Distribution and Supply Chain Management

1. Distribution and Supply Chain Management Chapter 10 Instructor Shan A. Garib, Fall 2012

2. 12.1 Marketing Channels • Pipeline through which products, their ownership, communication, financing and payment, risk flow to the consumer • Marketing Channels: business structure of organizations from the product origin to consumer • Move products to consumer

3. Marketing Channels • Move products to consumer... • Uses the “supply chain” to get right product to right place and at right time • Who does this?? • Channel Members: all the businesses who buy and sell the product before it reaches the consumer

4. Supply Chain • a sequence of firms that create or deliver a good or service to consumers Warehouse Supplier of raw materials Manufacturer Retailer

5. Marketing Channels...provide • Specialization and Division of Labour to provide lower production costs -important, because it allows: 1. firms to create large quantities of product cheaply and sell for a high profit 2. channel members who specialize in a given process like retailers to sell the product

6. Marketing Channels...used to • Overcome Discrepancies (differences) between what the consumer wants and what producer makes: • Quantity made: if produced 100 million cars for Canada firms will store cars in warehouses until sold • Which product is made: bring together all pieces needed to use final product eg. steel, rubber, glass, for a car. • Time made and used: warehouseing product until needed. Eg. I want car next year

7. Marketing Channels...provide • Contact Efficiency: • Reduce the number of stores shoppers need to get the product eg. Want to buy car...don’t need to go to steel factory, glass shop or rubber store

8. 12.2 Channel Intermediaries and Their Functions What do they do?? A) negotiate; B) change of ownership; C) move products Intermediaries separated into two categories: • Title takers eg. Retailers, wharehousers • Non title takers eg. manufacturers

9. Supply Chain • Intermediaries Warehouse Supplier of raw materials Manufacturer Retailer

10. Channel Intermediaries What type of intermediary should the producer (manufacturer) use?? Determined by: Product Characteristics: eg. customized product like insurance sold by insurance broker -Retail Buyer Considerations: eg. how often is product like a house bought? - Manufacturer Market Characteristics: eg. real estate is bought and sold through agents where people are local

11. Channel Intermediary Functions • Transactional: Promoting products - contacting potential customers Negotiating - how many products to buy and sell Risk taking - by owing inventory that might not sell 2. Logisitcal: Distributing – transporting and sorting products Storing – to protect products Sorting – make sure the correct products are sold 3. Facilitaing: Researching – competitive intel (cointelpro) Financing – offer credit to help consumers buy

12. Supply Chain Example: the automotive industry • In a supply chain, each company is a customer and supplier until product reaches consumer • To make a car, thousands of firms are involved.

13. 12.3 Channel Structures Channels for Consumer Products: from producer to consumer • Direct eg. Telemarketer -no intermediaries • Retailer eg. Walmart buys large quatities of shoes from producer and sells to consumer • Wholesaler eg. candy is bought by wholesalers from producer and sold to retailers who then sell to consumer – cheap small items • Agent/Broker eg. Ontario Food Terminal buys fruit from farms and sells to grocery Stores

14. Channel Structures Channels for Consumer Products: from producer to consumer • Direct eg. Telemarketer -no intermediaries • Retailer eg. Walmart buys large quatities of shoes from producer and sells to consumer • Wholesaler eg. candy is bought by wholesalers from producer and sold to retailers who then sell to consumer – cheap small items • Agent/Broker eg. Ontario Food Terminal buys fruit from farms and sells to grocery Stores

15. Wal-MartEmphasizes efficiency in supply chain • Many goods at lowest prices • Efficient supply chain • Low inventory levels • Cross-docking • Unload products from suppliers, sort for stores, reload trucks • Warehousing for at most one day • Small number of distribution centers • Information technology • Send customer demand information to suppliers

16. Channel Structures Channels for Business and Industrial Products: from producer to consumer • Direct is typical where mftr buys from other mftr eg. Chrysler buying steel -no intermediaries, specific parts • Industrial Distributor acts like supermarket for low value, standardized parts • Agent/Broker eg. Chrysler buys steel from Stelco through an agent or distributor • Internet eliminates use of distributor

