1 12 MKTG CHAPTER Lamb, Hair, McDaniel 2008-2009 Chapter 12 Marketing Channels and Supply Chain ManagementMKTGLamb, Hair, McDaniel12Marketing Channels and Supply Chain ManagementCHAPTERDesigned byAmy McGuire, B-books, Ltd.Prepared byDeborah Baker, Texas Christian University
2 Learning Outcomes LO1 LO2 LO3 Explain what a marketing channel is Chapter 12 Marketing Channels and Supply Chain ManagementLearning OutcomesExplain what a marketing channel isand why intermediaries are neededDefine the types of channel intermediaries and describe their functions and activitiesDescribe the channel structures for consumer and business products and discuss alternative channel arrangementsLO1LO2LO3
3 Learning Outcomes LO4 LO5 LO6 LO7 Chapter 12 Marketing Channels and Supply Chain ManagementLearning OutcomesDefine supply chain management and discuss its benefitsDiscuss the issues that influence channel strategyExplain channel leadership, conflict, and partneringDescribe the logistical components of the supply chainLO4LO5LO6LO7
4 Learning Outcomes LO8 LO9 Chapter 12 Marketing Channels and Supply Chain ManagementLearning OutcomesDiscuss new technology and emerging trends in supply chain managementDiscuss channels and distribution decisions in global marketsLO8LO9
5 Explain what a marketing channel is and why intermediaries are needed Chapter 12 Marketing Channels and Supply Chain ManagementMarketing ChannelsLO1Explain what a marketing channel is and why intermediaries are neededNotes:The term channel is derived from the Latin word, canalis, which means canal.
6 Marketing Channels LO1 Marketing Channels Chapter 12 Marketing Channels and Supply Chain ManagementMarketing ChannelsMarketingChannelsA set of interdependent organizations that ease the transfer of ownership as products move from producer to business user or consumer.Notes:A marketing channel can be viewed as a large pipeline through which products, their ownership, communication, financing and payment, and accompanying risk flow to the consumer.An important aspect of marketing channels is the joint effort of all channel members to create a continuous and seamless supply chain.Marketing channels facilitate the physical flow of goods through the supply chain, representing “place” or distribution in the marketing mix.LO1
7 Marketing Channels LO1 Supply Chain Chapter 12 Marketing Channels and Supply Chain ManagementMarketing ChannelsSupply ChainThe connected chain of all the business entities, both internal and external to the company, that perform or support the logistics function.Notes:Many different types of organizations participate in marketing channels. Channel members negotiate with one another, buy and sell products, and facilitate the change of ownership between buyer and seller in the course of moving the product. The supply chain connects the business entities.Discussion/Team Activity:Name products purchased recently. Describe the supply chain required from the beginning of the product to the student’s purchase of the product.LO1
8 Marketing Channel Functions Chapter 12 Marketing Channels and Supply Chain ManagementMarketing Channel FunctionsSpecialization and division of laborOvercoming discrepanciesProviding contact efficiencyNotes:As products move through the supply chain, channel members facilitate the distribution process by providing:Specialization and division of labor: Breaking a complex task into smaller, simpler ones creates greater efficiency and lower production costs.Overcoming discrepancies of quantity, assortment, time, and space.Providing contact efficiency by cutting the number of transactions required to get products to consumers and making an assortment of goods available in one location.LO1
9 Specialization and Division of Labor Chapter 12 Marketing Channels and Supply Chain ManagementSpecialization and Division of LaborCreates greater efficiencyProvides lower costsAchieves economies of scaleAids producers who lack resources to market directlyBuilds good relationships with customersNotes:Specialized expertise of channel members enhances the overall performance of the channel.LO1
10 Overcoming Discrepancies Chapter 12 Marketing Channels and Supply Chain ManagementOvercoming DiscrepanciesDiscrepancyofQuantityAssortmentThe difference between the amount of product producedand the amount an end userwants to buy.The lack of all the items acustomer needs to receive full satisfaction from a product or products.Notes:Marketing channels help overcome discrepancies of quantity, assortment, time, and space created by economies of scale in production.Discrepancy of Quantity: Efficient production for lower unit costs creates a much larger quantity produced than the end user wants to buy. Marketing channels store and distribute the product in appropriate amounts, and make the products available in quantities that consumers desire.Discrepancy of Assortment: Marketing channels assemble in one place many of the products necessary for a consumer’s needed assortment.LO1
