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Unit 10: Logistics and Distribution

The use of intermediaries also aids the search processes of both buyers and sellers. Producers are Notes
searching to determine their customers’ needs, while customers are searching for certain products
and services. A degree of uncertainty in both search processes can be reduced by using channels
of distribution. For example, consumers are more likely to find what they are looking for when
they shop at wholesale or retail institutions organized by separate lines of trade, such as grocery,
hardware, and clothing stores. In addition producers can make some of their commonly used
products more widely available by placing them in many different retail outlets, so that consumers
are more likely to find them at the right time.

What Flows Through the Channels of Distribution

Members of channels of distribution typically buy, sell, and transfer title to goods. There are,
however, many other flows between channel members in addition to physical possession and
ownership of goods. These include promotion flows, negotiation flows, financing, assuming
risk, ordering, and payment. In some cases the flow is in one direction, from the manufacturer
to the consumer. Physical possession, ownership, and promotion flow in one direction through
the channels of distribution from the manufacturer to the consumer. In other cases there is a two-
way flow. Negotiations, financing, and the assumption of risk flow in both directions between
the manufacturer and the consumer. Ordering and payment are channel flows that go in one
direction, from the consumer to the manufacturer.
There are also a number of support functions that help channel members perform their
distribution tasks. Transportation, storage, insurance, financing, and advertising are tasks that
can be performed by facilitating agencies that may or may not be considered part of the marketing
channel. From a channel management point of view, it may be more effective to consider only
those institutions and agencies that are involved in the transfer of title as channel members. The
other agencies involved in supporting tasks can then be described as an ancillary or support
structure. The rationale for separating these two types of organizations is that they each require
different types of management decisions and have different levels of involvement in channel
membership.

Effective management of the channels of distribution involves forging better relationships
among channel members. With respect to the task of distribution, all of the channel members
are interdependent. Relationships between channel members can be influenced by how the
channels are structured. Improved performance of the overall distribution system is achieved
through managing such variables as channel structure and channel flows.

10.4 Benefits of Supply Chain Management

Supply chain management is concerned with managing the flow of physical goods and associated
information from initial sourcing to consumption. One benchmarking study showed that best-
practice supply chain management companies enjoyed a 45 percent total supply chain cost
advantage over their median competitors. Bottom-line benefits included: (1) reduced costs
relating to inventory management, transportation, and warehousing; (2) improved service using
techniques such as time-based delivery; and (3) enhanced revenues through greater product
availability and more customized products.
Some companies contract out the task of supply chain management to a specialized service firm.
The supply chain management firm typically provides vertical market expertise, transaction
processing capabilities, and business consulting services, allowing the company to focus on its
core competencies. In addition to reducing costs, effective supply chain management can result
in enhanced supplier relations and greater customer satisfaction through timely deliveries and
accurate responses to customer inquiries.

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