Distribution and Supply Chain Concepts
providing time, place, and possession utility for consumer and business buyers. Strong and carrying inventory-key factors in ensuring prodcuts availability for customers
Marketing Channels-An organized sytem of marketing institutions through which products, resources, information, funds, and/or product ownership flow form the point of production to the final user. Some channel members or intermediaries physiclaly take possession or title of products (wholesalers, distributors, retailers) whereas others simply facilitate the process (agents, brokers, financail institiutions)
Physical distribution-Coordinating the flow of information and products among members of the cahnnel to ensure the availabiliyt of products in th eright palces, in the right quantities, at the right times, and in a cost-effecient manner. Phycial distribution or logistics includes activities such as customer service/order entry, administration, transportation, warehousing (storage and materials handling), inventory carrying, and the systems and equipment necessary for these activities.
This supply chain process is designed to increase invetnory turns and get the right products to the right place at the righ ttime, maintaining th eapporcpriate service and quality standards.
Marketing Channel Functions
The most basic beneift of marekting channels is contact efficiency, where channels reduce the number of contacts necessary to exchange prouces. Contac efficiecny allows companies to maximixe produ distribution by selling to selct intermediatires.
Sorting-intermediaries overcome this discrepancy of assortment
Breaking bulk-intermediaries, retailers particularyly, overcome this discrepancy of quantity.
Maintaining inventories-intermediaries overcome theis temportal time discrepancy.
Maintaing convenient locations-intermediaries overcome this temporal (time) discrepancy.
Maintaining convenient locations-channle must overcome spatial discrepancy by making products available in convenient locations
Provide services-offer facilitating services and standardizing the exchange process
Channel effectiveness and efficiency
Distribution decisions are being evaluated using two critereia
2) Channel efficient?
Effectiveness invoes meeting the goals abnd objectives of tboth the firm and its customers. The key effectiveness issues is wheeter the channel provides exceptional time, place, and possession utility.
Exceptional place utility remains elusive for many firms. Primary reason is expense.
Key issue in channel effectiveness with respect ot possession utiliyt is the ease of the actaul pucrchase process.
Strategic issues in distribution and supply chain management
With traditional channel, eahc channel mmebr has it s main concern how much profuts it maekes, or tht size of its peice of th epie. In a supplyu chain, the pormary concern i sth eshere of th emarket tht eentire channel caputres.
Any single firm can demand a larger portion of the profit made form the channels’s activities, but if th echannesl’s share of the marekts shringks then tha fimr will earn less profit. On the other hand, if the channels’s shaer increases, a firm mayu get a sammller share or maintain a constant shar, yet still earn more profuts.
Key strategic aspects of any suply chain: the structure of the cahnne, channel integration, and the maeasn to build value in the supply chain.
Marketing Channel Structure
Distribution often becomes highly inflexible dute to long-term contracts, sizabel investments, and commitments among channel members.
Exclusive distribution-usuall 1 to 1 marketing. level of involvement is less riskier. It is the most restricitve type of market coverage. Fimrs using this stargegy give on e merchant or outle the sole right to sell a c poduct within a defined geographinc region. This cahnel structure is most comonlhy associated with proestige proudcvts, major industreial equipment, or with firms tha attempt to give their producs and exclusiver or prestige image. Firms that purse exclusive distribution usually targetr a single, well-defined market segement. Exclusive distribution is a necessity in cases where the manufacture demandsa a significant amount of input regarding the presentation of its products to buyers.
Selective distribution-give several merchants or outles the right to sell a product in a defined geographic region. Used in clothing, cosmetics, electronics, and premium pet food. Allows the manufacturer to have more control over prices product display, and selling techniques.
Intensive distribution-makes a product available at the maximun number of merchants or outlets in each area to gain as much exposure and as many sales opportunities as possible. Option of choice for most consumer convenience goods, such as candy, soft drinks, over-the-counter drugs, or cigarettes, and for business office supplies like paper and toner cartidfres. Manufactures must give a good dgeress of control over pricing and product display. Direct vehicles of the Internet and showcase store. Firms that emply a mass marketing approach to segmentation often opt for intensive distribution strategy.
Through informational, technological, social, and structural linkages, the goal of channel integration is to create a seamless network of collaborating suppliers, vendors, buyers, and customers.
Connectivity-the informational and technological linkages among firms. Can access real-time information about the flow in the supply chain network.
Community-the sense of compatitible goals and objectives among firms in the supply chaine networks. All firms must be willin gto work together to achieve a commmon mission and vision.
Collaboration-the recogniton of mutual independence among members ot th esupply chain network.