11 Overcoming Discrepancies Chapter 12 Marketing Channels and Supply Chain ManagementOvercoming DiscrepanciesTemporalDiscrepancySpatialA situation that occurs when a product is produced but acustomer is not ready to buy it.The difference between thelocation of a producer and the location of widelyscattered markets.Notes:Temporal Discrepancy: Marketing channels overcome temporal discrepancies by maintaining inventories in anticipation of demand. This is particularly true of seasonal/holiday merchandise.Spatial Discrepancy: Marketing channels overcome spatial discrepancies by making products available in locations convenient to consumers. For example, automobile manufacturers franchise dealerships close to consumers.LO1
12 Providing Contact Efficiency Chapter 12 Marketing Channels and Supply Chain ManagementProviding Contact EfficiencyNotes:Exhibit 12.1 demonstrates the purchase of a television set by four consumers. Without a retail intermediary like Circuit City, the individual television manufacturers would have to make four contacts to reach the four buyers. With Circuit City as an intermediary, each producer only has to make one contact, and the consumer buys from one retailer instead of five producers.LO1
14 Channel Intermediaries Chapter 12 Marketing Channels and Supply Chain ManagementChannel IntermediariesLO2Define the types of channel intermediaries and describe their functions and activities
15 Channel Intermediaries Chapter 12 Marketing Channels and Supply Chain ManagementChannel IntermediariesRetailerA channel intermediary thatsells mainly to customers.MerchantWholesalerAn institution that buys goods from manufacturers, takes title to goods, stores them, and resells and ships them.Agents andBrokersWholesaling intermediaries who facilitate the sale of a product by representing channel members.Notes:Intermediaries in a channel negotiate with one another, facilitate the change of ownership between buyers and sellers, and physically move products from the manufacturer to the final end user.LO2
16 Channel Intermediaries Chapter 12 Marketing Channels and Supply Chain ManagementChannel IntermediariesRetailersMerchantWholesalersAgentsandBrokersTake Title to GoodsDo NOT Take Title to GoodsNotes:The most prominent difference separating intermediaries is whether or not they take title to the product. Taking title means they own the merchandise and control the terms of the sale.Agents and brokers do not take title to goods.LO2
17 Factors Suggesting Type of Wholesaling Intermediary to Use Chapter 12 Marketing Channels and Supply Chain ManagementFactors Suggesting Type of Wholesaling Intermediary to UseProduct characteristicsBuyer considerationsMarket characteristicsNotes:Product characteristics, buyer considerations, and market conditions determine the type of intermediary the manufacturer should use.LO2
18 Factors Suggesting Type of Wholesaling Intermediary to Use Chapter 12 Marketing Channels and Supply Chain ManagementFactors Suggesting Type of Wholesaling Intermediary to UseFactorMerchant WholesalersAgents/ BrokersNature of productStandardNonstandard, customTechnicality of productComplexSimpleProduct’s gross marginHighLowFrequency of orderingFrequentInfrequentTime between order and receipt of shipmentShorter lead timeLonger lead timeNumber of customersManyFewConcentration of customersDispersedConcentratedNotes:This slide shows the factors determining the type of wholesaling intermediary.LO2
19 Channel Functions Performed by Intermediaries Chapter 12 Marketing Channels and Supply Chain ManagementChannel Functions Performed by IntermediariesContacting/PromotionNegotiatingRisk TakingResearchingFinancingPhysically distributingStoringSortingFacilitating FunctionsTransactional FunctionsLogisticalFunctionsNotes:The three basic functions—transactional, logistical, and facilitating--performed by intermediaries are shown in Exhibit 12.2.LO2
20 Logistics LO2 Logistics Chapter 12 Marketing Channels and Supply Chain ManagementLogisticsLogisticsThe process of strategically managing the efficient flow and storage of raw materials, in-process inventory, and finished goods from point of origin to point of consumption.LO2
21 REVIEW LEARNING OUTCOME Chapter 12 Marketing Channels and Supply Chain ManagementREVIEW LEARNING OUTCOMELO2Channel Intermediaries and FunctionsCHANNEL INTERMEDIARIESRetailersWholesalersAgents and BrokersCHANNEL FUNCTIONSTransactionalLogisticalFacilitatingPerform
22 Chapter 12 Marketing Channels and Supply Chain Management Channel StructuresLO3Describe the channel structures for consumer and business products and discuss alternative channel arrangements
23 Channels for Consumer Products Chapter 12 Marketing Channels and Supply Chain ManagementLO3DirectChannelA distribution channel in which producers sell directly to consumers.
