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Distribution Channel Management

Logistic and Supply Chain Management

Chapter 13

Chapter 13 Outlines

- Understand the meaning of Logistics with its relation to Supply Chain Management - Know the Logistics management based on the Systems Concept and the Total Cost Approach - Understand the Supply Chain Management concept - Describe the critical elements of Efficient Consumer Response and Quick Response as the approach to Supply Chain Management- Understand why channel management is needed to implement the supply chain management paradigm in an organization

Learning Objectives

Logistics and Supply Chain Management

- What is the meaning of Logistics and what is its boundary? - How is Logistics related to Supply Chain Management concept?

Points of Discussion

Logistics and Supply Chain Management

- According to Kotler’s definition, Logistics is defined as “Planning, implementing, and controlling the physical flows of materials and final goods from points of origin to points of use to meet customers’ needs at profit”

The definition of Logistics

Logistics and Supply Chain Management

- Logistics concerns the processing and tracking of goods during warehousing, inventory control, transport, customs documentation and delivery to customer - Logistics is widely considered to be part of supply chain management

The scope of Logistics

Logistics System and Basic Components

Logistics and Supply Chain Management

- Cover any physical inputs, not just finished goods - Involve every element of the value-added chain - Route to market should coordinate with manufacturing process - Upstream element not only inventories of finished goods, but also WIP and raw material of suppliers, suppliers

The concept of Supply Chain Management (SCM)

Logistics and Supply Chain Management

- Downstream covers all channel members down to customers of customers - Signal the very beginning of the chain what to do, when to do it as a function of what happen at the very end of the chain of distribution

The concept of Supply Chain Management (SCM)

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Product R&D, Technology, Product R&D, Technology, Systems DevelopmentSystems DevelopmentHuman Resources, General Human Resources, General Management and Firm Management and Firm InfrastructureInfrastructure

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Primary Activities and CostsPrimary Activities and Costs

A Typical Company Value ChainA Typical Company Value Chain

Logistics and Supply Chain Management

Requirements for the firms to service customers efficiently 1. A market orientation –

focused on last customer 2. Effective channel

management to enable smooth

transfer of product and information

3. Effective logistics

Efficient Consumer Response (ECR)

ECR calls for cooperation from entire channel members to improve on these four areas

1. A continuous replenishment program (CRP) – by using purchase data of the final buyer to inform all upstream supply chain members to end the bullwhip effect 2. Efficient pricing and promotions – that can push higher sales without problems of over stocking and degrading of brand equity

Efficient Consumer Response (ECR)

ECR calls for cooperation from entire channel members to improve on these four areas

3. Changes in product introduction – having more

accurate forecast on new product introduction

through market research information

4. Changes in merchandising – an effort to find better

ways to merchandise brands and associated

product categories

Obstacles to efficient consumer response - ECR requires standardization of methods and implementation is a long and expensive affair - Trust and good working relationships are necessary for information exchange among members - ECR requires considerable change in internal operations - Teamwork must become permanent

Efficient Consumer Response (ECR)

Rapid or Quick Response (QR)

The elements concerning with QR

- It’s another approach to supply chain management- It’s originated from the fashion industry- It’s fundamental pull system idea

Rapid or Quick Response (QR)

The same and contrast between ECR and QR - What to make and what to ship quickly based on customer purchase data - Emphasis on inter-firm cooperation - When mistakes are made, catch them soon and mark them down quickly - Difference coming from the volatile, unpredictable nature of business involved (FMCG VS. Fashion industries) - ECR focuses on shipments and promotions while QR focuses more on flexible manufacturing techniques

Supply Chain Management Approach

Points of Discussion

Between QR and ECR, which model is better?- QR – keep manufacturing design flexible, not focus on minimizing transportation costs- ECR – fix design, control cost tightly- Both are pull systems but differ in how and when they react

Type of goods for Supply Chain Management

Type of goods for Supply Chain Management

Functional goods VS. innovative products- The keys to supplying functional goods are efficient manufacturing and logistics cost- The keys to innovative products are speedy market responses, critical information flows

Type of goods for Supply Chain Management

Logistics and Supply Chain Management

Two critical elements to build a Supply Chain Management mentality in an organization1. An internal culture of

cross-functional integration (as opposed to functional silos)

2. Effective channel management – trust, good working relations, the judicious exercise of power