Supply Chain and logistics

Supply Chain: the sequence of firms that constitute a system of efficiently and effectively creating and delivering a good or service to consumers or industrial users.

Supply chain management (SCM) involves the management of upstream and downstream flow of materials, finished goods and services through the integration and organization of information and logistics activities across firms in a supply chain for the purpose of creating and delivering goods and services that provide value to consumers. Often used interchangeably with supply chain, one of the most confusing things is the difference between logistics and supply chain management.

Logistics has a much narrower scope. It refers to those activities that focus on getting the right amount of the right products to the right place at the right time in the right condition at the right (lowest possible) cost.

Logistics systems and distribution

Logistics is the process of planning, implementing and controlling effective flow and storage of materials, inprocess inventory, finished goods and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.

Logistical activities are an integral part of the supply chain, including, transportation, order processing, inventory control, materials handling and information technology.

Inbound and outbound logistics

Inbound logistics deals with the utilization of resources and raw materials within the manufacturing plant or business

Outbound logistics deals with the movement of finished goods or products from the business to the end user.

Logistics costs and value delivery network

The total cost of marketing logistics can account for 3040 per cent of a products cost. A lower logistics cost can lead to a lower price, a higher profit margin and thus, provide the firm with the competitive advantages.

A value delivery network made up of the company, suppliers, distributors, and ultimately customers who partner with each other to improve the performance of the entire system.

Effective logistic systems play a critical role in the fast moving consumer goods (FMCG) industry by helping manufacturers save costs considerably and improve customer satisfaction.

Effective logistic networks can reduce cycletime to move quickly from suppliers to transporters, distributors, retailers and stores. Companies will lose their customers if the logistics networks are ineffective.

Marketing logistics networks differ according to the type of product and the industry. In building its value delivery network, a company has to manage a whole community of suppliers, assemblers, resellers and others who must work together effectively.

Supply chain goals and tradeoffs

There is a cutting point representing the lowest total logistics costs, implying an optimal shipment size or number of warehouses for a specific freight distribution system. Finding such a balance is a common goal in logistical operations.

Marketing channels and Flows in marketing channels

A marketing channel (also known as distribution channel) is a set of interdependent organisations or intermediaries involved in the process of making a product or service available to users. When a marketing channel has been developed, a series of flows emerges. These flows provide the links that tie channel members and other agencies together in the distribution of goods and services. From the standpoints of channel strategy and management, the most important of these flows are:

1. Product flow refers to the actual physical movement of the product from the manufacturer through all of the parties who take physical possession of the product, from its point of production to final consumers.

2. Negotiation flow represents the interplay of the buying and selling functions associated with the transfer of title (right of ownership) to products.

3. Ownership flow shows the movement of the title to the product as it is passed along from the manufacturer to final consumers.

4. Information flow refers to the exchange of information between all the parties, up or downstream participating in the flow.

5. Promotion flow refers to the flow of persuasive communication in the form of advertising, personal selling, sales promotion, and publicity.

Value addition by channels

Use of intermediaries or channel members offer several advantages to marketers. They add value by fulfilling three sets of important functions, namely specialization and division of labor; overcoming discrepancies and providing contactual efficiency.

Specialization and division of labor: Marketing channels provide economies of scale; aid producers who lack resources to market directly and build good relationships with customers.

Overcoming Discrepancies: Marketing channels aid in overcoming discrepancies of quantity, assortment, time, and space created by economies of scale in production.

Providing contactual efficiency: This refers to the level of negotiation effort between sellers and buyers relative to achieving a distribution objective. It is a relationship between an input (negotiation effort) and an output (the distribution objective). The use of additional intermediaries will often increase the level of contractual efficiency.

Marketing channel members perform many key functions including information, promotion, contact, matching, negotiation, physical distribution, financing and risk taking in the process of moving goods from producers and suppliers to consumers.

1. Information. Gathering and distributing marketing research and intelligence about the environment for planning purposes.

