Enhancing Supply Chain Efficiency for Profitable Distribution Channels

1. Delivering Value Through Supply Chain Management: Channels of Distribution and Logistics

2. Chapter Objectives • value chain • key elements in a supply chain • distribution channel • functions of distribution channels • wholesaling intermediaries • found in distribution channels

3. Chapter Objectives • types of distribution channels • steps for distribution channel strategies • how supply chain uses logistics

4. LIDROCK.COM Place: The Final Frontier • Value chain: a series of activities directed at designing, producing, marketing, delivering, and supporting any product. • Supply chain: Activities necessary to turn raw materials into a good or service and put it in the hands of the consumer:

5. Figure 15.2: The Generic Value Chain

6. UPS.COM Links in the Supply Chain • Supply chain management: • the management of flows • among the firms • in a supply chain • to maximize total profitability

7. UPS.COM Links in the Supply Chain • Supply chain management: • physical movement of goods • sharing of information about goods • In-sourcing: • contracting with a specialist • that services the company’s supply chains

8. Supply Chain vs. Channel of Distribution • Channel of distribution: • facilitates movement of a product • from producer to final customer • Supply chain: • begins with raw materials

9. Figure 15.3: Supply Chain

10. The Importance of Distribution • You Can’t Sell What Isn’t There

11. The Importance of Distribution:You Can’t Sell What Isn’t There! • Direct channel: • a producer to a customer • Indirect channel: • one or more intermediaries

12. The Importance of Distribution:You Can’t Sell What Isn’t There! • intermediaries • wholesalers, agents, • brokers, retailers • they help move • product to consumer • or business user

13. Functions of Distribution Channels • To ease the flow of goods • from producer to customer • To provide time, place, and ownershiputility • logistics or physical distribution functions

14. Functions of Distribution Channels • create efficiencies • by reducing 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

15. Figure 15.4: Reducing Transactions via Intermediaries

16. Functions of Distribution Channels • To make purchase process easier • To manage risk • To perform communication and transaction functions

17. DELL The Internet in the Distribution Channel • Radical changes in distribution strategies • Disintermediation: • eliminating traditional intermediaries • Knowledge management: • sharing knowledge • with other supply chain members

18. Channel Composition: Types of WholesalingIntermediaries • Wholesaling intermediaries: • firms that handle the flow of products • from the manufacturer • to the retailer/business user

19. Independent Intermediaries • Merchant wholesalers: • buy goods • from manufacturers • sell to retailers • and other B2B customers

20. Independent Intermediaries • Merchant wholesalers: • Full-service merchant wholesalers • Limited-service merchant wholesalers • Cash-and-carry wholesalers • Truck jobbers • Drop shippers • Rack jobbers • Mail-order wholesalers

21. Independent Intermediaries • Merchandise Agents/Brokers: • provide services in exchange for commissions • Manufacturers’ agents/reps • Selling agents • Commission merchants • Merchandise brokers

22. Independent Intermediaries • Manufacturer-Owned Intermediaries • Sales branches • Sales offices • Manufacturers’ showrooms

23. Types of Distribution Channels • Consumer Channels • Direct channel: • producer sells directly to customers • Indirect channel: • producer uses one or more intermediaries • to reach consumers

24. MERCK.COM Types of Distribution Channels (cont’d) • Business-to-business channels • Dual distribution systems • Hybrid marketing systems

25. Figure 15.6: Steps in Distribution Planning

26. Planning a Channel Strategy • Step 1: • Develop distribution objectives • that support the firm’s • overall marketing goals.

