1. Chapter 15
Deliver Value Through Supply Chain Management, Channels of Distribution, and Logistics

2. Chapter Objectives
Understand the value chain concept and the key elements in the supply chain
Explain what a distribution channel is and know what functions channels perform
Describe the types of wholesaling intermediaries found in distribution channels
Describe the types of distribution channels and the role of place in the marketing mix
Understand the steps in planning a distribution channel strategy
Explain logistics and how it fits into the supply chain concept
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

3. Real People, Real Choices: Decision Time at Darden Restaurants
Which strategy should Jim pursue?
Option 1: Internalize the food delivery function by developing a distribution network owned and operated by Darden
Option 2: Work with third-party logistics providers to create a distribution network
Option 3: Work with traditional system distributors under a new operating model
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

4. Place: The Final Frontier
Value chain:
A series of activities directed at designing, producing, marketing, delivering, and supporting any product
Supply chain:
All of the activities necessary to turn raw materials into a good or service and put it in the hands of the consumer
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

5. Links in the Supply Chain
Supply chain management: The management of flows among the firms in a supply chain to maximize total profitability
Includes physical movement of and sharing of information about goods
Insourcing: Firms contract with a specialist that handles all or part of the company’s supply chains
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

6. Links in the Supply Chain
Channel of distribution: The series of firms or individuals that facilitates the movement of a product from producer to final customer
Supply chain links
The supplier network provides raw materials and parts to the manufacturer
Firm manufactures a product
Products are sent to distribution channel for resale to buyers
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

7. The Importance of Distribution: You Can’t Sell What Isn’t There!
Channel intermediaries Firms or individuals such as wholesalers, agents, brokers, and retailers that help move the product from the producer to the consumer or business user
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

8. Functions of Distribution Channels
Provide time, place, and ownership utility
Provide logistics and/or physical distribution functions
Create efficiencies by reducing the number of transactions
Breaking bulk: Purchasing large quantities of goods to sell one/few at a time to customers
Creating assortments: Providing variety of products in one location
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

9. Functions of Distribution Channels
Transport and store goods
Perform facilitating functions to make purchase process easier
Provide setup, repair, and maintenance services for products carried
Provide communication and transaction functions
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

10. The Internet in the Distribution Channel
E-commerce has created radical changes in distribution strategies
Disintermediation: Eliminating traditional intermediaries
Reduces manufacturer costs
Knowledge management: Sharing knowledge with other supply chain members
Online distribution piracy can be problematic
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

11. Channel Composition: Types of Wholesaling Intermediaries
Wholesaling intermediaries: Firms that handle the flow of products from the manufacturer to the retailer/business user
Independent intermediaries
Merchant wholesalers
Merchandise agents and brokers
Manufacturer owned intermediaries
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

12. Independent Intermediaries
Merchant wholesalers:
Buy goods from manufacturers and sell to retailers and other B2B customers
Full-service merchant wholesalers
Limited-service merchant wholesalers
Cash-and-carry wholesalers
Truck jobbers
Drop shippers
Rack jobbers
Mail-order wholesalers
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

13. Independent Intermediaries
Merchandise agents/brokers:
Provide services in exchange for commissions
Manufacturers’ agents/reps
Selling agents
Commission merchants
Merchandise brokers
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

14. Manufacturer-Owned Intermediaries
Sales branches
Carry inventory, provide sales, and service support
Sales offices
Similar to agents; do not carry inventory but provide selling functions
Manufacturers’ showrooms
Permanent product displays for customers to visit
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

15. Types of Distribution Channels
Marketers must consider the number of channel levels when designing a distribution system
Various channel structures exist
Consumer channels
Business-to-business channels
Dual distribution systems
Hybrid marketing systems
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

16. Distribution, the Marketing Mix and Ethical Issues
Distribution decisions interact with the marketing mix in a number of ways:
Place decisions influence pricing
Distribution decisions can help develop a position in the market
Nature of the product influences choice of distribution channels, especially retailers
Distribution decisions can create ethical dilemmas
Slotting allowances
Size of channel intermediaries
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

17. Planning a Channel Strategy
Step 1:
Develop distribution objectives that support the firm’s overall marketing goals
Step 2:
Evaluate internal and external environmental influences to develop best channel structure
Firm’s ability to handle distribution functions
Channel intermediaries available
How the competition distributes its products
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

18. Planning a Channel Strategy
Step 3:
Choose a distribution strategy
Channel relationships: Conventional, vertical, or horizontal system
Conventional marketing system: Members work independently of one another
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

19. Vertical and Horizontal Marketing Systems
Vertical marketing system (VMS):
Formal cooperation among channel members
Administered VMS
Corporate VMS
Contractual VMS
Retailer cooperative
Franchise organizations
Horizontal marketing system:
Two or more firms at the same channel level agree to work together to get their product to the customer
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

20. Planning a Channel Strategy
Step 3: Choose a distribution strategy
Distribution intensity
Intensive distribution: Selling through all suitable wholesalers or retailers
Exclusive distribution: Selling only through a single outlet in a region
Selective distribution: Using fewer outlets than intensive but more than exclusive distribution
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

21. Planning a Channel Strategy
Step 4: Develop distribution tactics
Selecting channel partners (normally a long-term commitment)
Managing the channel
Channel leader/captain: Dominant firm that controls the channel (via economic, legitimate, reward/coercive power)
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

22. Logistics: Implementing the Supply Chain
Logistics: The process of designing, managing, and improving the movement of products through the supply chain
Logistics includes:
Purchasing
Manufacturing
Storage
Transporting
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23. Logistics: Implementing the Supply Chain
Involves physical distribution (the activities used to move finished goods from manufacturers to final customers)
Logistic functions include:
Order processing
Warehousing
Materials handling
Transportation
Inventory control
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

24. Logistics: Implementing the Supply Chain
Transportation modes differ in their:
Dependability (safety and punctuality)
Cost
Speed of delivery
Accessibility (different locations served)
Capability (variety of products handled)
Traceability (ability to locate goods in shipment)
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

25. Logistics: Implementing the Supply Chain
Modes of transportation and usage
Railroads: heavy, bulky items over long distances
Water: large, bulky goods (especially internationally)
Trucks: consumer goods in short haul; allow flexibility in locations
Air: high value-items; fastest and most expensive mode
Pipelines: petroleum/chemical products
Internet: services such as banking, news, and entertainment
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

26. Logistics: Implementing the Supply Chain
Inventory control:
Activities to ensure goods are always available to meet customers’ demands
Radio frequency identification (RFID): Product tags with tiny chips containing information about the item’s content, origin, and destination
Just in time (JIT): Deliveries arrive only when needed, keeping inventory levels low
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

27. Real People, Real Choices
Jim chose option 3
Implementation: The new Darden Direct Distribution system protected the supply chain while developing competitive advantages for supply chain partners by means of a new third party model. Restaurants experienced greater manager satisfaction and significant savings
Measuring Success: Standard service metrics were used, including on-time delivery percentage, case fill, and satisfaction scores
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

28. Keeping It Real: Fast-Forward to Next Class Decision Time at Eskimo Joe’s
Meet Stan Clark, the entrepreneur who developed Eskimo Joe’s
Eskimo Joe’s is a popular bar near Oklahoma State University
The decision to be made: How best to respond to an increase in the legal drinking age, and the newly passed “liquor by drink” law
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

29. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
Copyright © 2009 Pearson Education, Inc.  
Publishing as Prentice Hall
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall