Chapter 12 Distribution and Supply Chain Management Copyright © 2013 Pearson Canada Inc.

Distribution Planning 12-2Copyright © 2013 Pearson Canada Inc. “Planning the physical movement and transfer of ownership of goods and services from producers to consumers.” Intermediaries play a key role in the distribution of goods and services. An intermediary may take possession of goods, store goods, and resell goods to the target market. Intermediaries include distributors such as wholesalers and retailers.

Providing Contact Efficiency

Marketing Channels A set of interdependent organizations that ease the transfer of ownership as products move from producer to business user or consumer. Marketing Channels Marketing Channels Manufacturer to Wholesaler to Retailer to Customer

Channels of Distribution Copyright © 2013 Pearson Canada Inc.12-5

Channel Functions Performed by Intermediaries Contacting/Promotion Negotiating Risk Taking Researching Financing Physically distributing Storing Sorting Facilitating Functions Transactional Functions Logistical Functions Logistical Functions

You can evaluate a new distribution channel or improve your channel marketing / management at any time. It’s especially important to think about distribution when you’re going after a new customer segment, releasing a new product, or looking for ways to aggressively grow your business.

Wholesaling Functions Copyright © 2013 Pearson Canada Inc.12-9 A wholesaler may perform some or all of these functions: Provide Market Coverage Hold Inventory Process Orders Perform Market Intelligence Provide Customer Service Provide Merchandise Assortment Break Bulk

Channel Length and Width Copyright © 2013 Pearson Canada Inc Example: Inexpensive, frequently purchased packaged goods typically use long channels and expensive but less frequently purchased business goods use short channels. In longer channels control shifts from the producer to channel members. Channel length refers to the number of intermediaries or levels in the channel.

Channel Length and Width Copyright © 2013 Pearson Canada Inc Channel width refers to the number of intermediaries at any one level of the channel. Example: Packaged goods seek widespread distribution in different kinds of retail outlets (convenience stores, drug stores, supermarkets, etc.). Shopping goods seek a narrower or more selective list of retailers to sell to consumers.

Multi-Channelling Copyright © 2013 Pearson Canada Inc A company uses different types of intermediaries at the same level in the channel to reach various customer groups. Apple uses multiple channels to reach consumers.

Evaluate how your end-users need to buy Your distribution strategy should deliver the information and service your prospects need. How and where they prefer to buy Do they need personalized education and training? Do they need additional products or services to be used along with yours? Does your product needs to be customized or installed? Servicing product needs

Match end-user needs to a distribution strategy If your end-users need a great deal of information and service, your company can deliver it directly through a sales force. You can also build a channel of qualified resellers or consultants. The size of the market and your price will probably dictate which scenario is best.

Match end-user needs to a distribution strategy If the buying process is fairly straightforward, you can sell direct via a website/catalog or perhaps through a wholesale/retail structure. You may also use an inbound telemarketing group or a field sales team. If you need complete control over your product’s delivery and service, adding a channel probably isn’t right for you.

Build your distribution channel If you’re setting up a distribution channel with one or more partners, treat it as a sales process: Approach the potential channel partner and “sell” the value of the partnership. Establish goals, service requirements and reporting requirements. Deliver inventory (if necessary) and sales/support materials. Train the partner. Run promotions and programs to support the partner and help them increase sales.

Channels and Competitive Advantage Copyright © 2013 Pearson Canada Inc The pursuit of new or non-traditional channels presents profitable opportunities for a company.

Factors Influencing Channel Selection Copyright © 2013 Pearson Canada Inc S hould the channel be a direct or indirect channel? Factors to consider: Product and Service Characteristics Competition Company Resources Desired Intensity of Distribution

Market Factors Market Factors That Affect Channel Choices Market Factors That Affect Channel Choices Customer profiles Consumer or Industrial Customer Consumer or Industrial Customer Size of market Geographic location

Product Factors Product Factors That Affect Channel Choices Product Factors That Affect Channel Choices Product Complexity Product Standardization Product Life Cycle Product Delicacy Product Price

Intensity of Distribution Copyright © 2013 Pearson Canada Inc.12-21

Channel Control Copyright © 2013 Pearson Canada Inc A channel captain integrates and coordinates the objectives and policies of other members in the channel. Control can be at any level of the channel: Manufacturer Control Distributor (Wholesaler) Control Retailer Control Economic clout often determines who controls the channel.

Channel Control Copyright © 2013 Pearson Canada Inc General Motors (manufacturer) demonstrated its control when it eliminated some 200 Pontiac and Saturn dealers in Canada. Five large grocery wholesalers control 80% of grocery sales in Canada. These wholesalers operate under many different retail banners. Product suppliers must meet their financial expectations in terms of discounts. Walmart (retailer) is an 800-pound gorilla that places a lot of pressure on suppliers to lower costs and provide more marketing funds. Such pressure causes financial hardship for suppliers. A few examples:

Logistics Marketing Copyright © 2013 Pearson Canada Inc “Planning the physical flow of materials, finished goods and information.”

Logistics Marketing Copyright © 2013 Pearson Canada Inc Order Processing – Accepting orders and ensuring sufficient stock is available to fill and deliver orders. Stockouts do occur some time. Warehousing – A distribution centre that receives, sorts and redistributes merchandise to customers. Inventory Management – A system that ensures continuous flow of needed goods by matching goods in inventory with demand so that neither too much or too little stock is carried. The Think Marketing box on p. 243 outlines the need for efficient warehouse operations.

Logistics Marketing Copyright © 2013 Pearson Canada Inc Transportation – A manager must determine the most efficient mode of transportation to ship goods to customers near and far. Options include truck, rail, air, water and the Internet. To improve efficiency firms will employ combinations of transportation modes. Intermodal transportation involves two or more modes: air to truck, rail to truck, etc. Piggybacking involves placing an entire load of a truck trailer on a rail flatcar.

Transportation Alternatives Copyright © 2013 Pearson Canada Inc Outsourcing the transportation function is becoming more common. Many organizations believe this task should be in the hands of a specialist.

Supply Chain Management Copyright © 2013 Pearson Canada Inc Technology is playing a key role in improving distribution systems. Supply chain management programs involve all members of the channel. Supply Chain – A sequence of companies that perform activities related to the creation and delivery of goods to customers. Supply Chain Management – The integration of information among members of a supply chain to facilitate efficient production and distribution of good to customers.

ERP - Electronic Resource Planning Materials Requirement Planning (MRP) Materials Requirement Planning (MRP) An inventory control system that manages the replenishment of raw materials, supplies, and components from the supplier to the manufacturer. An inventory control system that manages the replenishment of raw materials, supplies, and components from the supplier to the manufacturer. Distribution Resource Planning (DRP) Distribution Resource Planning (DRP) An inventory control system that manages the replenishment of goods from the manufacturer to the final consumer. An inventory control system that manages the replenishment of goods from the manufacturer to the final consumer.

A Seamless Supply Chain Copyright © 2013 Pearson Canada Inc.12-30

Supply Chain Management System Copyright © 2013 Pearson Canada Inc.12-31

Visual Model Copyright © 2013 Pearson Canada Inc.12-32

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