NOTES RETAIL AND DISTRIBUTION MANAGEMENT

Manoj Patel Asst. Professor

JHUNJHUNWALA BUSINESS SCHOOL, FAIZABAD

Q.1. what do you mean by Disintermediation? Compare the concept with Reintermediation.

Ans. Disintermediation: Disintermediation or ‗cutting out the middle man‘ as it is also known is, at first

glance, an attractive concept for manufacturers with its cost-saving incentives. Competitive advantage can

potentially be achieved by cutting the payments made to intermediaries, not to mention the valuable

information that can be collected through direct contact with customers. However, after a more detailed study

of the critical issues involved such as market conditions, core competencies and the value added to products

by intermediaries, it is clear that some significant barriers to the success of disintermediation exist in many

industries. This report concludes that complete disintermediation is not something that can be expected in the

near future. Rather, since e-business is changing the ways in which consumers search for and buy products

and often intermediaries are in the best position to provide the desired services, it is possible that the

introduction of more intermediaries (reintermediation) would be more beneficial to manufacturers at this time,

freeing them to concentrate on their core competencies. However, firms will have to carefully evaluate the

suitability of their particular industry for either business model.

Disintermediation initiated by consumers is often the result of high market transparency, in that buyers are

aware of supply prices direct from the manufacturer. Buyers bypass the middlemen (wholesalers and retailers)

to buy directly from the manufacturer, and pay less. Buyers can alternatively elect to purchase from

wholesalers. Often, a business-to-consumer electronic commerce (B2C) company functions as the bridge

between buyer and manufacturer.

To illustrate, a typical B2C supply chain is composed of four or five entities (in order):

Supplier

Manufacturer

Wholesaler

Retailer

Buyer

It has been argued that the Internet modifies the supply chain due to market transparency:

Supplier

Manufacturer

Buyer

SYLLABUS UNIT II- IT enabled Distribution Systems & Channel Relationships: IT enabled Distribution Systems;

Disintermediation vs Reintermediation; Cybermediary (e-commerce), Partial disintermediation,

Infomediary; Intermediary empowerment; Framework for adoption of IT enabled distribution systems;

Nature and characteristics of Partnering Channel Relationships; Stages, Reasons and Factors of developing

Partnering Channel Relationships; Channel Conflicts and Resolution Strategies; Partnering Channel

Relationships and IT



Reintermediation: E-business has created many opportunities for new intermediaries, as well as enabling

existing intermediaries to become better-managed and more efficient (Rosenbloom, 2007). Services such as

supplier search, product evaluation (Chaffey, 2009) and price comparison websites are proving very attractive

to customers therefore firms whose products are not included on these sites or on the sites of leading online

retailers such as Amazon are at a disadvantage.

Amazon (originally an online book retailer) has used e-business to quickly develop a customer base which far

exceeds that of any book publisher. This is because consumers were (and still are) drawn by the value-adding

services provided by Amazon. Nowadays, Amazon sells a huge variety of products and any manufacturer

who opts not to sell its products through intermediaries such as Amazon will considerably limit their sales

opportunities. Using such intermediaries enables manufacturers to reach a much wider audience with their

products and offer customers a ‗value-added‘ experience.

Manufacturers can also take advantage of the marketing opportunities created by e-business. For example,

they can set up ‗affiliate marketing‘ programs online which enable their products to be promoted and sold by

almost anyone for a commission. This way product can be widely marketed, only costing the manufacturer

when a sale is made. This model of inviting an unlimited number of intermediaries to sell a product is

attractive because it means that money is not wasted on marketing that does not bring sales.

If the use of intermediaries is the most cost-effective and efficient way to take advantage of all that e-business

has to offer, it could be argued that now is the time to introduce more intermediaries than ever before. Any

intermediary that adds more value to a product than it charges for the service is worth considering and so too

are those intermediaries that will enable a product to be more widely marketed or efficiently distributed than it

is currently being. Rosenbloom (2007), Agrawal (2006), Gigalis (et al, 2002) and King (1999) all suggest that

Reintermediation has just as much, if not more potential to create competitive advantage which may explain

Palvia (et al)‘s (1999) findings that it is the more popular model in reality.

Q.2. Illustrate channel conflict with suitable example and methods how to resolve the channel conflicts?

Ans. Channel Conflict in Brief: Multichannel systems are a way of life for manufacturers today. Whether

you are managing a mix of direct and indirect channels or a spectrum of high-support to low-support resellers,

the reality is that channel conflict will be an ongoing issue in your marketplace. As the number of internet

sites (potentially including your own) that offer your product for sale proliferates, this multi-channel structure

becomes more complex and the channel conflict potential more pervasive.

