CHAPTER 12 Supply Chain Management Marketing Channels and Designed by Eric Brengle B-books, Ltd. Prepared by Deborah Baker Texas Christian University Introduction to Marketing McDaniel, Lamb, Hair 9
Learning Outcomes LO I LO 2 LO 3 Explain what a marketing channel is and why intermediaries are needed Define the types of channel intermediaries and describe their functions and activities Describe the channel structures for consumer and business products and discuss alternative channel arrangements
Learning Outcomes Define supply chain management and discuss its benefits Discuss the issues that influence channel strategy Explain channel leadership, conflict, and partnering Describe the logistical components of the supply chain LO 5 LO 6 LO 4 LO 7
Learning Outcomes Discuss new technology and emerging trends in supply chain management Discuss channels and distribution decisions in global markets Identify the special problems and opportunities associated with distribution in service organizations LO 9 LO IO LO 8
Marketing Channels Explain what a marketing channel is and why intermediaries are needed LO I
Marketing Channels Marketing Channel LO I A set of interdependent organizations that ease the transfer of ownership as products move from producer to business user or consumer.
Marketing Channels Supply Chain LO I The connected chain of all the business entities, both internal and external to the company, that perform or support the logistics function.
Marketing Channel Functions LO I Specialization and division of labor Overcoming discrepancies Providing contact efficiency
Specialization and Division of Labor LO I <ul><li>Creates greater efficiency </li></ul><ul><li>Provides lower costs </li></ul><ul><li>Achieves economies of scale </li></ul><ul><li>Aids producers who lack resources to market directly </li></ul><ul><li>Builds good relationships with customers </li></ul>
Overcoming Discrepancies LO I Discrepancy of Quantity Discrepancy of Assortment The difference between the amount of product produced and the amount an end user wants to buy. The lack of all the items a customer needs to receive full satisfaction from a product or products.
Overcoming Discrepancies LO I Temporal Discrepancy Spatial Discrepancy A situation that occurs when a product is produced but a customer is not ready to buy it. The difference between the location of a producer and the location of widely scattered markets.
REVIEW LEARNING OUTCOME Marketing Channels LO I Providing Specialization and Division of Labor Overcoming Discrepancies Providing Contact Efficiency Marketing Channel Supply Chain
Channel Intermediaries Define the types of channel intermediaries and describe their functions and activities LO 2
Channel Intermediaries LO 2 Retailer A channel intermediary that sells mainly to customers. Merchant Wholesaler An institution that buys goods from manufacturers, takes title to goods, stores them, and resells and ships them. Agents and Brokers Wholesaling intermediaries who facilitate the sale of a product by representing channel members.
Channel Intermediaries LO 2 Retailers Merchant Wholesalers Agents and Brokers Take Title to Goods Take Title to Goods Do NOT Take Title to Goods
Factors Suggesting Type of Wholesaling Intermediary to Use LO 2 Product characteristics Buyer considerations Market characteristics
Factors Suggesting Type of Wholesaling Intermediary to Use LO 2 Concentrated Dispersed Concentration of customers Few Many Number of customers Longer lead time Shorter lead time Time between order and receipt of shipment Infrequent Frequent Frequency of ordering Low High Product’s gross margin Simple Complex Technicality of product Nonstandard, custom Standard Nature of product Agents/Brokers Merchant Wholesalers Factor
Channel Functions Performed by Intermediaries LO 2 Contacting/Promotion Negotiating Risk Taking Researching Financing Physically distributing Storing Sorting Facilitating Functions Transactional Functions Logistical Functions
Logistics LO 2 Logistics The process of strategically managing the efficient flow and storage of raw materials, in-process inventory, and finished goods from point of origin to point of consumption.
