1. 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:
LIDROCK.COM

5. Figure 15.2: The Generic Value Chain

6. Group Activity
Your group of marketers has been hired by a furniture manufacturer.
You feel marketing should have input into supplier selection, but the purchasing department disagrees.
--Explain the importance of the value chain perspective.

7. 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
UPS.COM

8. 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

9. Figure 15.3: Supply Chain

10. Discussion
The supply chain concept looks at both inputs and ways to move the product from manufacturer to consumer.
--Should marketers concern themselves with the total supply chain concept? Why or why not?

11. 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

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

13. 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

14. Figure 15.4: Reducing Transactions via Intermediaries

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

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

17. Discussion
Some say music, video, or textbook downloading, even if unauthorized, merely creates a more efficient supply chain by “cutting out the middleman.”
--Do you agree?
--Why or why not?

18. Group Activity
You’re responsible for direct marketing at a firm that sells its industrial cleaning products through manufacturers’ reps.
You’re considering adding a direct Internet channel to your distribution strategy, but you wonder about channel conflict.
--List the pros and cons of adding an Internet channel.
--What do you think is the best decision?

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

20. 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

21. 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

22. Discussion
You’ve probably heard someone say, “The reason products cost so much is all the intermediaries.”
--Do intermediaries increase the cost of products?
--Would consumers be better off or worse off without intermediaries?

23. Types of Distribution Channels
Consumer Channels
Direct channel: producer sells directly to customers
Indirect channel: producer uses one or more intermediaries to reach consumers
SALAMI.COM

24. Types of Distribution Channels (cont’d)
Business-to-business channels
Dual distribution systems
Hybrid marketing systems
MERCK.COM

25. Figure 15.6: Steps in Distribution Planning

26. 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

27. Planning a Channel Strategy (cont’d)
Step 3: Choose a distribution strategy
Channel relationships: conventional, vertical, or horizontal system
Conventional marketing system: members work independently of one another

28. Planning a Channel Strategy (cont’d)
Step 3: Choose a distribution strategy
Vertical marketing system (VMS): formal cooperation among channel members
Administered VMS
Corporate VMS
Contractual VMS
Retailer cooperative
Franchise organizations
IGAINC.COM

29. Discussion
Many entrepreneurs choose to start a franchise business rather than “go it alone.”
--Do you think franchises offer the typical businessperson good opportunities?
--What are some positive and negative aspects of purchasing a franchise?

30. Planning a Channel Strategy (cont’d)
Step 3: Choose a distribution strategy
Horizontal marketing system: two or more firms at the same channel level agree to work together to get their product to the customer

31. Planning a Channel Strategy (cont’d)
Step 3: Choose a distribution strategy
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

32. Planning a Channel Strategy (cont’d)
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)

33. Discussion
Colleges and universities seeking better ways to satisfy their customers are increasingly looking at the distribution of their product – education.
--Describe your school’s channel(s) of distribution.
--What innovative distribution methods do you think your school could try?

34. Distribution Channels and the Marketing Mix
Place decisions affect:
Pricing
Product and its positioning
ENTERPRISE
RENT-A-CAR

35. 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

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

37. Logistics Functions
Order processing
Warehousing
Materials handling

38. 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)

39. 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

40. 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

41. 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)

42. 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
DARDEN.COM

43. Marketing Plan Exercise
Dell Computer has used one simple supply chain system—direct sales over the Internet or by phone to both business and consumer users.
--If you were a marketing executive at Dell, what new supply chain options would you suggest?

44. 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?

45. 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?