UNIT V:

Designing the work place, Inventory control, material

handling and quality control.
Marketing functions, market segmentation, market
research and channels of distribution, Sales promotion
and product pricing.
 Issues in Workstation Design

1. Avoid static loads and fixed work postures

2. Reduce cumulative trauma disorders risks
3. Work height at ~50 mm below elbow
4. Give employee an adjustable chair
5. Use feet as well as hands
6. Use gravity, don't oppose it
7. Conserve momentum
8. Use two-handed motions rather than one-handed
9. Use parallel motions for eye control of two-handed motions
10. Use rowing motions for two-hand motions
11. Pivot motions about the elbow
12. Use the preferred hand
13. Keep arm motions in the normal work area
14. Let the small woman reach; let the large man fit
Goals of Workplace Design and Layout
• Maximize performance and minimize hazards:
• Minimize postural stress and fatigue (e.g. due to
static loading) --- risk factor for work-related injury
• Provide reach capability
• Anthropometry
• Minimize motion times and error rates
• Work measurement (e.g. 30% time increase
when working overhead)
• Provide force capability
• strength data and models
 Workplace design
• Often a major task of ergonomists
• Strong relationship between productivity of a workers and their
comfort
• Primary objective: accommodate the worker
• An uncomfortable workplace results in increased energy demands,
fatigue, decreased worker performance, and occupational injuries
• General considerations
• Clearances, reaches, and manipulations (conserve momentum, use
gravity when you can)
• Visual and auditory demands
• Population stereotypes
• Standardization, fixed locations, and the total system
• Environmental (noise, lighting, temperature, vibration) and
organizational factors (such as contact with workers, supervisory
control, pacing demands, incentive programs, etc.—can affect
mental well being and emotional health)
• Posture changes
 Workstation Types
• Sit
• Needed items can be reached,
assessed, and handled within
the seated workplace.
• Items handled are
approximately 6” above and 16”
in front of the worker
• No large forces, no weights
greater than 10lbs
• Fine assembly, data entry, etc.
• Stand
• No proper knee clearance
• Object weight >10lbs
• Frequent high, low, or extended
reaches
• Frequent movement between
stations
• Requires downward forces
• Optimal height of the hands
• Elbow-light assembly, writing,
packing
• Waist-downward and sideward
forces
• Sit/Stand
• Repetitive operations
• Multiple tasks are performed but
are of sufficient duration that
benefit from sitting
• Design in postural flexibility
 Workplace Design
• Benefits of sitting over standing
• Delays the onset of fatigue (weight is taken off the legs, lower energy
requirements, lower cardio-respiratory demands, avoid unnatural body
postures)
• More stability in the task
• Allows for the use of foot controls
• Pitfalls of prolonged sitting
• Negative effects on the curvature of the spine
• Disruption of body functions (blood flow, breathing, etc.)
• Weakened abdominal muscles
• Trade-off considerations
• Duration for each tasks, majority of tasks takes precedence
• Cater to critical visual tasks (line of sight)
• Typically 10-15 degrees below horizontal
• Comfort zone identified as somewhere between 15 above and 30 below
horizontal
• Optimize extended reaches and exertion forces
 Adjusting the workplace
• Why is it important?
• People vary in size and capability, accommodate individual comfort and
usability, provides for possibility in changes in posture
• How do you do it?
• Adjust the workstation
• Layout, Location (ht), Orientation
• Adjust the person
• Chair, Footrests, Armrests
• Adjust the work piece
• Jigs, clamps, vices
• Parts storage bins
• Lift tables
• Adjust the tools
• Design the size, weight, material, use tool balancers
Use preferred hand for reach and grasp
motions
• Dominant hand is 10% faster for reaching and more
accurate.
• Dominant hand/arm is about 5-10% stronger
• About 10% are left hand dominant.
• Preferred hand should be used for dangerous or critical
work.
• Allow for change-off to non-dominant hand for non-
critical work, thus proving rest and recovery.
 VDT Workstation Guidelines
• Seated posture and chair design
• maintaining 'proper' posture through correct use of a good
chair
• Posture checkpoints to reduce stress of musculoskeletal system
• keep elbows close; 90 elbow angle; straight wrist
• keyboard slope of 0-25.
• upright head posture; 18-25" from eyes to VDT
• line-of-sight 0-60 below horizontal; 20  optimal
• Vision and Lighting
• screen clarity and ambient lighting
• glare -> eyestrain
• position VDT at 90 to strong light sources
• place documents near screen
 INTRODUCTION INVENTORY CONTROL
• The term inventory means the value or amount of materials or resource on hand. It
includes raw material, work-in-process, finished goods , stores & spares.
• Inventory Control is the process by which inventory is measured and regulated
according to predetermined norms such as economic lot size for order or production,
safety stock, minimum level, maximum level, order level etc.
• Inventory control pertains primarily to the administration of established policies,
systems & procedures in order to reduce the inventory cost.
• Lack of proper attention to the material management in the health system in the
country has been a major problem in effective implementation of various health
programs.
• Man fails to realize the fact that material represents money and also there is a lack of
perception about the inter- relationship between money and the material.
• Non availability of drugs and materials supplies– dissatisfaction among health
personnel and also community.
• It costs money to hold stocks in terms of storage space, personnel, insurance, security,
deterioration and obsolescence.
• Higher inventory levels saddle a hospital with avoidable costs. It may be more
economical to purchase an item on demand than to maintain an inventory.
• At the same time, a certain minimum amount of each item must be held to minimize
the chances of total stock-out.
• Helps in maintaining an optimum level of all the resources at least possible cost.
• Determine appropriate levels of holding inventories, the ordering sequence & the
quantities, so that the total costs incurred are minimized.
 INVENTORY
• Amount of material, a company has in stock at a specific time is
known as inventory or in terms of money it can be defined as the
total capital investment over all the materials stocked in the
company at any specific time.
• raw material inventory
• in process inventory
• finished goods inventory
• spare parts inventory
• office stationary etc.
 Why Inventories?
• Protection of industry from the uncertainties in price
fluctuations, supply conditions, demand conditions, lead
times, transport contingencies etc.
• To reduce machine idle times by providing in-process
inventories.
• To take advantages of quantity discounts, economy of scale in
transportation etc.
• To decouple operations i.e. to make one operation's supply
independent of another's supply.
• To reduce the material handling cost of semi-finished products
by moving them in large quantities between operations.
• To reduce clerical cost associated with order preparation,
order procurement etc.
 Inventory Costs
• Unit cost: it is usually the purchase price of the item under
consideration. If unit cost is depends with purchase quantity, it is
called as discount price.
• Procurement costs: This includes the cost of order preparation,
tender placement, cost of postages, telephone costs, receiving costs,
set up cost etc.
• Carrying costs: This represents the cost of maintaining inventories in
the plant. It includes the cost of insurance, security, warehouse rent,
taxes, interest on capital engaged, spoilage, breakage etc.
• Stockout costs: This represents the cost of loss of demand due to
shortage in supplies. This includes cost of loss of profit, loss of
customer, loss of goodwill, penalty etc.
 Water
Water Tank
Tank Analogy
Analogy for Inventory
for Inventory

