Supply Channel Analysis
Chapters 4&5 with Duane Weaver
OUTLINE
Channel Flows
 Customizing Flows
 Channel Efficiency Template
 Zero-based Channel Design
 Equity Principle
 Who SHOULD be in the Channel?
 Single or Dual Channel

Channel Flows
8 generic flows
Physical Possession
Costs
Storage, delivery, sustainability
Ownership
Inventory, Shipping, Loss
Promotion
Selling, ads, promos, public relations,
publicity…
Negotiation
Time, legal costs, templates, contracts
Financing
Credit terms, terms, conditions of sale, risks
Risking
Price guarantees, warranties, insurance, repair,
after-sale support/service, reputation
Ordering
Administration, technology, time
Payment
Processing, collection, bad debt servicing
Customizing Flows

It is possible to remove intermediaries and thus
minimize profit sharing, however, the flow must
continue somehow!

Look at clumping flows to one member

Look at splitting flows to sub-flows and submembers

IMPORTANT CONSIDERATIONS:



Recognizable channel members
Channel Layout matches Channel Cost/Usage
Accounts for all the relevant costly flow activities
Channel Efficiency Template
EFFICIENCY TEMPLATE
Weights for Flows
Cost
Benefit
Proportional Flow Performance of Channel Member
Final
Weight
1
2
2
4
Total
Physical
Possession
Ownership
Promotion
Negotiation
Financing
Risking
Ordering
Payment
Total
Normative Profit
Share
100
100
100
Zero-based Channel Design
1.
2.



Meets target market segment’s demand for service
outputs while…
Minimizing the cost of performing the necessary flows
for those service output demands
It’s all about maximizing profitability by maximizing customer
satisfaction…key…
“KNOW THY CUSTOMER WELL”
How?
Define target markets, understand each target market’s buyer
behavior and end-user demands, meet those requirements with
maximum utility and minimum cost (more efficiently than
competitors)
GAP ANALYSIS? - look for points of leverage…means by which
you can increase satisfaction with a lower incremental cost
(this might mean reducing one satisfaction measure that is high
cost in return for satisfying more significant factors that are
lower cost in total)
Equity Principle
Normative profit share measures that
portion of the total channel profits
that each channel member’s efforts
generates.
 Therefore, competition in channel
distribution should be given based
on value provided relative to degree
of participation (flaw=this can vary by

weighting (monopoly, limited supply, accessiblity)
Type of Channel?



Do you use intermediaries at all?
Do you select a retail or non-retail channel
partner?
Decisions should be based on the ability of
that channel type to meet the end user’s
service output demands regarding any
positive or negative impacts that type
could have on other service output
demands
Deciding who SHOULD be in
the Channel?
Let’s look at Figure 5.2, p. 111
 Get together in your groups.

Select a single product or service to
provide and discuss the advantages and
disadvantages of non-retail vs. retail
intermediaries.
 Why would you choose one over the
other?
 Discuss your findings with the class.

Single or Dual Channel

Dual Distribution = …whenever more than
one channel coexists in a market

Criteria:

Demand – segmentation


Supply – cost


Users with differing service output demands
Actual cost to distribute in that manner
Coordination

Increased conflict, overhead,
management…exclusivities, conditions
THANKS!

IN THE END:
The chosen channel structure must
help to meet targeted segments’
expressed demands for service
outputs while looking at economies
of scope, scale and inherent
efficiencies.