Chp 12: distribution channels Flashcards
how do distribution channels add value
Distribution channels (place) add value for customers because they get products to customers efficiently: quickly and at low cost
define distribution channel
institutions that transfer ownership of goods and move goods from point of production to point of consumption
define supply chain management
refers to set of approaches + techniques firm use to efficiently and effectively integrate their suppliers, manufacturers, warehouses, stores, transportation intermediaries into seamless value chain in which goods are produced and distributed in right quantities, to right locations at right time
define wholesaler
firms engaged 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 or business users
what does supply chain management include
distribution management and logistics management
what is distribution channel part of
overall supply chain
define retailers
sell products directly to consumers
define logistics management
integration of 2+ activities for purpose of planning, implementing, and controlling the efficient flow of raw materials, in process inventory, and finished goods from point of origin to point of consumption
what are some examples of logistics management
Includes materials handling, demand forecasting, customer service, inventory control etc
typical supply chain management
1) Logistics management: Suppliers -> (inbound flow of raw materials + parts) -> producers -> (outbound flow of finished products) -> consumers
2) Supply chain goes to suppliers and producers
3) Distribution channels flows to consumers and flows from producers
explain direct supply chain no retailer
manufacturers sell directly to consumers. Each transaction costs money - manufacturer must fill order, package it, write up paperwork and ship it, and each cost is passed to consumer
explain indirect supply chain with retailer
transactions decrease with retailer. Manufacturers go through single retailer. Because transactions decrease, supply chain is more efficient which adds value for consumer by making it more convenient and less expensive to buy goods
what does sales department need to do
coordinate its delivery promises with factory or distribution centers (when products are designed + manufactured, how and when critical components reach factory must be coordinated with production)
define distribution centre
facility for receipt, storage and redistribution of goods to company stores or customers; may be operated by retailers, manufacturers or distribution specialists
what is distribution channel composed of
entities that are buying (retailers/wholesalers), selling (manufacturer, wholesalers), or helping facilitate exchange (transport companies)
what can distribution channel relationships be
close working partnerships to one time arrangements
what happens if one member in distribution channel is not working right
If one member in distribution channel believes another isn’t doing role correctly or efficiently it can usually replace that member
3 functions performed by intermediaries (distribution channels)
1) transactional function
2) logistical function
3) facilitating function
explain transaction function of intermediaries
1) Buying - purchase goods for resale to other intermediaries or consumers
2) Risk taking - own inventory that can become outdated
3) Promotion - promote products to attract customers
4) Selling - transact with potential customers
explain logistical function of intermediaries
1) Physical distribution - transport goods to point of purchase
2) Risk taking - maintain inventory and protect goods
explain facilitating function of intermediaries
1) Gathering info - share competitive intelligence about customers or other channel members
2) Financing - extend credit and other financial services to consumers
define channel conflict
results when supply chain members are not in agreement about goals, roles, or rewards
4 ways to manage distribution channels
1) managing channels through vertical marketing system
2) managing supply chain through strategic relationships
when is channel conflict more pronounced and less pronounced
1) Conflict more pronounced when channel members are independent entities
2) Channels more closely aligned, whether by contract or ownership, share common goals and are less prone to conflict
define independent marketing channel
each members attempt to satisfy own objectives and maximize own profits, often at expense of other members. None of the participants have control over the others
define vertical marketing system
supply chain in which members act as unified system. Can maximize individual benefits by working together to make system more efficient. The more formal, the less likely conflict will ensue.
3 types of vertical marketing systems
1) administered
2) contractual
3) corporate
define administered vertical marketing system
no common ownership and no contractual ownership but dominant channel member controls channel relationship
define contractual vertical marketing system
system in which independent firms at different levels of supply chain join together through contracts to obtain economies of scale and coordination and to reduce conflict
common type of contractual vertical marketing system
franchising
define franchising
contractual agreement between franchisor + franchisee that allows franchisee to operate retail outlet, using a name and format developed and supported by franchisor
explain franchising
Franchisee pays lump sum + royalty on sales in return for right to operate business in specific location. Franchisee operates in accordance with procedures by franchisor. Franchisor provides assistance in locating + building business, developing products sold, training and advertising. Franchisor ensures all outlets provide same quality to maintain reputation.
define corporate vertical marketing system
system in which parent company has complete control and can dictate priorities and objectives of supply chain; may own facilities such as manufacturing plants, warehouse facilities, retail outlets, design studios
in conventional distribution channel, how do things work
relationships between members based on split of profit pie: if one party gets ahead, other falls behind. This type of approach is acceptable if parties have no interest in long term relationships
define strategic/partnering relationship
supply chain relationship that members are committed to maintaining long term, investing in opportunities that are mutually beneficial; requires mutual trust, open communication, common goals and credible commitments
explain pie in strategic/partnering relationship
Both parties benefit, size of profit pie increases, both parties can increase sales and profit
3 things needed for strategic/partnering relationship
1) mutual trust
2) open communication
3) common goals
4) credible commitments
explain mutual trust in strategic/partnering relationship
1) Trust is belief that partner is honest and benevolent (concerned about other party’s welfare)
2) When there is mutual trust, parties will share ideas, clarify goals + problems, communicate effectively. Less need to monitor each other’s options.
