Ch 13 Notes Flashcards
13-1 Supply Chains and Supply Chain Management
Gives the company “total visibility and control” of the materials, processes, money, and finished products inside and outside the company they work for.
Visualizing and exerting control over the entire supply chain, companies can balance demand for their products and services as perfectly as possible with available supply which maximizes customer outcomes while creating efficiency at each level of the chain
Products are being driven by customer demand, and businesses need to balance demand with supply to ensure economic profits.
Supply Chain
13-1 Supply Chains and Supply Chain Management
Modern customers expect to receive product and service configurations matched to their unique needs, and this personalization is a catalyst that is increasingly driving demand.
The focus of businesses has shifted to determining how products and services are being “pulled” into the marketplace by customers and on partnering with members of the supply chain to enhance customer value
Supply Chain
13-1 Supply Chains and Supply Chain Management
The reversal of demand flow from “push” to “pull” has resulted in a radical reformulation of traditional marketing, production, and distribution functions
Agile companies synchronize their activities through the sharing of supply-and-demand market information, spend more time than their competitors focusing on activities that create direct customer benefits, partner closely with suppliers and service providers to reduce customer wait times for products, and constantly seek to reduce supply chain complexity through the evaluation and reduction (or elimination) of stock-keeping units (SKUs) that customers aren’t buying, among other strategies.
Supply Chain Agility
13-1 Supply Chains and Supply Chain Management
Because of the increasing complexity of supply chain operations, most companies do not manage their supply chains alone or in isolation.
Effective SCM requires a team effort between the firm and its partners.
-Outsourcing, Contract Logistics, 3PL
SCM
13-1 Supply Chains and Supply Chain Management
Enables companies to cut inventories and locate stock at fewer plants and distribution centers while still providing the same level of service
Many companies are now seeking solutions within (reshoring) or close to (nearshoring) their primary base of operations, to reduce supply chain risk and maintain tighter control over operations.
However, reshoring and nearshoring supply chain strategies are not the most efficient options for many companies
Outsourcing
13-1 Supply Chains and Supply Chain Management
Foreign markets are attractive due to the increasing demand for imported products worldwide.
Furthermore, cheap labor advantages and trade barriers/tariffs have encouraged firms to expand their global manufacturing operations.
**Uncertainty:
Moving operations offshore exposes companies to risks associated with geopolitical conflict, foreign nationalization of assets, unintended knowledge leakage to foreign competitors, and highly variable quality standards
Globalizing the supply chain
13-1 Supply Chains and Supply Chain Management
Resources needed to manufacture and sell goods that are increasingly in demand are becoming scarcer, and market boundaries are melting together.
Free trade markets continue to expand globally, and consumers living in nations with traditionally low demand now have access to previously unavailable goods and can place orders via the internet.
Benefits of Supply Chain
13-1a Benefits of Effective Supply Chain Management
Organizations with an intense focus on effective supply chain management commonly report lower inventory, transportation, warehousing, and packaging costs.
These supply chain-centric companies also realize greater logistical flexibility, improved customer service, and higher revenues
Well-managed supply chains can provide better value to customers with only marginal incremental expenditure on company assets
Supply Chain Management
13-1a Benefits of Effective Supply Chain Management
Lean strategy requires balancing the inventory needs of a business while minimizing the possibility of overstocking goods and maximizing the company’s cash flow.
The COVID-19 pandemic exposed how delicate lean supply chains can be and supply chain managers had to learn the hard way to always be prepared for the unexpected
Lean Supply Chains
13-1a Benefits of Effective Supply Chain Management
Agile strategy also carries risk, such as lost or incorrectly allocated inventories.
**Ex: was the toilet paper and hand sanitizer shortages in the early stages of the pandemic.
-Firms traditionally optimized manufacturing and distribution systems for two separate markets—commercial (office buildings, hotels, restaurants, etc.) and residential.
-However, during the COVID-19 pandemic, the market immediately switched to residential only, since almost everyone was working from home, shortages in the residential market were widespread.
Agile Strategy
13-2 Supply Chain Integration
Multiple entities (firms and/or their functional areas) should work together to perform tasks as a single, unified system, rather than as multiple individual units acting in isolation
Goal of this cooperation is that the overall effectiveness and performance of the supply chain for all the participants will be greater than the sum of its parts.
Key principle of supply chain management
13-2 Supply Chain Integration
Supply Chain Orientation
- They are credible
- They are benevolent
- They are cooperative
- They have the support of top managers
- They are effective at conducting and directing supply chain activity
13-2 Supply Chain Integration
They are Credible
They can deliver on promises they make
13-2 Supply Chain Integration
They are benevolent
They are willing to accept short-term risks on behalf of others, are committed to others, and invest in others’ success.
