Rajagopal. Marketing Dynamics: Theory and Practice

Подождите немного. Документ загружается.

198

Marketing Dynamics: Theory and Practice

choice of channels, a more efficient way of purchasing and combining solutions, services

and products, and secure fast delivery of products. As part of the new multi channel strategy,

EES has set up Ericsson regional offices and expand its current indirect channel by

establishing business relationships with value-added dealers, resellers, integrators, operators

and ISPs (Internet Service Providers). The product portfolio of EES includes PBX systems,

integrated global communication networks, cordless solutions, wireless LAN systems,

computer telephony integration (CTI) applications, IP based switches, data communication

products, and contact centres.

Complementary channels may be promoted by assessing geographic considerations, volume of

business, need to distribute non-competing items, and saturation of traditional distribution channels in

the given operational area of the company. However, the use of competitive channels can be a

response to environmental changes. The Figure 5.1 exhibits the channel management strategy that

can be used for identifying the multiple distribution channels and developing a balanced strategy for

effective implementation of distribution. The expected results of implementing this distribution strategy

may include the following advantages:

• Different services, prices, and support provided to different segments

• Broader market base

• Increased sales

• Possible dealer resentment

• Control problems, and

• Possible over-extension.

However, over-extension can result in decrease in quality/service and may have negative effects

on long-run profitability. It is necessary to properly configure the channel for optimum goal realization.

The major issues required for configuring the channel appropriately have been detailed as below:

• Distribution intensity

Number of client accounts, periodicity and extent of reordering, services and satisfaction

• End user configuration

Market segments, product information, company profile, guiding skills for decision making

• Product attributes

Product line, life cycle, application and value added qualities

• Manufacturer’s capabilities and resources

Brand strength, bargains, terms and conditions

• Service functions

Services offered, inventory and retail management

• Skills of intermediaries

Managing trade offs, business correspondence, communication skills, developing effective

sales plans

Distribution Strategy

199

In case the channels, so configured are not responding to the distribution needs of the market,

they may be modified. The channel modification strategy introduces a change in the existing distribution

arrangements on the basis of evaluation and critical review in order to maintain an optimal distribution

system given a changing environment. Evaluation of internal/ external environmental shifts is required

to implement changes in consumer markets and buying habits, changes in the retail life cycle, changes

in the manufacturer’s financial strength, and changes in the product life cycle. One of the requirements

of the channel modification strategy is continuous evaluation of existing channels, cost/benefit analysis,

consideration of the effect of the modified channels on other aspects of the marketing mix and ability

of management to adapt to modified plan. This strategy may reveal results towards maintenance of

an optimal distribution system for dealers and customer with effect to suggested changes.

An important step in selecting the distribution strategy is deciding, how many levels of organizations

need to be included in the vertical channel and the specific kinds of intermediaries to be selected at

each level. The measurement of distribution intensity in the selected markets helps in deciding how

many channel levels to use and what types of intermediaries to select. An industrial products

manufacturer may choose either distributors or sales agents, which are independent organizations

that receive commissions on sales to contact industrial buyers. It is important to know where the

targeted end-users might be expected to purchase the products of interest. The selected intermediaries

that are should provide an avenue to the market segments targeted by the producer. Analysis of

buyer characteristics and preferences provides important information for selecting firms patronized

by end-users. This in turn guides decisions concerning additional channel levels, such as the middlemen

selling to the retailers that contact the market target customers. The complexity of the product,

special application requirements, and servicing needs are useful in guiding the choice of intermediaries.

Looking at how the competing products are distributed may suggest possible types of intermediaries.

The breadth and depth of the products to be distributed are also important considerations because

intermediaries may want full lines of products.

Large producers with extensive capabilities and resources have a lot of flexibility in choosing

intermediaries. These producers also have a great deal of bargaining power with the middlemen, and

they may be willing or capable to perform certain distribution functions. Such options are more

limited for small producers with capability and resource constraints. The functions required to be

performed in moving products from producer to end-user include various channel activities such as

storage, servicing, and transportation. Studying these functions is useful in choosing the types of

intermediaries that are appropriate for a particular product or service. Evaluation of the experience,

capabilities, and motivation of the intermediaries and channel membership is also important in configuring

the channels. The companies in particular or within the same industry often vary in skills and experience.

The more complex the channel network, the more challenging, it is to complete various distribution

functions. The selected channel configuration typically takes into account several important trade-

offs. However, the agents make it necessary for the manufacturer to perform several functions,

such as inventory stocking, invoicing, and service.

