Chapter 12: Distribution Channels

Question 1

Distribution channel -

Answer 1

• the institutions that transfer the ownership of goods and move goods from the point of production to the point of consumption
  Part of the overall supply chain

Question 2

Supply chain management

Answer 2

The set of approaches and techniques firms employ to efficiently and effectively integrate their supplies, manufacturers, warehouses, stores, and transportation intermediaries into a seamless value chain in which merchandise is produced and distributed in the right quantities, to the right location, and the right time

Question 3

Supply chain → suppliers and producers -

Answer 3

an inbound flow of raw materials and parts

Question 4

Distribution channels → producers and consumers

Answer 4

outbound flow of finished products

Question 5

Wholesalers

Answer 5

the firms that engage in buying, taking title to, often storing, and physically handling goods in large quantities, and then reselling the goods (usually in smaller quantities) to retailers or industrial business users

Question 6

Retailers

Answer 6

sell products directly to consumers

Question 7

Logistics management

Answer 7

• the integration of two or more activities for the purpose of planning, implementing, and controlling the efficient flow or raw materials, in-process inventory, and finished goods from the point of origin to the point of consumption

Question 8

Channel Structure

Answer 8

• direct distribution
• indirect distribution
• multi-channel distribution

Question 9

Direct distribution

Answer 9

no intermediates between the buyer and the seller
The seller is the manufacturer

Question 10

Indirect distribution

Answer 10

• one or more intermediaries work with manufacturers to provide goods and services to consumes

Question 11

Multi-channel distribution -

Answer 11

• using both direct and indirect channels to reach both consumers and business customers
• Wider coverage, increased sales, avoid cannibalization
• Harder to control, more channel conflict

Question 12

Push marketing strategy -

Answer 12

designed to increase demand by focusing on wholesalers, distributors, or salespeople, who push the product to consumers via distribution channels
- Pushes the product through the distribution channels to the end consumer

Question 13

Pull marketing strategy -

Answer 13

designed to get consumers to pull the product into the supply chain by demanding that retailers carry it

• If channel members are reluctant to stock new products, manufactures will use a pull strategy

Question 14

Distribution Intensity

Answer 14

The number of channel members to use at each level of the supply chain
Commonly divided into three levels: intensive, selective, and exclusive

Question 15

Intensive distribution

Answer 15

a strategy designed to get products into as many outlets as possible

Question 16

Exclusive distribution -

Answer 16

strategy of granting exclusive rights to sell to one or very few retail customers so no other customers can sell a particular brand

• Benefit manufacturers by assuring them that the most appropriate customers represent their products

Question 17

Selective distribution

Answer 17

uses a few selected customers in a territory

Question 18

Distribution centre -

Answer 18

a facility for the receipt, storage, and redistribution of goods to company stores or customers - may be operated by retailers, manufacturers, or distribution centers as well as sortation centers that can speed up delivery of products even further

Question 19

Distribution Channels Add Value

Answer 19

Distribution channels perform a variety of transactional, logistical and facilitating functions - they reduce the number of marketplace contracts which results in more efficient systems

Question 20

Channel conflict -

Answer 20

results when supply chain members are not in agreement about their goals, roles, or rewards

Question 21

Vertical channel conflict

Answer 21

buyers and vendors must all understand what drives the other party’s business, their roles in the relationship, each firms strategies, and any problems that might arise over the course of their relationship

• Common goals also help sustain the relationship when expected benefits fail to arise

Question 22

Horizontal channel conflict

Answer 22

when there is a disagreement among members at the same level in a marketing channel, such as two competing retailers or two competing manufacturers

Question 23

Power in the Distribution Channel

Answer 23

Conflict is mitigated by the degree to which one channel member has power over another
Power in a marketing channel exists when one firm has the means

Question 24

Corporate vertical marketing system -

Answer 24

a system in which the parent company has complete control and can dictate the priorities and objectives of the supply chain; it may own facilities such as manufacturing plants, warehouse facilities, retail outlets, and design studios

Question 25

Contractual vertical marketing system -

Answer 25

a system in which independent firms at different levels of the supply chain join together through contracts to obtain economies of scale and coordination to reduce conflict

