Value Chain Management Channels of Distribution Logistics and

What is a Distribution Channel? • Series of firms or individuals that facilitates the

Functions of Distribution Channels • • Time, place, and ownership utilities Logistics functions Transportation and storage functions Efficiency creation Facilitating functions Repair and maintenance functions Risk-taking Communications and transaction functions © 2003 Prentice Hall, Inc 3

Creating Efficiencies • Breaking bulk - channel members purchase large quantities from manufacturers and sell smaller quantities to many different customers • Creating assortments - channel members provide a variety of products on one location © 2003 Prentice Hall, Inc 4

Figure 17. 1: Reducing Transactions via Intermediaries © 2003 Prentice Hall, Inc 5

The Internet • Even small firms with limited resources can enjoy competitive advantages by making products available to customers around the globe at a very low cost • Disintermediation - process by which traditional intermediaries are eliminated as companies question the value added by layers in the distribution channel © 2003 Prentice Hall, Inc 6

Types of Wholesaling Intermediaries • Wholesaling intermediaries are firms that handle the flow of products from the manufacturer to retailer or business user – Independent – Manufacturer-owned © 2003 Prentice Hall, Inc 7

Independent Intermediaries • Merchant wholesalers – Full-service – Limited-service – Cash-and-carry wholesalers – Truck jobbers – Drop shippers – Mail-order wholesalers – Rack jobbers © 2003 Prentice Hall, Inc • Merchandise Agents or Brokers – Manufacturers’ agents – Selling agents – Commission merchants – Merchandise brokers 8

Manufacturer-Owned Intermediaries • Sales branches • Sales offices • Manufacturers’ showrooms © 2003 Prentice

Figure 17. 2: Types of Distribution Channels © 2003 Prentice Hall, Inc 10

Types of Distribution Channels • Consumer channels – Direct – Manufacturer-retailer-consumer – Manufacturer-wholesaler-retailer-consumer • Business-to-business channels – Direct – Manufacturer-industrial distributor-business customer © 2003 Prentice Hall, Inc 11

Consumer Channels © 2003 Prentice Hall, Inc 12

B 2 B Channels © 2003 Prentice Hall, Inc 13

Dual Distribution Systems • Multiple channel usage • Example: – pharmaceutical industry sells to hospitals, clinics, and organizational customers directly and to consumers indirectly through drug retailers © 2003 Prentice Hall, Inc 14

Figure 17. 3: Steps in Distribution Planning © 2003 Prentice Hall, Inc 15

Marketing Systems • Conventional - multi-level distribution channel in which members work independently of one another • Vertical - channel in which there is cooperation among channel members at two or more different levels of the channel • Horizontal - two or more firms at the same channel level agree to work together © 2003 Prentice Hall, Inc 16

Vertical Marketing Systems • Administered - channel members remain independent but voluntarily work together • Corporate - single firm owns manufacturing, wholesaling, and retailing operations • Contractual - cooperation is enforced by contracts that spell out member rights and the terms of cooperation © 2003 Prentice Hall, Inc 17

Contractual Vertical Marketing Systems • Wholesaler-sponsored - wholesalers get retailers to work together under their leadership in a voluntary chain • Retailer-cooperative - group of retailers with a wholesaling operation to help them compete more effectively with large chains • Franchise organizations - cooperation is explicitly defined and strictly enforced by franchiser © 2003 Prentice Hall, Inc 18

Distribution Intensity Decision Factors: Company, Customers, Channels, Constraints, and Competition Intensive, Exclusive, or Selective

Developing Distribution Tactics • Selecting channel partners • Managing the channel of distribution – Channel leader is the dominant firm that controls the channel – Channel leaders have some form of power relative to other members • economic power • legitimate power • reward or coercive power © 2003 Prentice Hall, Inc 20

Logistics: Implementing the Value Chain • Process of designing, managing, and improving the movement of products through the supply chain – purchasing – manufacturing – storage – transport © 2003 Prentice Hall, Inc 21

Supply Chain Management • The supply chain includes all the firms that engage in activities that are necessary to convert raw materials into a good or service and put it in the hands of the consumer or business customer • Supply chain management is the management of flows among the firms in a supply chain to maximize total profitability © 2003 Prentice Hall, Inc 22

Figure 17. 4: Supply Chain © 2003 Prentice Hall, Inc 23

Logistics and Customer Satisfaction • Traditionally, logistics was thought of as physical distribution – order processing, warehousing, materials handling, transportation, and inventory control – objective to deliver product at lowest cost • Now, customers’ goals become the logistics provider’s goals © 2003 Prentice Hall, Inc 24