Chapter 16 Supply Chain and Channel Management

Learning Objectives Learning Objective 16.1 Understand the importance of marketing channels and supply chain management. Learning Objective 16.2 Understand the difference between direct and indirect marketing channels. Learning Objective 16.3 Describe how marketing channels are managed. Learning Objective 16.4 Describe the flow of information and merchandise in the marketing channel. These questions are the learning objectives guiding the chapter and will be explored in more detail in the following slides.

Supply Chain Management Ask students: Why would a supply chain be more efficient with a distribution center rather than simply delivering directly to stores? Answer: The distribution center serves as a place to accumulate merchandise from many vendors and then allocate it to stores in the quantities they need. Imagine the congestion if every vendor had to deliver to every store. Jump to Appendix 1 long image description

Marketing Channels Add Value (1 of 2) Each participant adds value Factory to consumer would require more transactions than factory to store to consumer. Without supply chain management, firms would face significant complications in getting their goods to consumers where they want them. Group activity: Each member of the group represents a supply chain link (e.g., manufacturer, retail distribution center, retailer, transporter, end customer). Remove one link and attempt to move an object like a pen from one end to the other. Experiment with removing different links. What happens?

Marketing Channels Add Value (2 of 2) Reduce number of transactions Increase value for consumers More efficient and effective Ask students: How does supply chain management reduce inventory levels? What effect does supply chain management have on sales? Answer: An efficient supply chain can lower overall inventory in the system because merchandise is delivered when it is needed (just-in-time). By having an efficient supply chain, the retailers stay in stock, and sales increase. This is a classic FedEx ad with John Moscitta, the fast talking guy, which reinforces the importance of distribution. YouTube link: http://www.youtube.com/watch?v=NeK5ZjtpO-M http://www.youtube.com/watch?v=NeK5ZjtpO-M

Marketing Channel Management Affects Other Aspects of Marketing Meeting customer expectations Fulfilling delivery promises Reliant on an efficient supply chain Customers expect to have their goods delivered and services performed on time. Ask students: What happens when the supply chain breaks down? Imagine you order a textbook from Amazon, which promises to deliver it by Saturday, before your classes start on Monday. What happens in terms of your satisfaction with Amazon if some link in the supply chain breaks down and you don’t receive your book until Tuesday? Courtesy Zara International, Inc

Designing Marketing Channels There are no intermediaries between the buyer and seller in a direct marketing channel. In indirect marketing channels, one or more intermediaries work with manufacturers to provide goods and services to customers. Jump to Appendix 2 long image description

Types of Vertical Marketing Systems Administered vertical marketing system Contractual vertical marketing system Group exercise continued: Have students describe which type of supply chain channel they are in. Explain how cooperation is fostered through more formal supply chain relationships. In essence, cooperation is naturally greater in a corporate system than in an independent supply chain. Corporate vertical marketing system

Jump to Appendix 3 long image description Power Power in a marketing channel exists when one firm has the means or ability to dictate the actions of another member at a different level of distribution. Jump to Appendix 3 long image description

Strategic Relationships Managing Marketing Channels and Supply Chains Through Strategic Relationships Common Goals Open Communications Interdependence Continue with the personal example developed above. Explain how, supply chain relationships, like personal relationships, are stronger when there is mutual trust, open communication, common goals, and credible commitments. Have students provide specific examples. Mutual Trust Strategic Relationships Credible Commitments

PROGRESS CHECK (1 of 3) What is the difference between an indirect and a direct marketing channel? What are the differences among the three types of vertical marketing systems? How do firms develop strong strategic partnerships with their marketing channel partners? There are no intermediaries between the buyer and seller in a direct marketing channel. In indirect marketing channels, one or more intermediaries work with manufacturers to provide goods and services to customers. In an administered vertical marketing system there is no common ownership or contractual relationships, but the dominant channel member controls or holds the balance of power. In contractual vertical marketing systems independent firms at different levels of the marketing channel join together through contracts to obtain economies of scale and coordination and to reduce conflict. In a corporate vertical marketing system, the parent company has complete control and can dictate the priorities and objectives of the marketing channel because it owns multiple segments of the channel, such as manufacturing plants, warehouse facilities, and retail outlets. Successful strategic relationships require mutual trust, open communication, common goals, and credible commitments.