Inventory Level
Supply Rate

Buffers Demand
Rate from Supply
Inventory Level Rate

Demand Rate
 OBJECTIVES OF INVENTORY CONTROL
• To meet unforeseen future demand due to variation in forecast figures and
actual figures.
• To average out demand fluctuations due to seasonal or cyclic variations.
• To meet the customer requirement timely, effectively, efficiently, smoothly
and satisfactorily.
• To smoothen the production process.
• To reduce loss due to changes in prices of inventory items.
• To meet the time lag for transportation of goods.
• To meet the technological constraints of production/process.
• To balance various costs of inventory such as order cost or set up cost and
inventory carrying cost.
• To minimize losses due to deterioration, obsolescence, damage, pilferage etc.
• To stabilize employment and improve labour relations by inventory of human
resources and machine efforts.
 BENEFITS OF INVENTORY CONTROL
• Ensures an adequate supply of materials
• Minimizes inventory costs & facilitates purchasing
economies
• Eliminates duplication in ordering
• Better utilization of available stocks
• Provides a check against the loss of materials
• Facilitates cost accounting activities
• Enables management in cost comparison
• Locates & disposes inactive & obsolete store items
• Consistent & reliable basis for financial statements
 Introduction ABC analysis
• ABC analysis is important for materials management
• It is an inventory categorization technique
• Identifying mechanism of impact on the inventory cost
• Different management and control techniques required to control
products records
• Inventories are not equal value and its classified in 3 classes
• ABC analysis helps us in using segregating the items from one another
and tells us how much valued the items is and controlling it to what
extent is in the best interest of the organization.
• It has been seen that a large number of items consume only a
• small percentage of resources and vice versa.
• It is the analysis of stores items on cost criteria.
Expensive items are to be branded as A items.
The in- between items are to be branded as B items.
The least expensive items are to be branded as C items.
ABC analysis
• The ABC analysis is a business term
used to define
an inventory categorization
technique often used in materials
management. It is also known
as Selective Inventory Control.
Policies based on ABC analysis:
• A ITEMS: very tight control and
accurate records
• B ITEMS: Less tightly controlled and
good records
• C ITEMS: simplest controls possible
and minimal records
 ALWAYS BETTER CONTROL (ABC)
ANALYSIS PRINCIPLE

• A small number of items

represent a large % of the
cost value.

• Conversely, a large % of
the items represent only a
small portion of the cost
value.

• Procedure to determine
varying levels of control is
called the ABC analysis.
 ABC ANALYSIS OF INVENTORY
CONTROL
• Also called as PARETO ANALYSIS.
• In ABC analysis, the entire lot of inventory is classified into three groups
based on
• their annual value and not on their individual cost given as-
CLASS A- high values items which accounts for major share of annual
inventory value.
• Stricter control must obviously be applied on these items right from the
initial stages of estimating requirement, fixing the minimum stocks, lead
time.
• A items-
Rigorous value analysis.
Rigid estimates.
Strict and close watch.
Management of items should be done at top level management.

Centralized purchasing and storage.

 ABC ANALYSIS OF INVENTORY
CONTROL
• CLASS B- medium value items, which do not belong to either of the
classes and not so strict control procedures , need be followed in regard
to the items in this group.
• B items-
Moderate control.
Purchase based on rigid requirements. Reasonably strict watch
and control.
Management be done at minimal level.
• CLASS C- low values items, but are required in large quantities and
consists of various types and varieties like clips, washers.
• It needs only a simple and inexpensive system of control in which some
of the routine may be existed.
• C items-
Ordinarily control measures.
Purchased based on usage estimates. Controls exercise by store
keeper.
Management done at lower levels.
Decentralized purchasing.
 PROCEDURE OF ABC CLASSIFICATION
• Step 1
List down item- wise annual consumption of inventory with unit price and
determine the annual consumption of each items.
• Step 2
Rewrite the above list in the descending order of money value with additional
column to enter cumulative % value.
• Step 3
From the list prepared , mark the serial number of items against which the
cumulative % value of annual consumption reaches a figure of 70%
approximately.
These are called as A items and compute the number of class A items as a
percent of total items.
Continue this process down the list and note the serial number of items against
which the cumulative % value reads approx. 90% . These additional items
constitute class B.
The remaining items in the list from class C items and determines quantity in
percent of total number of items.
• Step 4
Plot curve with cumulative % of annual usage on quantity items on X- axis and
money value on Y- axis.
 CONTROL

• Class A items are controlled and purchased only on as- required

basis to minimize carrying cost.
Higher level control is exercised. These being high value items.
• Class C items can be purchased in bulk for the requirement of the
entire year, being of low value.
The control is exercised at lower level.
• Class B items comes in between A and C on degree of control.
 ADVANTAGES

• Provides a mechanism for identifying items that will have a significant

impact on overall inventory cost.
• It helps in economizing ones effort to achieve greater results.
• It helps to segregating those items which ought to be given priority to
maximize results.
• Proper use of valuable time of store personnel.
• Simple no confusing formulas are involved.
 LIMITATIONS
• When number of items run into several thousands, it is not
convenient to compute and carry out this analysis.
• More chances of deterioration in storage exist since class C are
purchased in bulk and inventory on these piles up.
• Loose control on C may result in shortage.
• ABC focuses on money value and not on functional importance of
such items, resulting in shortages of critical items.
• ABC does not take into account variation of prices of items as time
goes.
• ABC ignores market conditions, market availability , competitions,
seasonal variations etc.
 VED ANALYSIS
• In VED method( Vital, Essential, and Desirable), each stock items is
classified on either vital, essential or desirable based on how
critical the item is for providing health services.
• The vital items are stocked in abundance , essential items are
stocked in medium amounts and desirable items we socked in
small amounts .
• Vital and essential items are always in stock which means a
minimum disruption in the services offered to the people.
 VED METHOD OF INVENTORY CONTROL

