CHAPTER 15Creating Value Through

Supply Chain Management: Channels of Distribution,

Logistics, and Wholesaling

M A R K E T I N GReal People, Real Choices

Fourth Edition

Michael R. Solomon Greg W. Marshall Elnora W. Stuart

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Chapter Objectives_1

• Understand the concept of the value chain and the key elements in a supply chain.

• Explain what a distribution channel is and what functions distribution channels perform

• Describe the types of wholesaling intermediaries found in distribution channels

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Chapter Objectives_2

• Describe the types of distribution channels and the steps in planning distribution channel strategies

• Explain how logistics is used in the supply chain

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Supply Chain Management

• The supply chain includes all the firms that engage in activities that are necessary to convert raw materials into a good or service and put it in the hands of the consumer or business customer

• Supply chain management is the management of flows among the firms in a supply chain to maximize total profitability

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Figure 15.3: Supply Chain

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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

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Functions of Distribution Channels

• Time, place, and ownership utilities

• Logistics functions

• Transportation and storage

• Efficiency creation

• Facilitating functions

• Repair and maintenance functions

• Risk-taking

• Communications and transaction functions

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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

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Types of Wholesaling Intermediaries

• Wholesaling intermediaries are firms that handle the flow of products from the manufacturer to retailer or business user

– Independent

– Manufacturer owned

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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

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Manufacturer-Owned Intermediaries

• Sales branches

• Sales offices

• Manufacturers’ showrooms

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Figure 15.4: Reducing Transactions

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Types of Distribution Channels

• Consumer channels

– Direct

– Manufacturer-retailer-consumer

– Manufacturer-wholesaler-retailer-consumer

• Business-to-business channels

– Direct

– Manufacturer-industrial distributor-business customer

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Major Types of Distribution Channels

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Consumer Channels

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B2B Channels

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Dual Distribution Systems

• Multiple channel usage

• Example:

– pharmaceutical industry sells to hospitals, clinics, and organizational customers directly and to consumers indirectly through drug retailers

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Planning a Channel Strategy

• Develop distribution objectives

• Evaluate internal and external influences

• Choose a distribution strategy

– Conventional

– Vertical

• Administered, corporate, contractual–

– Horizontal

• Develop distribution tactics

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Vertical Marketing Systems

• Administered – channel members remain independent but voluntarily work together

• Corporate – single firm owns manufacturing, wholesaling, and retailing operations

• Contractual – cooperation is enforced by contracts that spell out member rights and the terms of cooperation

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Develop Distribution Tactics

• Selecting channel partners

• Managing the channel of distribution

– Channel leader is the dominant firm that controls the channel

– Channel leaders have some form of power relative to other members

• economic power

• legitimate power

• reward or coercive power

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Logistics: Implementing the Value Chain

• Process of designing, managing, and improving the movement of products through the supply chain

– purchasing

– manufacturing

– storage

– transport

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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, customers’ goals become the logistics provider’s goals

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Transportation Mode Considerations

• Dependability

• Cost

• Speed of Delivery

• Accessibility

• Capability

• Traceability

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Modes of Transportation

• Rail• Water• Truck• Air• Pipeline• Internet

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Issues for Discussion

• Do you think marketers should be concerned with the total supply chain concept?

• Do intermediaries increase the cost of products? Are consumers better off with intermediaries?

• Do you think franchises offer the typical businessperson good opportunities?

• Describe characteristics of your school’s channel of distribution. What other channels should your school try?