Chapter 15 Wholesaling and Logistics Management

1. Chapter 15Wholesaling and Logistics Management Professor Jason C. H. Chen, Ph.D. School of Business Administration Gonzaga University Spokane, WA 99223 chen@jepson.gonzaga.edu

2. After studying this chapter you should be able to: • Understand wholesaling and describe the three basic categories of wholesalers. • Identify and discuss the roles of different types of full-service and limited-function wholesalers. • Explain differences among the functions of agents, brokers, and commission merchants. • Understand the differences between manufacturers’ sales branches and offices.

3. After studying this chapter you should be able to: • Appreciate how slow growth rates and globalization will affect wholesaling in the future. • Define logistics management and explain its key role in marketing. • Understand logistics activities. • Discuss how some of the key ethical and legal issues affect logistics.

4. OPENING VIGNETTE WWW.GRAINGER.COM • What is Grainger’s vision statement? • How does Grainger add customer value and pay attention to customer wants and needs?

5. A Marketing Strategy – showing the 4 P’s of a Marketing Mix Product Place Price Promotion C

6. Product Place Price Promotion C Overview of Marketing Strategy Planning Process Narrowing down to focused strategy with quantitative and qualitative screening criteria Customers Needs and other Segmenting Dimensions S. W. O. T. Segmentation & Targeting Company Objectives & Resources Segmentation & Positioning Competitors Current & Prospective External Market Environment Technologies Political and Legal Cultural and Social Economic

7. Place Decisions in the Marketing Mix • Making products available in the right quantities and locations—when customers want them • Channels of distribution • Focus on institutions involved in getting product to the customer • Logistics • Focus on the physical flow of the product • Facilities needed for storing and transporting • Customer service levels to satisfy customers

8. Strategy Decision Areas in Place

9. The Importance of Marketing Channels • Marketing channels determine how and where customers buy.

10. Consumer and Business-to-Business Marketing Channels

11. Key Functions Performed in Marketing Channels • Marketing Communications • Advertising the Product • Providing P-O-P Displays • Providing a salesforce that offers information & service to customers • Inventory Management • Ordering appropriate merchandise assortment • Maintaining adequate stock to meet customer demand • Storing merchandise in an appropriate facility • Physical Distribution • Delivering products • Coordinating delivery schedules to meet customer expectations • Arranging for the return of defective merchandise

12. Key Functions Performed in Marketing Channels • Market Feedback • Serving on manufacturer advisory boards • Informing other channel members of competitive activity • Participating in test market evaluations • Financial Risk • Offering credit • Managing risks related to product loss or deterioration • Managing risks related to product safety and liability

13. Contributions of Intermediaries • Provide Economic Value • Provide Social Value • Provide Marketing Support • Impact Supply-chain Management • Add Value to the Market Offering

14. Types of Marketing Channels • Direct Channels • Indirect Channels • Single Marketing Channels • Multiple Marketing Channels • Vertical Marketing Systems

15. Companies Using Direct Market Channels Exhibit 13-3 Companies using direct marketing channels Business Buyer: Truck manufactures Producer: Cummins Engine Co. (International market) Diesel engine Personal selling Consumer Producer: Munder Capital Management (International market) Mutual Fund Telemarketing, direct response, advertising Consumer Producer: Dell Computer Corp. (International market) Personal computer Toll free phone/fax ordering, internet

16. Companies Using Indirect Market Channels Exhibit 13-4 Examples of indirect channels A B Producer: Thousands of manufacturers Examples: Black & Decker, Stanley Tools, 3M, Weedeater Producer: Beecham Products Examples: Aqua-fresh toothpaste, Mennan aftershave, Sucrets lozenges Wholesaler: Orgill Brothers, one of the world’s largest hardware wholesalers, located in Memphis, Tennessee Retailer: Thousands of hardware stores Retailers: Thousands of drug, grocery & discount stores, Examples: Wal-Mart, Kroger, Ekerd Drugs, Walgreens Ultimate consumers: Millions of people in the United States, Mexico, South & Central America Ultimate consumers: Millions of people around the world