Administration by a member of the channel structure in order to establish control of the channel

and provide a centrally organized effort to achieve common goals may be defined as the channel

control strategy. This strategy has the core objectives to increase control, to correct inefficiencies, to

200

Marketing Dynamics: Theory and Practice

realize cost effectiveness through experience curves and to gain efficiencies of scale. Commitment

and resources to fulfill leadership obligations is the major requirement to implement this strategy for

distribution. Typically, the channel controller is a large firm with market leadership /influence; however,

it is not always observed. The implementation of channel audit is also one of the necessary tools for

exercising the channel control. The cores elements of channel audit include distribution and logistics,

delivery cost, channel profit, selling capabilities, competitive strategies etc. The successful

implementation of this strategy would result in increased control, professional management, maximizing

market impact and elimination of internal and external inefficiencies. The channel control strategy

would also help in central programming and achieving the operating economies for increased

profitability. It has been observed that multinational companies largely depend on industrial distributors

to sell their products. Products suitable for distributors usually are those which have a large potential

customer base and can be stored. Also distributors are attracted towards the products, which can be

sold in small quantities, bought by people who are at low levels in their organizations, and promise

rapid delivery and service. Companies should select distributors that serve the market segment, not

just the geographic area, and are suited to where the product is in its life cycle.

Conflict management strategy would help in resolving conflict among channel members. This

strategy may be followed to devise a solution acceptable to the conflicting members so that they will

co-operate to make it work. The choice of a strategy for solving the conflict needs reasonable

bargaining with the affected parties and adopt give-and-take attitude. The bottom line must be favorable

enough to both parties to induce them to accept the terms of the bargain. This strategy would

however, provide scope for frequent formal interactions with the other party to develop an appreciation

of each other’s perspectives and willingness to interact to solve problems. Sometimes, it is required

to bring a neutral third party into the conflict to resolve the matter by means of conciliation, mediation,

or arbitration (compulsory or voluntary). The effective implementation of this strategy of distribution

would provide a clean platform for business by elimination of snags in the channel and revealing

results that are mutually beneficial to the parties involved. However, the need for management of

time and effort and increase in costs also results while implementing this strategy. The strategy for

developing effective distribution system is to focus on Collaborative Planning, Forecasting and

Replenishment (CPFR) approach. This strategy may be developed in association with the leading

distribution agencies and suppliers in the region. The company developing the CPFR with another

distribution company should agree on the scope of collaboration and develop a joint business plan. It

is preferable to work out a single forecast on the product and consumer demand in the operational

market area. In this process the company may identify and resolve the exceptions related with the

consumer forecast and develop single order forecast. The company may generate orders finally on

the basis of constrained order forecast.

A research study

found that in USA many retailers wanted to adopt a Collaborative Planning

Forecasting and Replenishment (CPFR) strategy. 36 percent of the respondents said they had planned

1 Hlavacek James D. and Tommy McCuistion J. (1983), Industrial Distributors-When, Who and How,

Harvard Business Review, March

2 Retailers want import management, not ERP systems, Logistics Management Distribution Report, Issue:

August 31, 1999

Distribution Strategy

201

to implement a CPFR program within two years. Under such a program, suppliers and retailers share

data to determine stock replenishment jointly. Respondents preferred supply chain software; 24

percent said they already had installed it and 16 percent said an installation was in progress. Some 88

percent of respondents said they would use supply chain software for merchandise planning, while

81 percent said they would use it for replenishment.

INTERNATIONAL CHANNEL SELECTION

There are two forms of international distribution - direct and indirect, which are being practiced by

the multinational firms. The direct distribution channel may appear to be more effective, in practice

it is better only, if the customers are geographically homogeneous, have similar buying habits, and are

limited in number. Indirect channel is used by the companies preferably in the regions where customers

segments and their buying habits are heterogeneous.

