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Manoj Patel Asst. Professor
JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD
Q.1. what do you mean by Disintermediation? Compare the concept with Reintermediation.
Ans. Disintermediation: Disintermediation or ‗cutting out the middle man‘ as it is also known is, at first
glance, an attractive concept for manufacturers with its cost-saving incentives. Competitive advantage can
potentially be achieved by cutting the payments made to intermediaries, not to mention the valuable
information that can be collected through direct contact with customers. However, after a more detailed study
of the critical issues involved such as market conditions, core competencies and the value added to products
by intermediaries, it is clear that some significant barriers to the success of disintermediation exist in many
industries. This report concludes that complete disintermediation is not something that can be expected in the
near future. Rather, since e-business is changing the ways in which consumers search for and buy products
and often intermediaries are in the best position to provide the desired services, it is possible that the
introduction of more intermediaries (reintermediation) would be more beneficial to manufacturers at this time,
freeing them to concentrate on their core competencies. However, firms will have to carefully evaluate the
suitability of their particular industry for either business model.
Disintermediation initiated by consumers is often the result of high market transparency, in that buyers are
aware of supply prices direct from the manufacturer. Buyers bypass the middlemen (wholesalers and retailers)
to buy directly from the manufacturer, and pay less. Buyers can alternatively elect to purchase from
wholesalers. Often, a business-to-consumer electronic commerce (B2C) company functions as the bridge
between buyer and manufacturer.
To illustrate, a typical B2C supply chain is composed of four or five entities (in order):
 Supplier
 Manufacturer
 Wholesaler
 Retailer
 Buyer
It has been argued that the Internet modifies the supply chain due to market transparency:
 Supplier
 Manufacturer
 Buyer
SYLLABUS
UNIT II- IT enabled Distribution Systems & Channel Relationships: IT enabled Distribution Systems;
Disintermediation vs Reintermediation; Cybermediary (e-commerce), Partial disintermediation,
Infomediary; Intermediary empowerment; Framework for adoption of IT enabled distribution systems;
Nature and characteristics of Partnering Channel Relationships; Stages, Reasons and Factors of developing
Partnering Channel Relationships; Channel Conflicts and Resolution Strategies; Partnering Channel
Relationships and IT
Manoj Patel Asst. Professor
JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD
Reintermediation: E-business has created many opportunities for new intermediaries, as well as enabling
existing intermediaries to become better-managed and more efficient (Rosenbloom, 2007). Services such as
supplier search, product evaluation (Chaffey, 2009) and price comparison websites are proving very attractive
to customers therefore firms whose products are not included on these sites or on the sites of leading online
retailers such as Amazon are at a disadvantage.
Amazon (originally an online book retailer) has used e-business to quickly develop a customer base which far
exceeds that of any book publisher. This is because consumers were (and still are) drawn by the value-adding
services provided by Amazon. Nowadays, Amazon sells a huge variety of products and any manufacturer
who opts not to sell its products through intermediaries such as Amazon will considerably limit their sales
opportunities. Using such intermediaries enables manufacturers to reach a much wider audience with their
products and offer customers a ‗value-added‘ experience.
Manufacturers can also take advantage of the marketing opportunities created by e-business. For example,
they can set up ‗affiliate marketing‘ programs online which enable their products to be promoted and sold by
almost anyone for a commission. This way product can be widely marketed, only costing the manufacturer
when a sale is made. This model of inviting an unlimited number of intermediaries to sell a product is
attractive because it means that money is not wasted on marketing that does not bring sales.
If the use of intermediaries is the most cost-effective and efficient way to take advantage of all that e-business
has to offer, it could be argued that now is the time to introduce more intermediaries than ever before. Any
intermediary that adds more value to a product than it charges for the service is worth considering and so too
are those intermediaries that will enable a product to be more widely marketed or efficiently distributed than it
is currently being. Rosenbloom (2007), Agrawal (2006), Gigalis (et al, 2002) and King (1999) all suggest that
Reintermediation has just as much, if not more potential to create competitive advantage which may explain
Palvia (et al)‘s (1999) findings that it is the more popular model in reality.
Q.2. Illustrate channel conflict with suitable example and methods how to resolve the channel conflicts?
Ans. Channel Conflict in Brief: Multichannel systems are a way of life for manufacturers today. Whether
you are managing a mix of direct and indirect channels or a spectrum of high-support to low-support resellers,
the reality is that channel conflict will be an ongoing issue in your marketplace. As the number of internet
sites (potentially including your own) that offer your product for sale proliferates, this multi-channel structure
becomes more complex and the channel conflict potential more pervasive.
A limited amount of channel conflict is healthy. It indicates that you have adequate market coverage.
However, once the balance between coverage and conflict is lost, destructive channel conflict can quickly
undermine your channel strategy, market position and product line profitability.
Conflict can show up in the market in a variety of ways. A point of confusion for many manufacturers is
whether problems are truly symptoms of destructive channel conflict or other marketing or channel strategy
Manoj Patel Asst. Professor
JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD
issues. When faced with potential indicators of destructive conflict, you should audit your market position to
identify the true cause and then quickly act to address it.
Channel conflict is managed by a combination of economics and controls. Economic solutions compensate
channels fairly for functions performed and help direct channels away from actions that create destructive
conflict. Controls put structure around a channel strategy to limit the potential for undue destructive conflict.
Channel Conflict Solutions: Channel conflict is an integral part of your channel strategy, so you must
examine your market position and channel strategy before attempting to manage it. Taking a closer look at the
problem often reveals that the perceived channel conflict issue masks a larger channel strategy issue. So prior
to executing solutions to address channel conflict, the manufacturer is encouraged to examine all elements of
its overall channel strategy, including pricing, end user segmentation, channel support programs, company
policies, etc. Have you created a conflict situation through the design or implementation of these other
components of channel strategy?
Destructive channel conflict is managed through economics and structural controls. Economics motivate the
channels to avoid conflict. Structural controls lay the ground rules within which conflict is managed. With
each tactic, communication before conflict arises is critical.
The right economic solution is dictated by the type of conflict being faced, the manufacturer's market and
channel position, and the company's strategic goals. Economic approaches include;
 Dual compensation—applied when conflict exists between direct and indirect channels. The goal is
to move the indirect channel from a position of potential adversary for the direct sales force to one of
"partner" for the direct sales force
 Activity based compensation or discount—used to manage cross-channel conflict or conflict
between channels of differing cost structures and capabilities. Activity based discounts are applied by
paying a channel a specific discount if it performs a measurable task or function. These discounts
allow the "high-cost" channel to compete against "low-cost" channels for those customers who value
the high support
 Shared costs—the key difference between this concept and functional discounts is that functional
discounts compensate the channel for incremental tasks via a discount on product sold, while shared
costs pay directly for the task
 Compensation for market share—usually applied to direct versus indirect conflict, the direct sales
rep is compensated based on total market share in a territory. The goals of the sales rep are based on
direct and indirect volume, thus motivating the direct rep to "partner" with indirect channels to
maximize territory volume
Structural controls are only as effective as their enforcement. There is no value unless you are willing to
clearly spell out the controls at the outset of the channel agreement and enforce the stated penalties to all
channel members. The structural controls are typically applied to:
Manoj Patel Asst. Professor
JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD
 Accounts—you specify "named" or "house" accounts where indirect channels can expect to compete
with your direct channels. Named accounts are usually specified based on end-user sourcing
capabilities, channel ability to meet end-user buying requirements, and volume and strategic value
 Products—channels can qualify for franchising by product line/category across your company's
offering. Product qualification is usually based on end-user product support needs, channel support
capabilities, "fit" or positioning of the product category in the channel's overall business, and strategic
considerations
 Geography—as a manufacturer, you can specify those geographies/account types in which you will
provide sales support to the channel. These geographies are usually defined by granting the channel a
primary area of responsibility
The successful marketer combines the elements of economic and control-related solutions that best address
conflict challenges —framing them in an understanding of market position, channel position, and strategic
goals.
Recognizing Destructive Channel Conflict
Channel "noise" regarding conflict always exists. (In fact, a lack of channel noise is often an early indicator of
coverage gaps in the manufacturer's channel strategy.) However, it does not mean that your company is
experiencing destructive channel conflict just because different internal factions or channel members are
complaining about lack of manufacturer commitment or are uncomfortable with competition for some sales.
Increasing levels of noise or evidence of declining channel support for your product line would be indicators
to pay attention to. It is a tough call, however, since destructive conflict tends to creep into a channel system
over time.
External Indicators of Destructive Channel Conflict
 Border Wars: These occur when multiple members of the channel network compete for the same
sale in the same account. A limited number of border wars should be expected and are, in fact, one
indication that you have good market coverage. A soft market creates the environment for increased
border wars as channels get more aggressive to deliver revenue. Generally, channels will begin to
react to channel conflict when incidence of border wars exceeds 10% to 20% of that channel's total
business with a manufacturer's products.