REVIEW LEARNING OUTCOME Channel Intermediaries and Functions LO 2 CHANNEL INTERMEDIARIES Retailers Wholesalers Agents and Brokers CHANNEL FUNCTIONS Transactional Logistical Facilitating Perform
Channel Structures Describe the channel structures for consumer and business products and discuss alternative channel arrangements LO 3
Channels for Consumer Products LO 3 A distribution channel in which producers sell directly to consumers. Direct Channel
Channels for Consumer Products LO 3 Producer Producer Producer Producer Consumers Consumers Consumers Consumers Retailers Retailers Retailers Wholesalers Wholesalers Agents or Brokers Wholesaler Channel Retailer Channel Direct Channel Agent/Broker Channel
LO 3 Channels for Business Products Producer Industrial User Direct Channel Producer Govt. Buyer Direct Channel Producer Producer Producer Industrial User Industrial User Industrial User Industrial Distributor Industrial Distributor Agents or Brokers Agents or Brokers Agent/Broker Channel Industrial Distributor Agent/Broker Industrial Channel
Business-to-Business Exchanges on the Internet LO 3 Agents link buyers and sellers Companies drop the intermediary from the supply chain “ Private exchanges” with select suppliers automate the supply chain Online http://www.sherwinwilliams.com
Alternative Channel Arrangements LO 3 Multiple channels Strategic channel alliances Nontraditional channels
Supply Chain Management Define supply chain management and discuss its benefits LO 4
Supply Chain Management LO 4 Supply Chain A management system that coordinates and integrates all of the activities performed by supply chain members into a seamless process, from the source to the point of consumption, resulting in enhanced customer and economic value.
Role of Supply Chain Management LO 4 Physical flow process that engineers the movement of goods Communicator of customer demand from point of sale to supplier
Responsibilities of Supply Chain Managers LO 4 <ul><li>Channel strategy decisions </li></ul><ul><li>Sourcing and procurement of raw materials </li></ul><ul><li>Production schedules </li></ul><ul><li>Order processing </li></ul><ul><li>Inventory management </li></ul><ul><li>Finished goods/supplies transportation and storage </li></ul><ul><li>Customer service coordination </li></ul><ul><li>Supply chain information flow management </li></ul><ul><li>Partner relationships </li></ul>
Benefits of Supply Chain Management LO 4 Means of differentiation Greater supply chain flexibility Improved customer service Higher revenues Reduced costs
REVIEW LEARNING OUTCOME Supply Chain Management LO 4
Making Channel Strategy Decisions Discuss the issues that influence channel strategy LO 5
Channel Strategy Decisions LO 5 Factors Affecting Channel Choice Producer Factors Product Factors Market Factors Exclusive Distribution Selective Distribution Intensive Distribution Level of Distribution Intensity
Market Factors LO 5 Market Factors That Affect Channel Choices Customer profiles Consumer or Industrial Customer Size of market Geographic location
Product Factors LO 5 Product Factors That Affect Channel Choices Product Complexity Product Standardization Product Life Cycle Product Delicacy Product Price
Producer Factors LO 5 Producer Factors That Affect Channel Choices Producer Resources Number of Product Lines Desire for Channel Control
Levels of Distribution Intensity LO 5 Intensive A form of distribution aimed at having a product available in every outlet Selective A form of distribution achieved by screening dealers to eliminate all but a few in any single area Exclusive A form of distribution that established one or a few dealers within a given area
Levels of Distribution Intensity LO 5 Intensive Achieve mass market selling. Convenience goods. Many Selective Exclusive Work with selected intermediaries. Shopping and some specialty goods. Work with single intermediary. Specialty goods and industrial equipment. Several One Intensity Level Objective Number of Intermediaries
REVIEW LEARNING OUTCOME Issues Influencing Channel Strategy LO 5
Managing Channel Relationships Discuss the issues that influence channel strategy LO 6
Social Dimensions of Channels LO 6 Partnering Conflict Leadership Control Power
Channel Power, Control, and Leadership LO 6 Channel Power A channel member’s capacity to control or influence the behavior of other channel members Channel Control A situation that occurs when one marketing channel member intentionally affects another member’s behavior Channel Leader A member of a marketing channel that exercises authority/power over the activities of other members
Channel Conflict and Partnering LO 6 Channel Conflict A clash of goals and methods between distribution channel members Channel Partnering The joint effort of all channel members to create a supply chain that serves customers and creates a competitive advantage
Channel Conflict <ul><li>Conflicts may occur if channel members: </li></ul><ul><li>Have conflicting goals </li></ul><ul><li>Fail to fulfill expectations of other channel members </li></ul><ul><li>Have ideological differences </li></ul><ul><li>Have different perceptions of reality </li></ul>LO 6
Channel Partnering LO 6 Supplier / Manufacturer Relationships Short-term Adversarial Independent Price important Long-term Cooperative Dependent Value-added services Number of Suppliers Many Few Transaction-Based Partnership-Based Information Sharing Minimal High Investment Required Minimal High
Managing Logistical Components Describe the logistical components of the supply chain LO 7
Logistical Components of the Supply Chain LO 7 Supply Chain Team Sourcing & Procurement Production Scheduling Order Processing Inventory Control Warehouse & Materials Handling Transportation Logistics Information System
Sourcing and Procurement <ul><li>Plan purchasing strategies </li></ul><ul><li>Develop specifications </li></ul><ul><li>Select suppliers </li></ul><ul><li>Negotiate price and service levels </li></ul><ul><li>Reduce costs </li></ul>LO 7 The Role of Purchasing:
Production Scheduling LO 7 Push / Pull Strategy Traditional Focus Push Start of Production Manufacturing Inventory- Based Mass Production Customer Focus Pull Customer-Order Based Mass Customization
Just-in-Time Manufacturing LO 7 JIT A process that redefines and simplifies manufacturing by reducing inventory levels and delivering raw materials just when they are needed on the production line.