24 Channels for Consumer Products Chapter 12 Marketing Channels and Supply Chain ManagementLO3ProducerConsumersRetailersWholesalersAgents or BrokersWholesalerChannelRetailerDirectAgent/BrokerNotes:Exhibit 12.3 illustrates the four ways manufacturers can route products to consumers.Direct channel is used to sell products directly to consumers. No intermediaries are used. Examples are telemarketing, catalog shopping, on-line shopping, and television shopping networks.At the other end of the spectrum, an agent/broker channel may be used in markets with small manufacturers/retailers that lack the resources to find each other. The agents or brokers bring the manufacturers and wholesalers together for negotiations, but they do not take title to merchandise.Most consumer products are sold through distribution channels similar to the retailer channel and the wholesaler channel.Discussion/Team Activity:Identify various products and discuss the channel for distribution utilized by each.
25 Channels for Business Products Chapter 12 Marketing Channels and Supply Chain ManagementLO3ProducerIndustrial UserDirectChannelGovt. BuyerIndustrial DistributorAgents orBrokersAgent/BrokerIndustrial ChannelNotes:Exhibit 12.4 illustrates the five channel structures common in business and industrial markets.Direct channels are typical in business and industrial markets. Manufacturers buy large quantities of raw materials, major equipment, and supplies directly from other manufacturers, particularly if detailed technical specifications are required. The channel from producer to government is also a direct channel.Companies selling standardized items of moderate/low value often rely on industrial distributors. Industrial distributors are wholesalers and channel members that buy and take title to products.
26 Business-to-Business Exchanges on the Internet Chapter 12 Marketing Channels and Supply Chain ManagementLO3Agents link buyers and sellersCompanies drop the intermediary from the supply chain“Private exchanges” with select suppliers automate the supply chainOn LineSherwin-WilliamsVisit Sherwin-Williams’s home page to see how and where it sells its products. Are there different channels for its consumer products and its business products?Notes:The traditional industrial distributor is facing many challenges. Manufacturers are getting bigger due to growth, mergers, and consolidation. Technology is making access to information available to manufacturers and customers. Consequently, many are bypassing distributors and going direct, often via the Internet.More companies are using the Internet to create more efficient business-to-business channels. Three forms include: * New Internet companies that serve as paid agents to link buyers and sellers * Existing companies dropping intermediaries from the supply chain * Private exchanges sharing information only with select suppliersOnline
27 Alternative Channel Arrangements Chapter 12 Marketing Channels and Supply Chain ManagementLO3Multiple channelsStrategic channel alliancesNontraditional channelsNotes:Usually a producer employs several different or alternative channels, which includes multiple channels, nontraditional channels, and strategic channel alliances.Multiple channels: Two or more channels selected is called multiple or dual distribution.Nontraditional channels: Nontraditional channels, including the Internet and mail-order channels, help differentiate a firm’s product from the competition.Strategic channel alliances: Producers use another manufacturer’s already-established channel.