 Emotion: A necessary component of good channel management strategy is controlling the degree of
emotion from the channel. However, as emotion builds, the channels will begin to react by reducing
support of the product line or by switching out that line wherever possible. Emotion will often cause
the channel to de-emphasize a brand even when it is not in the best interest of the channel. We have
found that channels often have this discretion to control brand choice in as much as 40% of sales—
they typically don't choose to exercise this discretion.
Manoj Patel Asst. Professor
JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD
 Customer Satisfaction: Conflict can erode customer satisfaction for two reasons:
 Customers will start to experience redundant buying costs when forced to deal with multiple channels
offering essentially the same solutions in sales situations
 Competing channels focus on easy ways to win the sale in a conflict situation (such as dropping price)
and begin to ignore less evident customer buying requirements
Is Channel Conflict a Strategic Issue in Your Business Today?
Take a moment to consider the following questions:
1. Have you recently seen your market move through a "transition" point (e.g., from introduction to
growth, from growth to maturity)?
2. Have you made any recent changes to your channel strategy (e.g., adding channel members, adding
new types of channels)?
3. Have requests from the direct sales force or channels for special prices increased significantly?
4. Have gross margins eroded significantly in any customer or channel segments?
5. Have you seen a decrease in dollar revenue per direct sales rep and/or dollar revenue per channel
location?
6. Have you experienced significant loss of market share or declines in customer satisfaction in any
customer segments?
7. Have you experienced a decrease in your number of channels as a result of channels dropping your
line?
Q.3. Comments on ―Information Visibility and Its Effect on Supply Chain Dynamics‖
Today, companies use a variety of software applications for obtaining appropriate product information, and
for planning and optimizing performance of their supply chains. These applications include Materials
Requirement Planning (MRP), Manufacturing Resources Planning (MRPII), and Enterprise Resource
Planning (ERP) for their day-today planning activities. Some companies have taken initiative to implement
Advanced Planning and Scheduling (APS) packages for simultaneous scheduling and planning with their
supplier/s. Most of these applications are focused internally within an enterprise. They depend on data
gathered at regular intervals from purchasing, manufacturing, distribution, and sales operations. Current
techniques for gathering data include manual data entry by operators at various locations into logbooks or
data-entry terminals, usage of barcodes, and tags. Transfer of information across units is usually affected by
mail, phone, fax, email, or electronic data interchange (EDI). Data gathered by these techniques is typically
not in real time – it is updated on a daily, weekly or monthly basis.
Also, there is significant percentage of errors in manual data entry. Barcode scanning requires operators and
introduces constraints regarding orientation of the product and cleanliness of labels for fast, efficient data
collection. Using EDI is expensive, and moreover, not all suppliers and buyers have the infrastructure setup to
use it. As a result, information access is usually restricted to localized zones. Communication between units is
Manoj Patel Asst. Professor
JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD
normally pipelined sequentially and revising and reorganizing of plans takes a considerable amount of time.
Differing data formats across trading partners introduce incompatibility – and a need to convert data from one
format to another.
Fig: Dynamic Communication and Trading.
The advent of the internet has led to the emergence of new business models and increased competitive
pressures, forcing companies to operate more efficiently than ever before. To be profitable and to thrive,
companies are collaborating closely with all partners in the supply chain – from the supplier‘s supplier to the
customer‘s customer. These trading partners need to share forecasts, manage inventories, schedule labor,
optimize deliveries, and thus improve overall productivity. Software for Business Process Optimization
(BPO), and Collaborative Planning, Forecasting and Replenishment (CPFR), are correspondingly evolving to
help companies collaboratively forecast and plan amongst partners, manage customer relations, and improve
product life cycles and maintenance. Traditional supply chains are rapidly evolving into ―dynamic trading
networks‖ comprised of groups of independent business units sharing ‗planning and execution information‘ to
satisfy demand with an immediate, coordinated response. Most of the software packages mentioned above fall
in the realm of ‗Logistics, Scheduling and Planning‘ shown in Figure The second layer, i.e., deal-making
amongst trading partners, is dependent to a huge extent on company strategies and proper alignment of
business motives. Moreover, both these layers rely on the communications management layer for their data
acquisition and storage needs. Thus, to facilitate interaction between these partners in a supply chain or
Manoj Patel Asst. Professor
JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD
independent business units in a dynamic trading network, it is essential to establish a strong communications
link that is capable of gathering information in real-time and making it available to everyone concerned
instantaneously, preferably in a standardized format. Information gathered is useful not only for collaboration
amongst units but also for planning and scheduling within a unit – based on data inputs from the same unit as
well as other units. For example, to decide the production schedule in an assembly plant, a car manufacturer
needs information about inventories at the distribution centers and retailers, a unified forecast of demand for
the cars, capability of suppliers to provide required parts for assembly, as well as current capabilities of the
assembly plant under consideration, in terms of inventory levels, labor, scheduled shutdowns, etc. In this
thesis, we provide a framework for achieving complete information visibility in supply chains or trading
networks using the internet, and technology being developed at MIT‘s Auto-ID Center electronically coded
tags, automatic identification systems, and standardized formats for data representation.
Analysis of current SCM practices:
The past three decades have seen tremendous developments in software for production and operations
management. This has been a direct result of developments in computers and information technology, and
also of the way companies ran their businesses. There has been a distinct trend of increased collaboration
within organizations and amongst trading partners over the years. The traditional way of doing business with
clear-cut lines of demarcation between roles and responsibilities of individual units is fast giving way to
shared roles and responsibilities amongst trading partners. The growth of software applications over the years
reflects these trends. The foremost software application developed during the early 1970s to help warehouses
to plan inventory and shop floors to plan production was materials requirement planning (MRP). The
widespread popularity of MRP in manufacturing departments prompted the development of manufacturing
resource planning (MRP II) in the 1970s. MRP II built upon MRP, by tying it to the company‘s financial
system. By late1980s, companies found an increasing need to integrate together information from all different
units within the organization in order to be able to take better decisions for improving productivity and
increasing profits. This led to the development of enterprise resource planning (ERP) applications. ERP built
upon MRP II, by adding functionality to include many more departments within the organization.
Implementation of ERP involved extensive use of developments in information technology. With competition
increasing with time, to remain in business, companies soon found it necessary to optimize the entire product
―supply chain‖. This called for collaboration not only within the organization, but also with trading partners in
the supply chain. The importance of managing customer relationships, being flexible to respond to changes in
organizational structure as well as customer demand, managing the product life cycle, etc. influenced the
growth of next generation software applications - advanced planning and scheduling(APS). This software
used optimization algorithms to compute the optimal production plan and machine schedules to reduce
operating costs and improve profits. Competition, partner collaboration and increasing demands for customer
responsiveness drove further developments in APS, and these newer software packages, generically known as
Manoj Patel Asst. Professor
JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD
Business Process Optimization (BPO) software is slowly replacing ERP/MRP II/MRP across all industries.
Having optimized so far, companies now are looking for ways to reduce lost sales, match supply and demand
with least inventory, and remain as lean as possible. Companies are also adapting a new concept called
collaborative forecasting, planning and replenishment (CPFR) to achieve the above.
Materials requirement planning (MRP):In a manufacturing operation, answering questions regarding
which materials and components are needed, in what quantities, and when, is extremely vital. Traditionally,
majority of the manufacturing organizations controlled sub-assemblies and components using order-point
methods. In the early 1970s, a software application was developed to provide companies with answers to the
above questions – it was materials requirement planning (MRP). An MRP system uses as inputs the demand
information from the master production schedule (MPS) with a description of what components go into a
finished product (the bill of materials - BOM), the order or production times for components, and the current
inventory status. The system calculates the exact quantity, need date and planned order release date for each
of the sub-assemblies, components and materials required to manufacture products listed on the MPS.
Figure: MRP: inputs & outputs.
This is shown in Figure MRP aids in controlling inventories, and managing work orders, purchase orders, and
sales orders. MRP helps companies adapt easily to changes in customer requirements by revising production
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JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD
and purchase plans when the MPS is changed. It improves customer service by providing ability to the
company of consistently delivering finished products to the customer in a reliable and timely fashion. It helps
maximize resource utilization, and reduce costs by pruning inventory to minimum required levels. Table 2.1
lists some examples of commercial MRP software packages. Implementing and operating an MRP system
was a major challenge for many companies. The program makes assumptions like infinite capacity, certain
economic batch quantities, and fixed lead times. MRP success requires a realistic master production schedule,
methods of controlling as well as planning priority, accurate purchasing lead times, a balanced approach to
processing change (handling unplanned events), and most importantly, accurate data and timely data
processing.
