Marketing Chapter 16 Supply Chain and Channel Management

Supply Chain’s Streamline Distribution
1. Reduce number of transactions
2. Increase value for consumers
3. More efficient and effective
Supply Chain Management
Manufacturers ship to wholesalers or retailer’s distribution center or directly to stores. Many variations exist
Marketing Channels Add Value
Each participant in the channel adds value. Product becomes more valuable at each step
Direct Supply Chain Without Retailer
3 manufacturers sell directly to 3 consumers which requires 9 transactions (Dell, Avon, Farms)
Direct Marketing Channel
There are no intermediaries between the buyer and seller. Typically the seller is a manufacture.
Manufacturer –> Customer
Indirect Supply Chain With Retailer
3 manufacturers and 3 consumers but they go through retailer which requires 6 Interactions (Sephora, Best Buy, Grocery Stores)
Channel and supply chain become more efficient, which adds value for customers by making it more convenient and less expensive to purchase merchandise
Indirect Marketing Channel
One or more intermediaries work with manufacturers to provide goods and services to consumers
Manufacturer –> Retailer –> Customer
Manufacturer –> Wholesaler –> Retailer –> Customer
Distribution Center
1. Management of inbound transportation
2. Receiving and checking using UPC and RFID
3. Storing and cross-docking
4. Getting merchandise floor ready
5. Preparing to ship
6. Shipping to store
Vertical Channel Conflict
1. Occurs when supply chain members that buy and sell to one another are not in agreement about their goals, roles, or rewards
2. Avoiding conflict demands open, honest communication
*Horizontal Channel Conflict
Occurs when there is a disagreement among members at the same level of marketing channel, such as 2 competing retailers or 2 competing manufacturers
Managing Supply Chains through Vertical Marketing Systems- Independent or Conventional Supply Chain
1. Several independent members- a manufacturer, a wholesalers, and a retailer
2. Each attempts to satisfy its own objectives and maximize its profits, often at the expense of the others members
3. None of the members has any control over the others
Managing Supply Chains through Vertical Marketing Systems- Vertical Marketing System
1. A marketing channel in which the members act as a unified system.
2. The 3 types of vertical marketing systems- administered, contractual, and corporate- reflect increasing phases of formalization and control.
3. The more formal the vertical marketing system, the less likely conflict will ensue
Types of Vertical Marketing Systems- Administered Vertical Marketing System
There is no common ownership or contractual relationships, but the dominant channel member controls or holds the balance of power
Power:
1. Reward Power
2. Coercive Power
3. Referent Power
4. Expertise Power
5. Information Power
6. Legitimate Power
Types of Vertical Marketing Systems- Contractual Vertical Marketing System
1. Independent firms at different levels of the marketing channel join together through contracts to obtain economies of scale and coordination and to reduce the conflict
2. Franchising- a contractual agreement between a franchisor and a franchisee that allows the franchisee to operate a retail outlet using a name and format developed and supported by the franchisor
Types of Vertical Marketing Systems- Corporate Vertical Marketing System
1. The parent company has complete control and can dictate the priorities and objectives of the marketing channel because it owns multiple segments of the channel, such as manufacturing plants, warehouse facilities, and retail outlets.
2. By virtue of its ownership and resulting control, potential conflict among segments of the channel is lessened
*Managing Marketing Supply Chains Through Strategic Relationships
Strategic Relationships- AKA Partnering relationship. The marketing channel members are committed to maintaining the relationship over the long term and investing in opportunities that are mutually beneficial
1. Mutual Trust
2. Open Communication
3. Common Goals
4. Interdependence
5. Credible Commitments
Making Information Flow Through Marketing Channels
1. Customer to Store (Universal Product Code (UPC) tag with description of item)
2. Store to Buyer (Purchase Information)
3. Buyer to Manufacturer (Order for New Merchandise)
4. Store to Manufacturer (Sales Transaction Data)
5. Store to Distribution Center (Deliveries and Inventory Status)
6. Manufacturer to Distribution Center and Buyer- (Advanced Shipping Notice (ASN) what to expect in the shipment)
Electronic Data Interchange (EDI)
The computer-to-computer exchange of business documents from a retailer to a vendor and back
Benefits:
1. Reduced Cycle Time- time between the decision to plan an order and the receipt of the merchandise
2. Better Communication
3. Easily Analyzed and Used
*Vendor-Managed Inventory (VMI)
1. An approach for improving marketing channel efficiency in which the manufacturer is responsible for maintaining the retailer’s inventory levels in each of its stores
2. Better matches retail demand to supply and can reduce the vendor’s and the retailer’s costs
3. Consignment- the manufacturer owns the merchandise until it is sold by the retailer, at which time the retailer pays for the merchandise
Push Marketing Channel
1. Merchandise allocated to stores based on previous sales forecasts
2. Does not need sophisticated IS system
3. Good for steady demand items
4. Goal is to increase demand for the product by providing incentives and focusing one’s efforts on wholesalers, retailers, or their sales people
5. Motivate seller to highlight product and push product to consumers.
Pull Marketing Channel
1. The amount of merchandise sent to the store is determined based on sales data
2. Customers pull the product into marketing channel by demanding it
3. More accurate inventory
4. Better when demand is uncertain
5. Less likelihood of being overstocked or out of stock
6. Increases inventory turnover and is more responsive to changes in customer demand
7. Requires more costly and sophisticated information
*Just-in-time Inventory Systems
AKA Quick Response. Inventory Management systems that deliver less merchandise on a more frequent basis than traditional inventory systems
Benefits:
1. Reduced Lead Time
2. Increased Product Availability
3. Lower Inventory Investment
The Future of Supply Chain: RFID
AKA “Smart Tag”
1. Radio Frequency Identification tags are tiny computer chips that automatically transmit to a special scanner all the information about a container’s contents or individual products
2. Eliminates the need to handle items individually by enabling distribution centers and stores to receive whole truckloads of merchandise without having to check in each carton. Also able to recall overall inventory
3. For most supply chain members, long-term investments in RFID technology are still too risky and expensive