MODULE TENPART ONE

Module TenChapters 14 & 15

The naTure of disTribuTion

Raw materials

Consumers

Facilitators

Intermediaries

In the next two class periods we will discuss…

✔The general purpose of distribution in the marketing system

✔Role of wholesalers and facilitators✔Role of retailers✔Logistics and Physical Distribution✔The uniting concept of Supply Chain

Management & Total Cost Concept

The two economic theories hat explain the existence of supply chains are...

✔ Time, Place and Possession Utilities

✔ Transactional efficiency

Time, Place and Possession Utilities

✔The purchase of artichokes using your VISA card at Kroger’s in Oxford that were grown in Southern California three weeks ago.

TRANSACTIONAL EFFICIENCY

N = 20 TE = 90%

N = 30 TE= 93%

N = 50 TE = 96%

The concept of “channels of distribution” comes from the French word for canal ( a path that takes goods and people from one point to another, and sometimes back)

The concept of channels of distribution isnow referred to as a Supply Chain

✔ The term supply chain refers to all the institutions and individuals who participate in, or facilitate the movement of goods, services and related documentation from origin to final destination…and back if necessary.

For example, trace all the possible participants involved in providing you with a can of Pepsi…...

What needs do some of the “intermediaries” fulfill within a supply

chain?•Specialization and Division of Labor to gain economies of scale

•Overcoming Discrepancies

*Discrepancy of quantity

*Discrepancy of assortment

*Discrepancy of time and space

•Provide Contact Efficiency

FUNCTIONS AND ACTIVITIES OF SUPPLY CHAIN MEMBERS

✔ Transactional functions

✔ Logistical functions

✔ Facilitating functions

CONTINUE

TRANSACTIONAL FUNCTIONS✔ Contacting potential customers✔ Promoting products or services✔ Negotiating volume bought and sold✔ Arrange physical transportation

mode and timing✔ Methods and timing of payments✔ Assuming the risk of holding title

(sometimes)

LOGISTICAL FUNCTIONS

✔ Transporting and storing goods

✔ Sorting out & accumulation

✔ Allocation: Breaking bulk

✔ Assorting

Small heterogeneous supplies into large homogeneous inventories

Large homogeneous into smaller homogeneous inventories

Small homogeneous into heterogeneous

FACILITATING FUNCTIONS

✔ Marketing Intelligence✔ Marketing Research✔ Financial Services

– Banks– Insurance Companies– Factors

Supply Chain Channel

✔ When you think of a supply chain channel, you should think of it as a series of links in a chain, Each is dependent upon the strength of the link before and the link after. Any one weak link ANYWHERE in the chain will cause it to break down and become ineffective and inefficient.

Supply Chain Channel

✔ To minimize the risk of broken links, one must examine…– Channel cooperation– Channel conflict– Channel leadership– Channel power

OTHER IMPORTANT CONCEPTS RELATING TO THE NATURE OF SUPPLY CHAIN SYSTEMS

INCLUDE….

✔ Vertical Channel systems– Corporate– Administered– Contractual

✔ Parallel Channel systems✔ Dual Channels✔ Strategic Channel Alliances✔ Reverse Channels

As a marketer, you must also decide how widely available you would like to make your product or service

✔ My choices include…– Exclusive distribution

– Selective distribution

– Intensive distribution

Certain relationships between channel members are regulated by law, such as...

✔ Exclusive dealings

✔ Exclusive territories

✔ Tying contracts

✔ Contractual terms of sale

How does a manufacturer decide upon the “best” supply chain?

✔ Needs of the final user or consumer

✔ Nature of the product✔ Support functions required✔ Availability of existing

intermediaries✔ Total cost concept

International Supply Chains

One important dimension of channels of distribution omitted from the chapter is the discussion of international channels

HOW ARE INTERNATIONAL CHANNELS DIFFERENT FROM DOMESTIC CHANNELS?

✔ Political and legal constraints and regulations multiply✔ The flow of documentation is more complex and extensive✔ Channels tend to be longer and slower✔ The more developed the nation, the more levels of

distribution usually exist✔ Power within a channel moves downward as a country

becomes economically developed

HOW ARE INTERNATIONAL CHANNELS DIFFERENT FROM DOMESTIC CHANNELS?

✔ Some foreign middlemen are less risk oriented, poorly financed and may not respect contractual agreements

✔ Language, culture, and geographic distances make smooth channel relationships more difficult

✔While a manufacturer can eliminate the need to use intermediaries, they cannot eliminate the functions provided by intermediaries!!!

Back at the beginning of our discussion, we mentioned the role of facilitators. Who are these facilitators and what do they do?

Some examples include...

Factors

Consolidators

Business consultants

Banks

Insurance companies

Now that we have finished this basic introduction to supply chains, we can turn our attention to learning more about the organizations that make up this supply chain and the

logistics required to move goods and their documentation.

Wholesalers

✔Wholesalers come in a variety of sizes and shapes. They provide many different levels of services for both the manufacturer, retailers, and other wholesalers.

Wholesalers

✔ Neither producers or consumers of finished products

✔ Facilitates transportation and transfer of title

✔ Selling and/or buying “agents”✔ Are diminishing in number and

importance

Classifying Wholesalers

✔ Merchants– Take title to the goods– Represent over 80% of

all wholesalers and 60% of wholesale sales

✔ Agents– Does not take title to

the goods

Types of Merchant Wholesalers

✔ Differences relate to how they physically handle the goods and the nature and range of services provided

✔ Full or limited service✔ Cash-and-carry wholesalers✔ Truck wholesalers✔ Direct marketing

wholesalers✔ Drop shippers✔ Rack Jobbers

Types of Agent Wholesalers

✔ Usually do not hold inventory

✔ Receive commissions based upon selling price of goods

✔ Considerable product expertise

✔ Commission merchants

✔ Auction companies✔ Manufacturer’s agents✔ Selling agents

Wholesalers, to remain successful in the future, must...

✔ Form strategic alliances✔ Maximize the use of relevant new technologies✔ Maintain an appropriate service package✔ Adapt quickly to anticipated changes in the

marketplace

Retailers

The third major player in many consumer goods and services supply chains are retailers. They also come in many sizes and shapes, each looking for a niche to best service the needs and wants of their target market(s).