Manufacturing resource planning (MRP II):The manufacturing modules of MRP II include all the
elements of MRP, plus additional developments:
 Feedback – from the shop floor as to how the work has progressed, to all levels of the schedule, so
that the next run can be updated on a regular basis.
 Resource scheduling – it takes into account the plant and equipment required to convert raw
materials into finished goods while scheduling. This means that capacity is taken into account (unlike
MRP). The drawback is that capacity is considered only after the MRP schedule has been prepared;
hence time allotment might be insufficient.
 Batching rules can be incorporated into the scheduling of resources, either Lot for Lot, economic
batch quantity, or part period cover rules.
 Other software modules like ―rough cut capacity planning‖ (RCCP) can be incorporated to help the
scheduling process.
Information from MRP II is useful to many functional areas in the firm as follows:
 Purchasing – purchase orders.
 Production – production scheduling and control, inventory control, capacity planning.
 Finance – financial resources needed for material, labor, overhead, etc.
 Accounting – actual cash flow projections over time, production costs, etc.
Enterprise resource planning (ERP): The development of ERP systems was an inside-out process of
evolution, starting from inventory control packages, to MRP to MRP II, further expanding to include other
enterprise processes such as sales and order management, marketing, purchasing, warehouse management,
financial and managerial accounting, and human resources management. While MRP II includes many of
these functions, it looks inwards at the heart of individual sites whereas ERP looks out to the wider picture at
the entire enterprise level.
ERP systems are developed based on a reference enterprise business model, chosen by the developers of the
ERP system. The developers implicitly promote the notion that the reference model used embodies best
business practices. Different reference models reflect different preferred business practices, including
Manoj Patel Asst. Professor
JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD
underlying data and process models as well as organizational structures. There can be considerable
mismatches between the actual company-specific business practices and the reference models embedded in
the ERP system. While at the abstract level best practices may be ―universal‖, at the detailed process level
these mismatches create considerable implementation and adaptation problems.
Table: SAP R/3 Modules
Advanced Planning and Scheduling (APS): Supply chain management requires responsive, intelligent
decision support tools to determine optimal (or at least feasible) methods of satisfying customer demand and
product supply. APS tools have been developed with the intention of meeting this requirement. These systems
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JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD
aim at optimizing the supply chain objective discussed in the previous paragraph subject to constraints of
resource availability, capacity costs, labor and materials costs, and transportation resources. They help
companies forecast demand with the help of sophisticated modeling and statistical techniques given their
memory-resident and exception based nature, together with their object-oriented design and algorithmic
domain expertise, they are technologically far superior to ERP and give results very fast compared to ERP.
APS tools are designed to help companies create plans and schedules that are based on system constraints.
APS tools generate a high rate of return by shortening the forecast cycles, enhancing visibility of production
plans and schedules, increasing accuracy of order date commitments, taking real-time decisions in the face of
supply / demand fluctuations, and planning in real-time rather than batch processing.
APS fails to yield the above-mentioned improvements if companies do not adopt new procedures and modify
their business processes simultaneously. Although APS tools are ―intelligent‖, they are hampered due to their
focus on manufacturing, distribution and transportation functions in the supply chain. This focus is acceptable
in traditional, slow moving environments. The current fast-paced business environments warrant a broader
scope of planning efforts. Where customization and perfect delivery are the price for getting business,
customer interaction is the main driver behind the entire product delivery process. Software vendors have
moved on from pure APS tools to building a complete set of software for business process optimization.
Business process optimization (BPO): Companies like i2 Technologies, planning and optimization software
vendors have developed software solutions for business process optimization (BPO). BPO is a class of
decision-intelligence software that features multi-enterprise optimization and integration. ERP, legacy and
other transaction systems, are built for recording what already happened. BPO software leverages current
infrastructure, by deriving raw data from ERP systems or any other existing data source. Next, it engages an
integrated set of planning engines to produce an optimal solution based on a complete view of the enterprise
and its trading partners. Last, it feeds the optimal solution data back into the transaction system for execution.
Its major components typically include the following:
 Product life cycle management: this spans the entire product development and product lifecycle
process – from early concept definition, through development and test, launch, to product phase-out.
It provides support for strategic issues and daily operations.
 Supply chain management, this includes:
 Demand fulfillment – to provide fast, accurate, and reliable responses to customer orders. It
is mainly an execution-level process that includes order capturing, customer verification,
order promising, backlog management, and order fulfillment.
 Demand planning – to understand customers‘ buying patterns and develop aggregate,
collaborative forecasts. It is by definition a planning process that feeds into the supply
planning process, and subsequently the demand fulfillment process. It involves long-term,
intermediate-term and short-term time horizons.
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 Supply planning – to optimally allocate enterprise resources to meet demand. This is a
planning-level process that spans the strategic and tactical supplyplanning processes. It
includes long-term planning, inventory planning, distribution planning, collaborative
procurement, transportation planning and supply allocation.
 Customer Relationship Management (CRM):
 Creating demand through identifying and acquiring customers, and developing marketing
content and offers.
 Matching demand with customized product offerings. ß Fulfilling demand by executing the
sales transaction (either directly, or through indirect channels), and providing real-time,
integrated order fulfillment.
 Managing long-term customer relationships, by servicing customer needs and cross-selling
and up-selling opportunities. ·
 Inter-process planning includes:
 Integrated Sales and Operations Planning – ability to review the operation plan with the
revenue objectives for the financial periods – based on the different plans of the different
authority domains – including promotion plans, new product introduction plans, possible
long-term contracts etc.
 Financial Planning – ability to project revenues, earnings and other financial measures for
the next few financial periods based on the plans of the different authority domains with the
organization on a continual basis and changes in the market conditions. It will also be able to
suggest corrective actions to alleviate the deviations from the strategic plan. This will help in
monitoring metrics for different authority domains of the organization to provide them a
quick feedback on their impact on the entire financial plan.
 Strategic Planning: enables companies to plan scenarios, set goals, and monitor the performance.
Here, it is necessary to note that BPO software gets data from traditional legacy systems or ERP
software. Hence, problems of data management associated with ERP and legacy systems apply
directly to BPO software too. These data management issues are discussed later in this chapter. In the
next section, we review the concept of CPFR.
Electronic data interchange (EDI): EDI is a member of a larger family of technologies used for
communicating business messages electronically, including facsimile, electronic mail, telex, and 26 computer
bulletin boards. EDI is commonly defined as application to application transfer of business transactions on a
computer. EDI implementation involves understanding EDI standards, communications link between
partners, and available software. EDI standards developed beginning in 1960, when proprietary standards
were implemented and organizations were created to develop industry and inter-industry standards. Use of
EDI increased dramatically during late 1970s and early 1980s, and ANSI ASC X12 (American National
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Standards Institute, Accredited Standards Committee) was chartered to develop standards to facilitate
electronic interchange of business transactions. EDI implementation involves a communication medium for
electronically transferring data between organizations. There are many popular channels for EDI
communication. At the top of the list are Value Added Networks (VANs), which are similar to electronic
mailboxes, as they provide postbox service between EDI users . VANs have the capability to exchange data
with a wide variety of computers using appropriate communication protocols. VANs are popular with small
sized companies, running low volumes of transactions. Companies running high volumes of transactions
prefer Direct Connections, which are usually telephone lines connected with modems at both ends, dedicated
solely for the purpose of transactions transfers. EDI software is the front-end for interaction with people. The
software package should allow data to be entered and encoded into an EDI standard format, and also decode
incoming EDI data and convert it to in-house data formats. Common use of EDI is in sales, order processing
and purchasing, inventory management, distribution, financial management, etc. Implementation aspects have
more to do with managerial support than technical implementation. Trading partner agreements, vendor
agreements, VAN agreements, role of lawyers and auditors, and security of communication are some of the
issues of concern. Costs associated with EDI include hardware costs (computers, VAN, and appropriate
software) depending on scale of implementation. These costs are quite large (average hub investment of $1
million, plus spokes investment of an average of $45,000 [24]). This is coupled with adjustment time, and
lack of human resources skilled in using EDI. Using EDI requires a company to also educate its trading
partners to use it. Company data structures sometimes do not fit standard EDI form, which forces manual
intervention in the process. Integration of legacy systems poses a big problem before companies using EDI.