17. Companies Using Vertical Marketing Systems

18. Many Expenses Contribute to Total Inventory Cost Interest expense of money tied up in inventory (“inventory carrying cost”) Cost of storage facilities and maintaining them Handling costs (to put products in inventory and take them out again) Total Inventory Cost Costs of damage to products while In inventory Costs of risk such as theft and fire Costs of inventory becoming obsolete

20. Order processing speed Transportation mode used Inventory on hand to meet demand Information to help plan exactly when product will arrive Damage or loss during shipping Factors that Affect Customer Service Level Factors that affect customer service level

21. Wholesaling and Logistics Management • Wholesalers: • Intermediaries in the marketing channel that sell to customers otherthan individual or house hold consumers. • Logistics Management: • The planning, implementing, and movement of goods, services, and related information from point of origin to point of consumption.

22. Wholesaling: All marketing activities associated with selling products to purchasers that resell the products, use them to make another product, or use them to conduct business activities. Value-Added Resellers (VARS): Sell to small and medium-sized business customers. Wholesaling

23. Types of Wholesalers Exhibit 15-1 Categories and types of wholesalers Categories Types Merchant wholesalers: Take title to products they resell; earning from markup. includes distributors, jobbers, importers & exporters, grain elevator operators, farm product assemblers. Full service: General merchandise, limit-line, specialty merchandise (includes rack jobbers) Limited function: Truck jobbers, drop shippers, cash and carry, catalog wholesalers, wholesale clubs Agents, brokers, commission merchants: Do not take title to products they resell; earnings from commissions paid by producers. Manufactures’agents, import & export agents, brokers, commission merchants, auction companies Manufacturers’ sales branches & offices: Producer-owned; to survive, must add to producer profitability. Sales branches (carry inventory); sales offices (no inventory)

24. Merchant Wholesalers • Are also called “Distributors” and can be: • Full-service wholesalers • Limited-function wholesalers More then 375,000 merchant wholesalers are based in the U.S.!

25. Full-Service Wholesalers • TYPES: • General Merchandise Wholesalers • Limited-line Wholesalers • Specialty-line Wholesalers • Rack Jobbers

26. Limited-Function Wholesalers • TYPES: • Truck Jobbers • Drop Shippers • Cash-and-Carry Wholesalers • Catalog Wholesalers • Wholesale Clubs

27. Agents, Brokers, and Commission Merchants • Agents: • Manufacturers’ agents, also called “manufacturers’ representatives” or “reps” • Auction Houses • Import Agents • Export Agents Almost 48,000 agent, broker, and commission merchant organizations operate at the wholesale level!

28. Agents, Brokers, and Commission Merchants • Brokers • Commission Merchants • Manufacturers’ Sales Branches and Offices

29. Development in Wholesaling Globalization Building Relationships Slow Growth

30. Logistics Management • Logistics Management: • Managing the movement of goods, services, and related information from point of origin to point of consumption.

31. Order processing speed Transportation mode used Inventory on hand to meet demand Information to help plan exactly when product will arrive Damage or loss during shipping Factors that Affect Customer Service Level Factors that affect customer service level

32. Logistics and Physical Distribution Customer Service • The transporting, storing, and handling of goods to match target customers' needs with a firm's marketing mix • Both within individual firms and along a channel of distribution (or supply chain) • Customers think of physical distribution in terms of the customer service level • how rapidly and dependably a firm can deliver what customers want • There are trade-offs among physical distribution costs, customer service levels, and sales

33. Importance of Logistics to Marketing • Customer Expectations of Suppliers’ Logistics Systems:` • Timely pickups for outgoing orders. • On-time delivery. • Prompt claim settlement for lost or damaged goods. • Accurate invoicing. • Interactive Website for tracking & customer service. • Well-trained drivers and customer support staff. • Process for analyzing and correcting service failures. • Centralized, accessible customer service. • Good communication with customers. • Responsiveness form all supplier departments. Exhibit 15-6

