Stockist play a crucial role in the physical distribution process. And they render certain important services such as stocking up the products, supplying to the retailers as per their requirements, selling them either on cash or against credit and they also perform stock rotation. Superstockist is another important intermediary in a chain and they serve small distributors for which the company parts with an additional margin. Wholesalers, meanwhile, are like distributors but unlike distributors they do not render any follow up service in the market and play an important role only in rural areas. Another category is institutional buyers. They buy in large quantities either for their own consumption or to sell the product to internal constituents. For eg. Canteen stores.

1. Chapter-02
Physical Distribution Process
Distribution Budgets
Physical Distribution Process
Distribution Budgets

2. Typical Supply Chain
RM
Factory
CWH
C & FA
Factory
PM C & FA
C & FA
3rd Party
Distributor Distributor
Distributor
Retailer
RM-Raw Material Retailer Retailer
PM-Packing Mat.
Customers
CWH-Central Warehouse
C&FA Carrying & Forwarding Agent Physical Distribution Process
Distribution Budgets

3. In real life linkage can have various
combinations
• From the factory direct to C&FA
• From the factory to and industrial buyer
• From the CWH to large distributor
• From the C&FA or from the CWH to large
retailer
• From the distributor to wholesaler to
retailer and so and so on.
Physical Distribution Process
Distribution Budgets

4. Chain take various size and shapes
depending upon
• The nature of the product
• The company’s distribution policy
• The type of the market
• The geographical spread
• Size of the organization itself
• Its scale of operations
• The stage of the product life cycle
Physical Distribution Process
Distribution Budgets

5. Important terms
• C & FA
– Carrying & Forwarding agent .
– An agent acting on behalf of the company,
taking care of receipts, storage, handling,
issues, of the product kept in charge.
• Stockiest
– Who would buy from the company, and sell to
the retailers.
Physical Distribution Process
Distribution Budgets

6. Important terms
• Important services rendered by stockiest
– Stocking up the products
– Supplying to the retailers as per their
requirements
– Selling them either against cash or on credit
– Servicing the outlets in terms of proper stock
availability
– Stock rotation
Physical Distribution Process
Distribution Budgets

7. Important terms
• Super Stockiest/Super Distributor
– They would service small distributors, and for
that the company will part with an additional
margin to the super distributors/ Super
stockiest
– Important intermediary in a chain
Physical Distribution Process
Distribution Budgets

8. Important terms
• Wholesalers
– Are also intermediaries in the chain, and they
too buy form the company and sell to others
viz. retailers, but the distinction of a
wholesaler from Distributor is that he does
not render any follow up service in the market
– Principally works on bulk deals
– Plays an important role in rural market
Physical Distribution Process
Distribution Budgets

9. Important terms
• Institutional buyers
– Customers who may be buying in large loots
for their own consumptions, use by their
constituents, or resale to their internal
customers.
– E.g. services’ canteen stores
Physical Distribution Process
Distribution Budgets

10. Benefits of intermediaries
• Increased outlet coverage at lower cost
• Stock holding shared by intermediary
• Better market coverage
• Improved market information
• Credit extension to retailers
Physical Distribution Process
Distribution Budgets

11. Cost of having intermediaries
• Loss of direct control
• Dilution of central focus on company’s
product lines
• Limited and biased information
• Customer service can be at risk
• Vulnerability to intermediary’s pressure
tactics
Physical Distribution Process
Distribution Budgets

12. Sources and sinks
• Sources
– Are facilities from which freights originate
such as company plants,3rd party
manufacturing units, outside contractors, raw
materials sources, vendor warehouses, etc.
• Sinks
– Are facilities that service freight, like customer
locations, factory warehouse ,plants etc.
Physical Distribution Process
Distribution Budgets

13. Sources and sinks
Raw Material Central Warehouse
RM CWH
Distributor
Factory
Factory C&FA Retailer
Source Carrying & Forwarding Agents
Physical Distribution Process
Sink Distribution Budgets

14. Logistics strategy requires
• Reduction of overall transportation costs
• Improve response time
• Dispersing inventories across a wide
spread of warehouses or sinks.
Physical Distribution Process
Distribution Budgets

15. Disadvantages of logistics strategy
• Increase in overall inventory due to
increase no. of stocking points
• Warehousing costs moving up, because
increased requirement of space, handling,
storing, dispensing costs.
Physical Distribution Process
Distribution Budgets

16. Distribution Budgets
• Budgeting is basically a tool for planning
and control.
• Distribution budget will have to consider
– Activities required to be performed
– Costs required to perform those activities
– Period of time to which the activities will
pertain
Physical Distribution Process
Distribution Budgets

17. Demand Management
Forecasting Order Processing
Sales
Management
Master
Production
Scheduling
Physical Distribution Process
Distribution Budgets

18. Distribution Requirement Planning
• A tool for controlling inventory in the
distribution system of the organization it
enables allotment of inventory of finished
goods from factory through the Central
Warehouse to various distribution centers
based on demands indents safety stocks
frequencies of supplies and lead times
Physical Distribution Process
Distribution Budgets

19. Distribution Requirement Planning
• Sales forecasting anticipated demand and
the order processing system enters that
demand, sales management takes
decisions, where necessary, relating to
that demand e.g.
– Product substitution
– Product upgrade
– Order rotation
Physical Distribution Process
Distribution Budgets