Also, EDI standards are inflexible. VANs are costly too. Also, each transaction in EDI is in a separate format,
causing VAN costs to rise higher. Large companies have annual EDI transactions to the order of 100 million,
VANs charge companies on a transactions basis. Hence companies are looking for the cheapest network to
conduct their transactions. Although EDI is still better than paper based transactions, it doesn‘t lend itself to
change. Today‘s business models emphasize on speed of transactions, reducing product lifecycle, having
multiple partners in the supply chain, and a strong collaborative focus. EDI is traditionally a hub and spoke
architecture (with VANs), emphasizing growth with trading partner, slow to change standards, has limited
capabilities, and requires experts to implement it. The internet offers a very cost-efficient replacement for
VANs used for EDI. As a result, companies are gradually moving towards using EDI.
Q.4. Whatdo you mean by Partnering Channel Relationships? Explain its nature and characteristics.
Ans.: Partnering Channel: A channel partner is a company that partners with a manufacturer or producer to
market and sell the manufacturer's products, services, or technologies. This is usually done through a co-
branding relationship. Channel partners may be distributors, vendors, retailers, consultants, systems
integrators (SI), technology deployment consultancies, and value-added resellers (VARs) and other such
organizations.
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In the present era of global competition, market orientation and customer focus can make a vital difference. In
order to achieve this, firms are going all out to increase their product portfolio, focusing on quick response,
prominent display, ready delivery, 24 hour on-the-spot after sales service, creation of awareness, and ability to
influence purchase decision. Offering such a bundle is normally beyond the firm`s capability, and firms are
increasingly relying on their marketing intermediaries. With firms today expecting more from their channel
members in terms of investment, go down /show-room space, skilled sales forces and mobility, conflict-free
partnering channel relationships (PCR) need to be developed and maintained, facilitated by information
technology solutions.
Agarwal, Singh and Agarwal report the findings of a study undertaken to identify the key relationship factors
as perceived by firms and channel members; and to elucidate the scope of various IT solutions for addressing
these factors. A descriptive research, based on a preliminary study, was conducted to collect the views of a
sample of 20 corporate and 50 dealers/stockiest of three sectors (FMCG, durable and automobile industries)
to identify the factors for PCR. On the basis of these discussions, 21 strategic and service related factors were
identified. These factors were ranked in order of importance. While respondents perceived all the factors as
important, `reasonable return on investment and infrastructure` emerged as the most important factor, and
`consistency in total trade related service quality` as the least. These factors were grouped into nine Key
Relationship Factors.
The above analysis formed the basis for exploring the scope of IT application in terms of either replacement
of the manual system by a Web-based system, or improvement of the capability through efficiency
enhancement. The authors show how integrating dealer systems on the Web can help improve marketing
efficiency, ensure more transparent and hyper-responsive transactions through real-time information sharing,
and reduce transaction and communication costs.
Optimizing Channel Partner Relationships:
Channel partners—those companies that help you bring your company‘s products and services to market—are
critical for business success. They can help you open the door to new business opportunities faster, at lower
cost, and with lower risk than a merger or acquisition. At Partnership Continuum, clients are asking us how
they can understand which of their channel partners can best help increase profitability and how they can
assess which channel partners have the most potential for a closer, more strategic relationship. These
questions are worldwide challenges. In India, for example, I recently presented Channel Partner Relationship
seminars in Mumbai and Delhi. Leader‘s at the most prominent and best-known Indian companies attended
the two-day seminar. They wanted to learn techniques for growing channel partner relationships and moving
them from transactional to strategic partners. What‘s the difference? Transactional partners are indirect
partners. They provide a distribution outlet for your products. These are usually transaction- based
relationships that provide little loyalty to you or your products and do not focus on differentiating your
products and brand in the marketplace. As soon as the transaction is no longer attractive to them, they move
Manoj Patel Asst. Professor
JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD
to other suppliers or vendors. Examples of transactional partners include such distribution businesses as retail
stores, service providers, and e-commerce sites. Strategic partners are long-term business alliances where the
companies rely on each other to position their products, services, and brand in the marketplace. Examples of
strategic alliances include code-sharing arrangements between airlines, as well as arrangements between
telephony service providers and handset manufacturers such as Apple and AT&T or Boeing Company and
G.E. Aviation. A third category of channel partner is tactical partners, those that are associated with your
internal business processes. Examples of tactical partners might include mobile phone service providers that
use indirect retail outlets to sell and activate their handsets and service, a manufacturer that produces a
component for a product developed and assembled by others, or a healthcare service that uses a specific
healthcare provider. Outsourcing service providers and managed services providers can be either transactional
or strategic partners, depending on which business processes are outsourced and how the deal is structured.
Typically, companies have fewer tactical partners than transactional or strategic partners. In fact, 85-90
percent of channel partners are transactional partnerships.
Growing a Channel Partner Relationship: Define and Assess the Partner in growing a relationship with
channel partner, it is important to first define the type of partner it is: transactional, tactical, or strategic.
Assess the partner‘s potential capability or capacity and cull out the ones that cannot meet your value and
relational expectations. Growing a channel partner from a transactional to a strategic relationship is a complex
process that has two components:
 Business component (the transaction or task)
 Relational component
For successful outcomes, you must pay attention to both components.
When you spend time up front to qualify the right channel partner, it should not be a problem to accomplish
the activities in the transactional component. It is more difficult to achieve the desired outcomes in the
relational component. The following table displays factors that enable or hinder successful outcomes in both
the transactional and relationship components. Note that basic fairness as well as business and partnering
competencies rise to the top.
Manoj Patel Asst. Professor
JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD
Nature of the channel partner: Technology changes channel economics, capabilities and capacities, also
changing the rules in favor of some and disrupting others. Evaluating changes in the go-to-market channels is
another technique for assessing the silent signs of disruption.
Customers disrupt companies when they choose alternative approaches to meeting their needs. When this
happens the average age of a company‘s customer base tends to lengthen as current customers stay and new
customers materialize at competitors or even in different industries. Diagnosing those signs of disruption was
the focus of a prior post.
Manoj Patel Asst. Professor
JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD
Channels create disruption. Customers choose more than a company, product or service; they choose a
channel and where there is choice there is the opportunity for disruption. Channels are disruptive in multiple
ways including traditional channel strategy and commerce tactics such as:
 Channel partners no longer offering your product or service, or
 The channel placing competing products or services ahead of yours, or
 The channel is no longer effective at attracting customers, or
 Their economics and commercial terms turn negative
The points above address channel strategies and tactics. However, if channels are a source of disruption, then
there should be a way to assess the signs of disruption.
Write short notes of the following:
Q.1. Elaborate the term ―Infomediary‖?
Ans. Infomediary: An infomediary works as a personal agent on behalf of consumers to help them take
control over information gathered about them for use by marketers and advertisers. The concept of the
infomediary was first suggested by former McKinsey consultant John Hagel III and former Harvard Business
School professor Jeffrey Report in their article ―The Coming Battle for Customer Information‖. Infomediary
operate on the assumption that personal information is the property of the individual described, not
necessarily the property of the one who gathers it. The infomediary business model recognizes that there is
value in this personal data and the infomediary seeks to act as a trusted agent, providing the opportunity and
means for clients to monetize and profit from their own information profiles.
One of the first focused implementations of the infomediary concept was an online advertising company
called All Advantage launched in 1999. While that company did not survive, in more recent years there has
been renewed interest in the infomediary concept, with entrepreneurs and investors building companies to
identify and leverage the market value of consumers' information.
Q. 2. What is difference between coverage and conflict?
Channel conflict can be defined as any scenario where two different channels compete for the same sale with
the same brand. Conflict can take the form of a direct sales force competing with an independent distributor,
two different types of competing distributors, two like distributors competing for the same sale, or all of the
above.
A few facts about achieving an appropriate balance between coverage and conflict:
 Lack of any channel conflict in a marketing strategy usually indicates gaps in market coverage
 Conflict cannot be eliminated. The goal of marketing management must be to optimize market
coverage and manage a healthy level of channel conflict so that it does not become destructive
 Market share erosion and declining street prices are evidence that channel conflict is becoming
destructive. Channels are responding to excessive competition by de-emphasizing the brand or by
giving away too much in order to keep an account
Manoj Patel Asst. Professor
JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD
 Every manufacturer will likely face destructive channel conflict at some point. As markets evolve and
mature, many manufacturers will be required to add new, lower-cost channels in order to cover all
major market segments. Often, destructive conflict arises because changes in the manufacturers go to
market strategy lags the market changes associated with market evolution.
Q.3. Define Intermediaries Empowerment.
Ans.: Consumer-empowering intermediaries have become a mainstream phenomenon in recent years, driven
by new technology and a consumer thirst for impartial advice. These intermediaries help consumers by
balancing asymmetries of information and power and reducing the pain of engaging with suppliers. In doing
so, they introduce a new dynamic into markets. They turn ‗consumer empowerment‘ into a business model.
The Rise of the Consumer Empowering Intermediary is a special report on how intermediaries are a catalyst
of market change for Consumer Futures. The report analyses developments in the market for intermediary
information services that help individuals make better decisions and deal more effectively with suppliers.
