As products move from factories to retail stores, they follow various routes called channels of distribution. We already noted that our transportation system is essential in distributing products. It's easy to see that factories must move products to wholesalers, who move them to retailers, who move them to final consumers. This is a well-known channel of distribution. But there are also many other intermediaries, or middlemen, involved in the distribution process for particular products. Some take title to merchandise, while others perform the distribution function without actually purchasing products. Some distributors supply services to retailers, while others supply only products. The millions of retailers in our country look to these sources to buy their products. They compare the products, prices, services, and quality of suppliers in the distribution system. We shall investigate the details of this process.
Monday, October 3, 2011
Product Distribution Systems
As products move from factories to retail stores, they follow various routes called channels of distribution. We already noted that our transportation system is essential in distributing products. It's easy to see that factories must move products to wholesalers, who move them to retailers, who move them to final consumers. This is a well-known channel of distribution. But there are also many other intermediaries, or middlemen, involved in the distribution process for particular products. Some take title to merchandise, while others perform the distribution function without actually purchasing products. Some distributors supply services to retailers, while others supply only products. The millions of retailers in our country look to these sources to buy their products. They compare the products, prices, services, and quality of suppliers in the distribution system. We shall investigate the details of this process.
The Insurance Industry
By this point the complexity and interrelatedness of the business world must be clear to you. To protect themselves against the many risks of operating in such a world, business firms rely on insurance. Today's insurance industry has assets that total billions of dollars--an amount so significant that society has instituted government regulation of the insurance industry's investments and financial reserves.
Total employment in the insurance industry is now approaching 2 million people. But contrary to popular belief, only about one-third of these employees are salespeople. The companies that sell insurance maybe stock companies (owned by stockholders) or mutual companies (owned by policyholders). They offer property insurance, automobile insurance, public liability insurance, life insurance, health insurance, marine insurance, fidelity bonds (to protect business against dishonesty of employees), and surety bonds (to ensure performance of contracts). A complete description of the operations of insurance companies would require several textbooks, but we shall review the highlights of this industry.
Total employment in the insurance industry is now approaching 2 million people. But contrary to popular belief, only about one-third of these employees are salespeople. The companies that sell insurance maybe stock companies (owned by stockholders) or mutual companies (owned by policyholders). They offer property insurance, automobile insurance, public liability insurance, life insurance, health insurance, marine insurance, fidelity bonds (to protect business against dishonesty of employees), and surety bonds (to ensure performance of contracts). A complete description of the operations of insurance companies would require several textbooks, but we shall review the highlights of this industry.
Education Institutions and Professional Training Programs
The business would we are describing could not be operated by primitive peoples. It demands the talents and dedication of millions of skilled employees. Many workers obtain their skills through training on the job, but the business world also needs thousands of professionally trained engineers, accountants, medical personnel, attorneys, and professors. These are not found easily. Business must depend on our colleges and universities, training institutes, technical schools, and trade schools to provide employees who can make the business world function. The professions are constantly developing through new research, laws, techniques, and experience. It is the responsibility of professors in our educational institutions to keep abreast of such developments and to include them in the training of new professional employees. Let's consider some of the contributions that the professions make your business.
Wednesday, September 28, 2011
Basic Functions of the Business World
Defined business as all those activities involved in providing the goods and services needed by people: In order to provide goods and services, businesses must first acquire raw materials; then use them to manufacture products; and then distribute products to consumers who desire them. Thus, it's clear that the most basic functions of business are:
1. Acquiring raw materials
2. Manufacturing raw materials into products
3. Distributing products to consumers
Some examples will illustrate these three basic functions of business. For instance, before we can buy a pair of tennis shorts, raw material - either natural or synthetic - have to be acquired; the raw materials have to be manufactured first into cloth and then into tennis shorts; and then the shorts have to be distributed to our local stores. Or consider automobiles. Before we can buy one from our local dealer, raw materials must be gathered and manufactured into steel, aluminum, plastic, glass, and so on; then these materials must be manufactured into an automobile; and then completed car must be shipped to local dealers.
This analysis of the basic functions of business applies to services as well as to material products. For example, the raw material that produces doctors, engineers, lawyers, and accountants is their education; they convert that education into services by opening offices to the public; and from those offices they distribute their services to those who need or desire them.
