Chapter 5

Managing The Supply Chain

Retailing, 6th Edition. Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved.

Learning Objectives

1. Discuss the retailer’s role as one of the institutions involved in the supply chain.

2. Describe the types of supply chains by length, width, and control.

3. Explain the terms dependency, power, and conflict and their impact on supply chain relations.

4. Understand the importance of a collaborative supply chain relationship.

The Supply Chain

Supply Chains:

Is a set of institutions that moves goods from the point of production to the point of consumption.

LO 1

The Supply Chain

Channel:

Used interchangeably with supply chain.

LO 1

The Supply Chain

The supply chain, or channel, is affected by five external forces:

Consumer behavior Competitor behavior Socioeconomic environment Technological environment Legal and ethical environment

LO 1

The Supply Chain

Buying Selling Storing Transporting

Sorting Financing Information Gathering Risk Taking

A supply chain or channel must perform eight marketing functions:

LO 1

The Supply Chain

A marketing function does not have to be shifted in its entirety to another institution or to the consumer but can be divided among several entities.

LO 1

The Supply Chain

Primary Marketing Institutions:

Are those channel members that take title to the goods as they move through the marketing channel. They include manufacturers, wholesalers, and retailers.

LO 1

Primary Marketing Institutions

Costco is a primary marketing institution that acts as both a wholesaler (selling to small businesses) and a retailer (selling to households).

LO 1

The Supply Chain

Facilitating Marketing Institutions:

Are those that do not actually take title but assist in the marketing process by specializing in the performance of certain marketing functions.

LO 1

Institutions Participating in the Supply Chain

Exhibit 5.1 LO 1

Facilitating Institutions

Agents Brokers Communications

agencies Advertising

agencies

Transporters Public warehouse Technology

specialists Financing

institutions

LO 1

The Supply Chain

Public Warehouse:

Is a facility that stores goods for safekeeping for any owner in return for a fee, usually based on space occupied.

LO 1

Types of Supply Chains

Supply Chain Length Supply Chain Width Control of the Supply Chain

LO 2

Supply Chain Length

Direct Supply Chain:

Is the channel that results when a manufacturer sells its goods directly to the final consumer or end user.

LO 2

Supply Chain Length

Indirect Supply Chain:

Is the channel that results once independent channel members are added between the manufacturer and the consumer.

LO 2

Strategic Decisions in Supply Chain Design

Exhibit 5.2 LO 2

Direct and Indirect Supply Chains

Exhibit 5.3 LO 2

Width of Marketing Supply Chain

Exhibit 5.4 LO 2

Supply Chain Width

Intensive Distribution:

Means that all possible retailers are used in a trade area.

LO 2

Supply Chain Width

Selective Distribution :

Means that a moderate number of retailers are used in a trade area.

LO 2

Supply Chain Width

Exclusive Distribution:

Means only one retailer is used to cover a trading area.

LO 2

Marketing Channel Patterns

Exhibit 5.5 LO 2

Control of the Supply Chain

Conventional Marketing Channel:

Is one in which each channel member is loosely aligned with the others and takes a short-term orientation.

LO 2

Control of the Supply Chain

Vertical Marketing Channels:Are capital-intensive networks of several levels that are professionally managed and centrally programmed to realize the technological, managerial, and promotional economies of a long-term relationship orientation.

LO 2

Vertical Marketing Channels

Quick Response (QR) Systems:

Also known as Efficient Consumer Response (ECR) Systems, are integrated information, production, and logistical systems that obtain real-time information on customer actions by capturing sale data at point-of-purchase terminals and then transmitting this information back through the entire channel to enable efficient production and distribution scheduling.

LO 2

Vertical Marketing Channels

Stock-Keeping Units:

Are the lowest level of identification of merchandise.

LO 2

Vertical Marketing Channels

Corporate Vertical Marketing Channels:

Exist where one channel institution owns multiple levels of distribution and typically consists of either a manufacturer that has integrated vertically forward to reach the consumer or retailer that has integrated vertically backward to create a self-supply network.

LO 2

Vertical Marketing Channels

Contractual Vertical Marketing Channels:

Use a contract to govern the working relationship between channel members and include wholesaler-sponsored voluntary groups, retailer-owned cooperatives, and franchised retail programs.

LO 2

Vertical Marketing Channels

Wholesaler-Sponsored Voluntary Groups:

Involve a wholesaler that brings together a group of independently owned retailers and offers them a coordinated merchandising and buying program that will provide them with economies like those their chain store rivals are able to obtain.

LO 2

Wholesale Sponsored Voluntary Group

Wholesale sponsored voluntary groups, such as NAPA, have been a major force in marketing channels since the mid-1960s.

LO 2

Vertical Marketing Channels

Retailer-Owned Cooperatives:

Are wholesale institutions, organized and owned by member retailers, that offer scale economies and services to member retailers, which allows them to compete with larger chain buying organizations.