28 Chapter 12 Marketing Channels and Supply Chain Management Biz FlixCasinoLO3
30 Supply Chain Management Chapter 12 Marketing Channels and Supply Chain ManagementSupply Chain ManagementLO4Define supply chain management and discuss its benefits
31 Supply Chain Management Chapter 12 Marketing Channels and Supply Chain ManagementSupply Chain ManagementSupply ChainA management system that coordinates and integrates all of the activities performed by supply chain members into a seamless process, from the source to the point of consumption, resulting in enhanced customer and economic value.Notes:Supply chain management helps companies achieve competitive advantage. By visualizing the entire supply chain, supply chain managers can maximize strengths and efficiencies at each level of the process to create a highly competitive, customer-driven supply system that is able to respond immediately to changes in supply and demand.In mass production, standardized products were “pushed” down the supply chain to the consumer. In contrast, in today’s marketplace, products are being driven or “pulled” by customers who expect products configured to their unique needs. Supply chain management allows companies to respond with the unique product configuration and mix of services demanded by the customer.LO4
32 Role of Supply Chain Management Chapter 12 Marketing Channels and Supply Chain ManagementRole of Supply Chain ManagementCommunicator of customer demand from point of sale to supplierPhysical flow process that engineers themovement of goodsNotes:Today, supply chain management plays a dual role.Supply chain management acts as a communicator of customer demand that extends from the point of sale back to the supplier, and second, as a physical flow process that engineers the movement of goods throughout the entire supply pipeline.Supply chain managers are responsible for making channel strategy decisions, coordinating the sourcing and procurement of raw materials, scheduling production, processing orders, managing inventory, transporting and storing supplies and finished goods, and coordinating customer service activities. Additionally, supply chain managers are responsible for managing the information that flows through the supply chain.LO4
33 Responsibilities of Supply Chain Managers Chapter 12 Marketing Channels and Supply Chain ManagementResponsibilities of Supply Chain ManagersChannel strategy decisionsSourcing and procurement of raw materialsProduction schedulesOrder processingInventory managementFinished goods/supplies transportation and storageCustomer service coordinationSupply chain information flow managementPartner relationshipsNotes:Supply chain managers are responsible for ensuring the success of the critical functions shown on this slide.LO4
34 The Supply Chain Process Chapter 12 Marketing Channels and Supply Chain ManagementThe Supply Chain ProcessLO4
35 Benefits of Supply Chain Management Chapter 12 Marketing Channels and Supply Chain ManagementBenefits of Supply Chain ManagementMeans of differentiationGreater supply chain flexibilityImproved customer serviceHigher revenuesReduced costsNotes:Supply chain management is a key means of differentiation for a firm and a critical component in marketing and corporate strategy.Research has shown a clear relationship between supply chain performance and profitability. Leaders in supply chain management report a 20 percent improvement in cash flow, a more than 50 percent increase in flexibility of supply chain activities, and a reduction of 5 to 10 percent in supply chain costs.LO4
37 Making Channel Strategy Decisions Chapter 12 Marketing Channels and Supply Chain ManagementMaking Channel Strategy DecisionsLO5Discuss the issuesthat influencechannel strategy
38 Channel Strategy Decisions Chapter 12 Marketing Channels and Supply Chain ManagementLO5FactorsAffectingChannelChoiceProducer FactorsProduct FactorsMarket FactorsExclusive DistributionSelective DistributionIntensive DistributionLevel of Distribution IntensityNotes:Before choosing a marketing channel, supply chain managers must analyze several factors, which often interact. These factors can be grouped as market factors, product factors, and producer factors. An explanation follows.
39 Consumer or Industrial Market FactorsChapter 12 Marketing Channels and Supply Chain ManagementLO5Market Factors That AffectChannel ChoicesCustomer profilesConsumer or IndustrialCustomerSize of marketGeographic locationNotes:Market factors include the target customer considerations, such as these questions: Who are the potential customers? What/where/when/how do they buy?Also important to channel selection is the distinction between consumer or industrial customers. Consumers buy in small quantities and don’t require much service, whereas industrial customers purchase in larger quantities and require more customer service.If the target market is concentrated in specific areas, direct selling is appropriate. If widely dispersed, intermediaries would be less expensive.In general, a large market requires more intermediaries.
