Delivering Value Through Supply Chain

Management: Channels of Distribution and Logistics

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Chapter Objectives

• 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

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

• Explain how the supply chain uses logistics

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Place: The Final Frontier

• Value chain: a series of activities directed at designing, producing, marketing, delivering, and supporting any product.

• Supply chain: Activities necessary to turn raw materials into a good or service and put it in the hands of the consumer:

Slide 15-12

Define the term marketing channel…

NATURE AND IMPORTANCE OF MARKETING CHANNELS

Slide 15-12

Define the term marketing channel…

A: A marketing channel consists of individuals and firms involved in the

process of making a product or service available for use or

consumption by consumers or industrial users.

NATURE AND IMPORTANCE OF MARKETING CHANNELS

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Figure 15.2:The Generic Value Chain

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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: contracting with a specialist that services the company’s supply chains

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Supply Chain vs. Channel of Distribution

• Channel of distribution: facilitates movement of a product from producer to final customer

• Supply chain: begins with raw materials

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Terms used for marketing intermediaries

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FIGURE 15-4 FIGURE 15-4 Common marketing channels for consumer goods and services

How would you define your organizations marketing channel?

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FIGURE 15-5 FIGURE 15-5 Common marketing channels for business goods and services

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FIGURE 15-6 FIGURE 15-6 Representative consumer electronic marketing channels

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Figure 15.3: Supply Chain

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The Importance of Distribution:You Can’t Sell What Isn’t There!

• Direct channel: a producer and a customer• Indirect channel: one or more

intermediariesFirms/individuals such as wholesalers, agents, brokers, and retailers that help moveproduct to consumer or business user

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Functions of Distribution Channels

• To ease the flow of goods from producer to customer

• To provide time, place, and ownership utility

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Functions of Distribution Channels (cont’d)

• To provide logistics or physical distribution functions

• To create efficiencies by reducing number of transactionsBreaking bulk: purchasing large quantities of goods to

sell one/few at a time to customersCreating assortments: providing variety of products in

one location

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Figure 15.4: Reducing Transactions via Intermediaries

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Functions of Distribution Channels (cont’d)

• To make purchase process easier

• To manage risk• To perform

communication and transaction functions

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The Internet in the Distribution Channel

• Radical changes in distribution strategiesDisintermediation: eliminating traditional

intermediariesKnowledge management: sharing knowledge with

other supply chain members

DELL

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Channel Composition: Types of Wholesaling Intermediaries

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

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Independent Intermediaries

• Merchant wholesalers: buy goods from manufacturers and sell to retailers and other B2B customersFull-service merchant wholesalersLimited-service merchant wholesalers Cash-and-carry wholesalers Truck jobbers

Drop shippers Rack jobbersMail-order wholesalers

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Independent Intermediaries (cont’d)

• Merchandise Agents/Brokers: provide services in exchange for commissions Manufacturers’ agents/reps Selling agents Commission merchants Merchandise brokers

• Manufacturer-Owned Intermediaries Sales branches Sales offices Manufacturers’ showrooms

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Types of Distribution Channels

• Consumer ChannelsDirect channel: producer sells directly to customers

Indirect channel: producer uses one or more intermediaries to reach consumers

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Types of Distribution Channels (cont’d)

• Business-to-business channels

• Dual distribution systems

• Hybrid marketing systems

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Figure 15.6: Steps in Distribution Planning

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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 functionsChannel intermediaries availableHow the competition distributes its products

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Planning a Channel Strategy (cont’d)

• Step 3: Choose a distribution strategyChannel relationships: conventional, vertical, or

horizontal systemConventional marketing system: members work

independently of one another

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Planning a Channel Strategy (cont’d)

• Step 3: Choose a distribution strategyVertical marketing system (VMS): formal cooperation

among channel members• Administered VMS• Corporate VMS• Contractual VMS• Retailer cooperative• Franchise organizations

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Planning a Channel Strategy (cont’d)

• Step 3: Choose a distribution strategyHorizontal marketing system: two or more firms at the

same channel level agree to work together to get their product to the customer

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Planning a Channel Strategy (cont’d)

• Step 3: Choose a distribution strategyDistribution intensity Intensive distribution: selling through all suitable

wholesalers or retailers Exclusive distribution: selling only through a single

outlet in a regionSelective distribution: using fewer outlets than intensive but more than exclusive distribution

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Planning a Channel Strategy (cont’d)

• Step 4: Develop distribution tacticsSelecting channel partners: normally a long-term

commitmentManaging the channel

• Channel leader/captain: dominant firm that controls the channel (via economic, legitimate, reward/coercive power)

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Distribution Channels and the Marketing Mix

• Place decisions affect:PricingProduct and its positioning

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Logistics: Implementingthe Supply Chain

• Logistics: the process of designing, managing, and improving the movement of products through the supply chainPurchasingManufacturingStorageTransport

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Logistics: Implementingthe Supply Chain (cont’d)

• Physical distribution: the activities used to move finished goods from manufacturers to final customers

LOGISTICS CONCEPT COMPONENTS

1. TOTAL COST APPROACH

2. AVOIDANCE OF SUBOPTIMIZATION – A SYSTEMS APPROACH

3. USE OF COST TRADE-OFFS

4. HIGHER LEVEL OF CUSTOMER SERVICE

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Logistics Functions

Major Focus is on Customer Service through:

• Order processing

• Warehousing

• Materials handling

• Transportation

• Inventory Control

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Logistics Functions (cont’d)

• Transportation: mode by which products move among channel members

• 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)

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Modes of Transportation

• Railroads: carry heavy, bulky items over long distances

• Water: carry large, bulky goods (especially internationally)

• Trucks: carry consumer goods in short haul; allow flexibility in locations

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Modes of Transportation (cont’d)

• Air: carry high value-items; fastest and most expensive mode

• Pipelines: carry petroleum/chemical products

• Internet: distribute

services such as banking,

news, and entertainment

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Logistics Functions (cont’d)

• Inventory control: activities to ensure foods are always available to meet customers’ demandsRadio frequency identification (RFID)Just in time (JIT)