1. Managing the Supply Chain
Chapter 5
Managing the Supply Chain

2. Learning Objectives
Discuss the retailer’s role as one of the institutions involved in the supply chain
Describe the types of supply chains by length, width, and control
Explain the terms dependency, power, and conflict and their impact on supply-chain relations
Understand the importance of a collaborative supply-chain relationship

3. The Supply Chain
Set of institutions that move goods from the point of production to that of consumption
Channel: Term used for supply chain
Broadened view incorporates:
The materials that go into manufacturing the good
The process consumers use to dispose of or recycle the product
LO 1

4. Zara Corporate owned vertical marketing channel
Run each step below full capacity
Limited runs of each style
Zday the days the new stuff comes (feeding frenzy)

5. The Supply Chain Is affected by five external forces:
Consumer behavior
Competitor behavior (big retailers going straight to manufacturers)
Socioeconomic environment (dirt to dirt)
Technological environment
Legal and ethical environment
LO 1

6. The Supply Chain Must perform eight marketing functions: Buying
Selling
Storing
Transporting
Sorting
Financing (car dealerships)
Information gathering
Risk taking
LO 1

7. The Supply Chain
Sorting - Breaking down heterogeneous products into homogenous groups
Logistics network
The entities that are involved in moving physical inventory from the source to the retail store
Logistics inventory
Total business cost: All direct and indirect costs of manufacturing, distributing, and marketing a product
LO 1

8. The Supply Chain
Institutions involved in performing the eight marketing functions
Primary marketing institutions
Channel members that take title to the goods as they move through the marketing channel (drop shippers)
Facilitating marketing institutions: Channel members that:
Do not actually take title
Assist in the marketing process by specializing in the performance of certain marketing functions
LO 1

9. Exhibit 5.2- Institutions Participating in the Supply Chain
LO 1

10. Facilitating Marketing Institutions
Public warehouse: Stores goods for safekeeping for any owner in return for a fee
Third-party logistics provider
Provides service to retailers of outsourced logistics services for their:
Storage, transporting, sorting, information and risk management functions
Other facilitating institutions
Provide information through out the supply chain
Aid in financing
LO 1

11. Types of Supply Chains
Strategic decisions for efficient and competitive supply chain require deciding:
Supply-chain length
Supply-chain width
Control of the supply chain
LO 2

12. Exhibit 5.3 - Strategic Decisions in Supply-Chain Design
LO 2

13. Exhibit 5.4 - Direct and Indirect Supply Chains
LO 2

14. Supply-Chain Length
Direct supply chain: Manufacturer sells its goods directly to the final consumer
Desired length is determined by:
The size of the customer base
Geographical dispersion
Behavior patterns like purchase frequency
LO 2

15. Supply-Chain Length Average purchase size
The particular needs of customers
The nature of the product
Size of the manufacturer, its financial capacity, and its desire for control
LO 2

16. Supply-Chain Width
Intensive distribution: All possible retailers are used in a trade area
Selective distribution: Moderate number of retailers are used in a trade area
Exclusive distribution: Only one retailer is used to cover a trading area
LO 2

17. Exhibit 5.5 - Width of Supply-Chain Structure
LO 2

18. Exhibit 5.6 - Marketing Channel Patterns
LO 2

19. Control of the Supply Chain
Conventional marketing channel: Each channel member is:
Loosely aligned with the others and takes a short term orientation
Vertical marketing channels
Capital-intensive networks of several levels
Professionally managed and centrally programmed to:
Realize the technological, managerial, and promotional economies of long-term relationships
LO 2

20. Control of the Supply Chain
Quick response (QR) systems/ efficient consumer response (ECR) systems
Integrated information, production, and logistical systems that:
Obtain real-time information on consumer actions by capturing sales data at point-of-purchase terminals
Transmit customer information back through the entire channel
Enable efficient production and distribution scheduling
LO 2

21. Control of the Supply Chain
Corporate vertical marketing channels
One channel institution owns multiple levels of distribution
Consists of either a manufacturer that has integrated vertically forward to reach the consumer or:
A retailer who has integrated vertically backward to create a self supply network
LO 2

