IDIS 340 Final Exam Flashcards
What are the issues of 2022 - 2023?
- Prices and inflation
- COVID
- Scarcity of materials and products
- Geopolitical issues
- Congestion in ports and airports
- Railroad system saturated
- Lack of truck drivers in the U.S.
- Lack of employees
- Finding right talent is a top priority
What parts of Supply Chain are Upstream?
(Graphic)
Raw Material -> Suppliers -> Manufacturer
What parts of Supply Chain are Downstream?
(Graphic)
Manufacturer -> Distribution -> Consumer
What does a supply chain do?
Supply Chain helps to make the entire economy exist, move, and grow!
Overview of the Supply Chain
(Product -> Information -> Finances)
Supplier -> Manufacturer -> Distributor -> Retailer -> Shopper
(Product <- Information <- Finances)
What are the Factors for Relationships?
Trust, Communication, and Commitment
What is Trust?
Demonstrated and earned over time
What are the characteristics of trust?
- Willingness to honor commitments
- Ability to honor commitments
- Belief the other person’s best interest is understood and will be pursued
What is the willingness to honor commitments - do what you say, confidentiality?
Integrity
What is the ability to honor commitments?
track record, skill sets, authority, and resources
What is communication?
Open, honest and a two-way street
How do you communicate?
- Ask questions - learning about the other party, both professionally and personally
- Provide constructive performance feedback
- Discuss opportunities
- Develop mutual goals
How does a Manufacturer demonstrate commitment?
- Dedicate personnel and facilities
- Efforts to learn about operation
- Coordinate reporting systems
- Coordinate planning efforts
- Coordinate training efforts
- Alignment in the mind of the end-user
How does a Distributor demonstrate commitment?
- Dedicate personnel and facilities
- Build relationships in manufacturer’s organization
- Invest in product training and support
- Invest in compatible reporting system
- Alignment in the mind of the end-user
- Train customers to use manufacturer’s products
How do distributors and manufacturers grow?
- Enter relationship
- Negotiate agreement (contract) - Focus should be on co-creating value
- Support each other as demonstrated commitment
- Grow the market synergistically (grow the pie)
Industrial Supply Chain
(Graphic)
Manufacturer ——————————————————–> OEM, MRO, Contractor
Manufacturer ——————-> Distributor ——————> OEM, MRO, Contractor
Manufacturer —> Master Distributor –> Distributor –> OEM, MRO, Contractor
What are the responsibilities of a manufacturer?
- Produce quality/competitive products
- Create new markets
- End-user and specifier calls
- Advertising in magazines, trade journals, internet, trade shows, etc.
- Provide up-to-date printed or electronic catalogs
- Provide technical information and training
- Understand value and compensate channel partners
What is the priority of a manufacturer?
The primary driver for Manufacturing is market share resulting in
efficient use of resources
Manufacturer Value Proposition
(Graphic)
Necessary to Compete
(Quality, Cost, Speed/Ability)
|
\/
Value Proposition
/\
|
Required to Prosper
(Innovation, Supply Risk, Business Relationship)
What is distribution?
Distribution is the activity of both selling and
delivering products and services from manufacturer
to the customer.
What is a manufacturer’s agent?
- Usually represent companies whose sales in a territory do not support a full salaried employee
- May call on distributors, end users, specifiers, and manufacturers
- Complementary products
- Do not typically stock inventory
- May also be referred to as a manufacturer rep or manufacturer rep agent (agency)
What is a master distributor?
- Common in industries with heavy logistical
requirements - Stocks products of represented manufacturers
- Only sells to distributors, not to end users
- Typically, complementary products
- May also be referred to as a wholesaler
- May also function as a manufacturer’s agent
Distribution Planning
Considerations
* Control vs. Cost
* Intensity of distribution desired
* Involvement in e-commerce
* The use of multiple channels
(Graphic)
Factory -> Central Warehouse:
-> Local Distribution Center #1 -> Retailer #1, Retailer #2, Retailer #3
-> Local Distribution Center #2 -> Retailer #4, Retailer #5
———Material Flow——————>
What is the competitive advantage for distribution?
- Cost structure
- Branding
- Distribution network
- Customer service
- Local Presence
- Value Added Services
What are 6 Trends Distribution Industry Will See in 2022?
