LESSON 1

8 Effective Distribution Marketing Channels

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Distribution marketing is a key consideration for marketers, as it helps businesses connect
products and services to consumers. Creating this connection helps companies achieve
marketing goals such as raising brand awareness and increasing profits. Understanding
distribution marketing and distribution channels helps marketers select the best options for their
business. In this article, we explain what distribution marketing is and list some proven
distribution channels.
What is distribution marketing?
Distribution marketing is the way firms make their products and services available to
consumers. Distribution in marketing is an element of the “place” category in the four P's of
marketing. When many marketers consider place, they focus on where they promote products
and services. However, they must also consider where customers make their final purchase
decisions.

Eight effective distribution channels

With the rise of online shopping, marketers have more choices about where to shop than ever
before. These are distribution channels. Marketers may choose a single distribution channel or
several different channels. Here are eight distribution channels that can help consumers access
products:

1. Direct sales
Companies can sell products and services directly to customers through their own stores,
websites or merchant marketplaces. This arrangement works well for businesses such as
bakeries, who make products in the same location they sell them. Digital products, such as audio
files and software, also suit direct distribution. For example, an independent record label may let
fans purchase and download music directly from its website. Some benefits of direct sales
include:
Increased trust: Customers may feel closer to the business as they know the company wants to
deal with them directly.
Greater control over customer experience: Direct sales lets businesses control all facets of
product distribution and customer experience. As customers deal directly with the supplier at all
times, the direct sales process helps solve these issues more efficiently.
Cost-effectiveness: Businesses save the money they might spend on services from third-party
distributors or sellers. They can therefore lower their prices to gain a competitive advantage.

2. Retailer
A retailer is one of the most popular and effective distribution channels. Retailers include
supermarkets, department stores, specialty stores and big-box retailers. Today marketers working
with retailers can put their products in physical stores, online stores or both. Some benefits of
using a retailer include:
Product interaction: When consumers buy from brick-and-mortar retailers, they can interact with
products before buying them. Being able to see how items look in person and even test them out
gives consumers confidence.
Increased product awareness: Retailers can introduce consumers to products they didn’t know
about before browsing.
Diverse promotion strategies: Marketers can work with retailers on strategic placement, product
demonstrations and promotional materials to make their products more appealing.
Increased audience: People are often loyal to retailers. Companies selling their products through
retailers can leverage the loyalty consumers already feel towards these outlets.

3. Independent distributor
Independent distributors are agents who supply products to retailers. Distributors are typically
used as a link in the marketing distribution chain. Some benefits of using an independent
distributor include:
Established networks: Distributors have established networks of retailers they can encourage to
purchase products. Distributors use these connections to put products in front of the most
receptive consumers.
Easier storage: Distributors store products at their own warehouses, saving businesses the
expense of maintaining their own storage facilities.
Motivation to work for the business: As distributors buy products and store them in their own
warehouses, they are usually motivated to sell them on.

4. Reseller
Resellers are very similar to distributors, but they supply directly to customers rather than
retailers. Rather than purchasing and storing products as distributors do, resellers usually have
online stores. They take commissions of the price on every sale. They then organize for products
to ship from the manufacturer or supplier directly to the customer. Some benefits of using
resellers include:
Cost-effectiveness: Resellers are more affordable than distributors as they do less work
promoting products.
Increased visibility: A business’s products may be more visible after partnering with a prominent
reseller. For example, an independent musician may use a well-known reseller to distribute a
new album and gain a wider audience.
Value-added services: Some resellers offer additional incentives to shoppers that can make
products more appealing. One example of distribution with value-added services is a software
reseller offering customer support and training programs.

5. Wholesaler
Wholesalers buy and sell goods in bulk. Wholesalers can be a link in the marketing distribution
chain, selling their products to retail stores. However, some wholesalers also sell directly to the
public through large open warehouses and online stores. If your products suit bulk sales, as many
grocery items do, you might consider distributing through a wholesaler. Some benefits of using
wholesalers include:
Low costs that entice buyers: Since they work with such large quantities, they can often sell
products at a much lower cost than retailers.
Efficiency: Since wholesalers buy and sell in bulk, they can help businesses move their products
efficiently.
Industry knowledge and connections: Businesses can leverage their strong supply knowledge and
industry connections.
 6. Intensive distribution
Intensive distribution involves selling products through a large number of different channels.
This marketing distribution approach is commonly seen with inexpensive, well-known products,
such as soft drinks. People know they can find these products at most supermarkets, convenience
stores, eateries and vending machines. Some benefits of using intensive distribution include:
Increased reach: Selling in a variety of locations helps businesses enjoy a much wider reach than
selling through a single retail chain.
Increased trust: Consumers become comfortable with products they see regularly. Since intensive
distribution puts products in front of consumers regularly, it can be a great way to build trust.
Substitution benefit: By being readily available, companies can often sell their products to
consumers searching for similar products that are less accessible.

