Chapter 12: Marketing Channels and Supply Chain Management Objectives:

Explain what a marketing channel is and why intermediaries are needed.

Define the types of channel intermediaries and describe their functions and activities.
Describe the channel structures for consumer and business-to-business products and discuss alternative channel arrangements. Define supply chain management and discuss its benefits. Discuss the issues that influence channel strategy. Explain channel leadership, conflict, and partnering. Describe the logistical components of the supply chain.

Discuss new technology and emerging trends in supply chain management.

Discuss channels and distribution decisions in global markets. Identify the special problems and opportunities associated with distribution in service organizations.
Chap. 12 Marketing 7e Lamb Hair McDaniel 2004 South-Western/Thomson Learning

Marketing Channels
A set of interdependent organizations that ease the transfer of ownership as products move from producer to business user or consumer.

Marketing Channel

Supply Chain

The connected chain of all the business entities, both internal and external to the company, that perform or support the logistics function.

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Marketing Channel Functions

Specialization and Division of Labor

Channels Fulfill Three Important Functions

Overcoming Discrepancies

Providing Contact Efficiency

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Specialization and Division of Labor

Provides efficiency and cost savings
Attains economies of scale Aids producers who lack resources to market directly Builds good relationships with customers

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Overcoming Discrepancies
The difference between the amount of product produced and the amount an end user wants to buy. The lack of all the items a customer needs to receive full satisfaction from a product or products.

Discrepancy of Quantity

Discrepancy of Assortment

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Overcoming Discrepancies

Temporal Discrepancy Spatial Discrepancy

A situation that occurs when a product is produced but a customer is not ready to buy it.

The difference between the location of a producer and the location of widely scattered markets.

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Contact Efficiency

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2 Channel Intermediaries
A channel intermediary that sells mainly to customers.
An institution that buys goods from manufacturers, takes title to goods, stores them, and resells and ships them. Wholesaling intermediaries who facilitate the sale of a product by representing channel member.
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Retailer

Merchant Wholesaler Agents and Brokers

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2 Channel Intermediaries

Retailers Merchant Wholesalers Agents and Brokers

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Take Title to Goods

Take Title to Goods

Do NOT Take Title to Goods

Factors Suggesting Type of 2 Wholesaling Intermediary to Use

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Channel Functions Performed 2 by Intermediaries

Contacting/Promotion

Transactional Functions

Negotiating

Risk Taking
Physically distributing

Logistical Functions

Storing
Sorting

Facilitating Function
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Researching Financing
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2 Logistics
The process of strategically managing the efficient flow and storage of raw materials, in-process inventory, and finished goods from point of origin to point of consumption.

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3 Direct Channel

A distribution channel in which producers sell directly to consumers.

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Channels for Consumer Products

Direct Channel
Producer

Retailer Channel
Producer

Wholesaler Channel
Producer

Agent/Broker Channel
Producer Agents or Brokers

Wholesalers

Wholesalers

Retailers

Retailers

Retailers

Consumers

Consumers

Consumers

Consumers
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Chap. 12 Marketing 7e Lamb Hair McDaniel 2004 South-Western/Thomson Learning

Channels for 3 Business-to-Business Products

Direct Channel
Producer

Direct Channel
Producer

Industrial Distributor
Producer

Agent/Broker Channel
Producer

Agent/Broker Industrial Channel

Producer

Agents or Brokers
Industrial Distributor Industrial User Govt. Buyer Industrial User Industrial User

Agents or Brokers
Industrial Distributor

Industrial User
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Chap. 12 Marketing 7e Lamb Hair McDaniel 2004 South-Western/Thomson Learning

Business-to-Business Exchanges 3 on the Internet

On Line http://www.sherwinwilliams.com

Linking buyers and sellers Dropping the middleman from the supply chain

Creating private exchanges to automate the supply chain

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3 Alternative Channel Arrangements

Multiple Channels

Nontraditional Channels

Strategic Channel Alliances

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4 Supply Chain Management

A management system that coordinates and integrates all of the activities performed by supply chain members into a seamless process, from the source to the point of consumption.