A limited amount of channel conflict is healthy. It indicates that you have adequate market coverage.

However, once the balance between coverage and conflict is lost, destructive channel conflict can quickly

undermine your channel strategy, market position and product line profitability.

Conflict can show up in the market in a variety of ways. A point of confusion for many manufacturers is

whether problems are truly symptoms of destructive channel conflict or other marketing or channel strategy



issues. When faced with potential indicators of destructive conflict, you should audit your market position to

identify the true cause and then quickly act to address it.

Channel conflict is managed by a combination of economics and controls. Economic solutions compensate

channels fairly for functions performed and help direct channels away from actions that create destructive

conflict. Controls put structure around a channel strategy to limit the potential for undue destructive conflict.

Channel Conflict Solutions: Channel conflict is an integral part of your channel strategy, so you must

examine your market position and channel strategy before attempting to manage it. Taking a closer look at the

problem often reveals that the perceived channel conflict issue masks a larger channel strategy issue. So prior

to executing solutions to address channel conflict, the manufacturer is encouraged to examine all elements of

its overall channel strategy, including pricing, end user segmentation, channel support programs, company

policies, etc. Have you created a conflict situation through the design or implementation of these other

components of channel strategy?

Destructive channel conflict is managed through economics and structural controls. Economics motivate the

channels to avoid conflict. Structural controls lay the ground rules within which conflict is managed. With

each tactic, communication before conflict arises is critical.

The right economic solution is dictated by the type of conflict being faced, the manufacturer's market and

channel position, and the company's strategic goals. Economic approaches include;

Dual compensation—applied when conflict exists between direct and indirect channels. The goal is

to move the indirect channel from a position of potential adversary for the direct sales force to one of

"partner" for the direct sales force

Activity based compensation or discount—used to manage cross-channel conflict or conflict

between channels of differing cost structures and capabilities. Activity based discounts are applied by

paying a channel a specific discount if it performs a measurable task or function. These discounts

allow the "high-cost" channel to compete against "low-cost" channels for those customers who value

the high support

Shared costs—the key difference between this concept and functional discounts is that functional

discounts compensate the channel for incremental tasks via a discount on product sold, while shared

costs pay directly for the task

Compensation for market share—usually applied to direct versus indirect conflict, the direct sales

rep is compensated based on total market share in a territory. The goals of the sales rep are based on

direct and indirect volume, thus motivating the direct rep to "partner" with indirect channels to

maximize territory volume

Structural controls are only as effective as their enforcement. There is no value unless you are willing to

clearly spell out the controls at the outset of the channel agreement and enforce the stated penalties to all

channel members. The structural controls are typically applied to:



Accounts—you specify "named" or "house" accounts where indirect channels can expect to compete

with your direct channels. Named accounts are usually specified based on end-user sourcing

capabilities, channel ability to meet end-user buying requirements, and volume and strategic value

Products—channels can qualify for franchising by product line/category across your company's

offering. Product qualification is usually based on end-user product support needs, channel support

capabilities, "fit" or positioning of the product category in the channel's overall business, and strategic

considerations

Geography—as a manufacturer, you can specify those geographies/account types in which you will

provide sales support to the channel. These geographies are usually defined by granting the channel a

primary area of responsibility

The successful marketer combines the elements of economic and control-related solutions that best address

conflict challenges —framing them in an understanding of market position, channel position, and strategic

goals.

Recognizing Destructive Channel Conflict

Channel "noise" regarding conflict always exists. (In fact, a lack of channel noise is often an early indicator of

coverage gaps in the manufacturer's channel strategy.) However, it does not mean that your company is

experiencing destructive channel conflict just because different internal factions or channel members are

complaining about lack of manufacturer commitment or are uncomfortable with competition for some sales.

Increasing levels of noise or evidence of declining channel support for your product line would be indicators

to pay attention to. It is a tough call, however, since destructive conflict tends to creep into a channel system

over time.

External Indicators of Destructive Channel Conflict

Border Wars: These occur when multiple members of the channel network compete for the same

sale in the same account. A limited number of border wars should be expected and are, in fact, one

indication that you have good market coverage. A soft market creates the environment for increased

border wars as channels get more aggressive to deliver revenue. Generally, channels will begin to

react to channel conflict when incidence of border wars exceeds 10% to 20% of that channel's total

business with a manufacturer's products.

