it up. The level of the distribution channel is any intermediary who performs one or another work to bring the product and ownership of it closer to the end customer. Since some work is done by both the manufacturer and the end user, they are also part of any channel.

A channel with a length equal to zero is called direct marketing channel, since there are no intermediate links in it, it consists only of a seller and a consumer. Direct marketing itself is carried out using several methods (home selling, over the phone, personal selling, and so on) and deserves separate consideration. The rest of the channels are indirect marketing channels and can include from one to three or more levels.

Sibling channel includes one intermediary. In consumer markets, this intermediary is usually a retailer, and in industrial markets it is often a sales agent or broker.

Two-level channel includes two intermediaries. In consumer markets, these intermediaries are usually wholesalers and retailers; in industrial markets, they can be industrial distributors and dealers. The three-level channel includes three intermediaries.

There are channels with many levels, but they are less common. From the point of view of manufacturers, the more levels a distribution channel has, the less control it has.

Another characteristic of the distribution channel is its width , that is, the number of intermediaries at each level involved in product distribution. Therefore, any firm must decide how many intermediaries will be used at each level of the channel. There are three approaches to solving this problem: intensive, exclusive and selective distribution.

At intensive In distribution, manufacturers generally seek to ensure that their goods are stocked in as many trade establishments as possible. For such goods, the convenience of the place of purchase is imperative.

Distribution on the basis of exclusivity, or exclusive, means that the manufacturer grants a limited number of dealers exclusive rights to distribute the firm's goods within their sales territories. At the same time, the condition of exclusive dealership is often imposed, when the manufacturer requires that the dealers selling his goods do not trade in the goods of competitors. By granting exclusive rights to the distribution of its goods, the manufacturer hopes to organize more aggressive and sophisticated sales, as well as the possibility of more complete control over the actions of the intermediary in the field of price policy, incentives, credit operations and the provision of various services. Exclusive allocation usually enhances the image of a product and allows for higher markups.

Method selective (selective) allocation is a cross between intensive allocation and exclusivity allocation. In this case, the number of involved intermediaries is more than one, but less than the total number of those willing to engage in the sale of goods. The firm does not need to scatter its efforts over a multitude of outlets, among which there are many and clearly secondary ones. She can establish good business relationships with specially selected resellers and expect above-average sales efforts from them. Selective allocation enables the manufacturer to achieve the required market coverage with tighter control and at lower costs on his part than organizing intensive distribution.

Similar information.

The formation of a sales policy is based on the use of an element of the marketing mix "bringing the product to the consumer", which characterizes the organization's activities aimed at making the product available to target consumers.

One of the key issues in bringing a product to the consumer is choosing a type of distribution channel, called a marketing channel, for different types of product.

Distribution channel refers to the number of organizations or individuals involved in the process of making products available for use or consumption by individual consumers or individual organizations; it is the path that goods move from producer to consumer. Distribution channel participants perform the following functions: collect and distribute marketing information; stimulate sales; make contacts; adjust the product to the requirements of consumers (sorting, assembling, packaging); negotiate; transport and store goods; finance the operation of the channel; take the risk for the functioning of the channel.

Any channel is characterized by the following flows: physical products, ownership of them, payments, information and product promotion. Intangible products (services, ideas, knowledge) circulate in the channels of the service sector.

Distribution channels can be characterized by the number of their levels. Channel level - any intermediary who performs certain work to bring the product and ownership of it closer to the end customer. The number of independent layers determines the length of the distribution channel. The simplest is a direct marketing channel consisting of a manufacturer selling a product directly to a consumer.

In fig. 11.1 justifies the need to use resellers in the distribution channel. Even if producers and buyers are located in the same city, in most cases effective sales of goods without the services of intermediaries is impossible. From fig. 11.1 (a) it follows that in the case of 5 producers and 5 intermediaries, 25 interactions are required. In the case of using one intermediary, Fig. 11.1 (b) the number of such interactions will decrease to 10.

Rice. 11.1. Role of intermediaries

In fig. 11.2 provides a diagram that characterizes the most important types of distribution channels for consumer goods, starting with a direct marketing channel, in which there are no intermediaries (A), and ending with its complex type, including, in addition to wholesalers and retailers, also other (functional) resellers ( G). In other types of distribution channels, functional intermediaries may be between wholesalers and retailers.

