Lamb Hair Mc Daniel MKTG 2008 2009 12

Lamb, Hair, Mc. Daniel MKTG 2008 -2009 12 CHAPTER Designed by Amy Mc. Guire, B-books, Ltd. Chapter 12 Marketing Channels and Supply Chain Management Prepared by Deborah Baker, Texas Christian University Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 1

Learning Outcomes LO 1 Explain what a marketing channel is and why intermediaries are needed LO 2 Define the types of channel intermediaries and describe their functions and activities LO 3 Describe the channel structures for consumer and business products and discuss alternative channel arrangements Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 2

Learning Outcomes LO 4 Define supply chain management and discuss its benefits LO 5 Discuss the issues that influence channel strategy LO 6 Explain channel leadership, conflict, and partnering LO 7 Describe the logistical components of the supply chain Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 3

Learning Outcomes LO 8 Discuss new technology and emerging trends in supply chain management LO 9 Discuss channels and distribution decisions in global markets Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 4

Marketing Channels A set of interdependent organizations that ease the transfer of ownership as products move from producer to business user or consumer. LO 1 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 5

Marketing Channels Supply Chain The connected chain of all the business entities, both internal and external to the company, that perform or support the logistics function. LO 1 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 6

Marketing Channel Functions Specialization and division of labor Overcoming discrepancies Providing contact efficiency LO 1 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 7

Specialization and Division of Labor u Creates greater efficiency u Provides lower costs u Achieves economies of scale u Aids producers who lack resources to market directly u Builds good relationships with customers LO 1 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 8

Overcoming Discrepancies Discrepancy of Quantity The difference between the amount of product produced and the amount an end user wants to buy. Discrepancy of Assortment The lack of all the items a customer needs to receive full satisfaction from a product or products. LO 1 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 9

Overcoming Discrepancies Temporal Discrepancy A situation that occurs when a product is produced but a customer is not ready to buy it. Spatial Discrepancy The difference between the location of a producer and the location of widely scattered markets. LO 1 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 10

Providing Contact Efficiency LO 1 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 11

LO 1 REVIEW LEARNING OUTCOME Marketing Channels Providing Specialization and Division of Labor Overcoming Discrepancies Supply Chain Chapter 12 Providing Contact Efficiency Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 12

Channel Intermediaries LO 2 Chapter 12 Retailer A channel intermediary that sells mainly to customers. Merchant Wholesaler An institution that buys goods from manufacturers, takes title to goods, stores them, and resells and ships them. Agents and Brokers Wholesaling intermediaries who facilitate the sale of a product by representing channel members. Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 13

Channel Intermediaries Retailers Merchant Wholesalers Agents and Brokers Take Title to Goods Do NOT Take Title to Goods LO 2 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 14

Factors Suggesting Type of Wholesaling Intermediary to Use Product characteristics Buyer considerations Market characteristics LO 2 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 15

Factors Suggesting Type of Wholesaling Intermediary to Use LO 2 Chapter 12 Factor Merchant Wholesalers Agents/ Brokers Nature of product Standard Nonstandard, custom Technicality of product Complex Simple Product’s gross margin High Low Frequency of ordering Frequent Infrequent Time between order and receipt of Shorter lead time shipment Longer lead time Number of customers Many Few Concentration of customers Dispersed Concentrated Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 16

Channel Functions Performed by Intermediaries Contacting/Promotion Transactional Functions Negotiating Risk Taking Physically distributing Logistical Functions Storing Sorting LO 2 Chapter 12 Facilitating Functions Researching Financing Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 17

Logistics The process of strategically managing the efficient flow and storage of raw materials, in-process inventory, and finished goods from point of origin to point of consumption. LO 2 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 18

LO 2 REVIEW LEARNING OUTCOME Channel Intermediaries and Functions CHANNEL INTERMEDIARIES Retailers CHANNEL FUNCTIONS Perform Transactional Wholesalers Logistical Agents and Brokers Facilitating Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 19

LO 3 Channels for Consumer Products Direct Channel A distribution channel in which producers sell 20 directly to consumers. Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 20

