Chapter 15: Supply Chain and Channel Management

Objectives:

• Understand the importance of marketing channels and supply chain management,
• Understand the difference between direct and indirect marketing channels,
• Describe how marketing channels are managed,
• Describe the flow of information and merchandise in the market channel.

Marketing Channel Management: Also called supply chain management, refers to a set of approaches and techniques firms employ to efficiently and effectively integrate their suppliers.

Supply Chain Management: Refers to the set of approaches and techniques firms employ to efficiently and effectively integrate their suppliers, manufacturers, warehouses, stores, and transportation intermediaries into a seamless value chain in which merchandise is produced and distributed in the right quantities, to the right locations, and at the right time, as well as to minimize system wide costs while satisfying the service levels their customers require.

I. The Importance of Market Channel/Supply Chain Management

"Even if firms execute [establishing a great marketing mix for Price, Promotion, and Product] flawlessly, unless they can secure the [Place] of products in appropriate outlets in sufficient quantities exactly when customers want them, they are likely to fail."

Wholesalers: Those firms engaged in buying, taking title to, often storing, and physically handling goods in large quantities, then reselling the goods (usually in smaller quantities) to retailers or industrial or business users.

• Marketing Channels Add Value: Each participant in the chain adds value in what they do for the customer, from providing a local resource that allows the customer options of products similar to their current needs as well as services above and beyond the product and it's purchase. At each step, the products do become more costly, but also begin to add value as they become more convenient to the customer when wanting to make a choice. 
• Marketing Channel Management Affects other Aspects of Marketing: When products are designed and manufactured, how and when the critical components reach the factory must be coordinated with production. 
• Distribution Centers: A facility for receipt, storage, and redistribution of goods to company stores or customers; may be operated by retailers, manufacturers, or distribution specialists.

**The importance of Marketing Channels and Supply Chain Management is all about coordinating services from product production through to delivery of product to places in which make it more accessible for consumers in order to achieve the perceived value required by the consumer to purchase.**

II. Designing Marketing Channels

• Direct Marketing Channel: A direct channel is one in which there are no intermediaries between manufacturer and customer. 
• Indirect Marketing Channel:  When one or more intermediaries work with manufacturers to provide goods and services to customers. 

III. Managing the Marketing Channel and Supply Chain

Vertical Channel Conflict: A type of channel conflict in which members of the same marketing channel, for example, manufacturers, wholesalers, and retailers are in disagreement or discord.

Horizontal Channel Conflict: A type of conflict in which members at the same level of a marketing channel, for example, two competing retailers or two competing manufacturers, are in disagreement or discord, such as when they are in a price war.

• Managing the Marketing Channel and Supply Chain through Vertical Marketing Systems: Marketing channels that are more closely aligned, whether by contract or ownership, share common goals and therefore are less prone to conflict. 
• In an Independent (Conventional) Marketing channel, several independent entities each attempts to satisfy their own objectives and maximize profits usually at the expense of the other members within the channel. 
• In a Vertical Marketing Channel, all members act as a unified system.
• Administered Vertical Marketing System: A supply chain system in which there is no common ownership and no contractual relationships, but the dominant channel member controls the channel relationship.
• Power: A situation that occurs in a marketing channel in which one member has the means or ability to have control over the actions of another member in a channel at a different level of distribution, such as if a retailer has power or control over a supplier.
• Reward Power: A type of marketing channel power that occurs when the channel member exerting the power offers rewards to gain power, often a monetary incentive, for getting another channel member to do what it wants it to do. 
• Coercive Power: Threatening or punishing the other channel member for not undertaking certain tasks. Delaying payment for late delivery would be an example. 
• Referent Power: A type of marketing channel power that occurs if one channel member wants to be associated with another channel member. The channel member with whom the others wish to be associated has the power and can get them to do what they want.
• Expertise Power: When a channel member uses its expertise as leverage to influence the actions of another channel member.
• Information Power: A type of marketing channel power that occurs if the channel member exerting the power has information that the other channel members want or needs and can therefore get them to do what they want.
• Legitimate Power: A type of marketing channel power that occurs if the channel member exerting the power has a contractual agreement with the other channel member that requires the other channel member to behave in a certain way. This type of power occurs in an administered vertical marketing system.
• Contractual Vertical Marketing System: A system in which independent firms at different levels of the supply chain join together through contracts to obtain economies of scale and coordination and to reduce conflict.
• Franchising: A contractual agreement between a franchisor and a franchisee that allows the franchisee to operate a business using a name and format developed and supported by the franchisor. A franchise system combines the entrepreneurial advantages of owning a business with the efficiencies of vertical marketing systems that function under a single ownership.
• Corporate Vertical Marketing System: A system in which the parent company has complete control and can dictate the priorities and objectives of the supply chain; it may own facilities such as manufacturing plants, warehouse facilities, retail outlets, and design studios.