• In VED analysis, the inventory is classified as per the functional importance under the
following three categories:
• Vital-
Items without which treatment comes to standstill: i.e. non- availability can not be
tolerated.
The vital items are stocked in abundance , essential items and very strict control.
• Essential-
Items whose non- availability can be tolerated for 2-3 days, because similar or
alternative items are available.
Essential items are stocked in medium amounts, purchase is based on rigid
requirements and reasonably strict watch.
• Desirable-
Items whose non –availability can be tolerated for a long period.
Desirable items are stocked in small amounts and purchase is based on usage
estimates.
 PURPOSES OF VED ANALYSIS

• In a manufacturing organization, there are number of items which are

very vital or critical in production.
• Their availability must be ensured at all items for smooth production,
so need to be strictly controlled.
• Essential items follow vital items in hierarchy of importance.
• Desirable items are least importance in terms of functional
considerations, which are loosely controlled at the lower level.
 MATRIX OF ABC/VED ANALYSIS
• There can be combination of these two categories like a matrix
combining ABC and VED categories.
• This matrix is more relevant in hospitals.
• The AV category becomes the most important for inventory control
because the items are very much cost consuming being a category and
also vital for uses.
• These items can be controlled by the top-level management.
• The CD category items are not very costly and at the same time of
desirable category.
• These items are controlled at the lower level.
 MATRIX OF ABC/VED

V E D

A AV AE AD
(90%) (80%) (70%)

B BV BE BD
(95%) (85%) (75%)

C CV CE CD
(99%) (90%) (80%)
 CONTROL OF VED ITEMS

• Category Vital items: these items are the most important ones and
require control by the administrator himself.
• Category Essential items : these items are of intermediate
importance and should be under control of the office in charge of the
stores.
• Category Desirable items : these items are the least importance
which can be left under the control of the store keeper.
• The grouping will essentially depend upon the strategy of
management and the environment of functioning. However these
simple techniques can be effective techniques can be effective in
material management system.
• Items with high criticality (V) , but required in small quantity (A)
should receive highest priority. Items with low criticality (D) and
which are required in big quantity should receive least priority.
 ADVANTAGES OF VED ANALYSIS

• It is useful for monitoring and control of stores and spares inventory

by classifying them into three categories.
• Determine the criticality of an item and its effect on production and
other services.
• It is useful for controlling and maintain the stock of various types.
EOQ Assumptions
• Demand is known and constant
• lead time is known and constant
• Instantaneous receipt of material
• No quantity discounts
• Only order (setup) cost and holding cost
• No stockouts
EOQ Model
How Much to Order?
Annual Cost

Minimum
total cost

Order (Setup) Cost Curve

Optimal Order quantity

Order Quantity (Q*)
 Material Handling
■ Definition
– The movement, protection, storage and control of
material / products throughout the process of
manufacture, distribution, consumption and disposal.
■ Objectives – material handling
– Safe
– Efficient & accurate
– Low cost
– Without damage
■ External logistics – outside of facility (rail, truck, air, ship &
Pipeline)
■ Internal Logistics – inside of facility (storage, dispatch, inline
transport)
 Material Handling Equipment
Transport type
To move material from one location to other
Industrial trucks, AGVs, Rail guided vehicles, conveyors, cranes & hoists
Position Equipment
■ Used for single equipment same location(e.g. feeding
mechanisms, fixtures,
jaws, turn table)
■ Unit Load Formation Equipment
■ Equipment used to restrict materials so that they maintain
their integrity
when handled a single load during transport and for storage.
■ Storage Equipment
■ Equipment used for holding or buffering materials over a
period of time.
■ Identification & Control Equipment
■ Barcode, RFID, Magnetic belts, machine visions
 Material Handling
Material HandlingEquipment
Equipment
pment ■ Transport type

ntrol

ment

trieval

■ Position Equipment

Ameya Nijasure - PCE New panvel

 Material Handling Equipment
ment ■ Unit Load Formation Equipment
■ Storage Equipment
n

trol

ment

ieval

■ Identification & Control Equipment

 Material Transport Equipment
■ Industrial trucks
■ Manual / hand trucks
– Low cost
– Move light loads
– Small distance

val ■ Power truck

– Medium cost
– Large distance
within plant
 Material Transport Equipment
t ■ Industrial trucks
■ Automated Guided vehicles (AGVs)
■ Types of AGVs

ol

ent

eval
 Automated Guided
Automated Vehicles
Guided Vehicles
ent ■ Automated guidance technology
■ Method by which vehicles pathways are defined & Controlled

– Imbedded guidance wires

• Defined pathways
trol – Paint strips • Difficult to maintain
– Magnetic taps & update
ment

• No Defined
– Laser guided vehicles pathways
rieval – Inertial navigation • System can be
changed/updated

■ Vehicle Management
■ Vehicle safety
 Automated Guided Vehicles
■ Automated guidance technology
■ Vehicle Management
■ Traffic Control – to minimize interference and avoid collisions
– On board vehicle sensing – optical sensor / ultrasonic sensor
– Zone control

■ Vehicle dispatching – Computer control position of each vehicle using

radio frequency(RF) to check availability & effecting assignment for pickup
and drop.
al
■ Vehicle safety – man machine at same location – avoid collisions
– Travelling speed is slow than normal human walk
– Obstacle detection
– Emergency bumpers
– Manual restart
 Automatic Storage & Retrieval system
■ Definition
– A combination of equipment and controls which
automatically handle, store and retrieve materials with
great speed and accuracy, without direct handling by a
human worker.