Rice. 11.2. Consumer goods distribution channels

Although the direct marketing channel is the simplest, it is not necessarily cheap. In the case of a sufficiently diverse range of products, a large number of markets, and geographical factors, economic feasibility dictates the use of more complex types of distribution channels.

The most sophisticated channels for specific consumer products may be the most effective. When multiple intermediaries can effectively perform specialized functions, the costs can be lower than when one intermediary is responsible for their implementation in many regions. From the manufacturer's point of view, the longer the channel, the harder it is to control its functioning. In a corrupt mafia economy, the intermediaries in the distribution system can serve as a source of profit from higher prices for consumers without creating any value for them.

Rice. 11.3. Industrial distribution channels

In fig. 11.3 shows a diagram characterizing the 4 most common types of distribution channels for products used in production activities. The direct marketing channel (A) for this type of product is used much more often than when selling consumer goods, especially when selling complex technical products. For the same reasons that were considered in the case of organizing the sale of consumer goods, more complex distribution channels are used (B, C and D).

From an organizational point of view, the usual distribution channels are distinguished; vertical marketing systems and horizontal marketing systems.

A typical distribution channel is made up of one or more independent manufacturers, wholesalers, and retailers, each of which maximizes its profit without considering the channel's maximum profit potential; this channel includes independent organizations that do not have a clear leadership position and are prone to conflict.

A vertical marketing system (VMS) is a distribution channel structure in which manufacturers, wholesalers and retailers act as a single system.

One of the channel members either owns the other channels, or has contracts with them, or has sufficient power to ensure full cooperation. The Navy is a special case of vertically integrated economic systems, which in the sphere of their managerial influence also include the production and supply of resources necessary for conducting production and economic activities. An example is Shell and Lukoil, which organize their activities according to the principle: from a well to a gas station.

Since the efforts of individual members of the Navy are combined, their marketing activities in mutual interests can be coordinated and duplication is excluded.

In fig. 11.4 compares the conventional distribution channel and the IUD, which consolidates the marketing functions and activities of individual participants in the distribution process as a whole.

There are corporate, contractual and administrative IUDs.

The corporate vertical marketing system consolidates the successive stages of production and distribution under a single owner who exercises overall management of the channel. For example, large grocery store companies have ice and ice cream production facilities, filling lines for various drinks, bakeries; all these products are supplied to the stores of this company.

A contractual vertical marketing system consists of independent production and distribution organizations at different levels of the system, contractually linked with the aim of obtaining savings or significant commercial results. There are three types of contract vertical systems: voluntary wholesale chains, retailer cooperatives, and franchise organizations.

Rice. 11.4. Conventional distribution channel and vertical marketing environment

A voluntary wholesaler chain is a negotiated vertical marketing system in which a wholesaler organizes voluntary chains of independent retailers to help them compete with large distribution networks.

A retailer's cooperative is a group of independent retailers or retail stores that come together to centrally joint purchasing, common warehousing, and a common procurement and product promotion policy. The members of the cooperative purchase most of the goods through the cooperative and are planning a joint advertising campaign. The profit of each member is proportional to the volume of purchases made by him. Retailers who are not part of the cooperative can also make purchases through the cooperative, but they do not have their share of the cooperative's profits.

In a franchise organization, a channel member, called the franchisee, links several steps in the supply chain. The activity of a contractual vertical marketing system of this type is based on the method of organizing production and sales activities, based on the granting of a privilege for the production and / or sale of products by one of the members of the distribution channel to another, called a franchise.

Privileges may include the granting of the right to conduct business under a well-known brand, the use of a patent, copyright, business method, know-how and
etc. Organizations that provide privileges can receive a one-time payment for them (for example, for the right to use a patent, for the rental of equipment) or a certain share of the profits.

