The Nature of The Supply Chain and Distribution Chapter Eleven The Nature of The Supply Chain and Distribution 1

Unlike real estate, location is becoming progressively less relevant Unlike real estate, location is becoming progressively less relevant. The three critical factors for the Internet age are logistics, logistics, logistics. - William B. Lipsin, CEO, Ironside Technologies

Objectives Explain general purpose of distribution & logistics Show distribution system’s contributions Examine tradeoff between customer satisfaction & costs in distribution Understand a total cost approach to distribution Understand pervasive nature of distribution Introduce channel intermediaries and various distribution channels Introduce vertical marketing systems Overview distribution’s interaction with other aspects of the marketing mix Examine channel relations

Distribution’s Function The major purpose of marketing is to satisfy human needs by delivering products of various types to buyers when and where they want them and at a reasonable cost. The “when and where” is the function of Distribution 2

Definitions Logistics Supply Chain In-process inventory Component parts & Raw material Finished goods Supply Chain

Physical Distribution Activities Inventory management Order processing Warehousing and storage Materials handling Protective packaging & containerization Outbound transportation

Physical Distribution Objectives Maximize Customer Service Minimize Costs

Channel of Distribution All intermediaries involved in the exchange process Excludes pre-manufacturing (raw materials or component parts) Facilitate movement of physical goods and title PRODUCER INTERMEDIARIES CONSUMER 4

Physical Distribution Functions Accumulating bulk Creating assortments Breaking bulk Reducing transactions Transportation & storage 7

Modes of Transportation Rail Motor Water Pipeline Air

Modes of Transportation Railroads Medium cost and speed Low reliability Many damaged goods Good Geographic flexibility

Modes of Transportation Motor carrier Medium reliability Good speed Good flexibility Above average damage Now more competitive and unregulated

Modes of Transportation Air freight Expensive Very fast Above average reliability Average flexibility Average reputation for undamaged goods

Modes of Transportation Water transportation Low cost Low reliability Limited flexibility Limited damage

Modes of Transportation Pipeline Mostly gas and petroleum Low cost High reliability Limited flexibility Texas Kansas

Modes of Transportation Intermodal transportation Ship + Truck (fishyback) Rail + Truck (piggyback) Air + Truck (birdyback)

Storage & Inventory COntrol Breaking Bulk

Total Cost: A Systems Approach Handling Costs Shipping Costs Costs Transportation

Total Cost: A Systems Approach @$#*&!*&%

Communication & Transaction Functions Gather & Disseminate Information 1 9 24 37 2 3 57 Buying & Selling Personal Selling Advertising Sales Promotion 12

Facilitating Functions Extra Services Payment & Credit Services Risk Taking 13

Typical Channels of Distribution ANUFACTURER ONSUMER GENT ETAILER HOLESALER 14

Business-to-Business Channels Direct Wholesaler 21

Vertical Marketing Systems Corporate systems - total ownership Contractual - legal relationships Administered - strong leadership 23

Planning the Channel of Distribution Determining the structure Marketing mix strategy Organizational resources External environmental factors Market characteristics Consumer preferences and behavior The nature and availability of Intermediaries Other environmental factors 26

Intensive Distribution Producer Retailer Seeks to obtain maximum product exposure at the retail level

Selective Distribution Product is sold in a limited number of outlets Producer Product is sold in a limited number of outlets Retailer

Exclusive Distribution Producer Product is sold in only one outlet in a given area Retailer

Channel Relationships Cooperation Conflict Power Coercive Expert Legitimate 28

Other Distribution Management Issues One Coca Cola Distributor One thousand retailers OK Reverse distribution Difficult Backward channel Ethical, Political, & Legal 29

Review Explain general purpose of distribution & logistics Show distribution system’s contributions Examine tradeoff between customer satisfaction & costs in distribution Understand a total cost approach to distribution Understand pervasive nature of distribution Introduce channel intermediaries and various distribution channels Introduce vertical marketing systems Overview distribution’s interaction with other aspects of the marketing mix Examine channel relations