13-2 Supply Chain Integration
They are cooperative
They work with rather than against their partners when seeking to achieve goals.
13-2 Supply Chain Integration
They have support of top managers
These managers possess the vision required to do things that benefit the entire supply chain in the short run so they can enjoy more meaningful company successes in the long run.
13-2 Supply Chain Integration
They are effective at conducting and directing supply chain activity.
As a result, they are better off in the long run financially than those who are not as effective.
13-2 Supply Chain Integration
Integration can be either internal or external to a specific company or, ideally, both.
From an internal perspective, the top supply chain integration companies develop a managerial orientation toward demand–supply integration (DSI)
Supply Chain Integration
13-2 Supply Chain Integration
Functional areas in a company that creates customer demand (such as marketing, sales, or research and development) continually communicate and are fully synchronized with the areas of the business charged with fulfilling the created demand (purchasing, manufacturing, and logistics)
Companies operating under a DSI philosophy are better at their business because all the divisions within the company work in sync with each other
DSI Integration
13-2 Supply Chain Integration
Five types of external integration
- Relationship Integration
- Measurement Integration
- Technology and planning integration
- Material and service supplier integration
- Customer integration
13-2 Supply Chain Integration
Ability of two or more companies to develop social connections that serve to guide their interactions when working together.
The capability to develop and maintain a shared mental framework across companies that describes how they will depend on one another when working together.
This includes how they will collaborate on activities or projects so that the customer gains the maximum amount of total value possible from the supply chain.
Relationship Integration
13-2 Supply Chain Integration
Performance assessments should be transparent and measurable across the borders of different firms; it should also assess the performance of the supply chain while holding each individual firm or business unit accountable for meeting its own goals.
Measurement Integration
13-2 Supply Chain Integration
Creation and maintenance of information technology systems that connect managers across the firms in the supply chain. It requires information hardware and software systems that can exchange information when needed between customers, suppliers, and internal operational areas of each of the supply chain partners.
Technology and planning integration
13-2 Supply Chain Integration
Requires firms to link seamlessly to those outsiders that provide goods and services to them so that they can streamline work processes and thereby provide smooth, high-quality customer experiences.
Both sides need to have a common vision of the total value-creation process and be willing to share the responsibility for satisfying customer requirements to make supplier integration successful.
Material and service supplier integration
13-2 Supply Chain Integration
Competency that enables firms to offer long-lasting, distinctive, value-added offerings to the customers who represent the greatest value to the firm or supply chain.
Highly customer-integrated firms assess their own capabilities and then match them to customers whose desires they can meet and who offer large enough sales potential for the linkage to be profitable over the long term.
Customer integration
13-2 Supply Chain Integration
Are better at satisfying customers, managing costs, delivering high-quality products, enhancing productivity, and utilizing company or business unit assets, all of which translate into greater profitability for the firms and their partners working together in the supply chain.
Highly Integrated Supply Chains
13-2 Supply Chain Integration
Companies that work closely with their suppliers encounter problems such as corporate culture, information hoarding, and trust issues.
On the other hand, these companies can improve integration through long-term agreements, cross-organizational integrated product teams, and improved communication between partners.
Integration involves a balance between barriers and enablers
13-3 The Key Processes of Supply Chain Management
What is integration
“How” excellent supply chain management works.
13-3 The Key Processes of Supply Chain Management
The business processes on which the linked firms work together represent the “what” of supply chain management—they are what firms, departments, areas, and people focus on when working together to reduce supply chain costs or generate additional revenues
Represent key areas that some or all of the involved firms are constantly working on to reduce costs and/or generate revenues for everyone throughout supply chain management.
Business Processes
13-3 The Key Processes of Supply Chain Management
8 critical business processes
- Customer relationship management
- Customer service management
- Demand management
- Order fulfillment
- Manufacturing flow management
- Supplier relationship management
- Product development and commercialization
- Returns management
1. 13-3a Customer Relationship Management
Once higher-value customers are identified, firms should focus more on providing customized products and better service to this group than to others
Includes customer segmentation by value and subsequent generation of customer loyalty for the most attractive segments.