LO 3 Channels for Consumer Products Direct Channel Retailer Channel Wholesaler Channel Agent/Broker Channel Producer Agents or Brokers Wholesalers Consumers Chapter 12 21 Wholesalers Retailers Consumers Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 21

LO 3 Channels for Business Products Direct Channel Producer Agent/Broker Industrial Distributor Channel Producer Agents or Brokers 22 Agents or Brokers Industrial Distributor Industrial User Chapter 12 Govt. Buyer Industrial User Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved Industrial User 22

LO 3 Business-to-Business Exchanges on the Internet Agents link buyers and sellers Companies drop the intermediary from the supply chain 23 “Private exchanges” with select suppliers automate the supply chain http: //www. sherwinwilliams. com Online Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 23

LO 3 Alternative Channel Arrangements Multiple channels Nontraditional channels 24 Strategic channel alliances Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 24

LO 3 REVIEW LEARNING OUTCOME Channel Structures CONSUMER CHANNELS BUSINESS CHANNELS ALTERNATIVE CHANNELS §Direct §Multiple §Retail §Industrial §Nontraditional §Wholesaler §Agent/broker industrial §Strategic alliances Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 25

Supply Chain Management Supply Chain A management system that coordinates and integrates all of the activities performed by supply chain members into a seamless process, from the source to the point of consumption, resulting in enhanced customer and economic value. LO 4 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 26

Role of Supply Chain Management Communicator of customer demand from point of sale to supplier Physical flow process that engineers the movement of goods LO 4 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 27

Responsibilities of Supply Chain Managers u Channel strategy decisions u Sourcing and procurement of raw materials u Production schedules u Order processing u Inventory management u Finished goods/supplies transportation and storage u Customer service coordination u Supply chain information flow management LO 4 u Chapter 12 Partner relationships Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 28

The Supply Chain Process LO 4 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 29

Benefits of Supply Chain Management Means of differentiation Reduced costs Greater supply chain flexibility Improved customer service Higher revenues LO 4 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 30

LO 4 REVIEW LEARNING OUTCOME Supply Chain Management Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 31

LO 5 Channel Strategy Decisions Chapter 12 Factors Affecting Channel Choice Level of Distribution Intensity Market Factors 32 Intensive Distribution Product Factors Selective Distribution Producer Factors Exclusive Distribution Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 32

LO 5 Market Factors Customer profiles Consumer or Industrial Customer Market Factors That Affect Channel Choices Chapter 12 Size of market 33 Geographic location Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 33

LO 5 Product Factors Product Complexity Product Price Product Standardization Product Factors That Affect Channel Choices Chapter 12 34 Product Life Cycle Product Delicacy Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 34

LO 5 Product Factors Producer Resources Number of Product Lines Producer Factors That Affect Channel Choices Chapter 12 35 Desire for Channel Control Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 35

LO 5 Levels of Distribution Intensity Chapter 12 Intensive A form of distribution aimed at having a product available in every outlet Selective A form of distribution achieved by screening dealers to eliminate all but a few in any single area 36 Exclusive A form of distribution that established one or a few dealers within a given area Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 36

LO 5 Levels of Distribution Intensity Chapter 12 Intensity Level Objective Intensive Achieve mass market selling. Convenience goods. Selective Work with selected intermediaries. Shopping and some specialty goods. Exclusive Work with single intermediary. Specialty goods and industrial equipment. Number of Intermediaries Many Several 37 One Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 37

LO 5 REVIEW LEARNING OUTCOME Issues Influencing Channel Strategy Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 38

Social Dimensions of Channels Power Control Leadership Conflict LO 6 Chapter 12 Partnering Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 39

Channel Power, Control, and Leadership Channel Power A channel member’s capacity to control or influence the behavior of other channel members Channel Control A situation that occurs when one marketing channel member intentionally affects another member’s behavior Channel Leader A member of a marketing channel that exercises authority/power over the activities of other members LO 6 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 40

Channel Conflict and Partnering Channel Conflict Channel Partnering A clash of goals and methods between distribution channel members The joint effort of all channel members to create a supply chain that serves customers and creates a competitive advantage LO 6 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 41

