Chapter 13 - Distribution & Logistics
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Part 5: Distribution Decisions
13. Marketing Channels and Supply Chain Management 14. Direct Marketing and Marketing Resellers: Retailers and Wholesalers
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
Chapter 13 Marketing Channels and Supply Chain Management
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
Chapter Objectives 1. Describe the types of marketing channels and roles they play in marketing strategy. 1. Outline the major channel strategy decisions. 2. Describe the concepts of channel management, conflict, and cooperation. 3. Identify and describe the different vertical marketing systems. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-3
More …Chapter Objectives 1. Explain the roles of logistics and supply-chain management in an overall distribution strategy. 2. Identify the major components of a physical distribution system. 3. Compare the major modes of transportation.
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-4
More…Chapter Objectives 1. Discuss how transportation intermediaries and combined transportation modes can improve physical distribution. 2. Identify and briefly describe the different types of warehousing.
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-5
The Role of Marketing Channels in Marketing Strategy Channels provide the means by which the firm moves the goods and services it produces to ultimate users
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-6
The Role of Marketing Channels in Marketing Strategy Facilitate the exchange process by cutting the number of contacts necessary Adjust for discrepancies in the market’s assortment of goods and services via sorting Standardize exchange transactions Facilitate searches by both buyers and sellers
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-7
Types of Marketing Channels Marketing channel - defined: defined system of marketing institutions that promotes the physical flow of goods and services, along with ownership title, from producers to consumer or business user; also called a distribution channel
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-8
Types of Marketing Channels Marketing intermediary: intermediary wholesaler or retailer that operates between producers and consumers or business users; also called a middleman
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-9
Types of Marketing Channels Wholesaler is: marketing intermediary that takes title to goods and then distributes these goods further; also called a jobber or distributor
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-10
Types of Marketing Channels Consumer Goods
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-11
Types of Marketing Channels Business Goods Services
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-12
Direct Selling Direct channel: channel marketing channel that moves goods directly from a producer to ultimate user Direct selling: selling strategy designed to establish direct sales contact between producer and final user
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-13
Channels Using Marketing Intermediaries Producer to wholesaler to retailer to consumer Producer to wholesaler to business user Producer to agent to wholesaler to retailer to consumer Producer to agent to wholesaler to business user Producer to agent to business user
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-14
Dual Distribution: Distribution Network that moves products to a firm’s target market through more than one marketing channel Reverse Channels: Channels Channels designed to return goods to their producers
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-15
Channel Strategy Decisions Selection of a Marketing Channel Factors which impact the selection of a marketing channel include: Market factors Product factors Organizational factors Competitive factors
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-16
Factors influencing Marketing Channel Strategies
Market factors
Characteristics of Short Channels
Characteristics of Long Channels
Business users
Consumers
Geographically concentrated
Geographically diverse
Extensive technical knowledge Little technical knowledge and and regular servicing required regular servicing not required
Product factors
Large orders
Small orders
Perishable
Durable
Complex
Standardized
Expensive
Inexpensive
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-17
Characteristics of Short Channels Producer factors
Competitive factors
Characteristics of Long Channels
Manufacturer has adequate Manufacturer lacks adequate resources to perform channel resources to perform channel functions functions Broad product line
Channel control important
Limited product line
Channel control not important
Manufacturing feels satisfied with marketing intermediaries’ performance in promoting products
Manufacturer feels dissatisfied with marketing intermediaries’ performance in promoting products
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-18
Determining Distribution Intensity Defined: number of intermediaries through which a manufacturer distributes its goods Intensive Selective exclusive
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-19
Distribution intensity
Intensive distribution: distribution channel policy in which a manufacturer of a convenience product attempts to saturate the market
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-20
Distribution intensity type
Selective distribution: distribution channel policy in which a firm chooses only a limited number of retailers to handle its product line
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-21
Distribution intensity type Exclusive distribution: distribution channel policy in which a firm grants exclusive rights to a single wholesaler or retailer to sell its products in a particular geographic area
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-22
Legal problems of exclusive distribution Exclusive-dealing agreement: arrangement between manufacturer and emarketing intermediary that prohibits the intermediary from handling competing product lines
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-23
Legal Problems with Exclusivity
Closed sales territories: exclusive geographic selling region of a distributor
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-24
Legal Problems with Exclusivity