7. Exclusive distribution
An exclusive distribution deal sees products and services are only available from a single third-
party distribution channel. While intensive distribution benefits affordable products, exclusive
distribution is a common option for luxury goods. Some benefits of using exclusive distribution
include:
Exclusivity: Exclusive distribution deals can make products feel more prestigious, which
increases interest. For example, some luxury accessories are only available through a single
distributor in each international market.
Greater control: Businesses have more control over product distribution when dealing with a
single channel. They can create strict guidelines for the third-party distributor so their customers
have the best experience.
Better terms: Distributors want exclusive deals, so they are more likely to negotiate better terms
with companies offering these contracts.

8. Selective distribution
Selective distribution provides a middle-ground between intensive and exclusive distribution.
Companies favouring selective distribution hand-pick several distribution outlets. For example, a
premium accessories brand using selective distribution may trust its accessories to high-end
department stores but avoid big-box stores. Some benefits of using exclusive distribution
include:
Some degree of control: Dealing with a limited number of distribution channels helps businesses
control many elements of the sales process, such as how product displays and sales pitches.
These controls ensure customers have a consistent experience, no matter where they shop.
An element of prestige: Consumers feel products are more special and prestigious when they are
not available everywhere.
Increased reach: Selective distribution puts products in front of more consumers than exclusive
distribution.

Distribution Management: Definition & Advantages

There are many challenges that face a business owner.

Whether it’s setting up their business from scratch, or coming up with a long term plan for
growth and expansion.
One of the challenges that has long faced business owners is distribution management. It is a task
that is full of complications and nuance.
But what exactly is distribution management? We’ll go through a full definition and give you a
list of advantages that highlight the importance of distribution management to your business.
Key Takeaways
What Is Distribution Management?
Distribution management is the process used by businesses to get an oversight on the movement
of goods. This process goes from supplier to manufacturer, then onto the wholesaler or retailer,
then finally to the end customer.

There are a number of activities and processes that are involved with distribution management.
This includes raw goods vendor management, packaging, storage and warehousing. It also
involves inventory, supply chain and logistics.

Distribution management is a crucial part of the business cycle for distributors and wholesalers.
This is because more often than not, their entire profit margins depend on how fast they can turn
over their goods.

The faster and more efficient their distribution is, the more they can sell and the more they can
earn. Having a successful distribution management system is also important for businesses to
remain competitive and keep a happy and loyal customer base.

What Is a Distributor?
A distributor is an organization or establishment that supplies products to retailers. They may
also sell to any other businesses that sell products directly to consumers. So for example, a
wholesale canned goods distributor may supply to restaurants, supermarkets and independent
food shops.

What Is the Difference Between Distribution and Logistics?

These two terms can often be mixed up. This is an understandable mistake as they share a lot of
similarities.

Logistics refers to planning and detailed processes. This is when involved with the successful
supply and transportation of goods. It includes various activities and processes such as:

 Supply management
 Bulk and shipping packaging
 Temperature controls
 Security
 Fleet management
 Direct delivery routing
 Shipment tracking
 Warehousing

The best way to think of logistics is as the physical distribution of the goods.
On the other hand, distribution is a management system that resides within logistics. It is focused
on order fulfilment throughout its distribution channels.

The distribution channels are the chain of entities that a product or service moves through on its
way from start to finish. So for example, a distribution channel would include e-Commerce
websites, wholesalers or retailers.
It includes various activities and processes such as:
 Consumer or commercial packaging of the finished product
 Order fulfilment
 Order shipping
It’s easily described as a commercial or sales distribution.
What Influences Distribution Management?
There are a number of things that should be taken into account when considering your
distribution management. These may include things such as:
Purchasing Habits: It’s important to take into account your buyer purchasing habits. Various
peaks and troughs in sales can influence the distribution patterns. This means that it can be useful
to track these patterns and plan accordingly.
Unit Perishability:
When you’re handling perishable goods such as food, drink or medicine then time is of the
essence. If your timing is off, then you can not realise a return on your initial investment as your
stock has been wasted.
Buyer Requirements:
There can sometimes be changes in a retailer’s or manufacturer’s inventory demands. This can
therefore affect your distribution management system.
Transport Optimisation:
It’s crucial that you make the most of each delivery. When looking at your logistics and fleet
management, you’ll always want to make sure that each truck is full to capacity. It’s also
important to make sure they are routed to the most efficient path.
Seasonal Forecasting:
Different products sell better at different times in the year. Therefore it’s important to consider
your optimal product mixes.

What Are the Business Distribution Channels?

There are historically three different distribution channels. But with the rise of the internet in
business, there are now four different channels. They are as follows:
Wholesaler: In this channel, goods are distributed from manufacturers to wholesalers. So for
example, a gin distillery will distribute their brand of gin to wholesalers.
Retailer: This goes from manufacturer to wholesaler or retailers. So for example a designer
clothing company would distribute to high-end retail chains such as Harrods, Selfridges etc.
Distributor: This channel moves goods from the manufacturer to an authorised distributor. So
for example, an Apple factory would distribute various Apple products to Apple stores for sale to
consumers.
e-Commerce: This is the newest channel. Goods and services are represented virtually in an
online store. The products are then distributed directly to the buyer from the online store.

