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  • 1. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide Student Study Guide Chapter 6: Managing Business Marketing Channels Summary Questions Activity Case Study Supplementary Information Summary In this chapter we looked at the management of business channels starting with the strategic alternatives available. The major strategic decision facing the senior manager is the choice between going direct or indirect in marketing to the buying organisation Reasons given for choosing one way rather than another were discussed and advantages and disadvantages of each evaluated. Methods used in direct distribution where identified under the headings of; direct salesforce, agents, trader exhibitions, mail order, the internet and other media forms. We then went on to look at indirect methods under the categories of supplier, broker, distributor and wholesaler. Again the pros and cons of each were briefly outlined before going on to talk about the relationships between suppliers and intermediaries, disintermediation, channel conflict, reintermediation and the role of the internet in the supply chain. We then went on to identify other methods of distribution seen as a combination of both direct and indirect. Here we examined the role of agents, franchising, licensing and contracting. The many factors that need to be considered with strategic channel selection and the differences in the process between B2B and B2C markets where shown as we moved toward the end of part one. In part we began by examining the management of the supply chain relationships. It is important to appreciate that B2B managers will operate in different types of marketing structures sometimes demanding different approaches and to this end many were identified and discussed including vertical and horizontal integration, voluntary, contractual and hegemonic. The business supply chain has taken on enormous importance over the last twenty years and understanding the need to manage in partnership with all members now dominates management thinking. Experience has demonstrated that the supply chain must now be viewed as both an internal and external value chain if improvements are to be made. Starting with the internal value chain. Each part of the business process from inputs through to outputs must be benchmarked so that it is as good as, if not better than the competition in delivering eventual customer satisfaction. This concept must then be applied to the external value chain, that is every other organisation involved in the supply chain, from one end to the other. Only in this way can the competition be beaten or held at bay. Developments that improve this concept were identified under the heading of Efficient Consumer Response (ECR). These included development known under the following acronyms; CPFR, EDI, JIT, ABC, TQM and many others. We then examined the upside and the downside of this close cooperation amongst supply chain members. The growth of outsourcing as an as an alternative way of operating certain business function has been phenomenal and this was discussed in some detail before moving on the look at how, and why companies merge or acquire other companies or form joint ventures and other types of strategic alliances. The role of physical distribution and the management of logistics in B2B markets were discussed in the final part. Organisations have to move goods and services from one point to another in the most effective and economical manner possible. Better management understanding coupled with the growth in new technologies has brought great resource savings in this area across all the major areas that might be categorised under the heading of logistics. We therefore chose to categorise under the headings of, stock levels and inventory, order processing, warehousing and transportation. Concepts identified under inventory included the following. Cost of holding stock, JIT stockholding, continuous Pearson Education © 2004
  • 2. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide replenishment, direct procurement, materials requirement planning, enterprise resource planning and vendor management inventory. Advantages and disadvantages were then outlined. If order processing takes to long or is flawed in some way then costs can rise, orders can be lost and customers made dissatisfied. Technology has played a big part here allowing cost and time savings to be made and both seller and buyer satisfaction levels to rise. Warehousing is yet another area where savings have been made because of greater management understanding and business developments. Different ways of managing transport were then identified before finally discussing the need to integrate logistics into all other organisational functions Pearson Education © 2004
  • 3. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide Questions 1 Identify the different channels that the B2B organisations can use in getting its products and services to its markets. What methods, and why, will best suit the following organisations? (a) A company selling paint (b) A business consultants (c) A chemical manufacturer 2 Identify the differences between marketing direct and indirect in the B2B market. Give real examples of each and explain why the companies chose to supply in this way. 3 Discuss and evaluate the methods that might be used in both direct and indirect distribution. Give examples. 4 Describe and analyse the criteria that will used when selecting a B2B channel to market. How will this differ when compared with channel choice in B2C markets. 