- Worker shortage will get worse without action
- Just-in-time practices will not return
- Distributors will demand increased transparency and alignment
- Distributors will invest in higher-speed digital transformations
- Digital transformation will come with a steep learning curve
What is the future for Distributors?
- Marketing Data
- Data Analytics
- Automation
- AI and Machine Learning
- Increased Use of E-Commerce
What is Cost?
What you pay for an item
What Is Price?
What the customer pays for an item
What is Gross Profit?
Gross Profit = Sales - COGS
What is mark-up?
Amount that the cost of product is increased in order to derive the selling price
What are the structural differences in Manufacture?
- High value on brand recognition and perceived product quality
- High fixed cost
*Significant need for volume - High market share is an extreme predictor of profitability
What are the structural differences in Distributor?
- Less value on brand and quality and more value on customer relationships
- High variable costs
- less need for volume
- market share less of a predictor of profitability
How are distributors compensated?
- Extended payment terms, Cash discounts
- Consignment
*Stock rotations and return allowances - Cooperative and market development funds
- Special pricing agreements
- Volume incentives
What is the fastest and most effective way for a company to realize its maximum profit?
Get the pricing right
What are the 3 C’s of pricing?
- Cost
- Competition
- Customer
Why is growth important to the manufacture?
- Larger Market share
- Reduce cost per item
- Increased importance to distributor
What is growth to a distributor?
- More customers
- More sales/profits, more employees
- More facility locations
- More products and additional inventory
What are the primary growth options?
- Sell more to existing customers
- Find new customers, expand inventory/market/services including e-Commerce
- Use business analytics for growth
What is customer Stratification?
A classification of customers into groups based on profitability cost to serve, loyalty, and buying power is an essential step in developing a customer-centric operations strategy
Customer Stratification Relationship
(Graphic)
Opportunistic Customers (Top Left Corner)
(High Gross Margin, Low Customer Loyalty, Low Cost to Serve, Low Sales Volume)
* High Profitability
* No Relationship
* Low cost to serve
* Low Volume
Core Customers (Top Right Corner)
(High Gross Margin, High Customer Loyalty, Low Cost to Serve, High Sales Volume)
* High Profitability
* Sustained Relationship
* Low cost to serve
* High volume
Marginal Customers (Bottom Left Corner)
(Low Gross Margin, Low Customer Loyalty, High Cost to Serve, Low Sales Volume)
* Low profitability
* No Relationship
* High cost to serve
* Low Volume
Service Drain Customers (Bottom Right Corner)
(Low Gross Margin, High Customer Loyalty, High Cost to Serve, High Sales Volume)
* Low Profitability
* Sustained Relationship
* High Cost to Serve
* High Volume
Inventory Stratification - Ranking Criteria
- A - Top 60% Sales, Top 60% Hits, GMROII >= 300%
- B - Next 20% Sales, Next 20% Hits, GMROII >= 200% and < 300%
- C - Next 10% Sales, Next 10% Hits, GMROII >= 50% and < 200%
- D - Next 10% Sales, Next 10% Hits, GMROII <= 50%
- X & Y - 0% Sales, 0% Hits, 0 Inventory
* X - “+” GM($)
* Y - “-“ GM($)
Cost to Serve (CTS) Indicators?
(Graphic)
- # of Sales Calls
- Average # of line items
- Average order size ($)
- Average Days to Pay
- % Sales in ‘C’ and ‘D’ terms
- Returns to sales ratio
- Delivery Requirements
(Each indicator is weighed according to importance to distributor and supplier)
How to Define the Business “We Want to Do”?
(Graphic)
( In relation to Customer Stratification Relationships Squares)
Business “We WANT to do”
* Core Customers
* Strong Products
* Growth Potential (Opportunistic Customers)
* Low Cost to Serve
Business “We HAVE to do”
* Service Drain Customers
* Core ‘B’ Products
* Economies of Scale
* Moderate - High Cost to Serve
Business “We DON’T WANT to do”
* Aggravation Customers
* ‘C’ and ‘D’ Products
* Low Economies of Scale
* High Cost to Serve
What is the path to growth?
*Increase Sales to Existing Customers
* New Products and Services to Existing Customers
* New Customers Similar to Existing Customers
* New Markets
* Product Innovations
* E-Commerce
What is a distribution channel?
