Chapter 12: Distribution Channels Flashcards
Distribution channel -
- 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
Supply chain management
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
Supply chain → suppliers and producers -
an inbound flow of raw materials and parts
Distribution channels → producers and consumers
outbound flow of finished products
Wholesalers
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
Retailers
sell products directly to consumers
Logistics management
- 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
Channel Structure
- direct distribution
- indirect distribution
- multi-channel distribution
Direct distribution
no intermediates between the buyer and the seller
The seller is the manufacturer
Indirect distribution
- one or more intermediaries work with manufacturers to provide goods and services to consumes
Multi-channel distribution -
- 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
Push marketing strategy -
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
Pull marketing strategy -
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
Distribution Intensity
The number of channel members to use at each level of the supply chain
Commonly divided into three levels: intensive, selective, and exclusive
Intensive distribution
a strategy designed to get products into as many outlets as possible
Exclusive distribution -
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
Selective distribution
uses a few selected customers in a territory
Distribution centre -
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
Distribution Channels Add Value
Distribution channels perform a variety of transactional, logistical and facilitating functions - they reduce the number of marketplace contracts which results in more efficient systems
Channel conflict -
results when supply chain members are not in agreement about their goals, roles, or rewards
Vertical channel conflict
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
Horizontal channel conflict
when there is a disagreement among members at the same level in a marketing channel, such as two competing retailers or two competing manufacturers
Power in the Distribution Channel
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
Corporate vertical marketing system -
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
Contractual vertical marketing system -
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
Franchising
- 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
Managing Supply Chains Through Strategic Relationships
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
Strategic relationship (partnering relationship) -
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
Mutual trust
- 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
Open communication
to share information, develop sales forecasts together, and coordinate deliveries
Interdependence
- when supply chain members view their goals and ultimate success as intricately linked, they develop deeper long-term relationships
Common goals
shared goals give both members of the relationship an incentive to pool their strengths and abilities and exploit potential opportunities together
Credible commitments -
both parties make credible commitments to, or tangible investments in the relationship
Flow 1
(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
Flow 2
(store to buyer) - the point of sale terminal records the purchase information and electronically sends it to the buyer
Flow 3
(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
Flow 4
(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
Flow 5
(store to distribution center) - coordinate deliveries and check inventory status
Data Warehouse
- 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
Electronic Data Interchange
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
Pros of Electronic Data Interchange
- 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
Advanced shipping notice
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
Vendor-Managed Inventory
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
Distribution center advantages
- 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
Getting Merchandise to Customers
Shipping merchandise to stores
Customer store pickup
Deliver merchandise directly to customer from the fulfillment centre
Mobile task management
- technology that uses a wireless network and a mobile deceive that receives demand notification and enables a speedy response
Inventory Management Through Just-in-Time Systems
inventory management systems designed to deliver less merchandise on a more frequent basis than traditional inventory system
Lead time
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