This process provides a set of broad principles for initiating and maintaining customer relationships and is often carried out with the assistance of specialized CRM computer software
Ex:StarbucksRewards
Designed to identify and build relationships with good customers
Customer Relationship Management
13-3b Customer Service Management
Designed to ensure that those customer relationships remain strong
When the process is well executed, it can have a strong positive impact on revenues, often because of a quick positive response to negative customer feedback and sometimes even in the form of additional sales gained through the additional customer contact
Facilitates touchpoints between the buyer and seller throughout this life cycle
Keeps current customers engaged, and reengage with lapsed customers
Reduce marketing costs while increasing customer communication
Customer Service Management
13-3c Demand Management
Deeks to minimize the costs of serving multiple customers with variable wants and needs
Allows companies in the supply chain to satisfy customers in the most efficient and effective ways possible. Collecting customer data, forecasting future demand, and developing activities that smooth out demand help align available inventory with customer desires.
Ease pressure on the production process and allow companies to satisfy most of their customers through greater flexibility in manufacturing, marketing, and sales programs
Demand Management
13-3c Demand Management
During these meetings, the demand-generating functions of the business (marketing and sales) work together with the production side of the business (procurement, production, and logistics) in a collaborative arrangement designed to both satisfy customers and minimize waste
Sales and Operations Planning
13-3d Order Fulfillment
Involves generating, filling, delivering, and providing on-the-spot service for customer orders.
The best order fulfillment processes reduce order cycle time, while ensuring that the customer receives exactly what they want.
The shorter lead times are beneficial in allowing firms to carry reduced inventory levels and free up cash that can be used on other projects.
Involves understanding and integrating the company’s internal capabilities with customer needs, and matching these together so that the supply chain maximizes profits while at the same time minimizing costs and waste
Order Fulfillment
13-3e Manufacturing Flow Management
Firms with flexible manufacturing can create various goods and/or services with minimal costs associated with changing production techniques.
Creates flexible agreements with suppliers and shippers so that companies can accommodate unexpected demand bursts without disruptions to customer service or satisfaction.
Centers on leveraging the capabilities held by multiple supply chain members to improve overall manufacturing output in terms of quality, delivery speed, and flexibility, all of which tie directly to profitability.
Manufacturing Flow Management
13-3e Manufacturing Flow Management
Products are built before demand occurs, but managers attempt to reduce as much waste as possible.
Lean Supply Chain
13-3e Manufacturing Flow Management
Lie on the other end of the continuum—they prioritize customer responsiveness more so than waste reduction
Wait for demand to occur and use communication and flexibility to fill that demand quickly
Agile Supply Chain
13-3f Supplier Relationship Management
Highly dependent on supplier relationships for flexibility.
Furthermore, as in the customer relationship management process, supplier relationship management provides structural support for developing and maintaining supplier relationships.
By integrating these two ideas, supplier relationship management supports manufacturing flow by identifying and maintaining relationships with highly valued suppliers.
Directly impacts each supply chain member’s bottom-line financial performance
Supplier Relation Management
13-3g Product Development and Commercialization
Commonly, a multicompany collaboration is used to execute new-product development, testing, and launch, among other activities
The capability to develop and introduce new offerings quickly is critical for competitive success versus rival firms, so it is often advantageous to involve many supply chain partners in the effort.
Requires the close cooperation of suppliers and customers, who provide input and serve as advisers and co-producers for the new offering(s).
Designing a new product with the help of suppliers and customers can enable a company to introduce features and cost-cutting measures into final products.
Customers provide information about what they want from the product, while suppliers can help design for quality and manufacturability.
When each supply chain partner shares responsibility for designing and manufacturing a new product, more obstacles can be identified early and opportunities for cost reduction are made possible.
Product Development and Commercialization
13-3h Returns Management
Deals with situations in which customers choose to return a product to the retailer or supplier, thereby creating a reverse flow of goods within the supply chain
Returns can potentially affect a firm’s financial position in a significant and negative way if mishandled. In specific industries, such as apparel e-retailing, returns can amount to as much as 40 percent of sales volume
Can also create additional marketing and customer service touchpoints that firms can leverage to create additional customer value above and beyond regular sales and promotion-driven encounters.
Handling returns quickly creates a positive image and gives the company an additional opportunity to please the customer.
Customers who have positive experiences with the returns management process can become more confident buyers who are more willing to reorder since they know problems encountered with purchases will most likely be quickly corrected.
In addition, the returns management process allows the firm to recognize potential weaknesses in product design and/or areas for potential improvement through direct customer feedback that initiates the return process.
Returns Management
13-4 Sustainable Supply Chain Management
Organization better addresses current business needs and develops long-term initiatives that allow it to mitigate risks and avail itself of future opportunities to preserve resources for future generations and ensure long-term viability.
Success at supply chain sustainability is measured using a concept known as the triple bottom line
Companies that fail to balance these performance objectives appropriately are susceptible to risks that, in the long term, can endanger the continuity of the business.
