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

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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
Michael R. Solomon Greg W. Marshall
Elnora W. Stuart
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Chapter Objectives_1

• Understand the concept of the value chain and the
  key elements in a supply chain.
• Explain what a distribution channel is and what
  functions distribution channels perform
• Describe the types of wholesaling intermediaries
  found in distribution channels

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Chapter Objectives_2

• Describe the types of distribution channels and
  the steps in planning distribution channel
  strategies
• Explain how logistics is used in the supply chain

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Supply Chain Management

• The supply chain includes all the firms that
  engage in activities that are necessary to
  convert raw materials into a good or service and
  put it in the hands of the consumer or business
  customer
• Supply chain management is the management of
  flows among the firms in a supply chain to
  maximize total profitability

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Figure 15.3 Supply Chain
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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

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Functions of Distribution Channels

• Time, place, and ownership utilities
• Logistics functions
• Transportation and storage
• Efficiency creation
• Facilitating functions
• Repair and maintenance functions
• Risk-taking
• Communications and transaction functions

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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

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Types of Wholesaling Intermediaries

• Wholesaling intermediaries are firms that handle
  the flow of products from the manufacturer to
  retailer or business user
• Independent
• Manufacturer owned

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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

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Manufacturer-Owned Intermediaries

• Sales branches
• Sales offices
• Manufacturers showrooms

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Figure 15.4 Reducing Transactions
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Types of Distribution Channels

• Consumer channels
• Direct
• Manufacturer-retailer-consumer
• Manufacturer-wholesaler-retailer-consumer
• Business-to-business channels
• Direct
• Manufacturer-industrial distributor-business
  customer

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Major Types of Distribution Channels
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Consumer Channels
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B2B Channels
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Dual Distribution Systems

• Multiple channel usage
• Example
• pharmaceutical industry sells to hospitals,
  clinics, and organizational customers directly
  and to consumers indirectly through drug retailers

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Planning a Channel Strategy

• Develop distribution objectives
• Evaluate internal and external influences
• Choose a distribution strategy
• Conventional
• Vertical
• Administered, corporate, contractual
• Horizontal
• Develop distribution tactics

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Vertical Marketing Systems

• Administered channel members remain independent
  but voluntarily work together
• Corporate single firm owns manufacturing,
  wholesaling, and retailing operations
• Contractual cooperation is enforced by
  contracts that spell out member rights and the
  terms of cooperation

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Develop Distribution Tactics

• Selecting channel partners
• Managing the channel of distribution
• Channel leader is the dominant firm that controls
  the channel
• Channel leaders have some form of power relative
  to other members
• economic power
• legitimate power
• reward or coercive power

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Logistics Implementing the Value Chain

• Process of designing, managing, and improving the
  movement of products through the supply chain
• purchasing
• manufacturing
• storage
• transport

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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, customers goals become the logistics
  providers goals

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Transportation Mode Considerations

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

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Modes of Transportation

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

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Issues for Discussion

• Do you think marketers should be concerned with
  the total supply chain concept?
• Do intermediaries increase the cost of products?
  Are consumers better off with intermediaries?
• Do you think franchises offer the typical
  businessperson good opportunities?
• Describe characteristics of your schools channel
  of distribution. What other channels should your
  school try?