- Distribution channels are the paths products and services take on the way from the manufacturer or service provider to the end consumer.
- from Mfg or Svc Provider to Consumer
- The channel involves a set of interdependent organizations in the process of making a product or service available for use or consumption.
- each channel is independent
- intedependence within the channel
Channel Performance Evaluation
(Graphic)
Measuring and Monitoring Distribution Channel Performance
1. Sales Revenue
2. Customer Stratification
3. Channel Efficiency
4. Channel Costs
What is the Multi-Channel Distribution System?
(Graphic)
- Selling Directly to Consumers
Producer ———————————————-> Consumer - Selling Through Retailers
Producer ————————-> Retailer ——-> Consumer - Selling Through Wholesalers
Producer —-> Wholesaler —-> Retailer —-> Consumer - Industrial Distribution
Producer —-> Whole ——————————> Consumer
What is the Omni-Channel Distribution System?
(Graphic)
Center Circle:
* Consumer
Outer Circle:
* Brick and Mortar
* Website
* Social Media
* Online Stores
What is distribution channel strategy?
Distribution strategy is the method used to bring products,
goods and services to customers or end-users.
How do you do Distribution Channel Strategy?
- Ensuring an easy and effective way to get your goods and
services to people, depending on the item, and its distribution
needs. - Organizations consider which distribution strategy is best
while being cost-effective and increasing overall profitability. - Can even use multiple or overlapping distribution strategies
to reach target audiences and meet company
goals/objectives.
What are the Best Practices To
Determine Channel
Goals?
- Understand channel context
- Set firm-level financial goals
- Translate firm goals to channel goals
- Identify channel success factors
How do you Optimizing Distributor
Profitability?
- Identify Process Gap
- Map Shareholder Value
- Quantify Profitability
- Understand Best Practices
- Enable and Implement
Why a Better Supply Chain?
Better supply chain = improved profitability
How do you make a better supply chain?
- Invest in Technology and Talent.
- Invest in right Processes.
- Turn ‘Cost Center’ into ‘Profit Center’.
- Avoid Disruptions.
- Be aware of ‘Amazonification’
What does effective supply chain enable a distributor to do?
Compete on service, Sourcing, and cost
What are the principles of channel management?
- Not all channel partners are created equal.
- Alignment and benefits equals commitment.
- Value proposition should be customized to counter
built-in differences. - Sources of value goes beyond financial
- Analytics-driven communication builds channel
trust. - Channel collaboration as a competitive advantage.
What is Channel Conflict?
Channel conflict is any dispute, difference, or
discord arising between two or more channel partners (e.g.
supplier and customer)
What does the conflict of interest in channel conflict cause?
The conflict of interest causes channel members to work
against each other rather than working together
What are the ideal partner selection criteria
- Identifying the ideal partners is one of the most critical components of indirect channel development.
- Corporate alignment, financial stability, sales success, technical support, and customer care are the main focus.
What is Corporate Alignment?
(Graphic)
Leadership & Accountability
|
\/
Direction
|
\/
Performance ————> (back to leadership & accountability)
Five Most Common Pricing Strategies
- Cost-plus Pricing: Calculate costs and add a margin
- Problems: competition & market
- Competitive Pricing: Set a price based on the competition
- Price Skimming: Set a high price and lower it as the market evolves. (ie: technology)
- Penetration Pricing: Set a low price to enter a competitive market and raise later.
- Value-based Pricing: Base your product or service price on what the customer believes it is worth.
What is a Cash Discount?
Incentive to pay earlier.
* ALWAYS TAKE cash discounts
* NEVER GIVE cash discounts
Examples of Cash Discounts
- 2% / 10 Net 30: A 2% discount is allowed if paid on or before ten days after the invoice date. Otherwise the entire invoice is due on or before 30 days after the invoice date.
- 2% / 10 Net 30th: A 2% discount is allowed if paid on or before the tenth day of the month after the invoice date. Otherwise, the entire invoice is due on or before the 30th day of the month after the invoice date.
- 4% / 10 Net 11 (Best Discount): A 4% discount is allowed if paid on or before ten days after the invoice date. Otherwise the entire invoice is due on or before 11 davs after the invoice date.
What is Consignment?
