Value Chain Management: Channels of Distribution, Logistics, and Wholesaling

© 2003 Prentice Hall, Inc17-2 What is a Distribution Channel? Series of firms or individuals that facilitates the movement of a product from the producer to the final customer –Direct –Indirect

© 2003 Prentice Hall, Inc17-3 Functions of Distribution Channels Time, place, and ownership utilities Logistics functions Transportation and storage functions Efficiency creation Facilitating functions Repair and maintenance functions Risk-taking Communications and transaction functions

© 2003 Prentice Hall, Inc17-4 Creating Efficiencies Breaking bulk - channel members purchase large quantities from manufacturers and sell smaller quantities to many different customers Creating assortments - channel members provide a variety of products on one location

© 2003 Prentice Hall, Inc17-5 Figure 17.1: Reducing Transactions via Intermediaries

© 2003 Prentice Hall, Inc17-6 The Internet Even small firms with limited resources can enjoy competitive advantages by making products available to customers around the globe at a very low cost Disintermediation - process by which traditional intermediaries are eliminated as companies question the value added by layers in the distribution channel

© 2003 Prentice Hall, Inc17-7 Types of Wholesaling Intermediaries Wholesaling intermediaries are firms that handle the flow of products from the manufacturer to retailer or business user –Independent –Manufacturer-owned

© 2003 Prentice Hall, Inc17-8 Independent Intermediaries Merchant wholesalers –Full-service –Limited-service –Cash-and-carry wholesalers –Truck jobbers –Drop shippers –Mail-order wholesalers –Rack jobbers Merchandise Agents or Brokers –Manufacturers’ agents –Selling agents –Commission merchants –Merchandise brokers

© 2003 Prentice Hall, Inc17-9 Manufacturer-Owned Intermediaries Sales branches Sales offices Manufacturers’ showrooms

© 2003 Prentice Hall, Inc17-10 Figure 17.2: Types of Distribution Channels

© 2003 Prentice Hall, Inc17-11 Types of Distribution Channels Consumer channels –Direct –Manufacturer-retailer-consumer –Manufacturer-wholesaler-retailer-consumer Business-to-business channels –Direct –Manufacturer-industrial distributor-business customer

© 2003 Prentice Hall, Inc17-12 Consumer Channels

© 2003 Prentice Hall, Inc17-13 B2B Channels

© 2003 Prentice Hall, Inc17-14 Dual Distribution Systems Multiple channel usage Example: –pharmaceutical industry sells to hospitals, clinics, and organizational customers directly and to consumers indirectly through drug retailers

© 2003 Prentice Hall, Inc17-15 Figure 17.3: Steps in Distribution Planning

© 2003 Prentice Hall, Inc17-16 Marketing Systems Conventional - multi-level distribution channel in which members work independently of one another Vertical - channel in which there is cooperation among channel members at two or more different levels of the channel Horizontal - two or more firms at the same channel level agree to work together

© 2003 Prentice Hall, Inc17-17 Vertical Marketing Systems Administered - channel members remain independent but voluntarily work together Corporate - single firm owns manufacturing, wholesaling, and retailing operations Contractual - cooperation is enforced by contracts that spell out member rights and the terms of cooperation

© 2003 Prentice Hall, Inc17-18 Contractual Vertical Marketing Systems Wholesaler-sponsored - wholesalers get retailers to work together under their leadership in a voluntary chain Retailer-cooperative - group of retailers with a wholesaling operation to help them compete more effectively with large chains Franchise organizations - cooperation is explicitly defined and strictly enforced by franchiser

© 2003 Prentice Hall, Inc17-19 Distribution Intensity Decision Factors: Company, Customers, Channels, Constraints, and Competition Intensive, Exclusive, or Selective Distribution

© 2003 Prentice Hall, Inc17-20 Developing Distribution Tactics Selecting channel partners Managing the channel of distribution –Channel leader is the dominant firm that controls the channel –Channel leaders have some form of power relative to other members economic power legitimate power reward or coercive power

© 2003 Prentice Hall, Inc17-21 Logistics: Implementing the Value Chain Process of designing, managing, and improving the movement of products through the supply chain –purchasing –manufacturing –storage –transport

© 2003 Prentice Hall, Inc17-22 Supply Chain Management The supply chain includes all the firms that engage in activities that are necessary to convert raw materials into a good or service and put it in the hands of the consumer or business customer Supply chain management is the management of flows among the firms in a supply chain to maximize total profitability

© 2003 Prentice Hall, Inc17-23 Figure 17.4: Supply Chain

© 2003 Prentice Hall, Inc17-24 Logistics and Customer Satisfaction Traditionally, logistics was thought of as physical distribution –order processing, warehousing, materials handling, transportation, and inventory control –objective to deliver product at lowest cost Now, customers’ goals become the logistics provider’s goals

© 2003 Prentice Hall, Inc17-25 Logistics Functions Order processing Warehousing Materials handling Transportation Inventory Control

© 2003 Prentice Hall, Inc17-26 Transportation Mode Considerations Dependability Cost Speed of Delivery Accessibility Capability Traceability

© 2003 Prentice Hall, Inc17-27 Modes of Transportation Rail Water Truck Air Pipeline Internet