Download Chapter 15 Deliver Value Through Supply Chain Management, Channels of Distribution, and Logistics

Chapter 15
Deliver Value Through Supply
Chain Management, Channels of
Distribution, and Logistics
Chapter Objectives
 Understand the value chain concept and the key
elements in the supply chain
 Explain what a distribution channel is and know
what functions channels perform
 Describe the types of wholesaling intermediaries
found in distribution channels
 Describe the types of distribution channels and
the role of place in the marketing mix
 Understand the steps in planning a distribution
channel strategy
 Explain logistics and how it fits into
the supply chain concept
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Real People, Real Choices:
Decision Time at Darden Restaurants
 Which strategy should Jim pursue?
– Option 1: Internalize the food delivery
function by developing a distribution network
owned and operated by Darden
– Option 2: Work with third-party logistics
providers to create a distribution network
– Option 3: Work with traditional system
distributors under a new operating model
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Place: The Final Frontier
 Value chain:
– A series of activities directed at designing,
producing, marketing, delivering, and
supporting any product
 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
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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:
Firms contract with a specialist that handles
all or part of the company’s
supply chains
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Links in the Supply Chain
 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
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The Importance of Distribution:
You Can’t Sell What Isn’t There!
 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
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Functions of Distribution Channels
 Channels:
– Provide time, place, and ownership utility
– Provide logistics and/or physical distribution
functions
– Create efficiencies by reducing the 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
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Functions of Distribution Channels
 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
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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
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Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall
Channel Composition:
Types of 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
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Independent Intermediaries
 Merchant wholesalers:
– Buy goods from manufacturers and sell to
retailers and other B2B customers
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Full-service merchant wholesalers
Limited-service merchant wholesalers
Cash-and-carry wholesalers
Truck jobbers
Drop shippers
Rack jobbers
Mail-order wholesalers
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Independent Intermediaries
 Merchandise agents/brokers:
– Provide services in exchange for
commissions
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Manufacturers’ agents/reps
Selling agents
Commission merchants
Merchandise brokers
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall
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
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Types of Distribution Channels
 Marketers must 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
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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
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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
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Planning 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
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Vertical and Horizontal
Marketing Systems
 Vertical marketing system (VMS):
– Formal cooperation among channel members
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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
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Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall
Planning 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
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Planning a Channel Strategy
 Step 4: Develop distribution tactics
– Selecting channel partners (normally a longterm commitment)
– Managing the channel
• Channel leader/captain:
Dominant firm that controls the channel
(via economic, legitimate, reward/coercive
power)
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Logistics:
Implementing the Supply Chain
 Logistics:
The process of designing, managing,
and improving the movement of
products through the supply chain
 Logistics includes:
– Purchasing
– Manufacturing
– Storage
– Transporting
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Logistics:
Implementing the Supply Chain
 Logistics:
– Involves physical distribution (the activities
used to move finished goods from
manufacturers to final customers)
 Logistic functions include:
– Order processing
– Warehousing
– Materials handling
– Transportation
– Inventory control
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Logistics:
Implementing the Supply Chain
 Transportation 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)
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Logistics:
Implementing the Supply Chain
 Modes of transportation and usage
– 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
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Logistics:
Implementing the Supply Chain
 Inventory control:
– Activities to ensure goods are always
available to meet customers’ demands
• 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
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Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall
Real People, Real Choices
 Jim chose option 3
– Implementation: The new Darden Direct
Distribution system protected the supply chain
while developing competitive advantages for
supply chain partners by means of a new third
party model. Restaurants experienced greater
manager satisfaction and significant savings
– Measuring Success: Standard service metrics
were used, including on-time delivery
percentage, case fill, and satisfaction scores
15-27
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall
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
15-28
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall
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