- Possession without Ownership (When there is stuff in your warehouse that you do not own)
Delays timing of transaction - Advantages to suppliers
- Encourages more inventory and SKUs in local markets
- Disadvantage to supplier?
- supplier has to hold onto more inventory than usual
- Advantages to distributor
- Use of supplier’s cash
- Reduces inventory carrying costs
- Disadvantage to distributor?
- takes up space
Understanding Consignment Inventory
How a typical consignment inventory transaction works:
Supplier approaches retailer with contract offer.
|
\/
Contract is negotiated and signed
|
\/
Supplier delivers inventory to retailer.
|
\/
Retailer sells Inventory
|
\/
Retailer pays supplier for sold inventory
What are Co-Op and Market Development Funds?
Funds available for marketing a manufacturer (money given to distributor to market the manufacturer)
- Selling efforts
- Product promotion
- Creating local brand awareness and acceptability
What are the common uses of Co-Op and Market Development Funds?
- Open houses, lunch and learns, tradeshows, etc.
- Advertising (signs, co-branded attire, etc.)
- Entertainment expenses
- Training events
- Salesperson spiffs
Do manufacturers and distributors benefit from high volume? If so how?
- Manufacturers benefit from high volume
- Distributors purchasing large volumes can negotiate better pricing
- Specific to each manufacturer and distributor
- Usually in the form of rebates
What is a rebate?
Rebates are a return of a portion of the purchase price by the seller to the buyer
What are the rebates that come from high volume?
- Retention Rebates - designed to encourage maintaining a certain level of volume
- Growth Rebates - designed to encourage the growth in the amount of volume
- Combination Rebates - designed to encourage maintaining and growing
What are some incentives that come from high volume?
- Incentives can be by total purchases or be product specific, product group specific, market specific, etc.
- Incentives can be by monthly, quarterly, or annual purchases.
- Incentives can be tied to other performance, such as on-time payment, maintaining a certain mix of products, or maintaining a certain level of customer service.
- In some distribution industries, rebates can reach very high levels.
What is Strategic Pricing?
- Do not try to compete on price alone.
- Pricing hierarchy starts with your cost.
- You can either base your pricing on offering discount off retail price or markup %
What is your pricing hierarchy based on?
- Customer
- Vendor
- Product
- Promotional
- Any Combination of the above
What is Channel Strategy?
(Graphic)
Channel Strategy:
- Channel Selection:
- Market Factors
- Producer Factors
- Product Factors
- Competitive Factors
- Distribution Intensity:
- Intensive
- Selective
- Exclusive
- Channel Integration:
- Conventional Marketing Channels
- Franchising Channel Ownership
“4 Mistakes That Are Chipping Away at
Distributor Profitability”
Inventory Stratification
* Not Understanding CTS
- True cost calculation
- What’s standard?
* Unhealthy Cashflow
- Pay late and collect early
* Too Many Brands
- Focus on Moneymakers
* Price it Right
What is a Distributor Function? (The 7 S’s)
(Graphic)
Supply Chain Planning:
* Network Design - “PHILOSOPHY”
Supplier
|
\/
Source
|
\/
Stock
|
\/
Store
|
\/
Sell
|
\/
Ship
|
\/
Customer
Support Services:
* Information Technology - “ERP & CRM”
* Human Resource Management - “PEOPLE”
* Finance Management - “MONEY”
What is Channel Value Proposition?
(Graphic that was impossible to interpret in text)
Either way, understand your value or you will eventually fail
What is Channel Value? (Alignment and Examples)
Supplier Value Proposition:
* Product
* Channel structure
* Channel intensity
* Supply chain support
* Customer service
* Ease of doing business
* Channel support and
incentives
Distributor Value Proposition (to suppliers):
* Customer acquisition
* Customer retention
* Customer service
* Market access & focus
* Technology
* Shelf space
* Product line loyalty
Distributor Value Proposition (to
customers):
* Product selection
* Product availability
* Order fulfillment
* Delivery
* Market access
* Professional sales force
* Credit terms
* Technical support
* Value-add services
What is Corporate Alignment?
- Identit
- Culture
- Philosophy
- Expectations
- Safety, Environmental
- Ethics
AWA’s 10 Business Principles? (For owners and managers)
- Set the example by working hard and giving your best effort to the company.