• Managing Marketing Channels and Supply Chains Through Strategic Relationships
• A Strategic Relationship (Partnering Relationship) is a supply chain relationship in which the members are committed to maintaining long term, investing in opportunities that are mutually beneficial; requires mutual trust, open communication, common goals, and credible commitments.
• Mutual Trust: Holds a strategic relationship together. With trust, there is also less need for the supply chain members to constantly monitor and check up on each other's actions because each believes the other won't take advantage.
• Open Communication: To share information, develop sales forecasts together, and coordinate deliveries.
• Common Goals: Shared goals give members of the relationship an incentive to pool their strengths and abilities and exploit potential opportunities together. 
• Interdependence: Interdependence between supply chain members that is based on mutual benefits is key to developing and sustaining the relationship. 
• Credible Commitments: Successful relationships develop because both parties make credible commitments to, or tangible investments in, the relationship. 

IV. Making Information flow Through Marketing Channels

Flow 1: Customer to store; use of UPC to track sales of products.
Flow 2: Store to buyer; All sales of merchandise are recorded and used in the inventory management system and more.
Flow 3: Buyer to manufacturer; Used to facilitate possible buying deals and possible breaks in the flow of merchandise.
Flow 4: Store to manufacturer; sales are sent directly to manufacturer to establish when more shipments need to be sent. BY working together, retailer and manufacturer can better satisfy customer needs.
Flow 5: Store to distribution center; Used to coordinate delivers and check inventory supplies.
Flow 6: Manufacturer to distribution center and buyer; a means to communicate expected deliveries to help facilitate planning of deliveries and expedite the payment process upon delivery of expected merchandise. 

• Data Warehouse: A place where sales recorded from point of sale. 
• Electronic Data Interchange: The computer-to-computer exchange of business documents from a retailer to a vendor and back.
• Vendor Managed Inventory: An approach for improving supply chain efficiency in which the manufacturer is responsible for maintaining the retailers inventory levels in each of it's stores.  
• Push Versus Pull Marketing Channels
• Push Marketing Strategy: Designed to increase demand by motivating sellors -- wholesalers, distributors, or salespeople -- to highlight the product, rather than the products of competitors, and thereby push the product onto customers.
• Pull Marketing Strategy: Designed to get consumers to pull the product into the supply chain by demanding it. 

V. Making Merchandise flow Through MArketing Channels

• Distribution Centers versus Direct Store Delivery
• Benefits of Distribution systems: 
  
  • More accurate sales forecasts are possible.
  • Distribution centers enable the retailer to carry less inventory, which lowers investment costs.
  • Easier to avoid running out of stock or having too much stock on hand.
  • More cost effective given space at retail stores tend to be more expensive than that at distribution centers. 
• The Distribution Center
• Management of Inbound Transportation
• Planners: In a retailing context, employees who are responsible for the financial planning and analysis of merchandise, and it's allocation to stores.
• Receiving and Checking using UPC
• Receiving: The process of recording the receipt of merchandise as it arrives at a distribution center or store. 
• Radio Frequency Identification Tags (RFID): Tiny computer chips that automatically transmit to a special scanner all the information about a containers contents or individual products. 
• Storing and Cross-Docking: Either gets placed in storage till delivery to vendor is set or is transferred from unloading dock to loading dock to be sent immediately to retailers or consumer. 
• Getting Merchandise Floor Ready
• Ticketing and Marketing: Creating price and identification labels and placing them on the merchandise. 
• Preparing to Ship Merchandise to a Store
• Pick Ticket: A document or display on a screen on a forklift truck indicating how much of each item to get from specific storage areas. 
• Shipping Merchandise to Stores: 
• Inventory Management Through Just-in-Time Inventory Systems
• Just-In-Time Inventory Systems: (Quick Response; QR) : Inventory management systems designed to deliver less merchandise on a more frequent basis than traditional inventory systems; the firm gets the merchandise "just in time" for it to be used in the manufacture of another product, in the case of parts or components, or for sale when the customer wants it, in the case of consumer goods.