5 Discuss the value of the internal and external value chain and identify the major differences in its use between the organisations described here. (a) Public sector (b) Nor-for-profit sector (c) Manufacturing sector (d) Service sector 6 Examine the business process of outsourcing. What are its many forms and why do you think there has been such a growth in it use, at both the tactical and strategic level over the last few years? What are its major disadvantages? 7 Discuss the development of just-in-time inventory management systems. What part did it play in the development of supply chain management 8 60% of strategic supply chain alliances fail over the first three year period. Discuss why you think this might be. 9 Identify and evaluate the part that technology now plays across the supply both in the running of the supply chain relationships and the in physical distribution. 10 How important is benchmarking and how might it add to supply-chain effectiveness. Give live examples. Website addresses Benchmarking Association – (www.benchmarking.co.uk) Data Interchange Standards Association – (www.disa.org) ECR Asia – (www.ecrasia.com) ECR Australasia – (www.ecraustralasia.org.au) Efficient Consumer Response, Europe – (www.ecrnet.org) Global Commerce Initiative - (www.globalcommerceinitiative.org ) Green Consumer Guide –(www.greenconsumerguide.com) MarketingShout, marketing resource website – (www.MarketingShout.com) Outsourcing and Benchmarking Centre – ( www.outsourcing-center.com) Outsourcing Institute – (www.outsourcing.com) StudentShout student business and marketing resource website – (www.StudentShout.com) The International Reciprocal Trade Association – (www.irta.com ) The Supply Chain Website – (www.thesupplychain.com) Trade Exhibitions – (www.exhibitions.co.uk) UNSPSC (Universal Standard Products and Services Classification) (www.unspsc.org) Pearson Education © 2004
  • 4. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide Activity 1 Identify a selection of business to business suppliers on the Internet across five different industries. What products and services to they offer and which channels of distribution do they use? 2 Identify the role of benchmarking and outsourcing by looking at an outsourcing and benchmarking website www.outsourcing-benchmarking.com. Evaluate the future of these business concepts. 3 Identify sites for efficient consumer response (ECR) across the world and discuss the reasons for development. Do you think they are beneficial for all members. Website addresses Benchmarking Association – (www.benchmarking.co.uk) Data Interchange Standards Association – (www.disa.org) ECR Asia – (www.ecrasia.com) ECR Australasia – (www.ecraustralasia.org.au) Efficient Consumer Response, Europe – (www.ecrnet.org) Global Commerce Initiative - (www.globalcommerceinitiative.org ) Green Consumer Guide –(www.greenconsumerguide.com) MarketingShout, marketing resource website – (www.MarketingShout.com) Outsourcing and Benchmarking Centre – ( www.outsourcing-center.com) Outsourcing Institute – (www.outsourcing.com) StudentShout student business and marketing resource website – (www.StudentShout.com) The International Reciprocal Trade Association – (www.irta.com ) The Supply Chain Website – (www.thesupplychain.com) Trade Exhibitions – (www.exhibitions.co.uk) UNSPSC (Universal Standard Products and Services Classification) (www.unspsc.org) Pearson Education © 2004
  • 5. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide Case Study ECR has developed at a tremendous rate over the last twenty years and is practiced by most of the world’s leading supermarket supply chains. It is recommended that students visit the ECR sites for current practice knowledge. Supply chain management for best results. ‘Supply chain management is driven by the need to drive down costs and increase customer value across the whole supply/demand chain’. Over the last twenty years the realisation of the importance of suppliers, producers, manufacturers, wholesalers and retailers all working closely together has gathered momentum. As national and international competition has increased and the search for competitive advantage has intensified the need to constantly look toward efficiency, effectiveness and economy has moved to the top of the agenda. Internal value chain analysis, benchmarking every step in the business process from internal logistics, production external logistics and marketing became a way of life for the most successful companies. They were absolutely certain in knowledge that every value-added stage through the organisation must be continually monitored and upgraded against the best if the company was to stay in the forefront of their chosen industry. But businesses in very competitive markets soon began to realise that this wasn’t enough. As they pushed for perfection they saw that every organisation was reliant on every other organisations along the supply chain and that if suppliers and suppliers’ suppliers, manufacturers, retailers etc. were inefficient this would reverberate right through to the supply chain from the one end to the other. The end result would be that the end consumer would have less value in the end product or service, catastrophic in a highly competitive environment. This enlightenment, combined with the growth in enabling information technology became the driver for closer and closer partnerships and the extension of value-chain and benchmarking practices along the upstream and downstream along the whole supply chain. Flexible supply chains As companies grow and expand their products and market penetration, supply chain network reconfigurations need to keep pace with the proliferation of products, customers, and channels. If not companies can find themselves servicing different customer segments with the same supply chain strategies, making their performance less than competitive. For example, an electronic Original Equipment Manufacturer (OEM) selling through multiple channels, from