This report seeks to:
 Deepen our understanding of the different types of intermediary services that are emerging
 Identify the vectors driving the evolution of the market
 Identify actual and potential impacts on the workings of regulated industry markets, thereby highlighting
issues regulators and other bodies working in the consumer interest may need to address and questions they
may want to explore further.

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NOTES RETAIL AND DISTRIBUTION MANAGEMENT

  • 1. Manoj Patel Asst. Professor JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD Q.1. what do you mean by Disintermediation? Compare the concept with Reintermediation. Ans. Disintermediation: Disintermediation or ‗cutting out the middle man‘ as it is also known is, at first glance, an attractive concept for manufacturers with its cost-saving incentives. Competitive advantage can potentially be achieved by cutting the payments made to intermediaries, not to mention the valuable information that can be collected through direct contact with customers. However, after a more detailed study of the critical issues involved such as market conditions, core competencies and the value added to products by intermediaries, it is clear that some significant barriers to the success of disintermediation exist in many industries. This report concludes that complete disintermediation is not something that can be expected in the near future. Rather, since e-business is changing the ways in which consumers search for and buy products and often intermediaries are in the best position to provide the desired services, it is possible that the introduction of more intermediaries (reintermediation) would be more beneficial to manufacturers at this time, freeing them to concentrate on their core competencies. However, firms will have to carefully evaluate the suitability of their particular industry for either business model. Disintermediation initiated by consumers is often the result of high market transparency, in that buyers are aware of supply prices direct from the manufacturer. Buyers bypass the middlemen (wholesalers and retailers) to buy directly from the manufacturer, and pay less. Buyers can alternatively elect to purchase from wholesalers. Often, a business-to-consumer electronic commerce (B2C) company functions as the bridge between buyer and manufacturer. To illustrate, a typical B2C supply chain is composed of four or five entities (in order):  Supplier  Manufacturer  Wholesaler  Retailer  Buyer It has been argued that the Internet modifies the supply chain due to market transparency:  Supplier  Manufacturer  Buyer SYLLABUS UNIT II- IT enabled Distribution Systems & Channel Relationships: IT enabled Distribution Systems; Disintermediation vs Reintermediation; Cybermediary (e-commerce), Partial disintermediation, Infomediary; Intermediary empowerment; Framework for adoption of IT enabled distribution systems; Nature and characteristics of Partnering Channel Relationships; Stages, Reasons and Factors of developing Partnering Channel Relationships; Channel Conflicts and Resolution Strategies; Partnering Channel Relationships and IT
  • 2. Manoj Patel Asst. Professor JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD Reintermediation: E-business has created many opportunities for new intermediaries, as well as enabling existing intermediaries to become better-managed and more efficient (Rosenbloom, 2007). Services such as supplier search, product evaluation (Chaffey, 2009) and price comparison websites are proving very attractive to customers therefore firms whose products are not included on these sites or on the sites of leading online retailers such as Amazon are at a disadvantage. Amazon (originally an online book retailer) has used e-business to quickly develop a customer base which far exceeds that of any book publisher. This is because consumers were (and still are) drawn by the value-adding services provided by Amazon. Nowadays, Amazon sells a huge variety of products and any manufacturer who opts not to sell its products through intermediaries such as Amazon will considerably limit their sales opportunities. Using such intermediaries enables manufacturers to reach a much wider audience with their products and offer customers a ‗value-added‘ experience. Manufacturers can also take advantage of the marketing opportunities created by e-business. For example, they can set up ‗affiliate marketing‘ programs online which enable their products to be promoted and sold by almost anyone for a commission. This way product can be widely marketed, only costing the manufacturer when a sale is made. This model of inviting an unlimited number of intermediaries to sell a product is attractive because it means that money is not wasted on marketing that does not bring sales. If the use of intermediaries is the most cost-effective and efficient way to take advantage of all that e-business has to offer, it could be argued that now is the time to introduce more intermediaries than ever before. Any intermediary that adds more value to a product than it charges for the service is worth considering and so too are those intermediaries that will enable a product to be more widely marketed or efficiently distributed than it is currently being. Rosenbloom (2007), Agrawal (2006), Gigalis (et al, 2002) and King (1999) all suggest that Reintermediation has just as much, if not more potential to create competitive advantage which may explain Palvia (et al)‘s (1999) findings that it is the more popular model in reality. Q.2. Illustrate channel conflict with suitable example and methods how to resolve the channel conflicts? Ans. Channel Conflict in Brief: Multichannel systems are a way of life for manufacturers today. Whether you are managing a mix of direct and indirect channels or a spectrum of high-support to low-support resellers, the reality is that channel conflict will be an ongoing issue in your marketplace. As the number of internet sites (potentially including your own) that offer your product for sale proliferates, this multi-channel structure becomes more complex and the channel conflict potential more pervasive. A limited amount of channel conflict is healthy. It indicates that you have adequate market coverage. However, once the balance between coverage and conflict is lost, destructive channel conflict can quickly undermine your channel strategy, market position and product line profitability. Conflict can show up in the market in a variety of ways. A point of confusion for many manufacturers is whether problems are truly symptoms of destructive channel conflict or other marketing or channel strategy
  • 3. Manoj Patel Asst. Professor JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD issues. When faced with potential indicators of destructive conflict, you should audit your market position to identify the true cause and then quickly act to address it. Channel conflict is managed by a combination of economics and controls. Economic solutions compensate channels fairly for functions performed and help direct channels away from actions that create destructive conflict. Controls put structure around a channel strategy to limit the potential for undue destructive conflict. Channel Conflict Solutions: Channel conflict is an integral part of your channel strategy, so you must examine your market position and channel strategy before attempting to manage it. Taking a closer look at the problem often reveals that the perceived channel conflict issue masks a larger channel strategy issue. So prior to executing solutions to address channel conflict, the manufacturer is encouraged to examine all elements of its overall channel strategy, including pricing, end user segmentation, channel support programs, company policies, etc. Have you created a conflict situation through the design or implementation of these other components of channel strategy? Destructive channel conflict is managed through economics and structural controls. Economics motivate the channels to avoid conflict. Structural controls lay the ground rules within which conflict is managed. With each tactic, communication before conflict arises is critical. The right economic solution is dictated by the type of conflict being faced, the manufacturer's market and channel position, and the company's strategic goals. Economic approaches include;  Dual compensation—applied when conflict exists between direct and indirect channels. The goal is to move the indirect channel from a position of potential adversary for the direct sales force to one of "partner" for the direct sales force  Activity based compensation or discount—used to manage cross-channel conflict or conflict between channels of differing cost structures and capabilities. Activity based discounts are applied by paying a channel a specific discount if it performs a measurable task or function. These discounts allow the "high-cost" channel to compete against "low-cost" channels for those customers who value the high support  Shared costs—the key difference between this concept and functional discounts is that functional discounts compensate the channel for incremental tasks via a discount on product sold, while shared costs pay directly for the task  Compensation for market share—usually applied to direct versus indirect conflict, the direct sales rep is compensated based on total market share in a territory. The goals of the sales rep are based on direct and indirect volume, thus motivating the direct rep to "partner" with indirect channels to maximize territory volume Structural controls are only as effective as their enforcement. There is no value unless you are willing to clearly spell out the controls at the outset of the channel agreement and enforce the stated penalties to all channel members. The structural controls are typically applied to:
  • 4. Manoj Patel Asst. Professor JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD  Accounts—you specify "named" or "house" accounts where indirect channels can expect to compete with your direct channels. Named accounts are usually specified based on end-user sourcing capabilities, channel ability to meet end-user buying requirements, and volume and strategic value  Products—channels can qualify for franchising by product line/category across your company's offering. Product qualification is usually based on end-user product support needs, channel support capabilities, "fit" or positioning of the product category in the channel's overall business, and strategic considerations  Geography—as a manufacturer, you can specify those geographies/account types in which you will provide sales support to the channel. These geographies are usually defined by granting the channel a primary area of responsibility The successful marketer combines the elements of economic and control-related solutions that best address conflict challenges —framing them in an understanding of market position, channel position, and strategic goals. Recognizing Destructive Channel Conflict Channel "noise" regarding conflict always exists. (In fact, a lack of channel noise is often an early indicator of coverage gaps in the manufacturer's channel strategy.) However, it does not mean that your company is experiencing destructive channel conflict just because different internal factions or channel members are complaining about lack of manufacturer commitment or are uncomfortable with competition for some sales. Increasing levels of noise or evidence of declining channel support for your product line would be indicators to pay attention to. It is a tough call, however, since destructive conflict tends to creep into a channel system over time. External Indicators of Destructive Channel Conflict  Border Wars: These occur when multiple members of the channel network compete for the same sale in the same account. A limited number of border wars should be expected and are, in fact, one indication that you have good market coverage. A soft market creates the environment for increased border wars as channels get more aggressive to deliver revenue. Generally, channels will begin to react to channel conflict when incidence of border wars exceeds 10% to 20% of that channel's total business with a manufacturer's products.  Emotion: A necessary component of good channel management strategy is controlling the degree of emotion from the channel. However, as emotion builds, the channels will begin to react by reducing support of the product line or by switching out that line wherever possible. Emotion will often cause the channel to de-emphasize a brand even when it is not in the best interest of the channel. We have found that channels often have this discretion to control brand choice in as much as 40% of sales— they typically don't choose to exercise this discretion.
