Chapter 5 Managing The Supply Chain Retailing, 6 th Edition. Copyright ©2008 by South-Western, a division of Thomson Learning. All rights reserved.

Learning Objectives 1.Discuss the retailer’s role as one of the institutions involved in the supply chain. 2.Describe the types of supply chains by length, width, and control. 3.Explain the terms dependency, power, and conflict and their impact on supply chain relations. 4.Understand the importance of a collaborative supply chain relationship.

The Supply Chain Supply Chains: Is a set of institutions that moves goods from the point of production to the point of consumption. LO 1

The Supply Chain Channel: Used interchangeably with supply chain. LO 1

The Supply Chain The supply chain, or channel, is affected by five external forces: Consumer behavior Competitor behavior Socioeconomic environment Technological environment Legal and ethical environment LO 1

The Supply Chain Buying Selling Storing Transporting Sorting Financing Information Gathering Risk Taking A supply chain or channel must perform eight marketing functions: LO 1

The Supply Chain A marketing function does not have to be shifted in its entirety to another institution or to the consumer but can be divided among several entities. LO 1

The Supply Chain Primary Marketing Institutions: Are those channel members that take title to the goods as they move through the marketing channel. They include manufacturers, wholesalers, and retailers. LO 1

Primary Marketing Institutions Costco is a primary marketing institution that acts as both a wholesaler (selling to small businesses) and a retailer (selling to households). LO 1

The Supply Chain Facilitating Marketing Institutions: Are those that do not actually take title but assist in the marketing process by specializing in the performance of certain marketing functions. LO 1

Institutions Participating in the Supply Chain Exhibit 5.1LO 1

Facilitating Institutions Agents Brokers Communications agencies Advertising agencies Transporters Public warehouse Technology specialists Financing institutions LO 1

The Supply Chain Public Warehouse: Is a facility that stores goods for safekeeping for any owner in return for a fee, usually based on space occupied. LO 1

Types of Supply Chains Supply Chain Length Supply Chain Width Control of the Supply Chain LO 2

Supply Chain Length Direct Supply Chain: Is the channel that results when a manufacturer sells its goods directly to the final consumer or end user. LO 2

Supply Chain Length Indirect Supply Chain: Is the channel that results once independent channel members are added between the manufacturer and the consumer. LO 2

Strategic Decisions in Supply Chain Design Exhibit 5.2LO 2

Direct and Indirect Supply Chains Exhibit 5.3LO 2

Width of Marketing Supply Chain Exhibit 5.4LO 2

Supply Chain Width Intensive Distribution: Means that all possible retailers are used in a trade area. LO 2

Supply Chain Width Selective Distribution : Means that a moderate number of retailers are used in a trade area. LO 2

Supply Chain Width Exclusive Distribution: Means only one retailer is used to cover a trading area. LO 2

Marketing Channel Patterns Exhibit 5.5LO 2

Control of the Supply Chain Conventional Marketing Channel: Is one in which each channel member is loosely aligned with the others and takes a short-term orientation. LO 2

Control of the Supply Chain Vertical Marketing Channels: Are capital-intensive networks of several levels that are professionally managed and centrally programmed to realize the technological, managerial, and promotional economies of a long-term relationship orientation. LO 2

Vertical Marketing Channels Quick Response (QR) Systems: Also known as Efficient Consumer Response (ECR) Systems, are integrated information, production, and logistical systems that obtain real-time information on customer actions by capturing sale data at point-of-purchase terminals and then transmitting this information back through the entire channel to enable efficient production and distribution scheduling. LO 2

Vertical Marketing Channels Stock-Keeping Units: Are the lowest level of identification of merchandise. LO 2

Vertical Marketing Channels Corporate Vertical Marketing Channels: Exist where one channel institution owns multiple levels of distribution and typically consists of either a manufacturer that has integrated vertically forward to reach the consumer or retailer that has integrated vertically backward to create a self-supply network. LO 2

Vertical Marketing Channels Contractual Vertical Marketing Channels: Use a contract to govern the working relationship between channel members and include wholesaler-sponsored voluntary groups, retailer-owned cooperatives, and franchised retail programs. LO 2

Vertical Marketing Channels Wholesaler-Sponsored Voluntary Groups: Involve a wholesaler that brings together a group of independently owned retailers and offers them a coordinated merchandising and buying program that will provide them with economies like those their chain store rivals are able to obtain. LO 2

Wholesale Sponsored Voluntary Group Wholesale sponsored voluntary groups, such as NAPA, have been a major force in marketing channels since the mid-1960s. LO 2

Vertical Marketing Channels Retailer-Owned Cooperatives: Are wholesale institutions, organized and owned by member retailers, that offer scale economies and services to member retailers, which allows them to compete with larger chain buying organizations. LO 2

