Marketing Channels and

Supply Chain Management

12
chapter

Prepared by
Deborah Baker
Texas Christian University

Chapter 12 Version 6e ©2002 South-Western 1

 Learning Objectives
1. Explain what a marketing channel is and
why intermediaries are needed.

12 2. Define the types of channel intermediaries

and describe their functions and activities.
chapter

Chapter 12 Version 6e ©2002 South-Western 2

 Learning Objectives (continued)
3. Describe the channel structures for
consumer and business-to-business
products and discuss alternative channel
arrangements.
12
4. Define supply chain management and
chapter

discuss its benefits.

5. Discuss the issues that influence channel

strategy.
Chapter 12 Version 6e ©2002 South-Western 3
 Learning Objectives (continued)
6. Explain channel leadership, conflict, and
partnering.

12 7. Describe the logistical components of the

supply chain.
chapter

8. Discuss the concept of balancing logistics

service and cost.

Chapter 12 Version 6e ©2002 South-Western 4

 Learning Objectives (continued)
9. Discuss new technology and emerging
trends in supply chain management.

12 10. Discuss channels and distribution

decisions in global markets.
chapter

11. Identify the special problems and

opportunities associated with distribution
in service organizations.

Chapter 12 Version 6e ©2002 South-Western 5

 1
Learning Objective

Explain what a marketing channel

is and why intermediaries are needed.

Chapter 12 Version 6e ©2002 South-Western 6

 1
Marketing Channels

AA set
set of
of interdependent
interdependent organizations
organizations
Marketing
Marketing that
that ease
ease thethe transfer
transfer of
of ownership
ownership asas
Channel
Channel products
products move
move from
from producer
producer to
to
business
business user user or
or consumer.
consumer.

The
The connected
connected chain
chain of
of all
all the
the business
business
Supply
Supply entities,
entities, both
both internal
internal and
and external
external to
to the
the
Chain
Chain company,
company, that
that perform
perform oror support
support the
the
logistics
logistics function.
function.

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 1
Marketing Channel Functions
Specialization
Specialization and
and
Division
Division of
of Labor
Labor
Channels
Channels
Fulfill
Fulfill
Three
Three Overcoming
Overcoming
Important
Important Discrepancies
Discrepancies
Functions
Functions

Providing
Providing Contact
Contact
Efficiency
Efficiency
Chapter 12 Version 6e ©2002 South-Western 8
Specialization and 1
Division of Labor

 Provides economies of scale

 Aids producers who lack resources to

market directly

 Builds good relationships with

customers

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 1
Overcoming Discrepancies

Discrepancy
Discrepancy The
The difference
difference between
between the
the amount
amount
of
of of
of product
product produced
produced and
and the
the
Quantity
Quantity amount
amount anan end
end user
user wants
wants to
to buy.
buy.

Discrepancy The
The lack
lack of
of all
all the
the items
items aa
Discrepancy customer
of customer needs
needs toto receive
receive full
full
of satisfaction
satisfaction from
from aa product
product oror
Assortment
Assortment products.
products.

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 1
Overcoming Discrepancies

A
A situation
situation that
that occurs
occurs when
when aa
Temporal
Temporal product
product isis produced
produced but
but aa
Discrepancy
Discrepancy customer
customer isis not
not ready
ready to
to buy
buy it.
it.

The
The difference
difference between
between the
the
Spatial
Spatial location
location of
of aa producer
producer and
and the
the
Discrepancy
Discrepancy location
location ofof widely
widely
scattered
scattered markets.
markets.

Chapter 12 Version 6e ©2002 South-Western 11

 1
Contact Efficiency
Zenith
Zenith Sony
Sony RCA
RCA Toshiba
Toshiba

Zenith
Zenith Sony
Sony RCA
RCA Toshiba
Toshiba

Circuit
Circuit City
City

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 2
Learning Objective

Define the types of channel

intermediaries and describe their
functions and activities.

