Chapter Objectives LEARNING OBJECTIVES LO1 Explain the importance of distribution and the interrelationships between distribution channels, supply chain management and logistics management LO2 Identify how distribution channels add value to businesses and consumers LO3 Describe distribution channel design and management decisions and strategies LO4 Explain how logistics and supply chain management affect distribution strategy These questions are the learning objectives guiding the chapter and will be explored in more detail in the following slides.

Supply Chain Management LO4 Supply Chain Management Ask students: Why would a supply chain be more efficient with a distribution centre rather than simply delivering directly to stores? Answer: The distribution centre serves as a place to accumulate merchandise from many vendors and then allocate it to stores in the quantities they need. Imagine the congestion if every vendor had to deliver to every store.

Supply Chains Add Value LO4 Supply Chains Add Value Without supply chain management, firms would face significant complications in getting their goods to consumers where they want them. Group activity: Each member of the group represents a supply chain link (e.g. manufacturer, retail distribution centre, retailer, transporter, end customer). Remove one link and attempt to move an object like a pen from one end to the other. Experiment with removing different links. What happens?

Supply Chains Streamline Distribution LO4 Supply Chains Streamline Distribution Reduce number of transactions Increase value for consumers More efficient and effective Customers expect to have their goods delivered and services performed on time. Ask students: What happens when the supply chain breaks down? Imagine you order a textbook from Amazon, which promises to deliver it by Saturday, before your classes start on Monday. What happens in terms of your satisfaction with Amazon if some link in the supply chain breaks down and you don’t receive your book until Tuesday? Ask students: How does supply chain management reduce inventory levels? What effect does supply chain management have on sales? Answer: An efficient supply chain can lower overall inventory in the system because merchandise is delivered when it is needed (just-in-time). By having an efficient supply chain, the retailers stay in stock, and sales increase. FedEx Commercial

Supply Chain Management Affects Marketing LO4 Supply Chain Management Affects Marketing Fulfilling delivery promises Meeting customer expectations Reliant on an efficient supply chain Customers expect to have their goods delivered and services performed on time. Ask students: What happens when the supply chain breaks down? Imagine you order a textbook from Amazon, which promises to deliver it by Saturday, before your classes start on Monday. What happens in terms of your satisfaction with Amazon if some link in the supply chain breaks down and you don’t receive your book until Tuesday?

Logistics: Making Information Flow Each step requires the collection and dissemination of information. Group activity: List the information that each member of the supply chain hopes to gain from each flow. Now list the information each member disseminates during each flow.

Volvo Logistics Corporation Group activity: Visit the Volvo Web site. What services does the company offer to both its suppliers and its customers? http://www.volvo.com/logistics/global/en-gb

Electronic Data Interchange LO4 Electronic Data Interchange Cycle time Quality of communications Easily analyzed and used Advanced shipping notice Intranet Extranet The growth of EDI systems has allowed for advanced tracking of information. Each system can seamlessly integrate with others, which creates value for both customers and the firm. Ask students: Exactly how does EDI increase value for end customers? Answer: Since EDI facilitates information, it makes it easier for retailers to plan their deliveries (advance shipping notice) and plan their inventories. Other information is handled through EDI as well. The bottom line is the retailer has the merchandise the customer wants when he/she wants it, and in the quantities that are demanded.

Managing Supply Chains Through Strategic Relationships LO4 Managing Supply Chains Through Strategic Relationships Strategic Relationships Mutual Trust Open Communications Common Goals Credible Commitments Explain how, like supply chain relationships, like personal relationships are stronger when there is mutual trust, open communication, common goals, and credible commitments. Have students provide specific examples.

Making Merchandise Flow Remind students that supply chains enable the flow of not just information but also goods. Keeping goods flowing is not a simple task. Ask students: Under what circumstances might a manufacturer deliver directly to stores (flow 2) rather than to a distribution centre (flow 1)? Answer: 1.Because the retailer demands it. 2. Because merchandise is bulky (furniture) or needs to be delivered daily (tortillas)

The Distribution Centre LO4 The Distribution Centre Management of inbound transportation Receiving and checking using UPC and RFID Storing and Cross-Docking Getting Merchandise Floor Ready Preparing to ship Shipping to store This slide introduces the structure companies use to set up distribution channels. More in depth slides follow. Distribution centres are not best if the retailer has few outlets and/or the stores are consolidated. The following list are some advantages of having a distribution centre: more accurate sales forecasts due to many stores lower inventory in each story therefore lower overall inventory costs overstock and under-stock is less of a problem it is less expensive to store in a remote warehouse then expensive retail location. Group Project – Ask student to draw out the distribution centre for a pair of Nike shoes that are at a Footlocker distribution centre. For each stage, ask them to list 3 things that will happen to the item and 1 thing that might go wrong! This YouTube video (check link before class) is a segment on ABC news on a Walgreens warehouse where 40% of their employees are disabled. This video is a nice way to link CSR and supply chain.