■ Operations performed by AS/RS

– Removal of an item from a storage location automatically
– Transferring the above item to a specific processing or
interface point
– After receiving an item from a processing or interface
point, it is automatically stored at a predetermined location.
 Automatic Storage & Retrieval syste
t ■ Automatic
AS/RS Storage
Basic Layout & Retrieval system

ol

ent
 Automatic Storage & Retrieval system
■ Reasons / objective behind implementing Automatic Storage
system
– Increasing the storage capacity
– Increasing the stock rotation
– Utilization of maximum floor space
– Recovering the space for manufacturing facilities
– Customer service to be improved
– Control over inventories to be improved
– Ensuring safety in storage function
– Increasing the labour productivity in storage function
– Reducing labour cost in storage operation
– Reducing pilferage and improving security
 Types of AS/RS
• Unit load AS/RS
– Standard-sized containers
– System is computer controlled.
– Loads are generally over 500 lb per unit.
• Mini Load AS/RS
– To handle small loads such as individual parts
– bins or drawers used to store
– Small scale / space available
• Deep-Lane AS/RS
– a high-density unit load storage system
– stored in multi deep storage with up to 10 items in a single rack,
• Man-on-board AS/RS
• Automated Item Retrieval system
 Quality
• Quality refers to the sum of the attributes or properties that describe
a product
• These are generally expressed in terms of specific product
characteristics such as length, width, colour, specific gravity and the
like.
• – Performance
• Conformity to performance standards
Definition
• ASQC – Quality means the totality of features and characteristics of a
product or service that bear on its ability to satisfy given needs
• From customer’s perspective, quality of a good or service is fitness
for use of it
• Customer satisfaction for the price of the product
 Quality control
• Quality control is a management system for initiating and co
ordinating:
– Quality development, quality maintenance and quality improvement
in the various departments of design and manufacturing, for achieving
the twin objectives of:
Economical production and customer satisfaction
Objectives of Q C
• It is to provide products which are dependable, satisfactory and
economical
• To ensure economic production of products of uniform quality
acceptable to the customer
• Aims at preventing the defects rather than detecting the defects
Need for quality
• Increased productivity
• Reduced cost of repairs
• Increases loyal customer base
• Better profits
Quality creation
• Those activities involved in the selection of the specific
characteristics required to achieve the desired quality and
the processing or fabrication of materials to conform to the
specific characteristics selected.
• Quality creation involves almost all organisational elements
of the enterprise and is the basic objective towards which
most activity is directed
 Quality control through Production systems
•Inputs – Raw materials – acceptance tests-
quality of inputs

•Conversion – production processes-control

charts- monitoring quality of partially
completed products

•Outputs- goods & services – acceptance

tests- quality of outputs
 Quality control Techniques
• JIT
• Quality at source
• Inspection
• SQC
• QC
• TQM
 Just In Time (JIT)
• JIT helps achieve quality because it is a philosophy that seeks to constantly
improve production processes and methods.
• JIT contributes to high product quality in the following ways
– Production is highly standardised. Workers perform standard tasks every day.
They are familiar with their tasks. Familiarity ensures high quality
– In process inventories are drastically reduced by cutting lot sizes. Any
interruption, therefore causes production to stop until the problem has been
solved. In this way, JIT has been called a system of enforced problem solving. Now,
this stoppage in production forces everybody to solve the quality problem so that
the defect will not repeat. Hence high product quality is ensured.
– Suppliers of materials, under JIT system, supply materials of perfect quality.
Many companies do not even inspect suppliers’ deliveries of materials; rather, the
emphasis is on working with suppliers to produce perfect parts and materials.
– JIT system envisages the use of automated equipment and robots in production
processes. Use of such sophisticated machines will ensure high product quality.
– JIT system also envisages the use of intensive preventive maintenance
programmes in order to prevent any machine breakdown. This results in machines
producing parts of perfect quality.
– Workers are responsible for producing parts of perfect quality or with zero
defects before they are passed on to the next production operation.
 Quality at the source
• The worker is put in the driver’s seat in controlling product quality.
The principles underlying quality at the source are:
– Every worker’s job becomes a quality control station. The worker is
responsible for inspecting his own work, identifying any defects and
reworking them in to non- defectives, and correcting any causes of
defect.
– Statistical quality control techniques are used to monitor the quality
of parts produced at each work station/ and easy-to-understand charts
and graphs are used to communicate progress to workers and
managers .
– Each worker is given the right to stop the production line to avoid
producing defective parts
– Workers and managers are organised into quality circles- groupes of
people who analyse quality problems, work to solve the problems, and
implement programmes to improve product quality.
 What is Marketing?
• Marketing is identifying and meeting human and social needs. Thus,
it is “meeting needs profitably.
• Marketing must be understood not in the old sense of making a sale -
'selling' - but in the new sense of satisfying customer needs .
• It then refers to the identification, selection and development of a
product, determination of the price, channel to reach customers
place and the development and the implementation of promotional
strategy.
• In other words it is the process of planning, pricing, promoting,
selling, and distributing ideas, goods or services to create exchanges
that satisfy customers.
• Thus everything that happens between generated idea, produced
goods and the sale.
 Marketing Functions
• To achieve success in marketing, effort must be made to have glimpse
of the big picture and the activities that must be performed to achieve
the set marketing objectives. These set of activities are called marketing
functions
• Marketing function refers to a set of specialised processes/activities
performed in order for the objectives of marketing to be achieved.
• Thus the objective of:
Giving value/satisfaction to consumers at steady supply at a reasonable
price Achieving good customer relationships
• Profit / benefit to producers or organization and its stakeholders. i.e.
having a convenient outlet of sales at a remunerative price
• It is often asserted that marketing serve as a bridge between producers
and
• consumers.
This property of marketing is achieved through marketing functions
Thus, market function is a link between producers and consumers
 Market segmentation
• Market Segmentation is the sub- dividing of customers into homogenous sub-
set of customers where any sub-set may conceivably selected as market
target to be reached with distinct Marketing mix.
• Segmentation is essentially the identification of subsets of buyers within a
market that share similar needs and demonstrate similar buyer behaviour. The
world is made up of billions of buyers with their own sets of needs and
behaviour. Segmentation aims to match groups of purchasers with the same
set of needs and buyer behaviour. Such a group is known as a 'segment'.
• The process of defining and subdividing a large homogenous market into
clearly identifiable segments having similar needs, wants, or demand
characteristics is called Segmentation. Its objective is to design a marketing mix
that precisely matches the expectations of customers in the targeted segment.
• Market Segmentation consists of taking the total heterogeneous market for a
product & dividing into several sub- market of segments, each of which tends
to be homogenous in full significant aspects
Market segmentation is the process of dividing the whole market of goods or
services in groups of people with similar needs. By making this division there is
a high chance that each group responds in favour to a specific market strategy.
 Requirements of Market Segments
In addition to having different needs, for segments to be practical they should be
evaluated against the following criteria:
• Identifiable: the differentiating attributes of the segments must be measurable
so that they can be identified.
• Accessible: the segments must be reachable through communication and
distribution channels.
• Measurable: It has to be possible to determine the values of the variables used
for segmentation with justifiable efforts. This is important especially for
demographic and geographic variables. For an organization with direct sales
(without intermediaries), the own customer database could deliver valuable
information on buying behaviour (frequency, volume, product groups, mode of
payment etc).
• Substantial: the segments should be sufficiently large to justify the resources
required to target them.
• Unique needs: to justify separate offerings, the segments must respond
differently to the different marketing mixes.
• Durable: the segments should be relatively stable to minimize the cost of
frequent changes.
 Why Segmentation?
To develop marketing activities
Increase marketing effectiveness
Generate greater customer satisfaction
Create savings
To identify strategic opportunities and niches
Allocation of marketing budget
Adjustment of product to the market need
To estimate the level of sales in the market
To overcome competition effectively
To develop effective marketing programmes
To contribute towards achieving company goals
Bases for Segmentation in Consumer
Markets
 Benefits and Limitations
• Benefits:
The Organisation gets to know its customers better.
 Provides guidelines for resource allocation.
It helps focus the strategy of the organisation.
• Limitations:
• Targeting multiple segments increases marketing costs.
• Segmentation can lead to proliferation of products.
• Narrowly segmenting a market can hamper the development of
broad-brand equity.
 Market Research vs Marketing Research
(strictly speaking...)

