13a supply chain management: an overview. lo1 recognize the relationship between marketing channels,...
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13A
SUPPLY CHAIN MANAGEMENT:
AN OVERVIEW
LO1Recognize the relationship between marketing channels, logistics, and supply chain management.
Describe how a company’s supply chain aligns with its marketing strategy.
LO2
LEARNING OBJECTIVES (LO)
AFTER READING CHAPTER 16, YOU SHOULD BE ABLE TO:
16-2
LO3Identify the major logistics cost and customer service factors that managers consider when making supply chain decisions.
Describe the key logistics functions in a supply chain.LO4
LEARNING OBJECTIVES (LO)
AFTER READING CHAPTER 16, YOU SHOULD BE ABLE TO:
16-3
SUPPLY CHAIN MANAGEMENT
• Supply chain management is the design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer.
-Institute for Supply Management
•
EMPOWERED CUSTOMERS
• Customers – have access to extensive product and pricing
information,– are continually demanding better – faster –
cheaper and better service.
•
SUPPLY CHAIN MANAGEMENT
MARKETSConsumers:CustomersProspectsSuspects
SUPPLIER’SSUPPLIERS
FOCAL FIRM
CUSTOMERS
FOCAL FIRMNEW PRODUCT DEVELOPMENT
CUSTOMER’SCUSTOMERS
SUPPLIERSor
SUPPLIERS
CREATING CUSTOMER VALUEREVIEW
Benefits
Quality
Cost
Flexibility
Delivery
Innovation
The experience, and many more.
BENEFITS
• Benefits are
• Benefits may be– – –
•
• Therefore, we must deliver benefits at every step in the supply chain!
THE MANY ASPECTS OF QUALITY
• Design and Specifications*
• Manufacturing
• Quality processes*
• Service*
• Cost
• Flexibility
• Delivery
• Innovation
QUALITY: DESIGN & SPECIFICATIONS
• Design to meet market needs
• Design to meet customer needs–
• Design for manufacturability
• Exceed standards organizations specifications
QUALITY: PROCESSES
• Works right the first time and every time!
• [Acceptance] Acceptable Quality Level [AQL]– – Customer specified level– Standards include
• Mil-Std-105E; ANSI / ASQC Z1.4-1993 and 2003; ISO 2859-1 [1999]
– Found in• Food, pharmaceutical, medical devices, communications,
apparel, software, and many more industries.
QUALITY: PROCESSES
• Six Sigma [≤3.4 defects per million]– – Found in
• Communications, computer chips and boards, financial services, healthcare, many manufacturing firms, and more.
• Supplier rating / categorization– Supplier rating level and its requirements–
QUALITY: SERVICE
• Exceeding expectations is the key to value realization.– You purchased something for its perceived benefits.– It performed better than expected.– So it was a better value than you initially thought.– RESULT: CUSTOMER SATISFACTION !
– B2B: 100% quality, complete exact order quantities, and on-time delivery!
• Must be seamless for the customer
• Must exceed all customer expectations
THE FIRM’S ENVIRONMENTS
EXTERNAL
- Competitive
- Cultural
- Economic
- Legal
- Political
INTERNAL
-Corporate culture
- Functional and cross-functional relationships
- Reward systems
- Strategic priorities
FIRM’S CAPABILITIES
- Comparative advantages
-Core competencies and key success factors
- Overall competitiveness
INFLUENCE CONTROL MUTUAL EFFECTS
SUPPLY CHAIN MANAGEMENT
FIRM’SENVIRONMENT
MARKET POSITION
STRUCTURE &OPERATIONS
[SCM]
THE PROCESS IS SOUND. THE PATH IS UNKNOWN. THAT IS WHY WE USE
CONTINGENCY THEORY
• Contingency theory sets the framework to evaluate alternatives using scenario planning.
• Every good executive and manager is continually aligning the firm’s resources to take advantage of opportunities in the marketplace.
• The central question a supply chain manager must continually answer is …– How do we create more value at every step in the
supply chain?
SUPPLY CHAIN MANAGEMENT
• requires – a common understanding by all entities and
their supply chain objectives;
– the ability to work together;
– flexibility; and,
– providing excellent customer value.
SUPPLY CHAIN MANAGEMENT
MARKETS
Consumers:CustomersProspectsSuspects
CUSTOMERS
FOCAL FIRMNEW PRODUCT DEVELOPMENT
FOCAL FIRM
FOCAL FIRMSUPPLIERS and
SUPPLIER’S SUPPLIERS
SUPPLY CHAIN MANAGEMENT
ENTITIES AND THEIR ROLES – Information Requirements – Flows and Processes – Repelling Competitive Thrusts – Building Relationships
SUPPLIER’SSUPPLIERS
FOCAL FIRM
CUSTOMERSSUPPLIERSCUSTOMER’S CUSTOMERS
THE SUPPLY CHAIN AT WORK:AUTO INDUSTRY MODEL
DOWNSTREAMUPSTREAM
STEEL
COMPANY
3RD TIER
STEEL
UPSTREAM
SUPPLIER
2ND TIER
FASTENERS
DIRECT
SUPPLIER
1ST TIERManage all other tiers.