Tying agreement: Arrangement that requires a marketing intermediary to carry items other than those they want to sell Credit & debit cards (Wal Mart sued MC)
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-25
Who Should Perform Channel Functions? Fundamental principle that governs channel decisions Channel members can shift responsibilities for the performance of certain marketing functions, but they cannot eliminate central functions
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-26
Channel Management and Leadership Maintaining relationships Channel Captain: Captain a dominant and controlling member of a marketing channel Food industry: Food producer was captain (past) Today: Retail Giants (Kroger, Safeway…)
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-27
Channel Conflict Horizontal Conflict between different types of marketing intermediaries that handle similar products disagreements among channel members at the same level
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-28
Vertical Conflict Channel members at different levels find many reasons for disputes Example: when retailers develop private brands to compete with producers’ brands or when producers establish their own retail outlets or WWW Sites
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-29
The Grey Market
Grey Good: product made abroad under license from a U.S. firm & then sold in the U.S. market in competition with that firm’s own domestic output Viewed by producers as undesired competition Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-30
Achieving Channel Cooperation effective cooperation among channel members, antidote to channel conflict when all channel members regard themselves as components of the same organization
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-31
Vertical Marketing Systems (VMS) planned channel system designed to improve distribution efficiency and cost effectiveness by integrating various functions throughout the distribution chain Forward integration Backward integration
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-32
Forward integration
Controls downstream distribution Example: Mfg sets up own retail chain to sell its products Liz Claiborne
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-33
Backward integration
Mfg gains control over inputs in production process Acquisition companies Raw materials producers
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-34
Benefits of VMS
Control & coordination of steps in Production & distribution Economies of scale Expansion into new businesses May lose some flexibility in market response Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-35
3 categories of VMS Administered marketing system: system VMS that achieves channel coordination when a dominant channel member exercises its power Corporate marketing system: system a VMS in which a single owner operates at each stage in its marketing channel Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-36
3rd category of VMS CONTRACTUAL marketing system: system VMS that coordinates channel activities through formal agreements among channel members like: Wholesaler-Sponsored Voluntary Chains Retail Cooperatives Franchises
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-37
Logistics Requires supply chain management Control of activities Purchasing Processing Delivery Mfg of products Distribution of goods to final consumer
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-38
Logistics and Supply Chain Management
Supply chain: chain sequence of suppliers that contributes to the creation and delivery of a good or service A.K.A.: Value Chain Upstream management Downstream management
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-39
Figure 13.6 The Supply Chain of a Manufacturing Company
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-40
Tools of Supply Chain Mgmt & logistics
Radio Frequency Identification (RFID) Technology that uses a tiny chip with identification information that can be read by a scanner using radio waves from a distance
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-41
Tools of Supply Chain Mgmt & logistics
Enterprise Resource Planning Software system that consolidates data among a firm’s units Concerned with production issues sequencing & scheduling Scheduling delivery of Halloween candy Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-42
Tools of Supply Chain Mgmt & logistics Outsourcing to specialist firms
Logistical Cost Control Third party (contract) logistics firm: company that specializes in handling logistics activities for other firms TRW Airport security Uniform & cleaning supplies Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-43
Physical Distribution A company’s physical distribution system contains the following elements: Customer Service Transportation Inventory Control Protective packaging and materials handling Order Processing Warehousing Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-44
Figure 13.7 Allocation of Physical Distribution Expenditures
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-45
Physical distribution issues: Situation: Seek specified level of customer service to minimize cost of physical movement & storage The Problem of Sub-optimization Setting Customer service standards
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-46
Physical distribution issues The Problem of Sub-optimization Condition that results when individual operations achieve their objectives but interfere with progress toward broader organizational goals Introducing a new product that doesn’t fit easily into current physical distribution system
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-47
Physical distribution
Customer Service Standards Statement of goals and acceptable performance for the quality of service that a firm expects to deliver to its customers
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-48
Physical distribution components
Transportation Warehousing Customer service Order processing Administrative costs Inventory control See figure 13.7 – p. 434 Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-49
TRANSPORTATION
Largely deregulated Largest logistics cost Adds 10% of cost to product
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-50
Transportation rates
Class Rate Standard rate for commodity moving between any 2 destinations Commodity Rate Favored rate Lower rate as a reward for regular business or quantity shipment Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-51