What Are the Advantages of Distribution Management?

 1. Organization
If there wasn’t a systemized chain of supply then retailers would receive products directly from
manufacturers. This would mean that shops would receive bulk orders that they cannot store.
When an appropriate distribution management system is in place, there is a much smoother chain
of supply.
2. Customer Convenience
An advanced management system means that shopping is easy and convenient for consumers.
For example, without a system in place every product and company needed to have it’s own
store. This would then make it incredibly inconvenient for customers to hop from store to store.
3. Reduced Errors
A detailed distribution management system allows for less room for error in delivery. It also
helps make clear the times that products need to be delivered.
4. Simpler Inventory Monitoring
Companies with a successful system can easily monitor their inventory. This is as everything
will be accounted for within the management system. There will be a precise amount of
inventory coming and going that can be easily tracked and accounted for.
5. Lower Costs
When everything is streamlined, you can save a significant amount of money. This is because
you won’t have to worry about expensive last minute delivery fees. You will already have a
system in place that means you have everything you will need.
6. Accuracy
An advanced distribution management system allows businesses to order the exact amount of
items that they need within a given period of time. This means that customers don’t miss out on
products that they frequently purchase, and businesses don’t lose out on any sales.
Key Takeaways
Distribution Management is a vital part of running a business. Companies will save a lot of time
and money when they have a successful system in place which will in turn ensure future success
and growth.

LESSON 2
What are the Importance of Physical Distribution System?
Physical distribution management is concerned with transportation, materials handling,
packaging, warehousing (and locations of depots), inventory policy, stock control, and order
processing.

IMPORTANCE OF PHYSICAL DISTRIBUTION

Physical distribution has become an important function of sales and marketing in this industrial
age.
Need and Importance of Physical Distribution
The importance of this function can be discussed under the following headings:

1. Provides Time and Place Utility

The physical distribution provides time and place utility and makes possession utility possible.
A marketing manager may have to make many decisions to ensure that the physical distribution
system provides utility and meets customers’ needs with an acceptable service level and cost.
 2. Carries Large Costs
Physical distribution costs are very important to both firms and consumers.
Physical distribution costs vary from firm to firm and, from a macro marketing perspective, from
country to country.

However, for many physical goods, firms spend half or more of their total marketing budget on
PD activities.
The total amount of money involved is so large that even small improvements in this area can
have a big effect on the whole consumer’s quality of life.
Advanced Strategies for Building Maximum Customer Satisfaction.

3. Customer Want Products – Not Excuses

Customers do not care how a product is moved or stored, or what some channel member has to
do to provide it.
Rather, customers think in terms of the physical distribution customer service level- how rapidly
and dependably a firm can deliver what they, the customers, want.
Marketing managers need to understand the customers’ point of view.

4. Invisible to Most Consumers

Physical distribution is a part of marketing that is not visible to most consumers. It only gets their
attention when something goes wrong.

But performing at the time, it keeps consumers happy.

In countries where physical distribution systems are inefficient, consumers face shortages and
inconvenient waits for the products they need.
Physical distribution function creates consumer satisfaction.

5. Forces on the Whole Distribution System

The physical distribution concept says that all transportation and storage activities of a business
and a channel system should be coordinated as one system, which should seek to minimize the
cost of distribution for a given customer service level.
This physical distribution function focuses on many factors such as trade-offs, distribution costs,
customer service level, sales, lost sales and inventory cost, etc.

6. Meeting Customer Service Standards

Physical distribution activities satisfy customer needs and want by maintaining customer service
standards.
The need of physical distribution system
Customers require a variety of services. At the most basic level, they need fair prices, acceptable
product quality, and dependable deliveries.

In the physical distribution area, availability, timeliness, and quality are important dimensions of
customer service and frequently determine whether customers are satisfied with a supplier.
Advantages of Logistics or Physical Distribution.

7. Reducing Total Distribution Costs

Physical distribution managers try to minimize the costs associated with order processing,
inventory management, materials handling, warehousing, and transportation.
Managers prepare and implement a unified cost-effective distribution strategy.

8. Reducing Cycle Time

Another important goal of physical distribution involves reducing cycle time, the time it takes to
complete a process, so as to reduce costs and increase customer service.

What is Physical Distribution?

Physical distribution is the movement of finished goods and products from a company’s
distribution center, using its eCommerce fulfillment network, to the end-user. It includes
warehousing, inventory control, order processing, retail fulfillment, and shipping, among other
eCommerce supply chain tasks.

