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.
