Week 11: International Marketing & Logistics Channels.

Week 11:Week 11: International International

Marketing & Logistics Marketing & Logistics ChannelsChannels

Learning ObjectivesLearning Objectives

Understand logistics’ impact on company strategy & competitive advantage

Identify various channels of domestic and International distribution

Discuss the need for channel intermediaries

Introduce the concept of supply chain management (SCM)

Distinguish among types of channel intermediaries and describe their role in the supply chain

Explore the integration of multiple logistics strategies and principles

Customersatisfaction

• Suppliers• Intermediate customers• Final customers

Integratedeffort

• Product• Price• Promotion• Place (distribution)

Companyprofit

• Maximize long-term profitability

• Lowest total costs at an acceptable level of customer service

Marketing / Logistics Management ConceptMarketing / Logistics Management Concept

Logistics and Competitive AdvantageLogistics and Competitive Advantage

High

Low

HighLow

Differential Differential (Value)(Value)

AdvantageAdvantage

Cost / ProductivityCost / ProductivityAdvantageAdvantage

Focus onFocus onCustomerCustomer

Value-AddedValue-Added

Cost andCost andServiceServiceLeaderLeader

CommodityCommodityFocus onFocus onProcessProcess

ImprovementImprovement

Logistics Involves Both...Logistics Involves Both...

Internal interactions between product groups, departments and divisions

External interactions with customers, suppliers and third party providers

Supply Chain Management (SCM)

“Supply chain management involves the management

of upstream and downstream relationships with

suppliers, distributors and customers to achieve

greater customer value-added at less total cost.”

(Christopher, M. 1998)

Partnering Through Supply Chain Management

SCM involves (& often requires)– Partnerships among channel members working to

create a distribution system that reduces inefficiencies, costs, and redundancies while creating competitive advantage and satisfying customers.

– The use of technology e.g., bar code data, electronic data interchange, etc. to link supply chain partners. This increases productivity by reducing inventory, shortening cycle time, and removing wasted human effort.

Channels of DistributionChannels of Distribution

Definitions A sequence of marketing organizations that directs a product

from the producer to the ultimate (or end) user. Systems of relationships among businesses that participate

in the process of buying and selling products and services May sometimes be referred to as a supply chain or marketing

channel

Multiple Channels for Consumer Products Manufacturers/Suppliers use different channels to reach

different market segments

Formal (contract-based) vs. Informal (Partnerships) Channel Relationships

Distribution Channels – Consumer Products

Producer Consumer (Direct Channel)– Includes no intermediaries.– Used by services and consumer goods sold directly to the

consumer

Producer Retailer Consumer– Producers sell directly to large retailers (e.g., Wal-Mart)– Used where shipping and handling costs are high, or with

perishable products and/or fashion products with short product life cycles.

Producer Retailer Consumer

Producer Consumer

CONSUMER PRODUCTS

Figure 15.1

Distribution Channels – Consumer Products

Producer Agent Wholesaler Retailer Consumer– Agents market products to wholesalers on commission basis.

Producer Wholesaler Retailer Consumer– Traditional channel where the wholesaler services numerous

retailers for the producer.

Producer Agent Wholesaler Retailer Consumer

Producer Wholesaler Retailer Consumer

Distribution Channels – Business Products

Producer Business user– Direct channel– Manufacturer’s sales force sells directly to the consumer.

Producer Agent middleman Business user

– Independent intermediary represents the manufacturer to the consumer.

ProducerAgentmiddleman

Businesscustomer

Producer

BUSINESS PRODUCTS

Businesscustomer

Domestic vs. Global ChannelsDomestic vs. Global Channels

Country-specific logistics requirements Complexity Costs Distances Intermediaries Alternative channel structures Time Control Information Decentralized decision making

Alternative International Channel StructuresAlternative International Channel Structures

Manufacturer

InternationalDivision

Customer

Wholesaler

Distributor

Host Country Buying Office

Parent Company

Trading Company/Agent


Wholesaler

Wholesaler

WholesalerWholesaler

Wholesaler

Wholesaler

Wholesaler

Wholesaler


Distributor

Wholesaler

RetailerRetailerRetailerRetailerRetailer

Channel FlowsChannel Flows

Producer Agent Wholesaler Retailer Consumer

Products/Service

Ownership

Promotional Information

Supply Information

MoneyMarket research InformationDemand InformationProducts/Service (returns)

MiddlemenMiddlemen

Middleman (or marketing intermediary)Middleman (or marketing intermediary)

A marketing organization that links a producer and user within a marketing channel.

– Merchant middleman—takes title to products by buying them, e.g. distributors.