Making Merchandise Flow Inbound Transportation Receiving and Checking Storing and Cross-Docking Inbound Transportation - Dispatcher coordinates deliveries, Manufacturer may pay transportation expenses or retailers negotiate directly with trucking companies and pay expenses. Receiving and Checking - After goods arrive at their destination, the recipient must account for them. RFID has the potential of tracking merchandise throughout the supply chain. Items wouldn’t have to be physically checked. A distribution centre or a store could know exactly where and how many of an item it has because each item has an RFID tag. Some are concerned, however, about consumer privacy—being able to track a consumer that is wearing apparel with and RFID tag. Storing and Cross-Docking - One of the most important functions of the supply chain is to hold merchandise until the next link in the chain is ready for it. But many firms strive to hold merchandise a minimum amount of time because holding merchandise in a distribution centre is expensive and the merchandise is not available for sale. So cross-docking distribution centres are part of just-in-time delivery systems. Ask students: Which type of distribution centre is best for minimizing inventory in the supply chain? Answer: cross-docking

Receiving and Checking LO4 Receiving and Checking Receiving Arrival receipt Checking Undamaged Ordered = received Radio Frequency Distribution (RFID) Tags Container computer chips After goods arrive at their destination, the recipient must account for them. RFID has the potential of tracking merchandise throughout the supply chain. Items wouldn’t have to be physically checked. A distribution centre or a store could know exactly where and how many of an item it has because each item has an RFID tag. Some are concerned, however, about consumer privacy—being able to track a consumer that is wearing apparel with and RFID tag.

Making Merchandise Flow (continued) Getting Merchandise Floor Ready Shipping Merchandise to Stores Inventory Management (JIT Systems) Getting Merchandise Floor Ready – Many firms now require that manufacturers ship floor-ready merchandise, which shifts the burden of ticketing and marketing to the manufacturer. Ask students: What cost implications do these requirements have for manufacturers and retailers? Shipping Merchandise to Stores – Technology facilitates shipments to stores by tracking item sales and thus triggering replacement orders. Ask students: How do automatic ordering systems benefit manufacturers, retailers, and customers? Answer: Manufacturers can plan their production schedules. Retailers get more accurate forecasts. Customers get the merchandise they want, when they want it. Inventory Management (JIT Systems) - Because they use smaller but more frequent shipments, JIT systems reduce stock-out situations which in turn increases customer satisfaction. Ask students: Can you think of any potential problems with this inventory management approach? Answer: The systems can be expensive and the supply chain partners must be committed to accurate data or they won’t work. Also, if the system isn’t working properly, out-of-stocks can occur.

Inventory Management Through Just-In-Time Systems LO4 Inventory Management Through Just-In-Time Systems Inventory management systems track goods throughout stores, warehouses, and DCs. As its name implies, just-in-time inventory management ensures goods get delivered only when they are needed. Just-in-time (JIT) Quick response (QR)

Benefits of JIT Systems LO4 Benefits of JIT Systems Reduced lead time Increased product availability and lower inventory investment Because they use smaller but more frequent shipments, JIT systems reduce stock-out situations which in turn increases customer satisfaction. Ask students: Can you think of any potential problems with this inventory management approach? Answer: The systems can be expensive and the supply chain partners must be committed to accurate data or they won’t work. Also, if the system isn’t working properly, out-of-stocks can occur.

Supplier Managed Inventory LO4 Supplier Managed Inventory How to get a perishable product produced in one country delivered to another on time and still fresh? This slide sets up the Case in Point which follows. Perishable products pose unique challenges to supply chain management, especially those manufactured in one part of the world and sold in another.

Case in Point: Guinness LO4 Case in Point: Guinness 99% of the product left the UK on time but only 59% arrived on time. Challenge Answer Results Partner with SAP using their See Why software began to identify issues in container shipments to U.S. and track demand and delivery. By taking control of its own inventory management, Guinness can better serve its customers’ demand, track inventory, and ensure product freshness. Group activity: Why was it crucial for Guinness to step in to control its own inventory? Guinness’s unique taste only lasts while the beer is fresh. Stale Guinness would have negative impacts on the overall brand image. Set up a Supplier Management Inventory system in the U.S. Allowing Guinness to maintain stock and predict demand for the U.S. market. Better able to schedule shipping and contain costs.