There are three types of franchise organizations. The first is a system of privileges for retailers under the auspices of the manufacturer. For example, a manufacturer gives licenses to independent dealers to sell their products under certain conditions of sale and service. It is widely used in the automotive industry. The second is a system of privileges for wholesalers under the auspices of the manufacturer. This type of franchise organization is widely used in the soft drink industry. For example, the Coca-Cola company transfers the right to bottlers (wholesalers) in various countries to produce the drink from the company's concentrate and sell it to local retailers. The third is a service firm-sponsored retailer privilege system, whereby the firm gives retailers the right to serve customers. For example, this type of franchise organization is widely used in the fast food industry. Thus, the McDonald's company works with more than 14 thousand enterprises in many countries of the world.

The type of organization and conduct of entrepreneurial activity on the basis of the stated principles is called franchising.

A horizontal marketing system is understood as an agreement between several organizations at the same level of the distribution channel for joint actions in order to use the new marketing opportunities that arise. Under such an agreement, organizations can pool their capital, production and marketing resources. The parties to the agreement can be both non-competing and competing organizations.

Thus, the agreement between the Russian manufacturer of the IL-96 aircraft and the American company - the manufacturer of Pratt & Whitney engines - is not a simple agreement on supplies of cooperation. Without the support of Pratt & Whitney, which has a universally recognized authority in the world and its service system at major airports in the world, the IL-96's access to international lines seems difficult. Pratt & Whitney also benefits from this agreement.

Sometimes, in practice, both vertical and horizontal marketing systems are used together. For example, on these principles, cooperation was organized between General Motors, Procter and Gamble (horizontal interaction) and enterprises selling household products (in general, the Navy). An advertising campaign is being carried out in which it is said that plastic keys from General Motors cars are placed in the detergents of Procter and Gamble, and those who actively buy these products, if they are lucky, can buy a car at the price of detergent. ... The benefits for all participants in this IUD are obvious.

A variety of organizations operate in the distribution channel. When there is no agreement between them about the goals and content of their activities, as well as the reward for it, conflicts arise in the channel. These conflicts are horizontal and vertical. The former arise between organizations at the same level of the channel, for example, between dealers serving the same manufacturer. The latter are between different levels of the same channel, for example, between a manufacturer and dealers. Channel members can make claims to manufacturers regarding the quality of the goods and the fulfillment of the schedule for their shipment. Manufacturers and retailers may be dissatisfied with the fact that some of the wholesalers are not inclined to coordinate their activities with them, etc. Although there are no uniform recipes for resolving such conflicts, at least two conditions must be met in order to establish a spirit of cooperation in the channel ... First, it involves the establishment of clear roles for all channel participants, regarding both the rate of return and the responsibilities they perform. The second is to develop certain measures to coordinate the activities of the channel participants, which usually implies a leader in the channel and goodwill on the part of its other participants.

Rice. 11.5. Sources of power for the leader of the distribution channel

In order to become the leader of a distribution channel, one of its members, in addition to wanting to manage the efficiency of the channel, must have the opportunity to influence other members of the channel. In fig. 11.5 lists seven sources of power for a channel leader, two of which are economic and five non-economic.

Typically, the distribution channel leader is one of the manufacturers who provides financial assistance, business advice, contracts and advertising campaigns to channel members. For example, BMW fully controls the activities of its dealers.

Retailers can also act as channel leaders, especially if they represent a multinational or national chain of stores, have their own brands, for example, the "Reebok" trading company, which sells sportswear, footwear, sports equipment.

Wholesale leaders can, as noted above, form voluntary CPA with retailers.

The choice of distribution channels is carried out on the basis of economic criteria - comparing the volume of sales with the costs of creating and operating the channel (this calculation is given in the section on marketing control) in terms of the ability to control the activities of the distribution channel and adapt it for the sale of new products or for work under new conditions ...

The choice of distribution channels, their effective use affect the sales volume of the organization as a whole. There are certain optimal ratios between the volume of sales and the number of buyers and clients. Obviously, in the case when the management of a company has the opportunity to optimize the number of customers in terms of the volume of goods they buy from the company as a whole and through separate channels, in particular, this should be done. (This situation exists when the demand for the company's products exceeds the possibilities of its product coverage and there is an opportunity to optimize the number of customers.) The technique of such optimization based on the Pareto law or the 80:20 law is illustrated in Fig. 11.6.