Sustainability activities within the supply chain include environmentally friendly materials sourcing; the design of products with consideration given to their social and environmental impact; and end-of-life product management that provides for easy recycling and/or clean disposal.
Companies can simultaneously generate cost savings, protect the Earth’s natural resources, and ensure that socially responsible business practices are enacted
Modern businesses are also balancing economic success with social sustainability practices like human rights, labor rights, employee-diversity initiatives, and quality-of-life concerns
Sustainable Supply Chain Management
13-4 Sustainable Supply Chain Management
A misconception surrounding both the environmental and social aspects of sustainability
Their practice disproportionately increases costs and should be enacted only when business leaders are willing to act altruistically or for good public relation
Companies that have been unable to successfully capture economic value from environmental or social initiatives sometimes practice greenwashing
13-5 The Digitalization of the Supply Chain
Demand sensing and decision making (via the Internet of Things, big data, supply chain analytics, and AI/machine learning)
Digitalized process management (via advanced robotics and cloud computing),
Digitalized distribution (via automated vehicles/drones and three-dimensional printing/additive manufacturing)
Digitalized product and supply chain integrity/verification (blockchain)
Digitalization of the Supply Chain
13-5a Digitalized Demand Sensing and Decision Making
A rapidly increasing prevalence of sensory equipment that connects physical objects to the internet allows for the collection of massive data sets that can be used to make better decisions about the best time, place, and form of products
Internet of Things (IoT)
Increasing prevalence of sensors on products, their containers, and the transportation and storage modes that carry them has allowed for powerful data-capturing capabilities to develop in some companies, with the output taking the form of vast databases of customer, supplier, and company information.
Digitalized Demand Sensing and Decision Making
13-5a Digitalized Demand Sensing and Decision Making
More information is available about supply chain operations than ever before, but the challenge of extracting usable data from this information is very expensive.
When processed by humans, a pivotal aspect of dealing with big data is the ability to “make it small again,” by developing a capability to extract only the elements critical for making a desired decision.
This capability, as well as many others related to the linkage of data elements for SCM decision making, falls under the umbrella of supply chain analytics
Big Data
13-5a Digitalized Demand Sensing and Decision Making
Supply chain analytics programs that can interpret big data have great potential for improving supply chain operations.
For example, the use of bigger (and better) data should allow supply chain forecasting to become more accurate; shipments to be rerouted in the event of traffic or bad weather; and warehouses to be stocked with exactly the products customers want (and none they don’t want).
Each of these ambitions, if realized, would offer lower prices for customers and lead to greater customer satisfaction.
Supply Chain Analytics Program
13-5a Digitalized Demand Sensing and Decision Making
In many cases, the data are so complex or unwieldy that it makes more sense for businesses to let computers not only calculate the answers to complicated problems but sometimes also to ask questions
AI applications work by analyzing a set of inputs and producing the correct output more reliably than humans can.
In the supply chain context, AI enables decisions related to procurement, manufacturing, logistics, and planning by assessing many different data sets (often housed within different businesses) simultaneously and producing a solution that is as close to optimal as possible for all the parties involved
Artificial Intelligence (AI)
13-5a Digitalized Demand Sensing and Decision Making
Rather than teaching the computer the required logic to solve a problem (by inputting data), machine learning gives the computer a set of known answers to the problem.
Then the computer is responsible for generating, or learning, the logic it needs to solve similar problems
By engaging with AI and machine learning, supply chain managers take some of the heavy lifting out of the big data analysis process and can improve firm and supply chain performance as a result.
Machine Learning
13-5b Digitalized Supply Chain Processes
To leverage useful information across organizational interfaces for better joint decision making, many companies are using cloud computing to collaborate on big data projects and analyze findings in a quick and cost-effective manner.
Advanced logistical technologies enabled by big data and analytics or AI is also improving supply chain operations at the tactical level.
Many tasks that are done repetitively and require significant precision can be accomplished more cheaply and accurately via advanced robotics
Automated vehicles and drones are in use to make complicated or costly deliveries of goods or information easier
Digitalized Supply Chain Processes
13-5c Digital Distribution
Companies like Netflix, Apple (iTunes), and Spotify have built their business models around electronic distribution
Soon, however, digital distribution will extend beyond products and services, mainly composed of electronic bits and bytes of information easily transferred via electronic connections.
Experiments with three-dimensional printing (3DP) have succeeded in industries
Digital Distribution
13-5c Digital Distribution
Objects are built to precise specifications using raw materials at or near the location where they will be consumed
The potential uses for 3DP (also referred to as additive manufacturing) are virtually endless and are being utilized across many businesses.