27. Planning a Channel Strategy • Step 2: • Evaluate internal and external environmental influences • to develop best channel structure. • ability to handle distribution functions • Channel intermediaries available • How competition distributes products

28. Planning a Channel Strategy (cont’d) • Step 3: Choose a distribution strategy • Channel relationships: • conventional, vertical, or horizontal system • Conventional marketing system: • members work independently of one another

29. IGAINC.COM Planning a Channel Strategy (cont’d) • Step 3: Choose a distribution strategy • Vertical marketing system (VMS): • formal cooperation among channel members • Administered VMS • Corporate VMS • Contractual VMS • Retailer cooperative • Franchise organizations

30. Planning a Channel Strategy (cont’d) • Step 3: Choose a distribution strategy • Horizontal marketing system: • two or more firms • at the same channel level • agree to work together • to get their product to the customer

31. Planning a Channel Strategy (cont’d) • Step 3: Choose a distribution strategy • Distribution intensity • Exclusive distribution: • selling only through a single outlet in a region • Selective distribution: • using fewer outlets than intensive • but more than exclusive distribution • Intensive distribution: • selling through all suitable wholesalers or retailers

32. Planning a Channel Strategy (cont’d) • Step 4: 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/coercive power)

33. ENTERPRISE RENT-A-CAR Distribution Channels and the Marketing Mix • Place decisions affect: • Pricing • Product and its positioning

34. Logistics: Implementingthe Supply Chain • Logistics: • the process of designing, managing, and improving the movement of products through the supply chain • Purchasing • Manufacturing • Storage • Transport

35. Logistics: Implementingthe Supply Chain (cont’d) • Physical distribution: • the activities used to move finished goods • from manufacturers • to final customers

36. Logistics Functions • Order processing • Warehousing • Materials handling

37. Logistics Functions (cont’d) • Transportation: • mode by which • products move • among channel members

38. Logistics Functions • 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)

39. Modes of Transportation • Railroads: • carry heavy, bulky items over long distances • Water: • carry large, bulky goods • (especially internationally) • Trucks: • carry consumer goods in short haul; • allow flexibility in locations

40. Modes of Transportation (cont’d) • Air: • carry high value-items; • fastest and most expensive mode • Pipelines: • carry petroleum/chemical products • Internet: • distribute services • such as banking, news, and entertainment

41. Logistics Functions (cont’d) • Inventory control: • activities to ensure foods are always available to meet customers’ demands • Radio frequency identification (RFID) • Just in time (JIT)

42. THE END

43. Real People, Real Choices • Darden Restaurants (Jim Lawrence) • Volatility in the foodservice supply chain • Darden needed to protect its foodservice supply Option 1: develop a food distribution network owned and operated by Darden to support all its restaurants. Option 2: work with third party logistics (3PL) providers. Option 3: work with traditional systems distributors under a new operating model.

44. DARDEN.COM Real People, Real Choices • Darden Restaurants (Jim Lawrence) • Jim chose option 3: work with traditional systems distributors under a new operating model. • Restaurants experienced greater manager satisfaction and significant savings from collaborative efforts of all supply chain partners

45. Marketing Plan Exercise • Dell Computer has used one simple supply chain system—direct sales over the Internet or by phone to both business and consumer users. • --If you were a marketing executive at Dell, what new supply chain options would you suggest?

46. Marketing in Action Case:You Make the Call • What is the decision facing Procter and Gamble? • What factors are important in understanding this decision situation? • What are the alternatives? • What decision(s) do you recommend? • What are some ways to implement your recommendation?

47. Keeping It Real: Fast-Forward to Next Class, Decision Time at Eskimo Joe’s • Meet Stan Clark, entrepreneur. • New law increased drinking age to 21, threatening the future of a college-town beer bar. • The decision: how to survive the new law?

48. Group Activity • Your group of marketers has been hired by a furniture manufacturer. • You feel marketing should have input into supplier selection, but the purchasing department disagrees. • --Explain the importance of the value chain perspective.

49. Discussion • The supply chain concept looks at both inputs and ways to move the product from manufacturer to consumer. • --Should marketers concern themselves with the total supply chain concept? Why or why not?

50. Discussion • Some say music, video, or textbook downloading, even if unauthorized, merely creates a more efficient supply chain by “cutting out the middleman.” • --Do you agree? • --Why or why not?