Managing Marketing Channels and Supply Chains Jamie Bute Caroline Mutonyi Lisa Schoborg Morgan Wortham January 12, 2015

Agenda Marketing Channels Vertical Marketing Systems Marketing Channel Choice Management Marketing Logistics & Supply Chain Management Distribution Channel Choice Management Types of Distribution Strategies

Marketing Channel Marketing Channel: the transfer of the ownership of goods from production to consumption Channel Partners (distributors, wholesalers, and retailers) offer Three Functions: Transactional Work as an intermediary between the producer and the customer Hold onto inventory at their location Enhance your image by supply the goods to customers in a timely manner Logistical Store the products Provide transportation Buy in bulk and then split into smaller shipments Combine product with other products to sell to consumer Facilitating Deal with customers Negotiate Sales Provide Customer Service

Consumer Product Channels Direct: Producer sells directly to the end customer Indirect Retailers Wholesalers – Retailers Agents – Wholesalers – Retailers Agent or Broker – Any intermediary with legal authority to act on behalf of the manufacturer Wholesaler – An intermediary who sells to other intermediaries, usually to retailers; term usually applies to consumer markets Retailer – An intermediary who sells to consumers Distributor – an imprecise term, usually used to describe intermediaries who perform a variety of distribution functions, including selling, maintaining inventories, extending credit, and so on; a more common term in business markets but may also be used to refer to wholesalers

Business Product Channels Direct: Producer sells directly to the end customer Indirect Industrial Distributor Agents Agents – Industrial Distributor

Electronic Marketing Channels Radio Television Computer Telephone and Cell Phone Fax Machine Email RSS Electronic messaging

Direct Marketing Channels

Multichannel Marketing The practice of interacting with customers using a combination of indirect and direct communication channels – websites, retail stores, mail order catalogs, direct mail, email, mobile, etc. – and enabling customers to take action in response – preferably to buy your product or service – using the channel of their choice. In the most simplistic terms, multichannel marketing is all about choice.

Dual Distribution Involves an arrangement whereby a firm reaches different buyers by employing two or more different types of channels for the same basic product.

Vertical Marketing Systems In normal systems, each piece of the distribution channel operates on its own for profit Channel arrangement to bring together parts of the distribution channel for their mutual benefit Combine resources Three systems: Corporate, Contractual, and Administrated

Corporate Systems A company purchases pieces of the distribution channel Forward integration Purchase the next level down in the channel Backward integration Purchase the previous level in the channel Pro: more control Con: takes a lot of capital

*Contractual Systems Companies enter into contracts with pieces of the distribution channel Wholesaler-sponsored voluntary Retailer-sponsored cooperatives Franchising

Administrated Systems The company does not own or have contracts with pieces of the distribution channel, but controls activities of the other pieces with power of size or influence.

Factors Affecting Channel Choice and Management Which channel and intermediaries will provide the best coverage of the target market? Which channel and intermediaries will best satisfy the buying requirements of the target market? Which channel and intermediaries will be the most profitable?

Marketing Channel Choice & Management Intensive distribution Place products/services in as many outlets as possible Exclusive distribution Place products/services in one retailer at specific geographic area *Selective distribution Place products/services in a few retailers in a specific geographic area

Market Logistics The process of planning, implementing, and controlling the physical flow of goods, services, and related information from points of origin to points of consumption to meet consumer requirements at a profit.

Supply Chain 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, that perform or support the LOGISTICS function. A supply chain is the system of organizations, people, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform raw materials and components into a finished product that is delivered to the end customer.

Logistics of Supply Chain Supply Chain Team Sourcing & Procurement Production Scheduling Order Processing Inventory Control Warehouse & Materials Handling Transportation Logistics Information System The supply chain consists of several interrelated and integrated logistical components, as shown on this slide. Integrating and linking all of the components is the logistics information system. The supply chain team orchestrates the movement of goods from the source to the consumer. The team cuts across organization boundaries and communicates/coordinates/cooperates extensively. The best supply chain teams move beyond the organization to include external participants, such as suppliers, transportation carriers, and third-party logistics suppliers.