Market Research Researching the immediate competitive

environment of the marketplace, including
customers, competitors, suppliers,
distributors and retailers
Marketing Research Includes all the above plus:
- companies and their strategies for products
and markets
- the wider environment within which the firm
operates (e.g. political, social, etc)
Market(ing) Research: Definition

The systematic design, collection, analysis and reporting of data and

findings relevant to a specific marketing situation facing the
organisation
Spending on Market Research
 Top 10 market research activities

Market Measurement 18%

New Product development/concept testing 14%
Ad or brand awareness monitoring/tracking 13%
Customer Satisfaction (inc Mystery Shopping) 10%
Usage and Attitude Studies 7%
Media Research & evaluation 6%
Advertising developing and pre-testing 5%
Social Surveys for central/local government 4%
Brand/corporate reputation 4%
Omnibus Studies 3%

Source: BMRA
TI 2111 Work System Design and Ergonomics
Why Conduct Market Research in New Product
Development?

- The product must appeal to the customer (however widely

defined)
- Timely market research can help you mould the product to the
consumer’s need/wants
- Market research tend to point out successes and failures before
products are launched “for real”
- As a result, it can save you money and time
Types of Market Research

By Source By Methodology By Objectives

- Primary - Qualitative - Exploratory

- Secondary - Quantitative - Descriptive
- Causal
(or experimental)
Types of Market Research: By Source

Primary Collection of data specifically for the problem or

project in hand
Secondary Based on data previously collected for purposes
other than the research in hand (e.g. published
articles, government stats, etc)
 Types of Market Research: By Methodology

Qualitative Quantitative
Type of Question Probing Simple
Sample Size Small Large
Information per respondent High Low(ish)
Questioner’s skill High Low(ish)
Analyst’s skill High High
Type of analysis Subjective, Objective,
Interpretative Statistical
Ability to replicate Low High
Areas probed Attitudes Choices
Feelings Frequency
Motivations Demographics
Benefits of Qualitative Market Research vs
Quantitative

Benefit Comment/Example

Cheaper Smaller sample size

Probes in-depth motivations Allows managers to observe (through

and feelings one way mirror) ‘real’ consumer
reaction to the issue - e.g. comments
and associations (e.g. Levis) regarding
a new product fresh from the labs

Often useful precursor Gives the research department a low

to quantitative research cost and timely sense of which
issues to probe in quantitative
research
 Types of Market Research: By Objective

• Exploratory Preliminary data needed to develop an idea

further. Eg outline concepts, gather insights,
formulate hypotheses

• Descriptive Describe an element of an ideas precisely. Eg

who is the target market, how large is it, how
will it develop
• Causal Test a cause and effect relationship, e.g. price
elasticity. Done through experiment
 The Market Research Process

1. Defining the 2. Developing 3. Collecting 4. Analysing 5. Presenting

problem and the research the the the findings
objectives plan information information

Steps
Distinguish between Decide on Information is Statistical Overall conclusions
the research type - budget collected manipulation of to be presented
needed e.g. according to the data collected rather than
- data sources
the plan (N.B. (e.g. regression) overwhelming
- exploratory - research or subjective
approaches it is often done statistical
- descriptive analysis of focus methodologies
- research by external
- causal firms) groups
instruments
- sampling plan
- contact methods

Comments
If a problem is The plan needs This phase is Significant Can take various
vaguely defined, to be decided the most costly difference in forms:
the results can upfront but and the most type of analysis - oral presentation
have little flexible enough liable to error according to
- written conclusions
bearing on the to incorporate whether market supported by analysis
key issues changes/ research is
iterations quantitative or - data tables
qualitative
 Potential Problems with Market Research

1. When and how to do it

2. Problems with research buyers vs suppliers
3. Frequent technical pitfalls
4. Problems with traditional market research
 When and How Not to Conduct Market Research
Occasion Comments/Example
Lack of resources If quantitative research is needed, it is not worth
doing unless a statistically significant sample can
be used
Research results not Where psychographic data (for example) is used
actionable which won’t help the company form firm actions

Closed mindset When research is used only as a rubber stamp of a

preconceived idea
Late timing re: When research results come too late to
process influence the decision

Poor timing re: If a product is in the ‘decline’ phase (e.g. records)

marketplace there’s little point in researching new product
varieties
Vague objectives Market research cannot be helpful unless it is
probing a particular issue
Cost outweighs The expected value of the information should
benefit outweigh the cost of gathering the data
 Cost/Benefit of Market Research: ‘Rule of Thumb’
matrix
C = Cost
B = Benefit

B>C (?) B>C

Large (e.g. new brand (e.g. High

of frozen fish) Definition T.V.)
Market Size
C>B B>C (?)