RADIATORS
FORD, GM
CHRYSLER
FOCAL FIRM
OEM
VEHICLES
DEALERS
RENTAL
AGENCIESFLEETS
SPECIAL
VEHICLES
CONSUMERS
Raw materials, semi-finished, and component products Finished products and components
BUSINESSES
CONSUMERS
A SUPPLY CHAIN
• – Markets– Suppliers– Processes– Technologies
• – FLOWS
• Products, services, information, and money
– PROCESS INTEGRATION• Suppliers • Focal firm• Customers• Complete [End-to-End Integration]
SUPPLY CHAIN GOAL
• To combine the support and direct activities to create value as perceived by the target market[s] segment[s].
SUPPLY CHAIN: VALUE ANALYSIS
A cost-reduction method where every component is analyzed to determine if it can be standardized, redesigned and improved at a lower cost, or made by a
less expensive production method.
SUPPLY CHAIN SUPPORT ACTIVITIES
• – of the firm and its supply chain[s]
• Human resources
• Materials Management– Purchasing or procurement function
• Technology and its development
EXTERNAL VALUE CHAINS
• MARKET[S] SEGMENT[S]– Customers– Prospects
• SUPPLIERS
• ALL OTHER STAKEHOLDERS
INTERNAL VALUE CHAIN
C-LEVEL
MARKETINGRESEARCH AND DEVELOPMENT OPERATIONS
LOGISTICSFINANCE AND ACCOUNTING
SUPPLY CHAIN MANAGEMENT
INFORMATION TECHNOLOGY
HUMAN RESOURCES
MARKETConsumers:CustomersProspectsSuspects
FOCAL FIRM
CUSTOMERS
CUSTOMERS’CUSTOMERS
SUPPLIERS
SUPPLIERS’SUPPLIERS
A SUPPLY CHAIN
• REPELLING COMPETITIVE THRUSTS– Increase market [segment] share– Continually develop large customers– Continually improve– Attract outstanding human resources– Attract and continually improve
A SUPPLY CHAIN
• BUILDING RELATIONSHIPS– Suppliers– Focal firm stakeholders
• Customers • Employees• Shareholders• Suppliers• Special interest groups• …
SIGNIFICANCE OF SCMSCM AND MARKETING STRATEGY
LO2
Aligning a Supply Chainwith Marketing Strategy
• Understand the
• Understand the
• Harmonize the Supply Chainwith the Marketing Strategy
16-30
Aligning a Supply Chainwith Marketing Strategy
• Wal-Mart: An Efficient Supply Chain
• Dell: A Responsive Supply Chain
SIGNIFICANCE OF SCMSCM AND MARKETING STRATEGY
LO2
16-31
TYPICAL SUPPLY CHAIN MANAGER JOB DESCRIPTION
• Manages and oversees overall supply chain operations, including purchasing and inventory of materials as well as selection of vendors. Makes recommendations to improve productivity, quality, and efficiency of operations ...
• Interacts with customers...
• Requires a bachelor's degree in area of specialty and 5-7 years of experience in the field ...
• Relies on extensive experience and judgment to plan and accomplish goals …
• A wide degree of creativity and latitude is expected. Typically reports to top management.
• Base range $75,000 - $125,000 base salary + bonus + benefits• High end range $250,000 - $600,000 base salary + bonus + extra benefits
Source: http://swz.salary.com/salarywizard/layouthtmls/swzl_compresult_national_MM18000090.html#bottom
MARKETING DEGREE:Emphasis in Supply Chain Management
• MKT 3353 Supply Chain Management• MKT 4358 International Marketing• MKT 4370 Logistics Management• MKT 4371 Logistics Analytical Methods• IB 4361 International Commerce
See my website for the brochure or your advisor for degree plan information.
http://awhitebread.ba.ttu.edu
13B
SUPPLY CHAIN MANAGEMENT:
LOGISTICS
Customer wantsdetergent and goes
to Kroger
Customer wantsdetergent and goes
to Kroger
KrogerSupermarket
KrogerSupermarket
Kroger or thirdparty DC
Kroger or thirdparty DC
P&G or otherdetergent
manufacturer
P&G or otherdetergent
manufacturer
PlasticProducerPlastic
Producer
ChemicalRefinery
ChemicalRefinery
TennecoPackaging
pulp – paper - boxes
TennecoPackaging
pulp – paper - boxes
Paper Manufacturer
chips - pulp - paper
Paper Manufacturer
chips - pulp - paper
TimberIndustry
trees - chips
TimberIndustry
trees - chips
Chemical RefineryChemical Refinery
SUPPLY CHAINS
paper
boxes
trees
chips
pulp
Oil RefineryOil Refinery
Oil wellOil well
SUPPLY CHAIN MANAGEMENT [SCM] COMPONENTS
Transportation
Purchasing
Packaging
Standards
Warehousing
Return Goods Handling
Salvage and scrap disposal
Facility Location
Customer Service
Order Processing
Demand forecasting
Production Scheduling
Facility Management
Material Handling
Inventory & Control
L
O
G
I
S
T
I
C
S
Logistics Management
Logistics management is that part of SCM that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers’ requirements.