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 2
Channel Intermediaries
A
A channel
channel intermediary
intermediary that
that
Retailer
Retailer sells
sells mainly
mainly to
to customers.
customers.

An
An institution
institution that
that buys
buys goods
goods
Merchant
Merchant from
from manufacturers,
manufacturers, takes
takes title
title
Wholesaler
Wholesaler to
to goods,
goods, stores
stores them,
them,
and
and resells
resells and
and ships
ships them.
them.

Wholesaling
Wholesaling intermediaries
intermediaries who
who
Agents
Agents and
and facilitate
facilitate the
the sale
sale of
of aa product
product by
by
Brokers
Brokers representing
representing channel
channel member.
member.
Chapter 12 Version 6e ©2002 South-Western 14
 2
Channel Intermediaries

Take
Take Title
Title to
to Goods
Goods
Retailers
Retailers

Merchant
Merchant Take
Take Title
Title to
to Goods
Goods
Wholesalers
Wholesalers

Agents
Agents
and Do
Do NOT
NOT Take
Take Title
Title to
to Goods
Goods
and
Brokers
Brokers
Chapter 12 Version 6e ©2002 South-Western 15
Channel Functions 2
Performed by Intermediaries
Contacting/Promotion
Transactional
Transactional Negotiating
Functions
Functions
Risk Taking

Physically distributing
Logistical
Logistical Storing
Functions
Functions
Sorting

Facilitating Researching
Facilitating
Function
Function Financing
Chapter 12 Version 6e ©2002 South-Western 16
 2
Logistics
The process of strategically
managing the efficient flow
and storage of raw materials,
in-process inventory, and
finished goods from point of
origin to point of consumption.

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 3
Learning Objective

Describe the channel structures

for consumer and
business-to-business products
and discuss alternative
channel arrangements.

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 3
Direct Channel

A distribution channel in
which producers sell directly
to consumers.

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 3
Channels for Consumer Products
Direct Retailer Wholesaler Agent/Broker
Channel Channel Channel Channel
Producer Producer Producer Producer

Agents or
Brokers

Wholesalers Wholesalers

Retailers Retailers Retailers

Consumers Consumers
Chapter 12 Version 6e
Consumers
©2002 South-Western
Consumers
20
 Channels for Business-to- 3
Business Products
Direct Industrial Agent/Broker Agent/Broker Direct
Channel Distributor Channel Industrial Channel
Channel
Producer Producer Producer Producer Producer

Agents or Agents or
Brokers Brokers
Industrial Industrial
Distributor Distributor
Industrial Industrial Industrial Industrial Government
User User
Chapter 12 Version 6e User
©2002 South-Western User Buyer
21
 3
Alternative Channel Arrangements
Multiple Channels

Nontraditional
Different Channels
Channels
May be Used
Adaptive Channels

Strategic Channel
Alliances
Chapter 12 Version 6e ©2002 South-Western 22
 4
Learning Objective

Define supply chain management

and discuss its benefits.

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 4
Supply Chain Management

A management system that

coordinates and integrates all
of the activities performed by
supply chain members into a
seamless process, from the
source to the point of
consumption.

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 4
Supply Chain Management

Focus
Focus on
on Innovative
Innovative Solutions
Solutions

Competitive
Competitive with
with focus
focus on
on
Customer
Customer Satisfaction
Satisfaction

Results
Results Synchronized
of Synchronized Flow
Flow
of
Supply
Supply Chain
Chain
Management
Management Customer
Customer Value
Value

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 4
Role of Supply Chain Management

Communicator
Communicator of of
customer
customer demand
demand from
from
Role point
point of
of sale
sale to
to supplier
supplier
Role of
of
Supply
Supply Chain
Chain
Management
Management
Physical
Physical flow
flow process
process
that
that engineers
engineers the
the
movement
movement of of goods
goods

