chapter 5 managing the supply chain

Chapter 5Managing the Supply Chain

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The Supply Chain Is a set of institutions that move goods from the

point of production to the point of consumption. Channel - Used interchangeably with supply

chain. The supply chain, or channel, is affected by five

external forces: Consumer behavior Competitor behavior Socioeconomic environment Technological environment Legal and ethical environment

LO 1


The Supply Chain A supply chain or channel must perform

eight marketing functions:BuyingSellingStoringTransporting

SortingFinancingInformation gatheringRisk taking

LO 1


The Supply Chain The institutions involved in performing the

eight marketing functions are usually broken into: Primary marketing institutions - Channel

members that take title to the goods as they move through the marketing channel.

Facilitating marketing institutions - Channel members that do not actually take title but assist in the marketing process by specializing in the performance of certain marketing functions. E.g. Public warehouse - Facility that stores goods for

safekeeping for any owner in return for a fee, usually based on space occupied.

LO 1


Exhibit 5.1 - Institutions Participatingin the Supply Chain

LO 1


Types of Supply Chains Supply chain length Supply chain width Control of the supply chain

LO 2


Exhibit 5.2 - Strategic Decisions in Supply-Chain Design

LO 2


Exhibit 5.3 - Direct and Indirect Supply Chains

LO 2


Supply Chain Length Sometimes the length of a supply chain

is hard to determine. The desired length is determined by

many customer-based factors such as the size of the customer base geographical dispersion behavior patterns like purchase frequency average purchase size the particular needs of customers

LO 2


Exhibit 5.4 - Width of Supply-ChainStructure

LO 2


Exhibit 5.5 - Marketing Channel Patterns

LO 2


Control of the Supply Chain Conventional marketing channel -

Each channel member is loosely aligned with the others and takes a short term orientation; is an unproductive method for marketing goods.

Vertical marketing channels - Capital-intensive networks of several levels that are professionally managed and centrally programmed to realize the technological, managerial, and promotional economies of a long-term relationship orientation.

LO 2


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 and then transmitting this information back through the entire channel to enable efficient production and distribution scheduling.

LO 2


Control of the Supply Chain Corporate vertical marketing

channels - Exist where one channel institution owns multiple levels of distribution and typically consists of either a manufacturer that has integrated vertically forward to reach the consumer or a retailer that has integrated vertically backward to create a self supply network. It is not difficult to program the channel for

productivity and profit goals since a well-established authority structure already exists. LO 2


Control of the Supply Chain Contractual vertical marketing

channels - Use a contract to govern the working relationship between channel members and include: Wholesaler-sponsored voluntary

groups - The wholesaler brings together a group of independently owned retailers and offers them a coordinated merchandising and buying program that will provide them with economies like those their chain store rivals are able to obtain.

LO 2


Control of the Supply Chain Retailer-owned cooperatives -

Wholesale institutions, organized and owned by member retailers, that offer scale economies and services to member retailers, which allows them to compete with larger chain buying organizations.

Franchise - Form of licensing by which the owner of a product, service, or business method (the franchisor) obtains distribution through affiliated dealers (franchisees).

LO 2


Exhibit 5.6 - Advantages and Disadvantages of Franchising

LO 2


Control of the Supply Chain Administered vertical marketing

channels - Exist when one of the channel members takes the initiative to lead the channel by applying the principles of effective interorganizational management.

LO 2


Managing Retailer-Supplier Relations

Dependency Occurs when a retailer needs another

supply chain member or vice versa to perform certain marketing functions.

Interdependent - When two members of the supply chain are dependent on each other. Interdependency is at the root of the

collaboration found in today’s supply chains, and is the major cause of conflict found in supply.

LO 3



Power - Ability of one channel member to influence the decisions of the other channel members.

LO 3


Managing Retailer-Supplier RelationsReward 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.

Informational power

Based on A’s ability to provide B with factual data.

LO 3



Conflict Major sources of conflict between retailers

and their suppliers: Perceptual incongruity Goal incompatibility

Dual distribution Domain disagreements

Diverter Gray marketing Free riding

LO 3


Managing Retailer-Supplier RelationsPerceptual 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


Managing Retailer-Supplier RelationsGray 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


Exhibit 5.7 - Supply Chain Management Best Practices

LO 4


Facilitating Channel Collaboration Mutual trust - Occurs when 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 - Occurs when both retailer and supplier communicate openly their ideas, concerns, and plans.

LO 4


Facilitating Channel CollaborationMutual 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-waycommunication

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


Category Management Category management (CM) - Process

of managing all the SKUs within a product category.

It involves the simultaneous management of price, shelf space, merchandising strategy, promotional efforts, and other elements of the retail mix within the category based on the firm’s goals, the changing environment, and consumer behavior.

LO 4


Category Management Category manager - The individual

who uses detailed knowledge of the consumer and consumer trends, detailed point-of-sale (POS) information, and specific analysis provided by each supplier to the category to create various store displays based on local market conditions.

In cases where the solidarity of the channel partners is high, a supplier may serve as the retailer’s category advisor. LO 4

chapter 5 managing the supply chain

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