This document discusses strategies for global supply chains and distribution in the consumer goods industry. It begins by outlining the complexity of operating globally at scale and the strategic issues around supply chain management. It then evaluates the pros and cons of vertical integration and different distribution approaches. Various distribution channel models are presented and the advantages of intermediaries and wholly owned distribution are discussed. Technological advancements are changing the nature of distribution by enabling new predictive and direct models.

1. Industry Studies Consumer Goods Industry
Topic: Global Supply Chain and
Distribution Strategies
Topic Number: 4

2. Overview
One of the most important considerations for CGI
organisations is how they are going to maximise the
effectiveness of their supply chain and get their
products to their consumers. This can be a rather
complex challenge given the sheer scale of operation
required in some instances.
This lecture will initially look at the dynamics relating
to the supply chain and determine the strategic issues
faced by organisations. Thereafter, we will look at the
extent to which firms should vertically integrate and
the associated pros and cons.
We will then evaluate the various ‘to market’
distribution channels firms have available critically
evaluating the different approaches.
2

3. Learning Outcomes
• Determine and be able to discuss the dynamics of
3
a global supply chain
• Critically evaluate the issues relating to vertical
integration of a supply chain
• Evaluate and articulate the changing nature of
distribution approaches due to technological
advancements
• Identify and describe the advantages and
disadvantages of the different distribution
methods

4. A new age of distribution
Amazon has well passed any
expectations of its ability to
change distribution and
marketing
Eric Schmidt

5. Operating a global operation can be complex
and involves…
Standardised vs
Customised Production
Acquisition of
Resources
• Supply chain
management
• Vertical integration
• Make-or-buy
decisions
Location Decisions
• Country-related
issues
• Product-related
issues
• Govt policies
• Org issues
Logistics and Materials
Management
• Flow of materials
• Transportation
options
• Inventory levels
• Packaging
Strategic Context
• Differentiation
• Cost leadership
• Focus

6. Complexities of International Operations
Resources Location Logistics
Managers must decide
where and how to
obtain the resources
the firm needs to
produce its products.
Managers must
decide where to build
admin facilities, sales
offices and plants;
how to design them;
and so on.
Managers must
decide on modes of
transportation and
methods of inventory
control.

7. An example of the complexities: 3 killer
questions
Where to source
materials?
Where to
produce?
Where to
market?

8. Supply Chain: Vertical Integration
The first step in developing a supply chain management
strategy is to determine the appropriate degree of vertical
integration. It is the extent to which a firm either provides
its own resources or obtains them from other sources.
Firms that
practise high
vertical
integration are
engaged in every
step of the
operations
management
process.
High
Integration
Firms that have
little vertical
integration are
involved in only
one step or just a
few steps in the
production chain.
Low
Integration

9. Heineken: A case in point of low integration
Buys from
suppliers

10. To make or to buy?
A transactional cost economic approach
Ronald Coase
According to Ronald Coase,
people begin to organise their
production in firms when the
transaction cost of coordinating
production through the market
exchange, given imperfect
information, is greater than within
the firm.

11. To make or to buy?
A transactional cost economic approach
Transaction costs can be divided into three broad categories:
Search and
information
costs are costs
such as those
incurred in
determining that
the required good
is available on the
market, which has
the lowest price,
etc.
Bargaining costs
are the costs
required to come
to an acceptable
agreement with
the other party to
the transaction,
drawing up an
appropriate
contract and so on.
Policing and
enforcement
costs are the
costs of making
sure the other
party sticks to the
terms of the
contract, and
taking
appropriate
action.

12. To make or to buy?
Other Considerations
Control Risk
Making a component
has the advantage of
increasing the firm’s
control over product
quality, delivery
schedules, design
changes and costs.
Also, one does not
become overly
dependent on
external suppliers.
Buying a component
from an external
supplier has the
advantage of
reducing the firm’s
financial and
operating risks. The
firm that buys rather
than makes can
reduce its political
risk in a host country.

13. To make or to buy?
Other Considerations
Investments Flexibility
Buying from others
lowers the firm’s
level of investment.
By not having to
build a new factory a
firm can free up
capital for other
productive uses.
A firm that buys
rather than makes
retains the flexibility
to change suppliers
as circumstances
dictate. This is
particularly helpful in
cases in which
technology is evolving
rapidly.

14. A firm that buys needs to decide: where to
locate production
Country-Related Issues
Several features of countries can influence the decision about
where to locate an international facility. Chief among these
are resource availability and cost, infrastructure, and country
of origin marketing effects.
For example,
countries that
enjoy large, low-cost
endowments of
a factor of
production will
attract firms.

15. A firm that buys needs to decide: where to
locate production
Product-Related Issues
Goods with low value to weight ratios such as cement tend to
be produced in multiple locations to minimise transportation
costs. Good with high value to weight ratios, such as
diamonds can be produced in one location.

16. A firm that buys needs to decide: where to
locate production
Government
Issues
Government policies
play a role in the
location decision;
considerations such
as political process,
national trade
policies, economic
development
incentives and
foreign trade zones.
Organisation
Issues
Organisation strategy
and structure are a
big determinant of
location. Location
close to markets can
be particularly
important.

17. Consider how you typically purchase a
computer…

18. A very different journey for a toothbrush…
Organisations need to develop optimal
distribution networks tailored to the product
and consumer journey.

19. However distribution is rife for disruption
I would shop here every
week…
…now it’s all done for me

20. Predictive analytics is taking things to a
whole new level…

21. Distribution Channel Models
What is distribution strategy?
A firm’s overall plan for moving products through
intermediaries and on to final customers
Source: Bovee, 2013

22. Why use an intermediary?
Going direct Via an intermediary
Identify the complexities with going
direct.
Source: Bovee, 2013

23. Advantages of intermediaries
Matching
buyers &
sellers
Provides
market
information
Promotional
and sales
support
Gathering
assortments of
goods
Transport
and storing
products
Source: Bovee, 2013

24. However…
…significant loss of
control…
…or they do it
themselves…cheaper!

25. Many CGI companies have opted for a hybrid
distribution model…
…however mainly in durable CGI companies

26. Advantages of wholly-owned distribution
Maintain
full control
Customer
experience
Better
margins
More
empowered staff
and decision-making
Captive
audience
Brand
building

27. Appendix – Sources for illustrations
Slide 6 & 7:
www.wikipedia.org
Slide 9:
www.heineken.com
Slide 10:
www.wikipedia.org
Slide 14 &15:
www.livemint.com
Slide 17:
Apple and John Lewis websites
Slide 18
Boots and Tesco websites
Slide 19
Sainsburys website
Slide 20 & 24
Amazon & Tesco websites
Slide 25:
Samsung website

28. End of presentation
© Pearson College 2013