11.6. Optimization of the number of clients

According to the results of sales, say, for a year, an enterprise ranks its customers according to the volume of purchases. Next, a point is plotted on the chart field that connects the first customer who made the largest purchases with the percentage of these purchases (from 100%). Further, on a cumulative basis, points are plotted for all other clients. As a result, we reach point 100, which characterizes 100% of purchases made by 100% of customers. The exit to it is carried out along one of the curves of type 1, 2, 3, 4, shown in Fig. 11.6. If all customers have purchased the same amount of products, then points 0 and 100 will be connected by a straight line (5). The coolest line (1) is obtained when a small number of customers purchase the lion's share of products. The options that gravitate towards the direct line are considered the most reliable (the role of each client in the total volume of purchases is small), but at the same time, they are not the cheapest, and are more complex in organizational and technical terms. Indeed, it is necessary to have deployed staffs of salespeople, accountants to conclude supply agreements, track the shipment of goods, pay bills, etc. clients. The optimal Pareto option is when, on average, 20% of customers purchase 80% of goods.

Medium-sized European industrial firms spend about 21% of their sales on getting their products to the consumer. Therefore, there is a large margin of cost savings in this area.

Product movement process

After choosing the distribution channels, it is necessary to organize their effective functioning, that is, to resolve issues in the field of physical distribution. Physical distribution includes order handling, cargo handling, warehousing, inventory management, and transportation.

An organization that delivers the right products to consumers in the right quantity, at the right place and time with the right level of service support has additional arguments for gaining a competitive advantage. In the process of commodity circulation, all distribution channels take part in one way or another.

The main goals of the distribution process are formulated in the field of ensuring the required level of satisfaction of consumers' demands while minimizing the costs of organizing and implementing this process. From the product distribution process, consumers expect an effective ordering system, the availability of the products they require in stock, the possibility of urgent deliveries, quick fulfillment of warranty obligations, and reliable after-sales service. Many organizations in this area introduce certain standards, for example, guaranteed delivery of goods within 48 hours.

When designing the process of commodity circulation, it is necessary to resolve production and sales issues in a coordinated manner. An example of production problems is the following.

Where is it more expedient to assemble the car: at the manufacturing plant or at the point of sale? Where it is more expedient to pack washing powders, bottling drinks: at the place of production or at the point of sale, where there may be a cheaper labor force, packaging materials. And why transport air in incompletely filled boxes?

Examples of issues addressed in the field of marketing include the following: Where is it better to store stocks of products: in the factory, in the wholesale or retail system, or in certain proportions in all these places? What should these reserves be? What types of transport and how best to transport products? How and where to organize pre-sales and after-sales service? All these issues need to be solved in concert, not basing solutions on local optima, but trying to find the optimal solution as a whole. Indeed, for example, the cheapest solution in the field of storage of finished products can lead to higher transportation costs and other undesirable phenomena, which will contribute to a non-optimal solution as a whole. Here the problems of marketing are closely intertwined with the problems of logistics.

It is possible to combine the storage of goods and their sale. The organizational and legal form of solving such complex problems is consignment. Consignment is the conditions for the sale of goods through consignment warehouses of intermediaries, when the ownership of the goods received at the warehouse of intermediaries remains with the seller until the moment of sale to the buyer. The storage of goods in the warehouse and its sales preparation are carried out at the expense of the seller. Delivery of goods to the warehouse is carried out before the conclusion of a sales contract with the buyer. As a rule, consignment provides for the storage of goods in the warehouse of an intermediary (consignee) for 1-1.5 years. If during this period the goods are not sold, they are returned to the owner at his expense. Consignment is used in cases where it is important not to miss the time of sale, which is optimal from the point of view of the efficiency of the transaction, or when the factor of an immediate transaction of delivery of the goods is important.

Let's consider in more detail the individual operations of physical distribution. Working with orders includes: receiving orders, processing them and fulfilling them. Orders are received by mail, by phone, via computer networks, as a result of personal visits from customer representatives. Processing orders consists in transferring them to warehouses, where the availability of the requested product is checked. In addition, the order is sent to the appropriate economic services, which check prices, terms of delivery, and the customer's creditworthiness. After the order is approved, its execution begins. If the ordered product is not in stock, then the task is given to the production workers.