Small (e.g. replacement (e.g. computer aided

screw for metal stamping
spectacles) machines)

Low High

Expected Profit Margin

 Problems With Research Buyers vs
Suppliers

Buyer Suppliers

• Narrow concept of research • Variable quality of market

researchers
• Research used tokenistically
• Market researchers not
sufficiently demanding
• Unrealistic view of timeframe

• Technical problems
Problems With Research Buyers vs Suppliers - Detail
Problems with Buyer Problems with Supplier
of Research of Research
- Narrow concept of research - Variable quality of market researchers
• many managers see M.R. as no more • little uniformity of professionalism
than fact-finding across the industry
• they therefore spend little time • many small, poorly qualified
defining the problem or explaining the companies
context
• the results are irrelevant - Market researchers are not sufficiently
demanding
• a vicious circle arises • upfront time often insufficient
- Research used tokenistically
• little contact throughout process
• used to confirm existing views rather
than objective look at marketplace - Technical problems arise e.g.
- Unrealistic view of time frames • problem ill-defined
• often results are expected very rapidly • questionnaires poorly constructed
• research therefore commissioned too
late
• research firms bow to time pressure and
results are sub-optimal
Differing styles
M.R. documents are often phrased in an abstract, tentative way (and rely
on jargon) whilst managers expect concrete, down to earth
recommendations
Problems with Supplier of Research

• Variable quality of market researchers

• little uniformity of professionalism across the industry
• many small, poorly qualified companies
• Market researchers are not sufficiently demanding
• upfront time often insufficient
• little contact throughout process
• Technical problems arise e.g.
• problem ill-defined
• questionnaires poorly constructed
Problems with Traditional Market Research
1. Market research has allowed prominent product failures, and wrong
predictions
2. Markets are increasingly becoming micro-segmented (e.g. sports
shoes aimed at affluent fashion conscious women specifically for
aerobics), so mass market research becomes correspondingly irrelevant
3. It is helpful for improvements, but less so for radical innovations
4. For more accurate targeting it may be advantageous to work with
leading customers within the target group
Careful how you ask the question

Q. Do you approve of smoking whilst praying?

A: No

Q. Do you approve of praying whilst smoking?

A:Yes
 Limited Use of Market Research

“Formal market analyses continue to be useful for extending

product lines, but they are often misleading when applied to
radical innovations. Market studies predicted that Intel’s
microprocessor would never sell more than 10% as many units
as there were minicomputers, and that Sony’s transistor radios
and miniature TV sets would fail in the marketplace.

At the same time, many essential failures such as Ford’s Edsel

and supersonic transport were studied and planned
exhaustively on paper, but lost contact with the customers’ real
needs.
Source: James Brian Quinn
 Market Research: Summary

1. Market Research is usually an integral part of understanding

innovations - you ignore it at your peril....
2. But it must be timely, objective and relevant, otherwise it is worse than
useless, leading you down the wrong path
3. So, be involved as far as you can be, especially up front and don’t let
the jargon deter you!
Channel of Distribution

88
TI 2111 Work System Design and Ergonomics
A channel of distribution comprises
a set of institutions which perform
all of the activities utilized to move
a product and its title from
production to consumption

Bucklin - Theory of Distribution Channel Structure

89
 Physical distribution is…

•Organizing and moving products through the

channels

•aka: Logistics = ordering, transporting,

storing, handling and inventory control

•The 3rd largest expense for most

businesses
• (#1 Materials #2 Labor)
90
Channel members add value to a product by
performing certain channel activities
expertly
•Marketing
•Packaging
•Financing
•Storage
•Delivery
•Merchandising
•Personal selling

91
 Adding Value through Distribution
• Intermediaries provide value to producers because they often have
expertise in certain areas that producers do not have.

• Intermediaries are experts in displaying, merchandising, and providing

convenient shopping locations and hours for customers.

92
 CHANNEL FUNCTIONS
• Information
• Promotion
• Contact
• Matching
• Negotiation
• Providing marketing information:
• physical distribution • Companies rely on market research to determine their
target markets’ needs and wants
• Ex: small business producing handmade greeting cards
• Financing
• Risk taking • Promoting products:
• Can be expensive
• Retailers often take a large portion of promotion
responsibilities
• Ex: local supermarkets/discount
stores

93
CHANNEL FUNCTIONS (cont.)
• Providing marketing information:
• Companies rely on market research to determine their target markets’ needs
and wants
• Ex: small business producing handmade greeting cards

• Promoting products:
• Can be expensive
• Retailers often take a large portion of promotion responsibilities
• Ex: local supermarkets/discount stores

94
 CHANNEL FUNCTIONS (cont.)

• Contact
• Matching
• Negotiating with the customers:
• Different prices are paid by the wholesaler, retailer and
consumers based on negotiation
• Physical distribution
• Financing and risk taking:
• Moving products through a channel costs money
• When channel members work together to finance activities and to
assume financial risks, channels will be more effective

95
 Explain key channel tasks

•Marketing
•Packaging
•Financing
•Storage
•Delivery
•Merchandising
•Personal selling

96
when a channel will be most effective?
The channel must be properly managed
 Recognize the importance of their task and
make informed decisions
 Each member is assigned tasks it can do best
•Channel members share a common goal
• Commitment to quality of the product
• Satisfying the target market’s needs and wants
• All members cooperate to attain overall channel
goals

• If the channel is not effective, conflict occurs…..

97
CHANNEL MANAGEMENT DECISIONS

•Channel strategy is not formulated in

a vacuum
• Channel strategy and product strategy

• Channel strategy and price strategy

• Channel strategy and promotion strategy

98
 Describe channel management decisions
Decisions about a product’s physical movement and transfer of ownership from
producer to consumer.