Emotion: A necessary component of good channel management strategy is controlling the degree of

emotion from the channel. However, as emotion builds, the channels will begin to react by reducing

support of the product line or by switching out that line wherever possible. Emotion will often cause

the channel to de-emphasize a brand even when it is not in the best interest of the channel. We have

found that channels often have this discretion to control brand choice in as much as 40% of sales—

they typically don't choose to exercise this discretion.



Customer Satisfaction: Conflict can erode customer satisfaction for two reasons:

Customers will start to experience redundant buying costs when forced to deal with multiple channels

offering essentially the same solutions in sales situations

Competing channels focus on easy ways to win the sale in a conflict situation (such as dropping price)

and begin to ignore less evident customer buying requirements

Is Channel Conflict a Strategic Issue in Your Business Today?

Take a moment to consider the following questions:

1. Have you recently seen your market move through a "transition" point (e.g., from introduction to

growth, from growth to maturity)?

2. Have you made any recent changes to your channel strategy (e.g., adding channel members, adding

new types of channels)?

3. Have requests from the direct sales force or channels for special prices increased significantly?

4. Have gross margins eroded significantly in any customer or channel segments?

5. Have you seen a decrease in dollar revenue per direct sales rep and/or dollar revenue per channel

location?

6. Have you experienced significant loss of market share or declines in customer satisfaction in any

customer segments?

7. Have you experienced a decrease in your number of channels as a result of channels dropping your

line?

Q.3. Comments on ―Information Visibility and Its Effect on Supply Chain Dynamics‖

Today, companies use a variety of software applications for obtaining appropriate product information, and

for planning and optimizing performance of their supply chains. These applications include Materials

Requirement Planning (MRP), Manufacturing Resources Planning (MRPII), and Enterprise Resource

Planning (ERP) for their day-today planning activities. Some companies have taken initiative to implement

Advanced Planning and Scheduling (APS) packages for simultaneous scheduling and planning with their

supplier/s. Most of these applications are focused internally within an enterprise. They depend on data

gathered at regular intervals from purchasing, manufacturing, distribution, and sales operations. Current

techniques for gathering data include manual data entry by operators at various locations into logbooks or

data-entry terminals, usage of barcodes, and tags. Transfer of information across units is usually affected by

mail, phone, fax, email, or electronic data interchange (EDI). Data gathered by these techniques is typically

not in real time – it is updated on a daily, weekly or monthly basis.

Also, there is significant percentage of errors in manual data entry. Barcode scanning requires operators and

introduces constraints regarding orientation of the product and cleanliness of labels for fast, efficient data

collection. Using EDI is expensive, and moreover, not all suppliers and buyers have the infrastructure setup to

use it. As a result, information access is usually restricted to localized zones. Communication between units is



normally pipelined sequentially and revising and reorganizing of plans takes a considerable amount of time.

Differing data formats across trading partners introduce incompatibility – and a need to convert data from one

format to another.

Fig: Dynamic Communication and Trading.

The advent of the internet has led to the emergence of new business models and increased competitive

pressures, forcing companies to operate more efficiently than ever before. To be profitable and to thrive,

companies are collaborating closely with all partners in the supply chain – from the supplier‘s supplier to the

customer‘s customer. These trading partners need to share forecasts, manage inventories, schedule labor,

optimize deliveries, and thus improve overall productivity. Software for Business Process Optimization

(BPO), and Collaborative Planning, Forecasting and Replenishment (CPFR), are correspondingly evolving to

help companies collaboratively forecast and plan amongst partners, manage customer relations, and improve

product life cycles and maintenance. Traditional supply chains are rapidly evolving into ―dynamic trading

networks‖ comprised of groups of independent business units sharing ‗planning and execution information‘ to

satisfy demand with an immediate, coordinated response. Most of the software packages mentioned above fall

in the realm of ‗Logistics, Scheduling and Planning‘ shown in Figure The second layer, i.e., deal-making

amongst trading partners, is dependent to a huge extent on company strategies and proper alignment of

business motives. Moreover, both these layers rely on the communications management layer for their data

acquisition and storage needs. Thus, to facilitate interaction between these partners in a supply chain or



independent business units in a dynamic trading network, it is essential to establish a strong communications

link that is capable of gathering information in real-time and making it available to everyone concerned

instantaneously, preferably in a standardized format. Information gathered is useful not only for collaboration

amongst units but also for planning and scheduling within a unit – based on data inputs from the same unit as

well as other units. For example, to decide the production schedule in an assembly plant, a car manufacturer

needs information about inventories at the distribution centers and retailers, a unified forecast of demand for

the cars, capability of suppliers to provide required parts for assembly, as well as current capabilities of the

assembly plant under consideration, in terms of inventory levels, labor, scheduled shutdowns, etc. In this

thesis, we provide a framework for achieving complete information visibility in supply chains or trading

networks using the internet, and technology being developed at MIT‘s Auto-ID Center electronically coded

tags, automatic identification systems, and standardized formats for data representation.

