Value Chain Management: Channels of Distribution,

Logistics, and Wholesaling

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What is a Distribution Channel?

• Series of firms or individuals that facilitates 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 functions• 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 on one location

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Figure 17.1: Reducing Transactions via Intermediaries

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The Internet

• Even small firms with limited resources can enjoy competitive advantages by making products available to customers around the globe at a very low cost

• Disintermediation - process by which traditional intermediaries are eliminated as companies question the value added by layers in the distribution channel

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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 17.2: Types of Distribution Channels

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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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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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Figure 17.3: Steps in Distribution Planning

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Marketing Systems

• Conventional - multi-level distribution channel in which members work independently of one another

• Vertical - channel in which there is cooperation among channel members at two or more different levels of the channel

• Horizontal - two or more firms at the same channel level agree to work together

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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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Contractual Vertical Marketing Systems

• Wholesaler-sponsored - wholesalers get retailers to work together under their leadership in a voluntary chain

• Retailer-cooperative - group of retailers with a wholesaling operation to help them compete more effectively with large chains

• Franchise organizations - cooperation is explicitly defined and strictly enforced by franchiser

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Distribution Intensity

Decision Factors:Company, Customers, Channels,

Constraints, and Competition

Intensive, Exclusive, or Selective Distribution

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Developing 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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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 17.4: Supply Chain

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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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Logistics Functions

• Order processing

• Warehousing

• Materials handling

• Transportation

• Inventory Control

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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