when is monitoring in strategic/partnering needed
important when suppliers are located in less developed countries where issues like child labour, poor working conditions, below living wages are shared responsibility
explain open communication in strategic/partnering relationship
Understand what drive’s each others business, their roles in the relationship, firm’s strategies, problems that may arise
explain common goals in strategic/partnering relationship
Share goals give members incentive to pool strength and abilities and exploit potential opportunities together
explain credible commitment in strategic/partnering relationship
Involve spending money to improve products provided to consumer
3 types of distribution channels
1) direct distribution
2) indirect distribution
3) multi channel distribution/hybrid
3 points to direct distribution
1) No intermediaries between buyer and seller
2) Typically seller is manufacturer, but can be individual (person sells sweaters at craft fairs)
3) Some companies may be forced to do direct distribution because they are unable to secure shelf space in retail outlets or are unable to pay high listing fees demanded by retailers for shelf space
6 points to indirect distribution
1) 1+ intermediaries work with manufacturer to provide goods to consumers
2) Often seen in automotive manufacturers
3) Typically only one intermediary is used in case of large retailers
4) Selling through retailers adds costs to a company due to margins that need to be paid to them, retail outlets can reach broader market
5) Wholesalers often used when company does not buy in sufficient quantity to make it cost-effective for manufacturer to deal with retailer
6) Use of wholesalers common for low cost or low unit value items like chips
explain multichannel distribution/hybrid
Using combination of direct and indirect distribution channels to better reach business + consumers customers
2 distribution strategies
push vs pull
define push marketing strategy
designed to increase demand by focusing on wholesalers, distributors, or salespeople, who push product to consumers via distribution channels
4 points to push marketing strategy
1) Manufacturer focuses promotion efforts on channel members to convince them to carry product
2) Pushes the product through distribution channel to end consumer
3) To get shelf space, companies need to get retailers onside and show them how their product can help grow a category, bring new consumers to category, or add to profit
4 points to listing fees in push marketing strategy
1) Manufacturers pay list fees to have products stocked (listing fees can include costs or rearranging store shelves + warehouse, and admin costs with adding new product)
2) Listing fees can determine if item is placed at eye level or down on bottom shelf where its hard to find
3) Fee depends on: potential sales volume, trade allowances, product promotion offered (samples, in store demos, promotional pricing), product category, company size
4) Some category leaders don’t need to pay listing fees because they know retailers must stock popular products
define pull marketing strategy
designed to get consumers to pull the product into supply chain by demanding that retailers carry it
2 points to pull marketing strategy
1) May be used if channel members reluctant to stock product (push doesn’t work)
2) Consumers who see tv commercials or ads or coupons regarding new products may ask retailers to stock these products
define distribution intensity
number of channel members to use at each level of supply chain
3 types of distribution intensity
1) intensive distribution
2) exclusive distribution
3) selective distribution
define intensive distribution
strategy designed to get products into as many outlets as possible
2 points to intensive distribution
1) Most consumer packaged goods companies use this
2) The more exposure products get, the more they sell
define exclusive distribution
strategy of granting exclusive rights to sell to one or very few retail consumers so no other consumer can sell a particular brand
4 points to exclusive distribution
1) Manufacturers benefit by assuring them that most appropriate customers represent their products
2) Selling high end products to discount stores, grocery stores may weaken image
3) Sometimes limiting distribution can limit sales
4) In case of limited supply or when firm is starting out, providing exclusive customers helps ensure enough inventory to offer customer adequate selection (guaranteeing adequate supply gives them strong incentive to push product).