– Functional middleman—helps in the transfer of ownership of products but does not take title to the products, e.g., 3pls.

– Retailer—buys from producers or other middlemen and sells to consumers.

– Wholesaler—a middleman that sells products to other firms.

Efficiency Provided by an IntermediaryEfficiency Provided by an Intermediary

The services of intermediaries reduce the number of contacts, or exchanges, between producers and buyers, thereby increasing efficiency; especially across longer distances. These intermediaries however ‘lengthen’ the supply chain.

Producer

Producer

Producer

Producer

Buyer

Buyer

Buyer

Buyer

Middleman orintermediary

Producer

Producer

Producer

Producer

Buyer

Buyer

Buyer

Buyer

Figure 15.3Source: William M. Pride and O. C. Ferrell, Marketing: Concepts and Strategies, 2000e. Copyright © 2000 by Houghton Mifflin Company, Adapted with permission.

Initial manufacturer must arrange for six interfaces or interactions

1 X 6 = 6

Retailer RetailerRetailerRetailerRetailerRetailer

Manufacturer


As the industry grows, the number of As the industry grows, the number of interfaces or interactions continue to growinterfaces or interactions continue to grow

3 X 6 = 183 X 6 = 18


ManufacturerManufacturer Manufacturer


Eventually, it will be economical for a middle man to improve

transaction efficiency3 + 6 = 9


ManufacturerManufacturer Manufacturer

Middle Man

Losing the Middle Man

Can a company or product grow so large that as middle man does not make sense?

At what point do we lose the middle man?

Wholesalers – Services to ManufacturersWholesalers – Services to Manufacturers

Provide instant, ready-made sales forces.

Reduce manufacturers’ inventory costs by purchasing finished goods in sizable quantities.

Assume credit risks associated with selling to retailers.

Furnish market information (from customers) to manufacturers.

Wholesalers - Services to RetailersWholesalers - Services to Retailers

Promotion: Promote products to retailers.

Market Information: Two-way source of market information for both producers and retailers.

Financial Aid: Provide timely product deliveries that reduce inventory costs for retailers and extend credit to retailers for inventory purchases.

Designing Effective Channels - IDesigning Effective Channels - I

External (Environmental) Issues

Firms’ global presence Increased channel complexity, market diversity and cost

Government Regulatory Environment: Trade Initiatives; Privatization; etc.

Corporate Reconfiguration: Vertical & Horizontal; Integration

Technological Innovations

TQM

Designing Effective Channels - IIDesigning Effective Channels - II

Internal (Marketing) Issues Types of Distribution Strategies

– Intensive Wide channels e.g., commodities – Exclusive Narrow channels e.g., cars– Selective Mixed & targeted

Product Characteristics: Value, Requirements, etc. Customer Service Objectives: Return policy, Delivery times

and schedules

Characteristics of Effective ChannelsCharacteristics of Effective Channels

Flexible & Adaptable

Dynamic

Integrated Relationships

Global Management (+ Foreign Participation) but region-specific

“No boundaries”

From Channel Network

“Slim” (No excesses)

Types of ChannelsTypes of Channels

Ownership channel (title)

Negotiations channel (buy/sell)

Financing channel (payment)

Promotions channel (marketing)

Logistics channel (movement/storage)

Logistics Channel FunctionsLogistics Channel Functions

Concentration– Combine multiple small shipments into larger shipments– Accumulating from different sources (consolidating)

Customization– A shipment of different pieces is assembled– Sorting heterogeneous products into homogeneous stocks

Dispersion– Large shipments are broken down into smaller shipments– Allocating into smaller lots (bulk-breaking)

Assorting– Building assortments of goods for resale

Different Channel Flows

There are channels for the flow of information There are channels for the flow of product/service

There are forward channels There are reverse channels

“Power” in the Channel

Each channel member has strengths and weaknesses

The channel member with the greater power (known as the “Channel Captain”) will dictate roles within the channel or even develop alternative channels

What’s wrong with this picture?

Vendor Managed Inventories (VMI)

Instead of worrying about inbound freight and ordering optimal quantities, why not have the vendor manage a pocket of inventory close to our manufacturing location

Or, have vendor manage the inventory in our DC or stores

Illustration: Multiple Vendor Managed Inventories (MVMI) at Ryder Integrated Logistics

Exploits the VMI concept by offering a consolidated approach and value-added services

EvolutionEvolutionofof

LogisticsLogistics

Evolution of Logistics

FunctionalFunctional

Trans/Trans/

WhseWhse

ActivityActivity

CostCost

AreaArea

MetricMetric

StageStage

DriverDriver

19701970

1970s: Functional

Focused on integrating direct distribution activities such as transportation and warehousing. The primary metric or

measurement device is the cost of performing that activity.

