Chapter Eleven The Nature of The Supply Chain

Chapter Eleven The Nature of The Supply Chain and Distribution

Unlike real estate, location is becoming progressively less relevant. The three critical factors for the Internet age are logistics, logistics. - William B. Lipsin, CEO, Ironside Technologies

Objectives b. Explain general purpose of distribution & logistics b. Show distribution system’s contributions b. Examine tradeoff between customer satisfaction & costs in distribution b. Understand a total cost approach to distribution b. Understand pervasive nature of distribution b. Introduce channel intermediaries and various distribution channels b. Introduce vertical marketing systems b. Overview distribution’s interaction with other aspects of the marketing mix b. Examine channel relations

Distribution’s Function b. The major purpose of marketing is to satisfy human needs by delivering products of various types to buyers when and where they want them and at a reasonable cost. b. The “when and where” is the function of Distribution

Definitions Logistics Component parts & Raw material In-process inventory Supply Chain Finished goods

Physical Distribution Activities b. Inventory management b. Order processing b. Warehousing and storage b. Materials handling b. Protective packaging & containerization b. Outbound transportation

Physical Distribution Objectives Minimize Costs Maximize Customer Service

Channel of Distribution b All intermediaries involved in the exchange process b Excludes pre-manufacturing (raw materials or component parts) b Facilitate movement of physical goods and title PRODUCER INTERMEDIARIES CONSUMER

Physical Distribution Functions Accumulating bulk Creating assortments Breaking bulk Reducing transactions Transportation & storage

Modes of Transportation Rail Motor Air Water Pipeline

Modes of Transportation b. Railroads b. Medium cost and speed b. Low reliability b. Many damaged goods b. Good Geographic flexibility

Modes of Transportation b. Motor carrier b. Medium reliability b. Good speed b. Good flexibility b. Above average damage b. Now more competitive and unregulated

Modes of Transportation b. Air freight b. Expensive b. Very fast b. Above average reliability b. Average flexibility b. Average reputation for undamaged goods

Modes of Transportation b. Water transportation b. Low cost b. Low reliability b. Limited flexibility b. Limited damage

Modes of Transportation b. Pipeline b. Mostly gas and petroleum b. Low cost b. High reliability b. Limited flexibility Texas Kansas

Modes of Transportation b. Intermodal transportation b. Ship + Truck (fishyback) b. Rail + Truck (piggyback) b. Air + Truck (birdyback)

Storage & Inventory COntrol Storage Breaking Bulk

Total Cost: A Systems Approach

Total Cost: A Systems Approach

Communication & Transaction Functions Gather & Disseminate Information 9 3 1 2 3757 24 1 Buying & Selling Personal Selling Advertising Sales Promotion

Facilitating Functions Extra Services Payment & Credit Services Risk Taking

Typical Channels of Distribution ANUFACTURER ONSUMER GENT ETAILER HOLESALER

Business-to-Business Channels Direct Wholesaler

Vertical Marketing Systems b. Corporate systems - total ownership b. Contractual - legal relationships b. Administered - strong leadership

Planning the Channel of Distribution b. Determining the structure b. Marketing mix strategy b. Organizational resources b. External environmental factors b. Market characteristics b. Consumer preferences and behavior b. The nature and availability of Intermediaries b. Other environmental factors

Intensive Distribution Producer Seeks to obtain maximum product exposure at the retail level Retailer Retailer Retailer Retailer

Selective Distribution Producer Product is sold in a limited number of outlets Retailer Retailer

Exclusive Distribution Producer Product is sold in only one outlet in a given area Retailer

Channel Relationships b. Cooperation b. Conflict b. Power b. Coercive b. Expert b. Legitimate

Other Distribution Management Issues b. Reverse distribution b. Ethical, Political, & Legal One Coca Cola Distributor Difficult OK Backward channel One thousand retailers

Review b. Explain general purpose of distribution & logistics b. Show distribution system’s contributions b. Examine tradeoff between customer satisfaction & costs in distribution b. Understand a total cost approach to distribution b. Understand pervasive nature of distribution b. Introduce channel intermediaries and various distribution channels b. Introduce vertical marketing systems b. Overview distribution’s interaction with other aspects of the marketing mix b. Examine channel relations