CHAPTER 15 Creating Value Through Supply Chain Management: Channels of Distribution, Logistics, and Wholesaling

1
CHAPTER 15Creating Value Through Supply Chain
Management Channels of Distribution,
Logistics, and Wholesaling
M A R K E T I N G
Real People, Real Choices Fourth Edition
2
Place The Final Frontier

• Parity in product, promotion and price
• Place offers opportunity for differentiation
• E.g. Netflix, Walmart, I-tunes
• Managing distribution can spell enormous cost
  savings and profits

3
Supply Chain Management

• The supply chain firms involved in all
  activities from raw material procurement to
  delivering the final product to the consumer
• Supply chain management management of flows
  among the firms in a supply chain to maximize
  total profitability
• E.g. Hewlett Packard (Identify the flows)

4
What Is a Distribution Channel?

• Series of firms or individuals that facilitate
  the movement of a product from the producer to
  the final customer
• Direct
• Indirect
• Channel Intermediaries

5
Functions of Distribution Channels

• Time, place, and ownership utilities
• Logistics functions
• Transportation and storage
• Efficiency creation
• Breaking bulk
• Creating assortments
• Facilitating functions
• Repairs and replacements
• Credit and financing
• Risk taking
• Information flow research

6
Creating Efficiencies

• Breaking bulk channel members purchase large
  quantities from manufacturers and sell smaller
  quantities to many different customers
• Creating assortments channel members provide a
  variety of products in one location

7
The Internet

• Small firms selling products distributable over
  the Internet (e.g. software, music, books,
  magazines, newspapers, etc.)
• Small firms completing the sale over the Internet
  but outsourcing logistics and transportation
  functions
• Disintermediation - process by which traditional
  intermediaries are eliminated

8
Types of Wholesaling Intermediaries

• Wholesaling intermediaries firms that handle
  the flow of products from the manufacturer to
  retailer or business user
• Independent
• Merchant wholesalers (assume title and full
  risks, earn profits)
• Agents and brokers (merely bring buyers and
  sellers together earn commissions)
• Manufacturer owned
• Sales branches, offices and showrooms

9
Independent Intermediaries

• Merchant wholesalers
• Full-service
• Limited-service
• Cash-and-carry wholesalers
• Truck jobbers
• Drop shippers
• Mail-order wholesalers
• Rack jobbers

• Merchandise Agents or Brokers
• Manufacturers agents
• Selling agents
• Commission merchants
• Merchandise brokers

10
Types of Distribution Channels

• Consumer channels
• Direct (e.g. farmers market, Internet)
• Manufacturer-retailer-consumer (e.g. HPs
  computers through Best Buy)
• Manufacturer-wholesaler-retailer-consumer (e.g.
  Breyers ice cream)
• Business-to-business channels
• Direct (most high value industrial products)
• Manufacturer-industrial distributor-business
  customer (smaller industrial products, e.g.
  valves, etc.)

11
Dual Distribution Systems

• Multiple channel usage
• Example
• pharmaceutical industry sells to hospitals,
  clinics, and organizational customers directly
  and to consumers indirectly through drug
  retailers
• Hybrid marketing systems
• Using several channels at the same time

12
Deciding on a channel strategy

• Profit potential
• Control over distribution, promotion and pricing
• Resources availability

13
Marketing Systems

• Conventional multi-level distribution channel
  in which members work independently of one
  another
• Vertical channel in which there is cooperation
  among channel members at two or more different
  levels of the channel
• Horizontal two or more firms at the same
  channel level agree to work together (e.g.
  Smaller stores in Walmart banks inside grocery
  stores)

14
Vertical Marketing Systems

• Administered channel members remain independent
  but voluntarily work together
• Corporate single firm owns manufacturing,
  wholesaling, and retailing operations (e.g.
  Sears)
• Contractual cooperation is enforced by
  contracts that spell out member rights and the
  terms of cooperation (e.g. IGA food stores Ace
  Hardware)

15
Contractual VMS

• Wholesaler-sponsored wholesalers get retailers
  to work together under their leadership in a
  voluntary chain (e.g. IGA)
• Retailer-cooperative group of retailers with a
  wholesaling operation to help them compete more
  effectively with large chains (e.g. True Value
  Hardware)
• Franchise organizations cooperation is
  explicitly defined and strictly enforced by
  franchiser (e.g. McDonalds)

16
Distribution Intensity

• Intensive distribution
• Maximize coverage by using all available outlets
  (e.g. gum, sodas, milk, bread, etc.)
• Exclusive distribution
• Limited outlets in a region
• Generally for high priced products (e.g. cars,
  jewelry, pianos, etc.)
• Selective distribution
• In between (e.g. house hold appliances,
  electronic equipment, etc.)

17
Managing the Channel

• Selecting channel partners
• Managing the channel of distribution
• Channel leader is the dominant firm that controls
  the channel (channel captain)
• Channel leaders have some form of power relative
  to other members

18
Logistics and Customer Satisfaction

• Traditionally, logistics was thought of as
  physical distribution
• order processing, warehousing, materials
  handling, transportation, and inventory control
• objective to deliver product at lowest cost
• Now, deliver products at the lowest cost
  provided, expected service quality is maintained

19
Logistics Functions

• Order processing
• Warehousing
• Materials handling
• Transportation
• Inventory Control

20
Transportation Mode Considerations

• Dependability
• Cost
• Speed of Delivery
• Accessibility
• Capability
• Traceability

21
Modes of Transportation

• Rail
• Water
• Truck
• Air
• Pipeline
• Internet