• FIRST - Setting channel objectives

• Determine what the company is trying to achieve
• Meet the needs and wants of their target market
• Give their product a competitive edge

• SECOND - Channel members:

– Selection
– Management
– Motivation
– Evaluation

99
 1. Selecting Channel Members
Determine the types of members the belong in the channel, as
well as the channel length (total number of channel members)
• Usually based on the nature of the product
• Factors to consider:
• Create product value that others cannot or are
not willing to provide
• Channel the product to its desired market
• Have a pricing and promotion strategy
compatible with the product’s needs
• Offer customer service compatible with the
products needs
• Be willing and able to work cooperatively with
other members within the product’s channel
100
1. Selecting Channel Members (cont.)
Involves determining the characteristics that
distinguish the better ones by evaluating channel
members
• Do they: Provide value? Perform a function?
Expect an economic return ?
• Years in business
• Lines carried
• Profit record
• Policies, strategies, & image
• Experience & track record
Selecting intermediaries that are sales agents involves
evaluating
• Number and character of other lines carried
• Size and quality of sales force

101
 1. Selecting Channel Members (cont.)
• Market segment - must know the specific segment
and target customer

• Selecting intermediates that are retail stores that

want exclusive or selective distribution involves
evaluating
• Store’s customers

• Store locations

• Growth potential

102
 2. Managing Channel Members

• Determining channel responsibilities

• Members must work together appropriately and perform the tasks they
are best suited for

• The company must sell not only through the

intermediaries but also to/with them
• Partner relationship management (PRM) and
supply chain management (SCM) software are
used to
• Forge long-term partnerships with channel members
• Recruit, train, organize, manage, motivate, and evaluate channel members

103
 3. Motivating Channel Members

• Develop a cooperative/collaborative and balanced relationship

with the partner
• Understand the partner’s customers – their needs, wants, and
demands
• Understand the partner’s business – operationally and
financially and what’s really important to them
• Look at the partner’s needs in terms of customer support,
technical support, and training
• Establish clear and agreed upon expectations and goals
• Develop recognition programs focusing on the partner’s
contributions
• Build internal support systems and dedicate resources to the
partner
104
3. Motivating Channel Members (cont.)

•Motivation can be positive or negative

•Sanctions may be imposed on
middlemen not performing well
•Chargebacks – financial penalties
assessed for a variety of problems
•Incentives may be offered for reaching
performance goals

105
4. Evaluating Channel Members
Produces must evaluate intermediaries
performance against such standards as:
• Sales quota attainment

• Average inventory levels

• Customer delivery time

• Treatment of damaged and lost goods

• Cooperation in promotional and training programs.

106
4. Evaluating Channel Members (cont.)
Should constantly evaluate the channel:
• What is working?
• What is not working?
• What can be improved?
Risks & Dangers of Distribution Decisions
• Transaction costs both apparent & hidden
• Risks include loss in transit, destruction, negligence,
non-payment and so on.
• So, careful choice & evaluation of each & every
channel partner is a necessity.

107
 Distribution Decisions - Major Considerations…
• Multiple channels
Some products meet the needs of both industrial and consumer
markets.
J & J Snack Foods sells its pretzels, drinks and cookies using multiple
channels to:
 Supermarkets
 Movie Theaters
 Stadiums
 Schools
 Hospitals
• Control vs. costs
All manufacturers and producers must weigh the control they want to
keep over the distribution of their products against the costs and profitability.
Direct sales force – company employees are expensive with payroll, benefits,
expenses; may set sales quotas and easily monitor performance
Agents – work independently, running their own businesses; less expensive = less
control; agents sell product lines that make them more money.
• Intensity of distribution desired
• Involvement in e-commerce
108
 Distribution Intensity

• = how widely a product will be distributed; marketers want to

achieve the ideal market exposure; determining distribution
patterns.
Achieve ideal market exposure (make their
product available without over exposing
and losing money)
To achieve market exposure, marketers must
determine distribution intensity

109
 Intensity of Channel Structure

• Channel intensity: the number of intermediaries at each

level of the marketing channel.

Intensive Selective Exclusive

All Possible Relatively Few Just One

Intermediaries Intermediaries Intermediary

110
Intensive Distribution
• = the use of all suitable outlets to sell a product.

• The objective is complete market coverage and the ultimate

goal is to sell to as many customers as possible, wherever they
choose to shop.

• Ex. Motor oil is sold in quick-lube shops, farm stores, auto

parts retailers, supermarkets, drugstores, hardware stores,
warehouse clubs, and other mass merchandisers.

111
 Involvement in E-commerce

• = means by which products are sold to customers

and industrial buyers through the Internet.
• Consumers have also become accustomed to
buying products online.
• one-stop shopping and substantial savings for
industrial buyers.
• E-marketplaces provide smaller businesses with the
exposure that they could not get elsewhere

112
 Channel Design Decisions
• Channel design/structure = form or shape that a marketing
channel takes to perform the tasks necessary to make products
available to consumers.
• Includes ALL the parties involved

• Analyzing consumer needs

• Setting Channel Objectives
• Identifying Major Alternatives
Types of intermediaries
• Company sales force
• Manufacturer’s agency
• Industrial distributors
Number of intermediaries
Responsibilities of intermediaries
• Efficient movement of finished product from the end of the production line to
customers.
• Coordinate the execution of distribution plans
• So as to provide good customer service at acceptable cost.
113
“3” Dimensions of Channel Design

1.Length of the channel

2.Intensity of various levels (Exclusive,

Selective, Intensive)

3.Types of intermediaries involved

114
 Length of Channel
• Channel length = number of levels in a distribution channel.

2 level 3 level 4 level 5 level

Manufacturer Manufacturer Manufacturer Manufacturer

Agent

Wholesaler Wholesaler

Retailer Retailer Retailer

Consumer Consumer Consumer Consumer

115
Determinants of Channel Structure
1. The distribution tasks that need to be
performed
2. The economics of performing distribution
tasks
3. Management’s desire for control of
distribution
4. Transaction Efficiency (refers to the effort to
reduce the number of transactions between
producers &consumers).

116
 REVIEW Channel Structure/Design
1. Setting distribution objectives
 Meeting customer needs is the ultimate goal

2. Specifying distribution tasks

 who does what along the supply chain (channel of distribution)

3. Considering alternative channel structures

 Three dimensions:
• Length/Intensity/Types of intermediaries

4. Choosing optimal channel structures

 each participant in the marketing channel focuses on performing those
activities at which it is most efficient. This results in much greater efficiency
and higher output.

117
 Use of Technology in Distribution
• Some businesses have the capacity to distribute most or all of
their products through the internet
• e-commerce: Products are sold to customers and industrial buyers
through the Internet.
• e-marketplace
• Satellite tracking = a dispatcher has current knowledge of a
delivery truck’s location and destination
• Tracking of package
• Bar coding on package
• Package scanned at transition points in distribution chain
• Customer uses internet to follow package along distribution chain; e-mail
may be used
• Global distribution: in some countries the postal service is not reliable;
package tracking facilitates global trade

118
Use of Technology in Distribution (cont.)

• Problems

• Cost of technology

• Changing technology = updating equipment

• Need for compatible systems within and between businesses

& countries

119
 Sales Promotion

Why It's Important

To be successful, a business must continually

promote its products. This section introduces
you to the concept of sales promotion and the
techniques used to increase sales and to
inform customers about a company’s products.