- Council of Supply Chain Management Professionals
LOGISTICS
Cost-effectively getting the
right products,
to the right places,
at the right times,
in the right quantity,
in the right configuration,
and in the right sequence.
The Logistics Process
• Materials management is concerned with the inbound movement and storage of raw materials, purchased components, and subassemblies entering and flowing through the conversion process.
• Physical distribution focuses on the outbound transportation and storage of finished products from point of manufacture to where customers wish to acquire them.
Basic Logistics Activities Examples
Activity Basic Roles and Responsibilities
Customer Service
Focus on understanding customers requirements and measuring logistics performance against them.
Demand Forecasting
Must be developed to help plan other logistics activities, allocate resources, and provide high levels of service at low cost.
Documentation
Accuracy helps assure that the product gets to the customer on time. Documentation accuracy is particularly vital in international shipments.
Information Management
Data on carriers, customers, and inventories must be turned into useful decision-making information.
Inventory Management
Product must be available to meet production requirements and customer demand. Inventory control must support high levels of customer service with minimum inventory.
LOGISTICS SYSTEMS
Materials HandlingMoving Products Into,
Within, andOut of Warehouses
Materials HandlingMoving Products Into,
Within, andOut of Warehouses
Warehousing Quantity Needed
WhereWhat Type
Warehousing Quantity Needed
WhereWhat Type
Inventory Control
When to orderHow much to order
Timing
Inventory Control
When to orderHow much to order
Timing
Order ProcessingReceived
ProcessedShipped
Order ProcessingReceived
ProcessedShipped
Transportation Rail, Water, Trucks,
Air, Pipeline, Internet
FIGURE 16-4FIGURE 16-4 Supply chain managers balance total logistics cost factors against customer service factors.
16-42
INFORMATION ANDLOGISTICS MANAGEMENT IN A
CUSTOMER-DRIVEN SUPPLY CHAIN
LO3
Total Logistics Cost Concept consists of expenses associated with transportation, materials handling, warehousing, inventory, stockouts, order processing, and return goods handling.
16-43
THE TOTAL LOGISTICS COST APPROACH
• LOGISTICS COST =– Transportation + warehousing + inventory +
materials management
• STOCKOUT COST =– Failure to deliver customer service as expected
MARGINAL INVENTORY COST
0.002.004.006.008.00
10.0012.0014.0016.00
100 500 1000 2500 5000
UNITS IN INVENTORY
Set-up cost
Production cost
Holding cost
Total cost
CYCLE TIME
Cycle frequency, duration, and magnitude
[stockout, minimum, maximum, average, safety stock]
INVENTORY PER TIME PERIOD
0
200
400
600
800
1000
1200
1400
1600
1 2 3 4 5 6 7 8 9 10 11 12
1 2
INFORMATION AND LOGISTICS MANAGEMENTIN A CUSTOMER-DRIVEN SUPPLY CHAIN
CUSTOMER SERVICE FACTORS
LO3
Time
• Lead Time• Order cycle time•
INFORMATION AND LOGISTICS MANAGEMENTIN A CUSTOMER-DRIVEN SUPPLY CHAIN
CUSTOMER SERVICE FACTORS
LO3
• Quick Response in inventory management systems, are designed to reduce the retailer’s lead time forreceiving merchandise which then lowersa retailer’s inventory investment, improves customer service levels, and reduces logistic expenses. Also called efficient consumer response.
• Efficient Consumer Response designed to reduce the retailer’s lead time for receiving merchandise whichthen lowers a retailer’s inventory investment, improves customer service levels, and reduces logistic expenses. Also called quick response.
