VALUE CHAIN STRATEGY Ananda Hussein, Ph.D

Products Consumer Organizational

Value chain structures - consumer products Consumer Products Producers Sales Agents Wholesalers Retailers Consumers Wholesalers Retailers Direct Channel Supply Chains

Value chain structures - organizational products Organizational Products Producers Organizational Customers Sales Agents Distributors Re-sellers Sales Agents Distributors Direct Channel Supply Chains

Distribution by the manufacturer Opportunity for competitive advantage Supporting services are required Rapidly changing market environment Extensive purchasing process Early stages of product life cycle Complex product application Profit margins adequate to support distribution organization Complete line of products Purchases are large and infrequent Small number of geographically concentrated buyers Factors Favoring Distribution by Manufacturer

Channel strategy selection 1. Type of distribution channel 2. Intensity of distribution 3. Channel configuration ConventionalVertical marketing system Horizontal marketing system OwnershipContractual IntensiveSelectiveExclusive Administered/ Relationship

Channel strategy (1) Types of channel Types of channel Conventional channel Conventional channel Vertical marketing systems Vertical marketing systems Ownership VMS Ownership VMS Contractual VMS Contractual VMS Administered VMS Administered VMS Relationship VMS Relationship VMS Horizontal marketing systems Horizontal marketing systems Digital channels Digital channels Product digitization Product digitization Channel digitization Channel digitization

Channel strategy (2) Distribution intensity Distribution intensity Intensive Intensive Exclusive Exclusive Selective Selective Channel configuration Channel configuration End-user considerations End-user considerations Product characteristics Product characteristics Manufacturer's capabilities and resources Manufacturer's capabilities and resources Required functions Required functions Availability and skills of intermediaries Availability and skills of intermediaries

Channel strategy (3) Channel maps Channel maps Selecting the channel strategy Selecting the channel strategy Market access Market access Value-added competencies Value-added competencies Financial considerations Financial considerations Flexibility and control considerations Flexibility and control considerations Channel strategy evaluation Channel strategy evaluation

Illustrative channel map for heating units Production Of Central Heating Boilers Independent Distributors Construction Sub- Contractors Small Hardware Retailers Large Hardware Retailers Commercial Construction Companies (85,000 units) Domestic Customers (15,000 units) Direct sales = 1,000 units Direct sales = 10,000 units 84,000 units 5,000 units 42,000 units 40,000 units 2,000 units 7,000 units 75,000 units Production = 100,000 units Consumption = 100,000 units 5,000 units

Efficient Consumer Response Traditional channel problems Traditional channel problems Forward buying and diverting Forward buying and diverting Excessive inventories Excessive inventories Damages and unsaleable goods Damages and unsaleable goods Complex deals and deductions Complex deals and deductions Too many promotions and coupons Too many promotions and coupons Too many new products Too many new products Efficient Consumer Response Efficient Consumer Response Category management Category management Value pricing replaces promotions Value pricing replaces promotions Continuous replenishment and cross-docking Continuous replenishment and cross-docking Electronic data interchange Electronic data interchange New performance measures New performance measures New organizational processes and structures New organizational processes and structures Internet-based network for supplier-buyer trading Internet-based network for supplier-buyer trading

Value chain ethics Retailers Global Social Compliance Program Retailers Global Social Compliance Program Growing green consumer pressure Growing green consumer pressure B2B suppliers increasingly mandated to meet customers values in employment practices, environmental standards, ethical behavior B2B suppliers increasingly mandated to meet customers values in employment practices, environmental standards, ethical behavior

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