Because such platforms will remove much of the need for the transportation of finished goods to distribution centers and retailers, 3DP is expected to have a very positive impact on businesses’ carbon footprints and the environment at large.
3DP
13-5d Digitalizing Supply Chain Integrity
As supply chains globalize, they get longer and more complex, often stretching around the world and including dozens of suppliers, intermediate customers, and service providers.
End users of goods and services expect that the final output of the chain will be a perfect order, and there is little tolerance for error
Digitalizing Supply Chain Integrity
13-5d Digitalizing Supply Chain Integrity
Digital era has brought with it a very important new reporting mechanism, blockchain, that has not only transformed traceability from a pipedream to a reality but has also ensured that any transactions between supply chain partners are impartially recorded and therefore beyond dispute.
Supply Chain Traceability
13-5d Digitalizing Supply Chain Integrity
Widely thought of exclusively for its part in the rise of cryptocurrency such as Bitcoin and Ethereum, its value and use has grown exponentially in recent years.
Digital ledger of transactions that can be accessed by all parties in real time; it allows products or components to be traced from origin to destination including all stops in between
Eliminates fraud, lowers the cost of administration for shipments, increases accuracy, and reduces delays and disputes about the content of shipments
When combined with IoT, it can also be used to detect and record inventory locations and initiate automatic payments upon delivery
Blockchain
13-6 Marketing Channels and Channel Intermediaries
Can be viewed as a canal or pipeline through which products, their ownership, communication, financing and payment, and accompanying risk flow to the consumer
Channels represent the “place” or “distribution” element of the marketing mix (product, price, promotion, and place), in that they provide a route for company products and services to flow to the customer.
In essence, the marketing channel is the “downstream” portion of the supply chain that connects a producer with the customer.
While “upstream” supply chain members are charged with moving component parts or raw materials to the producer, members of the marketing channel propel finished goods toward the customer, and/or provide services that facilitate additional customer value
Marketing Channel
13-6 Marketing Channels and Channel Intermediaries
As products move toward the final consumer, channel members facilitate the distribution process by providing specialization and division of labor, overcoming discrepancies, and providing contact efficiency.
Channel Members
13-6a How Marketing Channels Work
According to the concepts of specialization and division of labor, breaking down a complex task into smaller, simpler ones and assigning these tasks to specialists create greater efficiency and lower average production costs via economies of scale
Attain economies of scale through specialization and division of labor by aiding upstream producers (who often need more motivation, financing, or expertise) in marketing to end users or consumers
Some channel members can accomplish certain tasks more efficiently than others because they have built strategic relationships with key suppliers or customers or have unique capabilities. Their specialized expertise enhances the overall performance of the channel.
Valuable because they aid producers in creating time, place, and exchange utility for customers, such that products become aligned with their needs
How Marketing Channels Work
13-6a How Marketing Channels Work
Producers, who sit at the top of the supply chain, provide form utility when they transform oats grown on a distant farm into the Muesli or Cheerios that we like to eat for breakfast
Form Utility
13-6a How Marketing Channels Work
Created by channel members, when, for example, a transport company hired by the producer physically moves boxes of cereal to a store near our homes in time for our next scheduled shopping trip.
Time and Place Utility
13-6a How Marketing Channels Work
Often the closest channel member to the customer, provides a desired product for some reasonable amount of money that we are willing to give
Exchange Utility
13-6b Functions and Activities of Channel Intermediaries
Negotiate with one another, facilitate the transfer of ownership for finished goods between buyers and sellers, and physically move products from the producer toward the final consumer.
Intermediaries
13-6b Functions and Activities of Channel Intermediaries
The most prominent difference separating intermediaries
Whether they take title to the product.
Taking title means they actually own the merchandise and control the terms of the sale—for example, price and delivery date.
Retailers and merchant wholesalers are examples of intermediaries that take title to products in the marketing channel and resell them
13-6b Functions and Activities of Channel Intermediaries
Take title to the goods they sell.
Most operate one or more warehouses where they receive finished goods, store them, and reship them to retailers, manufacturers, and institutional clients.
Since wholesalers do not dramatically alter the form of a good or sell it directly to the consumer, their value hinges on their providing time and place utility and contact efficiency to retailers.
Merchant Wholesalers
13-6b Functions and Activities of Channel Intermediaries
Do not take title to goods and services they market but do facilitate exchanges of ownership between sellers and buyers.
Only facilitate sales and generally have little input into the terms of the sale.
