2 A Supply ChainThe set of institutions that move goods from the point of production to the point of consumption.Synonymous with the term “channel”Must perform eight marketing functions:Note: None of these functions can be eliminated; they can only be shifted.BuyingSellingStoringTransportingSortingFinancingInformation gatheringRisk taking
3 Supply Chain Participants A channel is made up of only two types of institutions…Primary marketing institutionsMembers that take possession of and title to the goods handled as they move through the marketing channel.Only primary institutions are formal members of a channelFacilitating marketing institutionsMembers that do not actually take title to the goods they handle, but assist in the marketing process by specializing in the performance of one or more of the eight marketing functions.
4 Development of the Supply Chain There are three general strategic decision areas that must addressed when designing a supply chainLengthWidthLevel of ControlAll three will impact supply chain efficiency and the channel’s ability to meet its ultimate goal.Goal of every channel is to minimize suboptimizationAchieved via specialization of labor in the 8 mkt. functions
9 Managing Retailer – Supplier Relations PowerAbility of one channel member to influence the decisions and behavior of the other channel members.Pab = DbaDependencyOccurs when a retailer needs another supply chain member or vice versa to perform certain marketing functions.All channel members are interdependent upon one another.Interdependency is at the root of all major sources of conflict.
10 Bases of Power Bases of Power: Expertise power Referent power Legitimate powerReward powerCoercive power
11 Use of Power within the Supply Chain* Note this information is not within your text and was supplied in class. (L.P. Bucklin’s “Theory of Channel Control,” JM 1973)
12 Theory of Channel Control Payoff FunctionThe amount of benefits (or profits) that accrue as a result of giving up controlBenefit(eg, $)Control Given Up
13 Theory of Channel Control Tolerance FunctionThe amount of pain/burden felt as a result of giving up control to another.Benefit(eg, $)Control Given Up
14 Theory of Channel Control Zone of IndifferenceCorresponds to the indifference of keeping/ending the relationship due to the costs associated with “breaking-up” an arrangementZone is the area between the Tolerance Function and the red line denoting the outside edge of the zoneBenefit(eg, $)Control Given Up
15 Theory of Channel Control Area “A”The only area where the Payoff Function is above the Tolerance Function, and it’s increasingAs one gives up more control initially, they experience greater benefit (e.g., why consultants exist)Benefit(eg, $)Control Given UpA
16 Theory of Channel Control Area “B”The only area where the Payoff Function is above the Tolerance Function, but it’s decreasingAs one continues to give up control, the benefits begin to fall. Burden simultaneously begins to rise substantially as benefits continue to fall (i.e., steep rise in the Tolerance function).Benefit(eg, $)Control Given UpAB
17 Theory of Channel Control Area “C”The area where the Payoff Function is below the Tolerance Function, and still in the zone of indifferenceHere the amount of burden felt outstrips the benefit gained, but there’s a cost assoc. with breaking upBenefit(eg, $)Control Given UpABC
18 Theory of Channel Control What bases of power should be used in “A”? And why should the others not?Benefit(eg, $)Control Given UpA
19 Theory of Channel Control What bases of power should be used in “B”? And why should the remaining not?Benefit(eg, $)Control Given UpAB
20 Theory of Channel Control Why should the remaining bases of power be used in “C”? What do they do?Benefit(eg, $)Control Given UpABC
21 Theory of Channel Control Reward power impacts one’s payoff function & shifts it up temporarilyBenefit(eg, $)Control Given Up
22 Theory of Channel Control Now consider how coercive power impacts the same scenario…Benefit(eg, $)Control Given UpABC
23 Theory of Channel Control Coercive power impacts one’s tolerance function & shifts it down temporarilyBenefit(eg, $)Control Given Up
24 Conflict Within the Supply Chain Exists when a member of the channel perceives that another member’s actions impede the attainment of his/her goals.*Sources of conflict:Perceptual incongruityGoal incompatibilityDual distributionDomain disagreementsDiverting, Gray Marketing, Free RidingRole incongruities*Expectational differences*
25 Facilitating Channel Collaboration Compromise vs. CollaborationWin/Lose vs. Win/WinRequires:Mutual trustFaith that each (retailer & supplier) will be truthful and fair in their dealings with the other.Two-way communicationWhen both communicate openly their ideas, concerns, & plans.SolidarityHigh value is placed on the relationship & results in flexible dealings where adaptations are made as circumstances change.
26 Category ManagementProcess of managing all the SKUs within a product category.Involves the simultaneous management of…PriceShelf spaceMerchandising strategyPromotional efforts
27 Category Management Category Manager Category Advisor The individual who uses detailed knowledge of the consumer and consumer trends, detailed point-of-sale (POS) information, and specific analysis provided by each supplier to the category to create various store displays based on local market conditions.Works for the retailerCategory AdvisorIn cases where the solidarity of the channel partners is high, a supplier may serve as the retailer’s category manager.Works for a supplier but manages all brands within the category.
28 What You Should Have Learned… Chapter’s Learning Objectives The retailer’s role as one of the institutions involved in the supply chain.How to discuss the types of supply chains by length, width, and level of control.The terms dependency, power, and conflict, as well as their impact on supply chain relationships.The importance of a collaborative supply-chain relationship.