dealer benefit to exclusive distribution
Dealers know there is no competing retailer to cut prices, so profit margins are protected and more incentive to carry more inventory and use extra ads, personal selling and sales promotion
define selective distribution
lies between intensive and exclusive distribution strategy; uses few selected consumers in territory
2 points to selective distribution
1) Helps seller maintain particular image and control flow of goods into area. Many shopping manufacturers use them (goods for which consumers willing to spend time comparing alternatives like apparel items, home items, consumer electronics)
2) Retailers still have strong incentive to sell products but not to same extent as exclusive distribution
5 interrelated activities emerge in supply chain management
1) designing distribution channels
2) making info flow
3) managing relationships among supply chain partners
4) making goods flow
5) managing inventory
2 ways logistics management affects distribution strategy
1) makes info flow
2) makes goods flow
5 flows of information in logistics management
1) customer to store
2) store to buyer
3) buyer to manufacturer
4) store to manufacturer
5) store to distribution centre
3 points to customer to store info flow
1) UPC tag contains code that includes manufacturer, info about special packaging + promotions
2) Associate scans UPS and customer receives receipt
define universal product code (UPC)
black and white bar code found on goods
2 points to store to buyer info flow
1) Point of sale terminal records purchase info and sends it to buyer
2) This info incorporated into inventory management system and used to monitor and analyze sales (to reorder, change price, plan promotion)
2 points to buyer to manufacturer info low
1) Purchase info from store aggregated by retailer and creates order for new goods to manufacturer
2) Buyer communicates with manufacturer to get info on and negotiate prices, shipping dates, promotional events or other merchandise related issues
2 points to store to manufacturer info flow
1) Sometimes sales data sent from store to manufacturer and manufacturer decides when to ship more goods to distribution centers and stores
2) Sometimes when goods ordered frequently, ordering process done automatically, bypassing buyers
1 point to store to distribution info flow
Stores communicate with distribution centre to coordinate deliveries and check inventory status
2 points to data warehouse
1) Purchase info collected at point of sale (flow 2) goes into database (data warehouse)
2) Info available in various dimensions and levels (like data for region, total corporation, division)
explain manufacturers and data warehouse
Sometimes manufacturers can have access to data warehouse and communicate with retailers through electronic data interchange and vendor managed inventory
define electronic data interchange
computer to computer exchange of business documents from retailer to vendor and back
3 points to electronic data interchange
1) Info includes vendor promotions, cost changes, purchase order changes, transport routines
2) advanced shipping notice
3) Small retailers lack cost and IT expertise to be EDI-enabled
define advanced shipping notice
electronic document that supplier sends retailer in advance of shipment to tell retailer exactly what to expect in shipment
3 benefits of electronic data interchange
1) reduces time between decision to place order and receipt of goods, inventory turnover is higher (goods move from vendor to retailer quickly) 2) improves quality of communications through better record keeping, fewer errors in inputting and receiving order, less human error in interpreting data 3) data transmitted is in computer readable format that can be analyzed and use for tasks like evaluating vendor delivery performance and automating reorder process
define vendor managed inventory
approach in which manufacturer is responsible for replenishing inventory to meet retailers needs
2 points to vendor managed inventory
1) By sharing data in data warehouse and communicating that info via EDI, manufacturer automatically sends goods to retailer store or distribution center when store inventory reaches pre-specified level
2) Provides better match between retail demand and supply, reduces costs (manufacturer sales people don’t spend time on generating orders on items already in store, role shifts to selling new items + maintaining relationships) (retail buyers + planners don’t need to monitor inventory levels + place orders)
2 ways logistics management makes goods flow
1) distribution centre vs direct store delivery
2) distribution or fulfillment centre
3) inventory management through just in time systems
2 points to distribution centre vs direct store delivery
1) Manufacturers can ship goods to retail stores (direct store delivery) or to its distribution centers
2) Ultimate decision is retailer and depends on characteristics of good and nature of demand
explain fulfillment centres vs distribution
Fulfillment centers do same activities as distribution but since they deliver directly to consumers rather than stores, they do not have to get goods floor ready
5 steps for distribution or fulfillment centres
1) inbound transportation
2) receiving and checking using UPC or RFID
3) storing + cross docking
4) getting goods floor ready
5) shipping goods to stores
define dispatcher
person who coordinates deliveries to distribution centers
explain receiving
process of recording receipt of goods as it arrives from distribution centre or store
explain checking
process of going through goods upon receipt to ensure they have arrived undamaged and that goods are what was ordered
define radio frequency identification
tiny computer chips that automatically transmit to a special scanner all the info about a container’s contents or individual products
2 points to receiving + checking using UPC or RFID
1) EDI minimizes (and can eliminate) these processes
2) Advanced shipping notice tells distribution centre what is in each box. Scanning UPC code or RFID, identifies boxes contents and they are counted as being checked + received
3) Advantage: don’t need to handle items individually, can receive truckloads of goods without checking each in. tags can track cartons
explain cross docking
cartons repackaging for specific store
explain storage
distribution centre is warehouse where goods are unloaded from trucks and placed on shelves for storage
4 points to getting goods floor ready
1) Goods that’s ready to be placed on selling floor immediately
2) Involves ticketing, marketing, placing garments on hangers
3) More efficient to perform at distribution centre because work is time consuming and messy
4) Requiring suppliers to ship goods floor ready eliminates this time consumption and expensive process for retailers
explain ticketing and marketing
creating price + identification labels and putting them on goods
3 points to shipping goods to stores
1) Distribution centers use routing and scheduling computer system that considered rate of sales in stores, road conditions and transport operating constraints to develop efficient routes
2) Different shipping methods chosen based on nature of goods, cost, location of customers relative to manufacturers, needs of consumers
3) Can include land, rail, air, sea
define just in time inventory management
inventory management systems designed to deliver less goods on a more frequent basis than traditional inventory systems; the firm gets goods “just in time” for it to be used in manufacture or of another product; aka quick response systems in retailing
define quick response
inventory management system used in retailing, goods are received just in time for sale when customer wants it
define lead time
amount of time between recognition that order needs to be placed and arrival of needed goods at seller’s store, ready for sale
3 points to just in time
1) Advantage of JIT/QR: reduces lead time (by eliminating paper transactions by mail and overnight deliveries), increased product availability, lower inventory investment
2) Costs: distribution function more complicated with frequent deliveries, smaller orders which are more expensive to transport
3) JIT requires strong commitment by firm and vendors to corporate, share data and develop systems
