Chapter 15 Deliver Value Through Supply Chain Management, Channels of Distribution, and Logistics

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 Hall

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 Hall

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 Hall

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 Hall

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 Hall

The Importance of Distribution: You Can’t Sell What Isn’t There! 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 Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Functions of Distribution 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 Hall

Functions of Distribution 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 Hall

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 Hall

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 Hall

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 Hall

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 Hall

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 Hall

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 Hall

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 Hall

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 Hall

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 Hall

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 Hall

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 Hall

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 Hall

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 Hall

Logistics: Implementing the Supply Chain 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 Hall

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 Hall

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 Hall

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 Hall

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 Hall

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 Hall

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