Chapter 15 Deliver Value Through Supply Chain Management, Channels of Distribution, and Logistics

Chapter 15

Deliver Value Through Supply Chain Management, Channels of

Distribution, and Logistics

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall15-2

Chapter Objectives

Understand the value chain concept and the key elements in the supply chain

Explain what a distribution channel is and know what functions channels perform

Describe the types of wholesaling intermediaries found in distribution channels

Describe the types of distribution channels and the role of place in the marketing mix

Understand the steps in planning a distribution channel strategy

Explain logistics and how it fits into the supply chain concept


Real People, Real Choices: Decision Time at Darden Restaurants

Which strategy should Jim pursue? – Option 1: Internalize the food delivery

function by developing a distribution network owned and operated by Darden

– Option 2: Work with third-party logistics providers to create a distribution network

– Option 3: Work with traditional system distributors under a new operating model


Place: The Final Frontier

Value chain: – A series of activities directed at designing,

producing, marketing, delivering, and supporting any product

Supply chain: – All of the activities necessary to turn raw

materials into a good or service and put it in the hands of the consumer


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:

Firms contract with a specialist that handles all or part of the company’s supply chains


Links in the Supply Chain

Channel of distribution: The series of firms or individuals that facilitates the movement of a product from producer to final customer

Supply chain links– The supplier network provides raw materials

and parts to the manufacturer– Firm manufactures a product– Products are sent to distribution

channel for resale to buyers


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

Channel intermediariesFirms or individuals such as wholesalers, agents, brokers, and retailers that help move the product from the producer to the consumer or business user


Functions of Distribution Channels

Channels:– Provide time, place, and ownership utility– Provide logistics and/or physical distribution

functions– Create efficiencies by reducing the number of

transactions• Breaking bulk:

Purchasing large quantities of goods to sell one/few at a time to customers

• Creating assortments: Providing variety of products in one location


Functions of Distribution Channels

Channels:– Transport and store goods– Perform facilitating functions to make

purchase process easier – Provide setup, repair, and maintenance

services for products carried– Provide communication and transaction

functions


The Internet in the Distribution Channel

E-commerce has created radical changes in distribution strategies– Disintermediation:

Eliminating traditional intermediaries• Reduces manufacturer costs

– Knowledge management: Sharing knowledge with other supply chain members

– Online distribution piracy can be problematic


Channel Composition: Types of Wholesaling Intermediaries

Wholesaling intermediaries: Firms that handle the flow of products from the manufacturer to the retailer/business user– Independent intermediaries

• Merchant wholesalers• Merchandise agents and brokers

– Manufacturer owned intermediaries


Independent Intermediaries

Merchant wholesalers: – Buy goods from manufacturers and sell to

retailers and other B2B customers• Full-service merchant wholesalers• Limited-service merchant wholesalers• Cash-and-carry wholesalers • Truck jobbers • Drop shippers • Rack jobbers• Mail-order wholesalers


Independent Intermediaries

Merchandise agents/brokers: – Provide services in exchange for

commissions• Manufacturers’ agents/reps

• Selling agents

• Commission merchants

• Merchandise brokers


Manufacturer-Owned Intermediaries

Sales branches– Carry inventory, provide sales, and service

support

Sales offices– Similar to agents; do not carry inventory but

provide selling functions

Manufacturers’ showrooms – Permanent product displays for customers to

visit


Types of Distribution Channels

Marketers must consider the number of channel levels when designing a distribution system

Various channel structures exist– Consumer channels– Business-to-business channels – Dual distribution systems– Hybrid marketing systems


Distribution, the Marketing Mix and Ethical Issues

Distribution decisions interact with the marketing mix in a number of ways:– Place decisions influence pricing– Distribution decisions can help develop a position in

the market– Nature of the product influences choice of distribution

channels, especially retailers

Distribution decisions can create ethical dilemmas– Slotting allowances– Size of channel intermediaries


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 functions• Channel intermediaries available• How the competition distributes

its products



Step 3: – Choose a distribution strategy

• Channel relationships: Conventional, vertical, or horizontal system

• Conventional marketing system: Members work independently of one another


Vertical and Horizontal Marketing Systems

Vertical marketing system (VMS):– Formal cooperation among channel members

• Administered VMS• Corporate VMS• Contractual VMS• Retailer cooperative• Franchise organizations

Horizontal marketing system: – Two or more firms at the same channel level

agree to work together to get their product to the customer



Step 3: Choose a distribution strategy– Distribution intensity

• Intensive distribution: Selling through all suitable wholesalers or retailers

• Exclusive distribution: Selling only through a single outlet in a region

• Selective distribution: Using fewer outlets than intensive but more than exclusive distribution



Step 4: Develop distribution tactics– Selecting channel partners (normally a long-

term commitment)– Managing the channel

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


Logistics: Implementing the Supply Chain

Logistics: The process of designing, managing, and improving the movement of products through the supply chain

Logistics includes:– Purchasing– Manufacturing– Storage– Transporting



Logistics:– Involves physical distribution (the activities

used to move finished goods from manufacturers to final customers)

Logistic functions include:– Order processing– Warehousing– Materials handling– Transportation– Inventory control



Transportation 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)



Modes of transportation and usage– Railroads: heavy, bulky items over long distances– Water: large, bulky goods (especially internationally)– Trucks: consumer goods in short haul; allow flexibility

in locations– Air: high value-items; fastest and most expensive

mode– Pipelines: petroleum/chemical products– Internet: services such as banking, news, and

entertainment



Inventory control: – Activities to ensure goods are always

available to meet customers’ demands• Radio frequency identification (RFID):

Product tags with tiny chips containing information about the item’s content, origin, and destination

• Just in time (JIT):Deliveries arrive only when needed, keeping inventory levels low


Real People, Real Choices

Jim chose option 3– Implementation: The new Darden Direct

Distribution system protected the supply chain while developing competitive advantages for supply chain partners by means of a new third party model. Restaurants experienced greater manager satisfaction and significant savings

– Measuring Success: Standard service metrics were used, including on-time delivery percentage, case fill, and satisfaction scores


Keeping It Real: Fast-Forward to Next Class Decision Time at Eskimo Joe’s

Meet Stan Clark, the entrepreneur who developed Eskimo Joe’s

Eskimo Joe’s is a popular bar near Oklahoma State University

The decision to be made: How best to respond to an increase in the legal drinking age, and the newly passed “liquor by drink” law


Copyright © 2009 Pearson Education, Inc. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice HallPublishing as Prentice Hall

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Chapter 15 Deliver Value Through Supply Chain Management, Channels of Distribution, and Logistics