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Deliver Value Through Supply Chain Management, Channels of Distribution, and Logistics Chapter Fifteen © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Chapter Objectives Understand the key elements in the supply chain Explain what a distribution channel is and know what functions channels perform Discuss the types of wholesaling intermediaries found in distribution channels Describe the types of distribution channels and how place fits in with the other three Ps in the marketing mix List the steps to plan a distribution channel strategy Explain logistics and how it fits into the supply chain concept © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-2 Real People, Real Choices: Decision Time at Darden Restaurants Which strategy should Heather pursue? • Option 1: Don’t make any changes • Option 2: Make use of Walmart’s distribution centers and fleet of trucks to reship milk to Sam’s locations, and realize economies of scales as deliveries to stores would be made 24/7 • Option 3: Change Sam’s Club product and pallet configuration to embrace the new case-less design © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-3 Place: The Final Frontier Supply chain All of the activities necessary to turn raw materials into a good or service and put it in the hands of the consumer • Outsourcing is common © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-4 Supply Chain Management Supply chain management: The management of flows among firms in a supply chain to maximize total profitability • Includes physical movement of and sharing of information about goods • Insourcing: Firms contract with a specialist that handles all or part of the company’s supply chains © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-5 Supply Chain Management Channel of distribution The series of firms or individuals that facilitates the movement of a product from producer to final customer Supply chain links: • The supplier network provides raw materials and parts to the manufacturer • Firm manufactures a product • Products are sent to distribution channel for resale to buyers © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-6 Distribution Channels: Get It There Distribution channels may be direct or indirect Channel intermediaries Firms or individuals such as wholesalers, agents, brokers, and retailers that help move the product from the producer to the consumer or business user © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-7 Functions of Distribution Channels Distribution channels: • Provide time, place, and ownership utility • Provide logistics and/or physical distribution functions • Create efficiencies by reducing the number of transactions Breaking bulk Creating assortments © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-8 Functions of Distribution Channels Distribution channels: • Transport and store goods • Perform facilitating functions to make purchase process easier • Provide setup, repair, and maintenance services for products carried • Provide communication and transaction functions © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-9 The Internet in the Distribution Channel E-commerce has created radical changes in distribution strategies • Disintermediation: Eliminating traditional intermediaries Reduces manufacturer costs • Knowledge management: Sharing knowledge with other supply chain members • Online distribution piracy can be problematic © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-10 Wholesaling Intermediaries Wholesaling intermediaries: Firms that handle the flow of products from the manufacturer to the retailer/business user • Independent intermediaries Merchant wholesalers Merchandise agents and brokers • Manufacturer owned intermediaries © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-11 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 Mail-order wholesalers Rack jobbers © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-12 Merchandise Agents or Brokers Merchandise agents/brokers: • Provide services in exchange for commissions but never take title to the product: Manufacturers’ agents or reps Selling agents Commission merchants Merchandise brokers © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-13 Manufacturer-Owned Intermediaries Sales branches: • Carry inventory, provide sales, and service support Sales offices: • Similar to agents; do not carry inventory but provide selling functions Manufacturers’ showrooms: • Permanent product displays for customers to visit © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-14 Types of Distribution Channels Marketers first consider the number of channel levels when designing a distribution system Various channel structures exist: • Consumer channels • Business-to-business channels • Dual distribution systems • Hybrid marketing systems © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-15 Distribution, the Marketing Mix and Ethical Issues Distribution decisions interact with the marketing mix in a number of ways: • Place decisions influence pricing • Distribution decisions can help develop a • position in the market Nature of the product influences choice of distribution channels, especially retailers Distribution decisions can create ethical dilemmas: • Slotting allowances • Size of channel intermediaries © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-16 Plan 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 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-17 Plan a Channel Strategy Step 3: Choose a distribution strategy : • Channel relationships: Conventional, vertical, or horizontal system • Conventional marketing system: Members work independently of one another © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-18 Vertical and Horizontal Marketing Systems Vertical marketing system (VMS): • Formal cooperation among channel members Administered VMS Corporate VMS Contractual VMS Retailer cooperative Franchise organizations Horizontal marketing system: • Two or more firms at the same channel level agree to work together to get their product to the customer © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-19 Plan a Channel Strategy 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 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-20 Plan a Channel Strategy 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 or coercive power) © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-21 Logistics: Implement the Supply Chain Logistics: The process of designing, managing, and improving the movement of products through the supply chain Inbound and outbound logistics are important Reverse logistics is increasingly important © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-22 The Lowdown on Logistics Physical distribution: • The activities that move finished goods from manufacturers to final customers Logistic functions include: • Order processing • Warehousing • Materials handling • Transportation • Inventory control © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-23 Transportation Transportation modes differ in their: • Dependability • Cost • Speed of delivery • Accessibility • Capability • Traceability © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-24 Transportation Modes of transportation and usage include the following: • Railroads: heavy, bulky items over long distances • Water: large, bulky goods (especially internationally) • Trucks: consumer goods in short haul; allow flexibility in locations • Air: high value-items; fastest and most expensive mode • Pipelines: petroleum/chemical products • Internet: services such as banking, news, and entertainment © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-25 Inventory Control: JIT, RFID, and Fast Fashion Inventory control Activities to ensure goods are always available to meet customers’ demands and include: • Radio frequency identification (RFID): Product tags with tiny chips containing information about the item’s content, origin, and destination • Just in time (JIT): Deliveries arrive only when needed, keeping inventory levels low © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-26 Supply Chain Metrics Common supply chain metrics include: • On-time delivery • Forecast accuracy • Value-added productivity per employee • Returns processed as a percentage of product revenue • Customer order actual cycle time • Perfect order measurement © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-27 Real People, Real Choices Heather chose option 3 • Why do you think that Heather chose to launch the caseless program? © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-28 Keeping It Real: Fast-Forward to Next Class Decision Time at Eskimo Joe’s Meet Stan Clark, the entrepreneur who developed Eskimo Joe’s Eskimo Joe’s is a popular bar near Oklahoma State University The decision to be made: How best to respond to an increase in the legal drinking age, and the newly passed “liquor by drink” law © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-29 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America © 2012 Pearson Education, Inc. publishing as Prentice-Hall. 15-30