MMIT SESSION 6

Distribution Channels

1. What are supply networks and channels of distribution?

2. How should marketers design supply networks and channels of distribution?

3. How can marketers select channel members?

4. What are the challenges of managing distribution channels?

Who are the top supply chain companies worldwide?

Nokia Apple Procter & Gamble IBM Toyota Motor Wal-Mart Anheuser-Busch Tesco

Best Buy Samsung

Electronics Cisco Systems Motorola The Coca-Cola

Company Johnson & Johnson

What is a supply chain?

A supply chain is a set of three or more entities (organisations or individuals) directly

involved in the upstream or downstream flows of product, service, finances and/or

information from a source to a customer.

What are distribution channels?

Distribution channels are sets of intermediaries that are usually independent

organisations involved in the process of making a product or service available for

use or consumption.

Intermediaries in distribution channels

Wholesalers Retailers Distributors Transport companies

Brokers Manufacturers’ reps Agents Export management

Title Holders Non-Title Holders

What is supply chain management?

Supply chain management (SCM) encompasses the planning and

management of all activities in buying, making, providing and distributing. It also includes coordination and collaboration

with channel partners.

20th century demand-driven supply networks

Figure 17.8 Demand-driven supply networks

21st century demand-driven supply networks

Figure 17.8 Demand-driven supply networks (continued)

Key processes of supply chain management

Customer relationship management

Customer service management

Demand management

Order fulfillment

Manufacturing or service process flow management

Intermediary relationship management

Product development/ commercialisation

Returns

Consumer marketing channels

Figure 17.11 Consumer and industrial marketing channels

Industrial marketing channels

Figure 17.11 Consumer and industrial marketing channels (continued)

3 types of distribution strategy Intensive – stocked in all outlets Selective – few intermediaries,

specialists Exclusive – only one brand by reseller

Customer needs

Quantity of purchase

Waiting/delivery time

Convenience

Product variety

Service backup

Identifying channel alternatives

Types of intermediaries

Number of intermediaries

Terms and responsibilities

Figure 17.15 The value adds versus the costs of different channels

Terms and responsibilities of channel members

Price policy Condition of sale Distributors’ territorial rights Mutual services and responsibilities

Channel-management decisions

Training channel members

Motivating channel members

Evaluating channel members

Modifying channel members

Zara – mini-case20

Inditex = Zara, Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterqüe 

Zara operates in 82 countries with a network of 1.631 stores

Based in La Coruna/Arteixo, Spain 70% of sales are in Europe, 25% in Spain New rules for marketing

Zara’s challenge to marketing wisdom21

Rule one: country-of-origin carries value (Zara is from a small town in Spain, pop. 25,000)

Rule two: avoid stock-outs (shortages contribute to the urge to buy now, new goods arrive twice a week, Zara makes 20,000 items a year (3x what gap makes), London shoppers visit Zara 17x annually compared to 4x for average store)

Rule three: advertise (Gap and H&M spend 3-4% of sales on ads, Zara 0.3%, focus on location)

Zara (continued)22

Rule four: outsource (Gap and H&M don’t own any facilities, Zara manufactures 51% of its products in Spain, Portugal, Morocco. Only basic items are outsourced to Asia (34%) and Turkey (14%). This reduces errors in prediction so that Zara’s average discount is 15% vs. 40% for other retailers)

Rule five: efficiency through large batches (Zara uses quick reaction, fixed supply chain schedule: stores order twice a week, truck and cargo flights on fixed schedule, good arrive in at stores in Europe in 24 hrs, US 48 hrs, and Asia 72 hrs)

Zara’s challenges23

Expensive in China Competitors can copy model Standardized marketing problems C&A failure – standardization and

centraliztion Sizes, Ads showing body hair, Colors, Dress

cuts

EU does better in Operations than People management

Marketing Mix for International Firms

Product PlacePromotionPricing

Marketing Mix

Key Decision-Making Factors Standardization versus customization Legal forces Economic factors Changing exchange rates Target customers Cultural influences Competition

Standardization versus Customization

3 Options: ETHNOCENTRIC (standardized–

home) GEOCENTRIC (standardized-

global) POLYCENTRIC (customized)

International Marketing Advantages

STANDARDIZED Approach

+ Reduces marketing costs+ Facilitates centralized

control of marketing+ Promotes efficiency in R&D+ Results in economies of

scale in production+ Reflects the trend toward

a single global marketplace

CUSTOMIZED Approach

+ Reflects different conditions of product use

+ Acknowledges local legal differences

+ Accounts for differences in buyer behavior patterns

+ Promotes local marketing initiatives

+ Accounts for other differences in individual markets

Figure 17.1 The International Operations Management Process

Strategic Context•Differentiation•Cost leadership•Focus

Standardized vs. CustomizedProduction

Acquisition of Resources•Supply Chain •Management•Vertical Integration•Make-or-buy decision

Location Decisions•Country-related issues•Product-related issues•Government policies•Organizational issues

Logistics and Materials Management•Flow of materials•Transportation options•Inventory levels•Packaging

Production Management1. Acquisition of Resources2. Location Decisions3. Logistics and Materials Management

1. Acquisition of ResourcesManagers must decide where and how to obtain

the resources the firm needs to produce its products

Supply chain management: set of processes and steps a firm uses to acquire the various resources it needs to create its products

Vertical integration: extent to which a firm either provides its own resources or obtains them from other sources

Figure 17.2 Basic Make-or-Buy Options

Necessary Trade-offs in Make-or-Buy Decision

Make Buy

Cost + Profit potential - Expensive initial

+ no start up costs- more exp. unit costs

Control + quality, delivery schedule, design changes, cost

- contract enforcement

Risk + control + reduces financial, operating, and political

Investment (in facilities, tech, people)

+ become assets, competitive or strategic advantage

+ lowers investment, frees up capital, reduces training costs and expertise needs

Flexibility - Difficult to change direction

+ can change suppliers, products, easily

2. Location DecisionsManagers must decide where to build

administrative facilities, sales offices, etc.

Factors to consider: Country-Related Issues Product-Related Issues Government Policies Organizational Issues

Country-Related Issues Resource availability Cost Infrastructure Country-of-origin effects

Product-Related Issues Value-to-weight ratio Technology Importance of customer feedback

Government Policies Stability of political process National trade policies Economic development incentives Existence of foreign trade zones (FTZ)

Organizational Issues Business strategy

Cost leadership Differentiation

Organizational structure Inventory management policies

Just-in-time (JIT) inventory management system

3. Logistics and Materials Management

Managers must decide on modes of transportation and methods of inventory control

Three key flows: flow of materials, parts, supplies, and other

resource from suppliers to the firm flow of materials, parts, supplies, and other

resources within and between units of the firm itself

flow of finished products, services, goods from the firm to customers

Differences in Domestic and International Materials Management

Distance involved in shipping Number of transport modes Complexity of regulatory context

Key Factors Time Predictability Cost

Advantages and Disadvantages of Different Modes of Transportation for Exports

Mode Advantages Disadvantages Sample Products

Train Safe, reliable, inexpensive

Limited to rail routes, slow

Automobiles, grains

Airplane Safe, reliable, fast

Expensive, limited access

Jewelry, medicine

Truck Versatile, inexpensive

Small size Consumer goods

Ship Inexpensive, good for larger products

Slow, indirect Automobiles, furniture

Electronic Media

Fast Unusable for many products

Information