40 Product Standardization Product FactorsChapter 12 Marketing Channels and Supply Chain ManagementLO5Product Factors That AffectChannel ChoicesProduct ComplexityProduct StandardizationProduct Life CycleProduct DelicacyProduct PriceNotes:Products that are more complex, customized, and expensive benefit from shorter and more direct marketing channels and through a direct sales force. Standardized products can be sold through longer distribution channels with greater numbers of intermediaries.The choice of channel may change over the life of the product. As products become more common, producers turn from a direct channel to more alternative channels.Perishable items and fragile products require fairly short marketing channels and a minimum amount of handling.
41 Number of Product Lines Desire for Channel Control Product FactorsChapter 12 Marketing Channels and Supply Chain ManagementLO5Producer Factors That AffectChannel ChoicesProducer ResourcesNumber of Product LinesDesire for Channel ControlNotes:Producers with larger financial, managerial, and marketing resources are able to use more direct channels. These producers can maintain their own sales force, warehouse their own goods, and extend credit to customers.Producers with several products in a related area choose channels that are more direct, and sales expenses can be spread over more products.A producer’s desire to control pricing, positioning, brand image, and customer support may avoid channels in which discount retailers are present. Furthermore, manufacturers of upscale products may sell only in expensive stores to maintain an image of exclusivity.
42 Levels of Distribution Intensity Chapter 12 Marketing Channels and Supply Chain ManagementLO5IntensiveA form of distribution aimed at having a product available inevery outletSelectiveA form of distribution achievedby screening dealers to eliminate all but a few in any single areaExclusiveA form of distribution thatestablished one or a few dealers within a given area
43 Levels of Distribution Intensity Chapter 12 Marketing Channels and Supply Chain ManagementLO5IntensiveAchieve mass market selling.Convenience goods.ManySelectiveExclusiveWork with selectedintermediaries.Shopping and somespecialty goods.Work with single intermediary. Specialty goods and industrialequipment.SeveralOneIntensity LevelObjectiveNumber of IntermediariesNotes:This slide compares the three options for intensity of distribution.Discussion/Team Activity:Discuss product examples in each of the intensity levels, and in which stores the products are stocked.
45 Managing Channel Relationships Chapter 12 Marketing Channels and Supply Chain ManagementManaging Channel RelationshipsLO6Discuss the issuesthat influencechannel strategy
46 Social Dimensions of Channels Chapter 12 Marketing Channels and Supply Chain ManagementSocial Dimensions of ChannelsPartneringConflictLeadershipControlPowerNotes:Social relationships play an important role in building unity among channel members. An aspect of supply chain management is managing the social relationships among channel members to achieve synergy.The basic social dimensions are shown on this slide and defined on the following slides.LO6
47 Channel Power, Control, and Leadership Chapter 12 Marketing Channels and Supply Chain ManagementChannel Power, Control, and LeadershipChannelPowerA channel member’s capacity to control orinfluence the behavior of other channel membersControlA situation that occurs when one marketingchannel member intentionally affects another member’s behaviorChannel LeaderA member of a marketing channel that exercisesauthority/power over the activities of other membersLO6
48 Channel Conflict and Partnering Chapter 12 Marketing Channels and Supply Chain ManagementChannel Conflict and PartneringChannelConflictA clash of goals and methods between distribution channel membersPartneringThe joint effort of all channel members to create a supply chain that serves customers and creates a competitive advantageNotes:Inequitable channel relationships often lead to channel conflict. In a broad context, conflict may not be bad: if traditional members refuse to keep pace with the times, removing an outdated intermediary may reduce costs for the supply chain.Channel partnering is vital if each member gains something from the other members. Cooperation speeds up inventory replenishment, improves customer service, and reduces the total costs of the marketing channel.LO6
49 Channel Conflict Conflicts may occur if channel members: LO6 Chapter 12 Marketing Channels and Supply Chain ManagementChannel ConflictConflicts may occur if channel members:Have conflicting goalsFail to fulfill expectations of other channel membersHave ideological differencesHave different perceptions of realityNotes:Conflicts arise because channel members have conflicting goals, or when channel members fail to fulfill expectations of other channel members.Further, different perceptions of reality can cause conflict among members. For instance, retailers may have a liberal return policy, whereas wholesalersLO6