120
 Sales Promotion

Key Terms

 slotting allowance
 sales incentives
 premiums
 incentives
 licensing
 promotional tie-ins

121
 Sales Promotion
Sales Promotion

Sales promotion is a short-term incentive

offered to encourage buying a good or
service. Sales promotions can be directed
toward manufacturers, wholesalers, retailers,
and consumers, as well as a company's
employees. Sales promotions are usually
supported by advertising activities.

122
 Sales Promotion
Trade Promotions

Trade promotions are sales promotion activities

designed to gain manufacturers', wholesalers', and
retailers' support for a product. More money is
actually spent on promoting to businesses than to
consumers. Major trade promotions include:
 slotting allowances
 buying allowances
 trade shows and conventions
 sales incentives
Slide 1 of 3
123
 Sales Promotion
Trade Promotions

Slotting allowances are cash premiums

paid by the manufacturer to a retail chain for
the costs involved in placing a new product
on its shelves.
Buying allowances are price discounts
given by manufacturers to wholesalers and
retailers to encourage the purchase of a
product.

Slide 2 of 3
124
 Sales Promotion
Trade Promotions

Trade shows and conventions are events at

which businesses can introduce new
products, encourage increased sales of
existing products, and gain continued
company and product support.
Sales incentives are awards given to
managers and employees who successfully
meet or exceed sales quotas.

Slide3 of 3
125
 Sales Promotion
Consumer Sales Promotions

Sales promotion efforts designed to encourage

customers to buy a product are called consumer
promotions. They include:
 premiums
 incentives
 product samples
 loyalty marketing programs
 promotional tie-ins
 product placement
 visual merchandising and displays

126
 Sales Promotion
Premiums

Premiums are low-cost items given to

consumers at a discount or for free.
Some popular premiums are:
 coupons
 factory packs
 traffic builders
 coupon plans

Slide 1 of 3
127
 Sales Promotion
Premiums

Coupons are certificates that entitle

customers to cash discounts on goods or
services.
Factory packs are free gifts placed in
product packages. These are common in
cereal boxes.

Slide 2 of 3
128
 Sales Promotion
Premiums

Traffic builders are low-cost premiums

such as pens or key chains given away free
to consumers for visiting a new store or
attending an event.
Coupon plans are ongoing programs
offering a variety of premiums in exchange
for labels, coupons, or other tokens.

Slide 3 of 3
129
 Sales Promotion
Incentives

Incentives generally are higher-priced

products earned and given through contests
(games of skill), sweepstakes (games of
chance), and rebates (discounts from
manufacturers). Businesses use incentives to
promote many products because they create
customer excitement and increase sales.

130
 Sales Promotion
Product Samples

A product sample is a free trial size of a

product sent through the mail, distributed
door-to-door, or given away at retail stores
and trade shows. Detergents, toothpastes,
shampoos, deodorants, and colognes are
frequently promoted this way.

131
 Sales Promotion
Promotional Tie-Ins

Promotional tie-ins involve coordinated sales

promotional arrangements between one or
more retailers or manufacturers.
 Example: For the promotion of the
Goofy movie, Disney Studios cooperated
with McDonald's which made a special
Happy Meal with a Fisher-Price Toddler Toy.

132
 Sales Promotion
Loyalty Marketing Programs

Loyalty marketing programs, also called

frequent buyer programs, reward customers
for making multiple purchases. Loyalty
marketing was popularized in the 1980s by
the airline industry, which instituted frequent
flier programs.

133
 Sales Promotion
Product Placement

With product placement, an organization

can develop product recognition by making
sure that a product is featured in special
events, on television, or in the movies.
 Example: Apple's iMac appeared in popular
television shows when it was first introduced.

134
 Sales Promotion
Visual Merchandising and Displays

Visual merchandising refers to the

coordination of all physical elements in a
place of business so that it projects the right
image to its customers.
Displays refer to the visual and artistic
aspects of presenting a product to a target
group of customers.

135
 ASSESSMENT

Reviewing Key Terms and Concepts

1. Why do businesses use sales promotions?
2. What unique characteristics do sales
promotions have?
3. What are trade promotions?
4. What are consumer promotions?
5. Explain the difference between a
sweepstakes and a contest.

136
 Product Pricing
Here are some of the goals to be achieved by performing Pricing analysis:
• Understand competitive landscape
 Pricing
 Features
 Customers
• Understand if there's any money left on the table
• If yes, then how much?
• What's the room for improvement
• Identify if there are any data collection issues required for changing
pricing
• Understand if we are charging Customers in line with value we are
providing them
• Customer distribution by
Geo,
Vertical
Product Feature usage, etc
Product Pricing Process
Product Pricing Process
 Product Buying Process / Experience
• High touch v/s low touch
• Commitment size (small v/s large)
• Commitment duration
• Engagement process (Website, email, phone calls, etc)
• Sales Cycle duration and introduction of payment conversation in the
process
• Purchase approval needs
• Prospect Profile
• Customer Buying Profiles:
• The Bargain Hunters - Price drive
• The Savvy Buyers – Focused on value generated from functionality
provided by the product / service
 Competitive Pricing Analysis - Conclusions
• Feature parity as compared to the competition (Basic / Core & Advanced)
• Typical product giveaway (baseline must have for free or at minimal
price)
• Solution completeness compared to the competition
• New competitor entrants rate
• Presentation and positioning of pricing by the competition
 Risks Associated with Current Pricing
• Too much reliance on sales of certain product / product module
• Too expensive compared to competition (especially when customer
needs are very basic)
• Pricing related issues with online transactions
• Revenue Generation by Geo
• Cap on product purchase
• Cap on product purchase
• Under valuing key features, especially differentiators
• Customer distribution by geographies & verticals
• Pricing model using attributes that are not directly related to product
usage
• Lack of data on product usage
 Pricing Sweet Spot

• In which scenarios we most likely to win business?

Niche
Beachhead
Customer referral
Low barrier to entry markets
• In which scenarios we most likely to loose business?
Most profitable and least profitable scenarios