direct to retail, has the same supply chain network for all products, making its supply chain delivery performance unacceptable in one channel segment and not cost competitive in another. A company must create a mixed supply chain strategy to monitor and improve the performance for different customer segments. There are many outside agencies with the skills to assist in the process. Efficient Consumer Response "Working Together to Fulfil Consumer Wishes Better, Faster and at Less Cost". No industry has adopted this supply/value chain revolutionary concept more eagerly than the grocery business although they state that the principles that are followed can be applied to many, if not all, other industry sectors. Under the name of ‘Efficient Consumer Response’ or ECR a business concept has been built up with the clear aim of satisfying consumer needs by the combination of benchmarking every business process and trading partners working closely together. ECR principles begin the whole supply chain process from the perspective of the end consumer were as ‘demand chain management’ looked at efficiency form the needs of the channel members. Focusing on the total supply chain, including suppliers, manufacturers, wholesalers, retailers and third party service providers it supports the belief that business success comes from delighting the consumer through meeting or exceeding their expectations. This can only be done through working together to remove inefficiencies, streamline processes, and lowering costs whilst constantly adding value for the consumer. To do this every business process back up through the value chain must have this overriding concept as the Pearson Education © 2004
  • 6. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide driving force. Supporters of ECR argued that properly understood and implemented it can deliver improved product ranges, more value, better and better service and convenience offerings leading in turn to ever-greater consumer satisfaction. An International Movement The ECR movement began in the United States in 1993. Its main driver was an increasing population of sophisticated consumers demanding better prices, more variety and better service. Europe followed in 1994, when senior managers from across the European supply chain met in Brussels and identified the need for an official ECR Europe body. Efficient Consumer Response organisations now exist in over 40 countries and regions. Europe is addressing business areas such as ECR scorecards, collaborative planning, EDI, Cross Docking, forecast and replenishment, category management and e- commerce. The United States, on the other hand, is shifting its focus very much to e-commerce both business-to-business and business-to-consumer. In Asia, there is a growing recognition of the need for consistent, reliable, product identification, EDI messaging systems and industry catalogues and for improved processes to reduce inventory and improve product availability on shelf. The Global ECR Scorecard The Global ECR Scorecard is a Capability Assessment Tool, and has been designed to give a detailed understanding of company ECR capability and to highlight specific improvement opportunities for each company. Before a company is ready to start with ECR, however, the following should be considered: • Which activities are done in different departments? • How are these activities related to each other? • Is there a more efficient way that we can organise our business? • Do we have an insight into the costs and profitability at product, distribution channel and customer levels? • What kind of information is available in the different departments, and how can we use this information to create greater value to the business as a whole? Searching for standardisation There are parallel projects in Europe, USA and elsewhere which create the risk of duplication or incompatible, regional solutions. Even where international standards exist, such as EAN product identification and EDI messaging, national deviations lead to substantial inefficiencies for manufacturers. This situation led major international suppliers and retailers to launch the Global Commerce Initiative (GCI) to address key technologies and improve the performance of the international supply chain through the collaborative development and endorsement of recommended standards and key business processes. They include electronic data interchange, product numbering and identification, standardised product tagging, global scorecard development and industry extranets. The Global Commerce Initiative explicitly acknowledges ‘supply chain practices between manufacturers and retailers have often not kept pace with the realities of global sourcing and trading’. Winners and losers According to a ECR Europe spokes person studies have also shown that the adoption of best practice in ECR techniques, such as efficient replenishment, can reduce order lead-times by 80%, storage capacity by 60%, working capital by 60% and improving service levels from 97.5 to 99.5%. Leading practitioners are estimating benefits worth 10% or more on the supply side, and profitability gains of 30% or more on the demand side. There are losers, however, in the process. Many upstream suppliers complain that the winners are the most powerful in the supply chain such as the big grocery retailers or global manufacturers. They argue that the five all-powerful supermarkets that dominate British food retailing (75%) and have used their increasing position of strength to deliver competition in the high- street at the expense of their suppliers. They use their dominant buying power to demand lower prices from suppliers so as to reduce costs transfer risk to improve productivity and demand extra money for contractual relationships. Most suppliers, farmers and small manufacturers, are unwilling to complain because they in live in fear of upsetting their few available powerful customers. Pearson Education © 2004