However, they get a fee or commission based on sales volume.
Agents and Brokers
13-6b Functions and Activities of Channel Intermediaries
Product characteristics, buyer considerations, and market conditions determine the types and number of intermediaries the producer should use:
Customized or highly complex products such as computers, specialty foods, or custom uniforms are usually sold through an agent or broker.
Buyer considerations such as purchase frequency or customer wait time influence channel choice.
Market characteristics such as how many buyers are in the market and whether they are concentrated in a general location also influence channel design.
13-6b Functions and Activities of Channel Intermediaries
They provide contact efficiency for consumers.
Simplify distribution by reducing the number of transactions required by consumers and by making an assortment of goods available in one location
Retailers
13-6c Channel Functions Performed by Intermediaries
Three essential functions that enable goods to flow between producer and consumer
- Transactional
- Logistical
- Facilitating
13-6c Channel Functions Performed by Intermediaries
Transactional
Involve contacting and communicating with prospective buyers to make them aware of existing products and to explain their features, advantages, and benefits
13-6c Channel Functions Performed by Intermediaries
Logistical
Include the transportation and storage of assets, as well as their sorting, accumulation, consolidation, and/or allocation to conform to customer requirements
Fascilitating
Includes research and financing.
Research provides information about channel members and consumers by getting answers to the key questions: Who are the buyers? Where are they located? Why do they buy?
Financing ensures channel members have the money to keep products moving through the channel to the ultimate consumer.
13-7 Channel Structures
Producers use a direct channel to sell directly to consumers to keep purchase prices low.
Direct marketing activities—including telemarketing, mail order and catalog shopping, and forms of electronic retailing such as online shopping and shop-at-home television networks—are good examples of this type of channel structure.
There are no intermediaries.
Direct Channels
13-7 Channel Structures
Marketing Channels for Consumer Products
Direct Channel: Producer–> Consumers
Retailer Channel: Producer —> Retailers —> Consumers
Wholesaler Channel: Producer —> Wholesalers —> Reatilers —> Conumers
Agent/Broker Channel: Producter —> Agents or Brokers —> Wholesalers –> Retailers –> Consumers
13-7 Channel Structures
Bring manufacturers and wholesalers together for negotiations, but they do not take title to the merchandise.
Ownership passes directly from the producer to one or more wholesalers and/or retailers, who sell to the ultimate consumer.
Agent Broker Channel
13-7 Channel Structures
Most common when the retailer is large and can buy in large quantities directly from the manufacturer
Retailer Channel
13-7 Channel Structures
Commonly used for low-cost items that are frequently purchased, such as candy, cigarettes, and magazines
Wholesaler Channel
13-7 Channel Structures
Increases customer satisfaction at the expense of internal coordination and operating costs for the seller
Enables the company to perform those tasks more efficiently across the customer base as a whole and to cut costs.
Customer perceptions of the company’s service quality may decrease, however, since there is not a single, one-stop point of contact.
Organizing Channels around customers
13-7a Channels for Business and Industrial Products
Five-channel structures are common in business and industrial markets.
Direct Channel: Producer–> Consumers
Retailer Channel: Producer —> Retailers —> Consumers
Wholesaler Channel: Producer —> Wholesalers —> Reatilers —> Conumers
Agent/Broker Channel: Producter —> Agents or Brokers —> Wholesalers –> Retailers –> Consumers
Agent/Broker Industrial Distributor: Producer –> Agents/Broker –> Industrial Distributors –> Industrial Users
13-7a Channels for Business and Industrial Products
Typical in business and industrial markets.
Ex: manufacturers buy large quantities of raw materials, major equipment, processed materials, and supplies directly from other producers.
Manufacturers that require suppliers to meet detailed technical specifications often prefer direct channels
Direct Channels
Companies selling standardized items of moderate or low value often rely
Like a supermarket for organizations.
Wholesalers that buy and take title to products.
Moreover, they usually keep inventories of their products and sell and service them.
Often small manufacturers cannot afford to employ their own sales forces. Instead, they rely on manufacturers’ representatives or selling agents to sell to either industrial distributors or users
Industrial Distributors
13-7b Alternative Channel Arrangements
Dual or multiple distribution systems differ from single-channel systems
Must be organized and managed as a group, and managers must orchestrate their use in synchronization if the whole system is to work well
As consumers increasingly embrace online shopping, more retailers are employing this strategy.