Dominant focus from the mid-1960suntil the mid-1970s.

InformationInformation



Trans/Trans/

WhseWhse

ActivityActivity

CostCost

CustomerCustomer

ServiceService


ResponseResponse

AreaArea

MetricMetric

StageStage

DriverDriver

19701970 19801980

1980s: Information Integration

Logistics viewed as a system with both activity and information as part of the logistics process.

Customer service focus provided the primary functionality with the metric becoming system

response time to customer service requirements.

Dominant from around the mid-1970s until early in the decade of the 1980s.




Trans/Trans/

WhseWhse

ActivityActivity

CostCost

CustomerCustomer

ServiceService


ResponseResponse

IntegrationIntegration

Inter/IntraInter/Intra


Trade-offTrade-off

ManagerialManagerial

EfficiencyEfficiency

AreaArea

MetricMetric

StageStage

DriverDriver

19701970 19801980 19901990

1990s: Interfunctional Integration

The stage many firms are currently in. Requires managerial integration between major corporate functions.

Perspective is total material flow integration with fully visible tradeoffs. Decisions are made in accordance with

marginal contribution (or efficiency) of the individual functions to the overall objectives of the firm.

Dominant theme into the 1990s.




Trans/Trans/

WhseWhse

ActivityActivity

CostCost

CustomerCustomer

ServiceService


ResponseResponse

IntegrationIntegration

Inter/IntraInter/Intra


Trade-offTrade-off

ManagerialManagerial

EfficiencyEfficiency

StrategicStrategic

GlobalGlobal

ProfitProfit

RiskRisk

StrategyStrategy

AreaArea

MetricMetric

StageStage

DriverDriver

19701970 19801980 19901990 20002000

2000s: Strategic Integration

The logistics function becomes the cornerstone to the strategic thrust of the firm. Functionality is global in that the logistics function spans both geographic and ownership boundaries. Shifts from a cost center to

an important source of profitability for the firm. Logistics performance is measured in terms of risk

rather than in terms of cost.

Evolution of Business Structures

Divisions

Matrix Management

Networks

Functional ‘Silos’

Structured around individual functional areas (divisions)

“Silo Mentality” focuses primarily on internal operations – ignores “overall picture”

Little consideration for cross-functional interaction

Adversarial and competitive cross-functional relationships

Often conflicting goals and objectives across functions and within overall corporate objectives

Conflicting goals and poor communication results in higher total costs and reduced productivity

Matrix Organization

Provides linkages between divisions and overall corporate organization

Developed from combinations of horizontal and vertical interactions

Structured around cross-functional projects

Teams Structured around cross-product/service relationships May be Inter-organizational or inter-functional Popular within strategic and other forms of alliances

Logistics in a Matrix Organization

Source: Adapted from Daniel W. DeHayes, Jr., and Robert L. Taylor, “Making ‘Logistics’ Work in a Firm,”

Business Horizons 15, no. 3 (June 1972), p. 44.

Manufacturing Engineering Marketing Transportation Finance and accounting

Information processing

Productdesign

Salesforecasting

Production scheduling Traffic

Management science

Protective packaging

Customerservice

Requirement determination Maintenance

Procurement

President

Logistics

Other programs

Horizon

tal flows of p

roject auth

ority

Vertical flows of functional authorityVertical flows of functional authority

Networks

Exists as a collection of ‘small’ specialist organizations

Organizations focus in individual specialization and core competency

Outsourcing ‘Virtual/Hollow’ Corporation Information sharing/flow is key

Generic Logistics Strategies

Process-based– Broad group of logistics activities managed as a value-

added chain and integrated system

Market-based– Limited group of logistics activities across multiple

business units

Channel-based– Logistics activities performed jointly with supply chain

partners. Attention on external control

Logistics PrinciplesLogistics Principles

Rules of LogisticsRules of Logistics

LLean toward Velocityean toward Velocity

OOptimize the Overageptimize the Overage

GGo for the flowo for the flow

IInformation for inventorynformation for inventory

SSegregate customersegregate customers

TTotal Cost - Optimize to minimizeotal Cost - Optimize to minimize

IIntegrate or mate (Partner or perish)ntegrate or mate (Partner or perish)

CCore competency - outsource the restore competency - outsource the rest

Principles of LogisticsPrinciples of Logistics

Selective riskSelective risk Information selectivityInformation selectivity Information substitutionInformation substitution Transaction simplificationTransaction simplification Variance reductionVariance reduction Inventory velocityInventory velocity PostponementPostponement Shared/shifted riskShared/shifted risk

Principle of Selective RiskPrinciple of Selective Risk

Shift from a policy of 100% in stock to a policy of Shift from a policy of 100% in stock to a policy of “selective risk.”“selective risk.”

