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

Place: The Final Frontier Parity in product, promotion and price Place offers opportunity for differentiation E.g. Netflix, Walmart, I-tunes Managing distribution can spell enormous cost savings and profits

Supply Chain Management The supply chain – firms involved in all activities from raw material procurement to delivering the final product to the consumer Supply chain management – management of flows among the firms in a supply chain to maximize total profitability E.g. Hewlett Packard (Identify the flows)

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 Indirect Channel Intermediaries

Functions of Distribution Channels Time, place, and ownership utilities Logistics functions Transportation and storage Efficiency creation Breaking bulk Creating assortments Facilitating functions Repairs and replacements Credit and financing Risk taking Information flow & research

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

The Internet Small firms selling products distributable over the Internet (e.g. software, music, books, magazines, newspapers, etc.) Small firms completing the sale over the Internet but outsourcing logistics and transportation functions Disintermediation - process by which traditional intermediaries are eliminated

Types of Wholesaling Intermediaries Wholesaling intermediaries – firms that handle the flow of products from the manufacturer to retailer or business user Independent Merchant wholesalers (assume title and full risks, earn profits) Agents and brokers (merely bring buyers and sellers together; earn commissions) Manufacturer owned Sales branches, offices and showrooms

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

Types of Distribution Channels Consumer channels Direct (e.g. farmers market, Internet) Manufacturer-retailer-consumer (e.g. HP’s computers through Best Buy) Manufacturer-wholesaler-retailer-consumer (e.g. Breyers ice cream) Business-to-business channels Direct (most high value industrial products) Manufacturer-industrial distributor-business customer (smaller industrial products, e.g. valves, etc.)

Dual Distribution Systems Multiple channel usage Example: pharmaceutical industry sells to hospitals, clinics, and organizational customers directly and to consumers indirectly through drug retailers Hybrid marketing systems Using several channels at the same time

Deciding on a channel strategy Profit potential Control over distribution, promotion and pricing Resources availability

Marketing 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 (e.g. Smaller stores in Walmart; banks inside grocery stores)

Vertical Marketing Systems Administered – channel members remain independent but voluntarily work together Corporate – single firm owns manufacturing, wholesaling, and retailing operations (e.g. Sears) Contractual – cooperation is enforced by contracts that spell out member rights and the terms of cooperation (e.g. IGA food stores ; Ace Hardware)

Contractual VMS Wholesaler-sponsored – wholesalers get retailers to work together under their leadership in a voluntary chain (e.g. IGA) Retailer-cooperative – group of retailers with a wholesaling operation to help them compete more effectively with large chains (e.g. True Value Hardware) Franchise organizations – cooperation is explicitly defined and strictly enforced by franchiser (e.g. McDonalds)

Distribution Intensity Intensive distribution Maximize coverage by using all available outlets (e.g. gum, sodas, milk, bread, etc.) Exclusive distribution Limited outlets in a region Generally for high priced products (e.g. cars, jewelry, pianos, etc.) Selective distribution In between (e.g. house hold appliances, electronic equipment, etc.)

Managing the Channel Selecting channel partners Managing the channel of distribution Channel leader is the dominant firm that controls the channel (channel captain) Channel leaders have some form of power relative to other members

Logistics and Customer Satisfaction Traditionally, logistics was thought of as physical distribution order processing, warehousing, materials handling, transportation, and inventory control objective to deliver product at lowest cost Now, deliver products at the lowest cost provided, expected service quality is maintained

Logistics Functions Order processing Warehousing Materials handling Transportation Inventory Control

Transportation Mode Considerations Dependability Cost Speed of Delivery Accessibility Capability Traceability

Modes of Transportation Rail Water Truck Air Pipeline Internet