Success Strategies in Channel Management. Logistics and Supply Chain Management. The Importance of Logistics in Channels. Inventory Management in Marketing Channels Inventory Holding Costs Reducing Inventory Pseudo Inventory Reduction Real Inventory Reduction Sec4-1.ppt.
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Logistics and Supply Chain Management
Inventory Management in Marketing Channels
Inventory Holding Costs
Pseudo Inventory Reduction
Real Inventory Reduction
Logistics and Supply Chain Management
Supply Chain Management
Efficient Consumer Response
Changes in Merchandising
Physical Efficiency versus Market Responsiveness
Critical Supply Chain Elements
Fulfilment and Transportation
Logistics is the management of the flow of physical materials. In the context of marketing channels, physical distribution and logistics have traditionally been used interchangeably, with the understanding that only finished goods are part of distribution and the proper concern of a marketing channel manager. This, and many other ideas about channel logistics, has changed radically since the 1980s.
Logistics has metamorphosed into the concept of Supply Chain Management (SCM), which in turn has come to implicate every element of the Value-Added Chain. Going backward, or upstream, this means channel logistics encompasses not only inventories of finished goods but also work in process (WIP) and raw materials. Indeed, SCM at its fullest goes back not only to the factory floor but also to the suppliers of the suppliers of the suppliers.Logistics and Supply Chain Management
Logistics involves - the processing and tracking of value offers during warehousing, inventory control, transport, customs documentation (a small issue or a non-issue inside trading zones), and delivery to customers.
Consumers are increasingly demanding and increasingly diverse in what they demand. It is difficult to have the right flavours, sizes, variety, packages - every consumer insists on some combinations in some categories that other consumers value little. To have the right SKU (stock-keeping unit) at the right time and place makes a difference in sales and in store loyalty.
Industries sometimes overlook that logistics can improve effectiveness. They more often see primarily its role in increasing efficiency by cost cutting. And indeed, the potential for cost cutting in channels is enormous. But how to do it, and how to do it without reducing buyer appeal? The answers to this question are many. Let us start with what is to be sold: the inventory.The Importance of Logistics in Channels
To fulfil an order in a marketing channel is to obtain the items and prepare them to ship, otherwise known as picking and packing.
Catalogue organisations master the art of shipping small lots directly to individuals, or quite often they contract with an organization that has mastered the art, that is, a fulfilment house.
Third-party logistics providers (3PL).
Logistics is more and more being reconsidered, re-bundled, and outsourced - not just to a single party. In this vein, a striking phenomenon has been the explosive growth of third-party logistics providers (3PL), otherwise known as contract logistics providers (mercifully, this has not been made into an acronym). Many alliances (multiple organisations) also exist, for example, between freight forwarders (organisations that arrange transportation) and organisations that actually do the transportation (such as airlines).Fulfilment and Transportation
Efficient Consumer Response items and prepare them to ship, otherwise known as (ECR) is a landmark in marketing channels. It has wrought radical change in the U.S. grocery industry, and that change is spreading to other sectors and other countries. Its success is surprising, given how different it is from the usual operating methods of most channels. Indeed, ECR is so successful that some critics are now declaring it outdated and looking for a new movement to replace it.
The main areas are:
A continuous replenishment program (CRP).
The goal is to end the bullwhip effect. The method is to use purchase data captured via scanners from the final buyer to inform all upstream supply chain members of demand, right back to the suppliers of suppliers. This requires massive standardization of codes and methods, and implementation of EDI.Efficient Consumer Response
A items and prepare them to ship, otherwise known as scourge of the industry is poorly calibrated promotions that wreak havoc with pricing and buyer behaviour. Non-targeted promotions encourage price comparisons and brand switching purely for temporary price cuts. At the wholesale level, manufacturer promotions lead to huge demand spikes. These push factory production up too high, then down too low. This, in turn, pushes inventory up too high (resulting in spoiled food) or down too low (running out of stock).
Changes in product introduction
Thousands of new-product introductions, most of which fail, are endemic to grocery retailing. ECR calls for combining market research commissioned by channel members in order to forecast new-product success better on a store-by-store basis, or based on reasonable store groupings (store clusters).ECR and Efficient Pricing and Promotions.
Historically, retailers think of what they sell in terms of how they buy: one brand of one type of item
Category management is the principle that a higher level of aggregation is called for. A consumer's shopping list is composed of product categories
Therefore, a retailer should think in terms of a value offer category, and manage it as a whole, rather than managing each product – brand and letting the collection of items amount to a category.
Further, in the spirit of ECR, retailers and suppliers should work together to understand each category's dynamics as perceived by the consumer.Category Management and Efficient Promotions.
The category management focus is related to the idea of an efficient assortment: Having what the customer wants and skipping the rest.
Category management sparks thinking about efficient promotions. These can be defined as limited-time offers that are win–win for all parties. This means that they
(1) move product (the manufacturer's concern),
(2) drive store traffic and category sales (the retailer's concern), and
(3) provide added value (to the targeted consumer).
This third objective masks the real concern of many producers: that their promotions do not offer value to their brand-loyal shoppers, nor do they build brand loyalty within the segment of consumers who rely solely on promotions to decide what to buy.Category Management
Rapid Response, or efficient assortment: Having what the customer wants and skipping the rest.Quick Response (QR), is another approach to Supply Chain Management. It appears similar to, and is often compared with, ECR, but is really quite different.
In some ways, QR is like ECR. The fundamental pull system idea - let the consumer tell the entire channel what to make and what to ship, then do it quickly - is the same. The emphasis on inter-firm cooperation, data analysis, data transmission, inventory management, and waste reduction is the same.
The fundamental difference is in the volatile, unpredictable nature of what is being sold. For FMCG (fast-moving consumer goods) categories, such as toothpaste, consumers know well in advance what they want and what they don't want. ECR enables them to tell the retailer and the suppliers readily.Rapid Response
Thus, whereas ECR focuses on shipments and promotions, QR focuses more on manufacturing. QR organisations are heavy users of flexible manufacturing techniques.
ECR is about demand that consumers know they will have. QR is about demand that consumers don't sense themselves until they're at the point of purchase. Both are pull systems that respond to a consumer. But ECR focuses on being efficient (holding down physical costs), whereas QR focuses on being quick; that is, fast to produce what the market has just decided it wants.Rapid Response
A good starting point is the nature of demand for a brand. focuses more on manufacturing. QR organisations are heavy users of flexible manufacturing techniques. A functional brand is of a product that is a staple, which people buy in many outlets and which serves basic, stable needs. Thus, the brands have stable, predictable demand and long life cycles. This invites competition, which creates low margins.
In contrast, an innovative brand of a product is new and different. This enables it to earn higher margins. But the sales cycle of the value offer – brand is short and unpredictable, in part, because such brands are quickly imitated, and their advantage dissipated.
The key to supplying functional goods is to hold down three types of costs:
(2) holding inventory, and
Supply chains for these value offers need to be physically efficient. At the factory, this means running at high capacity; in the warehouse, fast-turning inventory. Value offers are designed once and for all to make them easy to manufacture and to maximize their performance. Cost and quality are the criteria used to select suppliers.Physical Efficiency versus Market Responsiveness