Deliver Value Through Supply Chain Management, Channels of Distribution, and Logistics Chapter Fifteen © 2012 Pearson Education, Inc. publishing as Prentice-Hall.

15-2 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Chapter Objectives  Understand the key elements in the supply chain  Explain what a distribution channel is and know what functions channels perform  Discuss the types of wholesaling intermediaries found in distribution channels  Describe the types of distribution channels and how place fits in with the other three Ps in the marketing mix  List the steps to plan a distribution channel strategy  Explain logistics and how it fits into the supply chain concept

15-3 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Real People, Real Choices: Decision Time at Darden Restaurants  Which strategy should Heather pursue? Option 1: Don’t make any changes Option 1: Don’t make any changes Option 2: Make use of Walmart’s distribution centers and fleet of trucks to reship milk to Sam’s locations, and realize economies of scales as deliveries to stores would be made 24/7 Option 2: Make use of Walmart’s distribution centers and fleet of trucks to reship milk to Sam’s locations, and realize economies of scales as deliveries to stores would be made 24/7 Option 3: Change Sam’s Club product and pallet configuration to embrace the new case-less design Option 3: Change Sam’s Club product and pallet configuration to embrace the new case-less design

15-4 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Place: The Final Frontier  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 Outsourcing is common Outsourcing is common

15-5 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Supply Chain Management  Supply chain management: The management of flows among firms in a supply chain to maximize total profitability Includes physical movement of and sharing of information about goods 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 Insourcing: Firms contract with a specialist that handles all or part of the company’s supply chains

15-6 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Supply Chain Management  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 The supplier network provides raw materials and parts to the manufacturer Firm manufactures a product Firm manufactures a product Products are sent to distribution channel for resale to buyers Products are sent to distribution channel for resale to buyers

15-7 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Distribution Channels: Get It There  Distribution channels may be direct or indirect  Channel intermediaries Firms or individuals such as wholesalers, agents, brokers, and retailers that help move the product from the producer to the consumer or business user

15-8 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Functions of Distribution Channels  Distribution channels: Provide time, place, and ownership utility Provide time, place, and ownership utility Provide logistics and/or physical distribution functions Provide logistics and/or physical distribution functions Create efficiencies by reducing the number of transactions Create efficiencies by reducing the number of transactions  Breaking bulk  Creating assortments

15-9 © 2012 Pearson Education, Inc. publishing as Prentice-Hall.  Distribution channels: Transport and store goods Transport and store goods Perform facilitating functions to make purchase process easier Perform facilitating functions to make purchase process easier Provide setup, repair, and maintenance services for products carried Provide setup, repair, and maintenance services for products carried Provide communication and transaction functions Provide communication and transaction functions Functions of Distribution Channels

15-10 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. The Internet in the Distribution Channel  E-commerce has created radical changes in distribution strategies Disintermediation: Eliminating traditional intermediaries Disintermediation: Eliminating traditional intermediaries  Reduces manufacturer costs Knowledge management: Sharing knowledge with other supply chain members Knowledge management: Sharing knowledge with other supply chain members Online distribution piracy can be problematic Online distribution piracy can be problematic

15-11 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Wholesaling Intermediaries  Wholesaling intermediaries: Firms that handle the flow of products from the manufacturer to the retailer/business user Independent intermediaries Independent intermediaries  Merchant wholesalers  Merchandise agents and brokers Manufacturer owned intermediaries Manufacturer owned intermediaries

15-12 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Independent Intermediaries  Merchant wholesalers Buy goods from manufacturers and sell to retailers and other B2B customers Full-service merchant wholesalers Full-service merchant wholesalers Limited-service merchant wholesalers: Limited-service merchant wholesalers:  Cash-and-carry wholesalers  Truck jobbers  Drop shippers  Mail-order wholesalers  Rack jobbers

15-13 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Merchandise Agents or Brokers  Merchandise agents/brokers: Provide services in exchange for commissions but never take title to the product: Provide services in exchange for commissions but never take title to the product:  Manufacturers’ agents or reps  Selling agents  Commission merchants  Merchandise brokers

15-14 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Manufacturer-Owned Intermediaries  Sales branches: Carry inventory, provide sales, and service support Carry inventory, provide sales, and service support  Sales offices: Similar to agents; do not carry inventory but provide selling functions Similar to agents; do not carry inventory but provide selling functions  Manufacturers’ showrooms: Permanent product displays for customers to visit Permanent product displays for customers to visit

