Transcript Distribution Channels

Deliver Value Through
Supply Chain Management,
Channels of Distribution,
and Logistics
Chapter Fifteen
© 2012 Pearson Education, Inc. publishing as Prentice-Hall.
Chapter Objectives
 Understand the key elements in the supply chain
 Explain what a distribution channel is and know




what functions channels perform
Discuss the types of wholesaling intermediaries
found in distribution channels
Describe the types of distribution channels and
how place fits in with the other three Ps in the
marketing mix
List the steps to plan a distribution channel
strategy
Explain logistics and how it fits into the supply
chain concept
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Real People, Real Choices:
Decision Time at Darden Restaurants
 Which strategy should Heather pursue?
• Option 1: Don’t make any changes
• Option 2: Make use of Walmart’s
distribution centers and fleet of trucks
to reship milk to Sam’s locations, and
realize economies of scales as
deliveries to stores would be made 24/7
• Option 3: Change Sam’s Club product
and pallet configuration to embrace the
new case-less design
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Place: The Final Frontier
 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
• Outsourcing is common
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Supply Chain Management
 Supply chain management:
The management of flows among 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
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Supply Chain Management
 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
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Distribution Channels: Get It There
 Distribution channels may be direct or
indirect
 Channel intermediaries
Firms or individuals such as
wholesalers, agents, brokers, and
retailers that help move the product
from the producer to the consumer or
business user
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Functions of Distribution Channels
 Distribution channels:
• Provide time, place, and ownership
utility
• Provide logistics and/or physical
distribution functions
• Create efficiencies by reducing the
number of transactions
Breaking
bulk
Creating assortments
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Functions of Distribution Channels
 Distribution 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
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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
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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
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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
 Mail-order wholesalers
 Rack jobbers
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Merchandise Agents or Brokers
 Merchandise agents/brokers:
• Provide services in exchange for
commissions but never take title to the
product:
Manufacturers’ agents or reps
Selling agents
Commission merchants
Merchandise brokers
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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
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Types of Distribution Channels
 Marketers first 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
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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
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Plan 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
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Plan a Channel Strategy
 Step 3: Choose a distribution strategy :
• Channel relationships:
Conventional, vertical, or horizontal
system
• Conventional marketing system:
Members work independently of one
another
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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
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Plan a Channel Strategy
 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
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Plan a Channel Strategy
 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 or
coercive power)
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Logistics:
Implement the Supply Chain
 Logistics:
The process of designing, managing,
and improving the movement of
products through the supply chain
 Inbound and outbound logistics are
important
 Reverse logistics is increasingly
important
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The Lowdown on Logistics
 Physical distribution:
• The activities that move finished goods
from manufacturers to final customers
 Logistic functions include:
• Order processing
• Warehousing
• Materials handling
• Transportation
• Inventory control
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Transportation
 Transportation modes differ in their:
• Dependability
• Cost
• Speed of delivery
• Accessibility
• Capability
• Traceability
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Transportation

Modes of transportation and usage include
the following:
• 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
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Inventory Control:
JIT, RFID, and Fast Fashion
 Inventory control
Activities to ensure goods are always available
to meet customers’ demands and include:
• 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
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Supply Chain Metrics
 Common supply chain metrics include:
• On-time delivery
• Forecast accuracy
• Value-added productivity per employee
• Returns processed as a percentage of
product revenue
• Customer order actual cycle time
• Perfect order measurement
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Real People, Real Choices

Heather chose option 3
• Why do you think that Heather chose to
launch the caseless program?
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15-28
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
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