Allows retailers to reach a wider customer base but may also lead to competition between distribution channels through cannibalization (whereby one channel takes sales away from another
When multiple separate channels are used, they must all complement each other
Dual or Multiple Distribution Systems
13-7b Alternative Channel Arrangements
May help differentiate a firm’s product from the competition by providing additional information about products
Include approaches such as mail-order television or video channels and infomercials
May limit a brand’s coverage, they can give a producer serving a niche market a way to gain market access and customer attention without having to establish physical channel intermediaries; they can also provide another sales avenue for larger firms.
Nontraditional Channels
13-7b Alternative Channel Arrangements
Used most often when the creation of marketing channel relationships may be too expensive and time consuming
Strategic Channel Alliance
13-7b Alternative Channel Arrangements
Using either an active or passive approach
Ex: automobile manufacturers sell their finished products to end users through networks of owned or franchised dealers, they also sell cars to rental agencies such as Enterprise or Hertz, that then rent them to potential customers
The goal of the company is the same: to engage a segment of customers who might otherwise never experience the product by offering it at a more easily affordable price or under trial conditions.
Secondary Channels
13-7b Alternative Channel Arrangements
Some unintended secondary channels also exist
May be used to sell stolen or counterfeit products, which could detract from the profitability of the primary and secondary channels controlled by the business.
Gray Marketing Channels
13-7b Alternative Channel Arrangements
Retailers and manufacturers also manage channels that move products upstream, in the direction of the producer.
Retailers or manufacturers can then recycle the product and use components to manufacture new products or refurbish and resell the same product in a secondary market.
To incentivize customer cooperation in such initiatives, retailers are using drop and shop programs
Consumers and companies alike view reverse channels not just as a way to reduce the firm’s environmental impact but also as a means to gain some financial benefits.
Reverse Channels
13-7c Digital Channels
Allow either push- or pull-based information and product flows—sometimes simultaneously.
Digital Channels
13-7c Digital Channels
A mobile device is used to assess, compare, and/or buy products
Ex:use Bolt’s smartphone app to contact a local driver who will take you directly to your destination. A key advantage of Bolt and similar apps is their frictionless payment interface. When you finish your ride, you leave the car and walk away while the app charges your credit or debit card to pay the driver.
Enables consumers using wireless mobile devices to connect and shop online.
Essentially, M-commerce goes beyond text message advertisements to allow consumers to purchase goods and services using wireless mobile devices.
M-commerce users adopt the new technology because it saves time and offers more convenience in a greater number of locations
Consumers have become more reliant on digital technologies, as shown in the world’s first fully digital generation, the Millennials, and firms that fail to react to this trend risk losing a rapidly growing group of M-commerce customers
M-Commerce
13-7c Digital Channels
Allows multiple retailers to sell products to customers through social media sites.
Most major social media companies such as Facebook, Instagram, Pinterest, Snapchat, and TikTok now have dedicated shopping sections of their sites that allow stores to sell directly to consumers without needing a traditional retail presence
Services like TikTok Shop allow influencers to build product and brand loyalty without establishing a traditional retail channel
Social Shopping
13-7c Digital Channels
Companies create profiles on websites like Pinterest or Facebook and use them not only to give customers information about their products but also to collect customer information.
Many customers use these websites to find product information or get information on special deals, and those who follow a company’s blog or profile on a social media site often end up clicking through to the firm’s website
Social Media Websites
13-7c Digital Channels
Websites like Groupon, LivingSocial, Veepee, and Secret Escapes allow customers to
fulfill their individual needs at group prices.
Many of these sites are organized and managed by intermediaries between manufacturers and customers, but others may be customer initiated or even created by firms to better promote their own products and manage demand
13-7d Factors Affecting Channel Choice
Factors Affecting Channel Choice
- Market
- Product
- Producer
- Timing
13-7d Factors Affecting Channel Choice
Who are the potential customers? What do they buy? Where do they buy? When do they buy? How do they buy?
Depends on whether the producer is selling to consumers directly or through other industrial buyers because of differences in the buying routines of these groups.
The geographic location and size of the market
If the target market is concentrated in one or more specific areas, then direct selling through a sales force is appropriate
Intermediaries would be less expensive in broader markets.
Market Factors
13-7d Factors Affecting Channel Choice
Complex, customized, and expensive products tend to benefit from shorter and more direct marketing channels.
Sell better through a direct sales force.
Ex: pharmaceuticals and airplanes
The more standardized a product is, the longer its distribution channel can be and the greater the number of intermediaries that can be involved without driving up costs.
**The product stage in the life cycle
As products become more common and less intimidating to potential users, producers tend to look for alternative channels.
Product Factors
13-7d Factors Affecting Channel Choice
**Producers with large financial, managerial, and marketing resources are better able to perform their own marketing and thus will use more direct channels.