Chapter 12 Version 6e ©2002 South-Western 26

Supply Chain Management 4
Activities
Determine
Determinechannel
channel strategy
strategyand
and
level
level of
of distribution
distributionintensity
intensity

Manage
Manage relationships
relationships
in
in the
thesupply
supplychain
chain

Manage
Manage the
thelogistical
logisticalcomponents
components
of
ofthe
the supply
supplychain
chain

Balance
Balancethe
the costs
costsof ofthe
thesupply
supplychain
chain
with
withthe
theservice
servicelevel
level demanded
demandedby bycustomer
customer
Chapter 12 Version 6e ©2002 South-Western 27
Benefits of 4
Supply Chain Management

Reduced
Reduced Costs
Costs

Improved
Improved Service
Service

Common
Common Benefits
Benefits
of
of Supply
Supply Chain
Chain Enhanced
Enhanced Revenues
Revenues
Management
Management

Chapter 12 Version 6e ©2002 South-Western 28

 5
Learning Objective

Discuss the issues that

influence channel strategy.

Chapter 12 Version 6e ©2002 South-Western 29

 5
Channel Strategy Decisions
Issues
Issues that
that Influence
Influence
Channel
Channel Strategy
Strategy

Factors
Factors Levels
Levels of
of
Affecting
Affecting Distribution
Distribution
Channel
Channel Intensity
Intensity
Choice
Choice

Market
Market Factors
Factors Intensive
Intensive Distribution
Distribution
Product
Product Factors
Factors Selective
Selective Distribution
Distribution
Producer
Producer Factors
Factors Exclusive
Exclusive Distribution
Distribution
Chapter 12 Version 6e ©2002 South-Western 30
 5
Market Factors
Customer
Customer Profiles
Profiles

Consumer
Consumer or
or Industrial
Industrial
Customer
Customer

Market Size
Size of
of Market
Market
Market Factors
Factors
That
That Affect
Affect
Channel
Channel
Choices
Choices Geographic Location

Chapter 12 Version 6e ©2002 South-Western 31

 5
Product Factors
Product
Product Complexity
Complexity

Product
Product Price
Price

Product
Product Life
Life Cycle
Cycle
Product
Product Factors
Factors
That
That Affect
Affect
Channel
Channel
Choices
Choices Product
Product Delicacy
Delicacy

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 5
Producer Factors

Producer
Producer Resources
Resources

Number
Number of
of Product
Product Lines
Lines

Producer
Producer Factors
Factors
That
That Affect
Affect
Channel Desire
Desire for
for Channel
Channel Control
Control
Channel
Choices
Choices

Chapter 12 Version 6e ©2002 South-Western 33

 5
Levels of Distribution Intensity
Number
Number of
of
Intensity
Intensity Level
Level Objective
Objective Intermediaries
Intermediaries
Achieve
Achievemass
massmarket
market
Intensive
Intensive selling.
selling. Many
Many
Convenience
Conveniencegoods.
goods.
Work
Workwith
withselected
selected
intermediaries.
intermediaries.
Selective Several
Several
Selective Shopping
Shopping and
andsome
some
specialty
specialtygoods.
goods.
Work
Workwith
withsingle
single
intermediary.
intermediary.Specialty
Specialty
Exclusive
Exclusive goods
One
One
goodsand
andindustrial
industrial
equipment.
equipment.
Chapter 12 Version 6e ©2002 South-Western 34
 6
Learning Objective

Explain channel leadership,

conflict, and partnering.

Chapter 12 Version 6e ©2002 South-Western 35

 6
Managing Channel Relationships
Channel
Channel Power
Power

Channel
Channel Control
Control
Social
Social
Dimensions
Dimensions Channel
Channel Leadership
Leadership
of
of Channels
Channels

Channel
Channel Conflict
Conflict

Channel
Channel Partnering
Partnering
Chapter 12 Version 6e ©2002 South-Western 36
Channel Power, 6
Control, and Leadership
A
A channel
channel member’s
member’s capacity
capacity to
to
Channel
Channel control
control or
or influence
influence the
the behavior
behavior
Power
Power of
of other
other channel
channel members
members

A
A situation
situation that
that occurs
occurs when
when one
one
Channel
Channel marketing
marketing channel
channel member
member
Control
Control intentionally
intentionally affects
affects another
another
member’s
member’s behavior.
behavior.