A foreign company may go through either one

or multiple agents or merchant intermediaries in a host country. The major difference between these

intermediaries may be described in terms of the legal ownership of goods. An agent, without taking

title to the goods, distributes them on behalf of the principal, the manufacturer. Merchant intermediaries

do business in their own names and hold title to the goods they deal in. The different types of indirect

distributors, who operate in the overseas market include:

• Export management company

• Manufacturer’s export agent

• Foreign freight forwarders

• Commission agents, and

• Country-controlled buying agents

Besides these categories of intermediaries, the export merchants, cooperating exporters and

export vendors constitute the forms of merchant middleman involved in the operation of distribution

of goods and services. The above types of intermediaries do not take title, they do take possession of

goods. However, they have different duties in respect to continuation of relationship with the principal

(long-term versus temporary); degree of control maintained by the principal (complete versus slight

versus none); pricing authority accorded to the agent (full versus partial versus advisory), affiliation

with buyer or seller; number of principals served at a time (few versus many); involvement or non-

involvement with shipping or handling of competitive lines; provision of promotional support (continuous

versus one-time versus none); extension of credit to the principal (regularly versus occasionally

versus rarely versus never); and provision of market information (good versus fair versus poor).

Indirect Distribution Channels

An export management company (EMC) may be defined as an independent export organization

that serves different companies in their export endeavors. The relationship of EMC with exporter is

of a client and not of an employer. The EMC operates under the client’s name for all international

3 Bruce Seifert : Export Distribution Channels, Columbia Journal of World Business, Summer , 1989, pp

15-22

202

Marketing Dynamics: Theory and Practice

communications. However, the scale of the operations of EMCs would vary in different countries.

An EMC may appear just as a person or as an organization and manages all export activities of the

client overseas. The large export management firms often maintain international offices in strategic

locations. The export management companies generate their income either from commissions or

from discounts on goods they buy for resale overseas as these organizations also undertake exporting

more effectively and generally at a lower cost than other channels. The Manufacturer’s Export

Agent (MEA) is another type of indirect distributor, who provides services similar to those of EMC,

but the MEA covers limited markets and the contractual relationship is short-term. An exporter may

offer a contract for performing a particular transaction and the MEA would act using own names

while following the procedural requirements and receive a commission for services. A Webb-Pomerene

Association may be described as one of the organizations undertaking international distribution services

indirectly in United States of America. This association is formed among competing U.S.

manufacturers especially and exclusively for the purpose of exports according to the Act of 1918 of

USA. The members of a Webb-Pomerene association can engage in different international marketing

activities to their mutual advantage. These associations can determine prices, combine shipments,

jointly undertake marketing research, or share information with each other, and allocate orders among

different members of the association within the operational area as stipulated by US law. The foreign

freight forwarder specializes in handling overseas shipping arrangements and their services can be

utilized for handling goods from the port of exporters’ location to the foreign port of entry. A foreign

freight forwarder receives a discount or fees from the shipping company. However, freight forwarders

undertake extra services such as packing covering an additional cost.

Commission agents also anchor as the distribution channel in the overseas markets. Foreign

customers interested in buying overseas products are represented by commission agents. They

serve as so-called finders of desired goods at the lowest price for their principals. The commission

agents receive their commission from their overseas clients. The country-controlled buying

agent may be defined as a procurement operator of a foreign government, seeking to buy

designated goods for his country. Many developing countries have entrusted these agents with

the task of procuring different goods for them. There is another channel for distribution of the

products and services overseas, which may be described as export merchants. They buy directly

from manufacturers according to their specifications, taking title to the goods. These merchants

generally have contacts with the overseas agents through whom the goods are sold either to the

wholesalers or retailers. The export merchants assume all possible risks associated with the

products they purchase from the manufacturers and sell in their own names. Their compensation

consists of a mark-up percentage based on market conditions. In general, export merchants

may be considered alike domestic wholesalers. On the contrary the export vendors are the

organizations, which specialize in buying inferior quality and overproduced goods in a country

for distribution in overseas markets. These companies procure the sub-standard goods outright,

taking title to them and ship the goods to one or more countries for selling therein through their

established contacts.

Many companies develop their alliance with other companies to establish the distribution network

or form a joint venture with other companies in order to manage distribution of their products and

services in international markets. For example, the Colgate-Palmolive company distributed, Wilkinson

Distribution Strategy

203

Sword men’s toiletries in selected overseas markets, Whirlpool used Sony in Japan and Breck

Shampoo used Schick in Germany to be the distributor for their product. This system of distribution

is known as co-operative exporter. A co-operative exporter may be any company that has an

established system of handling exports for its own goods and distributes products overseas for

other manufacturers on contract basis. These co-operative arrangements are also termed as

piggybacking. The piggybacking consists of two players - the carrier and the rider. The firm

actually engaged in exporting is usually the larger firm with established export facilities and foreign

distribution and, it may described as the carrier while the rider may be determined as the company

using the exporting company to carry its products to the foreign countries By piggybacking,

companies can please foreign distributors by giving them a more complete line of products. This

distribution channel also intends to offer extra customer convenience by providing related products.