Customer satisfaction is directly affected by the physical distribution of goods and the capacity
to get a product to a consumer rapidly and affordably. Business owners can ensure sustained
success in a continuously changing, competitive global market by keeping items in handy places
and developing dependable means of moving those items.
WareIQ – Amazon-prime Like Logistics for Modern Brands in India
WareIQ, an ecommerce fulfilment company, empowers online brands with a superior-tech
platform to compete with Amazon like service levels by bringing their average delivery timelines
from 5-10 days to 1-2 days.
“WareIQ came to Gynoveda with a full stack fulfilment platform & gave Gynoveda access to a
nation wide network of fulfillment centers & last mile & hyperlocal courier partners closer to our
customers based out of North East & North India. They made same-day delivery possible for us
in metros.”


WHAT ARE THE COMPONENTS OF PHYSICAL DISTRIBUTION?

Processing Orders
During the physical distribution of goods in huge quantities, a uniform system for handling and
executing orders should be established. The time period to process orders must be reasonable.
Any delay in order execution causes resentment and may result in economic loss. The customer
always expects guaranteed delivery within a certain time frame. The degree of customer service
is shown in the speed by which orders are fulfilled. Even a small improvement in customer
service can result in a 15 to 25% gain in revenue. In marketing, order serving time can also be
used as a USP.

Controlling Inventory
Inventory control is always a crucial part of the order fulfillment process. Physical distribution
channel management, including the amount, location, handling, and transportation of physical
inventory, plays a distinctive role. Inventory consists of all the items stored in warehouses that
are waiting to be sold. Production activity (purchasing activity) and customer orders are linked
via inventory (sales activity). As the customer service level approaches 100%, inventory costs
rise at a faster rate. The inventory cost and the level of customer service must be correlated and
balanced. All that has to be maintained with a proper inventory report.
To meet client demand, you need to have a well-balanced range of products for sale. Stock outs
and missed sales can result from having an insufficient inventory. Too much inventory entails a
lot of money upfront, poor turnover, and greater inventory operating costs. Inventory control’s
major goal is to ensure minimal capital investment and inventory variations, as well as rapid
order execution in response to client demand.
You May Also Read: How does multiple channel inventory management work?

Storage & Warehousing

The act of storing and conserving commodities is known as warehousing. It can balance supply
over time. Nowadays, micro fulfillment centers are located around markets rather than the
supply-chain network.
Under one roof, a fulfillment center can handle orders and deliver goods directly to customers
where better and faster customer service can be initiated, resulting in a cheaper cost of
distribution. Efficient distribution systems can cut delivery and storage times by half. The focus
should be on selling rather than the store. Many businesses are moving away from storage
facilities and toward fulfillment centers.
For material handling, data processing, and inventory control, fulfillment centers employ cutting-
edge technology. The services provided by fulfillment companies are directed by a wholesaler
through direct fulfillment or drop shipping fulfillment. Here the wholesaler act as a merchant
intermediary and a distribution/fulfillment center could be considered as an inventory of a shop
nearby the delivery area.

Handling Material
Modern warehouses have automated material handling equipment instead of relying on labour.
The cost of physical distribution has been dramatically reduced because of new packaging,
containerization, and palletization techniques. We now have access to machinery such as
conveyor systems and forklift trucks. In Western countries, material handling is almost entirely
automated.
Standard-size containers for packing and transporting items can be stored on pallets or small
platforms and then moved by mechanical means. Automated physical distribution of goods and
protective packaging enhance customer service, reduce distribution costs and accelerate order
fulfillment.

Transportation

Shipping
Physical Distribution consists of all the steps that ultimately lead to this final step that is
responsible for getting orders to the buyer. The process of shipping is a network of activities that
consist of storage at multiple sites coupled with a series of transport linkages during the
distribution process. These multiple modes of transport can be through road, rail, water, air, etc.
It is a very complex activity in which orders are divided into batches and groups and then
forwarded to the person responsible for the order to be delivered. This complexity is usually
handled by logistics companies. The different transportation methods of physical distribution are
listed below:
Road Transport:
Trucking is the preferred shipping option for most businesses across the world. Trucks, which
generally transport manufactured goods rather than bulky commodities, provide faster, more
frequent, and cost-effective distribution to more locations across the country than any other
logistical alternative. Trucks are very useful for short-distance shipments and they can carry both
large and small cargo with relatively fast and consistent service.
Intermodal Transport: Intermodal shipping arrangements, which combine rail and truck
transportation for specified stages of the journey, are frequently used by a small business for
fulfillment. This combination generally results in cheaper overall expenses than single-mode
transportation.

Air Transport:
Enterprises often use air freight for the transportation of valuable or perishable goods due to
comparatively high transportation costs. Reduced inventory-holding expenses and increased
sales that may accompany speedier customer service can occasionally balance the high cost of air
freight.

Courier Shipments:
The delivery of shipping containers, parcels, or high-value mail as discrete shipments is known
as package or parcel delivery. Most postal systems, express mail services, and private courier
businesses offer courier shipment services or eCommerce courier services.

Water Transport:
Shipping containers are routinely used to transport products via sea. Importers and exporters in
the country and around the world use ocean freight as their primary form of transportation.
You can check the best shipping companies for your business here.

WHAT ARE THE OBJECTIVES OF PHYSICAL DISTRIBUTION?