Creating adn Enhancin g Value in the Supply China
Synergy (the idea that the whole is greater than th eusm of the parts) is th edriving foce bedhind value creation in the supply chain. By combining and integrating their unique capabilities, channel members can create synergies that enhance communication and sales, imporve after-sale services, incresase the efficeiinty of porduct delivery, add procuts enhancements, or offers solutions rather than indiuvial porudcts. This type of vale bilidng can be done at any level of the suppply cahin.
Conflict and Collaboration in the Supply Chain
Move form a “win-lose” competitive attitude to a “win-win” collaborative approach in which there is a common realizatoin that all firms in the supply chain must prosper.
The basis of Conflict in the Supply Chain
Each firm in a supply chain has its own mission, goals, objectives, and strategies. Self-seeing interests behavior is natural in both business and everday life. Second, the recognitona and acceptance o fmutial interdepndence within th esupply chain goes against our natural self-interest-seeking tendencies.
Conflict also arises in a supply chain because each frm posseses differen resources, skills, and advantages. Power can be defined as the influence one channel member has over others in the supply chain.
Legitimate power-firm’s position in the suppply chain.
Reward power-the ability to help other parties reach theri goals and objecties the curx of reward power. rewards may come in terms ofhihger volume sales, sales with more favorable margins, or both. Inidudivaul salespeople at the buyer of th echannel may be rewarded with cash paymntes, merchandise, or vacations to gaim more favorable presentation of a manufafcturer’s or wholesarler’s porducts. Free goods or services.
Coercive power-abilit to take positive outcomes away from ohter channel members, or th eability of inflict punishment on ohter channel menbers. Legislatevie and judicails activons. A manufacturesr may slow down dleivers or postpone the availiabiliy of some portions of a product ot a woolersaler or retailer. A a retailer can decide not to carry a product, not to promote a product, or to give a product unfavorable palcement on its shelves.
Informaiton power-having and sharing knowlege. Makes channel membrs more effective and efficietn. Stems from knowledge concerning sales foresctasts, market trends, competitive inteligence, product uses and usage rates, or other critical pieces of information, In may supply chains, retailers hold th emost information power
Referent power-personal relationships and the fact that one party like another.
Firms want to sell a product for as much as possible, porived as few additional services as it can get away with obtain payment in advance, and deliver the proudct at its own convenience. By contrast, buers want to purchase a proudct for as little as possible, get a larger numbe of additional services both now and in the future, pay montsh o even years later with no interest, and get immediate deliver. Need for effective development, communication, and utilization of information.
Collaborative Supply Chains
Trust appears at the center. Other keys include top management commitment and investment.
One of the best and most widesperead collaborative supply chain initiatgvis is category management and ongiong and highly successful initiative by innovative members of food product distribution channels. Category management is a supplier process of managein categories of products as strategic business units, producing enhanced business results buy focusing on delivering continously enhanced consumer value.
Multifunctional-finance, logisitcs, quality control, and facilities management.
Focouse on immediate consumer response
Trends in Marketing Channels
The growth of electronic comerce
Created new methods for placing and fillin orders for both busines buyers and conusumers. Radio frequency identifiaction (RFID), which involves the use of tiny computer chips with radio trasnmission capabiliyt that can be attached to aprouct or its packagin. The radio signals reflected from the chip can be used to track inventory levels and product spoilage, or prevent theft. They also can be used for instantaneous checkout of an entire shopping cart of imtes. Large retailers and pacakged goods manufacturers have funded researach tio develop RFID, which will evetnaully replace bar codeas a means to manage inventory. Innovations in web-based communiacton technoliges, such as global postions, are also takin rail and trcuk equipment to a new level o fserviec in supply chain integration. Conusmer demnads for oconvenience, as well as increased pressures on channel members to cut ditribution expenes, have been the primary sparks for the growth in technoliges like e-commerce and RFID. Faster, better, and cheaper. Internet has become a critical channel component for both manufactures and reatailers to consider.
Shifting Power in the Channel
The scarcity and popularity of many produts allowed manufactures to dictate stargety thougthouth the supply chain. Manufactures wer the best soucre oc infrmaton about sales, product trends, and customer preferecnes. Teh power of manfuctures eroded as UPC barcode technoligy, point-of-sale systems, and invetnory management systesm converged to give retailers control over information at th epoint o f sale. Today, dscount mass merchandise retailers and catergory-focused retailers (category killers) hold the power in most consumer channels. First, the sheer size and buying power of these firms allows them to demand price conscessions from manufacturers. Second, these firms perform their own wholesaling funcionts, thererfore they receive trade dsiscounts traditionally reserved for true wholesaertls. Third, their contol over retail shelf space allows them to dictate when and where new products will be introduces. mANUFAFCTURES TYPICALLY MUST PAY HEFTY FEES, CALLED SLOTTING ALLOWANCES. fiANLLY , THEIR CLOSENESST OT MILLIONS OF CUTOMERS ALLOWS THESE LARGER TRRATIARLS TO GATEHR VALUABLE INOFRMATION AT TH EPOINT OF SALE.
