Distribution Channel Members

Distribution Channel Members are often criticized for being inefficient and for causing consumers to pay higher prices than they would if there were no distribution channel members (eliminating middlemen, wholesalers, distributors, etc.). Do you agree or disagree? Support your position with marketing concepts and principals. This question is worth 25 points.

What does distribution mean? It is the activities that make products available to the consumers when and where they want to purchase them. Distribution Channel Members are middleman linking producers to other middleman or to ultimate consumers through contractual arrangement or through the purchase and resale of products. Distribution Channel Members are intermediaries. Agents, wholesalers, retailers are all intermediaries. Together or separately they are responsible for getting products from the producer to the consumer in an efficient manner. Some producers like Dell Computer sell directly to consumers; however, they also use distributors to reach more customers thus increasing sells. Without middleman even the best products and services could not reach consumers in a timely manner and will be less cost effective. Middleman has access to and control over valuable resources which enables them to assist producers to efficiently get products to consumers. Activities performed by middleman that enable them to efficiently facilitate exchanges between the producer and the consumer is order processing, material handling, transportation, inventory management and warehousing.

Order processing is the receipt and transmission of sales order information.

Computerized order processing provides databases for all distribution channel members and will alert them to increase productivity. When order processing activities are carried out promptly and accurately it could lead to customer satisfaction, lower cost and cycle time, which will lead to increased profits. Cycle time is the time needed to complete a process. Order processing consists of three main tasks, order entry, order handing, and order delivery.

Order entry begins when a customer or salesperson place a purchase order via e-mail, snail mail, website are telephone. Order entry can be completed manually or electronically. Manually a sales representative enter orders on paper, prepare progress reports and forward sales information. Electronic ordering is less time consuming and reduces cost. Some companies used electronic data interchange (EDI), which utilize computer technology to integrate order processing with production, inventory, accounting and transportation. EDI technology helps to reduce paperwork for all distribution channel members; they all can share information on invoices, order payments, inquiries, and scheduling. This technology has helped to reduce cost and cycle time. With order handing information is sent to warehouse, product availability is verified; price, terms, and customer credit rating is checked. Warehouse personal will retrieve the product using automated technology and in some cases have it assembled. The product is shipped to customers via FedEx, UPS, and DHL. If customers pay for rush order they can receive their product overnight, which is convenient and can leads to customer satisfaction.

Inventory management involves developing and maintaining enough supplies to satisfy customer's needs. Control of inventory can greatly affect the cost of distribution channel members and the level of customer service. Stockouts or shortage is not having enough supplies on hand can lead to brand switching, low sales and loss of customers. On the other hand having too much inventory on hand can lead to product obsolescence, pilferage and damage. Having too much product can also lead to cost increases. The main objectives of marketers are to minimize inventory cost while having adequate supplies on hand to meet customers need. Marketers use a calculation called reorder point to signal them when it's time to reorder products. Order lead time is the average time lapse between placing an order and receiving it. The usage rate is the rate in which product's inventory is used or sold during a specific time period. Safety stock is the amount of extra inventory a firm keeps to guard against stockouts resulting from above average usage rates and/or longer-than expected lead times. The reorder point formula is a such-Reorder point= (Order lead time x Usage rate) + Safety stock.

Just-in-time (JIT) is an efficient inventory management approach in which supplies arrives when needed for production or resale. Reorder points are crucial with JIT. Companies maintain inventory levels and buy products and material in small quantities when they need them. There is no safety stock with this approach, but suppliers are expected to consistently provide high quality product. Communication between producers and distribution channel members are important in eliminating waste and reducing inventory cost. This process helps to bring distribution channel members closer to customers.

Material handling is the physical handling of tangible goods, supplies and resources. Producers and distribution channel members adopt efficient procedures and techniques for material handling to minimize inventory management cost. Reducing the number of times a product is handled improves customer service and increase customer satisfaction. Systems for packaging, labeling, loading, and movement must be coordinated to maximize cost reduction and customer satisfaction. Some firms utilize radio frequency identification (RFID) to assist with handling process. This system uses radio waves to track material tagged with RFID. RFID systems will alert distributors when supplies are low and need to be replenished. RFID systems also help distribution channel members identify high-volume shopping times and assist in managing promotions for new products.

Unit loading and containerization are key methods used by distribution channel members in material handling. Unit loading is placing one or more boxes on skids or pallets, and then the units can be efficiently loaded by forklift, trucks or conveyer systems. Containerization is consolidating large quantities of many different products in large containers. These containers can be conveniently stacked and shipped via train, barge or ship. With containerization individual products are not handled, so it greatly increases efficiency and security in shipping.

Warehousing is very important to distribution channel members; it involves the design and operation of facilities for storing and moving goods. Some retailers like Sears and Radio Shack own private warehouses. However, owning your own warehouse comes with fixed cost such as