- Do good first and make profit second. When the two purposes clash, choose good over profit.
- Develop corporate policies that respect human values; e.g. Rotary International’s “Four-Way Test:”
(a) Is it the truth?
(b) Is it fair to all concerned?
(c) will it build goodwill and better friendships?
(d) Will it be beneficial to all concerned? - Treat employees with respect, equity, compassion, and generosity. Encourage them to express their ideas, develop their potential, care for their family, and observe a day of rest. Complaints against employees should be treated with confidentiality when possible, depending on the situation.
- Encourage a corporate culture that fosters communication, teamwork, and mutual support. Do your best to hold egotism and destructive competition in check. Avoid any actual or apparent conflicts of interest.
- Ensure that customers are treated with dignity, courtesy, and integrity.
- Make sure that the company’s fiscal matters are dealt with and disclosed in an honest, full, fair, timely, and understandable manner.
- See to it that the corporation gives back to the community, especially to those less fortunate.
- Exercise wisdom and discernment in the selection of the company’s management.
- Be scrupulous about obeying all the laws of the land, and pay your bills on time.
What is the Flow of Supply Chain?
<———– Information————>
Supplier Relationship
Operations
Warehouse
Logistics
Customer Service
——Products/Services ————>
<———-Money/Funds ————
What is Competitive Positioning?
The cosmic law of business says you can profitably excel by doing any two of these three;
- GOOD
- CHEAP
- FAST
How does a Supplier Position Define Distributor
Strategy?
(Graphic)
Top of the pyramid:
* Primary Products
- Offer Greater Volume
* 50% Dollars
* ~ 1-5 vendors
Middle of the pyramid:
* Secondary Products
- Gap Fillers
* 30% Dollars
* Next 5-10 vendors
Bottom of the pyramid:
* Tertiary Products
- These products are higher margin and get pulled through with the primary products
* 20% Dollars
* The remainder of the vendors
Distributor’s cost to buy and own is normally greater with secondary and tertiary products
What was the Quote referenced in class by Stephen Covey?
“You’re NOT a Product of your Environment;
You’re a Product of Your Decisions.”
- Stephen Covey
What Are The Ten Most Powerful Two Letter Words?
If it is to be, it is up to me.
What does Total Quality Management (The acronym TQM) Stand for?
T - Total: Involving the entire department of the company
Q - Quality: Achieving customer satisfaction all the time
M - Management: Maintaining a high-level quality in every sector
What are the factors of Total Quality Management (TQM)?
Total Quality Management:
* Focus on Customer
* Employee Involvement
* Process Centered
* Integrated System
* Strategic & Systematic Approach
* Decision-making based on facts
* Communication
* Continuous Improvement
What is a manufacturer’s agent?
Manufacturer’s agents usually represent companies whose sales in a territory do not support a full salaried employee
* May also be referred to as a manufacturer rep or manufacturer rep agent (agency)
What do Manufacturer’s Agents Do?
- May call on distributors, end users, specifiers, and manufacturers
- Complementary products
- Do not typically stock inventory
What are Specifiers and their importance?
Examples of Specificer:
* Architects
* Engineers
* Designers
Specifier’s Importance: Have strong influence of which products get used in certain applications
What are the Different type of logistics?
Types of Logistics:
* Logistics - planning, movement and maintenance of military forces.
* Engineering Logistics - engineering design dedicated to purchase, transport, and distribution.
* Business Logistics - process of moving goods from supplier to business or business to customer.
* Event Logistics - movement of equipment, storage, material transportation, and venue coordination.
What is the Strategy to Distribution?
Intensive:
* penetrate the market
* as many outlets as possible
* no cap on stores or locations
* ie: Coca-Colla Sodas
Selective:
* Specific Locations
* Limited Number of Stores
* Target Consumer
* ie: Ford Trucks
Exclusive:
* High-end and exclusive brands
* Limited Outlets
* Particular Locations
* ie: McLaren Cars
Who were the guest speakers for Armstrong Weatherly Associates (AWA)?
Harold Armstrong - President
Tracy Quillin - Director of Sales
Who was the guest speaker who was a retired professor?
Dr. Michael Workman
Who was the guest speaker for ABB?
Kellie Binkley - Account Manager