  • 5. Manoj Patel Asst. Professor JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD  Customer Satisfaction: Conflict can erode customer satisfaction for two reasons:  Customers will start to experience redundant buying costs when forced to deal with multiple channels offering essentially the same solutions in sales situations  Competing channels focus on easy ways to win the sale in a conflict situation (such as dropping price) and begin to ignore less evident customer buying requirements Is Channel Conflict a Strategic Issue in Your Business Today? Take a moment to consider the following questions: 1. Have you recently seen your market move through a "transition" point (e.g., from introduction to growth, from growth to maturity)? 2. Have you made any recent changes to your channel strategy (e.g., adding channel members, adding new types of channels)? 3. Have requests from the direct sales force or channels for special prices increased significantly? 4. Have gross margins eroded significantly in any customer or channel segments? 5. Have you seen a decrease in dollar revenue per direct sales rep and/or dollar revenue per channel location? 6. Have you experienced significant loss of market share or declines in customer satisfaction in any customer segments? 7. Have you experienced a decrease in your number of channels as a result of channels dropping your line? Q.3. Comments on ―Information Visibility and Its Effect on Supply Chain Dynamics‖ Today, companies use a variety of software applications for obtaining appropriate product information, and for planning and optimizing performance of their supply chains. These applications include Materials Requirement Planning (MRP), Manufacturing Resources Planning (MRPII), and Enterprise Resource Planning (ERP) for their day-today planning activities. Some companies have taken initiative to implement Advanced Planning and Scheduling (APS) packages for simultaneous scheduling and planning with their supplier/s. Most of these applications are focused internally within an enterprise. They depend on data gathered at regular intervals from purchasing, manufacturing, distribution, and sales operations. Current techniques for gathering data include manual data entry by operators at various locations into logbooks or data-entry terminals, usage of barcodes, and tags. Transfer of information across units is usually affected by mail, phone, fax, email, or electronic data interchange (EDI). Data gathered by these techniques is typically not in real time – it is updated on a daily, weekly or monthly basis. Also, there is significant percentage of errors in manual data entry. Barcode scanning requires operators and introduces constraints regarding orientation of the product and cleanliness of labels for fast, efficient data collection. Using EDI is expensive, and moreover, not all suppliers and buyers have the infrastructure setup to use it. As a result, information access is usually restricted to localized zones. Communication between units is
  • 6. Manoj Patel Asst. Professor JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD normally pipelined sequentially and revising and reorganizing of plans takes a considerable amount of time. Differing data formats across trading partners introduce incompatibility – and a need to convert data from one format to another. Fig: Dynamic Communication and Trading. The advent of the internet has led to the emergence of new business models and increased competitive pressures, forcing companies to operate more efficiently than ever before. To be profitable and to thrive, companies are collaborating closely with all partners in the supply chain – from the supplier‘s supplier to the customer‘s customer. These trading partners need to share forecasts, manage inventories, schedule labor, optimize deliveries, and thus improve overall productivity. Software for Business Process Optimization (BPO), and Collaborative Planning, Forecasting and Replenishment (CPFR), are correspondingly evolving to help companies collaboratively forecast and plan amongst partners, manage customer relations, and improve product life cycles and maintenance. Traditional supply chains are rapidly evolving into ―dynamic trading networks‖ comprised of groups of independent business units sharing ‗planning and execution information‘ to satisfy demand with an immediate, coordinated response. Most of the software packages mentioned above fall in the realm of ‗Logistics, Scheduling and Planning‘ shown in Figure The second layer, i.e., deal-making amongst trading partners, is dependent to a huge extent on company strategies and proper alignment of business motives. Moreover, both these layers rely on the communications management layer for their data acquisition and storage needs. Thus, to facilitate interaction between these partners in a supply chain or
  • 7. Manoj Patel Asst. Professor JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD independent business units in a dynamic trading network, it is essential to establish a strong communications link that is capable of gathering information in real-time and making it available to everyone concerned instantaneously, preferably in a standardized format. Information gathered is useful not only for collaboration amongst units but also for planning and scheduling within a unit – based on data inputs from the same unit as well as other units. For example, to decide the production schedule in an assembly plant, a car manufacturer needs information about inventories at the distribution centers and retailers, a unified forecast of demand for the cars, capability of suppliers to provide required parts for assembly, as well as current capabilities of the assembly plant under consideration, in terms of inventory levels, labor, scheduled shutdowns, etc. In this thesis, we provide a framework for achieving complete information visibility in supply chains or trading networks using the internet, and technology being developed at MIT‘s Auto-ID Center electronically coded tags, automatic identification systems, and standardized formats for data representation. Analysis of current SCM practices: The past three decades have seen tremendous developments in software for production and operations management. This has been a direct result of developments in computers and information technology, and also of the way companies ran their businesses. There has been a distinct trend of increased collaboration within organizations and amongst trading partners over the years. The traditional way of doing business with clear-cut lines of demarcation between roles and responsibilities of individual units is fast giving way to shared roles and responsibilities amongst trading partners. The growth of software applications over the years reflects these trends. The foremost software application developed during the early 1970s to help warehouses to plan inventory and shop floors to plan production was materials requirement planning (MRP). The widespread popularity of MRP in manufacturing departments prompted the development of manufacturing resource planning (MRP II) in the 1970s. MRP II built upon MRP, by tying it to the company‘s financial system. By late1980s, companies found an increasing need to integrate together information from all different units within the organization in order to be able to take better decisions for improving productivity and increasing profits. This led to the development of enterprise resource planning (ERP) applications. ERP built upon MRP II, by adding functionality to include many more departments within the organization. Implementation of ERP involved extensive use of developments in information technology. With competition increasing with time, to remain in business, companies soon found it necessary to optimize the entire product ―supply chain‖. This called for collaboration not only within the organization, but also with trading partners in the supply chain. The importance of managing customer relationships, being flexible to respond to changes in organizational structure as well as customer demand, managing the product life cycle, etc. influenced the growth of next generation software applications - advanced planning and scheduling(APS). This software used optimization algorithms to compute the optimal production plan and machine schedules to reduce operating costs and improve profits. Competition, partner collaboration and increasing demands for customer responsiveness drove further developments in APS, and these newer software packages, generically known as
  • 8. Manoj Patel Asst. Professor JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD Business Process Optimization (BPO) software is slowly replacing ERP/MRP II/MRP across all industries. Having optimized so far, companies now are looking for ways to reduce lost sales, match supply and demand with least inventory, and remain as lean as possible. Companies are also adapting a new concept called collaborative forecasting, planning and replenishment (CPFR) to achieve the above. Materials requirement planning (MRP):In a manufacturing operation, answering questions regarding which materials and components are needed, in what quantities, and when, is extremely vital. Traditionally, majority of the manufacturing organizations controlled sub-assemblies and components using order-point methods. In the early 1970s, a software application was developed to provide companies with answers to the above questions – it was materials requirement planning (MRP). An MRP system uses as inputs the demand information from the master production schedule (MPS) with a description of what components go into a finished product (the bill of materials - BOM), the order or production times for components, and the current inventory status. The system calculates the exact quantity, need date and planned order release date for each of the sub-assemblies, components and materials required to manufacture products listed on the MPS. Figure: MRP: inputs & outputs. This is shown in Figure MRP aids in controlling inventories, and managing work orders, purchase orders, and sales orders. MRP helps companies adapt easily to changes in customer requirements by revising production
  • 9. Manoj Patel Asst. Professor JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD and purchase plans when the MPS is changed. It improves customer service by providing ability to the company of consistently delivering finished products to the customer in a reliable and timely fashion. It helps maximize resource utilization, and reduce costs by pruning inventory to minimum required levels. Table 2.1 lists some examples of commercial MRP software packages. Implementing and operating an MRP system was a major challenge for many companies. The program makes assumptions like infinite capacity, certain economic batch quantities, and fixed lead times. MRP success requires a realistic master production schedule, methods of controlling as well as planning priority, accurate purchasing lead times, a balanced approach to processing change (handling unplanned events), and most importantly, accurate data and timely data processing. Manufacturing resource planning (MRP II):The manufacturing modules of MRP II include all the elements of MRP, plus additional developments:  Feedback – from the shop floor as to how the work has progressed, to all levels of the schedule, so that the next run can be updated on a regular basis.  Resource scheduling – it takes into account the plant and equipment required to convert raw materials into finished goods while scheduling. This means that capacity is taken into account (unlike MRP). The drawback is that capacity is considered only after the MRP schedule has been prepared; hence time allotment might be insufficient.  Batching rules can be incorporated into the scheduling of resources, either Lot for Lot, economic batch quantity, or part period cover rules.  Other software modules like ―rough cut capacity planning‖ (RCCP) can be incorporated to help the scheduling process. Information from MRP II is useful to many functional areas in the firm as follows:  Purchasing – purchase orders.  Production – production scheduling and control, inventory control, capacity planning.  Finance – financial resources needed for material, labor, overhead, etc.  Accounting – actual cash flow projections over time, production costs, etc. Enterprise resource planning (ERP): The development of ERP systems was an inside-out process of evolution, starting from inventory control packages, to MRP to MRP II, further expanding to include other enterprise processes such as sales and order management, marketing, purchasing, warehouse management, financial and managerial accounting, and human resources management. While MRP II includes many of these functions, it looks inwards at the heart of individual sites whereas ERP looks out to the wider picture at the entire enterprise level. ERP systems are developed based on a reference enterprise business model, chosen by the developers of the ERP system. The developers implicitly promote the notion that the reference model used embodies best business practices. Different reference models reflect different preferred business practices, including