Ousourcing shifing a work activites to businesses outside the firm. By outsourcing noncore activies, firms can imporve their foucs on what they do best, free resourrse for other purposes, and enhance product differentiation-all of which lead to gerater opportunities to develop and maintain competitve advanteages. Developing countresi have imporved theri manufacturing capabiliites, infrastructure, and technical abd business skills, making them more attractive regions for gloabal sourcing. Firms that outsource give up ameasure of control over key factors such a sdata security and the qualiyt of servie delivered to customes. Offshoring is when companies set up their own offshoer operations (called captives) to handle task such as IT, business pricess, or customer servie in foreing countries hwere wage rates are lower. Information technoloyg is the primary activity outsourced today. These supporting processes include administargive activites, distribuiton, human resources, financial analysis, call centers, aned even sales and marekting. when a frim has significant needs and insufficient in-house expertise, the importance of outsourcing will increase. (39ls) third party logistics porviders has emerged in the United States and Eeurops as retailers look toward outsided experise as a way to reduce costs and make their products more readily available.
The growth of DIrect Distribution and Nonstore Retailing
Customers demands for lower pricea and greater convenience have put pressure on all channle intermediaters to justify their existence. The cahnnel must evlove into a more direct ofrom or ristk its very survivla. Nontraditional channles include nostore reatailing, or activities taht occur outside the traditional brickas and morterar of physical stotes.
Catalog and Direct marketing
Direct selling-sells through face-to-face contact with sales associates.
Home shopping networks
Direct Response Advertising-infomercials, a cross between an advertisement, a news program, and a documentary, are alos popular programs for products such as exercise equipment and kitchen appliances. Distribution activities have also changed as manufactures expand their direct offerings to customers. In some cases, manufacturers have increased direct distribution by opening their own retail outlets.
The growth of Dual Distribution
Supply chain strategy often requires multiple channels to reach varioius markets. Multiple channels enable a manufacturer to ofeer tow or more lines of the same merchandise through two or more means, thus incresing slads coverage. Example Hallmakrs extensive use of dual distribution. Dual distribution requires considerable resouces to implement as it spresads time, effort, and money across tow or more channles. Dual distribuion also increases the risk if disintermediation, where customres dela directly with manufacturesa and bypass traditional channel intermediaries. The use of dual channels can create conflict between the manufacturer and its supply chain members. This is particularly true when target market segments do not have clear definitions or distinctions for each channel.
Legal and Ethical Issues in Supply Chain
Concerns arise when a manufacturer usues its own physical or online stors to dominate independent retailers or to drive them out of business. To avoid these issues, manufacturers should not undercut the prices that independent retailers can charger with a reasonable margin. Because most manufacturers do not watn to run a complex retail system, their relationships with retail intermediaries are critical to sucess.
Exclusive Channel Arrangements
Benefit a manufacturer by limiting the distribution of its products in one of two ways. First, manufacturers can limit distribution by allowing intermediaries to sell their products in restricted geographic territiories. Second, manufacturers can require that wholesalers, brokers, agents, or retailers not carry or represent products from any competing manufacturer. Exclusive arrangements give manufacturers control over pricing, distribution, and sales activities. Such arrangements are useful when brand image or quality control are critical ti the manufacturer’s sucess. First, the arrangement cannot bloc competitors from 10 percent or more of the overall market. Second, the sales revenue involved must not be so sixable that compettion could be disrupted. Finally , the manufacture cannot be much larger (and therefore more intimitdiating) than the intermediary. Regulators view exclusive arrangements most favorably when consumers and business buyerts have access to simialr proucts form otherr channles or when the exclusivity of a relationship strenghthens the otherwise weak market positon of the manufacturer.
Occur when a firm conditions the availability of one product (the tying product) on the purchase of a diferrent prodcut (the “tied” product). Tying arrangements, which are considered to be illegal in certain circumstances, can occur at any level in a marketing channel. First, the arrangement is more likely to be legal if the tying and tied proudctss are in close relation to each other, required rfor th eporper funcionting of th eother proudct, or part of a total package or solution. Franchisors can often successfully arguer for tying arrangements when rw material or components are required for market power of the fimr reqinrg th arrangement. Powerful firms are less likely to be successful in tying becaue it gives them an unfair advantage. Finally, tying arrangement are illegal if they restarin trade or competition in a meaningful way.
Clothing, Audio, and vido products, and computer software.
The loss of tax revenues has a huge impact on governments, as they can’t collect both direct and indirect taxes on the sale of counterfeit products. Likewise, counterfiet products leech profits necessary for ongoing product development away from the channel, as well as thousands of jobs at legitimate companies. Customers also feel the impact of counterfeit products, as their quality almost never lives up to the quality of the original.