22. Control of the Supply Chain
Contractual vertical marketing channels
A contract governs the working relationship between channel members and includes:
Wholesaler-sponsored voluntary groups
Wholesaler brings together a group of independently owned retailers and offers them a coordinated merchandising and buying
LO 2

23. Control of the Supply Chain
Retailer-owned cooperatives
Wholesale institutions, organized and owned by member retailers
Offer scale economies and services to member retailers
Retailers make greater transaction-specific investments or investments in assets
Franchise
Form of licensing
The owner of a product, service, or business methods obtains distribution through affiliated dealers
LO 2

24. Exhibit 5.6 - Advantages and Disadvantages of Franchising
LO 2

25. Control of the Supply Chain
Administered vertical marketing channels –
Channel members takes the initiative to lead the channel by:
Applying the principles of effective interorganizational management
LO 2

27. Managing Retailer-Supplier Relations
Dependency
In channel arrangement:
Each member firm, whether primary or facilitating, depends on the others to perform a job
Interdependency is:
At the root of the collaboration found in today’s supply
The major cause of conflict found in supply
Power: Ability of one channel member to influence the decisions of the other channel members
LO 3

28. Managing Retailer-Supplier Relations
Types of power
Reward power
Based on B’s perception that A has the ability to provide rewards for B
Expertise power
Based on B’s perception that A has some special knowledge
Referent power
Based on the identification of B with A
Coercive power
Based on B’s belief that A has the capability to punish or harm B if B doesn’t do what A wants
Legitimate power
Based on A’s right to influence B, or B’s belief that B should accept A’s influence
LO 3

29. Managing Retailer-Supplier Relations
Types of power
Reward, expertise, referent, and informational power foster a healthy working relationship
Use of coercive and legitimate power tends to elicit conflict and harm cooperation

30. Managing Retailer-Supplier Relations
Conflict
Major sources of conflict between retailers and their suppliers:
Perceptual incongruity regarding the:
Quality of the supplier’s merchandise
Potential demand for the supplier’s merchandise
Consumer appeal of the supplier’s advertising
Best shelf position for the supplier’s merchandise
LO 3

31. Managing Retailer-Supplier Relations
Goal incompatibility
Dual distribution
Domain disagreements
Diverter
Gray marketing
Free riding

32. Managing Retailer-Supplier Relations
Perceptual incongruity
The retailer and supplier have different perceptions of reality.
Goal incompatibility
Achieving the goals of either the supplier or the retailer would hamper the performance of the other.
Dual distribution
Manufacturer sells to independent retailers and also through its own retail outlets.
Domain disagreements
Disagreement about which member of the marketing channel should make decisions.
Diverter
Unauthorized member of a channel who buys and sells excess merchandise to and from authorized channel members.
LO 3

33. Managing Retailer-Supplier Relations
Gray marketing
Branded merchandise flows through unauthorized channels.
Free-riding
Consumer seeks product information, usage instructions, and sometimes even warranty work from a full-service store but then, armed with the brand’s model number, purchases the product from a limited service discounter or over the Internet.
LO 3

34. Exhibit 5.8 - Supply Chain Management Best Practices
LO 4

35. Facilitating Channel Collaboration
Mutual trust
Both the retailer and its supplier have faith that each will be truthful and fair in their dealings with the other; allows the channel to grow and prosper
Two-way
communication
Both retailer and supplier communicate openly their ideas, concerns, and plans
Solidarity
High value is placed on the relationship between
a supplier and retailer; results in flexible dealings
where adaptations are made as circumstances
change
LO 4

36. Category Management Category management (CM)
Process of managing all the SKUs within a product category
Involves the simultaneous management of:
Price, shelf space, merchandising strategy, promotional efforts, and other elements of the retail
Based on the firm’s goals, changing environment, and consumer behavior
LO 4

37. Category Management Advantages Increase in sales for both parties
Decrease in markdowns
Better in-stock percentages on key items for the retailer
Increase in turnover rates
Decrease in average inventory for both retailers and wholesalers
Increase in both members’ ROI and profit
LO 4

38. Category Management Category manager
Creates various store displays based on local market conditions and knowledge of:
Consumer trends
Point-of-sale information
Analysis provided by each supplier
Ensures that the retailer has the best assortment for each store
A supplier may serve as the retailer’s category advisor
LO 4