For example, Singer sells fabrics, patterns, and sewing accessories in addition to sewing machines.

Finally, firms with seasonal sales may piggyback to keep their export operation working at full

capacity throughout the year. However, piggybacking is a sale of know-how and services rather

than a sale of products from the point of view of the carrier firm.

Uni-Channel Distribution Management - A Case of Fertilizer Marketing

There are many ways of distribution management. The cost effective distribution would be

through zero channel approach where manufacturer or marketer has direct access to consumer

without using any intermediate channels. The mono-channel distribution system solely

depends on one channel and attempts to market its products. On the contrary, multi-channel

distribution system consists of long chain of intermediaries to reach the product to the end-

user. Indian Farmers fertilizer Co-operative Ltd (IFFCO) is a giant fertilizer manufacturing

company in India which produces over 50 lac MTs of nitrogenous and complex fertilizer. By

virtue of co-operative principle, IFFCO has emerged as largest mono-channel fertilizer

distributor in the country. The marketing channel at the grassroots of IFFCO fertilizer is the

primary marketing societies (PMS) for distribution of fertilizer to its members. However, the

PMS behaves like a consumer and prioritises sales according to the brand preference of the

farmers. It is not mandatory for the PMS to sell the products of fertilizer companies of the

cooperative sector. Hence, it is not an exclusive dealer to the IFFCO or Krishak Bharati

Fetilizer Co-operative Ltd (KRIBHCO) fertilizers but operates as an authorised dealer, which

trades with other brands also simultaneously. Since the PMS are of third level organisation

in the cooperative hierarchy in the state, a fixed ratio of marketing margin statutorily goes to

the district society and state federation or apex society. Such arrangement of margin

distribution often is felt by the PMS as parting the marketing margin to the intermediate level

organisations without any transparency of their role in trading or product promotion process.

Hence, there is a need to use PMS channel by appropriate management techniques to

promote sales at the grassroots.

Primary and district societies may be directly approached for distribution of fertilizers to

make the marketing operations more dynamic. It is often found difficult to transport

the fertilizer from the centrally located warehouses to the PMSs, due to interruptions

in transport services, road links and transit risks. Thus, it would be appropriate to

look for some service storage facilities in PMS located in central villages to cater

short distance supplies. This would enable to distribute fertilizers in short-time and at

reasonable cost. The staff of PMS may be provided high motivation in terms of

204

Marketing Dynamics: Theory and Practice

behavioural inputs as well as in terms of monetary incentive on sales of fertilizer of

above a cut-off limit. Similarly a farmer consumes highest quantity of IFFCO fertilizer

in an agricultural season may be felicitated and rewarded. Such approach would

boost the morale of farmers and help the building the product image positively.

Schick Company for its safety razors tried piggybacking after encountering difficulty in the

distribution in German market, and established a temporary alliance with another consumer goods

company. Later the company has set up its own sales subsidiary in Germany to distribute the wide

range of its products. However, in some international markets where distribution is complex or

customer requirements are highly personalized, the company might choose to engage in a distribu-

tion alliance with a competitor. The Ricoh Company of Japan which is original equipment manu-

facturer of photocopier machines allowed its competitor, the Savin Company to sell their copiers in

the United States in order to gain quick market penetration.

Strategy Focus 5.2:

Balanced Distribution Plan of Apple Computer

Apple Computer Inc. has announced a new U.S. product distribution strategy that will reduce channel inventory,

increase Apple advocacy, and streamline channel operations. The Company will leverage long-standing relationships

with Ingram Micro Inc. and MicroAge, Inc. to more effectively manage inventory and secure products to resellers

and therefore customers faster than ever before. “We’re working with distributors who have made a sizable

investment and commitment to Apple and are focused on helping us get our products into the channel faster,” said

Mitch Mandich, senior vice president. “Ingram Micro and MicroAge are both increasing the number of resources

they dedicate to Apple and improving their advocacy of our products.”

“Ingram Micro and MicroAge offer the perfect balance of volume distribution and customization that is required

to most effectively bring our products to our key customers,” Mandich added. This move compliments Apple’s

changing product sales and channel strategy and is designed to streamline inventory management, improve the

customer experience, and increase advocacy for Apple and its products among its key distributors. “This move

is good news for the channel. As Apple’s largest distributor in the world and long time authorized distributor, we

have always supported Apple and their customers, and will continue to do so. We fully support their effort to

streamline distribution and better manage channel inventory,” said Jeff Rodek, worldwide president and chief

operating officer, Ingram Micro. “Ingram Micro was the first distributor to start a division dedicated exclusively

to Macintosh, which we continue to invest in. We also continue to support our Apple resellers and VARs, as well

as our 500 vendors who supply Mac-related products.”

“As an Apple distributor for over 15 years, we’re delighted to be an integral part of Apple’s success,” said Bob

O’Malley, president of MicroAge. “Apple has designed a program that will benefit everyone in the supply chain,

especially our customers, while simultaneously contributing to the bottom line.” This announcement applies to

Apple’s product distribution policy in the United States only, and has become effective on Dec. 1, 1997. Apple

Computer, Inc. ignited the personal computer revolution in the 1970s with the Apple II, and reinvented the

personal computer in the 1980s with the Macintosh. Apple is now recommitted to its original mission - to bring

the best personal computing products and support to students, educators, designers, scientists, engineers,

businesspersons and consumers in over 140 countries around the world.

Source: Apple Computers Inc., Press release information, website:

http://www.apple.com/source/

Distribution Strategy

205

Direct Distribution Channels

Manufacturing company overseas performs the international marketing largely by proxy, wherein

the products are distributed through another firm that carries its products overseas. The overseas

manufacturing companies gain the international marketing know-how and achieve the sales targets

through the indirect approaches, however, are limited. The firm can commit itself to its performance

in the host country, further by direct exporting in which the manufacturer firm undertakes the export

task rather than delegating it to others. The manufacturing company then takes-up the tasks of

market contact, market research, physical distribution, export documentation, pricing, promotion and

other strategic functions. It has been observed that direct exporting activity generally generate more

sales than indirect exporting. The advantages of direct distribution are reflected not only in augmenting

the sales but also in exercising increased control, better market information, and development of

expertise in international marketing. The direct exporting may have higher costs as they are borne by

the manufacturing or exporting firm, whereas they are shared in the process of indirect exports. A

Firm may choose the direct distribution for its products through agents, which include sales

representatives, purchasing agents and export broker.

Sales representatives may be described as the sales representatives or a person in-charge

distributing the products and services of a manufacturing company, similar to the USA. A manufacturer

supplies the sales representatives with literature and with literature and samples to conduct sales in

a pre-designated territory. These representatives usually work on a mission basis, undertake no risk

or responsibility, and operate in reference to a stipulated contract for a fixed tenure. They may also

choose to operate on either exclusive or non-exclusive basis, and serve as a good source of market

information. The purchasing agent is also referred to as a buyer for export or an export commission

house. Such agents operate in may developed countries including markets in North America, seeking

goods of interest to their foreign principals. Their product quality and price demand is determined

according to the requirements of their principal business houses. The export brokers are another

form of direct agents who play a significant role when firms choose to get their products distributed

in overseas markets. An export broker brings the home country seller and foreign buyer together on

the negotiating platform. The export brokers receive a commission from the seller for their services.

In the process of transaction the brokers take neither title nor possession of goods and assume no

financial responsibility relative to the export transaction. Export brokers who are popularly engaged

in international transaction of agricultural products like grains, cotton etc are rarely involved in the

export of manufactured goods.

Another type of distribution process through direct export agent firms involve foreign merchant

intermediaries, who generally take title to the goods and arrange to sell them under their own name.

The foreign merchant intermediaries offer services similar to a domestic wholesaler. The important

types of foreign merchant intermediaries include export distributors, foreign retailers, export jobbers,

and trading companies. Of these, an export distributor procures products from a manufacturer in

the home country at the greatest possible discount and resells them for a predetermined profit by

him. Such intermediaries get active in distributing products that require periodic servicing as they are

committed to provide adequate service to the customers through carrying a sufficient quantity of

206

Marketing Dynamics: Theory and Practice

spares and parts, maintaining facilities, and providing technicians to perform all normal servicing

operations. Export distributors procure the products in their own names and usually maintain an

ongoing relationship with the exporter in the home country. They acquire exclusive sales rights in a

host country or region and receive easy terms of payback from exporters. However, sometimes the

manufacturers of a home country prefer to deal directly with foreign retailers, particularly in the

case of consumer goods like cookies, and other confectionary products. In some countries, reputed

and large retailers dealing in general merchandise or specific range of products like textile, photo

goods, electronics etc. perform dual roles in terms of selling the products directly to consumers

through their own outlets and also distributing imported goods to smaller retailers. Thus, it is observed

that exports handled by the retailer generally receive wide coverage. On the contrary, the export

jobbers determine customer needs overseas and provide them by making purchases in the home

country. Some jobbers reverse the process, catering to the needs of home country customers by

supplying imported products. The jobbers mainly deal in staple groceries and freely traded products

under open general license for which brand names have little importance.