2. Promotion. Developing and spreading persuasive communications about an offer.

3. Contact. Finding and communicating with prospective buyers.

4. Matching. Consists of shaping and fitting the offer to the buyers needs by manufacturing, grading, assembling, and packaging.

5. Negotiation. Reaching an agreement on price and other terms.

6. Physical Distribution. Involves transporting and storing of goods.

7. Financing. Acquiring & using funds to cover the costs of channel.

8. Risk Taking. Assumes the risk of carrying out the channel work.

Contactual Efficiency

Refers to reduction and optimization of number of exchange contacts needed to complete transactions with a view to attain a point of equilibrium between the quality and quantity of exchange relationships between channel members.

Number of channel levels

Channel levels refer to the layers of intermediaries that perform some work in making it possible for the final buyer to own the product.

Direct Marketing Channel: this is a marketing channel that has no intermediary levels. The company sells directly to final consumers.

Indirect Marketing Channels: these contain one or more intermediary levels.

Level one - a direct marketing channel

Level two channel has one middle man level

Level three will contain two intermediary

It is possible to have channels with more levels.

Channels in the service sector

Use of marketing channels is not restricted to distribution of physical goods; they are also used by the service sector in order to serve their target populations effectively. Delivery of health and education distribution systems are typical examples as hospitals and schools should be located according to geographic space.

Channel behaviour and organisation

Marketing channels are complex behavioural networks, in which different people and dissimilar, independent companies depend on each other to accomplish individual, company and channel goals and work together for their common good.

Disagreements may generate conflicts which could be horizontal or vertical depending on the situation.

A horizontal conflict: between firms at the same level of the channel. Dealers and franchises of the same firm within the same market may argue about each other's competitive practices.

Vertical conflicts: Refers to problems between firms at different levels in the channel.

Vertical Marketing Networks: Comprises producers, wholesalers

and retailer acting in as a unified system.

Corporate VMN: The corporate body combines and owns successive stages of production and distribution.

Contractual VMN: Consists of independent firms at different levels of production and distribution

more economies and sales than each members could achieve alone.

Has three types: wholesalersponsored chain, retailer cooperative, franchise organisation.

Administered VMN: Coordinates distribution by the power exerted by of one of its members in the marketplace, not by contract or ownership.

Innovations in Channel organisation

Horizontal marketing networks

Formed when two or more companies at one level join to pursue a new marketing opportunity.

These may be temporary arrangements such as a joint promotion or more permanent distribution agreements.

Multichannel Marketing Systems: Also called hybrid marketing channels, these utilize more than one channel to reach customers more effectively and with greater flexibility.

Dual Distribution: Involves an arrangement whereby a firm reaches different buyers by employing two or more different types of channels for the same basic product.

Channel Alternatives: Distribution Strategies

Number of Marketing Intermediaries

Disintermediation and reintermediation

Disintermediation refers to the removal of intermediaries or cutting out the middlemen from traditional distribution channels and dealing with every customer directly, for example via the Internet.

Reintermediation refers to reversing disintermediation through the reintroduction of an intermediary between the manufacturer and the end users.

Intensive Distribution utilizes as many outlets as possible and is especially appropriate for convenience goods and common raw materials.

Exclusive Distribution consists of a very limited number of outlets hold all the rights to distribute a product line. This strategy is appropriate for many high prestige goods. Distributor selling effort is usually very strong.

Selective Distribution uses more than one outlet per market but less than all available outlets. This strategy gains good market coverage and gains better than average selling effort.

Retailing

Retailing is defined as all activities involved in selling goods or services directly to final consumers for their personal, nonbusiness use. However, nonstore retailing such as retailing snacks through vending machines and ATM machines are also quite common these days.

Types of Retailers

Retail stores can be classified by several characteristics. The most common ways to classify retailers are discussed below.

Classification by amount of service

Different products need different amounts of service as well as customer service. Retailers may be classified on the levels of service provided.

Selfservice retailers are those that provide few or no services to shoppers; shoppers perform their own locatecompareselect process.

Limitedservice retailers provide only a limited number of services to shoppers.

Fullservice retailers are those that provide a full range of services to shoppers. A typical example is jewellery shop.