Analysis of current SCM practices:

The past three decades have seen tremendous developments in software for production and operations

management. This has been a direct result of developments in computers and information technology, and

also of the way companies ran their businesses. There has been a distinct trend of increased collaboration

within organizations and amongst trading partners over the years. The traditional way of doing business with

clear-cut lines of demarcation between roles and responsibilities of individual units is fast giving way to

shared roles and responsibilities amongst trading partners. The growth of software applications over the years

reflects these trends. The foremost software application developed during the early 1970s to help warehouses

to plan inventory and shop floors to plan production was materials requirement planning (MRP). The

widespread popularity of MRP in manufacturing departments prompted the development of manufacturing

resource planning (MRP II) in the 1970s. MRP II built upon MRP, by tying it to the company‘s financial

system. By late1980s, companies found an increasing need to integrate together information from all different

units within the organization in order to be able to take better decisions for improving productivity and

increasing profits. This led to the development of enterprise resource planning (ERP) applications. ERP built

upon MRP II, by adding functionality to include many more departments within the organization.

Implementation of ERP involved extensive use of developments in information technology. With competition

increasing with time, to remain in business, companies soon found it necessary to optimize the entire product

―supply chain‖. This called for collaboration not only within the organization, but also with trading partners in

the supply chain. The importance of managing customer relationships, being flexible to respond to changes in

organizational structure as well as customer demand, managing the product life cycle, etc. influenced the

growth of next generation software applications - advanced planning and scheduling(APS). This software

used optimization algorithms to compute the optimal production plan and machine schedules to reduce

operating costs and improve profits. Competition, partner collaboration and increasing demands for customer

responsiveness drove further developments in APS, and these newer software packages, generically known as



Business Process Optimization (BPO) software is slowly replacing ERP/MRP II/MRP across all industries.

Having optimized so far, companies now are looking for ways to reduce lost sales, match supply and demand

with least inventory, and remain as lean as possible. Companies are also adapting a new concept called

collaborative forecasting, planning and replenishment (CPFR) to achieve the above.

Materials requirement planning (MRP):In a manufacturing operation, answering questions regarding

which materials and components are needed, in what quantities, and when, is extremely vital. Traditionally,

majority of the manufacturing organizations controlled sub-assemblies and components using order-point

methods. In the early 1970s, a software application was developed to provide companies with answers to the

above questions – it was materials requirement planning (MRP). An MRP system uses as inputs the demand

information from the master production schedule (MPS) with a description of what components go into a

finished product (the bill of materials - BOM), the order or production times for components, and the current

inventory status. The system calculates the exact quantity, need date and planned order release date for each

of the sub-assemblies, components and materials required to manufacture products listed on the MPS.

Figure: MRP: inputs & outputs.

This is shown in Figure MRP aids in controlling inventories, and managing work orders, purchase orders, and

sales orders. MRP helps companies adapt easily to changes in customer requirements by revising production



and purchase plans when the MPS is changed. It improves customer service by providing ability to the

company of consistently delivering finished products to the customer in a reliable and timely fashion. It helps

maximize resource utilization, and reduce costs by pruning inventory to minimum required levels. Table 2.1

lists some examples of commercial MRP software packages. Implementing and operating an MRP system

was a major challenge for many companies. The program makes assumptions like infinite capacity, certain

economic batch quantities, and fixed lead times. MRP success requires a realistic master production schedule,

methods of controlling as well as planning priority, accurate purchasing lead times, a balanced approach to

processing change (handling unplanned events), and most importantly, accurate data and timely data

processing.

Manufacturing resource planning (MRP II):The manufacturing modules of MRP II include all the

elements of MRP, plus additional developments:

Feedback – from the shop floor as to how the work has progressed, to all levels of the schedule, so

that the next run can be updated on a regular basis.

Resource scheduling – it takes into account the plant and equipment required to convert raw

materials into finished goods while scheduling. This means that capacity is taken into account (unlike

MRP). The drawback is that capacity is considered only after the MRP schedule has been prepared;

hence time allotment might be insufficient.

