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Chapter 5
Managing The Supply Chain
Retailing, 6th Edition. Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved.
Learning Objectives
1. Discuss the retailer’s role as one of the
institutions involved in the supply chain.
2. Describe the types of supply chains by
length, width, and control.
3. Explain the terms dependency, power, and
conflict and their impact on supply chain
relations.
4. Understand the importance of a collaborative
supply chain relationship.
The Supply Chain
 Supply Chains:
Is a set of institutions that moves goods from
the point of production to the point of
consumption.
LO 1
The Supply Chain
 Channel:
Used interchangeably with supply chain.
LO 1
The Supply Chain
 The supply chain, or channel, is affected by
five external forces:
 Consumer behavior
 Competitor behavior
 Socioeconomic environment
 Technological environment
 Legal and ethical environment
LO 1
The Supply Chain
A supply chain or channel must perform eight
marketing functions:
 Buying
 Selling
 Storing
 Transporting
 Sorting
 Financing
 Information Gathering
 Risk Taking
LO 1
The Supply Chain
 A marketing function does not have to be
shifted in its entirety to another institution or to
the consumer but can be divided among
several entities.
LO 1
The Supply Chain
 Primary Marketing Institutions:
Are those channel members that take title to
the goods as they move through the marketing
channel. They include manufacturers,
wholesalers, and retailers.
LO 1
Primary Marketing Institutions
 Costco is a primary
marketing institution that
acts as both a
wholesaler (selling to
small businesses) and a
retailer (selling to
households).
LO 1
The Supply Chain
 Facilitating Marketing Institutions:
Are those that do not actually take title but
assist in the marketing process by specializing
in the performance of certain marketing
functions.
LO 1
Institutions Participating in the Supply
Chain
Exhibit 5.1
LO 1
Facilitating Institutions
 Agents
 Brokers
 Communications
agencies
 Advertising
agencies
 Transporters
 Public warehouse
 Technology
specialists
 Financing
institutions
LO 1
The Supply Chain
 Public Warehouse:
Is a facility that stores goods for safekeeping
for any owner in return for a fee, usually based
on space occupied.
LO 1
Types of Supply Chains
 Supply Chain Length
 Supply Chain Width
 Control of the Supply Chain
LO 2
Supply Chain Length
 Direct Supply Chain:
Is the channel that results when a manufacturer
sells its goods directly to the final consumer or
end user.
LO 2
Supply Chain Length
 Indirect Supply Chain:
Is the channel that results once independent
channel members are added between the
manufacturer and the consumer.
LO 2
Strategic Decisions in Supply Chain
Design
Exhibit 5.2
LO 2
Direct and Indirect Supply Chains
Exhibit 5.3
LO 2
Width of Marketing Supply Chain
Exhibit 5.4
LO 2
Supply Chain Width
 Intensive Distribution:
Means that all possible retailers are used in a
trade area.
LO 2
Supply Chain Width
 Selective Distribution :
Means that a moderate number of retailers are
used in a trade area.
LO 2
Supply Chain Width
 Exclusive Distribution:
Means only one retailer is used to cover a
trading area.
LO 2
Marketing Channel Patterns
Exhibit 5.5
LO 2
Control of the Supply Chain
 Conventional Marketing Channel:
Is one in which each channel member is
loosely aligned with the others and takes a
short-term orientation.
LO 2
Control of the Supply Chain
 Vertical Marketing Channels:
Are capital-intensive networks of several levels
that are professionally managed and centrally
programmed to realize the technological,
managerial, and promotional economies of a
long-term relationship orientation.
LO 2
Vertical Marketing Channels
 Quick Response (QR) Systems:
Also known as Efficient Consumer Response
(ECR) Systems, are integrated information,
production, and logistical systems that obtain
real-time information on customer actions by
capturing sale data at point-of-purchase
terminals and then transmitting this information
back through the entire channel to enable
efficient production and distribution
scheduling.
LO 2
Vertical Marketing Channels
 Stock-Keeping Units:
Are the lowest level of identification of
merchandise.
LO 2
Vertical Marketing Channels
 Corporate Vertical Marketing Channels:
Exist where one channel institution owns
multiple levels of distribution and typically
consists of either a manufacturer that has
integrated vertically forward to reach the
consumer or retailer that has integrated
vertically backward to create a self-supply
network.
LO 2
Vertical Marketing Channels
 Contractual Vertical Marketing Channels:
Use a contract to govern the working
relationship between channel members and
include wholesaler-sponsored voluntary
groups, retailer-owned cooperatives, and
franchised retail programs.
LO 2
Vertical Marketing Channels
 Wholesaler-Sponsored Voluntary Groups:
Involve a wholesaler that brings together a
group of independently owned retailers and
offers them a coordinated merchandising and
buying program that will provide them with
economies like those their chain store rivals
are able to obtain.
LO 2
Wholesale Sponsored Voluntary Group
 Wholesale sponsored voluntary groups, such
as NAPA, have been a major force in
marketing channels since the mid-1960s.
LO 2
Vertical Marketing Channels
 Retailer-Owned Cooperatives:
Are wholesale institutions, organized and
owned by member retailers, that offer scale
economies and services to member retailers,
which allows them to compete with larger
chain buying organizations.