Classification by Product line

Retailers can be classified by the length and breadth of their product assortments. Several most important types are explained below.

Specialty stores and combination stores: These are retail stores that carry a narrow product line with a deep assortment within that line. E.g. furniture and book.

Department stores: A department store is a retail organisation that carries a wide variety of product lines. E.g. Big W and David Jones.

Supermarkets: A supermarket is a large, lowcost, lowmargin, highvolume, selfservice store that carries a wide variety of food, laundry and household products E.g. Coles and Woolworths.

Convenience stores: Convenience stores, such as 7Eleven and Food Plus, offer a limited line of highturnover goods, such as milk and bread.

Mass merchants: E.g. Bunnings warehouse/

Service businesses: For many businesses, such as hotels, banks, hospitals and movie theatres, the product line is actually service, which may be intangible.

Classification by Relative prices

Retailers can be classified according to their prices.

Discount stores sell standard merchandise at lower prices by accepting lower margins and selling higher volumes.

Offprice Retailers buy at lower than regular wholesale and sell under regular retail. Factory Outlets, Wholesale clubs and catalogue showrooms.

Classification by Organisation approach

In Australia, all retailing turnover are dominated by a few chains, i.e., two or more outlets owned and controlled by one organisation, employing central buying and merchandising, and selling similar lines of merchandise.

Corporate Chains consist of two or more outlets that are commonly owned and controlled, employ central buying, and sell similar lines.

Voluntary Chains are wholesaler sponsored chains that nominally independent outlets join to save in costs. The wholesaler controls planning (centralized) buying, and promotion decisions.

Retailer Cooperatives are jointly owned wholesale operations controlled by the retail members.

Franchises are a contractual association between a manufacturer, wholesaler, or service organization and independent businesspeople.

Merchandising Conglomerates are corporations that combine different retailing forms under central ownership, share distribution and management.

Retailer marketing decisions

Retailers, who in the past attracted customers with unique product assortments and more or better services, are constantly in search for new marketing strategies to attract and hold customers. Retailers must define their target markets and then decide what position to adopt within these markets.

Target market and positioning decisions: Retailers must define their target markets and then decide what position to adopt within these markets. Until they define and profile their markets, they cannot make consistent decisions about product assortment, services, pricing, advertising, store decor, or any of the other decisions that must support their positions.

Products and service assortment decisions: Retailers must decide on three main product variables: product assortment, services mix and store. The retailers product assortment should differentiate it while matching target shoppers expectations. The services mix can also help to set one retailer apart from another, e.g. some retailers invite customers to ask questions or consult service representatives in person or by phone or keyboard. The store atmosphere including the stores physical layout provides customers with a feel making the customers feel cheerful, plush, sombre or suffocated.

Price decisions: A retailers price policy must fit its target market and positioning, product and service assortment, and competition. Most retailers tend to seek either high markups on lower volume (most specialty stores) or low markups on higher volume (mass merchandisers and discount stores).

Promotion decisions: Retailers use any or all of the promotion tools advertising, personal selling, sales promotion, public relations and direct marketing to reach consumers. They advertise in newspapers, magazines, radio, television, and on the Internet.

Placement decisions: Different stores cluster together to increase their customer pulling power and give consumers the convenience of onestop shopping. Central business districts (CBD), the main form of retail cluster before the late 1950s, is the area of business at the heart of a city or town and consists of department stores, specialty stores, banks and movie theatres. A shopping centre is a group of retail businesses planned, developed, owned and managed as a unit. Some shopping centres are like small towns and house a very large number of retailers and service organisations; Westfield Shopping Centres in Australia are good examples.

People, processes and physical evidence decisions: Store atmosphere and physical layout and other elements of the servicescape are important retailing decisions. Some retailers are now moving towards experiential retailing where the experience of visiting the store is entertaining and memorable.