Batching rules can be incorporated into the scheduling of resources, either Lot for Lot, economic

batch quantity, or part period cover rules.

Other software modules like ―rough cut capacity planning‖ (RCCP) can be incorporated to help the

scheduling process.

Information from MRP II is useful to many functional areas in the firm as follows:

Purchasing – purchase orders.

Production – production scheduling and control, inventory control, capacity planning.

Finance – financial resources needed for material, labor, overhead, etc.

Accounting – actual cash flow projections over time, production costs, etc.

Enterprise resource planning (ERP): The development of ERP systems was an inside-out process of

evolution, starting from inventory control packages, to MRP to MRP II, further expanding to include other

enterprise processes such as sales and order management, marketing, purchasing, warehouse management,

financial and managerial accounting, and human resources management. While MRP II includes many of

these functions, it looks inwards at the heart of individual sites whereas ERP looks out to the wider picture at

the entire enterprise level.

ERP systems are developed based on a reference enterprise business model, chosen by the developers of the

ERP system. The developers implicitly promote the notion that the reference model used embodies best

business practices. Different reference models reflect different preferred business practices, including



underlying data and process models as well as organizational structures. There can be considerable

mismatches between the actual company-specific business practices and the reference models embedded in

the ERP system. While at the abstract level best practices may be ―universal‖, at the detailed process level

these mismatches create considerable implementation and adaptation problems.

Table: SAP R/3 Modules

Advanced Planning and Scheduling (APS): Supply chain management requires responsive, intelligent

decision support tools to determine optimal (or at least feasible) methods of satisfying customer demand and

product supply. APS tools have been developed with the intention of meeting this requirement. These systems



aim at optimizing the supply chain objective discussed in the previous paragraph subject to constraints of

resource availability, capacity costs, labor and materials costs, and transportation resources. They help

companies forecast demand with the help of sophisticated modeling and statistical techniques given their

memory-resident and exception based nature, together with their object-oriented design and algorithmic

domain expertise, they are technologically far superior to ERP and give results very fast compared to ERP.

APS tools are designed to help companies create plans and schedules that are based on system constraints.

APS tools generate a high rate of return by shortening the forecast cycles, enhancing visibility of production

plans and schedules, increasing accuracy of order date commitments, taking real-time decisions in the face of

supply / demand fluctuations, and planning in real-time rather than batch processing.

APS fails to yield the above-mentioned improvements if companies do not adopt new procedures and modify

their business processes simultaneously. Although APS tools are ―intelligent‖, they are hampered due to their

focus on manufacturing, distribution and transportation functions in the supply chain. This focus is acceptable

in traditional, slow moving environments. The current fast-paced business environments warrant a broader

scope of planning efforts. Where customization and perfect delivery are the price for getting business,

customer interaction is the main driver behind the entire product delivery process. Software vendors have

moved on from pure APS tools to building a complete set of software for business process optimization.

Business process optimization (BPO): Companies like i2 Technologies, planning and optimization software

vendors have developed software solutions for business process optimization (BPO). BPO is a class of

decision-intelligence software that features multi-enterprise optimization and integration. ERP, legacy and

other transaction systems, are built for recording what already happened. BPO software leverages current

infrastructure, by deriving raw data from ERP systems or any other existing data source. Next, it engages an

integrated set of planning engines to produce an optimal solution based on a complete view of the enterprise

and its trading partners. Last, it feeds the optimal solution data back into the transaction system for execution.

Its major components typically include the following:

Product life cycle management: this spans the entire product development and product lifecycle

process – from early concept definition, through development and test, launch, to product phase-out.

It provides support for strategic issues and daily operations.

Supply chain management, this includes:

Demand fulfillment – to provide fast, accurate, and reliable responses to customer orders. It

is mainly an execution-level process that includes order capturing, customer verification,

order promising, backlog management, and order fulfillment.

Demand planning – to understand customers‘ buying patterns and develop aggregate,

collaborative forecasts. It is by definition a planning process that feeds into the supply

planning process, and subsequently the demand fulfillment process. It involves long-term,

intermediate-term and short-term time horizons.



Supply planning – to optimally allocate enterprise resources to meet demand. This is a

planning-level process that spans the strategic and tactical supplyplanning processes. It

includes long-term planning, inventory planning, distribution planning, collaborative

procurement, transportation planning and supply allocation.

Customer Relationship Management (CRM):

Creating demand through identifying and acquiring customers, and developing marketing

content and offers.

Matching demand with customized product offerings. ß Fulfilling demand by executing the

sales transaction (either directly, or through indirect channels), and providing real-time,

integrated order fulfillment.