After the order is ready for shipment, the warehouse and sales departments schedule the use of the respective vehicles. They are selected, among other things, taking into account the urgency of the delivery.

Cargo handling is important both from the point of view of efficient organization of storage facilities, and from the point of transportation of goods from the place of production to the place of its use. Packaging, loading, moving and labeling operations must be carried out in such a way as to reduce costs and bring the greatest benefit to consumers. The choice of cargo handling methods is significantly influenced by the type of product, whether it is perishable or not, etc.

Organization storage facilities includes the design and use of warehouses, means of movement, goods stored in them. Warehouse management serves the purpose of aligning production with orders. Warehousing of goods also helps to maintain price levels and meet seasonal demand.

The warehouse facility performs the following functions: receives goods, identifies them and registers them, sorts the goods, directs them to storage and stores them, finds the necessary goods and sorts them for shipment, packs the selected groups of goods and directs them to the chosen vehicle. At the same time, the corresponding accompanying and accounting documents are drawn up.

Inventory Management is the creation and maintenance of stocks of goods of the appropriate range and in the appropriate quantity necessary to meet the needs of consumers. In addition, stockpiling serves the purpose of ensuring that seasonal products such as lawn mowers are continuously produced throughout the year. Since the share of fixed assets required for inventory management is 30-50% of the total fixed assets of an enterprise, their effective management constitutes an important reserve for increasing all activities in the field of physical distribution. When a small stock of goods is stored in the warehouse, this, on the one hand, reduces the stock of unsold products, but, on the other hand, the consumer, having not received the product he needs, switches to buying a competitor's product. When the stocks are excessively large, then the satisfaction of consumers' demands becomes more expensive, there is a possibility of obsolescence of products. Hence the complex and important task of optimizing reserves.

Inventory managers are dealing with two extremely important issues. They need to know when to restock and how much to order. The reorder point characterizes the stock level at which a new order must be made. The choice of a point of reordering is determined by three factors: the time lag in the receipt of goods after they have been ordered; the speed of sale of goods and a safety margin that makes it possible to always satisfy the needs of consumers. The optimal level of safety margin depends on the demand and the standard of service delivery to the customers. Large safety margins guarantee the availability of the required product in the warehouse, they also reduce the cost of ordering, since the latter are carried out relatively rarely. Low safety margins, on the other hand, require frequent reordering and result in high implementation costs. This approach reduces the overall cost of maintaining inventory.

Rice. 11.7. Impact of order size on the replenishment system

In fig. 11.7 characterizes two recovery systems with different recovery rates with the same safety margin. Option (a) characterizes, at a certain amount of demand, a rare receipt of orders. Option (b) with the same amount of demand - frequent receipt of orders.

Rice. 11.8. Choosing an economically justified order quantity

In fig. 11.8 provides recommendations on the selection of an economically justified order quantity based on the requirement to minimize the total costs of creating and maintaining stocks. This approach forms the basis of many inventory control systems. However, it should always be remembered that minimizing total costs must be balanced with the level of service provided to consumers. Therefore, due to the increased cost of maintaining inventory, which is usually associated with an increase in the level of customer service, the ordered quantity often lies to the right of the optimal point, which leads to higher total costs.

Various methods are currently being used to improve inventory management, such as just-in-time.

Transportation ensures the movement of goods from the place of production to the place of their sale and use. Practice has developed a number of recommendations on the preferred use of different types of transport for the transportation of various goods (Table 11.1).

Table 11.1 The use of different modes of transport for transporting various goods

Railway			Pipeline	Air
	Paper goods	Chemicals	Natural gas	Perishable products
Chemicals	Computers		Coal pulp	Instruments
				Urgent spare parts
Cars	Fresh fruits			Urgent mail
	Live cattle

Table 11.2 provides data characterizing the comparative efficiency of various modes of transport for six indicators.

Table 11.2 Comparative characteristics of different modes of transport

	Cost per mile	Delivery speed	Frequency of deliveries	Stable delivery schedule	Flexibility in cargo handling	Locations-location
Railway
Pipeline
Air

Legend: 1 - very low efficiency; 2 - low efficiency; 3 - average efficiency; 4 - good efficiency; 5 - very good efficiency.

