1. Chapter 14: “Value Chain Management and Logistics”
Joel R. Evans & Barry Berman
Marketing, 10e: Marketing in the 21st Century

2. Chapter Objectives
To discuss the role of the value chain and the value delivery chain in the distribution process
To explore distribution planning and review its importance, distribution functions, the factors used in selecting a distribution channel, and the different types of distribution channels
To consider the nature of distribution contracts, cooperation and conflict in a channel of distribution, the special aspects of a distribution channel for industrial products, and international distribution
To examine logistics and demonstrate its importance
To discuss transportation alternatives and inventory management issues

3. The Distribution Process
Supplier/ Manufacturer Goals
Value Chain
Distribution Intermediary Goals
Total Delivered Product
Level of Satisfaction
Value Delivery Chain
Customer Goals

4. Key Points of the Distribution Process
The goals of various channel members are considered as inputs to the value chain and value delivery chain.
The value chain and value delivery chain are parallel processes.
The total delivered product is the actual result of the value chain and value delivery chain.
Satisfaction is based on the perceived value received from the value chain and value delivery chain.
Feedback regarding service gaps and breakdowns must be handled systematically in the process.
Goals
Satisfaction

5. Functions Performed in a Channel of Distribution
Channel Functions
Distribution
Marketing Research
Pricing
Functions Performed in a Channel of Distribution
Product Planning
Buying
Customer Services
Promotion

6. Distribution and the Web
The Internet affects marketing functions and logistics by:
Speedily conveying information.
Improving communication with channel members.
Allowing firms to reach distant parts of the world.
Providing customers with the option of worldwide vendors.
Offering Web-enhanced services for each distribution function.

7. Factors to Consider in Selecting a Distribution Channel
The Consumer
The Company
The Product
The Competition
Distribution Channels
Legalities

8. A Direct Distribution Channel
In this direct channel, an umbrella manufacturer sells directly to final consumers. It makes 200,000 separate transactions, one for each customer.
Manufacturer
200,000 Customers

9. An Indirect Distribution Channel
Manufacturer
In this indirect channel, an umbrella maker has only 4 transactions. It sells to regional wholesalers, which resell to 50 retailers each. The retailers each sell to 1,000 final consumers.
Wholesaler
(East U.S.)
Wholesaler
(South U.S.)
Wholesaler
(North U.S.)
Wholesaler
(West U.S.)
50 Retailers
50 Retailers
50 Retailers
50 Retailers
1, Customers per Retailer
1, Customers per Retailer
1, Customers per Retailer
1,000 Customers per Retailer

10. Typical Indirect Channels of Distribution1 2 3 4
Manufacturer/ Service Provider
Manufacturer/ Service Provider
Manufacturer/ Service Provider
Manufacturer/ Service Provider
Merchant Wholesaler or Sales Agent
Merchant Wholesaler or Sales Agent
Retailer
Wholesaler
Organizational Consumer
Final Consumer
Retailer
Distributor
Final Consumer
Organizational Consumer

11. Pushing Versus Pulling Strategies
Manufacturer/ Service Provider
Distribution Intermediaries
Consumers
Pulling
Manufacturer/ Service Provider
Distribution Intermediaries
Consumers

12. Intensity of Channel Coverage
Exclusive
Distribution
A firm severely limits the number of resellers in
an area. It seeks a prestige image, channel
control, and high profit margins and
accepts lower total sales.
Selective
Distribution
A firm employs a moderate number of resellers in
an area. It tries to combine some channel control
and a solid image with good sales volume
and profits.
Intensive
Distribution
A firm uses a large number of resellers in an area.
Its goals are to have wide market coverage,
channel acceptance, and high total sales and
profits. Per-unit profits are low.

13. International Distribution Planning
International distribution requires additional considerations and planning:
The channel length may depend on a nation’s stage of economic development.
Less-developed and developing nations tend to use shorter, more direct channels than industrialized ones.
Limited transportation and communication networks foster local shopping.
Cultural norms always affect channel member interactions.

14. Logistics
Logistics, also known as physical distribution, encompasses the activities concerned with efficiently delivering raw materials, parts, semi-finished items, and finished products to designated places.
It includes customer service, shipping, warehousing, inventory control, trucking operations, packaging, receiving, materials handling, and plant, warehouse, and store location planning.
It affects costs, the value of customer service, its relationship with other functional areas.

15. Logistics and Other Functional Areas
There is a critical interaction between logistics and each of the firm’s marketing functions and this requires careful coordination.
Product variations (color, size, features, styles) may impose a burden on distribution facilities.
Logistics planning is related to overall channel strategy.
Promotion campaigns must realistically coordinate with potential logistics delivery.
Pricing may be the firm’s differential advantage based on superior logistical service.

16. Selected Physical Distribution Activities Involved in a Typical Order Cycle
Insufficient goods in stock
Customer places an order
Supplier receives and enters order
Inventory on hand checked
Production scheduled
Sufficient goods in stock
Goods stored until enough orders are placed
Goods packaged, sorted, tagged, and sent to local warehouse
Orders shipped to individual customers

17. An Illustration of the Total-Cost Approach in Distribution
Annual
freight
costs
Carrier
$100,000
Annual
warehousing
costs
Air
$1.5 mill
$1.6 mill.
Annual costs of lost sales due to being out of stock
Rail
$300,000
$800,000
$300,000
$1.4mil.
Truck
$500,00
$500,000
$1.2 mil.
$200,000
Costs

18. What Happens When a Firm Has Stock Shortages
When a firm runs out of stock, customers can
Purchase a substitute product from the same seller.
Switch to a new seller while merchandise is not available.
Permanently switch to a new seller for all purchases.
Wait until merchandise is available.
Most Desirable Action
Least Desirable Action

19. 5 Transportation Forms for Shipping
Next Day, Inc.
Railroads carry heavy, bulky items over long distances but have high fixed costs due to facility investments.
Motor Carriers usually transport small shipments short distances and handle most U.S. shipments less than 500 or 1,000 pounds.
Waterways in the U.S. include barges on inland rivers, and tankers and freighters on Great Lakes, and intercoastal shipping.
Airways are fast and expensive but move high-value perishable and emergency goods. Speed may provide a differential advantage.
Pipelines move gas and petroleum products with low costs.

20. Inventory Management
Good inventory management matches the quantity of goods kept in inventory with customer demand.
To improve efficiency, many firms use a just-in-time inventory system and electronic data interchange.
Four specific aspects of inventory management are stock turnover, when to reorder, how much to reorder, and warehousing.
Stock turnover refers to the number of times during a stated period that average inventory on hand is sold.
A reorder point depends on lead time, usage, and safety stock.
The economic order quantity (EOQ) is the order volume corresponding to the lowest sum of order-processing and inventory-holding costs.

21. Chapter Summary
This chapter discusses the role of the value chain and the value delivery chain in distribution.
It explores distribution planning and examines its importance, distribution functions, the factors used in selecting a distribution channel, and the different types of distribution channels.
It considers distribution intermediary contracts, cooperation and conflict in a distribution channel, special aspects of a distribution channel for industrial products, and international distribution.
It examines logistics and shows its importance.
It discusses transportation alternatives and inventory management issues.