<ul><li>Reduces raw material inventories </li></ul><ul><li>Shortens lead times </li></ul><ul><li>Creates better supplier relationships </li></ul><ul><li>Reduces production and storeroom costs </li></ul><ul><li>Reduces paperwork </li></ul>Benefits of JIT LO 7
JIT Requirements LO 7 Receive high-quality parts Meet supplier delivery commitments Have a crisis management plan
Order Processing LO 7 Electronic Data Interchange Information technology that replaces paper documents that accompany business transactions with electronic transmission of the information. http://www.walmartstores.com Online
Order Processing LO 7 Inventory Control System A method of developing and maintaining an adequate assortment of materials or products to meet a manufacturer’s or a customer’s demand.
Order Processing LO 7 Materials Requirement Planning (MRP) An inventory control system that manages the replenishment of raw materials, supplies, and components from the supplier to the manufacturer. Distribution Resource Planning (DRP) An inventory control system that manages the replenishment of goods from the manufacturer to the final consumer.
Inventory Replenishment Example LO 7 MRP Sleep Right Mattress Retail Store Sleep Right Distribution Center ABC Mattress Wholesaling Company Great Mattress Company
Materials Handling Functions LO 7 Receive goods into warehouse Dispatch the goods to temporary storage Recall, select, or pick the goods for shipment Identify, sort, and label goods
Transportation LO 7 Airways Water Pipelines Motor Carriers Railroads
Transportation Mode Choice LO 7 <ul><li>Cost </li></ul><ul><li>Transit time </li></ul><ul><li>Reliability </li></ul><ul><li>Capability </li></ul><ul><li>Accessibility </li></ul><ul><li>Traceability </li></ul>
Criteria for Ranking Modes of Transportation LO 7 Relative Cost Transit Time Reliability Capability Accessibility Traceability Highest Lowest Air Water Pipe Rail Truck Water Rail Pipe Truck Air Pipe Truck Rail Air Water Water Truck Rail Truck Air Pipe Rail Air Water Pipe Air Truck Rail Water Pipe
Trends in Supply Chain Management Discuss new technology and emerging trends in supply chain management LO 8
Trends in Supply Chain Management LO 8 Electronic distribution Outsourcing of logistics functions Advanced computer technology
Advanced Computer Technology <ul><li>Automatic identification systems </li></ul><ul><ul><li>Bar coding </li></ul></ul><ul><ul><li>Radio frequency technology </li></ul></ul><ul><li>Communications technology </li></ul><ul><li>Supply chain software systems </li></ul>LO 8
Outsourcing Logistics Functions <ul><li>Reduce inventories </li></ul><ul><li>Locate stock at fewer plants and distribution centers </li></ul><ul><li>Provide same or better levels of service </li></ul>Outsourcing Benefits LO 8
Channels and Distribution Decisions for Global Markets Discuss channels and distribution decisions in global markets LO 9
Channels and Distribution Decisions for Global Markets LO 9 Global Channel Development Channel structure and type differ Gray marketing channels Global Supply Chain Management Awareness of trade legalities Transportation Issues
REVIEW LEARNING OUTCOME LO 9 Global Market Channel & Distribution Decisions Distribute directly or through foreign partners Different channel structures than in domestic markets Illegitimate “gray” marketing channels Legal and infrastructure differences
Channels and Distribution Decisions for Services Identify the special problems and opportunities associated with distribution in service organizations LO IO
Channels and Distribution Decisions for Services LO IO Minimizing wait times Managing service capacity Improving service delivery
REVIEW LEARNING OUTCOME Distribution in Service Organizations LO IO