Chapter 5 Managing the Supply Chain

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Supply Chain  Is a set of institutions that move goods from the point of production to the point of consumption.  Channel - Used interchangeably with 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

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Supply Chain  A supply chain or channel must perform eight marketing functions:  Buying  Selling  Storing  Transporting  Sorting  Financing  Information gathering  Risk taking LO 1

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Supply Chain  The institutions involved in performing the eight marketing functions are usually broken into:  Primary marketing institutions - Channel members that take title to the goods as they move through the marketing channel.  Facilitating marketing institutions - Channel members that do not actually take title but assist in the marketing process by specializing in the performance of certain marketing functions. E.g. Public warehouse - Facility that stores goods for safekeeping for any owner in return for a fee, usually based on space occupied. LO 1

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit Institutions Participating in the Supply Chain LO 1

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Types of Supply Chains  Supply chain length  Supply chain width  Control of the supply chain LO 2

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit Strategic Decisions in Supply-Chain Design LO 2

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit Direct and Indirect Supply Chains LO 2

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Supply Chain Length  Sometimes the length of a supply chain is hard to determine.  The desired length is determined by many customer- based factors such as  the size of the customer base  geographical dispersion  behavior patterns like purchase frequency  average purchase size  the particular needs of customers LO 2

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit Width of Supply-Chain Structure LO 2

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit Marketing Channel Patterns LO 2

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Control of the Supply Chain  Conventional marketing channel - Each channel member is loosely aligned with the others and takes a short term orientation; is an unproductive method for marketing goods.  Vertical marketing channels - 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

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Control of the Supply Chain  Quick response (qr) systems/ efficient consumer response (ECR) systems - Integrated information, production, and logistical systems that obtain real- time information on consumer actions by capturing sales 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

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Control of the Supply Chain  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 a retailer that has integrated vertically backward to create a self supply network.  It is not difficult to program the channel for productivity and profit goals since a well-established authority structure already exists. LO 2

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Control of the Supply Chain  Contractual vertical marketing channels - Use a contract to govern the working relationship between channel members and include:  Wholesaler-sponsored voluntary groups - The wholesaler 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

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Control of the Supply Chain  Retailer-owned cooperatives - 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.  Franchise - Form of licensing by which the owner of a product, service, or business method (the franchisor) obtains distribution through affiliated dealers (franchisees). LO 2

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit Advantages and Disadvantages of Franchising LO 2

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Control of the Supply Chain  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

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managing Retailer-Supplier Relations  Dependency  Occurs when a retailer needs another supply chain member or vice versa to perform certain marketing functions.  Interdependent - When two members of the supply chain are dependent on each other. Interdependency is at the root of the collaboration found in today’s supply chains, and is the major cause of conflict found in supply. LO 3

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managing Retailer-Supplier Relations  Power - Ability of one channel member to influence the decisions of the other channel members. LO 3

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managing Retailer-Supplier Relations Reward powerBased on B’s perception that A has the ability to provide rewards for B. Expertise powerBased on B’s perception that A has some special knowledge. Referent powerBased on the identification of B with A. Coercive powerBased on B’s belief that A has the capability to punish or harm B if B doesn’t do what A wants. Legitimate powerBased on A’s right to influence B, or B’s belief that B should accept A’s influence. Informational power Based on A’s ability to provide B with factual data. LO 3

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managing Retailer-Supplier Relations  Conflict  Major sources of conflict between retailers and their suppliers: Perceptual incongruity Goal incompatibility Dual distribution Domain disagreements Diverter Gray marketing Free riding LO 3

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managing Retailer-Supplier Relations Perceptual incongruity The retailer and supplier have different perceptions of reality. Goal incompatibility Achieving the goals of either the supplier or the retailer would hamper the performance of the other. Dual distributionManufacturer sells to independent retailers and also through its own retail outlets. Domain disagreements Disagreement about which member of the marketing channel should make decisions. DiverterUnauthorized member of a channel who buys and sells excess merchandise to and from authorized channel members. LO 3

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Managing Retailer-Supplier Relations Gray marketingBranded merchandise flows through unauthorized channels. Free-ridingConsumer 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

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit Supply Chain Management Best Practices LO 4

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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; allows the channel to grow and prosper.  Two-way communication - Occurs when both retailer and supplier communicate openly their ideas, concerns, and plans. LO 4

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Facilitating Channel Collaboration Mutual trustBoth the retailer and its supplier have faith that each will be truthful and fair in their dealings with the other; allows the channel to grow and prosper. Two-way communication Both retailer and supplier communicate openly their ideas, concerns, and plans. SolidarityHigh value is placed on the relationship between a supplier and retailer; results in flexible dealings where adaptations are made as circumstances change. LO 4

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Category Management  Category management (CM) - Process of managing all the SKUs within a product category.  It 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

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Category Management  Category manager - The individual who uses detailed knowledge of the consumer and consumer trends, detailed point-of-sale (POS) information, and specific analysis provided by each supplier to the category to create various store displays based on local market conditions.  In cases where the solidarity of the channel partners is high, a supplier may serve as the retailer’s category advisor. LO 4