Dependability
Communication
Convenience
INFORMATION AND LOGISTICS MANAGEMENTIN A CUSTOMER-DRIVEN SUPPLY CHAIN
CUSTOMER SERVICE FACTORS
LO3
16-49
MEASURING LOGISTICS PERFORMANCE
Out-of-Stock (%) and On-Time-Delivery (%)
Out-of-Stock (%) =
# of Outlets Where a Brand/Product is Listed but Unavailable
Total # of Outlets Where a Brand/Product is Listed
On-Time Delivery (%) =
# of Deliveries Achieved in the Timeframe Promised
Total # of Deliveries Initiated in a Time Period
16-50
MODES OF TRANSPORTATION
Rail Cost-effective for shipping bulk products [piggy-back]
Rail Cost-effective for shipping bulk products [piggy-back]
WaterLow cost for shipping bulky, low-value[non-perishable goods, slowest form]
WaterLow cost for shipping bulky, low-value[non-perishable goods, slowest form]
TruckMost important carrier
TruckMost important carrier
AirHigh cost, ideal when speed is needed or
distant markets have to be reached
AirHigh cost, ideal when speed is needed or
distant markets have to be reached
PipelinePetroleum based products,
very low cost, requires little energy
PipelinePetroleum based products,
very low cost, requires little energy
InternetWeb sites have products and
services available
InternetWeb sites have products and
services available
KEY LOGISTICS FUNCTIONSIN A SUPPLY CHAIN
WAREHOUSING AND MATERIALS HANDLING
LO4
Storage Warehouses
Distribution Centers
Materials Handling
16-52
MATERIAL HANDLING DEVICES
• Conveyors
• Palletizers
• Pallet lifting
• Trucks
• Robots
• AGV’s
• AS/RS
KEY LOGISTICS FUNCTIONSIN A SUPPLY CHAIN
ORDER PROCESSING
LO4
Order Processing
•
• EDI/EFT
16-54
KEY LOGISTICS FUNCTIONSIN A SUPPLY CHAININVENTORY MANAGEMENT
LO4
Reasons for Inventory
• Capital Costs
• InventoryService Costs
Inventory Costs
• Storage Costs
• Risk Costs
16-55
KEY LOGISTICS FUNCTIONSIN A SUPPLY CHAININVENTORY MANAGEMENT
LO4
Supply Chain Inventory Strategies
•
• Vendor-Managed Inventory (VMI) an inventory-management system whereby the supplier determines the product amount and assortment a customer (such asa retailer) needs and automatically delivers the appropriate items.
16-56
WAREHOUSE SECURITY
• AREAS OF CONCERN– Dock– Carrier
• Especially for high-value or highly-sought items
– Inventory• Mislabeled, spoilage, inaccurate transfers
– Employees• Theft
INVENTORY AND CONTROLInventory pricing methods
• FIRST IN, FIRST OUT (FIFO)– The oldest cost [first in] incurred is the first
cost charged to production. The latest costs are shown in the inventory.
• LAST IN, FIRST OUT (LIFO)– The latest cost [last in] incurred is the first
cost charged to production. The oldest costs are shown in the inventory.
INTERNATIONAL CYCLES AFFECTED BY
• – For complete order documents– Inserting the order into the schedule
• – Ports– Ship arrival, loading, transit, and unloading
• VERIFICATIONS AND INSPECTIONS– Customs [Eritrea – 6+ weeks to clear]– Other inspections required by the importing country or
customer
THIRD PARTY LOGISTICS PROVIDERS [3PL’s]
• Outsourced logistics functions include [but are not limited to]– Freight and transportation services, payments, and auditing– Fleet management– Carrier selection and rate negotiations– Warehousing operations– Logistics information systems– Shipment planning– Packaging, product assembly, product installation– Order processing, order fulfillment, returns, relabeling,
repackaging, and rework– Inventory and spare parts management
CLOSING THE LOOP:REVERSE LOGISTICS
LO4
Reverse Logisticsa process
of reclaiming recyclable and reusable materials, returns, and reworks from the point of consumption or use for repair, remanufacturing, redistribution,or disposal.
16-61
13C
SUPPLY CHAIN MANAGEMENT:
GLOBAL DISTRIBUTION SYSTEMS
THE IMPORTANCE OF DISTRIBUTION
•
• If your product is not there, consumers will likely buy – – –
• Business consumers will eventually switch suppliers and may bill you for the inconvenience.
• Effective distribution has a multiplicative effect on sales!
THE MULTIPLICATIVE EFFECT
• Your firm’s employees selling.
• Your firm’s employees selling to other firms [resellers] and training their sales people to sell to others.
THE MULTIPLICATIVE EFFECT:EXAMPLE
1. A firm has 10 sales people that can each handle 40 accounts.
10 * 40 = 400 Accounts
2. Our 10 sales people call on 400 [above] resellers that have one sales person and they can handle 60 accounts.
3. If the resellers have 5 sales people then you can get to
CHANNELS OF DISTRIBUTION:You must understand their functional level!