DISTRIBUTION IN GRAY MARKET

Gray market refers to distribution through unauthorized channels. The pipeline in a gray market is

legal, but somewhat controversial. Many consider it unethical while others argue that it is economically

unsound because it often involves purchasing goods and selling them at a profit without adding any

value. In a gray-market a broker buys goods from a distributor overseas, where wholesale prices are

low, then diverts them to the home country market and sells the goods at higher prices. The transactions

in the gray market are usually direct from a manufacturer or exporter to a distributor located in the

home country. In the process, the distributor diverts the shipment to another storage site, where it is

either held or transported to a free trade port (such as Panama) where the discount retailers learn of

the stored products through brokers and purchase large quantities of stored goods at the lower

international wholesale prices. The gray markets are especially prevalent in the trading of luxury

goods such as jewels, upscale clothing, perfumes and high-tech goods like computer accessories and

chips. The gray market may also appear in the international market, when a company manufactures

in several nations and sells its products in many countries, the same product might appear in the

market in different countries at widely different prices. This can be due to “parallel” imports,

unauthorized middlemen importing the identical products and brands from countries whose prices are

lower because of exchange rates. These imports are also called “gray trade.”

LOGISTICS MANAGEMENT

Concept of logistics is understood as the integrated management of forecasting, inventory control,

transportation, warehousing, and order entry and customer service product planning functions by a

large number of companies in the recent business environment. Logistics and the supply chain

management is an art of management of flow of materials and products from the source of production

to the end user. This system includes the total flow of material right from the stage of acquisition of

raw materials to the delivery of finished products to the customers. The function of physical distribution

Distribution Strategy

207

is a component of the logistics system, that involves the outward movement of the goods and services

from the company or the source of production or supplies. On the contrary the physical supply refers

to the portion of the logistics system concerned with the inward movement of the goods and services

to the delivery points. The function of distribution is the combination of activities associated with

advertising, sales and physical transfer of the goods and services to the retail and wholesale delivery

points. Hence, the logistics management is an important function to be handled in the marketing

process. The effective logistics management can improve both cost and customer service performance

of the company. The components of integrated logistics management are exhibited in Table 5.1.

Table 5.1 Logistics Management: The Integrated Pipeline

Supply Operations Distribution

• Production/Source • Production planning • Forecasting

• Purchasing • Scheduling • Customer service

• Inward transportation • Ad-hoc inventory for • Finished goods

• Raw material and ad- production inventory

hoc inventory

• Warehousing

• Outward transport

In the growing competitive market-most of the companies are looking at streamlining their

operations in an integrated manner to manage the flow of materials from the production point to the

outlet of end users. The integrated concept to manage the supply chain is proving to be analytical and

able to transcend internal operational problems. The implementations of the integrated pipeline of the

logistics variables help achieve a quantum leap in functional integration and operational effectiveness.

It is also necessary for developing an appropriate supply chain. The managers have to think about

their supplies, operations and distribution activities as a pipeline and as inter-related. The inter-functional

linkages in the logistics management have further implications on the cost, service and time. The cost

factor refers to the full cost of processing and moving goods from the source of production to the

distribution points. The efficiency in the delivery of goods is a function of reliability, quick replenishment

of stocks, minimizing the transit and storage losses and maintaining the lead-time delivery of the

goods to the use points. Time is an important factor in the management of logistics pipeline that may

be viewed from the point of total consumption of time in moving the goods from the source of

production to the end user passing through the pipeline. The pipeline approach provides a mechanism

for analyzing the impact of operational policy of the each function, identifying the conflicts and

inconsistencies thereof. The advantages of the pipeline concept of logistics management are many,

of these the benefits that may provide the managers efficient means for determining the logistics and

distribution strategies are as under:

• Determining the long term production lead time on the system inventory,

• Impact on marketing promotions on the operating costs and effective net margins,

• Budgeting transport operations – net cost and savings, and

• Storage and warehousing cost estimation for the movement of goods – buffer stocking,

retail stores and transit distribution sheds.