34. Five Key Activities in Logistics • Warehousing • Materials Handling • Inventory Control • Order Processing • Transporting raw materials and finished products

35. Key Activities in Logistics • Warehousing: • Private Warehouses • Public Warehouses • Distribution Centers • Materials Handling: • Bar Coding • RFID • Inventory Control: • JIT • QR • SCM • EDI

36. A Comparison of Private Warehouses and Public Warehouses

37. Distribution Center • Special kind of warehouse designed to speed the flow of goods and avoid unnecessary storing costs • Speeds bulk-breaking to reduce inventory carrying costs • Helps to centralize control and coordination of physical distribution activities • Products may immediately move (“cross-dock”) from a truck or train at an incoming loading dock to an outgoing loading dock

38. Using Technology to Coordinate PD Activities Among Firms • Just-in-time delivery (reliably getting products there just before the customer needs them) requires close coordination and information flows • reduces handling costs • reduces storing costs • shifts greater responsibility to the supplier • a small problem can cause big ripple effects! • Electronic data interchange (EDI) puts information in a standardized format easily shared between different computer systems • Coordination may expand beyond buyers and sellers to involve a whole network of firms • a chain of supply is a complete set of firms and facilities and logistics activities that are involved in procuring materials, transforming them into intermediate and finished products, and distributing them to customers

39. Physical Distribution Concept • All transporting, storing, and product-handling activities of a business and a whole channel system should be coordinated as one system to: • minimize the costs of distribution • for a given customer service level • Simply focusing on individual costs may increase total costs—since a total system is involved • Requires that the manager decide what aspects of service are most important to customers • Examples: order delivery time • availability of products • order status information

40. Factors Related to the Use of Direct Distribution • Direct (producer to customer) distribution is more common when: • the customer is a business or organization (rather than a final consumer) • an aggressive personal selling effort is required and/or when customers need special technical service • the product is primarily a service rather than a physical good • when working with middlemen would make it difficult to maintain control of the marketing mix • the producer can perform marketing functions more efficiently (economically) by itself • Internet websites are making direct distribution easier and more common

41. Examples of Factors that Affect PDService Level • Advance information on product availability • Time to enter and process orders • Backorder procedures • Where inventory is stored • Accuracy in filling orders • Damage in shipping, storing, and handling • Online order status information • Advance information on delays • Time needed to deliver an order • Reliability in meeting delivery date • Complying with customer's instructions • Defect-free deliveries • Procedures for handling returns and needed adjustments

42. Trade-Offs among Physical Distribution Costs, Customer Service Level, and Sales

43. Comparative Costs of Airplane versus Rail and Warehouse

44. Order Processing The objective is to ensure that customers: Get what they order When they want it Are properly billed Have appropriate support for product use or instillation

45. Transporting • Marketing function of moving goods • Helps facilitate economies of scale in producing goods • Produce in large quantities where it is inexpensive to produce, and then ship products to customers • Shipping costs increase delivered cost • Five major modes of transportation • Rail • Truck • Water • Pipelines • Airways

46. Transporting • Railroads carry approximately 40 percent of all U.S. freight. • Trucks can deliver almost anywhere, particularly important for customers that lack a rail siding. • Air Freight is tops in speed but highest in transportation cost.

47. Transporting • Pipelines transport chemicals, gases, liquefied fossil fuels, and petroleum products. • Water is a good, low-cost alternative for large quantities of bulky products that must be shipped long distances. • Intermodal involves the use of two or more modes of transportation.

48. Transporting Costs as a Percent of Selling Price for Different Products • Products • Sand and gravel (55%) • Bituminous coal (42%) • Cabbage (38%) • Iron Ore (20%) • Manufactured food (8%) • Chemicals and plastics (6%) • Factory machinery (4%) • Electronic equipment (3%) • Pharmaceuticals (1%)

49. Ethical and Legal Issues in Logistics • Deregulation • Ethical Issues • Safety Issues Shippers have a responsibility to protect their employees and the general public from unsafe practices and materials!