Estimates for these indicators form the basis for the choice of vehicles.

In order to take advantage of the benefits of different vehicles, several vehicles are often used in combination. Containerization facilitates the combined use of multiple modes of transport.

In fig. 11.9 is a diagram characterizing the structure of costs for the implementation of individual functions of physical distribution.

The costs of implementing the physical distribution functions discussed in this section — order handling, cargo handling, warehousing, inventory management, and transportation — account for about a third of all marketing costs. With a strong impact on customer satisfaction, these features are of great value to the marketer.

Rice. 11.9. Cost structure by individual physical distribution functions

The concept of the life cycle in marketing is applicable not only in relation to the product, but also in relation to the career of a sales employee (Figure 11.10). As the salesperson gains experience, he increases the efficiency of his activities, as measured by the volume of sales made by him. Being a marketer involves a very active business life, which is more difficult to do with age. In the period of maturity, the most rational combination of both acquired experience and energetic behavior takes place. At a later age, the experience gained with more and more difficulty compensates for the losses from the inability to conduct sales as vigorously as in younger years. This leads to a drop in sales. The above considerations should be taken into account when conducting personnel policy in relation to employees of sales services.

Rice. 11.10. Marketing career life cycle

Effective physical distribution requirements apply to all elements of the marketing mix. The product is designed and packaged in such a way as to make it as easy as possible to complete the tasks of delivering it to the consumer. Competitive pricing may depend on an organization's ability to provide reliable supplies, especially under unforeseen circumstances. The communication campaign must be coordinated with the distribution functions so that the promoted product is available to consumers.

Logistics channel- this is a partially ordered set of various intermediaries who bring the material flow from a particular manufacturer to its consumers.

The set is partially ordered until the choice of specific participants in the process of moving the material flow from the supplier to the consumer is made. After that, the logistics channel is transformed into a logistics chain.

Making a fundamental decision to sell products through an agency firm and, thus, refusal to work directly with the consumer, serve as a choice of the distribution channel. The choice of a specific agency firm, a specific carrier, a specific insurer, etc. is the choice of the supply chain. Logistic chain is a linearly ordered set of participants in the logistic process who carry out logistic operations to bring the external material flow from one logistic system to another.

Distribution channel is a collection of organizations or individuals who assume or help transfer to other organizations and persons the ownership of a specific product or service on the way from producer to consumer.

The use of distribution channels brings certain benefits to producers:

reduction in the volume of work on product distribution;

saving financial resources for the distribution of products;

selling products in more efficient ways;

ensuring the wide availability of goods.

The channels chosen directly affect speed, time, movement efficiency and product safety during delivery. The channel level is determined by the number of intermediaries, they are distinguished horizontal and vertical distribution channels. The horizontal distribution channel is shown in Fig. 6.1.

Each channel member represents a separate enterprise that is trying to extract the maximum profit, as a result, the final price of the goods from the consumer can significantly exceed the manufacturer's selling price.

Experts also distinguish vertical distribution channels, consisting of a manufacturer and one several intermediaries, acting as a single system. One of the channel members, as a rule, owns the rest of the companies or grants them certain privileges. In vertical distribution channels, duplication of functions performed by intermediaries is excluded. This channel is more economical.

Rice. 6.1. Horizontal distribution channels

Functions of the participants in the distribution channel:

research;

sales promotion;

establishing contacts;

adjusting the product to the requirements of consumers;

conduct of negotiations;

organization of goods - movement.

Distribution channel reseller types

There are three types of product distribution:

1. Sales companies of industrial enterprises. Here they distinguish wholesale offices- they do not trade in goods physically, their task is to trade from catalogs; wholesale bases- are engaged in the sale of goods in physical terms.

2. Independent wholesale intermediaries:

- dealers - these are wholesale (less often retail) intermediaries who conduct transactions on their own behalf and at their own expense. The goods are purchased by them under a supply agreement, and the dealer becomes the owner of the product. Dealers can be exclusive - a single representative of the manufacturer; authorized.