Managing long-term customer relationships, by servicing customer needs and cross-selling

and up-selling opportunities. ·

Inter-process planning includes:

Integrated Sales and Operations Planning – ability to review the operation plan with the

revenue objectives for the financial periods – based on the different plans of the different

authority domains – including promotion plans, new product introduction plans, possible

long-term contracts etc.

Financial Planning – ability to project revenues, earnings and other financial measures for

the next few financial periods based on the plans of the different authority domains with the

organization on a continual basis and changes in the market conditions. It will also be able to

suggest corrective actions to alleviate the deviations from the strategic plan. This will help in

monitoring metrics for different authority domains of the organization to provide them a

quick feedback on their impact on the entire financial plan.

Strategic Planning: enables companies to plan scenarios, set goals, and monitor the performance.

Here, it is necessary to note that BPO software gets data from traditional legacy systems or ERP

software. Hence, problems of data management associated with ERP and legacy systems apply

directly to BPO software too. These data management issues are discussed later in this chapter. In the

next section, we review the concept of CPFR.

Electronic data interchange (EDI): EDI is a member of a larger family of technologies used for

communicating business messages electronically, including facsimile, electronic mail, telex, and 26 computer

bulletin boards. EDI is commonly defined as application to application transfer of business transactions on a

computer. EDI implementation involves understanding EDI standards, communications link between

partners, and available software. EDI standards developed beginning in 1960, when proprietary standards

were implemented and organizations were created to develop industry and inter-industry standards. Use of

EDI increased dramatically during late 1970s and early 1980s, and ANSI ASC X12 (American National



Standards Institute, Accredited Standards Committee) was chartered to develop standards to facilitate

electronic interchange of business transactions. EDI implementation involves a communication medium for

electronically transferring data between organizations. There are many popular channels for EDI

communication. At the top of the list are Value Added Networks (VANs), which are similar to electronic

mailboxes, as they provide postbox service between EDI users . VANs have the capability to exchange data

with a wide variety of computers using appropriate communication protocols. VANs are popular with small

sized companies, running low volumes of transactions. Companies running high volumes of transactions

prefer Direct Connections, which are usually telephone lines connected with modems at both ends, dedicated

solely for the purpose of transactions transfers. EDI software is the front-end for interaction with people. The

software package should allow data to be entered and encoded into an EDI standard format, and also decode

incoming EDI data and convert it to in-house data formats. Common use of EDI is in sales, order processing

and purchasing, inventory management, distribution, financial management, etc. Implementation aspects have

more to do with managerial support than technical implementation. Trading partner agreements, vendor

agreements, VAN agreements, role of lawyers and auditors, and security of communication are some of the

issues of concern. Costs associated with EDI include hardware costs (computers, VAN, and appropriate

software) depending on scale of implementation. These costs are quite large (average hub investment of $1

million, plus spokes investment of an average of $45,000 [24]). This is coupled with adjustment time, and

lack of human resources skilled in using EDI. Using EDI requires a company to also educate its trading

partners to use it. Company data structures sometimes do not fit standard EDI form, which forces manual

intervention in the process. Integration of legacy systems poses a big problem before companies using EDI.

Also, EDI standards are inflexible. VANs are costly too. Also, each transaction in EDI is in a separate format,

causing VAN costs to rise higher. Large companies have annual EDI transactions to the order of 100 million,

VANs charge companies on a transactions basis. Hence companies are looking for the cheapest network to

conduct their transactions. Although EDI is still better than paper based transactions, it doesn‘t lend itself to

change. Today‘s business models emphasize on speed of transactions, reducing product lifecycle, having

multiple partners in the supply chain, and a strong collaborative focus. EDI is traditionally a hub and spoke

architecture (with VANs), emphasizing growth with trading partner, slow to change standards, has limited

capabilities, and requires experts to implement it. The internet offers a very cost-efficient replacement for

VANs used for EDI. As a result, companies are gradually moving towards using EDI.

Q.4. Whatdo you mean by Partnering Channel Relationships? Explain its nature and characteristics.