  • 10. Manoj Patel Asst. Professor JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD underlying data and process models as well as organizational structures. There can be considerable mismatches between the actual company-specific business practices and the reference models embedded in the ERP system. While at the abstract level best practices may be ―universal‖, at the detailed process level these mismatches create considerable implementation and adaptation problems. Table: SAP R/3 Modules Advanced Planning and Scheduling (APS): Supply chain management requires responsive, intelligent decision support tools to determine optimal (or at least feasible) methods of satisfying customer demand and product supply. APS tools have been developed with the intention of meeting this requirement. These systems
  • 11. Manoj Patel Asst. Professor JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD aim at optimizing the supply chain objective discussed in the previous paragraph subject to constraints of resource availability, capacity costs, labor and materials costs, and transportation resources. They help companies forecast demand with the help of sophisticated modeling and statistical techniques given their memory-resident and exception based nature, together with their object-oriented design and algorithmic domain expertise, they are technologically far superior to ERP and give results very fast compared to ERP. APS tools are designed to help companies create plans and schedules that are based on system constraints. APS tools generate a high rate of return by shortening the forecast cycles, enhancing visibility of production plans and schedules, increasing accuracy of order date commitments, taking real-time decisions in the face of supply / demand fluctuations, and planning in real-time rather than batch processing. APS fails to yield the above-mentioned improvements if companies do not adopt new procedures and modify their business processes simultaneously. Although APS tools are ―intelligent‖, they are hampered due to their focus on manufacturing, distribution and transportation functions in the supply chain. This focus is acceptable in traditional, slow moving environments. The current fast-paced business environments warrant a broader scope of planning efforts. Where customization and perfect delivery are the price for getting business, customer interaction is the main driver behind the entire product delivery process. Software vendors have moved on from pure APS tools to building a complete set of software for business process optimization. Business process optimization (BPO): Companies like i2 Technologies, planning and optimization software vendors have developed software solutions for business process optimization (BPO). BPO is a class of decision-intelligence software that features multi-enterprise optimization and integration. ERP, legacy and other transaction systems, are built for recording what already happened. BPO software leverages current infrastructure, by deriving raw data from ERP systems or any other existing data source. Next, it engages an integrated set of planning engines to produce an optimal solution based on a complete view of the enterprise and its trading partners. Last, it feeds the optimal solution data back into the transaction system for execution. Its major components typically include the following:  Product life cycle management: this spans the entire product development and product lifecycle process – from early concept definition, through development and test, launch, to product phase-out. It provides support for strategic issues and daily operations.  Supply chain management, this includes:  Demand fulfillment – to provide fast, accurate, and reliable responses to customer orders. It is mainly an execution-level process that includes order capturing, customer verification, order promising, backlog management, and order fulfillment.  Demand planning – to understand customers‘ buying patterns and develop aggregate, collaborative forecasts. It is by definition a planning process that feeds into the supply planning process, and subsequently the demand fulfillment process. It involves long-term, intermediate-term and short-term time horizons.
  • 12. Manoj Patel Asst. Professor JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD  Supply planning – to optimally allocate enterprise resources to meet demand. This is a planning-level process that spans the strategic and tactical supplyplanning processes. It includes long-term planning, inventory planning, distribution planning, collaborative procurement, transportation planning and supply allocation.  Customer Relationship Management (CRM):  Creating demand through identifying and acquiring customers, and developing marketing content and offers.  Matching demand with customized product offerings. ß Fulfilling demand by executing the sales transaction (either directly, or through indirect channels), and providing real-time, integrated order fulfillment.  Managing long-term customer relationships, by servicing customer needs and cross-selling and up-selling opportunities. ·  Inter-process planning includes:  Integrated Sales and Operations Planning – ability to review the operation plan with the revenue objectives for the financial periods – based on the different plans of the different authority domains – including promotion plans, new product introduction plans, possible long-term contracts etc.  Financial Planning – ability to project revenues, earnings and other financial measures for the next few financial periods based on the plans of the different authority domains with the organization on a continual basis and changes in the market conditions. It will also be able to suggest corrective actions to alleviate the deviations from the strategic plan. This will help in monitoring metrics for different authority domains of the organization to provide them a quick feedback on their impact on the entire financial plan.  Strategic Planning: enables companies to plan scenarios, set goals, and monitor the performance. Here, it is necessary to note that BPO software gets data from traditional legacy systems or ERP software. Hence, problems of data management associated with ERP and legacy systems apply directly to BPO software too. These data management issues are discussed later in this chapter. In the next section, we review the concept of CPFR. Electronic data interchange (EDI): EDI is a member of a larger family of technologies used for communicating business messages electronically, including facsimile, electronic mail, telex, and 26 computer bulletin boards. EDI is commonly defined as application to application transfer of business transactions on a computer. EDI implementation involves understanding EDI standards, communications link between partners, and available software. EDI standards developed beginning in 1960, when proprietary standards were implemented and organizations were created to develop industry and inter-industry standards. Use of EDI increased dramatically during late 1970s and early 1980s, and ANSI ASC X12 (American National
  • 13. Manoj Patel Asst. Professor JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD Standards Institute, Accredited Standards Committee) was chartered to develop standards to facilitate electronic interchange of business transactions. EDI implementation involves a communication medium for electronically transferring data between organizations. There are many popular channels for EDI communication. At the top of the list are Value Added Networks (VANs), which are similar to electronic mailboxes, as they provide postbox service between EDI users . VANs have the capability to exchange data with a wide variety of computers using appropriate communication protocols. VANs are popular with small sized companies, running low volumes of transactions. Companies running high volumes of transactions prefer Direct Connections, which are usually telephone lines connected with modems at both ends, dedicated solely for the purpose of transactions transfers. EDI software is the front-end for interaction with people. The software package should allow data to be entered and encoded into an EDI standard format, and also decode incoming EDI data and convert it to in-house data formats. Common use of EDI is in sales, order processing and purchasing, inventory management, distribution, financial management, etc. Implementation aspects have more to do with managerial support than technical implementation. Trading partner agreements, vendor agreements, VAN agreements, role of lawyers and auditors, and security of communication are some of the issues of concern. Costs associated with EDI include hardware costs (computers, VAN, and appropriate software) depending on scale of implementation. These costs are quite large (average hub investment of $1 million, plus spokes investment of an average of $45,000 [24]). This is coupled with adjustment time, and lack of human resources skilled in using EDI. Using EDI requires a company to also educate its trading partners to use it. Company data structures sometimes do not fit standard EDI form, which forces manual intervention in the process. Integration of legacy systems poses a big problem before companies using EDI. Also, EDI standards are inflexible. VANs are costly too. Also, each transaction in EDI is in a separate format, causing VAN costs to rise higher. Large companies have annual EDI transactions to the order of 100 million, VANs charge companies on a transactions basis. Hence companies are looking for the cheapest network to conduct their transactions. Although EDI is still better than paper based transactions, it doesn‘t lend itself to change. Today‘s business models emphasize on speed of transactions, reducing product lifecycle, having multiple partners in the supply chain, and a strong collaborative focus. EDI is traditionally a hub and spoke architecture (with VANs), emphasizing growth with trading partner, slow to change standards, has limited capabilities, and requires experts to implement it. The internet offers a very cost-efficient replacement for VANs used for EDI. As a result, companies are gradually moving towards using EDI. Q.4. Whatdo you mean by Partnering Channel Relationships? Explain its nature and characteristics. Ans.: Partnering Channel: A channel partner is a company that partners with a manufacturer or producer to market and sell the manufacturer's products, services, or technologies. This is usually done through a co- branding relationship. Channel partners may be distributors, vendors, retailers, consultants, systems integrators (SI), technology deployment consultancies, and value-added resellers (VARs) and other such organizations.