15-15 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Types of Distribution Channels  Marketers first consider the number of channel levels when designing a distribution system  Various channel structures exist: Consumer channels Consumer channels Business-to-business channels Business-to-business channels Dual distribution systems Dual distribution systems Hybrid marketing systems Hybrid marketing systems

15-16 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Distribution, the Marketing Mix and Ethical Issues  Distribution decisions interact with the marketing mix in a number of ways: Place decisions influence pricing Place decisions influence pricing Distribution decisions can help develop a position in the market Distribution decisions can help develop a position in the market Nature of the product influences choice of distribution channels, especially retailers Nature of the product influences choice of distribution channels, especially retailers  Distribution decisions can create ethical dilemmas: Slotting allowances Slotting allowances Size of channel intermediaries Size of channel intermediaries

15-17 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Plan 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 Firm’s ability to handle distribution functions Channel intermediaries available Channel intermediaries available How the competition distributes its products How the competition distributes its products

15-18 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Plan a Channel Strategy  Step 3: Choose a distribution strategy : Channel relationships: Conventional, vertical, or horizontal system Channel relationships: Conventional, vertical, or horizontal system Conventional marketing system: Members work independently of one another Conventional marketing system: Members work independently of one another

15-19 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Vertical and Horizontal Marketing Systems  Vertical marketing system (VMS): Formal cooperation among channel members 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 Two or more firms at the same channel level agree to work together to get their product to the customer

15-20 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Plan a Channel Strategy  Step 3: Choose a distribution strategy Distribution intensity: 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

15-21 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Plan a Channel Strategy  Step 4: Develop distribution tactics: Selecting channel partners Selecting channel partners  Normally a long-term commitment Managing the channel Managing the channel  Channel leader/captain: Dominant firm that controls the channel (via economic, legitimate, reward or coercive power)

15-22 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Logistics: Implement the Supply Chain  Logistics: The process of designing, managing, and improving the movement of products through the supply chain  Inbound and outbound logistics are important  Reverse logistics is increasingly important

15-23 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. The Lowdown on Logistics  Physical distribution: The activities that move finished goods from manufacturers to final customers The activities that move finished goods from manufacturers to final customers  Logistic functions include: Order processing Order processing Warehousing Warehousing Materials handling Materials handling Transportation Transportation Inventory control Inventory control

15-24 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Transportation  Transportation modes differ in their: Dependability Dependability Cost Cost Speed of delivery Speed of delivery Accessibility Accessibility Capability Capability Traceability Traceability

15-25 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Transportation  Modes of transportation and usage include the following: Railroads: heavy, bulky items over long distances Railroads: heavy, bulky items over long distances Water: large, bulky goods (especially internationally) Water: large, bulky goods (especially internationally) Trucks: consumer goods in short haul; allow flexibility in locations Trucks: consumer goods in short haul; allow flexibility in locations Air: high value-items; fastest and most expensive mode Air: high value-items; fastest and most expensive mode Pipelines: petroleum/chemical products Pipelines: petroleum/chemical products Internet: services such as banking, news, and entertainment Internet: services such as banking, news, and entertainment

15-26 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Inventory Control: JIT, RFID, and Fast Fashion  Inventory control Activities to ensure goods are always available to meet customers’ demands and include: Radio frequency identification (RFID): Product tags with tiny chips containing information about the item’s content, origin, and destination 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 Just in time (JIT): Deliveries arrive only when needed, keeping inventory levels low

15-27 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Supply Chain Metrics  Common supply chain metrics include: On-time delivery On-time delivery Forecast accuracy Forecast accuracy Value-added productivity per employee Value-added productivity per employee Returns processed as a percentage of product revenue Returns processed as a percentage of product revenue Customer order actual cycle time Customer order actual cycle time Perfect order measurement Perfect order measurement

15-28 © 2012 Pearson Education, Inc. publishing as Prentice-Hall. Real People, Real Choices  Heather chose option 3 Why do you think that Heather chose to launch the caseless program? Why do you think that Heather chose to launch the caseless program?

15-29 © 2012 Pearson Education, Inc. publishing as Prentice-Hall.  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 Keeping It Real: Fast-Forward to Next Class Decision Time at Eskimo Joe’s

15-30 © 2012 Pearson Education, Inc. publishing 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