50 Channel Partnering LO6 Transaction-Based Partnership-Based Chapter 12 Marketing Channels and Supply Chain ManagementChannel PartneringSupplier / Manufacturer RelationshipsShort-termAdversarialIndependentPrice importantLong-termCooperativeDependentValue-added servicesNumber of SuppliersManyFewTransaction-BasedPartnership-BasedInformation SharingMinimalHighInvestment RequiredNotes:This table compares companies that approach the marketplace unilaterally and those that engage in channel cooperation and form partnerships.LO6
52 Global Issues in Services Marketing Chapter 12 Marketing Channels and Supply Chain ManagementGlobal Issues in Services MarketingLO7Discuss global issues in services marketing
53 Logistical Components of the Supply Chain Chapter 12 Marketing Channels and Supply Chain ManagementLogistical Components of the Supply ChainSupply Chain TeamSourcing & ProcurementProduction SchedulingOrder ProcessingInventory ControlWarehouse & Materials HandlingTransportationLogistics Information SystemNotes:The supply chain consists of several interrelated and integrated logistical components, as shown on this slide.Integrating and linking all of the components is the logistics information system.The supply chain team orchestrates the movement of goods from the source to the consumer. The team cuts across organization boundaries and communicates/coordinates/cooperates extensively.The best supply chain teams move beyond the organization to include external participants, such as suppliers, transportation carriers, and third-party logistics suppliers.LO7
54 Sourcing and Procurement Chapter 12 Marketing Channels and Supply Chain ManagementSourcing and ProcurementThe Role of Purchasing:Plan purchasing strategiesDevelop specificationsSelect suppliersNegotiate price and service levelsReduce costsNotes:One of the most important links in the supply chain is that between the manufacturer and the supplier. Purchasing professionals are on the front lines planning purchasing strategies, developing specifications, selecting suppliers, and negotiating price and service levels.The goal of most activities is to reduce the costs of raw materials and supplies. Instead of tough negotiations to get the best possible price, purchasing helps establish and cooperative relationships with vendors.LO7
55 Production Scheduling Chapter 12 Marketing Channels and Supply Chain ManagementProduction SchedulingPush / PullStrategyTraditional FocusPushStart of ProductionManufacturingInventory- BasedMass ProductionCustomer FocusPullCustomer-Order BasedMass CustomizationNotes:In a traditional mass-marketing manufacturing, production begins when forecasts call for additional products to be made or inventory is low.In a customer-focused “pull” manufacturing environment, production of goods is not started until an order is placed by the customer specifying the desired configuration, also known as mass customization or build-to-order.In this environment of customer demand and mass customization, supply chains need to be flexible and be able to shift production based on demand.LO7
56 Just-in-Time Manufacturing Chapter 12 Marketing Channels and Supply Chain ManagementJust-in-Time ManufacturingJITA process that redefines and simplifies manufacturing by reducing inventory levels and delivering raw materials just when they are needed on the production line.Notes:JIT, or lean production, was borrowed from the Japanese. Manufacturers work with suppliers to get necessary items to the assembly line at the precise time they are needed for production.For the manufacturer, JIT means that raw materials arrive at the assembly line “just in time” to be installed.For the supplier, JIT means supplying customers with products in just a few days rather than weeks.For the consumer, JIT means lower costs, shorter lead times, and products that closely meet the consumer’s needs.LO7
57 Benefits of JIT LO7 Reduces raw material inventories Chapter 12 Marketing Channels and Supply Chain ManagementBenefits of JITReduces raw material inventoriesShortens lead timesCreates better supplier relationshipsReduces production and storeroom costsReduces paperworkNotes:Benefits of JIT to the manufacturer are shown on this slide.LO7
58 JIT Requirements LO7 Receive high-quality parts Chapter 12 Marketing Channels and Supply Chain ManagementJIT RequirementsReceive high-quality partsMeet supplier delivery commitmentsHave a crisis management planNotes:Because there is little safety stock and no margin for error, it is important that manufacturers receive high-quality parts from vendors, be confident that the supplier will meet all delivery commitments, and have a crisis management plan to handle any disruptions.The need for a crisis management plan became evident following the terrorist attacks of September 11 and Hurricane Katrina.LO7
