Department of Marketing & Decision Sciences
Part 5 – Distribution
Wholesaling and Physical Distribution
Department of Marketing & Decision Sciences
Wholesaling
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Wholesaling is the sale, and all activities directly
related to the sale, of goods and services to
businesses and other organizations for
1. resale,
2. use in producing other goods or services, or
3. operating an organization
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Thus wholesaling includes sales by any firm to any
customer except an ultimate consumer who is
buying for personal, nonbusiness use
Department of Marketing & Decision Sciences
Wholesaling - Economic Justification
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Most manufacturers are small and specialized: Therefore
they do not have the capital to maintain a sales force to
contact the many retailers or final users that are or could be
their customers
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Even for large manufacturers some products or lines generate
such a small volume of sales that it would not be costeffective to establish a sales force to sell them
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At the other end of the distribution channel, most retailers and
final users buy in small quantities and have limited
knowledge of the market and sources of supply
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Thus there is often a gap between the seller and the
buyer
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A wholesaler can fill this gap by providing services of value
to manufacturers and/or retailers
Department of Marketing & Decision Sciences
The Economy of Transactions in Wholesaling
Department of Marketing & Decision Sciences
Types of Wholesaling Middleman
- Merchant wholesaler
- Agent wholesaling middleman
- Manufacturer’s sales facility
Department of Marketing & Decision Sciences
Physical Distribution - Nature and Importance
- Physical distribution: Moving tangible products
through distribution channels
- Physical distribution (or logistics) consists of all
activities involved in moving the right amount of the
right products to the right place at the right time
- In the past years, the surge of e-commerce has
underscored the importance of physical distribution
 the challenge relates to fulfillment, which entails
having the merchandise that is ordered by a
customer in stock and then packing and shipping
it in an efficient, timely manner
Department of Marketing & Decision Sciences
Physical Distribution - Supply Chain Management
- SCM represents a total system perspective of distribution, combining
distribution channels and physical distribution
- The core of SCM is coordinated logistics
- With SCM individual logistics activities are brought together in a unified
way - more and more, the Internet is being used to allow supply chain
members to monitor (real time) key factors such as the status of orders
and inventory levels
- Integral to effective SCM is the total cost concept: A company should
determine the set of activities that produces the best relationship
between costs and profits for the entire physical distribution system
- The key point is that physical distribution should be viewed as a
total system, with all related costs being analyzed
- As part of SCM, some companies are contracting out, or
outsourcing, all or part their physical distribution function
Department of Marketing & Decision Sciences
Tasks in Physical Distribution Management
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Physical distribution refers to the actual physical flow of
products
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In contrast, physical distribution management is the
development and operation of processes resulting in the
effective and efficient physical flow of products
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Effective physical distribution management requires
careful attention to five interrelated activities:
1. Order processing
2. Inventory control
3. Inventory location and warehousing
4. Materials handling
5. Transportation
Department of Marketing & Decision Sciences
Tasks in Physical Distribution Management
1. Order Processing
- The starting point in a physical distribution system is order
processing, which is a set of procedures for receiving,
handling, and filling orders promptly and accurately
- Electronic data interchange (EDI):
- Between customer and supplier orders, invoices, and
other business functions are transmitted by computer
- Originally, EDI required a direct computer link between
supplier and customer, now it is being conducted via the
Internet
- EDI can trim the cost of order processing significantly,
which in turn may reduce purchase prices
Department of Marketing & Decision Sciences
Tasks in Physical Distribution Management
2. Inventory Control
- The goal of inventory control is to satisfy the orderfulfillment expectations of customers while minimizing
both the investment and fluctuations in inventories
- Just-in-Time:
- JIT combines inventory control, purchasing, and
production scheduling
- Applying JIT, a firm buys in small quantities that arrive
just in time for production and then it produces in
quantities just in time for sale
Department of Marketing & Decision Sciences
Tasks in Physical Distribution Management
2. Inventory Control (continued)
- Just-in-Time:
- …
- Benefits of JIT are:
- Dramatic cost savings
- Shortened and more flexible and reliable production and
delivery schedules
- Quick responses to quality problems
- Market-Response Systems:
- The central promise is that those who intend to consume a
product should activate a process to produce and deliver
replacement items
- In this way, a product is pulled through a channel on the
basis of demand
Department of Marketing & Decision Sciences
Tasks in Physical Distribution Management
3. Inventory Location and Warehousing
- Management must make critical decisions about the
size, location, and transportation of inventories
- These areas are interrelated, often in complex ways
- One key consideration in managing inventories is
warehousing, which embraces a range of
functions, such as assembling, dividing, and
storing products and preparing them for
reshipping
Department of Marketing & Decision Sciences
Tasks in Physical Distribution Management
4. Materials Handling
- Selecting the proper equipment to physically
handle products, including the warehouse building
itself, is the materials handling subsystem of
physical distribution management
- Equipment that is well matched to the task can
minimize losses from breakage, spoilage, and theft
- Efficient equipment can reduce handling costs as
well as time required for handling
Department of Marketing & Decision Sciences
Tasks in Physical Distribution Management
5. Transportation
- Management must decide on both the mode of
transportation and the particular carriers
- The leading modes of transportation are railroads,
trucks, pipelines, water vessels, and airplanes
- Using two or more modes of transportation to move
freight is termed intermodal transportation; this
approach is intended to seize the advantages of
multiple forms of transportation