Classes of Carriers Common carriers move freight via all modes of transportation for the general public Contract carriers do not serve the general public Private carriers do not offer services for hire, but provide transportation services solely for internally generated freight Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-52
Major Modes of Transportation Railroads Motor Carriers Water Carriers Pipelines Air Freight Freight Forwarders and Supplemental Carriers Intermodal Coordination Piggyback, birdy back, fishyback (p. 438 Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-53
Comparison of Transport Modes Mode
Speed
Dependability in Meeting Schedules
Frequency of Availabil- Flexibility Shipments ity in in Handling Different Locations
Cost
Rail
Average
Average
Low
Low
High
Water
Very slow
Average
Very low
Limited
Very high Very low
Truck
Fast
High
High
Very extensive
Average
Pipeline
Slow
High
High
Very limited Very low
Low
Air
Very fast
High
Average
Average
Very high
Low
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
Average
High
13-54
Warehousing
Moving products through physical facilities Two types Storage Distribution warehouses
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-55
Warehousing types
Storage warehouse Holds goods for periods of time To balance supply & demand
Distribution warehouse Store mdse less than 24 hours Central distribution warehouses Break bulk centers Wal Mart’s distribution centers
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-56
Automated Warehouse Technology
Distribution costs can be cut and customer service improved Labor saving devises for high volume distributors Reduces worker injuries Reduces stealing, fires, & damages
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-57
Warehouse locations
Major decision 2 factors influence decision warehousing & handling Costs Delivery costs Large facilities = economies of scale Impacts customer service Speed & accuracy
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-58
Inventory Control Systems firms need to maintain enough inventory to meet customer demand without incurring unneeded costs for carrying excess inventory Just-in-time (JIT) production Vendor-managed inventory (VMI)
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-59
Order Processing Order fulfillment Activities Credit checks Keeping Sales records Accounting entries Locating & shipping orders Stockout: order for a product that is unavailable for shipment or sale Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-60
Protective Packaging and Materials Handling Materials Handling: set of activities that move production inputs and other goods within plants, warehouses, and transportation terminals
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-61
Protective Packaging and Materials Handling Materials Handling types: Unitizing: process of combining individual materials into large loads for easy handling Containerization: process of combining several unitized loads into a single, wellprotected load Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-62
The end
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-63
13. Marketing Channels and Supply Chain Management 14. Direct Marketing and Marketing Resellers: Retailers and Wholesalers
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
Chapter 13 Marketing Channels and Supply Chain Management
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
Chapter Objectives 1. Describe the types of marketing channels and roles they play in marketing strategy. 1. Outline the major channel strategy decisions. 2. Describe the concepts of channel management, conflict, and cooperation. 3. Identify and describe the different vertical marketing systems. Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-3
More …Chapter Objectives 1. Explain the roles of logistics and supply-chain management in an overall distribution strategy. 2. Identify the major components of a physical distribution system. 3. Compare the major modes of transportation.
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-4
More…Chapter Objectives 1. Discuss how transportation intermediaries and combined transportation modes can improve physical distribution. 2. Identify and briefly describe the different types of warehousing.
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-5
The Role of Marketing Channels in Marketing Strategy Channels provide the means by which the firm moves the goods and services it produces to ultimate users
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-6
The Role of Marketing Channels in Marketing Strategy Facilitate the exchange process by cutting the number of contacts necessary Adjust for discrepancies in the market’s assortment of goods and services via sorting Standardize exchange transactions Facilitate searches by both buyers and sellers
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-7
Types of Marketing Channels Marketing channel - defined: defined system of marketing institutions that promotes the physical flow of goods and services, along with ownership title, from producers to consumer or business user; also called a distribution channel
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-8
Types of Marketing Channels Marketing intermediary: intermediary wholesaler or retailer that operates between producers and consumers or business users; also called a middleman
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-9
Types of Marketing Channels Wholesaler is: marketing intermediary that takes title to goods and then distributes these goods further; also called a jobber or distributor
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-10
Types of Marketing Channels Consumer Goods
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-11
Types of Marketing Channels Business Goods Services
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-12
Direct Selling Direct channel: channel marketing channel that moves goods directly from a producer to ultimate user Direct selling: selling strategy designed to establish direct sales contact between producer and final user
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-13
Channels Using Marketing Intermediaries Producer to wholesaler to retailer to consumer Producer to wholesaler to business user Producer to agent to wholesaler to retailer to consumer Producer to agent to wholesaler to business user Producer to agent to business user
