SUPPLY CHAIN AND MARKETING CHANNELS

1. SUPPLY CHAIN AND MARKETING CHANNELS Professor Ed Fox Cox School of Business Southern Methodist University

2. What is a Channel of Distribution? • A set of interdependent organizations (intermediaries) involved in the process of making a product or service available for use or consumption by the consumer or business user • Channel decisions are among the most important decisions that management faces and directly affect every other marketing decision

3. Distribution Channels EXAMPLES Retailer Grower Manufacturer Broker/ Distributor Wholesaler Consumer Packaged Goods Dealer Commodity Supplier Component Manufacturer Automobile Manufacturer Automobiles

4. Why Are Intermediaries Used? • Greater efficiency in making goods available to target markets • Offer the firm more than it can achieve on it’s own because of the intermediaries’: • contacts • experience • specialization • scale of operation • Match supply and demand

5. Analyze Consumer Needs Supply ChainDESIGN ISSUES Set Channel Objectives & Constraints Identify Major Alternatives Convenience (Decentralization) Evaluate the Major Alternatives Variety Waiting Time Lot Size

6. Analyze Consumer Needs Set Channel Objectives & Constraints Supply ChainDESIGN ISSUES Identify Major Alternatives Evaluate the Major Alternatives Exclusive Distribution Selective Distribution Intensive Distribution

7. Supply Chain Simulation“BEER GAME”

8. Supply Chain ManagementQUICK RESPONSE & E.C.R.

9. Supply Chain ManagementWHAT IS QUICK RESPONSE? • Quick Response (QR) was pioneered by apparel retailers and manufacturers • Addressed high demand uncertainty and long lead times • Examples include retailers Dayton Hudson and Sears, and manufacturers Levi Strauss and Milliken & Co • As discount department stores adopted QR, non-fashion manufacturers increased focus n integrated supply chain management • Emphasis was on cost reduction • Examples include retailers Wal-Mart, Kmart and Target, and manufacturer Procter & Gamble

10. Supply Chain Management WHAT IS QUICK RESPONSE? • Quick Response (QR) encompasses a number of related initiatives and techniques to integrate the supply chain across functions within and between retailers and manufacturers • QR leverages the application of technology • The danger is that QR, poorly implemented, can simply shift costs from retailer to manufacturer

11. Supply Chain ManagementQUICK RESPONSE • Point-of Sale Data • Scanning or • Forecasting • EDI • Electronic Ordering • Electronic Funds Transfer Information Consumer Retailer Manufacturer • Cross Docking • Computer Controlled Material Handling • Flow Through Distribution • Barcoding • Vendor Managed Inventory • Just-in-Time Manufacturing Product • Quick Response effectiveness depends on: • Integration of manufacturer and retailer systems • Commitment • Capabilities of technology

12. Trends in Quick Response • Consolidation in discount and department stores has left strong, sophisticated national retailers that demand Quick Response (QR) from suppliers • For example, most Target and Kmart suppliers are on EDI, 2500+ Wal-Mart Retail Link users (1995) • Facilitated by standardization; e.g., Voluntary Interindustry Communcations Standards (VICS) and Uniform Product Codes (UPC) • Many variations on cross-docking • Streamline “picking” and other material handling • Manufacturing flexibility is lagging distribution initiatives

13. Supply Chain ManagementWHAT IS E.C.R.? • Efficient Consumer Response (ECR) is essentially Quick Response adapted for the U.S. packaged goods industry • Broader scope than QR • Promise of $30 billion savings from: • Efficient Store Assortment • Efficient Product Introduction • Efficient Promotion • Efficient Replenishment

14. Supply Chain ManagementE.C.R. • Category Management • EDI • Electronic Ordering • Electronic Funds Transfer • Point-of Sale Data • Scanning or • Forecasting Information • Just-in-Time Manufacturing Consumer Retailer Manufacturer • Continuous Replenishment Program (CRP) • Direct Store Delivery (DSD) • Supplier Managed Inventory • Store Order Pallets • Cross Docking • Computer Controlled Material Handling • Flow Through Distribution • Barcoading Product • ECR involves supply chain initiatives beyond Quick Response

15. Trends in E.C.R. • Retailers are hesitant to make investments • EDI is prevalent • Continuous Replenishment Programs (CRP) and Direct Store Delivery (DSD), initiatives that are manufacturer funded, are increasingly common • Few retailers are investing in warehouse systems, which represent large retailer investments • Scanning discipline and continuing mistrust have limited the exploitation of scanner data for ECR • Efficient assortment and efficient promotions have seen the most activity