A
A member
member of of aa marketing
marketing channel
channel
Channel
Channel that
that exercises
exercises authority/power
authority/power over
over
Leader
Leader the
the activities
activities ofof other
other members.
members.
Chapter 12 Version 6e ©2002 South-Western 37
 6
Channel Conflict

A clash of goals and methods between

distribution channel members.

Horizontal
Horizontal Occurs
Occursamong
amongchannel
channel members
members
Conflict
Conflict on
onthe
the same
samelevel
level

Vertical
Vertical Occurs
Occursamong
amongchannel
channel members
members
Conflict
Conflict at
atdifferent
different levels
levels
Chapter 12 Version 6e ©2002 South-Western 38
 6
Channel Partnering

The joint effort of all channel

members to create a supply
chain that serves customers
and creates a competitive
advantage.

Chapter 12 Version 6e ©2002 South-Western 39

 Transaction- vs. 6
Partnership-Based Firms
Transaction-Based
Transaction-Based Partnership-Based
Partnership-Based
Short-term
Short-termrelationships
relationships Long-term
Long-termrelationships
relationships
Multiple
Multiplesuppliers
suppliers Few
Few suppliers
suppliers
Adversarial
Adversarialrelationships
relationships Cooperative
Cooperativepartnerships
partnerships
Price
Pricedominates
dominates Value-added
Value-added services
servicesdominate
dominate
Minimal
Minimalsupplier
supplier investment
investment High
Highsupplier/buyer
supplier/buyerinvestment
investment
Minimal
Minimalinformation
informationsharing
sharing Extensive
Extensiveinformation
informationsharing
sharing
Firms
Firmsare
areindependent
independent Firms
Firmsare
areinterdependent
interdependent
Minimal
Minimalfunctional
functional Extensive
Extensivefunctional
functional
area
areainteraction
interaction area
areainteraction
interaction
Chapter 12 Version 6e ©2002 South-Western 40
 7
Learning Objective

Describe the logistical components

of the supply chain.

Chapter 12 Version 6e ©2002 South-Western 41

Integrated Logistical 7
Components of the Supply Chain
Sourcing
Sourcing&& Procurement
Procurement

System
InformationSystem
Production
Production Scheduling
Scheduling
LogisticsInformation
Supply
Supply Order
OrderProcessing
Processing&&Customer
CustomerService
Service
Chain
Chain
Team
Team Inventory
InventoryControl
Control
Logistics

Warehouse
Warehouse&&Materials
MaterialsHandling
Handling

Transportation
Transportation
Chapter 12 Version 6e ©2002 South-Western 42
 7
Sourcing and Procurement
Plan
Plan
Purchasing
Purchasing Strategies
Strategies
Develop
Develop
Specifications
Specifications
Role
Role of
of
Purchasing
Purchasing Select
Select
Departments
Departments Suppliers
Suppliers
Negotiate
Negotiate
Price
Price
Negotiate
Negotiate
Service
Service Levels
Levels
Chapter 12 Version 6e ©2002 South-Western 43
 7
Production Scheduling

Traditional
Traditional Focus
Focus Customer
Customer Focus
Focus
Push/Pull
Push/Pull Push
Push Pull
Pull
Strategy
Strategy
Start
Start of
of Customer-Order
Customer-Order
Inventory-Based
Inventory-Based
Production
Production Based
Based

Manufacturing
Manufacturing Mass
Mass Production
Production Mass
Mass Customization
Customization

Chapter 12 Version 6e ©2002 South-Western 44

 7
Just-in-Time Manufacturing

A process that redefines and

simplifies manufacturing by
reducing inventory levels and
delivering raw materials just
when they are needed on the
production line.