- distributors - wholesale and retail intermediaries acting on behalf of the manufacturer, but at their own expense. The manufacturer grants the distributor the right to sell their products in a certain territory for a certain period. The distributor is not the owner of the product. Under the contract, they acquire only the right to sell.

3. Intermediaries who do not have ownership of the goods:

- commission agent - intermediaries who act on their own behalf and at the expense of the manufacturer. The manufacturer remains the owner of the product until it is handed over and paid by the end consumer. The supply agreement with the buyer is concluded on behalf of the agent. But at the same time, the risk of accidental damage to the goods lies with the manufacturer, to whom the commission agent is responsible.

- agent - acts on someone else's behalf and at someone else's expense. The agent acts as a representative of the seller and has a long-term relationship with him. An agent can discuss several manufacturers producing non-competing goods. Agents can be universal – make any transactions on behalf of the seller; general - make transactions that are indicated in the power of attorney.

- broker - intermediaries in the conclusion of transactions, bringing contractors together. Unlike agents, brokers do not have a contractual relationship with either party.

Distribution efficiency control

Strategic and tactical control can be carried out to monitor the effectiveness of distribution.

Tactical control has, as its purpose, to identify deviations from the plan. Its requirements: efficiency, a set of certain standards, timeliness of information.

Strategic control held:

If the company significantly changes the geography of shipments;

If the company changes the size of the business;

If the company applies a marketing strategy;

If an enterprise stops producing some types of products and starts producing new ones;

When more than five years have passed since the strategic assessment.

Plan

1. Channels for the distribution of goods and services

2. Structure and management of distribution channels

1. Channels for the distribution of goods and services

The choice of ways of distributing goods and services is the most important task of the enterprise. Distribution routes affect the entire marketing mix.

Most businesses offer their products through intermediaries.

Distribution channel- a set of firms or entrepreneurs who assume or help transfer to someone else the ownership of a specific product or service when it moves from producer to consumer.

The functions of intermediaries. The manufacturer delegates part of the sales work to intermediaries. He, to some extent, loses control over how and to whom the goods are sold. But manufacturers believe that using intermediaries is beneficial.

Many manufacturers lack the financial resources to trade - both Russian coal mines and American auto companies. General Motors, for example, sells its cars through an army of 20,000 dealers. Even for this largest corporation in the world, it is very difficult to buy out all the dealerships. Firms find it unprofessional and unprofitable to open stores everywhere for their products.

Intermediaries, thanks to their contacts, experience, specialization and scale of activity, offer the manufacturer more sales opportunities than he can achieve on his own. One of the main sources of savings when using intermediaries is to increase the number of contacts with consumers. For example, to link three manufacturers directly to three consumers, nine separate contacts must be established. But if three manufacturers operate through one authorized reseller, only six contacts are required. Intermediaries improve the operational efficiency of the market.

Distribution channel functions. The distribution channel is the path that goods move from producers to consumers. Its task is to ensure the movement and change in the ownership of goods and services, as well as to smooth out the unevenness of their flows. Distribution channel participants perform the following functions:

organize the movement of goods - transportation and storage of goods;

stimulate sales by spreading tempting information about the product;

establish and maintain relationships with potential buyers;

modify, sort, assemble and pack the goods;

negotiate, agree on prices and other terms of sale;

finance the operation of the channel;

assume the risk of responsibility for the operation of the channel;

collect information for sales planning.

All of these functions consume scarce resources, but they must be fulfilled. If the manufacturer fulfills some of them, his costs increase accordingly, which means that prices should be higher. With the transfer of some functions to intermediaries, the costs and prices of the manufacturer are lower. The intermediaries in this case must charge additional fees to cover their costs of organizing the work. The question of who should perform the various functions inherent in the channel is essentially a question of relative effectiveness and efficiency. If it becomes possible to perform functions more efficiently, the channel should be rebuilt.

The number of channel levels. Distribution channels differ in the number of their constituent levels. The level of the distribution channel is any intermediary who performs one or another work to bring the product and ownership of it closer to the end customer. Since some work is done by both the manufacturer and the end user, they are also part of any channel. The length of the channel is usually denoted by the number of intermediate levels available in it.