Question 26

Franchising

Answer 26

• a contractual agreement between a franchisor and a franchisee that allows the franchise to operate a retail outlet, using a name and format developed and supported by the franchisor
• In a franchise contract, the franchisee pays a lump sum plus a royalty on all sales in return for the right to operate a business in a specific location

Question 27

Managing Supply Chains Through Strategic Relationships

Answer 27

In a conventional distribution channel, relationships between members are often based on the argument over the split of the profit pie: if one party gets ahead, the other party falls behind

Question 28

Strategic relationship (partnering relationship) -

Answer 28

a supply chain relationship that the members are committed to maintaining long-term, investing in opportunities that are mutually beneficial; requires mutual trust, open communication, common goals, and credible commitments

Question 29

Mutual trust

Answer 29

• holds a strategic relationship together - it is the belief that a partner is honest and is benevolent (concerned about the other party’s welfare)
• Trust each other more willing to share relevant ideas, clarify goals, and problems, and communicate efficiently

Question 30

Open communication

Answer 30

to share information, develop sales forecasts together, and coordinate deliveries

Question 31

Interdependence

Answer 31

• when supply chain members view their goals and ultimate success as intricately linked, they develop deeper long-term relationships

Question 32

Common goals

Answer 32

shared goals give both members of the relationship an incentive to pool their strengths and abilities and exploit potential opportunities together

Question 33

Credible commitments -

Answer 33

both parties make credible commitments to, or tangible investments in the relationship

Question 34

Flow 1

Answer 34

(customer to store)
Universal product code
- (UPC) - the black and white barcode found on most merchandise
- Radio frequency identification (RFID) tags - tiny computer chips that automatically transmit to a special scanner

Question 35

Flow 2

Answer 35

(store to buyer) - the point of sale terminal records the purchase information and electronically sends it to the buyer

Question 36

Flow 3

Answer 36

(buyer to manufacturer)
communicate directly to negotiate prices, shipping dates, promotional events, etc.
- Retailer and manufacturer exchange business documents through a system called electronic data interchange

Question 37

Flow 4

Answer 37

(store to manufacturer) - sometimes sales transaction data are sent directly from the store to the manufacturer, and the manufacturer decides when to ship more merchandise to the distribution centers and the stores

Question 38

Flow 5

Answer 38

(store to distribution center) - coordinate deliveries and check inventory status

Question 39

Data Warehouse

Answer 39

• Purchase data collected at the point of sale goes into a huge database known as a data warehouse
• Can learn how the corporation is doing and look at the data aggregated by quarter for a merchandise division, region of the country, or the total corporation

Question 40

Electronic Data Interchange

Answer 40

The computer-to-computer exchange of business documents from a retailer to a vendor and back - sales data, purchase orders, invoices, and data about returned merchandise can be transmitted back and forth

Question 41

Pros of Electronic Data Interchange

Answer 41

• Reduces cycle time and information flows more quickly, so inventory turnover is higher
• Improves the overall quality of communications through better record keeping - fewer errors in inputting and receiving errors - less human error
• Data is in computer readable format that can be easily analyzed and used for a variety of tasks

Question 42

Advanced shipping notice

Answer 42

an electronic document that the supplier sends the retailer in advance of a shipment to tell the retailers exactly what to expect in the shipment

Question 43

Vendor-Managed Inventory

Answer 43

An approach for improving marketing channel efficiency in which the manufacturer is responsible for maintaining the retailers inventory levels in each of its stores

• Manufacturer automatically sends merchandise to the retailers store or distribution or fulfillment centre when the inventory at the store reaches a pre-specified level

Question 44

Distribution center advantages

Answer 44

• More accurate sales forecasts
• Enables the retailer to carry less merchandise in the individual stores
• Easier to avoid running out of stock or having too much stock
• Retail space is usually more expensive than space at a distribution center

Question 45

Getting Merchandise to Customers

Answer 45

Shipping merchandise to stores
Customer store pickup
Deliver merchandise directly to customer from the fulfillment centre

Question 46

Mobile task management

Answer 46

• technology that uses a wireless network and a mobile deceive that receives demand notification and enables a speedy response

Question 47

Inventory Management Through Just-in-Time Systems

Answer 47

inventory management systems designed to deliver less merchandise on a more frequent basis than traditional inventory system

Question 48

Lead time

Answer 48

the amount of time between the recognition that an order needs to be placed and the arrival of the needed merchandise at the seller’s store, ready for sale