Supply Chain Process

Supply Chain Process Example

Supply Chain Partners The supply chain consists of two types of partners: Upstream partners include raw material suppliers, components, parts, information, finances, and expertise to create a product or service Downstream partners include the marketing channels or distribution channels that look toward the customer

Supply Chain Management A management system that coordinates and integrates all of the activities performed by supply chain members into a seamless process, from the source to the point of consumption, resulting in enhanced customer and economic value. Supply chain management helps companies achieve competitive advantage. By visualizing the entire supply chain, supply chain managers can maximize strengths and efficiencies at each level of the process to create a highly competitive, customer-driven supply system that is able to respond immediately to changes in supply and demand. In mass production, standardized products were “pushed” down the supply chain to the consumer. In contrast, in today’s marketplace, products are being driven or “pulled” by customers who expect products configured to their unique needs. Supply chain management allows companies to respond with the unique product configuration and mix of services demanded by the customer. supply chain distribution accounts for 50 cents of every dollar spent promotion accounts for only 2 cents!

Role of Supply Chain Management Communicator of customer demand from point of sale to supplier. Physical flow process that engineers the movement of goods. Today, supply chain management plays a dual role. Supply chain management acts as a communicator of customer demand that extends from the point of sale back to the supplier, and second, as a physical flow process that engineers the movement of goods throughout the entire supply pipeline. Supply chain managers are responsible for making channel strategy decisions, coordinating the sourcing and procurement of raw materials, scheduling production, processing orders, managing inventory, transporting and storing supplies and finished goods, and coordinating customer service activities. Additionally, supply chain managers are responsible for managing the information that flows through the supply chain.

Benefits of Supply Chain Management Means of differentiation Reduced costs Greater supply chain flexibility Improved customer service Higher revenues Notes: Supply chain management is a key means of differentiation for a firm and a critical component in marketing and corporate strategy. Research has shown a clear relationship between supply chain performance and profitability. Leaders in supply chain management report a 20 percent improvement in cash flow, a more than 50 percent increase in flexibility of supply chain activities, and a reduction of 5 to 10 percent in supply chain costs.

Distribution Channel Choice Management A marketing channel consists of individuals and firms involved in the process of making products or services available for use or consumption by consumers or industrial use. Distribution is one of the key elements in the entire marketing strategy as they help expand your reach and grow revenue.

Distribution Distribution is a vitally important activity that focuses on how to reach your target market and the: location of your business location of your target market how to reach your target market warehousing of your stock transportation of your stock

Two Types of Distribution Strategies/Channels of Distribution Direct Shipment Distribution Strategies Intermediate Inventory Storage Point

Direct Shipment Distribution Strategies Advantages: The retailer avoids the expenses of operating a distribution center Lead times are reduced Disadvantages: Risk-pooling effects are negated Manufacturer and distributor transportation costs increase Commonly used scenarios: Prevalent in the grocery industry Lead times are critical because of perishable goods Retail store requires fully loaded trucks Often mandated by powerful retailers Manufacturer may be reluctant but may have no choice

Intermediate Inventory Storage Point Strategies Traditional warehousing strategy Distribution centers and warehouses hold stock inventory Provide their downstream customers with inventory as needed Cross-docking strategy Warehouses and distribution centers serve as transfer points for inventory No inventory is held at these transfer points Centralized pooling and transshipment strategies May be useful when there is a large variety of different products

Centralized vs. Decentralized Management Centralized system Decisions are made at a central location for the entire supply network. Typical objective: minimize the total cost of the system subject to satisfying some service-level requirements. Centralized control leads to global optimization. At least as effective as the decentralized system. Allow use of coordinated strategies. Decentralized system Each facility identifies its most effective strategy without considering the impact on the other facilities in the supply chain. Leads to local optimization.

Central vs. Local Facilities Centralized facilities Employ both fewer warehouses and distribution centers. Facilities are located further from customers. Other factors Safety stock: Lower safety stock levels with centralized facilities. Overhead: Lower total overhead cost with centralized facilities. Economies of scale: Greater economies of scale with centralized facilities. Lead time: Lead time to market reduced with local facilities. Service Utilization of risk pooling better with centralized Shipping times better with local Transportation costs Costs between production facilities and warehouses higher with local Costs from warehouses to retailers lower with local

Cross-Docking Warehouse functions as inventory coordination points rather than as inventory storage points. Goods arriving at warehouse from the manufacturer: - are transferred to vehicles serving the retailers - are delivered to the retailers as rapidly as possible Goods spend very little time in storage at the warehouse Often less than 12 hours Limits inventory costs and decreases lead times

Conclusion Managing marketing channels and supply chains is a critical element of marketing – after all, marketing is about getting the right product, in the right quantity, to the right place, at the right time.

Questions?