 Utilizes Time and Place

Physical distribution contributes to the efficient utilization of time and resources. Transportation
and warehousing are used to accomplish this. The transportation system creates place utility by
delivering items to the exact location where they are needed. Storing products and releasing them
when needed utilizes time.

 Reduces Costs of Distribution

Physical distribution costs make up a significant portion of the product’s cost. If these costs are
managed in a systematic manner, production costs can be reduced. Transportation schedules and
routes, warehousing location and operation, material handling, order processing, and other cost-
cutting measures can all be simply implemented.

 Enables Market Expansion

Mega investments in the form of a strong promotional campaign may prove worthless if the
physical distribution channel continues to fall behind the market expansion.
Firms will be in a great position to take full advantage of market expansion with prior planning
for the launch of multiple warehouses, adding new distribution points, and extending the
capacity of existing distribution points, as needed.

 Maintains Market Share

The market is highly saturated. In a climate of fierce competition, firms expect to increase
market share, while maintaining current market share would be a primary success. This is carried
out with the use of proper eCommerce logistics systems. Logistics must be closely monitored by
businesses. Companies should detect distribution flaws and take quick corrective action.

 Stabilises Pricing
Physical distribution contributes to price stability. Buyers anticipate pricing constancy over time.
The effective utilization of transportation and warehousing infrastructure can aid in matching
demand with supply, ensuring price stability.

 Offers Better Consumer Experiences

By using a physical distribution channel, consumer service is made more efficient by making
products available in the correct quantity at the right time and in the right location, i.e. when a
client needs them.

6 FACTORS THAT AFFECT PHYSICAL DISTRIBUTION

Every manufacturer must figure out how to get their goods to the end-user. In today’s economy,
a variety of distribution channels are accessible. A producer needs to keep the following points in
mind while choosing one or more distribution channels to ensure smooth operation and lowers
logistics costs.

Transportation
Distribution is always dependent on the supply chain and its efficiency. There are many factors
to consider to enable faster delivery in a country like India, where customers are scattered across
the country.

Product Size
Product size is a matter of concern when it comes to cost-cutting and delivering on time. A heavy
item cannot be delivered quickly and easily without prior planning. It needs more manpower,
warehouse space, and larger vehicles which directly affect the cost of delivery. In a similar way,
smaller and more perishable products also require their own precautions such as proper storage
facilities, extra care, etc.

3. Product Durability
These days, food delivery applications are claiming to deliver orders in just 10 minutes. This is
because food is a perishable product. Sellers need to identify the perishability of their products
and plan physical distribution processes accordingly.

4. Delivery Preferences
Customers often have preferences for the delivery of their product such as the location, time, etc.
It is the responsibility of the retailer to ensure that these preferences are respected to achieve a
positive delivery experience for the customer.
What is retail logistics?
5. Delivery Partner Reachability
It is nearly impossible to deliver across the country and make it smooth. A seller can partner with
different logistics companies in different locations based upon their area specializations, better
workforce, good manager, etc. So here, a seller needs to be smart and choose the best order
eCommerce fulfillment company for specific areas. The delivery partner should also be easily
contactable by the customer in case of any query, instruction relays or emergencies.

Warehouse Management Systems (WMS)

To perform complex supply chain tasks, handing hundreds-thousands of orders, moving
thousands of miles in multiple vehicles, successfully delivering the product and minimizing the
cost to do it is not an easy task for a retailer and consists of multiple variables. To make this
more simple and efficient, a business needs high-tech software like Warehouse Management
Systems (WMS). It also gives them tracking and transport abilities.

LESSON 3
SUPPLY CHAIN MANAGEMENT
Supply Chain Management: Here’s What You Need to Know
Last Updated January 18, 2022

One of the best ways for businesses to serve their customers well is to make effective supply
chain management a strategic priority. What is supply chain management? Simply put, supply
chain management oversees all the processes that integrate suppliers to work efficiently together
to move a product from creation to the customer’s hands, taking into account supply and demand
along the way.

According to David Frayer, Assistant Dean for Outreach & Engagement in Michigan State
University’s Eli Broad College of Business and instructor in the MSU’s online Supply Chain
Management Certificate programs, this is about enabling a very customized product delivery:
“The ultimate focus of the supply chain is to meet the consumer’s value proposition, deliver the
product at the location they want it in the form they want it with the unique characteristics they
want it.”

What is a Supply Chain?

The supply chain includes all the activities, people, organizations, information, and resources
required to move a product from inception to the customer. For example, in the consumer goods
space, this likely spans raw materials, production, packaging, shipping, warehousing, delivery,
and retailing. The end goal is simple: meet the customer’s request. “By balancing supply and
demand across all members of the supply chain,” Frayer says, “organizations and channels work
together to move the product.”
The term “supply chain” can take on several meanings, iterations and roles. These include:
The concept of the supply chain, encompassing the process of moving a finished good from
procurement to fulfillment in a cycle.
The industry, which includes the carriers and regulations that oversee transporting goods.
The function, which is the practice of managing the operations, logistics and inventory levels as
part of coordinating the buyers and suppliers.
These processes and functions, when done well, can add value to any industry, which is why
supply chain management should be an essential component of business strategy.