Zero-level channel, also called direct marketing channel, consists of a manufacturer selling a product directly to consumers. There are three main ways of direct selling - trade through manufacturer-owned stores, mail order trade and peddling trade.

Sibling channel includes one intermediary. In consumer markets, this is usually a retailer, and in industrial markets, it is a sales agent or broker.

Two-level channel includes two intermediaries. In consumer markets, these intermediaries are usually wholesalers and retailers; in industrial goods markets, this can be an industrial distributor and dealers.

Three-level channel includes three intermediaries. For example, in industry, there is usually a small wholesaler between a wholesaler and a retailer. Small wholesalers buy goods from large wholesalers and resell them to small retailers.

There are channels with many levels, but they are less common. The more levels a distribution channel has, the less the ability to control it, but the more stable the rhythm of the manufacturer's work.

Channels in the service sector. The concept of channels is not just about distributing physical goods. Producers of services and ideas must ensure that their offerings are available to the target market. They create "knowledge dissemination systems", "health care systems". To reach a fragmented audience, you need to rationally locate your dealerships.

Hospitals should be located in such a way that all residents of the area have the opportunity to receive full medical care. Schools must be built close to where children live, otherwise children must be brought to school. Fire brigades must be dispersed so that firefighters can quickly reach potential fires. Polling stations should be located in such places so that you can get to them and vote without unnecessary expenditures of time, effort and money. In cities, you need to not only open hairdressers, but also properly place them.

Distribution channels are widely used in the marketing of educational services. Previously, teachers could teach in classrooms and with books. Then radio and audio recordings were added. Television, video recordings, computers and computer networks are now available. Politicians, too, must find cost-effective channels for disseminating their messages to voters — through the media, rallies, lunchtime coffee conversations, and Internet sites.

Distribution channels are characterized by the advancement of goods. But the “reverse” channels are also important. The recycling of solid waste has become an environmental problem. It arose when organizing the movement of materials through the distribution channel in the opposite direction, when organizing the purchase of waste through the “reverse” channel. The current channels of "reverse" are primitive, and the financial incentives associated with this occupation are insufficient.

Vertical marketing systems. V Recently, vertical marketing systems have emerged that challenge traditional distribution channels.

Typically, a distribution channel consists of an independent manufacturer, one or more wholesalers, and one or more retailers. Each participant in the channel is a separate enterprise, the goal of which is to obtain the maximum possible profit, even at the expense of the maximum extraction of profit by the system as a whole. None of the channel members has full or sufficiently complete control over the activities of the other members.

In contrast, a vertical marketing system (VMS) consists of a manufacturer, one or more wholesalers, one or more retailers, acting as a single system. In this case, one of the channel members either owns the others, or grants them trade rights, or has the power to ensure their close cooperation. The dominant force within the IUD can be either the manufacturer, the wholesaler or the retailer. The Navy emerged as a means of controlling the channel and preventing conflicts between its individual members pursuing their own goals. IUDs are small, have great bargaining power, and avoid duplication. In developed countries, the Navy has already become the predominant form of distribution in the consumer goods industry.

Corporate Naval Forces Within the corporate Navy, the successive phases of production and distribution are the responsibility of a single company. The world's largest company in terms of the number of employees, General Motors, since 1996, has received more than 50% of its income from trade and sale of services, and not from the production of goods. More than 50% of all goods sold by Sire, the largest retailer in the United States, come to its stores from factories whose shares are owned by the company itself. This is a global trend.

Contractual Navy. The Contractual Navy is made up of independent firms contracted to jointly achieve better business results than could be achieved alone. Treaty naval forces became widespread in the 70s and often impoverish small and large businesses. There are three types of contractual IUDs.

1. Voluntary retail chains sponsored by wholesalers. Wholesalers in developed countries are organizing voluntary chains of independent retailers en masse to help them compete against large distribution networks. The wholesaler develops measures aimed at streamlining the trading activities of independent retailers and ensuring cost-effective procurement, which allows the entire group to compete effectively with the chains. Many Russian retailers are willing to agree to such a merger, but wholesalers do not pay enough attention to them.