Manufacturer
B2B Consumers
DistributorsWholesalers
DealersRetailers
B2C Consumers
Company Sales Force
Manufacturer’s Reps
http://www.census.gov/naics/2007/NAICOD07.HTM#N42
DIRECT [AVON]INDIRECT
NATURE AND IMPORTANCE OF MARKETING CHANNELS
THE VALUE CREATED BY INTERMEDIARIES
LO1
-Market coverage-Sales contact-Negotiation
-Risk / Inventory-Order processing
-Information-Customer support
-Promotion-Distribution / Logistics
-Market coverage-Sales contact-Negotiation
-Risk / Inventory-Order processing
-Information-Customer support
-Promotion-Distribution / Logistics
-Information-Credit / Financing-Customer service-Technical support
-Allocation / expediting
-Information-Credit / Financing-Customer service-Technical support
-Allocation / expediting
Three major distribution functions are [1] transactional, [2] logistical, and [3] facilitating.
CONSUMER [B2C] CHANNEL MAP[Steps and Levels]
Wal-Mart DCDistribution Center
Wal-Mart[Mass merchandiser]
Wrigley’s Gum
Candy & TobaccoWholesaler
Small Retailer[Convenience Store]
CONSUMERS
Wal-MartRetail Store
B2B CHANNELS – TYPES OF DISTRIBUTORS http://www.census.gov/epcd/www/naicstab.htm
• General Line• Material handling / Material handling supplies• Plastic• MRO• Electrical• HVAC• Plumbing• Power distribution• Medical instruments / Medical supplies• Chemical / Food / Grocery / …many more
CHANNEL STRUCTURE & ORGANIZATIONDUAL DISTRIBUTION &
STRATEGIC CHANNEL ALLIANCES
LO2
involves the blending of different communication and
delivery channels that are mutually reinforcing in attracting, retaining, and building relationships with consumers who shop and buy in traditional intermediaries and online.
allows a firm to reach different buyers by employing
two or more different types of channels for the same basic product.
15-70
CHANNEL STRUCTURE & ORGANIZATIONCHANNEL INTERMEDIARIES
LO2
Agents / Brokers /Manufacturer’s Representatives
-Never take Title to Goods
-Help negotiate business arrangements
Agents / Brokers /Manufacturer’s Representatives
-Never take Title to Goods
-Help negotiate business arrangements
Merchant Wholesalers
-Take Title to Goods
-Distributors / Dealers / Jobbers / …
Merchant Wholesalers
-Take Title to Goods
-Distributors / Dealers / Jobbers / …
Both are independently
owned!
CHANNEL STRUCTURE & ORGANIZATIONCHANNEL INTERMEDIARIES
LO2
Merchant Wholesalers
• Limited-Service Wholesalers• Rack Jobbers• Cash & Carry Wholesalers• Drop Shippers / Desk Jobbers• Truck Jobbers
15-72
• Full-Service Wholesalers• General Merchandise [full-line]• Specialty Merchandise [limited-line]
CHANNEL STRUCTURE & ORGANIZATIONCHANNEL INTERMEDIARIES
LO2
Agents, Brokers, & Representatives
• Manufacturer’s Representatives
• Brokersindependent firms or individuals whose principal function is to bring buyers and sellers together to make sales
15-73
CHANNEL STRUCTURE & ORGANIZATIONVERICAL MARKETING SYSTEMS [VMS]
LO2
CORPORATECommon Ownership at Different
Levels of the Channel
CORPORATECommon Ownership at Different
Levels of the Channel
CONTRACTURALContractual Agreements Among
Channel Members
CONTRACTURALContractual Agreements Among
Channel Members
ADMINISTEREDLeadership is Assumed by One or
a Few Dominant Members
ADMINISTEREDLeadership is Assumed by One or
a Few Dominant Members
CHANNEL STRUCTURE & ORGANIZATIONVERICAL MARKETING SYSTEMS [VMS]
LO2
What does McDonald’s use?
