Delivering Value Through Supply Chain Management: Channels of Distribution and Logistics

2 Chapter Objectives Understand the concept of the value chain and the key elements in a supply chain Explain what a distribution channel is and what functions distribution channels perform Describe the types of wholesaling intermediaries found in distribution channels Describe the types of distribution channels and the steps in planning distribution channel strategies Explain how the supply chain uses logistics

3 Real People, Real Choices Darden Restaurants (Jim Lawrence) Volatility in the foodservice supply chain Darden needed to protect its foodservice supply  Option 1: develop a food distribution network owned and operated by Darden to support all its restaurants.  Option 2: work with third party logistics (3PL) providers.  Option 3: work with traditional systems distributors under a new operating model.

4 Place: The Final Frontier Value chain: a series of activities directed at designing, producing, marketing, delivering, and supporting any product. Supply chain: Activities necessary to turn raw materials into a good or service and put it in the hands of the consumer:

5 Links in the Supply Chain Supply chain management: the management of flows among the firms in a supply chain to maximize total profitability  Includes physical movement of and sharing of information about goods  Insourcing: contracting with a specialist that services the company’s supply chains

6 Supply Chain vs. Channel of Distribution Channel of distribution: facilitates movement of a product from producer to final customer Supply chain: begins with raw materials

7 The Importance of Distribution: You Can’t Sell What Isn’t There! Direct channel: a producer and a customer Indirect channel: one or more intermediaries  Firms/individuals such as  wholesalers, agents,  brokers, and retailers  that help move  product to consumer or business user

8 Functions of Distribution Channels To ease the flow of goods from producer to customer To provide time, place, and ownership utility

9 Functions of Distribution Channels (cont’d) To provide logistics or physical distribution functions To create efficiencies by reducing number of transactions  Breaking bulk: purchasing large quantities of goods to sell one/few at a time to customers  Creating assortments: providing variety of products in one location

10 Functions of Distribution Channels (cont’d) To make purchase process easier To manage risk To perform communication and transaction functions

11 The Internet in the Distribution Channel Radical changes in distribution strategies  Disintermediation: eliminating traditional intermediaries  Knowledge management: sharing knowledge with other supply chain members

12 Channel Composition: Types of Wholesaling Intermediaries Wholesaling intermediaries: firms that handle the flow of products from the manufacturer to the retailer/business user

13 Independent Intermediaries Merchant wholesalers: buy goods from manufacturers and sell to retailers and other B2B customers  Full-service merchant wholesalers  Limited-service merchant wholesalers  Cash-and-carry wholesalers Truck jobbers Drop shippers Rack jobbers Mail-order wholesalers

14 Independent Intermediaries (cont’d) Merchandise Agents/Brokers: provide services in exchange for commissions  Manufacturers’ agents/reps  Selling agents  Commission merchants  Merchandise brokers Manufacturer-Owned Intermediaries  Sales branches  Sales offices  Manufacturers’ showrooms

15 Types of Distribution Channels (cont’d) Business-to-business channels Dual distribution systems Hybrid marketing systems

16 Planning a Channel Strategy Step 1: Develop distribution objectives that support the firm’s overall marketing goals. Step 2: Evaluate internal and external environmental influences to develop best channel structure.  Firm’s ability to handle distribution functions  Channel intermediaries available  How the competition distributes its products

17 Step 3: Choose a Distribution Strategy Channel relationships: conventional, vertical, or horizontal system Conventional marketing system: members work independently of one another

18 Step 3: Choose a Distribution Strategy (cont’d) Vertical marketing system (VMS): formal cooperation among channel members  Administered VMS  Corporate VMS  Contractual VMS  Retailer cooperative  Franchise organizations

19 Step 3: Choose a Distribution Strategy (cont’d) Horizontal marketing system: two or more firms at the same channel level agree to work together to get their product to the customer

20 Step 3: Choose a Distribution Strategy (cont’d) Distribution intensity Intensive distribution: selling through all suitable wholesalers or retailers Exclusive distribution: selling only through a single outlet in a region Selective distribution: using fewer outlets than intensive but more than exclusive distribution

21 Step 4: Develop Distribution Tactics Selecting channel partners: normally a long-term commitment Managing the channel  Channel leader/captain: dominant firm that controls the channel (via economic, legitimate, reward/coercive power)

22 Distribution Channels and the Marketing Mix Place decisions affect:  Pricing  Product and its positioning

23 Logistics: Implementing the Supply Chain Logistics: the process of designing, managing, and improving the movement of products through the supply chain  Purchasing  Manufacturing  Storage  Transport

24 Logistics: Implementing the Supply Chain (cont’d) Physical distribution: the activities used to move finished goods from manufacturers to final customers

25 Logistics Functions Order processing Warehousing Materials handling

26 Logistics Functions (cont’d) Transportation: mode by which products move among channel members Modes differ in their-- Dependability (safety and punctuality) Cost Speed of delivery Accessibility (different locations served) Capability (variety of products handled) Traceability (ability to locate goods in shipment)

27 Modes of Transportation Railroads: carry heavy, bulky items over long distances Water: carry large, bulky goods (especially internationally) Trucks: carry consumer goods in short haul; allow flexibility in locations

28 Modes of Transportation (cont’d) Air: carry high value-items; fastest and most expensive mode Pipelines: carry petroleum/chemical products Internet: distribute services such as banking, news, and entertainment

29 Logistics Functions (cont’d) Inventory control: activities to ensure foods are always available to meet customers’ demands  Radio frequency identification (RFID)  Just in time (JIT)

30 Real People, Real Choices Darden Restaurants (Jim Lawrence) Jim chose option 3: work with traditional systems distributors under a new operating model.  Restaurants experienced greater manager satisfaction and significant savings from collaborative efforts of all supply chain partners

31 Marketing in Action Case: You Make the Call What is the decision facing Procter and Gamble? What factors are important in understanding this decision situation? What are the alternatives? What decision(s) do you recommend? What are some ways to implement your recommendation?

32 Keeping It Real: Fast-Forward to Next Class, Decision Time at Eskimo Joe’s Meet Stan Clark, entrepreneur. New law increased drinking age to 21, threatening the future of a college-town beer bar. The decision: how to survive the new law?