STUDENTS' CORNER -53

In this session, we will try to know who is an agent and what his tasks in the distribution channel are.  We already know some basic facts about wholesaler and distributor.

The business man cannot go places to find market for his product.  Production itself is such a huge task that he has to give all his energies and time; therefore, he chooses someone and gives him power to act on his behalf so that he can find market for his product. So an agent is appointed by the business man; here, the business man who appoints an agent is commonly called in business language the Principal. The agent represents the Principal.

The agent does not do business for himself but for the Principal only. On behalf of the producer, he can buy and sell but always within the guidelines set by his Principal. For him, his income, his revenue is the commission he gets for his services. From one point of view, the Principal, the producer of the product may not be efficient in marketing his product and he needs some efficient man to carry out marketing for him and for his products. Generally, agents do those efficient tasks of marketing. Today, in mercantile purchasing, agents have become extremely important.

Of course, there are some kinds of agents. There are General Mercantile Agents. Their actions bind the Principal. There are Special Agents. They are appointed for some particular task and when the task is over, they are no more agents for the Principal.

You might have come across Brokers in your life at one point of time or another. There is a difference between an agent and a broker. An agent normally works for his Principal’s products finding market. But a broker makes a seller and a buyer meet. He does not buy or sell anything but arranges a meeting between a seller and a buyer for some business. When the deal is over, his task is finished and he gets some commission, some money from both. The broker works for his brokerage independent of both the seller and the buyer. The agent gets his commission normally from the Principal only. He works according to the agreement he has come into with the Principal.

This is the business process. You can now see that everyone in the business process has to make money and they all get their shares, ultimately, from the consumers only. For example: the producer produces soap and the cost of production of a single soap happens to be Rs 10, including all expenses beginning from the cost of materials to salaries for the employees covering all establishment expenses.  He sells one soap at a profit of One rupee to the wholesaler meaning the cost of the soap now is Rs 11. The wholesaler sells the soap at a profit of, say, 50 paise to the distributor. Now the cost of the soap is Rs 11.50. The distributor sells the soap at the cost of Rs 12.50 to the retailer with a profit of one rupee. And the retailer sells the soap to the final consumer, the end-user for Rs 13.50.  From the money the retailer spends on a single piece of soap, the distributor, the wholesaler and the producer get their share. This is just an example; at every stage there is some money added to the cost of the product and the money added depends on the market conditions which normally include the demand and supply issue.

Here, one thing you must make note of.  The cost of a product for the consumer and for all always includes the logistics cost. The product has to be transported from the place of production to the place of consumption through various stages of storing necessity.

This is enough for the time being and we shall move on to the next component of logistics: Requirement planning.