Ans.: Partnering Channel: A channel partner is a company that partners with a manufacturer or producer to

market and sell the manufacturer's products, services, or technologies. This is usually done through a co-

branding relationship. Channel partners may be distributors, vendors, retailers, consultants, systems

integrators (SI), technology deployment consultancies, and value-added resellers (VARs) and other such

organizations.

http://en.wikipedia.org/wiki/Co-branding

http://en.wikipedia.org/wiki/Co-branding

http://en.wikipedia.org/wiki/Value-added_reseller



In the present era of global competition, market orientation and customer focus can make a vital difference. In

order to achieve this, firms are going all out to increase their product portfolio, focusing on quick response,

prominent display, ready delivery, 24 hour on-the-spot after sales service, creation of awareness, and ability to

influence purchase decision. Offering such a bundle is normally beyond the firm`s capability, and firms are

increasingly relying on their marketing intermediaries. With firms today expecting more from their channel

members in terms of investment, go down /show-room space, skilled sales forces and mobility, conflict-free

partnering channel relationships (PCR) need to be developed and maintained, facilitated by information

technology solutions.

Agarwal, Singh and Agarwal report the findings of a study undertaken to identify the key relationship factors

as perceived by firms and channel members; and to elucidate the scope of various IT solutions for addressing

these factors. A descriptive research, based on a preliminary study, was conducted to collect the views of a

sample of 20 corporate and 50 dealers/stockiest of three sectors (FMCG, durable and automobile industries)

to identify the factors for PCR. On the basis of these discussions, 21 strategic and service related factors were

identified. These factors were ranked in order of importance. While respondents perceived all the factors as

important, `reasonable return on investment and infrastructure` emerged as the most important factor, and

`consistency in total trade related service quality` as the least. These factors were grouped into nine Key

Relationship Factors.

The above analysis formed the basis for exploring the scope of IT application in terms of either replacement

of the manual system by a Web-based system, or improvement of the capability through efficiency

enhancement. The authors show how integrating dealer systems on the Web can help improve marketing

efficiency, ensure more transparent and hyper-responsive transactions through real-time information sharing,

and reduce transaction and communication costs.

Optimizing Channel Partner Relationships:

Channel partners—those companies that help you bring your company‘s products and services to market—are

critical for business success. They can help you open the door to new business opportunities faster, at lower

cost, and with lower risk than a merger or acquisition. At Partnership Continuum, clients are asking us how

they can understand which of their channel partners can best help increase profitability and how they can

assess which channel partners have the most potential for a closer, more strategic relationship. These

questions are worldwide challenges. In India, for example, I recently presented Channel Partner Relationship

seminars in Mumbai and Delhi. Leader‘s at the most prominent and best-known Indian companies attended

the two-day seminar. They wanted to learn techniques for growing channel partner relationships and moving

them from transactional to strategic partners. What‘s the difference? Transactional partners are indirect

partners. They provide a distribution outlet for your products. These are usually transaction- based

relationships that provide little loyalty to you or your products and do not focus on differentiating your

products and brand in the marketplace. As soon as the transaction is no longer attractive to them, they move



to other suppliers or vendors. Examples of transactional partners include such distribution businesses as retail

stores, service providers, and e-commerce sites. Strategic partners are long-term business alliances where the

companies rely on each other to position their products, services, and brand in the marketplace. Examples of

strategic alliances include code-sharing arrangements between airlines, as well as arrangements between

telephony service providers and handset manufacturers such as Apple and AT&T or Boeing Company and

G.E. Aviation. A third category of channel partner is tactical partners, those that are associated with your

internal business processes. Examples of tactical partners might include mobile phone service providers that

use indirect retail outlets to sell and activate their handsets and service, a manufacturer that produces a

component for a product developed and assembled by others, or a healthcare service that uses a specific

healthcare provider. Outsourcing service providers and managed services providers can be either transactional

or strategic partners, depending on which business processes are outsourced and how the deal is structured.

Typically, companies have fewer tactical partners than transactional or strategic partners. In fact, 85-90

percent of channel partners are transactional partnerships.

Growing a Channel Partner Relationship: Define and Assess the Partner in growing a relationship with

channel partner, it is important to first define the type of partner it is: transactional, tactical, or strategic.

Assess the partner‘s potential capability or capacity and cull out the ones that cannot meet your value and

relational expectations. Growing a channel partner from a transactional to a strategic relationship is a complex

process that has two components:

Business component (the transaction or task)

Relational component

For successful outcomes, you must pay attention to both components.

When you spend time up front to qualify the right channel partner, it should not be a problem to accomplish

the activities in the transactional component. It is more difficult to achieve the desired outcomes in the

relational component. The following table displays factors that enable or hinder successful outcomes in both

the transactional and relationship components. Note that basic fairness as well as business and partnering

competencies rise to the top.



Nature of the channel partner: Technology changes channel economics, capabilities and capacities, also

changing the rules in favor of some and disrupting others. Evaluating changes in the go-to-market channels is

another technique for assessing the silent signs of disruption.

