distribution and supply chain management

Chapter 10 Instructor Shan A. Garib, Fall 2012

Pipeline through which products, their ownership, communication, financing and payment, risk flow to the consumer

Marketing Channels: business structure of organizations from the product origin to consumer

Move products to consumer

Move products to consumer...

Uses the “supply chain” to get right product to right place and at right time

Who does this??

Channel Members: all the businesses who buy and sell the product before it reaches the consumer

a sequence of firms that create or deliver a good or service to consumers

Supplier of raw materials

Warehouse

Manufacturer

Retailer

Specialization and Division of Labour to provide lower production costs

-important, because it allows:

1. firms to create large quantities of product cheaply and sell for a high profit2. channel members who specialize in a given process like retailers to sell the product

Overcome Discrepancies (differences) between what the consumer wants and what producer makes:

1.Quantity made: if produced 100 million cars for Canada firms will store cars in warehouses until sold2.Which product is made: bring together all pieces needed to use final product eg. steel, rubber, glass, for a car. 3.Time made and used: warehouseing product until needed. Eg. I want car next year

Contact Efficiency:

1.Reduce the number of stores shoppers need to get the product eg. Want to buy car...don’t need to go to steel factory, glass shop or rubber store

What do they do?? A) negotiate; B) change of ownership; C) move products

Intermediaries separated into two categories:

1.Title takers eg. Retailers, wharehousers

2.Non title takers eg. manufacturers

Intermediaries


Warehouse

Manufacturer

Retailer

What type of intermediary should the producer (manufacturer) use?? Determined by:

Product Characteristics: eg. customized product like insurance sold by insurance broker -Retail

Buyer Considerations: eg. how often is product like a house bought? - Manufacturer

Market Characteristics: eg. real estate is bought and sold through agents where people are local

1. Transactional: Promoting products - contacting potential customers Negotiating - how many products to buy and sellRisk taking - by owing inventory that might not sell

2. Logisitcal: Distributing – transporting and sorting productsStoring – to protect productsSorting – make sure the correct products are sold

3. Facilitaing: Researching – competitive intel (cointelpro) Financing – offer credit to help consumers buy

In a supply chain, each company is a customer and supplier until product reaches consumer

To make a car, thousands of firms are involved.

Channels for Consumer Products: from producer to consumer

1.Direct eg. Telemarketer-no intermediaries

2.Retailer eg. Walmart buys large quatities of shoes from producer and sells to consumer 3.Wholesaler eg. candy is bought by wholesalers from producer and sold to retailers who then sell to consumer – cheap small items4.Agent/Broker eg. Ontario Food Terminal buys fruit from farms and sells to grocery Stores

Many goods at lowest prices Efficient supply chain

◦ Low inventory levels◦ Cross-docking

Unload products from suppliers, sort for stores, reload trucks

Warehousing for at most one day◦ Small number of distribution centers◦ Information technology

Send customer demand information to suppliers

Channels for Business and Industrial Products: from producer to consumer

1.Direct is typical where mftr buys from other mftr eg. Chrysler buying steel -no intermediaries, specific parts

2.Industrial Distributor acts like supermarket for low value, standardized parts 3.Agent/Broker eg. Chrysler buys steel from Stelco through an agent or distributor4.Internet eliminates use of distributor

Diversify...

Multiple Channels: producer selcts two or more channels to distribute product eg. On-line, and in store

Nontraditional Channels: include internet, mail-order, TV

Strategic Alliances: use another producers distribution channel eg. Starbucks uses Pepsi for Coffee

Organization and cooperation of many firms to make and deliver goods and services to customers


WarehouseManufacturer

Retailer

These are all different companies that must work together

Supply Chain Management Philosophy:Seeing the entire sujpply chain, managers can maximize strengths and efficiencies at each level to create a competitive, consumer driven system that can respond imediately to changes in supply and demand

Supply “Push”: producers make product and push it into the supply chain to be consumed

Demand “Pull”: consumers demand pull only the products they want from the supply chain

Targets customers who want computers customized to their needs◦ Customers are willing to wait a few days◦ Reasonable, but not lowest price

Responsive supply chain◦ Expensive express transportation

From suppliers and to customers◦ Product variety

Manufacturing efficiency due to similar base components

◦ Many manufacturing facilities

Benefits...

Differentiation through lower costs in inventory, transportation, warehousing and packaging, better customer service

What choice of channel and what level of distribution?

Factors Affecting Channel choice:

1.Market – target consumer -who are they? -what, where, when, & how do they buy?

-Industrial buys larger quantities and need more customer service-Geographic concentration leads to direct selling oppostie uses intermediaries-Larger size market leads to more intermediaries



2. Product – if complex, customized and expensive then direct channels are needed

Eg. Pharmaceuticals -if standardized, intermediaries are

needed Eg. gum



2. Product – lifecycle changes the marketing channel eg. iPods are sold in vending machines

-delecacy of product eg. Banannas need short more direct channels



3. Producer – if have large financial, managerial and marketing resources use more direct marketing

-hire own staff, warehouse, extend credit

-if producers want to control pricing, brang image then use high-end retailers


Factors Affecting Level of Distribution:

1.Intensive – maximum coverage -buyers unwilling to search for product

-producers usually sell to wholesalers -products are standard and low price 2.Selective – screening dealers, two or more

-consumer seek product -producer want superior image and

premium price


Factors Affecting Level of Distribution:

3. Exclusive – restrictive coverage, one or two dealers -buyers willing to search for product

-consumer specialty goods -products are customized and high price

eg. iphone

How to build an efficient channel? Through Unity.

Factors Affecting Channel Relationships:

1.Power – ability to control the behaviour of other channel members2.Control – one channel member affects another channel member

- through leadership in design or technology eg. iPhone



3. Conflict – clash of goals and method of distribution -usually old ways of thinking refuse to change with times eg. Ebay forced out many intermediaries

-horizontal conflict: at same level in channel eg. Bigger discount for one retailer



3. Conflict –Vertical conflict: at different level in channel eg. Alternative channels vs. Traditional



4. Partnering – joint effort of channel members to create a supply chain that serves customers and creates a competitive advantage

-create a parallel flow of material and information for lower costs and greater profits

distribution and supply chain management

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