The logistics manager should design logistics The logistics manager should design logistics systems so that the system performance systems so that the system performance

objectives are directly related to the importance objectives are directly related to the importance of the product or customer to the firm.of the product or customer to the firm.

Principle of Information Principle of Information SelectivitySelectivity

Assumes information is as much of a resource Assumes information is as much of a resource to the decision maker as capital, human to the decision maker as capital, human resources, and facilities.resources, and facilities.

Information should be treated with the same Information should be treated with the same operational, tactical, and strategic importance operational, tactical, and strategic importance as any other resources of the firm.as any other resources of the firm.

Design and implement logistics information Design and implement logistics information systems that produce a focus on actionable systems that produce a focus on actionable and significant events.and significant events.

Principle of Information Principle of Information SubstitutionSubstitution

The primary target for the logistics manager should The primary target for the logistics manager should be the transformation of information for be the transformation of information for

inventory. Another key area is the tradeoff inventory. Another key area is the tradeoff between information and transportation.between information and transportation.

Principle of Transaction Principle of Transaction SimplificationSimplification

Improve the efficiency and effectiveness of Improve the efficiency and effectiveness of the transactional processes of the firm:the transactional processes of the firm:

Upgrade systems to remove human intervention.Upgrade systems to remove human intervention. Link the collection, transmission, and storage of Link the collection, transmission, and storage of

data or information sets within the system or data or information sets within the system or between the system and outside suppliers, between the system and outside suppliers, customers, or third party providers. customers, or third party providers.

Efficiencies gained from cooperation among Efficiencies gained from cooperation among parties involved in the transaction.parties involved in the transaction.

Principle of Variance ReductionPrinciple of Variance Reduction

In any logistics system there are a series of In any logistics system there are a series of linkages between demand and supply linkages between demand and supply

points. Failure to accurately anticipate points. Failure to accurately anticipate demands leads to erosion of system demands leads to erosion of system productivity (excessive inventory, productivity (excessive inventory, overtime, increased stockouts) overtime, increased stockouts)

A logistics manager can significantly A logistics manager can significantly influence the productivity of the system influence the productivity of the system by reducing unplanned variance in the by reducing unplanned variance in the

system.system.

Principle of Inventory VelocityPrinciple of Inventory Velocity

Facilitating the flow of inventory from raw Facilitating the flow of inventory from raw material to end user. A logistics manager material to end user. A logistics manager

must focus effort on both the level of must focus effort on both the level of inventory and the velocity of inventory inventory and the velocity of inventory

(inventory turnover).(inventory turnover).

Inventory turnover is not a particularly new Inventory turnover is not a particularly new concept to many managers; measuring it concept to many managers; measuring it

for the entire firm rather than a single for the entire firm rather than a single profit center is.profit center is.

Principle of PostponementPrinciple of Postponement

A strategy aimed at reducing the amount of A strategy aimed at reducing the amount of inventory necessary to meet target customer inventory necessary to meet target customer service levels. The primary cost trade-off is a service levels. The primary cost trade-off is a reduction in inventory investment against the reduction in inventory investment against the cost of transportation, information systems, or cost of transportation, information systems, or

additional production/processing systems.additional production/processing systems.

Principle of Principle of PostponementPostponement

The two basic types of postponement are:The two basic types of postponement are: Geographic postponement Geographic postponement where the product is where the product is

not committed to a specific geographic location not committed to a specific geographic location but is stored at a central locationbut is stored at a central location

Value-add postponementValue-add postponement delays the delays the personalization of the productpersonalization of the product

Principle of Shared/Shifted Principle of Shared/Shifted RiskRisk

Shift the logistics cost structure from a Shift the logistics cost structure from a fixed cost base to a variable cost base. fixed cost base to a variable cost base. Shifting costs to a supplier upstream in Shifting costs to a supplier upstream in

the channel (e.g. Kanban) or downstream the channel (e.g. Kanban) or downstream to a customer (e.g. placing order by to a customer (e.g. placing order by

computer terminal), the logistics computer terminal), the logistics manager can shift fixed investment cost manager can shift fixed investment cost

and risk outside the firm.and risk outside the firm.

Week 11: International Marketing & Logistics Channels.

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Transcript of Week 11: International Marketing & Logistics Channels.