Vertical Marketing
Systems (VMS)
Vertical Marketing
Systems (VMS)
CorporateVMS
CorporateVMS
AdministeredVMS
AdministeredVMS
ContractualVMS
ContractualVMS
RetailerCooperatives
2007 – 4,600+
RetailerCooperatives
2007 – 4,600+
FranchiseOrganizations
FranchiseOrganizations
WholesalerSponsored
VMS
WholesalerSponsored
VMS
Sherwin-Williams
GE, Coors
IGA Ace Hardware Hertz
CHANNEL SELECTION & MANAGEMENTDISTRIBUTION INTENSITY:
TARGET MARKET COVERAGE
LO3
IntensiveDistribution[Frito-Lay]
IntensiveDistribution[Frito-Lay]
Exclusive Distribution
[Bentley, Jaguar, …]
Exclusive Distribution
[Bentley, Jaguar, …]
SelectiveDistribution[Panasonic]
SelectiveDistribution[Panasonic]
CHANNEL SELECTION & MANAGEMENTROLES & EXPECTATIONS
LO3
• Manufacturer expects of reseller
– Product– Price– Place– Promotion– Coverage– …
• Reseller expects of manufacturer
– Product– Price– Place– Promotion– Coverage– …
M
Ds
De
BC
M
W
R
C
CHANNEL SELECTION & MANAGEMENTROLES, EXPECTATIONS, & CONTROLS
LO3
ITEM MANUFACTUREREXPECTS OF THE
WHOLESALER
WHOLESALEREXPECTS OF THEMANUFACTURER
THE CONTROL TOOLTHE MANUFACTURER
WILL USE TOEVALUATE THEWHOLESALER
PRODUCT Carry our full line of products
Have ample inventory of all products – stockouts are rare
Sales report
INFORMATION
ORDERING [size, frequency]
PRICE
CHANNEL SELECTION & MANAGEMENTSELECT THE BEST SELECTION CRITERIA
LO3
Formulating channel strategy
Designing channel strategy
Selecting the channel members
Motivating the channel members
Coordinating with marketing mix
Evaluating member performance
Objective 4
Prospective channel member
Management
succession
Sales
PerformanceMarket
Coverage
Reputation
Product
Lines
Sales
Strength
Credit and
Financial
Condition
Size
Attitude
Management
Ability
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved.
CHANNEL SELECTION & MANAGEMENTCHANNEL CONTROL
LO3
• The ability to manage the efforts of channel members.
• .
CHANNEL SELECTION & MANAGEMENTCHANNEL CONTRACTS
LO3
15-81
• Distributor / Dealer
• Manufacturer’s agent / representative
• Tying – Franchises – Full line purchases
CHANNELS: SO MANY CHOICES
• Determine the channel[s] where the market [segment] prefers to purchase.
– Dual distribution 1. Using multiple channels for the same product
2.
–
SEGMENTS AND CHANNELS MUST ALIGN FOR MAXIMUM PERFORMANCE!
Manufacturer
Medical equip. distributors
9,800 in U.S.
ESD distributors
25
General line distributors
Grainger, McMaster-Carr
Sophistical medical equip.
customers
Sophisticated customers –
large facilities
Unsophisticated customers
Electrostatic Discharge Product Market Segment
Your success depends on selecting the best channels!
CHANNELS: SO MANY CHOICES
• The channel selection plus the competitive environment will mostly determine or influence– – the type of sales people and their
compensation;– the terms and conditions of sale;– –
CHANNEL CHOICE AND MANAGEMENTCHANNEL CHOICE CONSIDERATIONS
LO3
Profitability
• Margins Earned
• Channel Costs
15-85
CHANNEL CHOICE AND MANAGEMENTCHANNEL RELATIONSHIPS: CHANNEL CONFLICT
LO4
• The amount of conflict is directly related to the cleanliness of channels and programs. – A lot of channel conflict indicates
• Conflict must
• Sources of channel conflict– – –
MEXICO BEARING INDUSTRY - 2000Domestic Mfgs.
Foreign Mfgs. + subs.
Wholesalers (also V. Large End-Usersmajor importers) (auto assembly, …)
53% of consumption
Distributors(11,000) brands
Retailers or Dealers(20,000)
Major End-Users(few in number)
Sm. & Med. End-Users(???)
Copyright A. Whitebread 3/1/98, updated 12/1/00
CHANNEL PROBLEMS CAUSED BY RAPID GROWTH
• Number of channels
• Amount of channel control and conflict
• Packaging : Alice’s Dressings
• Logistics
A
CHANNEL CHOICE AND MANAGEMENTCHANNEL RELATIONSHIPS
LO4
Legal Considerations
•Dual Distribution
•Vertical Integration
•Exclusive Dealing
•Tying Arrangements
•Refusal to Deal
•Resale Restrictions
15-89
14A
INTERNATIONAL MARKETING:
INTRODUCTION, TRADE AREAS, andMARKET ENTRY
Global Perspective Country Economic Structure Economic Geography
National Perspective GDP Balance of Trade
DYNAMICS OF WORLD TRADEWORLD TRADE FLOWS
LO1
PER CAPITA INCOMEINDUSTRIALIZED G7
INDUSTRIALIZING
RAW MATERIAL EXPORTING
SUBSISTENCE
INDIA
MEXICO
BRUNEI - OIL
COSTA RICA - BANANAS
AFGHANISTAN
ETHIOPIA$100
$35,000+
$11,999
$5,000
$19,999
COUNTRY ECONOMIC STRUCTURE
INDIA
MEXICO
BRUNEI - OIL
COSTA RICA - BANANAS
AFGHANISTAN
ETHIOPIA
G8
BRAZIL
MEXICO
CHINA
INDONESIA
CHAD
INDIA
G8
STAGE OF DEVELOPMENT
PER CAPITA INCOME
It is common for lesser developed nations to be in very different positions on different scales.