What is Supply Chain Management?

Supply chain management is the process of integrating the supply and demand management, not
only within the organization, but also across all the various members and channels in the supply
chain so they work together most efficiently and effectively.
There are five basic components in a supply chain management system:
1. Planning
To meet customer demands, supply chain managers have to plan ahead. This means forecasting
demand, designing the supply chain intentionally, and determining how the organization will
measure the supply chain to ensure it is performing as expected in terms of efficiency, delivering
value for customers and helping to achieve organizational goals.

2. Sourcing
Selecting suppliers who will provide the goods, raw materials, or services that create the product
is a critical component of the supply chain. Not only does this include creating the contracts that
govern the suppliers, but also managing and monitoring existing relationships. As part of
strategic sourcing, supply chain managers must oversee the processes for ordering, receiving,
managing inventory and authorizing invoice payments for suppliers.

3. Making
Supply chain managers also need to help coordinate all the steps involved in creating the product
itself. This includes reviewing and accepting raw materials, manufacturing the product, quality
testing and packaging. Generally, businesses evaluate the quality, production output and
employee productivity to ensure overall standards are upheld.

4. Delivering
Ensuring the products reach the customers is achieved through logistics and it’s fundamental to
supply chain success. This includes coordinating the orders, scheduling delivery, dispatching,
invoicing, and receiving payments. Generally, a fleet of vehicles must be managed to ship the
products—from tankers bringing product manufactured overseas to fleet trucks and parcel
services handling last mile delivery. In some cases, organizations outsource the delivery process
to other organizations who can oversee special handling requirements or home delivery.

5. Returning
Supply chain managers also need to develop a network that supports returning products. In some
cases, this may include scrapping or re-producing a defective product; in others, it may simply
mean returning a product to the warehouse. This network needs to be responsible and flexible to
support customer needs.
The foundation for each of these components is a solid network of supporting processes that can
effectively monitor the information across the supply chain and assure adherence to laws and
regulations. This involves a wide number of departments, including HR, IT, quality assurance,
finance, product design and sales, according to CIO.

Why is Supply Chain Management Important?

Supply chain management is crucial for any organization because doing it well can introduce
several benefits to the organization; however, poor supply chain management can result in very
expensive delays, quality issues, or reputation. In some cases, poor supply chain management
can also cause legal issues if suppliers or processes are not compliant. Technology advances
have unlocked huge potential for supply chain management, enabling supply chain managers to
work closely – and in real time – with members of the supply chain. With supply chain
management, organizations can:
Anticipate problems
Dynamically adjust prices
Improve inventory and fulfillment

Examples of Supply Chain Management

Long before cutting-edge technologies like blockchain came on the scene and supported
information sharing, Walmart and Proctor & Gamble (P&G) began connecting their supply
chains in the late 1980s, according to CIO. By sharing information, the two organizations would
be able to reduce costs. For example, Walmart linked its POS system to notify its distribution
centers to send additional products to the stores when individual P&G products ran low. If the
distribution center fell below its threshold, an automatic alert was sent to the P&G distribution
center to ship additional product.
This constant cycle of communication helps balance manufacturing so inventory can meet
demand without reaching excess and enables billing and payment to become automated
processes.

What are the Benefits of Supply Chain Management?

Effective supply chain management provides three primary benefits to an organization,

according to MSU’s online Supply Chain Management I course.

1. Lowered Costs
By integrating suppliers and applying technology, organizations can lower operating costs by
responding more dynamically to customer needs. For example, managing based on demand
keeps organizations from over-producing, which not only reduces labor and raw materials costs,
but also cuts down on inventory management costs and transportation costs.

2. Increased Revenue
When organizations use technology to stay closer to customer demand and respond more quickly
(as in the Walmart example keeping shelves stocked), it’s more likely products remain available
for customers to purchase. When manufacturing is streamlined to produce just enough, labor and
materials can be devoted to developing new items to offer the customer and expand the product
mix. Outside the product realm, this may mean offering additional services customers.

3. Asset Utilization
With effective supply chain management, organizations can use capitol assets, like production or
transportation equipment, most effectively. Rather than adding wear and tear to manufacturing
equipment needlessly, businesses can produce to the need.

Supply chain management allows organizations to deliver more quickly, ensure products are
available, reduce quality issues, and navigate returns with ease, ultimately improving value, both
within the organization and for the customers.

Supply chain

What is a supply chain?

A supply chain is the network of all the individuals, organizations, resources, activities and
technology involved in the creation and sale of a product. A supply chain encompasses
everything from the delivery of source materials from the supplier to the manufacturer through to
its eventual delivery to the end user. The supply chain segment involved with getting the finished
product from the manufacturer to the consumer is known as the distribution channel.