  • 14. Manoj Patel Asst. Professor JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD In the present era of global competition, market orientation and customer focus can make a vital difference. In order to achieve this, firms are going all out to increase their product portfolio, focusing on quick response, prominent display, ready delivery, 24 hour on-the-spot after sales service, creation of awareness, and ability to influence purchase decision. Offering such a bundle is normally beyond the firm`s capability, and firms are increasingly relying on their marketing intermediaries. With firms today expecting more from their channel members in terms of investment, go down /show-room space, skilled sales forces and mobility, conflict-free partnering channel relationships (PCR) need to be developed and maintained, facilitated by information technology solutions. Agarwal, Singh and Agarwal report the findings of a study undertaken to identify the key relationship factors as perceived by firms and channel members; and to elucidate the scope of various IT solutions for addressing these factors. A descriptive research, based on a preliminary study, was conducted to collect the views of a sample of 20 corporate and 50 dealers/stockiest of three sectors (FMCG, durable and automobile industries) to identify the factors for PCR. On the basis of these discussions, 21 strategic and service related factors were identified. These factors were ranked in order of importance. While respondents perceived all the factors as important, `reasonable return on investment and infrastructure` emerged as the most important factor, and `consistency in total trade related service quality` as the least. These factors were grouped into nine Key Relationship Factors. The above analysis formed the basis for exploring the scope of IT application in terms of either replacement of the manual system by a Web-based system, or improvement of the capability through efficiency enhancement. The authors show how integrating dealer systems on the Web can help improve marketing efficiency, ensure more transparent and hyper-responsive transactions through real-time information sharing, and reduce transaction and communication costs. Optimizing Channel Partner Relationships: Channel partners—those companies that help you bring your company‘s products and services to market—are critical for business success. They can help you open the door to new business opportunities faster, at lower cost, and with lower risk than a merger or acquisition. At Partnership Continuum, clients are asking us how they can understand which of their channel partners can best help increase profitability and how they can assess which channel partners have the most potential for a closer, more strategic relationship. These questions are worldwide challenges. In India, for example, I recently presented Channel Partner Relationship seminars in Mumbai and Delhi. Leader‘s at the most prominent and best-known Indian companies attended the two-day seminar. They wanted to learn techniques for growing channel partner relationships and moving them from transactional to strategic partners. What‘s the difference? Transactional partners are indirect partners. They provide a distribution outlet for your products. These are usually transaction- based relationships that provide little loyalty to you or your products and do not focus on differentiating your products and brand in the marketplace. As soon as the transaction is no longer attractive to them, they move
  • 15. Manoj Patel Asst. Professor JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD to other suppliers or vendors. Examples of transactional partners include such distribution businesses as retail stores, service providers, and e-commerce sites. Strategic partners are long-term business alliances where the companies rely on each other to position their products, services, and brand in the marketplace. Examples of strategic alliances include code-sharing arrangements between airlines, as well as arrangements between telephony service providers and handset manufacturers such as Apple and AT&T or Boeing Company and G.E. Aviation. A third category of channel partner is tactical partners, those that are associated with your internal business processes. Examples of tactical partners might include mobile phone service providers that use indirect retail outlets to sell and activate their handsets and service, a manufacturer that produces a component for a product developed and assembled by others, or a healthcare service that uses a specific healthcare provider. Outsourcing service providers and managed services providers can be either transactional or strategic partners, depending on which business processes are outsourced and how the deal is structured. Typically, companies have fewer tactical partners than transactional or strategic partners. In fact, 85-90 percent of channel partners are transactional partnerships. Growing a Channel Partner Relationship: Define and Assess the Partner in growing a relationship with channel partner, it is important to first define the type of partner it is: transactional, tactical, or strategic. Assess the partner‘s potential capability or capacity and cull out the ones that cannot meet your value and relational expectations. Growing a channel partner from a transactional to a strategic relationship is a complex process that has two components:  Business component (the transaction or task)  Relational component For successful outcomes, you must pay attention to both components. When you spend time up front to qualify the right channel partner, it should not be a problem to accomplish the activities in the transactional component. It is more difficult to achieve the desired outcomes in the relational component. The following table displays factors that enable or hinder successful outcomes in both the transactional and relationship components. Note that basic fairness as well as business and partnering competencies rise to the top.
  • 16. Manoj Patel Asst. Professor JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD Nature of the channel partner: Technology changes channel economics, capabilities and capacities, also changing the rules in favor of some and disrupting others. Evaluating changes in the go-to-market channels is another technique for assessing the silent signs of disruption. Customers disrupt companies when they choose alternative approaches to meeting their needs. When this happens the average age of a company‘s customer base tends to lengthen as current customers stay and new customers materialize at competitors or even in different industries. Diagnosing those signs of disruption was the focus of a prior post.
  • 17. Manoj Patel Asst. Professor JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD Channels create disruption. Customers choose more than a company, product or service; they choose a channel and where there is choice there is the opportunity for disruption. Channels are disruptive in multiple ways including traditional channel strategy and commerce tactics such as:  Channel partners no longer offering your product or service, or  The channel placing competing products or services ahead of yours, or  The channel is no longer effective at attracting customers, or  Their economics and commercial terms turn negative The points above address channel strategies and tactics. However, if channels are a source of disruption, then there should be a way to assess the signs of disruption. Write short notes of the following: Q.1. Elaborate the term ―Infomediary‖? Ans. Infomediary: An infomediary works as a personal agent on behalf of consumers to help them take control over information gathered about them for use by marketers and advertisers. The concept of the infomediary was first suggested by former McKinsey consultant John Hagel III and former Harvard Business School professor Jeffrey Report in their article ―The Coming Battle for Customer Information‖. Infomediary operate on the assumption that personal information is the property of the individual described, not necessarily the property of the one who gathers it. The infomediary business model recognizes that there is value in this personal data and the infomediary seeks to act as a trusted agent, providing the opportunity and means for clients to monetize and profit from their own information profiles. One of the first focused implementations of the infomediary concept was an online advertising company called All Advantage launched in 1999. While that company did not survive, in more recent years there has been renewed interest in the infomediary concept, with entrepreneurs and investors building companies to identify and leverage the market value of consumers' information. Q. 2. What is difference between coverage and conflict? Channel conflict can be defined as any scenario where two different channels compete for the same sale with the same brand. Conflict can take the form of a direct sales force competing with an independent distributor, two different types of competing distributors, two like distributors competing for the same sale, or all of the above. A few facts about achieving an appropriate balance between coverage and conflict:  Lack of any channel conflict in a marketing strategy usually indicates gaps in market coverage  Conflict cannot be eliminated. The goal of marketing management must be to optimize market coverage and manage a healthy level of channel conflict so that it does not become destructive  Market share erosion and declining street prices are evidence that channel conflict is becoming destructive. Channels are responding to excessive competition by de-emphasizing the brand or by giving away too much in order to keep an account
  • 18. Manoj Patel Asst. Professor JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD  Every manufacturer will likely face destructive channel conflict at some point. As markets evolve and mature, many manufacturers will be required to add new, lower-cost channels in order to cover all major market segments. Often, destructive conflict arises because changes in the manufacturers go to market strategy lags the market changes associated with market evolution. Q.3. Define Intermediaries Empowerment. Ans.: Consumer-empowering intermediaries have become a mainstream phenomenon in recent years, driven by new technology and a consumer thirst for impartial advice. These intermediaries help consumers by balancing asymmetries of information and power and reducing the pain of engaging with suppliers. In doing so, they introduce a new dynamic into markets. They turn ‗consumer empowerment‘ into a business model. The Rise of the Consumer Empowering Intermediary is a special report on how intermediaries are a catalyst of market change for Consumer Futures. The report analyses developments in the market for intermediary information services that help individuals make better decisions and deal more effectively with suppliers. This report seeks to:  Deepen our understanding of the different types of intermediary services that are emerging  Identify the vectors driving the evolution of the market  Identify actual and potential impacts on the workings of regulated industry markets, thereby highlighting issues regulators and other bodies working in the consumer interest may need to address and questions they may want to explore further.