Porter’s “Diamond Model” Determinants of national advantage
DYNAMICS OF WORLD TRADECOMPETITIVE ADVANTAGE OF NATIONS
LO1
Factor Conditions Demand Conditions
Firm Strategy, Structure, and Rivalry
Related and Supporting Industries
7-94
MARKETING IN A BORDERLESSECONOMIC WORLD
TREND 1—DECLINE OF ECONOMIC PROTECTIONISMLO3
• WORLD TRADE ORGANIZATION [WTO]–
• TARIFFS
– – – – SAFEGUARDS / PROTECTIONISM /
QUOTAS– INFRASTRUCTURE
• CHINA: ACCOUNTING, PENSIONS
• EU• NAFTA• ASEAN / EAEC• MERCOSUR• DOZENS MORE
TRADE AREAS
• CE MARKING – OBTAIN CE CERTIFICATION [3 DIFFERENT WAYS]
•
– AFFIX THE CE LOGO
– THE CE MARK & A Declaration of Conformity are legally required for a product to be sold in the EU.
– IN ALL MEMBER COUNTRIES
– ENFORCEMENT BY INDIVIDUAL COUNTRY
• “RETURN TO ORIGIN”
– FINLAND TOYS EXAMPLE
EU – KEY ISSUES
• U.S., CANADA AND MEXICO• AGREEMENT ON TRADE, INVESTMENT & JOBS
– ELIMINATE TARIFFS BY 2005
• •
TRADING AREAS - NAFTA
• Full Members– Argentina, Brazil, Paraguay and Uruguay
• Signed by 4 initial members Jan. 1, 1991– Immediately eliminated tariffs on 90% of the goods
traded within the bloc– Exceptions phased out in 1999
• Associate Members– Chile, Bolivia, Colombia, Ecuador, and Peru– Do not enjoy full voting rights – Do not have complete access to markets of Mercosur's
full members.
TRADING AREAS – MERCOSUR
• November 6, 2001: ASEAN + 3 also includes China, Japan, & South Korea• Gross GDP >$2 trillion
MARKETING IN A BORDERLESSECONOMIC WORLD
TREND 3—GLOBAL COMPETITIONLO3
Global Competition
Strategic Alliances
• Divisions or Subsidiaries
7-101
• GLOBAL?
• REGIONAL [multinational]
• COUNTRY / NATIONAL
• PRODUCT
INTERNATIONAL MARKETS
CULTURE: DEFINITION
“Culture is a set of traditional beliefs and values that are transmitted and shared in a given society.”
Name some things that are part of culture.
A GLOBAL ENVIRONMENTAL SCANCULTURAL DIVERSITY
LO3
• • International Anti-Dumping and Fair Competition
Act (1998)
Cross-Cultural Analysis
Values – modes of conduct
Customs – ordinary practices
7-104
@ 2003 The McGraw-Hill Companies, Inc. MODIFIED
THE GREATER THE POWER DISTANCE SCORE, THE GREATER THE SPACING. THIS WOULD BE TRUE FOR COLOMBIA, PAKISTAN, THAILAND, AND SIMILAR SCORES.
PERSONAL SPACE CATEGORIES IN THE UNITED STATES
PublicSocialPersonal
Intimate
Past Present FutureUnited States
Japan Past PresentFuture
China
Russia
Past Present Future
Past Present Future
Riding the Waves of Culture, Trompenaars and Hampden-Turner, 2nd edition, 2000
THE NOTION / PERCEPTION OF TIME
A GLOBAL ENVIRONMENTAL SCANCULTURAL DIVERSITY
LO3
• Communication using words and symbols with rules for their assembly into sentences.
• It reflects and shapes methods of thinking.
• Non-verbal aspects [e.g., body language, gestures, ...] and successful interpretation of all forms of communication are often even more culturally dependent.
• Write at an appropriate level.• Speak clearly, simply, and slowly. • Make your counterpart feel comfortable with your
language—be helpful.• Literal translations often don't make sense.• Use highly qualified native translators [written] and
interpreters [spoken].– Levels of interpreter expertise
– Interpreter specialization• Engineering, chemistry, business, medical, …
COMMUNICATIONS
A GLOBAL ENVIRONMENTAL SCANECONOMIC CONSIDERATIONS
LO3
Economic Infrastructure
Consumer Income and Purchasing Power
Currency Exchange Rate
7-109
A GLOBAL ENVIRONMENTAL SCANPOLITICAL-REGULATORY CLIMATE
LO3
Political Stability
Trade Regulations
7-110
• • • • PIRACY• EMBARGO• COMMITMENT
MARKET ENTRY FACTORS-CHALLENGES-
• DETERMINE MARKET ATTRACTIVENESS– ECONOMIC GEOGRAPHY– DRIVING FACTORS– MARKET RESEARCH
• EVALUATE AND MANAGE RISKS
• EVALUATE THE COMPETITIVE POSITION– COMPETITOR INFORMATION– HOW IS INFORMATION TREATED?