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4 Role of Supply Chain Management

Communicator of customer demand from point of sale to supplier

Physical flow process that engineers the movement of goods

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Benefits of 4 Supply Chain Management

Reduced Costs

Greater Supply Chain Flexibility Improved Customer Service

Higher Revenues
On Line http://www.nashfinch.com

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5 Channel Strategy Decisions

Factors Affecting Channel Choice Market Factors

Level of Distribution Intensity Intensive Distribution

Product Factors
Producer Factors

Selective Distribution
Exclusive Distribution

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5 Market Factors
Customer Profiles Consumer or Industrial Customer Size of Market

Market Factors That Affect Channel Choices

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Geographic Location
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5 Product Factors
Product Complexity

Product Price

Product Factors That Affect Channel Choices

Product Life Cycle

Product Delicacy

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5 Producer Factors

Producer Resources

Number of Product Lines Producer Factors That Affect Channel Choices

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Desire for Channel Control

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5 Levels of Distribution Intensity

Intensity Level
Intensive

On Line http://www.radioshack.com http://www.sprint.com http://www.compaq.com http://www.rca.com http://www.directv.com

Objective
Achieve mass market selling. Convenience goods. Work with selected intermediaries. Shopping and some specialty goods.
Work with single intermediary. Specialty goods and industrial equipment.

Number of Intermediaries
Many

Selective

Several

Exclusive
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One

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6 Managing Channel Relationships

Channel Power Channel Control

Social Dimensions of Channels

Channel Leadership Channel Conflict Channel Partnering

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6 Channel Power, Control,

and Leadership

Channel Power
Channel Control

A channel members capacity to control or influence the behavior of other channel members A situation that occurs when one marketing channel member intentionally affects another members behavior. A member of a marketing channel that exercises authority/power over the activities of other members.
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Channel Leader
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6 Channel Conflict

A clash of goals and methods between distribution channel members.

Horizontal Conflict Vertical Conflict

Occurs among channel members on the same level

Occurs among channel members at different levels

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6 Channel Partnering

The joint effort of all channel members to create a supply chain that serves customers and creates a competitive advantage.

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Transaction- vs. 6 Partnership-Based Firms

Transaction-Based Partnership-Based

Supplier / Manufacturer Relationships

Short-term Adversarial Independent Price important

Many Minimal Minimal

Long-term Cooperative Dependent Value-added services

Few High High
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Number of Suppliers Information Sharing Investment Required

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Integrated Logistical 7 Components of the Supply Chain

Sourcing & Procurement Logistics Information System Production Scheduling Order Processing & Customer Service Inventory Control Warehouse & Materials Handling Transportation
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Supply Chain Team

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7 Sourcing and Procurement

Plan Purchasing Strategies

Role of Purchasing Departments

Develop Specifications Select Suppliers

Negotiate Price Negotiate Service Levels

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Production Scheduling

Traditional Focus Customer Focus

Push / Pull Strategy Start of Production Manufacturing

Push
Inventory-Based

Pull
Customer-Order Based

Mass Production Mass Customization

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7 Just-in-Time Manufacturing
A process that redefines and simplifies manufacturing by reducing inventory levels and delivering raw materials just when they are needed on the production line.

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7 Benefits of JIT

Reduces raw material inventories

Shortens lead times Creates better supplier relationships Reduces production and storeroom costs

Reduces paperwork

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7 JIT Requirements

Receive High-Quality Parts

Meet Supplier Delivery Commitments Requirements for Manufacturers Using JIT

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Have a Crisis Management Plan

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7 Electronic Data Interchange

Information technology that replaces paper documents that accompany business transactions.

On Line http://www.walmartstores.com

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7 Inventory Control System

A method of developing and maintaining an adequate assortment of materials or products to meet a manufacturers or a customers demand.

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7 MRP and DRP

An inventory control system that manages the replenishment of raw materials, supplies, and components from the supplier to the manufacturer. An inventory control system that manages the replenishment of goods from the manufacturer to the final consumer.

Materials Requirement Planning

Distribution Resource Planning

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7 Warehouse and Materials-Handling

Receive goods into warehouse

Materials Handling Functions

Identify, sort, and label goods Dispatch the goods to temporary storage

Recall, select, or pick the goods for shipment

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7 Transportation
Cost Transit Time
Reliability

Criteria for Transportation Mode Choice

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Capability Accessibility

Traceability
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Criteria for Ranking 7 Modes of Transportation

Highest
Relative Cost Transit Time Reliability Capability
Air
Water Pipe Water Truck Air Truck Rail Truck Rail Rail Truck Rail Pipe Rail Truck Air Rail Pipe Truck Air Air Water Water

Lowest
Water Air Water Pipe Pipe Pipe
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Accessibility
Traceability

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Trends in 8 Supply Chain Management

eTrade

Trends Affecting the Logistics Industry

Advanced Computer Technology Outsourcing of Logistics Functions Electronic Distribution

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Channels and Distribution 9 Decisions for Global Markets

Global Channel Development

On Line http://www.wto.com

Channel structure and type differ

Gray marketing channels Awareness of trade legalities

Global Supply Chain Management

Transportation Issues
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Channels and Distribution 10 Decisions for Services

Minimizing wait times

Managing service capacity Areas of Focus for Service Distribution

Improving service delivery

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