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 7
Benefits of JIT

 Reduces raw material inventories

 Shortens lead times
 Creates better supplier relationships
 Reduces production and storeroom costs
 Reduces paperwork

Chapter 12 Version 6e ©2002 South-Western 46

 7
Electronic Data Interchange

Information technology that

replaces paper documents
that accompany business
transactions.

Chapter 12 Version 6e ©2002 South-Western 47

 7
Inventory Control System

A method of developing and

maintaining an adequate
assortment of materials or
products to meet a
manufacturer’s or a
customer’s demand.

Chapter 12 Version 6e ©2002 South-Western 48

Warehouse and 7
Materials-Handling
Receive goods into
warehouse

Identify, sort and

Functions label goods
of
Materials
Dispatch the goods to
Handling temporary storage

Recall, select, or pick the

goods for shipment
Chapter 12 Version 6e ©2002 South-Western 49
 7
Transportation
Cost
Cost

Transit
Transit Time
Time

Reliability
Reliability

Criteria
Criteria Capability
Capability
for
for
Transportation
Transportation Accessibility
Accessibility
Mode
Mode
Choice
Choice Traceability
Traceability
Chapter 12 Version 6e ©2002 South-Western 50
 Criteria for Ranking 7
Modes of Transportation
Highest Lowest

Relative Truck Rail Pipe Water

Air
Cost
Transit
Water Rail Pipe Truck Air
Time

Reliability Pipe Truck Rail Air Water

Capability Water Rail Truck Air Pipe

Accessibility Truck Rail Air Water Pipe

Traceability Air Truck Rail Water Pipe

Chapter 12 Version 6e ©2002 South-Western 51
 8
Learning Objective

Discuss the concept of

balancing logistics service and cost.

Chapter 12 Version 6e ©2002 South-Western 52

 8
Logistics Service

Interrelated activities performed

by a member
of the supply chain to ensure that
the right product is in the right
place at the right time.

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 8
Logistical Competencies
 Devise logistics service strategies as a means of
competitive differentiation

 Integrate members of supply chain to achieve

operating excellence

 Respond quickly to changing logistical requirements

 Constantly monitor all aspects of the

supply chain

Chapter 12 Version 6e ©2002 South-Western 54

 9
Learning Objective

Discuss new technology

and emerging trends in
supply chain management.

Chapter 12 Version 6e ©2002 South-Western 55

Trends in 9
Supply Chain Management
Advanced
Advanced
Computer
Computer Technology
Technology
Trends
Trends
Affecting
Affecting the
the
Logistics Outsourcing
Outsourcing ofof
Logistics Logistics
Industry Logistics Functions
Functions
Industry
Electronic
Electronic
Distribution
Distribution

Chapter 12 Version 6e ©2002 South-Western 56

 10
Learning Objective

Discuss channels and distribution

decisions in global markets.

Chapter 12 Version 6e ©2002 South-Western 57

 Channels and Distribution 10
Decisions for Global Markets

Channel structure differs

Global
Global Channel
Channel Channel types differ
Development
Development
“Gray” marketing channels

Awareness of trade legalities

Global
Global Supply
Supply
Chain
Chain Management
Management
Transportation Infrastructure

Chapter 12 Version 6e ©2002 South-Western 58

 11
Learning Objective

Identify the special problems and

opportunities associated with
distribution in service organizations.

Chapter 12 Version 6e ©2002 South-Western 59

 Channels and Distribution 11
Decisions for Services
Minimizing
Minimizing wait
wait times
times

Managing
Managing service
service capacity
capacity

Areas
Areas of
of Focus
Focus Improving
for Improving delivery
delivery
for through
Service
Service Distribution
Distribution through new
new channels
channels

Chapter 12 Version 6e ©2002 South-Western 60