SELECTING FOREIGN MARKETS
DIRECT
EXPORTING
FRANCHISING
INDIRECT
EXPORTING
DIRECT
INVESTMENT
CONTRACT
MANUFACTURING
LICENSING
COPYRIGHT A. WHITEBREAD, 2001-2010
FOREIGN MARKET ENTRY ALTERNATIVES
Manufacturer
Agents /Distributors[in home country]
ENTERING FOREIGN MARKETS: INDIRECT EXPORTING
COPYRIGHT A. WHITEBREAD, 2001-2010
Manufacturer
Resellers
IndividualAccounts
OEM’s
ENTERING FOREIGN MARKETS: DIRECT EXPORTING
COPYRIGHT A. WHITEBREAD, 2001-2010
ManufacturerSubsidiary
(Manufacturing)
Resellers
IndividualAccounts
ENTERING FOREIGN MARKETS: DIRECT FOREIGN INVESTMENT [DFI]
ACQUISITION, GREENFIELD, BROWNFIELD – NOT FPI
COPYRIGHT A. WHITEBREAD, 2001-2010
ManufacturerLicensees
Franchisees
Resellers
IndividualAccounts
Owned Facilities?
ENTERING FOREIGN MARKETS: LICENSING & FRANCHISING
COPYRIGHT A. WHITEBREAD, 2001-2010
ManufacturerContractual
(Manufacturing)
Resellers
IndividualAccounts
ENTERING FOREIGN MARKETS:CONTRACTUAL ARRANGEMENTS
JOINT VENTURE, STRATEGIC ALLIANCE, CONTRACT MANUFACTURING
COPYRIGHT A. WHITEBREAD, 2001-2010
FOREIGN TRADE ZONE [FTZ]
• FTZs are secure areas are usually located in or near a customs or border patrol area.
• An FTZ is a port of entry but it is legally considered to be outside the customs territory for the purpose of product entry procedures and tariff laws.
• FTZs are part of a duty deferral program.
Countries Impose Pricing Constraints
CRAFTING A WORLDWIDEMARKETING PROGRAMDISTRIBUTION AND PRICING STRATEGIES
LO5
Channels Usually Long and Complex
Prices May Be Too High or Too Low
7-120
14B
INTERNATIONAL MARKETING:
LOGISICS, INCOTERMS, and
TRADE FINANCE
DESIGNING GLOBAL PROGRAMS
• SENSITIVITY– CULTURE
• SYMBOLS, HEROES, RITUALS, VALUES• RELIGIONS, SUPERSTITIONS
– ETIQUETTE, CUSTOMS, TRADITIONS– – LANGUAGE & ITS USE– – NOTION OF TIME
GLOBAL BRAND ISSUES
• LOGOS
• WHAT TYPE OF BRAND?
• PROMOTION
• PACKAGING AND LABELING
• DISTRIBUTION AND LOGISTICS
INTERNATIONAL CYCLES AFFECTED BY
• – For complete order documents– Inserting the order into the schedule
• – Ports– Ship arrival, loading, transit, and unloading
• – Customs – Other inspections required by the importing country or
customer
DISTRIBUTION AND LOGISTICS
• – ROLE– SERVICES
•
• PACKAGING, INSURANCE, DAMAGE– CONTAINERS
DISTRIBUTION AND LOGISTICS-EXPORT DOCUMENTATION-
• • • • • CERTIFICATE OF ORIGIN
– Simple– Trade Area
• OCEAN BILL OF LADING• SHIPPER’S EXPORT DECLARATION [SED]
GLOBAL PRICING ISSUES
• GRAY TRADE
• Channel members offering unauthorized lower prices because of exchange rates
8,500 EurosStd. RETAIL Price
is 15,000 Euros
9,350 Euros
Distributor Price
10,500 Euros
This is an example of what kind of pricing strategy?
GLOBAL PRICING ISSUES
• INCOTERMS– –
• PLANT or DESTINATION [U.S. aberrations]
• NAMED PLACE [PORT]
– – CIF PORT [Cost Insurance and Freight Paid To …]
– http://www.iccwbo.org/incoterms/wallchart/wallchart.pdf
GLOBAL COLLECTION ISSUES
• • VALUE-ADDED TAX [VAT]• • METHODS OF PAYMENT
– EXIMBANK–
LEGAL ISSUES
• • • • CORRUPTION
– FOREIGN CORRUPT PRACTICES ACT
CISG MEMBER COUNTRIESCONVENTION FOR THE INTERNATIONAL SALE OF GOODS
(UN 1980)
GLOBAL MANAGEMENT
• THE ORGANIZATION– GOALS AND OBJECTIVES– CONTROL AND FLEXIBILITY
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