Delivering Value Through Supply Chain Management Channels of

Delivering Value Through Supply Chain Management: Channels of Distribution and Logistics

Chapter Objectives • • • value chain key elements in a supply chain distribution channel functions of distribution channels wholesaling intermediaries Ø found in distribution channels 2

Chapter Objectives • types of distribution channels • steps for distribution channel strategies • how supply chain uses logistics 3

Place: The Final Frontier • Value chain: a series of activities directed at designing, producing, marketing, delivering, and supporting any product. • Supply chain: Activities necessary to turn raw materials into a good or service and put it in the hands of the consumer: LIDROCK. COM 4

Figure 15. 2: The Generic Value Chain 5

Links in the Supply Chain • Supply chain management: • the management of flows • among the firms Ø in a supply chain • to maximize total profitability UPS. COM 6

Links in the Supply Chain • Supply chain management: Øphysical movement of goods Øsharing of information about goods ØIn-sourcing: • contracting with a specialist • that services the company’s supply chains UPS. COM 7

Supply Chain vs. Channel of Distribution • Channel of distribution: Øfacilitates movement of a product Øfrom producer to final customer • Supply chain: Øbegins with raw materials 8

Figure 15. 3: Supply Chain 9

The Importance of Distribution • You Can’t Sell What Isn’t There 10

The Importance of Distribution: You Can’t Sell What Isn’t There! • Direct channel: Ø a producer to a customer • Indirect channel: Ø one or more intermediaries 11

The Importance of Distribution: You Can’t Sell What Isn’t There! • intermediaries Øwholesalers, Øbrokers, agents, retailers Ø Ø they help move Ø product to consumer Ø or business user 12

Functions of Distribution Channels • To ease the flow of goods Ø from producer to customer • To provide time, place, and ownership utility • logistics or physical distribution functions 13

Functions of Distribution Channels • create efficiencies • by reducing number of transactions ØBreaking bulk: • purchasing large quantities of goods to sell one/few at a time to customers ØCreating assortments: • providing variety of products in one location 14

Figure 15. 4: Reducing Transactions via Intermediaries 15

Functions of Distribution Channels • To make purchase process easier • To manage risk • To perform communication and transaction functions 16

The Internet in the Distribution Channel • Radical changes in distribution strategies ØDisintermediation: • eliminating traditional intermediaries ØKnowledge management: • sharing knowledge • with other supply chain members DELL 17

Channel Composition: Types of Wholesaling Intermediaries • • Wholesaling intermediaries: firms that handle the flow of products from the manufacturer to the retailer/business user 18

Independent Intermediaries • Merchant wholesalers: Øbuy goods Øfrom manufacturers Øsell to retailers Øand other B 2 B customers 19

Independent Intermediaries • Merchant wholesalers: Ø Full-service merchant wholesalers Ø Limited-service merchant wholesalers Ø Cash-and-carry wholesalers Ø Truck jobbers Ø Drop shippers Ø Rack jobbers Ø Mail-order wholesalers 20

Independent Intermediaries • Merchandise Agents/Brokers: • provide services in exchange for commissions ØManufacturers’ agents/reps ØSelling agents ØCommission merchants ØMerchandise brokers 21

Independent Intermediaries • Manufacturer-Owned Intermediaries ØSales branches ØSales offices ØManufacturers’ showrooms 22

Types of Distribution Channels • Consumer Channels • Direct channel: Ø producer sells directly to customers • Indirect channel: Ø producer uses one or more intermediaries Ø to reach consumers 23

Types of Distribution Channels (cont’d) • Business-to-business channels • Dual distribution systems • Hybrid marketing systems MERCK. COM 24

Figure 15. 6: Steps in Distribution Planning 25

Planning a Channel Strategy • • Step 1: Develop distribution objectives that support the firm’s overall marketing goals. 26

Planning a Channel Strategy • Step 2: • Evaluate internal and external environmental influences • to develop best channel structure. Øability to handle distribution functions ØChannel intermediaries available ØHow competition distributes products 27

Planning a Channel Strategy (cont’d) • Step 3: Choose a distribution strategy ØChannel relationships: • conventional, vertical, or horizontal system ØConventional marketing system: • members work independently of one another 28

Planning a Channel Strategy (cont’d) • Step 3: Choose a distribution strategy ØVertical marketing system (VMS): Ø formal cooperation among channel members • Administered VMS • Corporate VMS • Contractual VMS • Retailer cooperative • Franchise organizations IGAINC. COM 29

Planning a Channel Strategy (cont’d) • Step 3: Choose a distribution strategy Ø Horizontal marketing system: • two or more firms • at the same channel level • agree to work together • to get their product to the customer 30