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-14
Dual Distribution: Distribution Network that moves products to a firm’s target market through more than one marketing channel Reverse Channels: Channels Channels designed to return goods to their producers
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-15
Channel Strategy Decisions Selection of a Marketing Channel Factors which impact the selection of a marketing channel include: Market factors Product factors Organizational factors Competitive factors
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-16
Factors influencing Marketing Channel Strategies
Market factors
Characteristics of Short Channels
Characteristics of Long Channels
Business users
Consumers
Geographically concentrated
Geographically diverse
Extensive technical knowledge Little technical knowledge and and regular servicing required regular servicing not required
Product factors
Large orders
Small orders
Perishable
Durable
Complex
Standardized
Expensive
Inexpensive
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-17
Characteristics of Short Channels Producer factors
Competitive factors
Characteristics of Long Channels
Manufacturer has adequate Manufacturer lacks adequate resources to perform channel resources to perform channel functions functions Broad product line
Channel control important
Limited product line
Channel control not important
Manufacturing feels satisfied with marketing intermediaries’ performance in promoting products
Manufacturer feels dissatisfied with marketing intermediaries’ performance in promoting products
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-18
Determining Distribution Intensity Defined: number of intermediaries through which a manufacturer distributes its goods Intensive Selective exclusive
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-19
Distribution intensity
Intensive distribution: distribution channel policy in which a manufacturer of a convenience product attempts to saturate the market
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-20
Distribution intensity type
Selective distribution: distribution channel policy in which a firm chooses only a limited number of retailers to handle its product line
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-21
Distribution intensity type Exclusive distribution: distribution channel policy in which a firm grants exclusive rights to a single wholesaler or retailer to sell its products in a particular geographic area
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-22
Legal problems of exclusive distribution Exclusive-dealing agreement: arrangement between manufacturer and emarketing intermediary that prohibits the intermediary from handling competing product lines
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-23
Legal Problems with Exclusivity
Closed sales territories: exclusive geographic selling region of a distributor
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-24
Legal Problems with Exclusivity
Tying agreement: Arrangement that requires a marketing intermediary to carry items other than those they want to sell Credit & debit cards (Wal Mart sued MC)
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-25
Who Should Perform Channel Functions? Fundamental principle that governs channel decisions Channel members can shift responsibilities for the performance of certain marketing functions, but they cannot eliminate central functions
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-26
Channel Management and Leadership Maintaining relationships Channel Captain: Captain a dominant and controlling member of a marketing channel Food industry: Food producer was captain (past) Today: Retail Giants (Kroger, Safeway…)
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-27
Channel Conflict Horizontal Conflict between different types of marketing intermediaries that handle similar products disagreements among channel members at the same level
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-28
Vertical Conflict Channel members at different levels find many reasons for disputes Example: when retailers develop private brands to compete with producers’ brands or when producers establish their own retail outlets or WWW Sites
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-29
The Grey Market
Grey Good: product made abroad under license from a U.S. firm & then sold in the U.S. market in competition with that firm’s own domestic output Viewed by producers as undesired competition Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-30
Achieving Channel Cooperation effective cooperation among channel members, antidote to channel conflict when all channel members regard themselves as components of the same organization
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-31
Vertical Marketing Systems (VMS) planned channel system designed to improve distribution efficiency and cost effectiveness by integrating various functions throughout the distribution chain Forward integration Backward integration
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-32
Forward integration
Controls downstream distribution Example: Mfg sets up own retail chain to sell its products Liz Claiborne
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-33
Backward integration
Mfg gains control over inputs in production process Acquisition companies Raw materials producers
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-34
Benefits of VMS
Control & coordination of steps in Production & distribution Economies of scale Expansion into new businesses May lose some flexibility in market response Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-35
3 categories of VMS Administered marketing system: system VMS that achieves channel coordination when a dominant channel member exercises its power Corporate marketing system: system a VMS in which a single owner operates at each stage in its marketing channel Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-36
3rd category of VMS CONTRACTUAL marketing system: system VMS that coordinates channel activities through formal agreements among channel members like: Wholesaler-Sponsored Voluntary Chains Retail Cooperatives Franchises
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-37
