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Delivering Value Through
Supply Chain
Management: Channels of
Distribution and Logistics
Chapter Objectives
• Understand the concept of the value chain and
the key elements in a supply chain
• Explain what a distribution channel is and what
functions distribution channels perform
• Describe the types of wholesaling intermediaries
found in distribution channels
• Describe the types of distribution channels and
the steps in planning distribution channel
strategies
• Explain how the supply chain uses logistics
2
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 (3PL) providers.
Option 3: work with traditional systems distributors
under a new operating model.
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
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.
 --Explain the importance of the value chain
perspective.
6
Links in the Supply Chain
• Supply chain management: the management of
flows among the firms in a supply chain to
maximize total profitability
Includes physical movement of and sharing of information about
goods
Insourcing: contracting with a specialist that services the
company’s supply chains
UPS.COM
7
Supply Chain vs. Channel of
Distribution
• Channel of distribution: facilitates
movement of a product from producer to
final customer
• Supply chain: begins with raw materials
8
Figure 15.3: Supply Chain
9
Discussion
• The supply chain concept looks at both
inputs and ways to move the product from
manufacturer to consumer.
 --Should marketers concern themselves with the total
supply chain concept? Why or why not?
10
The Importance of Distribution:
You Can’t Sell What Isn’t There!
• Direct channel: a producer and a customer
• Indirect channel: one or more
intermediaries
 Firms/individuals such as
 wholesalers, agents,
 brokers, and retailers
 that help move
 product to consumer
 or business user
11
Functions of Distribution Channels
• To ease the flow of goods from producer to
customer
• To provide time, place, and ownership utility
12
Functions of Distribution Channels
(cont’d)
• To provide logistics or physical distribution
functions
• To create efficiencies by reducing number
of transactions
 Breaking bulk: purchasing large quantities of goods to
sell one/few at a time to customers
 Creating assortments: providing variety of products in
one location
13
Figure 15.4: Reducing Transactions via
Intermediaries
14
Functions of Distribution Channels
(cont’d)
• To make purchase
process easier
• To manage risk
• To perform
communication and
transaction functions
15
The Internet in the Distribution Channel
• Radical changes in distribution strategies
 Disintermediation: eliminating traditional
intermediaries
 Knowledge management: sharing knowledge with
other supply chain members
DELL
16
Discussion
• Some say music, video, or textbook
downloading, even if unauthorized, merely
creates a more efficient supply chain by
“cutting out the middleman.”
 --Do you agree?
 --Why or why not?
17
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.
 --List the pros and cons of adding an Internet
channel.
 --What do you think is the best decision?
18
Channel Composition: Types of
Wholesaling Intermediaries
• Wholesaling intermediaries: firms that
handle the flow of products from the
manufacturer to the retailer/business user
19
Independent Intermediaries
• Merchant wholesalers: buy goods from
manufacturers and sell to retailers and
other B2B customers
 Full-service merchant wholesalers
 Limited-service merchant wholesalers
 Cash-and-carry wholesalers
Truck jobbers
Drop shippers
Rack jobbers
Mail-order wholesalers
20
Independent Intermediaries (cont’d)
• Merchandise Agents/Brokers: provide services in
exchange for commissions




Manufacturers’ agents/reps
Selling agents
Commission merchants
Merchandise brokers
• Manufacturer-Owned Intermediaries
 Sales branches
 Sales offices
 Manufacturers’ showrooms
21
Discussion
• You’ve probably heard someone say, “The
reason products cost so much is all the
intermediaries.”
 --Do intermediaries increase the cost of products?
 --Would consumers be better off or worse off without
intermediaries?
22
Types of Distribution Channels
• Consumer Channels
Direct channel: producer sells directly to customers
Indirect channel: producer uses one or more
intermediaries to reach consumers
SALAMI.COM
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.
• Step 2: Evaluate internal and external
environmental influences to develop best
channel structure.
 Firm’s ability to handle distribution functions
 Channel intermediaries available
 How the competition distributes its products
26
Planning a Channel Strategy (cont’d)
• Step 3: Choose a distribution strategy
 Channel relationships: conventional, vertical, or
horizontal system
 Conventional marketing system: members work
independently of one another
27
Planning a Channel Strategy (cont’d)
• Step 3: Choose a distribution strategy
 Vertical marketing system (VMS): formal cooperation
among channel members
•
•
•
•
•
Administered VMS
Corporate VMS
Contractual VMS
Retailer cooperative
Franchise organizations
IGAINC.COM
28
Discussion
• Many entrepreneurs choose to start a
franchise business rather than “go it
alone.”
 --Do you think franchises offer the typical
businessperson good opportunities?
 --What are some positive and negative aspects of
purchasing a franchise?
29
Planning a Channel Strategy (cont’d)
• Step 3: Choose a distribution strategy
 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
 Distribution intensity
 Intensive distribution: selling through all suitable
wholesalers or retailers
 Exclusive distribution: selling only through a single
outlet in a region
 Selective distribution: using
 fewer outlets than intensive
 but more than
 exclusive distribution
31
Planning a Channel Strategy (cont’d)
• Step 4: Develop distribution tactics
 Selecting channel partners: normally a long-term
commitment
 Managing the channel
• Channel leader/captain: dominant firm that controls the
channel (via economic, legitimate, reward/coercive power)
32
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?
33
Distribution Channels and the
Marketing Mix
• Place decisions affect:
 Pricing
 Product and its positioning
ENTERPRISE
RENT-A-CAR
34
Logistics: Implementing
the Supply Chain
• Logistics: the process of designing,
managing, and improving the movement of
products through the supply chain
 Purchasing
 Manufacturing
 Storage
 Transport
35
Logistics: Implementing
the Supply Chain (cont’d)
• Physical distribution: the activities used to
move finished goods from manufacturers
to final customers
36
Logistics Functions
• Order processing
• Warehousing
• Materials handling
37
Logistics Functions (cont’d)
• Transportation: mode by which products
move among channel members
• 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: carry heavy,
bulky items over long
distances
• Water: carry large, bulky
goods (especially
internationally)
• Trucks: carry consumer
goods in short haul; allow
flexibility in locations
39
Modes of Transportation (cont’d)
• Air: carry high value-items; fastest and
most expensive mode
• Pipelines: carry petroleum/chemical
products
• Internet: distribute
services such as banking,
news, and entertainment
40
Logistics Functions (cont’d)
• Inventory control: activities to ensure foods
are always available to meet customers’
demands
 Radio frequency identification (RFID)
 Just in time (JIT)
41
Real People, Real Choices
• Darden Restaurants (Jim Lawrence)
• Jim chose option 3: work with traditional
systems distributors under a new
operating model.
 Restaurants experienced greater manager
satisfaction and significant savings from collaborative
efforts of all supply chain partners
DARDEN.COM
42
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?
43
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?
44
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?
45