59 Electronic Data Interchange Chapter 12 Marketing Channels and Supply Chain ManagementOrder ProcessingElectronic Data InterchangeInformation technology that replaces paper documents that accompany business transactions with electronic transmission of the information.On Line: Wal-MartIs EDI a requirement for Wal-Mart suppliers? Go to Wal-mart’s Web site and read the “Supplier Information” pages. Does selling to Wal-Mart seem worth the effort? Why or why not?Notes:The order is often the step that sets the supply chain in motion, especially in build-to-order environments such as Dell Computer. The order processing system processes the requirements of the customer and sends the information into the supply chain.As the order enters the system, management monitors the flow of goods and the flow of information.Order processing is becoming more automated through the use of electronic data interchange computer technology. This information can be read and processed by computers.OnlineLO7
60 Order Processing LO7 Inventory Control System Chapter 12 Marketing Channels and Supply Chain ManagementOrder ProcessingInventoryControl SystemA method of developing and maintaining an adequate assortment of materials or products to meet a manufacturer’s or a customer’s demand.Notes:The inventory control system helps balance having excess inventory and having too few products on hand.The goal of inventory management is to keep inventory levels as low as possible, while maintaining an adequate supply of goods to meet customer demand.Consider, for example, negative sales forecasts during recent Christmas buying seasons that caused retailers to cut back on orders. As a result, many companies lost sales due to inventory shortages on popular items.LO7
61 Order Processing LO7 Materials Requirement Planning (MRP) Distribution Chapter 12 Marketing Channels and Supply Chain ManagementOrder ProcessingMaterialsRequirementPlanning (MRP)An inventory control system that managesthe replenishment of raw materials,supplies, and components from thesupplier to the manufacturer.DistributionResourcePlanning(DRP)the replenishment of goods from themanufacturer to the final consumer.Notes:Managing inventory from the supplier to the manufacturer is called materials requirement planning (MRP) or materials management.Managing finished goods inventory from manufacturer to end user is referred to as distribution resource planning (DRP).Both inventory systems use inputs such as sales forecasts and available inventory to determine what actions must be taken to replenish goods in the supply chain. Demand is collected at each level in the supply chain, and with the use of EDI, the information can be transmitted to meet the quick-response needs of competitive markets.LO7
62 Materials Handling Functions Chapter 12 Marketing Channels and Supply Chain ManagementMaterials Handling FunctionsReceive goods intowarehouseDispatch the goods totemporary storageRecall, select, or pick the goods for shipmentIdentify, sort, and labelgoodsNotes:Although JIT may eliminate the need to warehouse many materials, manufacturers keep some safety stock on hand in the event of an emergency. Additionally, inventory may be stored for seasonally-demand products.Storage helps manufacturers manage supply and demand.A materials-handling system moves inventory into, within, and out of the warehouse, performing the functions shown on this slide.LO7
63 Transportation LO7 Airways Water Pipelines Motor Carriers Railroads Chapter 12 Marketing Channels and Supply Chain ManagementTransportationAirwaysWaterPipelinesMotor CarriersRailroadsNotes:Supply chain logisticians must decide which mode of transportation to use to move products from supplier to producer and from producer to buyer. These decisions are related to other logistics decisions.LO7
64 Transportation Mode Choice Chapter 12 Marketing Channels and Supply Chain ManagementTransportation Mode ChoiceCostTransit timeReliabilityCapabilityAccessibilityTraceabilityNotes:Transportation accounts for between 5 to 10 percent of the price of goods.Supply chain managers choose a mode of transportation on the basis of the criteria shown on this slide.LO7
65 Criteria for Ranking Modes of Transportation Chapter 12 Marketing Channels and Supply Chain ManagementCriteria for Ranking Modes of TransportationRelativeCostTransitTimeReliabilityCapabilityAccessibilityTraceabilityHighestLowestAirWaterPipeRailTruckNotes:Exhibit 12.5 compares the basic modes of transportation based on the six criteria.LO7