17. Alternative Channel Structures Diversify... Multiple Channels: producer selcts two or more channels to distribute product eg. On-line, and in store Nontraditional Channels: include internet, mail-order, TV Strategic Alliances: use another producers distribution channel eg. Starbucks uses Pepsi for Coffee

18. 12.4 Supply Chain Management • Organization and cooperation of many firms to make and deliver goods and services to customers Supplier of raw materials Manufacturer Warehouse Retailer These are all different companies that must work together

19. Supply Chain Management Supply Chain Management Philosophy: Seeing the entire sujpply chain, managers can maximize strengths and efficiencies at each level to create a competitive, consumer driven system that can respond imediately to changes in supply and demand Supply “Push”: producers make product and push it into the supply chain to be consumed Demand “Pull”: consumers demand pull only the products they want from the supply chain

20. Dell Computer Emphasizes responsiveness in supply chain • Targets customers who want computers customized to their needs • Customers are willing to wait a few days • Reasonable, but not lowest price • Responsive supply chain • Expensive express transportation • From suppliers and to customers • Product variety • Manufacturing efficiency due to similar base components • Many manufacturing facilities

21. Supply Chain Management Benefits... Differentiation through lower costs in inventory, transportation, warehousing and packaging, better customer service

22. 12.5 Making Channel Strategy Decisions What choice of channel and what level of distribution? Factors Affecting Channel choice: • Market – target consumer -who are they? -what, where, when, & how do they buy? -Industrial buys larger quantities and need more customer service -Geographic concentration leads to direct selling oppostie uses intermediaries -Larger size market leads to more intermediaries

23. Making Channel Strategy Decisions What choice of channel and what level of distribution? Factors Affecting Channel choice: 2. Product – if complex, customized and expensive then direct channels are needed Eg. Pharmaceuticals -if standardized, intermediaries are needed Eg. gum

24. Making Channel Strategy Decisions What choice of channel and what level of distribution? Factors Affecting Channel choice: 2. Product – lifecycle changes the marketing channel eg. iPods are sold in vending machines -delecacy of product eg. Banannas need short more direct channels

25. Making Channel Strategy Decisions What choice of channel and what level of distribution? Factors Affecting Channel choice: 3. Producer – if have large financial, managerial and marketing resources use more direct marketing -hire own staff, warehouse, extend credit -if producers want to control pricing, brang image then use high-end retailers

26. Making Channel Strategy Decisions What choice of channel and what level of distribution? Factors Affecting Level of Distribution: • Intensive – maximum coverage -buyers unwilling to search for product -producers usually sell to wholesalers -products are standard and low price • Selective – screening dealers, two or more -consumer seek product -producer want superior image and premium price

27. Making Channel Strategy Decisions What choice of channel and what level of distribution? Factors Affecting Level of Distribution: 3. Exclusive – restrictive coverage, one or two dealers -buyers willing to search for product -consumer specialty goods -products are customized and high price eg. iphone

28. 12.6 Making Channel Relationships How to build an efficient channel? Through Unity. Factors Affecting Channel Relationships: • Power – ability to control the behaviour of other channel members • Control – one channel member affects another channel member - through leadership in design or technology eg. iPhone

29. Making Channel Relationships How to build an efficient channel? Through Unity. Factors Affecting Channel Relationships: 3. Conflict – clash of goals and method of distribution -usually old ways of thinking refuse to change with times eg. Ebay forced out many intermediaries -horizontal conflict: at same level in channel eg. Bigger discount for one retailer

30. Making Channel Relationships How to build an efficient channel? Through Unity. Factors Affecting Channel Relationships: 3. Conflict –Vertical conflict: at different level in channel eg. Alternative channels vs. Traditional

31. Making Channel Relationships How to build an efficient channel? Through Unity. Factors Affecting Channel Relationships: 4. Partnering – joint effort of channel members to create a supply chain that serves customers and creates a competitive advantage -create a parallel flow of material and information for lower costs and greater profits