Dunne, Lusch, & Carver
Chapter 5
Managing the Supply Chain
A Supply Chain
• The set of institutions that move goods from
the point of production to the point of
consumption.
• Synonymous with the term “channel”
• Must perform eight marketing functions:
Buying
Selling
Storing
Transporting
Sorting
Financing
Information gathering
Risk taking
Note: None of these functions can be eliminated; they can only be shifted.
Supply Chain Participants
• A channel is made up of only two types of
institutions…
• Primary marketing institutions
• Members that take possession of and title to the goods
handled as they move through the marketing channel.
• Only primary institutions are formal members of a channel
• Facilitating marketing institutions
• Members that do not actually take title to the goods they
handle, but assist in the marketing process by
specializing in the performance of one or more of the
eight marketing functions.
Development of the Supply Chain
• There are three general strategic decision areas
that must addressed when designing a supply
chain
1. Length
2. Width
3. Level of Control
• All three will impact supply chain efficiency and
the channel’s ability to meet its ultimate goal.
•
Goal of every channel is to minimize suboptimization
•
Achieved via specialization of labor in the 8 mkt. functions
Choices Concerning Length
Length:
Direct vs. Indirect
Choices Concerning Width
Choices Concerning Control
Managing Retailer – Supplier
Relations
• Power
• Ability of one channel member to influence the
decisions and behavior of the other channel members.
• Pab = Dba
• Dependency
• Occurs when a retailer needs another supply chain
member or vice versa to perform certain marketing
functions.
• All channel members are interdependent upon one another.
• Interdependency is at the root of all major sources of conflict.
Bases of Power
• Bases of Power:
1. Expertise power
2. Referent power
3. Legitimate power
4. Reward power
5. Coercive power
Use of Power within the Supply
Chain*
Note this information is not within your text
and was supplied in class.
(L.P. Bucklin’s “Theory of Channel Control,” JM
1973)
Theory of Channel Control
Benefit
(eg, $)
• Payoff Function
•
The amount of benefits (or profits) that accrue as a result of giving up control
Control
Given Up
Theory of Channel Control
Benefit
(eg, $)
• Tolerance Function
•
The amount of pain/burden felt as a result of giving up control to another.
Control
Given Up
Theory of Channel Control
Benefit
(eg, $)
•
Control
Given Up
Zone of Indifference
•
Corresponds to the indifference of keeping/ending the relationship due to the costs associated with
“breaking-up” an arrangement
•
Zone is the area between the Tolerance Function and the red line denoting the outside edge of the zone
Theory of Channel Control
Benefit
(eg, $)
•
Area “A”
•
•
A
Control
Given Up
The only area where the Payoff Function is above the Tolerance Function, and it’s increasing
As one gives up more control initially, they experience greater benefit (e.g., why consultants exist)
Theory of Channel Control
Benefit
(eg, $)
•
Area “B”
•
•
A
B
Control
Given Up
The only area where the Payoff Function is above the Tolerance Function, but it’s decreasing
As one continues to give up control, the benefits begin to fall. Burden simultaneously begins to rise
substantially as benefits continue to fall (i.e., steep rise in the Tolerance function).
Theory of Channel Control
Benefit
(eg, $)
•
Area “C”
•
•
A
B
C
Control
Given Up
The area where the Payoff Function is below the Tolerance Function, and still in the zone of
indifference
Here the amount of burden felt outstrips the benefit gained, but there’s a cost assoc. with breaking up
Theory of Channel Control
Benefit
(eg, $)
A
•
Control
Given Up
What bases of power should be used in “A”? And why should the others not?
Theory of Channel Control
Benefit
(eg, $)
A
•
B
Control
Given Up
What bases of power should be used in “B”? And why should the remaining not?
Theory of Channel Control
Benefit
(eg, $)
A
•
B
C
Control
Given Up
Why should the remaining bases of power be used in “C”? What do they do?
Theory of Channel Control
Benefit
(eg, $)
Control
Given Up
•
Reward power impacts one’s payoff function & shifts it up temporarily
Theory of Channel Control
Benefit
(eg, $)
A
•
B
C
Now consider how coercive power impacts the same scenario…
Control
Given Up
Theory of Channel Control
Benefit
(eg, $)
Control
Given Up
•
Coercive power impacts one’s tolerance function & shifts it down temporarily
Conflict Within the Supply Chain
• Conflict
• Exists when a member of the channel perceives that
another member’s actions impede the attainment of
his/her goals.*
• Sources of conflict:
1. Perceptual incongruity
2. Goal incompatibility
•
Dual distribution
3. Domain disagreements
•
Diverting, Gray Marketing, Free Riding
4. Role incongruities*
5. Expectational differences*
Facilitating Channel Collaboration
• Compromise vs. Collaboration
• Win/Lose vs. Win/Win
• Requires:
1. Mutual trust
•
Faith that each (retailer & supplier) will be truthful and fair in their
dealings with the other.
2. Two-way communication
•
When both communicate openly their ideas, concerns, & plans.
3. Solidarity
•
High value is placed on the relationship & results in flexible
dealings where adaptations are made as circumstances change.
Category Management
• Process of managing all the SKUs within a
product category.
• Involves the simultaneous management of…
1.
2.
3.
4.
Price
Shelf space
Merchandising strategy
Promotional efforts
Category Management
• Category Manager
• The individual who uses detailed knowledge of the consumer
and consumer trends, detailed point-of-sale (POS)
information, and specific analysis provided by each supplier
to the category to create various store displays based on local
market conditions.
• Works for the retailer
• Category Advisor
• In cases where the solidarity of the channel partners is high, a
supplier may serve as the retailer’s category manager.
• Works for a supplier but manages all brands within the category.
What You Should Have Learned…
Chapter’s Learning Objectives
1. The retailer’s role as one of the institutions
involved in the supply chain.
2. How to discuss the types of supply chains by
length, width, and level of control.
3. The terms dependency, power, and conflict, as
well as their impact on supply chain
relationships.
4. The importance of a collaborative supply-chain
relationship.