Retailing trends and developments

Slowdown in population and economic growth, greater competition and new types of retailer, and changing of consumer demographics, lifestyles and shopping patterns are affecting retailing and will impact its future development. Most goods and services are sold through bricks and mortar stores. Direct and online forms of retailing are growing rapidly. New retail technologies play an important role in competition. The wheel of retailing concept states that new types of retailer usually begin as lowmargin, lowprice, lowstatus operations but later evolve into higherpriced, higherservice operations, eventually becoming like the conventional retailers they replaced. It can explain, in part, many retailing innovations. The initial success and later troubles of department stores, supermarkets and discount stores, and the recent success of off price retailers seem to follow this concept. New retail forms will continue to emerge to meet consumer needs and new situations, and newer forms will eventually replace these.

Wholesaling

Wholesaling means buying from goods and services from producers to sell to retailers, industrial consumers and other wholesalers who buy for resale or business use rather than selling to individual consumers. The firms that are primarily engaged in wholesaling activity are known as wholesalers. They differ from retailers in the areas of consumer, market and legal regulations and taxes.

Types of wholesalers

There are three major groups of wholesalers: they are merchant wholesalers, brokers and agents, and manufacturers sales branches and offices.

Merchant wholesalers

A merchant wholesaler is an independentlyowned business that takes title to the merchandise it handles. Merchant wholesalers are the largest single group of wholesalers and can be divided into two subgroups the full service wholesalers and the limited service wholesalers.

Fullservice wholesalers:

This type of wholesalers provide full range of services (such as carrying stock, using a sales force, offering credit, making deliveries and providing management assistance). They can be categorised as either wholesale merchants or industrial distributors.

Wholesale merchants: They usually carry several product lines of goods to sell to retailers and provide a full range of services. They offer customers a wide choice of goods and a good level of product knowledge. Hardware wholesalers and pharmaceutical wholesalers are typical examples.

Industry distributors are merchant wholesalers. They may carry a broad range of merchandise, a general line or a specialty line to sell to producers rather than retailers.

Limitedservice wholesalers: These wholesalers, such as cashandcarry wholesalers, truck wholesalers, drop shippers, producers cooperatives and mail order wholesalers, offer fewer services to their suppliers and customers.

Brokers and agents

In contrast to merchant wholesalers, brokers and agents dont take title to goods. They aid in buying and selling and earn a commission on the selling price.

Brokers: A broker is a wholesaler who does not take title to goods and whose function is to bring buyers and sellers together and assist in negotiation. Food brokers, and real estate brokers are common examples.

Agents: An agent is a wholesaler who represents buyers or sellers on a more permanent basis, performs only a few functions and does not take title to goods. They usually have a formal agreement with the buyers or sellers whom they are representing and have a longterm relationship with them. Manufacturers agents, selling agents, purchasing agents, and commission merchants are common types of agents.

Wholesaler marketing decisions

Wholesalers face competitive pressures, more demanding customers, new technologies, and directbuying programs among industrial, institutional and retail buyers. They must take a fresh look at their marketing strategies and as with retailers, their marketing decisions include choice of target markets, positioning and the marketing mix product and service assortment, price, promotion and place.

Segmentation, targeting, differentiation and positioning decisions: Like retailers, wholesalers must define their target markets and position themselves according to factors such as size of customer (only large retailers), type of customer (convenience stores only), and need for service (customers who need credit).

Marketing mix decisions: Wholesalers must decide on product assortment and ancillary services, price (mark up the cost of goods by a standard percentage; cut their margin on some lines to win important new customers; negotiate special price breaks with suppliers sales, (trade advertising, sales promotion, personal selling and public relations is largely scattered and unplanned, they now need to develop overall promotion strategy), and placement (choice of locations, facilities and web locations).

Trends in wholesaling

Wholesalers must constantly improve their services and reduce their costs in order to increase the efficiency and effectiveness of the services to meet the changing needs of both suppliers and target customers.

The number of firms in the wholesaling industry may significantly a decrease in the future. The remaining wholesaling companies will grow larger through acquisition, merger and geographical expansion. The distinction between large retailers and large wholesalers is becoming more and more unclear. Wholesalers constantly adjust their performance to meet the demands of target customers and seek costreducing methods of doing business.