  • 7. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide Sources: ECR Europe – www.ecrnet.org ECR Australasia – www.ecraustralasia.org.au ECR Asia – www.ecrasia.com Global Commerce Initiative - globalcommerceinitiative.org Case study questions 1 Identify all the factors that have lead to the development of ECR. 2 Supporters of ECR believe that large saving can, and have been made through collaborative cooperation and planning. Trace the process along the supply chain and try to identify where these saving might be made. 3 There are winners and loser in close supply chain relationships. What they and how might they be overcome? 4 Identify all the factors that have lead to the development of ECR. 5 Supporters of ECR believe that large saving can, and have been made through collaborative cooperation and planning. Trace the process along the supply chain and try to identify where these saving might be made. 6 There are winners and loser in close supply chain relationships. What they and how might they be overcome? Website addresses Benchmarking Association – (www.benchmarking.co.uk) Data Interchange Standards Association – (www.disa.org) ECR Asia – (www.ecrasia.com) ECR Australasia – (www.ecraustralasia.org.au) Efficient Consumer Response, Europe – (www.ecrnet.org) Global Commerce Initiative - (www.globalcommerceinitiative.org ) Green Consumer Guide –(www.greenconsumerguide.com) MarketingShout, marketing resource website – (www.MarketingShout.com) Outsourcing and Benchmarking Centre – ( www.outsourcing-center.com) Outsourcing Institute – (www.outsourcing.com) StudentShout student business and marketing resource website – (www.StudentShout.com) The International Reciprocal Trade Association – (www.irta.com) The Supply Chain Website – (www.thesupplychain.com) Trade Exhibitions - www.exhibitions.co.uk UNSPSC (Universal Standard Products and Services Classification) (www.unspsc.org) Pearson Education © 2004
  • 8. Ray Wright, Business-to-Business Marketing: A Step-by-Step Guide Supplementary Information Efficient Customer Response The impetus for ECR came from a study commissioned by the grocery industry to help them determine how to react to the entry of mass market discounters, such as Wal-Mart, into the grocery industry. The study concluded that $30 billion in waste could be cut from the distribution chain and still leave a potential cut in prices to the consumer of as much as twelve per cent. The industry sat up and took notice. ECR consists of four main components: store assortment, product replenishment, promotion, and product introductions. Store assortment is simply what is on the shelf. Traditionally shelf management meant knowing what had sold in the past or was selling at the moment and replacing it. Today, using data available from technological advances such as EDI (Electronic Data Interchange) and scanner data, along with the more traditional sources of information, the firm can focus more on the optimisation of future sales. Product replenishment or CRP (continuous replenishment) involves developing an integrated network between the manufacturers and the retailers. Under the ideal arrangement, they will work together in forecasting consumer demand and determining shelf space allotments. Then an EDI system will be set up that monitors the actual sales in light of the forecasted sales, and the system adjusts the pre-booked shipments accordingly. Ultimately the system develops to the point that the retailer gives the manufacturer carte blanche to decide what to stock under the provision that the retailer does not own the merchandise until it is sold. Advantages of the system include a significant decrease in excess inventory and the elimination of the need for warehouse and distribution centres, saving both the manufacturer and the chain stores a significant portion of their storage costs as well as the costs of double shipping. For the manufacturer, it allows for more efficient production schedules, better category management, and lower warehousing costs as well. For both, it minimises ordering, billing, and pricing errors; deductions; credits, and the general processing of documents. In essence, it cleans up the system so as to provide maximum efficiency for both parties. The third component of ECR is more efficient promotion. The traditional manufacturer-retailer relationship is fraught with inefficiencies that are derived from forward buying, diverting, special deals, and multiple deals that vary from store to store, depending upon the sales representative-buyer relationship. ECR eliminates most of this by negotiating set low prices that will maximise profit and efficiency for both. However, this does not mean the complete eradication of promotions. It simply means that by using the EDI technology, the manufacturer and retailer can monitor results on a daily basis and develop promotional activities that move the maximum product at the optimal profit on a store-by-store basis if desired. The fourth component of ECR is that of new product introduction. This is the area viewed as the most difficult into which to integrate ECR. In a truly integrated system the theory would call for a partnership to jointly develop new products that meet the wants, needs, and desires of the consumer. This is more of a challenge. While ECR offers many potential advantages to the consumer, including fresher merchandise and lower prices, -- it remains to be seen if a significant amount of the savings will be passed on, other than that required by competition. That, after all, was what gave rise to the ECR strategy in the first place. Pearson Education © 2004