Retailer-Owned Cooperatives Ace, a familiar name in hardware retailing, is an example of a retailer-owned cooperative. LO 2

Vertical Marketing Channels Franchise: Is a form of licensing by which the owner of a product, service, or business method (the franchisor) obtains distribution through affiliated dealers (franchisees). LO 2

Advantages of Franchising Exhibit 5.6LO 2

Disadvantages of Franchising Exhibit 5.6LO 2

Franchisors An example of a fast-food retailer as a franchisor is Domino’s Pizza. LO 2

Vertical Marketing Channels Administered Vertical Marketing Channels: Exist when one of the channel members takes the initiative to lead the channel by applying the principles of effective interorganizational management. LO 2

Managing Retailer-Supplier Relations Dependency Power Conflict LO 3

Managing Retailer-Supplier Relations Dependency: Every supply chain needs to perform eight marketing functions by any combination of the members. None can be isolated; each depends on the others to do an effective job. LO 3

Managing Retailer-Supplier Relations Power: Is the ability of one channel member to influence the decisions of the other channel members. LO 3

Types of Power Reward Power: Is based on B’s perception that A has the ability to provide rewards for B. LO 3

Types of Power Expertise Power: Is based on B’s perception that A has some special knowledge. LO 3

Types of Power Referent Power: Is based on the identification of B with A. LO 3

Types of Power Coercive Power: Is based on B’s belief that A has the capability to punish or harm B if B doesn’t do what a wants. LO 3

Types of Power Legitimate Power: Is based on A’s right to influence B, or B’s belief that B should accept A’s influence. LO 3

Types of Power Informational Power: Is based on A’s ability to provide B with factual data. LO 3

Managing Retailer-Supplier Relations Conflict: Is inevitable because retailers and suppliers are interdependent. LO 3

Conflict Perceptual Incongruity: Occurs when the retailer and supplier have different perceptions of reality. LO 3

Conflict Goal Incompatibility: Occurs when achieving the goals of either the supplier or the retailer would hamper the performance of the other. LO 3

Conflict Dual Distribution: Occurs when a manufacturer sells to independent retailers and also through its own retail outlets. LO 3

Conflict Domain Disagreements: Occurs when there is disagreements about which member of the marketing channel should make decisions. LO 3

Conflict Diverter: Is an unauthorized member of a channel who buys and sells excess merchandise to and from authorized channel members. LO 3

Conflict Gray Marketing: Is when branded merchandise flows through unauthorized channels. LO 3

Conflict Free-riding: Is when a consumer seeks product information, usage instructions, and sometimes even warranty work from a full service store but then, armed with the brand’s model number, purchases the product from a limited service discounter or over the Internet. LO 3

Conflict Process Role of Channel Interdependency Conflict Resolution Dependency of Retailer on Supplier Dependency of Supplier on Retailer Felt Manifest Perceived Power of Supplier Over Retailer Conflict Potential Power of Retailer Over Supplier Conflict Felt Manifest Perceived Conflict Potential Supplier’s Power Sources Retailer’s Power Sources Interdependency

Collaboration in the Channel Facilitating Channel Collaboration Category Management LO 4

Supply Chain Best Management Practices Exhibit 5.7LO 4

Facilitating Channel Collaboration Mutual Trust: Occurs when both the retailer and its supplier have faith that each will be truthful and fair in their dealings with the other. LO 4

Facilitating Channel Collaboration Two-Way Communication: Occurs when both retailer and supplier communicate openly their ideas, concerns, and plans. LO 4

Facilitating Channel Collaboration Solidarity: Exists when a high value is placed on the relationship between a supplier and retailer. LO 4

Category Management Category Management (CM): Is the process of managing all the SKUs within a product category and involves the simultaneous management of price, shelf space, merchandising strategy, promotional efforts, and other elements of the retail mix within the category based on the firm’s goals, the changing environment, and consumer behavior. LO 4

Category Management Category Manager: Is an employee designated by a retailer for each category sold in their store. The manager leverages detailed knowledge of the consumer and trends, detailed point-of-sales information, and specific analysis provided by each supplier to tailor a store’s offerings to the specific needs of each market. The manager works with the suppliers to plan promotions throughout the year. LO 4

Additional Slides

The Marketing Functions SellingBuying StoringTransporting SortingFinancing Information Gathering Risk Taking LO 1

Facilitating Marketing Institutions AgentsBrokers Communications Agencies Advertising Agencies Transporters Public Warehouse Technology Specialists Financing Institutions LO 1

Managing Retailer-Supplier Relations Power Dependency Conflict LO 3

Facilitating Channel Collaboration Mutual Trust Two-Way Communication Solidarity LO 4