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Chapter ElevenChapter Eleven
The Nature of The Supply The Nature of The Supply Chain and DistributionChain and Distribution
Unlike real estate, location is Unlike real estate, location is becoming progressively less becoming progressively less
relevant. The three critical factors for relevant. The three critical factors for the Internet age are logistics, the Internet age are logistics,
logistics, logistics.logistics, logistics. - William B. Lipsin, CEO, Ironside Technologies - William B. Lipsin, CEO, Ironside Technologies
ObjectivesObjectives
Explain general purpose of distribution & logisticsShow distribution system’s contributionsExamine tradeoff between customer satisfaction
& costs in distributionUnderstand a total cost approach to distributionUnderstand pervasive nature of distribution Introduce channel intermediaries and various
distribution channels Introduce vertical marketing systemsOverview distribution’s interaction with other
aspects of the marketing mixExamine channel relations
Distribution’s FunctionDistribution’s Function
The major purpose of marketing is to satisfy human needs by delivering products of various types to buyers when and where they want them and at a reasonable cost.
The “when and where” is the function of Distribution
DefinitionsDefinitions
LogisticsLogistics
Component parts & Raw material In-process inventory Finished goods
Supply ChainSupply Chain
Physical Distribution Physical Distribution ActivitiesActivities
Inventory management
Order processingWarehousing and
storageMaterials handlingProtective packaging
& containerizationOutbound
transportation
Physical Distribution Physical Distribution Objectives Objectives
Minimize Costs
Maximize Customer Service
Channel of DistributionChannel of Distribution
All intermediaries involved in the exchange process
Excludes pre-manufacturing (raw materials or component parts)
Facilitate movement of physical goods and title
PRODUCER
INTERMEDIARIES
CONSUMER
Transportation& storage
Reducingtransactions
Physical Distribution Physical Distribution FunctionsFunctions
Breaking bulk
Accumulating bulkCreating
assortments
Modes of Modes of TransportationTransportation
MotorMotor RailRail
AirAir
PipelinePipeline
WaterWater
Modes of Modes of TransportationTransportation
RailroadsMedium cost and
speedLow reliabilityMany damaged goodsGood Geographic
flexibility
Modes of Modes of TransportationTransportation
Motor carrierMedium reliabilityGood speedGood flexibilityAbove average damageNow more competitive
and unregulated
Modes of Modes of TransportationTransportation
Air freightExpensiveVery fastAbove average
reliabilityAverage flexibilityAverage reputation
for undamaged goods
Modes of Modes of TransportationTransportation
Water transportationLow costLow reliabilityLimited flexibilityLimited damage
Modes of Modes of TransportationTransportation
PipelineMostly gas and
petroleumLow costHigh reliabilityLimited flexibility
Texas
Kansas
Modes of Modes of TransportationTransportation
Intermodal transportationShip + Truck (fishyback)Rail + Truck (piggyback)Air + Truck (birdyback)
Storage & Inventory Storage & Inventory COntrolCOntrol
Storage
BreakingBulk
Total Cost: A Systems Total Cost: A Systems ApproachApproach
Total Cost: A Systems Total Cost: A Systems ApproachApproach
Communication & Communication & Transaction FunctionsTransaction Functions
Gather & DisseminateInformation
19
24
13723
57
Buying & Selling
PersonalSelling
AdvertisingSales
Promotion
Facilitating FunctionsFacilitating Functions
Extra Services
Payment &Credit Services
Risk Taking
Typical Channels of Typical Channels of DistributionDistribution
ANUFACTURER
ONSUMER
HOLESALER
ETAILER
GENT
Business-to-Business Business-to-Business ChannelsChannels
Direct
Wholesaler
Vertical Marketing Vertical Marketing SystemsSystems
Corporate systems - total ownership
Administered - strong leadership
Contractual - legal relationships
Planning the Channel of Planning the Channel of DistributionDistribution
Determining the structureMarketing mix strategyOrganizational resourcesExternal environmental factorsMarket characteristicsConsumer preferences and behaviorThe nature and availability of IntermediariesOther environmental factors
Intensive DistributionIntensive
Distribution
Seeks to obtain maximum
product exposure at the retail level
Seeks to obtain maximum
product exposure at the retail level
ProducerProducer
RetailerRetailer RetailerRetailerRetailerRetailer
RetailerRetailer
RetailerRetailer RetailerRetailer
RetailerRetailer
RetailerRetailer
RetailerRetailer RetailerRetailer RetailerRetailer
RetailerRetailer
RetailerRetailer RetailerRetailer RetailerRetailer
Selective DistributionSelective Distribution
Product is sold in a Product is sold in a limitedlimited number of number of
outletsoutlets
Product is sold in a Product is sold in a limitedlimited number of number of
outletsoutlets
ProducerProducer
RetailerRetailer RetailerRetailerRetailerRetailer
RetailerRetailer RetailerRetailer RetailerRetailer
Product is sold in Product is sold in only only oneone outlet in outlet in
a given areaa given area
Product is sold in Product is sold in only only oneone outlet in outlet in
a given areaa given area
ProducerProducer
RetailerRetailer
Exclusive Distribution
Channel RelationshipsChannel Relationships
Cooperation
Conflict
PowerCoerciveExpertLegitimate
Other Distribution Other Distribution Management IssuesManagement Issues
Reverse distributionOne Coca Cola
Distributor
One thousand retailers
OKEthical, Political, &
Legal
Difficult
Backwardchannel
ReviewReview
Explain general purpose of distribution & logisticsShow distribution system’s contributionsExamine tradeoff between customer satisfaction
& costs in distributionUnderstand a total cost approach to distributionUnderstand pervasive nature of distribution Introduce channel intermediaries and various
distribution channels Introduce vertical marketing systemsOverview distribution’s interaction with other
aspects of the marketing mixExamine channel relations