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

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

2. Chapter Objectives • Understand the concept of the value chain and the key elements in a supply chain • Explain what a distribution channel is and what functions distribution channels perform • Describe the types of wholesaling intermediaries found in distribution channels • Describe the types of distribution channels and the steps in planning distribution channel strategies • Explain how the supply chain uses logistics

3. 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.

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. 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.

7. 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 Includes physical movement of and sharing of information about goods Insourcing: 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. 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?

11. The Importance of Distribution:You Can’t Sell What Isn’t There! • Direct channel: a producer and a customer • Indirect channel: one or more intermediaries • Firms/individuals such as • wholesalers, agents, • brokers, and retailers • that help move • product to consumer • or business user

12. Functions of Distribution Channels • To ease the flow of goods from producer to customer • To provide time, place, and ownership utility

13. Functions of Distribution Channels (cont’d) • To provide logistics or physical distribution functions • To 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

14. Figure 15.4: Reducing Transactions via Intermediaries

15. Functions of Distribution Channels (cont’d) • To make purchase process easier • To manage risk • To perform communication and transaction functions

16. 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

17. 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?

18. Group Activity • You’re responsible for direct marketing at a firm that sells its industrial cleaning products through manufacturers’ reps. • You’re considering adding a direct Internet channel to your distribution strategy, but you wonder about channel conflict. • --List the pros and cons of adding an Internet channel. • --What do you think is the best decision?

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

20. Independent Intermediaries • Merchant wholesalers: buy goods from manufacturers and sell to retailers and other B2B customers • Full-service merchant wholesalers • Limited-service merchant wholesalers • Cash-and-carry wholesalers Truck jobbers Drop shippers Rack jobbers Mail-order wholesalers

21. Independent Intermediaries (cont’d) • Merchandise Agents/Brokers: provide services in exchange for commissions • Manufacturers’ agents/reps • Selling agents • Commission merchants • Merchandise brokers • Manufacturer-Owned Intermediaries • Sales branches • Sales offices • Manufacturers’ showrooms

22. Discussion • You’ve probably heard someone say, “The reason products cost so much is all the intermediaries.” • --Do intermediaries increase the cost of products? • --Would consumers be better off or worse off without intermediaries?

23. SALAMI.COM 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. • Step 2: Evaluate internal and external environmental influences to develop best channel structure. • Firm’s ability to handle distribution functions • Channel intermediaries available • How the competition distributes its products

27. 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

28. 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

29. Discussion • Many entrepreneurs choose to start a franchise business rather than “go it alone.” • --Do you think franchises offer the typical businessperson good opportunities? • --What are some positive and negative aspects of purchasing a franchise?

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 • Intensive distribution: selling through all suitable wholesalers or retailers • Exclusive distribution: selling only through a single outlet in a region • Selective distribution: using • fewer outlets than intensive • but more than • exclusive distribution

32. Planning a Channel Strategy (cont’d) • Step 4: Develop 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. Discussion • Colleges and universities seeking better ways to satisfy their customers are increasingly looking at the distribution of their product – education. --Describe your school’s channel(s) of distribution. --What innovative distribution methods do you think your school could try?

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

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

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

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

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

43. 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?

44. 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?

45. 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?