These examples show that the production of people or services is not necessarily all done by a single firm. Cloth may be manufactured by one firm and then sold to another firm that manufactures tennis shorts. Automobile companies buy finished steel and other products from manufacturers that have already converted raw materials, such as basic ore, into usable products. And even the services of a doctor require a series of steps - from one school to another, from one area of training to the next - until the final service is "manufactured" and made available to patients. In all these examples, the three basic functions of business are carried on until a final product is made and is delivered to consumers.
But the basic functions don't tell the whole story. Even though every type of business can be identified with achieving the main goal of providing goods and services needed or desired by people, we still must identify the key segments of the business word in order to get an overview of its total operation.
1. Acquiring raw materials
2. Manufacturing raw materials into products
3. Distributing products to consumers
Some examples will illustrate these three basic functions of business. For instance, before we can buy a pair of tennis shorts, raw material - either natural or synthetic - have to be acquired; the raw materials have to be manufactured first into cloth and then into tennis shorts; and then the shorts have to be distributed to our local stores. Or consider automobiles. Before we can buy one from our local dealer, raw materials must be gathered and manufactured into steel, aluminum, plastic, glass, and so on; then these materials must be manufactured into an automobile; and then completed car must be shipped to local dealers.
This analysis of the basic functions of business applies to services as well as to material products. For example, the raw material that produces doctors, engineers, lawyers, and accountants is their education; they convert that education into services by opening offices to the public; and from those offices they distribute their services to those who need or desire them.
These examples show that the production of people or services is not necessarily all done by a single firm. Cloth may be manufactured by one firm and then sold to another firm that manufactures tennis shorts. Automobile companies buy finished steel and other products from manufacturers that have already converted raw materials, such as basic ore, into usable products. And even the services of a doctor require a series of steps - from one school to another, from one area of training to the next - until the final service is "manufactured" and made available to patients. In all these examples, the three basic functions of business are carried on until a final product is made and is delivered to consumers.
But the basic functions don't tell the whole story. Even though every type of business can be identified with achieving the main goal of providing goods and services needed or desired by people, we still must identify the key segments of the business word in order to get an overview of its total operation.
Key Segments of the Business World
Our total business world is made up of many different industries, institutions, and professions. By performing the three basic functions of business, these many parts of the business world provide the goods and services we need. For our purposes, we can divide the total business world into ten key segments:- Raw material-producing industries
- Manufacturing and construction industries
- The transportation industry
Number of Employees by Industry
______________________________________________Industry Number of Employees (in thousands)
______________________________________________
Raw material Mining 700.0
Manufacturing
Durables goods
Ordinance and accessories 157.0
Lumber and wood products 645.5
Furniture and fixtures 528.8
Stone, clay, and glass products 649.7
Primary and fabricated metals 2,691.6
Machinery, electrical, and transportation
equipment 6,114.3
Instruments and related products 536.3
Nondurable goods
Food and kindred products 1,663.0
Tobacco 69.2
Textile and
Textile and
apparel products 2,250.3
Paper and allied products 700.1
Printing and publishing 1,125.6
Chemicals and allied products 1,058.7
Petroleum and coal 208.9
Rubber and plastic products 686.6
Leather and leather products 256.5
Construction
Transportation
Railroads, passenger transit, trucks, air, etc.
air, etc. 3,024.7
Banking and financial market services 1,547.7
Banking and financial market services 1,547.7
Real estate 853.2
Product distribution services
Wholesale trade
Motor vehicles, drugs, hardware, etc. 4,454.0
Retail trade
Department, furniture, food stores, eating
and drinking places, etc. 14,111.0
Public utilities and other power industries 748.8
Communications 1,182.9
Insurance industry 1,543.6
Educational institutions and professional
training programs 1,350.8
Research and development programs 170.0
Services
Hotel/other loading places 974.6
Laundries/dry cleaning plants 343.2
Advertising 137.8
Motion pictures 190.3
Medical/health services 4,886.9
Legal 421.7
Engineering/architecture 456.3
_________________________________________________- Banking and financial market services
- Distribution systems
- Public utilities and other power industries
- The communications industries
- The insurance industry
- Educational institutions and professional training programs
- Research and development programs
Business needs all kinds of raw materials in order to provide the products needed to satisfy our demands. The following list summarizes our sources of raw materials and identifies how they are used.
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