LO 2

Retailer-Owned Cooperatives

Ace, a familiar name in hardware retailing, is an example of a retailer-owned cooperative.

LO 2

Vertical Marketing Channels

Franchise:

Is a form of licensing by which the owner of a product, service, or business method (the franchisor) obtains distribution through affiliated dealers (franchisees).

LO 2

Advantages of Franchising

Exhibit 5.6 LO 2

Disadvantages of Franchising

Exhibit 5.6 LO 2

Franchisors

An example of a fast-food retailer as a franchisor is Domino’s Pizza.

LO 2

Vertical Marketing Channels

Administered Vertical Marketing Channels:

Exist when one of the channel members takes the initiative to lead the channel by applying the principles of effective interorganizational management.

LO 2

Managing Retailer-Supplier Relations

Dependency Power Conflict

LO 3

Managing Retailer-Supplier Relations

Dependency:

Every supply chain needs to perform eight marketing functions by any combination of the members. None can be isolated; each depends on the others to do an effective job.

LO 3

Managing Retailer-Supplier Relations

Power:

Is the ability of one channel member to influence the decisions of the other channel members.

LO 3

Types of Power

Reward Power:

Is based on B’s perception that A has the ability to provide rewards for B.

LO 3

Types of Power

Expertise Power:

Is based on B’s perception that A has some special knowledge.

LO 3

Types of Power

Referent Power:

Is based on the identification of B with A.

LO 3

Types of Power

Coercive Power:

Is based on B’s belief that A has the capability to punish or harm B if B doesn’t do what a wants.

LO 3

Types of Power

Legitimate Power:

Is based on A’s right to influence B, or B’s belief that B should accept A’s influence.

LO 3

Types of Power

Informational Power:

Is based on A’s ability to provide B with factual data.

LO 3

Managing Retailer-Supplier Relations

Conflict:

Is inevitable because retailers and suppliers are interdependent.

LO 3

Conflict

Perceptual Incongruity:

Occurs when the retailer and supplier have different perceptions of reality.

LO 3

Conflict

Goal Incompatibility:

Occurs when achieving the goals of either the supplier or the retailer would hamper the performance of the other.

LO 3

Conflict

Dual Distribution:

Occurs when a manufacturer sells to independent retailers and also through its own retail outlets.

LO 3

Conflict

Domain Disagreements:

Occurs when there is disagreements about which member of the marketing channel should make decisions.

LO 3

Conflict

Diverter:

Is an unauthorized member of a channel who buys and sells excess merchandise to and from authorized channel members.

LO 3

Conflict

Gray Marketing:

Is when branded merchandise flows through unauthorized channels.

LO 3

Conflict

Free-riding:

Is when a consumer seeks product information, usage instructions, and sometimes even warranty work from a full service store but then, armed with the brand’s model number, purchases the product from a limited service discounter or over the Internet.

LO 3

Conflict Process Role of Channel Interdependency

Conflict Resolution

Dependency ofRetailer on Supplier

Dependency of Supplier on Retailer

Fel

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Power of Supplier Over

Retailer

Conflict

ConflictPotential

Power of Retailer Over

Supplier

Conflict

Fel

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ConflictPotential

Supplier’s Power

Sources

Retailer’s Power

Sources

Interdependency

Collaboration in the Channel

Facilitating Channel Collaboration Category Management

LO 4

Supply Chain Best Management Practices

Exhibit 5.7 LO 4

Facilitating Channel Collaboration

Mutual Trust:

Occurs when both the retailer and its supplier have faith that each will be truthful and fair in their dealings with the other.

LO 4

Facilitating Channel Collaboration

Two-Way Communication:

Occurs when both retailer and supplier communicate openly their ideas, concerns, and plans.

LO 4

Facilitating Channel Collaboration

Solidarity:

Exists when a high value is placed on the relationship between a supplier and retailer.

LO 4

Category Management

Category Management (CM):

Is the process of managing all the SKUs within a product category and involves the simultaneous management of price, shelf space, merchandising strategy, promotional efforts, and other elements of the retail mix within the category based on the firm’s goals, the changing environment, and consumer behavior.

LO 4

Category Management

Category Manager:

Is an employee designated by a retailer for each category sold in their store. The manager leverages detailed knowledge of the consumer and trends, detailed point-of-sales information, and specific analysis provided by each supplier to tailor a store’s offerings to the specific needs of each market. The manager works with the suppliers to plan promotions throughout the year.

LO 4

Additional Slides

The Marketing Functions

SellingBuying

Storing Transporting

Sorting Financing

InformationGathering

RiskTaking

LO 1

Facilitating Marketing Institutions

Agents Brokers

Communications Agencies

Advertising Agencies

TransportersPublic Warehouse

Technology Specialists

Financing Institutions

LO 1

Managing Retailer-Supplier Relations

Power

Dependency

Conflict

LO 3

Facilitating Channel Collaboration

Mutual Trust

Two-Way Communication

Solidarity

LO 4