Steps in the supply chain

The fundamental steps of a supply chain in order are as follows:

Sourcing raw materials.
 Refining those materials into basic parts.
 Combining those basic parts to create a product.
 Order fulfillment/Sales.
 Product delivery.
 Customer support and return services.

The amount of time it takes any one of these processes from start to completion is known as lead
time. Supply chains are managed by supply chain managers, who monitor lead time and
coordinate the processes in each step to maximize customer satisfaction.

Supply chains can be contrasted against value chains – they contribute to the end product in
different ways. Supply chains aim to meet customer demands. Value chains seek to add value to
a product on top of its inherent value. The purpose of the value chain is to give the company a
competitive advantage in the industry. Supply chain management and value chain management
are two slightly different perspectives on the same basic process and work in tandem to meet two
slightly different definitions of “demand.”

Supply chain management

Supply chain management (SCM) is the oversight of materials, information and finances as they
move in a process from supplier to manufacturer to wholesaler to retailer and then to the
consumer. The three main flows of the supply chain are the product flow, the information flow
and the finances flow. These occur across three main stages: strategy, planning and operation.
SCM involves coordinating and integrating these flows both within and among companies.

A diagram of the main stages of the supply chain.

Supply chain models

There are several common supply chain business models that supply chains fit into. The models
have two main focuses: responsiveness and efficiency. Each model strives for some combination
of both but approaches those goals differently. In addition, models tend to favor one over the
other. Organizations can evaluate the value proposition of each in relation to their goals and
constraints, and choose which suits them best.

The model types are:

Continuous flow model – works best for mature industries with a degree of stability.
Agile model – works best for industries with unpredictable demand and products that are made
to order.
Fast chain model – works best for products with a short lifecycle, such as fashion items.
Flexible model – works best for industries with a level of stability and a few relatively
predictable demand peaks.
Custom configured model – focuses on customizing.
Efficient chain model -- works best for highly competitive markets in which pricing plays a
large part.

The models are subject to overlap and should be designed by the supply chain manager to fit the
unique supply chain.

Supply chain challenges

Modern supply chains are complex and present several common challenges. These are:
 Potential lack of transparency. Having transparency enables stakeholders to understand
the status of the supply chain.
 Waste due to inadequate production cycle. Businesses that inaccurately gauge their
supply, demand or capabilities may end up with an overstocked inventory.
 Unsatisfied business partners and customers. The ultimate goal of SCM is to meet
customer expectations. This involves managing those expectations realistically, but also
providing a valuable product.
 Lost or delayed goods. Goods that go missing at any point in the chain ultimately delay
the whole process and can impact customers negatively.
 Increasing customer expectations. New technology and businesses raise customer
expectations, which can be difficult to manage, and impossible to meet if not properly
managed.
 Resiliency to sudden changes in the supply chain. External factors can cause unforeseen
changes in a supply chain, so best practice is to prepare for the unexpected and be able to
pivot if need be.

Supply chain best practices

Supply chain managers need to adapt to the growing speed and scale of the global marketplace.
Best practices for doing this include:

 Use lean SCM and logistics techniques. Lean increases flexibility and minimizes
inventory waste.
 Increase inventory velocity. Companies need to ensure their supply doesn't outweigh
demand, and that they can capitalize on distributed, quickly changing demand. Lean is one
way to do this.
 Enterprises need to collaborate with other businesses in their supply chain to optimize the
entire chain, not just one company's process. The relationship with suppliers is especially
important.
 Shorten cycles. As supply chains become more complex, they get longer, and so do
processes. Businesses should aim to keep them as short as possible to meet customer
expectations.
 Use supply chain technology. Technology allows managers to integrate their supply
chains and collaborate more effectively.
 Implement useful metrics. Well-defined metrics allow managers to accurately gauge the
efficiency of the chain.

The evolution and future of the supply chain

In the 1980s and 1990s, increasing globalization, outsourcing and availability of information
spurred the need to integrate business processes across the entire global supply chain, which
resulted in the idea of supply chain management. This marked a shift from the traditional supply
chain, which just involved the basic logistic steps of production. With the integration, companies
gained more visibility in steps following and preceding theirs in the chain, and each company
involved in a supply chain became focused on optimizing the entire chain instead of just their
local process.

As such, market competition dynamics changed as well. Instead of individual companies in

competition, entire chains consisting of several enterprises would compete, as company
investment in their respective chains grew. Enterprises began to outsource manufacturing and
logistics processes to third-party companies.

The increase in visibility as a result of globalization and advancing technology had beneficial
effects for businesses, such as improved product traceability and social responsibility efforts.

Since then, the evolution of internet businesses, the internet of things (IoT) and mobile
computing have changed the way customers order products and the way businesses work. The
internet enables customers to directly contact product distributers. This has consequently
shortened the supply chain by removing some middlemen and encouraged collaboration.

However, internet businesses like Amazon have raised customer expectations for delivery times
and convenience. Normalizing features like next-day delivery may increase order fulfilment
efficiency, but also puts stress on other parts of the chain. Because orders can be made and
received faster, they need to be delivered at an equally accelerated pace. This often leads to
waste as companies over-order materials and then face a lower volume of orders. Machine
learning, artificial intelligence and automation, among other technologies, have helped
companies increase responsiveness to meet this increasing demand.

