Download - Chapter 15 Deliver Value Through Supply Chain Management, Channels of Distribution, and Logistics
Chapter 15
Deliver Value Through Supply Chain Management, Channels of
Distribution, and Logistics
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-2
Chapter Objectives
Understand the value chain concept and the key elements in the supply chain
Explain what a distribution channel is and know what functions channels perform
Describe the types of wholesaling intermediaries found in distribution channels
Describe the types of distribution channels and the role of place in the marketing mix
Understand the steps in planning a distribution channel strategy
Explain logistics and how it fits into the supply chain concept
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-3
Real People, Real Choices: Decision Time at Darden Restaurants
Which strategy should Jim pursue? – Option 1: Internalize the food delivery
function by developing a distribution network owned and operated by Darden
– Option 2: Work with third-party logistics providers to create a distribution network
– Option 3: Work with traditional system distributors under a new operating model
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-4
Place: The Final Frontier
Value chain: – A series of activities directed at designing,
producing, marketing, delivering, and supporting any product
Supply chain: – All of the activities necessary to turn raw
materials into a good or service and put it in the hands of the consumer
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-5
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:
Firms contract with a specialist that handles all or part of the company’s supply chains
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-6
Links in the Supply Chain
Channel of distribution: The series of firms or individuals that facilitates the movement of a product from producer to final customer
Supply chain links– The supplier network provides raw materials
and parts to the manufacturer– Firm manufactures a product– Products are sent to distribution
channel for resale to buyers
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-7
The Importance of Distribution:You Can’t Sell What Isn’t There!
Channel intermediariesFirms or individuals such as wholesalers, agents, brokers, and retailers that help move the product from the producer to the consumer or business user
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-8
Functions of Distribution Channels
Channels:– Provide time, place, and ownership utility– Provide logistics and/or physical distribution
functions– Create efficiencies by reducing the 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
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-9
Functions of Distribution Channels
Channels:– Transport and store goods– Perform facilitating functions to make
purchase process easier – Provide setup, repair, and maintenance
services for products carried– Provide communication and transaction
functions
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-10
The Internet in the Distribution Channel
E-commerce has created radical changes in distribution strategies– Disintermediation:
Eliminating traditional intermediaries• Reduces manufacturer costs
– Knowledge management: Sharing knowledge with other supply chain members
– Online distribution piracy can be problematic
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-11
Channel Composition: Types of Wholesaling Intermediaries
Wholesaling intermediaries: Firms that handle the flow of products from the manufacturer to the retailer/business user– Independent intermediaries
• Merchant wholesalers• Merchandise agents and brokers
– Manufacturer owned intermediaries
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-12
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
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-13
Independent Intermediaries
Merchandise agents/brokers: – Provide services in exchange for
commissions• Manufacturers’ agents/reps
• Selling agents
• Commission merchants
• Merchandise brokers
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-14
Manufacturer-Owned Intermediaries
Sales branches– Carry inventory, provide sales, and service
support
Sales offices– Similar to agents; do not carry inventory but
provide selling functions
Manufacturers’ showrooms – Permanent product displays for customers to
visit
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-15
Types of Distribution Channels
Marketers must consider the number of channel levels when designing a distribution system
Various channel structures exist– Consumer channels– Business-to-business channels – Dual distribution systems– Hybrid marketing systems
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-16
Distribution, the Marketing Mix and Ethical Issues
Distribution decisions interact with the marketing mix in a number of ways:– Place decisions influence pricing– Distribution decisions can help develop a position in
the market– Nature of the product influences choice of distribution
channels, especially retailers
Distribution decisions can create ethical dilemmas– Slotting allowances– Size of channel intermediaries
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-17
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
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-18
Planning a Channel Strategy
Step 3: – Choose a distribution strategy
• Channel relationships: Conventional, vertical, or horizontal system
• Conventional marketing system: Members work independently of one another
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-19
Vertical and Horizontal Marketing Systems
Vertical marketing system (VMS):– Formal cooperation among channel members
• Administered VMS• Corporate VMS• Contractual VMS• Retailer cooperative• Franchise organizations
Horizontal marketing system: – Two or more firms at the same channel level
agree to work together to get their product to the customer
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-20
Planning a Channel Strategy
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
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-21
Planning a Channel Strategy
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)
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-22
Logistics: Implementing the Supply Chain
Logistics: The process of designing, managing, and improving the movement of products through the supply chain
Logistics includes:– Purchasing– Manufacturing– Storage– Transporting
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-23
Logistics: Implementing the Supply Chain
Logistics:– Involves physical distribution (the activities
used to move finished goods from manufacturers to final customers)
Logistic functions include:– Order processing– Warehousing– Materials handling– Transportation– Inventory control
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-24
Logistics: Implementing the Supply Chain
Transportation 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)
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-25
Logistics: Implementing the Supply Chain
Modes of transportation and usage– Railroads: heavy, bulky items over long distances– Water: large, bulky goods (especially internationally)– Trucks: consumer goods in short haul; allow flexibility
in locations– Air: high value-items; fastest and most expensive
mode– Pipelines: petroleum/chemical products– Internet: services such as banking, news, and
entertainment
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-26
Logistics: Implementing the Supply Chain
Inventory control: – Activities to ensure goods are always
available to meet customers’ demands• Radio frequency identification (RFID):
Product tags with tiny chips containing information about the item’s content, origin, and destination
• Just in time (JIT):Deliveries arrive only when needed, keeping inventory levels low
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-27
Real People, Real Choices
Jim chose option 3– Implementation: The new Darden Direct
Distribution system protected the supply chain while developing competitive advantages for supply chain partners by means of a new third party model. Restaurants experienced greater manager satisfaction and significant savings
– Measuring Success: Standard service metrics were used, including on-time delivery percentage, case fill, and satisfaction scores
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-28
Keeping It Real: Fast-Forward to Next Class Decision Time at Eskimo Joe’s
Meet Stan Clark, the entrepreneur who developed Eskimo Joe’s
Eskimo Joe’s is a popular bar near Oklahoma State University
The decision to be made: How best to respond to an increase in the legal drinking age, and the newly passed “liquor by drink” law
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-29
Copyright © 2009 Pearson Education, Inc. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice HallPublishing as Prentice Hall
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.