CHAPTER 15 Creating Value Through Supply Chain Management: Channels of Distribution, Logistics, & Wholesaling M A R K E T I N G Real People, Real Choices

15-2 Chapter Objectives Understand the concept of the value chain & elements in a supply chain Explain what a distribution channel is & what functions distribution channels perform Describe the types of wholesaling intermediaries found in distribution channels

15-3 Chapter Objectives Describe the types of distribution channels & the steps in planning distribution channel strategies Explain how logistics is used in the supply chain

15-4 Supply Chain Management The supply chain includes all firms that engage in activities that are necessary to convert raw materials into a good or service Supply chain management is the management of flows among the firms in a supply chain to maximize profitability

15-5 What Is a Distribution Channel? Series of firms or individuals that facilitate the movement of a product from the producer to the final customer –Direct Manufacturer -> Customer –Indirect Intermediaries: from wholesalers to retailers

15-6 Functions of Distribution Channels Time, place, & ownership utilities Logistics functions Transportation & storage functions Efficiency creation Facilitating functions Repair & maintenance functions Risk-taking Communication & transaction functions

15-7 Creating Efficiencies Breaking bulk – channel members purchase large quantities from manufacturers & sell smaller quantities to many different customers Creating assortments – channel members provide a variety of products in one location

15-8 Types of Wholesaling Intermediaries Wholesaling intermediaries are firms that handle the flow of products from the manufacturer to retailer or business user –Independent Work with lots of manufacturers –Manufacturer owned Single manufacturer

15-9 Independent Intermediaries Merchant wholesalers –Full-service –Limited-service –Cash-and-carry wholesalers –Truck jobbers –Drop shippers –Mail-order wholesalers –Rack jobbers Merchandise Agents or Brokers –Manufacturers’ agents –Selling agents –Commission merchants –Merchandise brokers

15-10 Manufacturer-Owned Intermediaries Sales branches Sales offices Manufacturers’ showrooms

15-11 Types of Distribution Channels Consumer channels –Direct –Manufacturer-retailer-consumer –Manufacturer-wholesaler-retailer- consumer Business-to-business channels –Direct –Manufacturer-industrial distributor- business customer

15-12 Distribution Systems Conventional – multi-level distribution channel in which members work independently of one another Vertical – channel in which there is cooperation among channel members at two or more different levels of the channel Horizontal – two or more firms at the same channel level agree to work together

15-13 Vertical Marketing Systems Administered – channel members remain independent but voluntarily work together Corporate – single firm owns manufacturing, wholesaling, and retailing operations Contractual – cooperation is enforced by contracts that spell out member rights and the terms of cooperation

15-14 Contractual VMS Wholesaler-sponsored – wholesalers get retailers to work together under their leadership in a voluntary chain Retailer-cooperative – group of retailers with a wholesaling operation to help them compete more effectively with large chains Franchise organizations – cooperation is explicitly defined and strictly enforced by franchiser

15-15 Distribution Intensity Decision Factors: Company, Customers, Channels, Constraints, and Competition Intensive, Exclusive, or Selective Distribution

15-16 Implementing the Value Chain Process of designing, managing, & improving the movement of products through the supply chain –purchasing –manufacturing –storage –transport

15-17 Logistics and Customer Satisfaction Traditionally, logistics was thought of as physical distribution –order processing, warehousing, materials handling, transportation, & inventory control –objective to deliver product at lowest cost Now, customers’ goals become the logistics provider’s goals

15-18 Logistics Functions Order processing Warehousing Materials handling Transportation Inventory Control

15-19 Modes of Physical Transportation Rail Water Truck Air Pipeline

15-20 Transportation Mode Considerations Dependability Cost Speed of Delivery Accessibility Capability Traceability