Customers disrupt companies when they choose alternative approaches to meeting their needs. When this

happens the average age of a company‘s customer base tends to lengthen as current customers stay and new

customers materialize at competitors or even in different industries. Diagnosing those signs of disruption was

the focus of a prior post.



Channels create disruption. Customers choose more than a company, product or service; they choose a

channel and where there is choice there is the opportunity for disruption. Channels are disruptive in multiple

ways including traditional channel strategy and commerce tactics such as:

Channel partners no longer offering your product or service, or

The channel placing competing products or services ahead of yours, or

The channel is no longer effective at attracting customers, or

Their economics and commercial terms turn negative

The points above address channel strategies and tactics. However, if channels are a source of disruption, then

there should be a way to assess the signs of disruption.

Write short notes of the following:

Q.1. Elaborate the term ―Infomediary‖?

Ans. Infomediary: An infomediary works as a personal agent on behalf of consumers to help them take

control over information gathered about them for use by marketers and advertisers. The concept of the

infomediary was first suggested by former McKinsey consultant John Hagel III and former Harvard Business

School professor Jeffrey Report in their article ―The Coming Battle for Customer Information‖. Infomediary

operate on the assumption that personal information is the property of the individual described, not

necessarily the property of the one who gathers it. The infomediary business model recognizes that there is

value in this personal data and the infomediary seeks to act as a trusted agent, providing the opportunity and

means for clients to monetize and profit from their own information profiles.

One of the first focused implementations of the infomediary concept was an online advertising company

called All Advantage launched in 1999. While that company did not survive, in more recent years there has

been renewed interest in the infomediary concept, with entrepreneurs and investors building companies to

identify and leverage the market value of consumers' information.

Q. 2. What is difference between coverage and conflict?

Channel conflict can be defined as any scenario where two different channels compete for the same sale with

the same brand. Conflict can take the form of a direct sales force competing with an independent distributor,

two different types of competing distributors, two like distributors competing for the same sale, or all of the

above.

A few facts about achieving an appropriate balance between coverage and conflict:

Lack of any channel conflict in a marketing strategy usually indicates gaps in market coverage

Conflict cannot be eliminated. The goal of marketing management must be to optimize market

coverage and manage a healthy level of channel conflict so that it does not become destructive

Market share erosion and declining street prices are evidence that channel conflict is becoming

destructive. Channels are responding to excessive competition by de-emphasizing the brand or by

giving away too much in order to keep an account

http://en.wikipedia.org/wiki/Personal_agent

http://en.wikipedia.org/wiki/Consumer

http://en.wikipedia.org/wiki/Advertiser

http://en.wikipedia.org/wiki/McKinsey_%26_Company

http://en.wikipedia.org/wiki/John_Hagel_III

http://en.wikipedia.org/wiki/Harvard_Business_School

http://en.wikipedia.org/wiki/Harvard_Business_School

http://en.wikipedia.org/wiki/Jeffrey_Rayport

http://en.wikipedia.org/wiki/Personal_information

http://en.wikipedia.org/wiki/Business_model

http://en.wikipedia.org/wiki/AllAdvantage



Every manufacturer will likely face destructive channel conflict at some point. As markets evolve and

mature, many manufacturers will be required to add new, lower-cost channels in order to cover all

major market segments. Often, destructive conflict arises because changes in the manufacturers go to

market strategy lags the market changes associated with market evolution.

Q.3. Define Intermediaries Empowerment.

Ans.: Consumer-empowering intermediaries have become a mainstream phenomenon in recent years, driven

by new technology and a consumer thirst for impartial advice. These intermediaries help consumers by

balancing asymmetries of information and power and reducing the pain of engaging with suppliers. In doing

so, they introduce a new dynamic into markets. They turn ‗consumer empowerment‘ into a business model.

The Rise of the Consumer Empowering Intermediary is a special report on how intermediaries are a catalyst

of market change for Consumer Futures. The report analyses developments in the market for intermediary

information services that help individuals make better decisions and deal more effectively with suppliers.

This report seeks to:

Deepen our understanding of the different types of intermediary services that are emerging

Identify the vectors driving the evolution of the market

Identify actual and potential impacts on the workings of regulated industry markets, thereby highlighting

issues regulators and other bodies working in the consumer interest may need to address and questions they

may want to explore further.

NOTES RETAIL AND DISTRIBUTION MANAGEMENT

Education

Transcript of NOTES RETAIL AND DISTRIBUTION MANAGEMENT