Traditional supply chains had a more localized, bottom-up approach that dictated work closer to
the supplier. Amazon's backward vertical integration represents the opposite approach, in which
the company started as a retailer and worked backward to become a publisher and partial owner
of its distribution channel.

The COVID-19 pandemic has accelerated the diverse sourcing trend and placed an increased
emphasis on inventory management and visibility. Machine learning and artificial intelligence
will play an increasingly large part in diversifying supply change and improving the
responsiveness and resiliency of supply chains, likely continuing after the economic shock from
the pandemic has passed.

The pandemic may also cause economies to restructure their supply chains away from ultra-lean
models that rely heavily on flexibility and network interconnectedness to provide product
quickly.

LESSON 4
INVENTORY MANAGEMENT
What is Inventory Management? Benefits, Types, & Techniques

Abby Jenkins | Product Marketing Manager

September 18, 2020In this article, learn about inventory management and its related disciplines
from inventory experts. At the end, you will find an FAQ list on inventory.
What Is Inventory Management?
Inventory management helps companies identify which and how much stock to order at what
time. It tracks inventory from purchase to the sale of goods. The practice identifies and responds
to trends to ensure there’s always enough stock to fulfill customer orders and proper warning of a
shortage.
Once sold, inventory becomes revenue. Before it sells, inventory (although reported as an asset
on the balance sheet) ties up cash. Therefore, too much stock costs money and reduces cash
flow.
One measurement of good inventory management is inventory turnover. An accounting
measurement, inventory turnover reflects how often stock is sold in a period. A business does not
want more stock than sales. Poor inventory turnover can lead to deadstock, or unsold stock.

Why Is Inventory Management Important?

Inventory management is vital to a company’s health because it helps make sure there is rarely
too much or too little stock on hand, limiting the risk of stockouts and inaccurate records.
Public companies must track inventory as a requirement for compliance with Securities and
Exchange Commission (SEC) rules and the Sarbanes-Oxley (SOX) Act. Companies must
document their management processes to prove compliance.
Benefits of Inventory Management
The two main benefits of inventory management are that it ensures you’re able to fulfill
incoming or open orders and raises profits. Inventory management also:
Saves Money:
Understanding stock trends means you see how much of and where you have something in stock
so you’re better able to use the stock you have. This also allows you to keep less stock at each
location (store, warehouse), as you’re able to pull from anywhere to fulfill orders — all of this
decreases costs tied up in inventory and decreases the amount of stock that goes unsold before
it’s obsolete.
Improves Cash Flow:
With proper inventory management, you spend money on inventory that sells, so cash is always
moving through the business.
Satisfies Customers:
One element of developing loyal customers is ensuring they receive the items they want without
waiting.
Inventory Management Challenges
The primary challenges of inventory management are having too much inventory and not being
able to sell it, not having enough inventory to fulfill orders, and not understanding what items
you have in inventory and where they’re located. Other obstacles include:

Getting Accurate Stock Details:

If you don’t have accurate stock details,there’s no way to know when to refill stock or which
stock moves well.
Poor Processes:
Outdated or manual processes can make work error-prone and slow down operations.
Changing Customer Demand:
Customer tastes and needs change constantly. If your system can’t track trends, how will you
know when their preferences change and why?
Using Warehouse Space Well:
Staff wastes time if like products are hard to locate. Mastering inventory management can help
eliminate this challenge.

What Is Inventory?
Inventory is the raw materials, components and finished goods a company sells or uses in
production. Accounting considers inventory an asset. Accountants use the information about
stock levels to record the correct valuations on the balance sheet.

Inventory vs. Stock

Inventory is often called stock in retail businesses: Managers frequently use the term “stock on
hand” to refer to products like apparel and housewares. Across industries, “inventory” more
broadly refers to stored sales goods and raw materials and parts used in production.
Some people also say that the word “stock” is used more commonly in the U.K. to refer to
inventory. While there is a difference between the two, the terms inventory and stock are often
interchangeable.
What Are the Different Types of Inventory?
There are 12 different types of inventory: raw materials, work-in-progress (WIP), finished goods,
decoupling inventory, safety stock, packing materials, cycle inventory, service inventory, transit,
theoretical, excess and maintenance, repair and operations (MRO). Some people do not
recognize MRO as a type of inventory.

Inventory Management Process

If you produce on demand, the inventory management process starts when a company receives a
customer order and continues until the order ships. Otherwise, the process begins when you
forecast your demand and then place POs for the required raw materials or components. Other
parts of the process include analyzing sales trends and organizing the storage of products in
warehouses.

How Inventory Management Works

The goal of inventory management is to understand stock levels and stock’s location in
warehouses. Inventory management software tracks the flow of products from supplier through
the production process to the customer. In the warehouse, inventory management tracks stock
receipt, picking, packing and shipping.