Channel Conflicts may occur if channel members: u Have conflicting goals u Fail to fulfill expectations of other channel members u Have ideological differences u Have different perceptions of reality LO 6 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 42

Channel Partnering Transaction-Based Partnership-Based Supplier / Manufacturer Relationships Short-term Adversarial Independent Price important Long-term Cooperative Dependent Value-added services Number of Suppliers Many Few Information Sharing Minimal High Investment Required Minimal High LO 6 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 43

LO 6 REVIEW LEARNING OUTCOME Channel Leadership, Conflict, & Partnering Channel Power, Control, Leadership Channel Partnering Channel Relationship Synergy Channel Conflict Horizontal Chapter 12 Vertical Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 44

Logistical Components of the Supply Chain Team LO 7 Chapter 12 Logistics Information System Sourcing & Procurement Production Scheduling Order Processing Inventory Control Warehouse & Materials Handling Transportation Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 45

Sourcing and Procurement The Role of Purchasing: u Plan purchasing strategies u Develop specifications u Select suppliers u Negotiate price and service levels LO 7 Chapter 12 u Reduce costs Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 46

Production Scheduling Traditional Focus Customer Focus Push / Pull Strategy Push Pull Start of Production Inventory. Based Customer-Order Based Manufacturing Mass Production Mass Customization LO 7 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 47

Just-in-Time Manufacturing JIT LO 7 Chapter 12 A process that redefines and simplifies manufacturing by reducing inventory levels and delivering raw materials just when they are needed on the production line. Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 48

Benefits of JIT u u u Reduces raw material inventories Shortens lead times Creates better supplier relationships Reduces production and storeroom costs Reduces paperwork LO 7 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 49

JIT Requirements Receive high-quality parts Meet supplier delivery commitments Have a crisis management plan LO 7 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 50

Order Processing Electronic Data Interchange LO 7 Chapter 12 Information technology that replaces paper documents that accompany business transactions with electronic transmission of the information. http: //www. walmartstores. com Online Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 51

Order Processing Inventory Control System A method of developing and maintaining an adequate assortment of materials or products to meet a manufacturer’s or a customer’s demand. LO 7 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 52

Order Processing Materials Requirement Planning (MRP) An inventory control system that manages the replenishment of raw materials, supplies, and components from the supplier to the manufacturer. Distribution Resource Planning (DRP) An inventory control system that manages the replenishment of goods from the manufacturer to the final consumer. LO 7 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 53

Materials Handling Functions Receive goods into warehouse Identify, sort, and label goods Dispatch the goods to temporary storage LO 7 Chapter 12 Recall, select, or pick the goods for shipment Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 54

Transportation Airways Water Pipelines Motor Carriers Railroads LO 7 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 55

Transportation Mode Choice u u u Cost Transit time Reliability Capability Accessibility Traceability LO 7 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 56

Criteria for Ranking Modes of Transportation Lowest Highest Relative Cost Transit Time Air Truck Rail Pipe Water Rail Pipe Truck Air Reliability Pipe Truck Rail Air Water Capability Water Rail Truck Air Pipe Accessibility Truck 7 LO Traceability Air Rail Air Water Pipe Truck Rail Water Pipe Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 57

Trends in Supply Chain Management Advanced computer technology Outsourcing of logistics functions Electronic distribution LO 8 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 58

Advanced Computer Technology u Automatic identification systems - Bar coding - Radio frequency technology u Communications technology u Supply chain software systems LO 8 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 59

Outsourcing Logistics Functions Outsourcing Benefits u Reduce inventories u Locate stock at fewer plants and distribution centers LO 8 Chapter 12 u Provide same or better levels of service Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 60

Channels and Distribution Decisions for Global Markets Global Channel Development Channel structure and type differ Gray marketing channels Awareness of trade legalities Global Supply Chain Management Transportation Issues LO 9 Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 61

LO 9 REVIEW LEARNING OUTCOME Global Market Channel & Distribution Decisions Distribute directly or through foreign partners Different channel structures than in domestic markets Illegitimate “gray” marketing channels Legal and infrastructure differences Chapter 12 Copyright © 2008 by South-Western, a division of Thomson Learning. All rights reserved 62