Logistics Requires supply chain management Control of activities Purchasing Processing Delivery Mfg of products Distribution of goods to final consumer
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-38
Logistics and Supply Chain Management
Supply chain: chain sequence of suppliers that contributes to the creation and delivery of a good or service A.K.A.: Value Chain Upstream management Downstream management
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-39
Figure 13.6 The Supply Chain of a Manufacturing Company
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-40
Tools of Supply Chain Mgmt & logistics
Radio Frequency Identification (RFID) Technology that uses a tiny chip with identification information that can be read by a scanner using radio waves from a distance
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-41
Tools of Supply Chain Mgmt & logistics
Enterprise Resource Planning Software system that consolidates data among a firm’s units Concerned with production issues sequencing & scheduling Scheduling delivery of Halloween candy Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-42
Tools of Supply Chain Mgmt & logistics Outsourcing to specialist firms
Logistical Cost Control Third party (contract) logistics firm: company that specializes in handling logistics activities for other firms TRW Airport security Uniform & cleaning supplies Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-43
Physical Distribution A company’s physical distribution system contains the following elements: Customer Service Transportation Inventory Control Protective packaging and materials handling Order Processing Warehousing Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-44
Figure 13.7 Allocation of Physical Distribution Expenditures
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-45
Physical distribution issues: Situation: Seek specified level of customer service to minimize cost of physical movement & storage The Problem of Sub-optimization Setting Customer service standards
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-46
Physical distribution issues The Problem of Sub-optimization Condition that results when individual operations achieve their objectives but interfere with progress toward broader organizational goals Introducing a new product that doesn’t fit easily into current physical distribution system
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-47
Physical distribution
Customer Service Standards Statement of goals and acceptable performance for the quality of service that a firm expects to deliver to its customers
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-48
Physical distribution components
Transportation Warehousing Customer service Order processing Administrative costs Inventory control See figure 13.7 – p. 434 Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-49
TRANSPORTATION
Largely deregulated Largest logistics cost Adds 10% of cost to product
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-50
Transportation rates
Class Rate Standard rate for commodity moving between any 2 destinations Commodity Rate Favored rate Lower rate as a reward for regular business or quantity shipment Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-51
Classes of Carriers Common carriers move freight via all modes of transportation for the general public Contract carriers do not serve the general public Private carriers do not offer services for hire, but provide transportation services solely for internally generated freight Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-52
Major Modes of Transportation Railroads Motor Carriers Water Carriers Pipelines Air Freight Freight Forwarders and Supplemental Carriers Intermodal Coordination Piggyback, birdy back, fishyback (p. 438 Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-53
Comparison of Transport Modes Mode
Speed
Dependability in Meeting Schedules
Frequency of Availabil- Flexibility Shipments ity in in Handling Different Locations
Cost
Rail
Average
Average
Low
Low
High
Water
Very slow
Average
Very low
Limited
Very high Very low
Truck
Fast
High
High
Very extensive
Average
Pipeline
Slow
High
High
Very limited Very low
Low
Air
Very fast
High
Average
Average
Very high
Low
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
Average
High
13-54
Warehousing
Moving products through physical facilities Two types Storage Distribution warehouses
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-55
Warehousing types
Storage warehouse Holds goods for periods of time To balance supply & demand
Distribution warehouse Store mdse less than 24 hours Central distribution warehouses Break bulk centers Wal Mart’s distribution centers
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-56
Automated Warehouse Technology
Distribution costs can be cut and customer service improved Labor saving devises for high volume distributors Reduces worker injuries Reduces stealing, fires, & damages
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-57
Warehouse locations
Major decision 2 factors influence decision warehousing & handling Costs Delivery costs Large facilities = economies of scale Impacts customer service Speed & accuracy
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-58
Inventory Control Systems firms need to maintain enough inventory to meet customer demand without incurring unneeded costs for carrying excess inventory Just-in-time (JIT) production Vendor-managed inventory (VMI)
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-59
Order Processing Order fulfillment Activities Credit checks Keeping Sales records Accounting entries Locating & shipping orders Stockout: order for a product that is unavailable for shipment or sale Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-60
Protective Packaging and Materials Handling Materials Handling: set of activities that move production inputs and other goods within plants, warehouses, and transportation terminals
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
13-61
Protective Packaging and Materials Handling Materials Handling types: Unitizing: process of combining individual materials into large loads for easy handling Containerization: process of combining several unitized loads into a single, wellprotected load Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
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The end
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
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