Value Chain Management: Channels of Distribution, Logistics, and Wholesaling

1. Value Chain Management: Channels of Distribution, Logistics, and Wholesaling

2. What is a Distribution Channel? • Series of firms or individuals that facilitates the movement of a product from the producer to the final customer • Direct • Indirect © 2003 Prentice Hall, Inc

3. Functions of Distribution Channels • Time, place, and ownership utilities • Logistics functions • Transportation and storage functions • Efficiency creation • Facilitating functions • Repair and maintenance functions • Risk-taking • Communications and transaction functions © 2003 Prentice Hall, Inc

4. Creating Efficiencies • Breaking bulk - channel members purchase large quantities from manufacturers and sell smaller quantities to many different customers • Creating assortments - channel members provide a variety of products on one location © 2003 Prentice Hall, Inc

5. Figure 17.1: Reducing Transactions via Intermediaries © 2003 Prentice Hall, Inc

6. The Internet • Even small firms with limited resources can enjoy competitive advantages by making products available to customers around the globe at a very low cost • Disintermediation - process by which traditional intermediaries are eliminated as companies question the value added by layers in the distribution channel © 2003 Prentice Hall, Inc

7. Types of Wholesaling Intermediaries • Wholesaling intermediaries are firms that handle the flow of products from the manufacturer to retailer or business user • Independent • Manufacturer-owned © 2003 Prentice Hall, Inc

8. Merchant wholesalers Full-service Limited-service Cash-and-carry wholesalers Truck jobbers Drop shippers Mail-order wholesalers Rack jobbers Merchandise Agents or Brokers Manufacturers’ agents Selling agents Commission merchants Merchandise brokers Independent Intermediaries © 2003 Prentice Hall, Inc

9. Manufacturer-Owned Intermediaries • Sales branches • Sales offices • Manufacturers’ showrooms © 2003 Prentice Hall, Inc

10. Figure 17.2: Types of Distribution Channels © 2003 Prentice Hall, Inc

11. Types of Distribution Channels • Consumer channels • Direct • Manufacturer-retailer-consumer • Manufacturer-wholesaler-retailer-consumer • Business-to-business channels • Direct • Manufacturer-industrial distributor-business customer © 2003 Prentice Hall, Inc

12. Consumer Channels © 2003 Prentice Hall, Inc

13. B2B Channels © 2003 Prentice Hall, Inc

14. Dual Distribution Systems • Multiple channel usage • Example: • pharmaceutical industry sells to hospitals, clinics, and organizational customers directly and to consumers indirectly through drug retailers © 2003 Prentice Hall, Inc

15. Figure 17.3: Steps in Distribution Planning © 2003 Prentice Hall, Inc

16. Marketing Systems • Conventional - multi-level distribution channel in which members work independently of one another • Vertical - channel in which there is cooperation among channel members at two or more different levels of the channel • Horizontal - two or more firms at the same channel level agree to work together © 2003 Prentice Hall, Inc

17. Vertical Marketing Systems • Administered - channel members remain independent but voluntarily work together • Corporate - single firm owns manufacturing, wholesaling, and retailing operations • Contractual - cooperation is enforced by contracts that spell out member rights and the terms of cooperation © 2003 Prentice Hall, Inc

18. Contractual Vertical Marketing Systems • Wholesaler-sponsored - wholesalers get retailers to work together under their leadership in a voluntary chain • Retailer-cooperative - group of retailers with a wholesaling operation to help them compete more effectively with large chains • Franchise organizations - cooperation is explicitly defined and strictly enforced by franchiser © 2003 Prentice Hall, Inc

19. Distribution Intensity Decision Factors: Company, Customers, Channels, Constraints, and Competition Intensive, Exclusive, or Selective Distribution © 2003 Prentice Hall, Inc

20. Developing Distribution Tactics • Selecting channel partners • Managing the channel of distribution • Channel leader is the dominant firm that controls the channel • Channel leaders have some form of power relative to other members • economic power • legitimate power • reward or coercive power © 2003 Prentice Hall, Inc

21. Logistics: Implementing the Value Chain • Process of designing, managing, and improving the movement of products through the supply chain • purchasing • manufacturing • storage • transport © 2003 Prentice Hall, Inc

22. Supply Chain Management • The supply chain includes all the firms that engage in activities that are necessary to convert raw materials into a good or service and put it in the hands of the consumer or business customer • Supply chain management is the management of flows among the firms in a supply chain to maximize total profitability © 2003 Prentice Hall, Inc

23. Figure 17.4: Supply Chain © 2003 Prentice Hall, Inc

24. Logistics and Customer Satisfaction • Traditionally, logistics was thought of as physical distribution • order processing, warehousing, materials handling, transportation, and inventory control • objective to deliver product at lowest cost • Now, customers’ goals become the logistics provider’s goals © 2003 Prentice Hall, Inc

25. Logistics Functions • Order processing • Warehousing • Materials handling • Transportation • Inventory Control © 2003 Prentice Hall, Inc

26. Transportation Mode Considerations • Dependability • Cost • Speed of Delivery • Accessibility • Capability • Traceability © 2003 Prentice Hall, Inc

27. Modes of Transportation • Rail • Water • Truck • Air • Pipeline • Internet © 2003 Prentice Hall, Inc