Planning a Channel Strategy (cont’d) • Step 3: Choose a distribution strategy ØDistribution intensity Ø Exclusive distribution: • selling only through a single outlet in a region Ø Selective distribution: • using fewer outlets than intensive • but more than exclusive distribution Ø Intensive distribution: • selling through all suitable wholesalers or retailers 31

Planning a Channel Strategy (cont’d) • Step 4: distribution tactics Ø Selecting channel partners: • normally a long-term commitment Ø Managing the channel • Channel leader/captain: – dominant firm that controls the channel – (via economic, legitimate, reward/coercive power) 32

Distribution Channels and the Marketing Mix • Place decisions affect: Ø Pricing Ø Product and its positioning ENTERPRISE RENT-A-CAR 33

Logistics: Implementing the Supply Chain • Logistics: • the process of designing, managing, and improving the movement of products through the supply chain Ø Purchasing Ø Manufacturing Ø Storage Ø Transport 34

Logistics: Implementing the Supply Chain (cont’d) • • Physical distribution: the activities used to move finished goods from manufacturers to final customers 35

Logistics Functions • Order processing • Warehousing • Materials handling 36

Logistics Functions (cont’d) • • Transportation: mode by which products move among channel members 37

Logistics Functions • Transportation modes differ in their- • Dependability – (safety and punctuality) • Cost • Speed of delivery • Accessibility – (different locations served) • Capability – (variety of products handled) • Traceability – (ability to locate goods in shipment) 38

Modes of Transportation • Railroads: Ø carry heavy, bulky items over long distances • Water: Ø carry large, bulky goods Ø (especially internationally) • Trucks: Ø carry consumer goods in short haul; Ø allow flexibility in locations 39

Modes of Transportation (cont’d) • Air: Ø carry high value-items; Ø fastest and most expensive mode • Pipelines: Ø carry petroleum/chemical products • Internet: Ø distribute services Ø such as banking, news, and entertainment 40

Logistics Functions (cont’d) • Inventory control: • activities to ensure foods are always available to meet customers’ demands ØRadio frequency identification (RFID) ØJust in time (JIT) 41

THE END 42

Real People, Real Choices • Darden Restaurants (Jim Lawrence) • Volatility in the foodservice supply chain • Darden needed to protect its foodservice supply Option 1: develop a food distribution network owned and operated by Darden to support all its restaurants. Option 2: work with third party logistics (3 PL) providers. Option 3: work with traditional systems distributors under a new operating model. 43

Real People, Real Choices • Darden Restaurants (Jim Lawrence) • Jim chose option 3: work with traditional systems distributors under a new operating model. Ø Restaurants experienced greater manager satisfaction and significant savings from collaborative efforts of all supply chain partners DARDEN. COM 44

Marketing Plan Exercise • Dell Computer has used one simple supply chain system—direct sales over the Internet or by phone to both business and consumer users. • --If you were a marketing executive at Dell, what new supply chain options would you suggest? 45

Marketing in Action Case: You Make the Call • What is the decision facing Procter and Gamble? • What factors are important in understanding this decision situation? • What are the alternatives? • What decision(s) do you recommend? • What are some ways to implement your recommendation? 46

Keeping It Real: Fast-Forward to Next Class, Decision Time at Eskimo Joe’s • Meet Stan Clark, entrepreneur. • New law increased drinking age to 21, threatening the future of a college-town beer bar. • The decision: how to survive the new law? 47

Group Activity • Your group of marketers has been hired by a furniture manufacturer. • You feel marketing should have input into supplier selection, but the purchasing department disagrees. Ø --Explain the importance of the value chain perspective. 48

Discussion • The supply chain concept looks at both inputs and ways to move the product from manufacturer to consumer. Ø --Should marketers concern themselves with the total supply chain concept? Why or why not? 49

Discussion • Some say music, video, or textbook downloading, even if unauthorized, merely creates a more efficient supply chain by “cutting out the middleman. ” Ø --Do you agree? Ø --Why or why not? 50

Group Activity • You’re responsible for direct marketing at a firm that sells its industrial cleaning products through manufacturers’ reps. • You’re considering adding a direct Internet channel to your distribution strategy, but you wonder about channel conflict. Ø --List the pros and cons of adding an Internet channel. Ø --What do you think is the best decision? 51

Discussion • You’ve probably heard someone say, “The reason products cost so much is all the intermediaries. ” Ø --Do intermediaries increase the cost of products? Ø --Would consumers be better off or worse off without intermediaries? 52

Discussion • Many entrepreneurs choose to start a franchise business rather than “go it alone. ” Ø --Do you think franchises offer the typical businessperson good opportunities? Ø --What are some positive and negative aspects of purchasing a franchise? 53

Discussion • Colleges and universities seeking better ways to satisfy their customers are increasingly looking at the distribution of their product – education. --Describe your school’s channel(s) of distribution. --What innovative distribution methods do you think your school could try? 54