Making Information Flow through Marketing Channels Each step requires the collection and dissemination of information. Group exercise: List the information that each member of the supply chain hopes to gain from each flow. Now list the information each member disseminates during each flow. Jump to Appendix 4 long image description

Data Warehouse Electronic Data Interchange Cycle time The growth of EDI systems has allowed for advanced tracking of information. Each system can seamlessly integrate with others, which creates value for both customers and the firm. Ask students: Exactly how does EDI increase value for end customers? Answer: Since EDI facilitates information, it makes it easier for retailers to plan their deliveries (advance shipping notice) and plan their inventories (CPFR). Other information is handled through EDI as well. The bottom line is the retailer has the merchandise the customer wants when he/she wants it, and in the quantities that are demanded. Easily analyzed and used Quality of communications Photo by Cabela’s

Vendor-Managed Inventory Manufacturer is responsible for inventory levels. Data shared via EDI. Manufacturer replenishes inventory in quantities that meet retailer’s immediate demand. Can reduce vendor’s and retailer’s costs Vendor-managed inventory (VMI) is an approach for improving supply chain efficiency in which the manufacturer is responsible for maintaining the retailer’s inventory levels in each of its stores.

PROGRESS CHECK (2 of 3) What are the marketing channel links associated with each information flow? How do marketing channel members use data warehouses to make decisions? What is EDI and how is it used? Why do some marketing channels use VMI and others do not? The supply chain links associated with each information flow step are Flow 1 (Customer to Store), Flow 2 (Store to Buyer), Flow 3 (Buyer to Manufacturer), Flow 4 (Store to Manufacturer), Flow 5 (Store to Distribution Center), Flow 6 (Manufacturer to Distribution Center and Buyer). As shown on the horizontal axis, data can be accessed according to the level of merchandise aggregation—SKU (item), vendor, category (e.g., dresses), or all merchandise. Along the vertical axis, data can be accessed by level of the company—store, divisions or the total company. Finally, along the third dimension, data can be accessed by point in time—day, season, or year. Electronic data interchange (EDI) is the computer-to-computer exchange of business documents from a retailer to a vendor and back. Although it is a more advanced level of collaboration than simply using EDI and sharing information, retailers cannot use VMI blindly. Whereas the manufacturer coordinates the supply chain for its specific products, it does not know what other actions the retailer is taking that might affect the sales of its products in the future.

Making Merchandise Flow through Marketing Channels Remind students that supply chains enable the flow of not just information but also goods. Keeping goods flowing is not a simple task. Ask students: Under what circumstances might a manufacturer deliver directly to stores (flow 2) rather than to a distribution center (flow 1)? Answer: 1. Because the retailer demands it. 2. Because merchandise is bulky (furniture) or needs to be delivered daily (tortillas) Jump to Appendix 5 long image description

The Distribution Center Management of inbound transportation Receiving and checking using UPC and RFID Storing and Cross-Docking Getting Merchandise Floor Ready Group Project: Ask students to draw out the distribution center for a pair of Nike shoes that are at a Foot Locker distribution center. For each stage, ask them to list three things that will happen to the item and one thing that might go wrong. Preparing to ship Shipping to store

Inventory Management through Just-In-Time Systems Also known as quick response (QR) Less merchandise on a more frequent basis Inventory management systems track goods throughout stores, warehouses, and DCs. As its name implies, just-in-time inventory management ensures goods get delivered only when they are needed. Courtesy Tubular Steel, Inc.

PROGRESS CHECK (3 of 3) How does merchandise flow through a typical marketing channel? Why have just-in-time inventory systems become so popular? Manufacturing – Distribution Center (optional) – Store – Customer JIT leads to reduced lead time, increased product availability, and lower inventory investment.

Marketing Chapter 16 The End The End