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CHAPTER 15Creating Value Through
Supply Chain Management: Channels of Distribution, Logistics, & Wholesaling
M A R K E T I N GReal People, Real Choices
15-2
Chapter Objectives
• Understand the concept of the value chain & elements in a supply chain
• Explain what a distribution channel is & what functions distribution channels perform
• Describe the types of wholesaling intermediaries found in distribution channels
15-3
Chapter Objectives
• Describe the types of distribution channels & the steps in planning distribution channel strategies
• Explain how logistics is used in the supply chain
15-4
Supply Chain Management
• The supply chain includes all firms that engage in activities that are necessary to convert raw materials into a good or service
• Supply chain management is the management of flows among the firms in a supply chain to maximize profitability
15-5
What Is a Distribution Channel?
• Series of firms or individuals that facilitate the movement of a product from the producer to the final customer
– Direct
• Manufacturer -> Customer
– Indirect
• Intermediaries: from wholesalers to retailers
15-6
Functions of Distribution Channels
• Time, place, & ownership utilities
• Logistics functions
• Transportation & storage functions
• Efficiency creation
• Facilitating functions
• Repair & maintenance functions
• Risk-taking
• Communication & transaction functions
15-7
Creating Efficiencies
• Breaking bulk – channel members purchase large quantities from manufacturers & sell smaller quantities to many different customers
• Creating assortments – channel members provide a variety of products in one location
15-8
Types of Wholesaling Intermediaries
• Wholesaling intermediaries are firms that handle the flow of products from the manufacturer to retailer or business user
– Independent
• Work with lots of manufacturers
– Manufacturer owned
• Single manufacturer
15-9
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
15-10
Manufacturer-Owned Intermediaries
• Sales branches
• Sales offices
• Manufacturers’ showrooms
15-11
Types of Distribution Channels
• Consumer channels
– Direct
– Manufacturer-retailer-consumer
– Manufacturer-wholesaler-retailer-consumer
• Business-to-business channels
– Direct
– Manufacturer-industrial distributor-business customer
15-12
Distribution 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
15-13
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
15-14
Contractual VMS
• 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
15-15
Distribution Intensity
Decision Factors:Company, Customers, Channels,
Constraints, and Competition
Intensive, Exclusive, or Selective Distribution
15-16
Implementing the Value Chain
• Process of designing, managing, & improving the movement of products through the supply chain
– purchasing
– manufacturing
– storage
– transport
15-17
Logistics and Customer Satisfaction
• Traditionally, logistics was thought of as physical distribution
– order processing, warehousing, materials handling, transportation, & inventory control
– objective to deliver product at lowest cost
• Now, customers’ goals become the logistics provider’s goals
15-18
Logistics Functions
• Order processing
• Warehousing
• Materials handling
• Transportation
• Inventory Control
15-19
Modes of Physical Transportation
• Rail• Water• Truck• Air• Pipeline
15-20
Transportation Mode Considerations
• Dependability
• Cost
• Speed of Delivery
• Accessibility
• Capability
• Traceability