These producers can hire and train their own sales forces, warehouse their own goods, and extend credit to their customers.
Smaller or weaker firms, on the other hand, must rely on intermediaries to provide these services for them.
Compared to producers with only one or two product lines, producers that sell several products in a related area can choose channels that are more direct. Therefore, sales expenses can be spread over more products.
**Producer’s desire to control pricing, positioning, brand image, and customer support
Firms that sell products with exclusive brand images, such as designer perfumes and clothing, usually avoid channels in which discount retailers are present.
Many producers have opted to risk their image, however, and test sales in discount channels.
Producer Factors
13-7d Factors Affecting Channel Choice
Elapsed time between the introduction of a product into one channel and the secondary introduction of the same or a very similar product into another channel
Decisions such as when to release a product in different channels, how long to keep a product on the market, and when to launch new products are critical.
Ex: companies that offer products in multiple channels (such as online and in-store) must decide whether to launch in both channels simultaneously or to launch them sequentially—and if sequentially, in what order.
They must also decide when to withdraw a product from a particular channel if that channel is no longer providing the expected value
Timing Factors
13-7e Levels of Distribution Intensity
Three options for the intensity of distribution
1.Intensive
2.Selective
3.Exclusive
13-7e Levels of Distribution Intensity
Aimed at maximum market coverage.
Here, the manufacturer tries to have the product available in every outlet where potential customers might want to buy it.
If buyers are unwilling to search for a product, it must be made very accessible to them
Intensive
13-7e Levels of Distribution Intensity
Achieved by screening dealers and retailers to eliminate all but a few in any single area.
Because only a few are chosen, the consumer must seek out the product.
Selective Distribution
13-7e Levels of Distribution Intensity
Most restrictive form of market coverage
Entails only one or a few dealers within a given area.
Because buyers may have to search or travel extensively to buy the product, exclusive distribution is usually confined to consumer specialty goods, a few shopping goods, and major industrial equipment
Exclusive Distribution
13-7e Levels of Distribution Intensity
Fashion flash sale sites like Gilt, Groupon, and Doggyloothave recently boomed in popularity. On these fashion flash sites, new designer clothing items, services, or pet products are made available every day—often at a discount from 15 to 80 percent, and always for an extremely limited time.
Fashion Flash Sales
13-7e Levels of Distribution Intensity
Renting items that are usually sold only to end consumers.
Ex: websites allow customers to rent and return high fashion products, handbags and accessories, furniture, and even children’s clothes.
Rental versus retail channels open up an entirely new customer base for certain products that were once reserved for a much smaller group.
Renting Items
13-7e Levels of Distribution Intensity
Have provided customers with products periodically over time. In recent times, subscription services have expanded their reach.
Alongside the traditional subscription of magazines and books, customers can now find subscription services for things such as clothes, toys, wine, and premade meals
Streaming services are a primary way that many consume entertainment, and services all charge a premium for a subscription to watch their content.
Subscription Services
13-7e Levels of Distribution Intensity
Instead of selling a tangible product, digital marketplaces sell the rights to songs, movies, and television shows through their websites and applications.
Ex: Instead of leaving home to purchase a physical album, game, or movie, consumers can select specific media and download them directly to their computers or mobile devices.
Digital Licensing
13-8 Omnichannel Versus Multichannel Marketing
Customers are offered information, goods, services, and/or support through one or more synchronized channels.
Customers who use multiple channels when shopping become more engaged during the purchase process and tend to spend more
**The exception is when customers are buying simple, utilitarian products that are well-known and intended for frequent use.
Facilitating such customer activities as purchasing an item through an app for in-store pickup and enabling mobile payment while shopping in a store are only a few strategies that producers and retailers are using to create customer perceptions that multiple channels are behaving as one.
Creates redundancy and complexity in the firm’s distribution system.
Selling is typically accompanied by the construction of multiple, parallel supply chains, each with its own inventory, processes, and performance metric
Each channel would operate different transportation and distribution systems, hold and account for its own inventory, and otherwise act as independent sales and profit centers, with little knowledge of the operations of the other.
Multichannel Marketing Strategy
13-8 Omnichannel Versus Multichannel Marketing
Supports their multichannel retail operations and unifies their retail interfaces so that all customers receive equal and efficient service
Integrate that real-time inventory of the specific retail location to the customer as they are browsing. If the product is unavailable at a given store, the customer can find if any other stores in the area have it in stock
Give more choices to customers, allowing them to control how they shop. This freedom to shop how you choose can increase customer satisfaction and loyalty.
Omnichannel Distribution