66 Trends in Supply Chain Management Chapter 12 Marketing Channels and Supply Chain ManagementTrends in Supply Chain ManagementLO8Discuss new technology and emerging trends in supply chain management
67 Trends in Supply Chain Management Chapter 12 Marketing Channels and Supply Chain ManagementTrends in Supply Chain ManagementElectronic distributionOutsourcing of logistics functionsAdvanced computer technologyNotes:Several technological trends are affecting the job of the supply chain manager:Advanced computer technology has boosted the efficiency of logistics with tools such as automatic ID systems, radio frequency technology, and supply chain software systems.Outsourcing of logistics functions is a rapidly growing segment in which a manufacturer or supplier turns over the entire or partial function of supply chain management to an independent third party.Electronic distribution includes any kind of product or service that can be distributed electronically. For instance, computer software can be purchased and downloaded electronically.LO8
68 Advanced Computer Technology Chapter 12 Marketing Channels and Supply Chain ManagementAdvanced Computer TechnologyAutomatic identification systems- Bar coding- Radio frequency technologyCommunications technologySupply chain software systemsNotes:One of the major goals of technology is to bring up-to-date information to the supply chain manager’s desk. Systems, such as those shown above, are now in place that help track freight, monitor speed and location of carriers, and make routing decisions. Each package can be tracked from receipt to delivery.LO8
69 Outsourcing Logistics Functions Chapter 12 Marketing Channels and Supply Chain ManagementOutsourcing Logistics FunctionsOutsourcing BenefitsReduce inventoriesLocate stock at fewer plants and distribution centersProvide same or better levels of serviceLO8
70 Channels and Distribution Decisions for Global Markets Chapter 12 Marketing Channels and Supply Chain ManagementChannels and Distribution Decisions for Global MarketsLO9Discuss channels and distribution decisions in global markets
71 Channels and Distribution Decisions for Global Markets Chapter 12 Marketing Channels and Supply Chain ManagementChannels and DistributionDecisions for Global MarketsGlobal ChannelDevelopmentChannel structure and type differGray marketing channelsGlobal Supply Chain ManagementAwareness of trade legalitiesTransportation IssuesNotes:With the popularity of free-trade agreements such as the European Union and the North American Free Trade Agreement, global marketing channels have become important to U.S. corporations.When designing marketing channels for foreign markets, the type of channel structure must be considered.The more highly developed a nation is economically, the more specialized its channel types.Marketers must be aware of gray marketing channels, in which products are distributed through unauthorized channel intermediaries. Sales of counterfeit luxury items, for example, is estimated at $2 billion a year. The Internet has proved a way for pirates to circumvent authorized distribution channels.One of the most critical global logistics issues for importers is coping with the legalities of trade in other countries.Transportation can be a major issue because of poor infrastructure and complications from government regulations.LO9
72 REVIEW LEARNING OUTCOME Chapter 12 Marketing Channels and Supply Chain ManagementREVIEW LEARNING OUTCOMELO9Global Market Channel & Distribution DecisionsDistribute directly or through foreign partnersDifferent channel structures than indomestic marketsIllegitimate “gray” marketing channelsLegal and infrastructure differences
73 Beyond the Book Channels and Distribution Decisions for Services Chapter 12 Marketing Channels and Supply Chain ManagementIdentify the special problems and opportunities associated with distribution in service organizationsBeyond the BookNOTE: Supplemental content – not in book.
74 Managing service capacity Improving service delivery Channels and Distribution Decisions for ServicesChapter 12 Marketing Channels and Supply Chain ManagementMinimizing wait timesManaging service capacityImproving service deliveryBeyond the BookNotes:The fastest-growing part of our economy is the service sector. Customer service is a priority, with service distribution focused on three major areas:Minimizing wait timesManaging service capacity.Improving service deliveryDiscussion/Team Activity:Does your bank deliver any of its services online? Visit its Web site to find out. Which online services would you be inclined to use? Are there any that you would definitely not use? Why not?NOTE: Supplemental content – not in book.
75 Beyond the Book Distribution in Service Organizations Chapter 12 Marketing Channels and Supply Chain ManagementDistribution in Service OrganizationsBeyond the BookNOTE: Supplemental content – not in book.