CHAPTER 15Creating Value Through

Supply Chain Management: Channels of Distribution, Logistics, & Wholesaling

M A R K E T I N GReal People, Real Choices

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Chapter Objectives

• Understand the concept of the value chain & elements in a supply chain

• Explain what a distribution channel is & what functions distribution channels perform

• Describe the types of wholesaling intermediaries found in distribution channels

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Chapter Objectives

• Describe the types of distribution channels & the steps in planning distribution channel strategies

• Explain how logistics is used in the supply chain

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Supply Chain Management

• The supply chain includes all firms that engage in activities that are necessary to convert raw materials into a good or service

• Supply chain management is the management of flows among the firms in a supply chain to maximize profitability

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What Is a Distribution Channel?

• Series of firms or individuals that facilitate the movement of a product from the producer to the final customer

– Direct

• Manufacturer -> Customer

– Indirect

• Intermediaries: from wholesalers to retailers

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Functions of Distribution Channels

• Time, place, & ownership utilities

• Logistics functions

• Transportation & storage functions

• Efficiency creation

• Facilitating functions

• Repair & maintenance functions

• Risk-taking

• Communication & transaction functions

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Creating Efficiencies

• Breaking bulk – channel members purchase large quantities from manufacturers & sell smaller quantities to many different customers

• Creating assortments – channel members provide a variety of products in one location

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Types of Wholesaling Intermediaries

• Wholesaling intermediaries are firms that handle the flow of products from the manufacturer to retailer or business user

– Independent

• Work with lots of manufacturers

– Manufacturer owned

• Single manufacturer

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Independent Intermediaries

Merchant wholesalers– Full-service– Limited-service– Cash-and-carry

wholesalers– Truck jobbers– Drop shippers– Mail-order

wholesalers– Rack jobbers

Merchandise Agents or Brokers– Manufacturers’

agents– Selling agents– Commission

merchants– Merchandise

brokers

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Manufacturer-Owned Intermediaries

• Sales branches

• Sales offices

• Manufacturers’ showrooms

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Types of Distribution Channels

• Consumer channels

– Direct

– Manufacturer-retailer-consumer

– Manufacturer-wholesaler-retailer-consumer

• Business-to-business channels

– Direct

– Manufacturer-industrial distributor-business customer

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Distribution Systems

• Conventional – multi-level distribution channel in which members work independently of one another

• Vertical – channel in which there is cooperation among channel members at two or more different levels of the channel

• Horizontal – two or more firms at the same channel level agree to work together

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Vertical Marketing Systems

• Administered – channel members remain independent but voluntarily work together

• Corporate – single firm owns manufacturing, wholesaling, and retailing operations

• Contractual – cooperation is enforced by contracts that spell out member rights and the terms of cooperation

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Contractual VMS

• Wholesaler-sponsored – wholesalers get retailers to work together under their leadership in a voluntary chain

• Retailer-cooperative – group of retailers with a wholesaling operation to help them compete more effectively with large chains

• Franchise organizations – cooperation is explicitly defined and strictly enforced by franchiser

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Distribution Intensity

Decision Factors:Company, Customers, Channels,

Constraints, and Competition

Intensive, Exclusive, or Selective Distribution

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Implementing the Value Chain

• Process of designing, managing, & improving the movement of products through the supply chain

– purchasing

– manufacturing

– storage

– transport

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Logistics and Customer Satisfaction

• Traditionally, logistics was thought of as physical distribution

– order processing, warehousing, materials handling, transportation, & inventory control

– objective to deliver product at lowest cost

• Now, customers’ goals become the logistics provider’s goals

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Logistics Functions

• Order processing

• Warehousing

• Materials handling

• Transportation

• Inventory Control

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Modes of Physical Transportation

• Rail• Water• Truck• Air• Pipeline

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Transportation Mode Considerations

• Dependability

• Cost

• Speed of Delivery

• Accessibility

• Capability

• Traceability