LO 2
Retailer-Owned Cooperatives
 Ace, a familiar
name in hardware
retailing, is an
example of a
retailer-owned
cooperative.
LO 2
Vertical Marketing Channels
 Franchise:
Is a form of licensing by which the owner of a
product, service, or business method (the
franchisor) obtains distribution through
affiliated dealers (franchisees).
LO 2
Advantages of Franchising
Exhibit 5.6
LO 2
Disadvantages of Franchising
Exhibit 5.6
LO 2
Franchisors
 An example of a
fast-food retailer as
a franchisor is
Domino’s Pizza.
LO 2
Vertical Marketing Channels
 Administered Vertical Marketing Channels:
Exist when one of the channel members takes
the initiative to lead the channel by applying
the principles of effective interorganizational
management.
LO 2
Managing Retailer-Supplier Relations
 Dependency
 Power
 Conflict
LO 3
Managing Retailer-Supplier Relations
 Dependency:
Every supply chain needs to perform eight
marketing functions by any combination of the
members. None can be isolated; each
depends on the others to do an effective job.
LO 3
Managing Retailer-Supplier Relations
 Power:
Is the ability of one channel member to
influence the decisions of the other channel
members.
LO 3
Types of Power
 Reward Power:
Is based on B’s perception that A has the
ability to provide rewards for B.
LO 3
Types of Power
 Expertise Power:
Is based on B’s perception that A has some
special knowledge.
LO 3
Types of Power
 Referent Power:
Is based on the identification of B with A.
LO 3
Types of Power
 Coercive Power:
Is based on B’s belief that A has the capability
to punish or harm B if B doesn’t do what a
wants.
LO 3
Types of Power
 Legitimate Power:
Is based on A’s right to influence B, or B’s
belief that B should accept A’s influence.
LO 3
Types of Power
 Informational Power:
Is based on A’s ability to provide B with factual
data.
LO 3
Managing Retailer-Supplier Relations
 Conflict:
Is inevitable because retailers and suppliers
are interdependent.
LO 3
Conflict
 Perceptual Incongruity:
Occurs when the retailer and supplier have
different perceptions of reality.
LO 3
Conflict
 Goal Incompatibility:
Occurs when achieving the goals of either the
supplier or the retailer would hamper the
performance of the other.
LO 3
Conflict
 Dual Distribution:
Occurs when a manufacturer sells to
independent retailers and also through its own
retail outlets.
LO 3
Conflict
 Domain Disagreements:
Occurs when there is disagreements about
which member of the marketing channel
should make decisions.
LO 3
Conflict
 Diverter:
Is an unauthorized member of a channel who
buys and sells excess merchandise to and
from authorized channel members.
LO 3
Conflict
 Gray Marketing:
Is when branded merchandise flows through
unauthorized channels.
LO 3
Conflict
 Free-riding:
Is when a consumer seeks product
information, usage instructions, and
sometimes even warranty work from a full
service store but then, armed with the brand’s
model number, purchases the product from a
limited service discounter or over the Internet.
LO 3
Conflict Process Role of Channel Interdependency
Interdependency
Dependency of
Retailer on Supplier
Supplier’s
Power
Sources
Dependency of
Supplier on Retailer
Power of
Retailer Over
Supplier
Power of
Supplier Over
Retailer
Conflict
Potential
Conflict
Potential
Conflict
Conflict
Conflict
Resolution
Retailer’s
Power
Sources
Collaboration in the Channel
 Facilitating Channel Collaboration
 Category Management
LO 4
Supply Chain Best Management
Practices
Exhibit 5.7
LO 4
Facilitating Channel Collaboration
 Mutual Trust:
Occurs when both the retailer and its supplier
have faith that each will be truthful and fair in
their dealings with the other.
LO 4
Facilitating Channel Collaboration
 Two-Way Communication:
Occurs when both retailer and supplier
communicate openly their ideas, concerns,
and plans.
LO 4
Facilitating Channel Collaboration
 Solidarity:
Exists when a high value is placed on the
relationship between a supplier and retailer.
LO 4
Category Management
 Category Management (CM):
Is the process of managing all the SKUs within
a product category and involves the
simultaneous management of price, shelf
space, merchandising strategy, promotional
efforts, and other elements of the retail mix
within the category based on the firm’s goals,
the changing environment, and consumer
behavior.
LO 4
Category Management
 Category Manager:
Is an employee designated by a retailer for
each category sold in their store. The
manager leverages detailed knowledge of the
consumer and trends, detailed point-of-sales
information, and specific analysis provided by
each supplier to tailor a store’s offerings to the
specific needs of each market. The manager
works with the suppliers to plan promotions
throughout the year.
LO 4
Additional Slides
The Marketing Functions
Buying
Selling
Storing
Transporting
Sorting
Financing
Information
Gathering
Risk
Taking
LO 1
Facilitating Marketing Institutions
Agents
Communications
Agencies
Brokers
Advertising
Agencies
Public
Warehouse
Transporters
Technology
Specialists
Financing
Institutions
LO 1
Managing Retailer-Supplier Relations
Dependency
Power
Conflict
LO 3
Facilitating Channel Collaboration
Mutual Trust
Two-Way
Communication
Solidarity
LO 4