Delivering Value Through
Supply Chain
Management: Channels of
Distribution and Logistics
Chapter Objectives
• Understand the concept of the value chain
and the key elements in a supply chain
• Explain what a distribution channel is and
what functions distribution channels perform
• Describe the types of wholesaling
intermediaries found in distribution channels
• Describe the types of distribution channels
and the steps in planning distribution channel
strategies
• Explain how the supply chain uses logistics
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Real People, Real Choices
• Darden Restaurants (Jim Lawrence)
• Volatility in the foodservice supply chain
• Darden needed to protect its foodservice supply
 Option 1: develop a food distribution network owned
and operated by Darden to support all its restaurants.
 Option 2: work with third party logistics (3PL)
providers.
 Option 3: work with traditional systems distributors
under a new operating model.
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Place: The Final Frontier
• Value chain: a series of activities directed
at designing, producing, marketing,
delivering, and supporting any product.
• Supply chain: Activities necessary to turn
raw materials into a good or service and
put it in the hands of the consumer:
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Links in the Supply Chain
• Supply chain management: the
management of flows among the firms in a
supply chain to maximize total profitability
 Includes physical movement of and sharing of
information about goods
 Insourcing: contracting with a specialist that services
the company’s supply chains
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Supply Chain vs.
Channel of Distribution
• Channel of distribution: facilitates
movement of a product from producer to
final customer
• Supply chain: begins with raw materials
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The Importance of Distribution:
You Can’t Sell What Isn’t There!
• Direct channel: a producer and a customer
• Indirect channel: one or more
intermediaries
 Firms/individuals such as
 wholesalers, agents,
 brokers, and retailers
 that help move
 product to consumer or business user
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Functions of Distribution Channels
• To ease the flow of goods from producer to
customer
• To provide time, place, and ownership
utility
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Functions of Distribution Channels
(cont’d)
• To provide logistics or physical distribution
functions
• To create efficiencies by reducing number
of transactions
 Breaking bulk: purchasing large quantities of goods to
sell one/few at a time to customers
 Creating assortments: providing variety of products in
one location
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Functions of Distribution Channels
(cont’d)
• To make purchase process easier
• To manage risk
• To perform communication and transaction
functions
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The Internet in the Distribution Channel
• Radical changes in distribution strategies
 Disintermediation: eliminating traditional
intermediaries
 Knowledge management: sharing knowledge with
other supply chain members
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Channel Composition: Types of
Wholesaling Intermediaries
• Wholesaling intermediaries: firms that
handle the flow of products from the
manufacturer to the retailer/business user
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Independent Intermediaries
• Merchant wholesalers: buy goods from
manufacturers and sell to retailers and
other B2B customers
 Full-service merchant wholesalers
 Limited-service merchant wholesalers
 Cash-and-carry wholesalers
Truck jobbers
Drop shippers
Rack jobbers
Mail-order wholesalers
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Independent Intermediaries (cont’d)
• Merchandise Agents/Brokers: provide
services in exchange for commissions
 Manufacturers’ agents/reps
 Selling agents
 Commission merchants
 Merchandise brokers
• Manufacturer-Owned Intermediaries
 Sales branches
 Sales offices
 Manufacturers’ showrooms
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Types of Distribution Channels (cont’d)
• Business-to-business channels
• Dual distribution systems
• Hybrid marketing systems
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Planning a Channel Strategy
• Step 1: Develop distribution objectives that
support the firm’s overall marketing goals.
• Step 2: Evaluate internal and external
environmental influences to develop best
channel structure.
 Firm’s ability to handle distribution functions
 Channel intermediaries available
 How the competition distributes its products
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Step 3: Choose a Distribution Strategy
• Channel relationships: conventional,
vertical, or horizontal system
• Conventional marketing system: members
work independently of one another
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Step 3: Choose a Distribution Strategy
(cont’d)
• Vertical marketing system (VMS): formal
cooperation among channel members
 Administered VMS
 Corporate VMS
 Contractual VMS
 Retailer cooperative
 Franchise organizations
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Step 3: Choose a Distribution Strategy
(cont’d)
• Horizontal marketing system: two or more
firms at the same channel level agree to
work together to get their product to the
customer
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Step 3: Choose a Distribution Strategy
(cont’d)
• Distribution intensity
• Intensive distribution: selling through all suitable
wholesalers or retailers
• Exclusive distribution: selling only through a
single outlet in a region
• Selective distribution: using
•
fewer outlets than intensive
•
but more than
•
exclusive distribution
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Step 4: Develop Distribution Tactics
• Selecting channel partners: normally a
long-term commitment
• Managing the channel
 Channel leader/captain: dominant firm that controls
the channel (via economic, legitimate,
reward/coercive power)
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Distribution Channels and the
Marketing Mix
• Place decisions affect:
 Pricing
 Product and its positioning
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Logistics: Implementing
the Supply Chain
• Logistics: the process of designing,
managing, and improving the movement of
products through the supply chain
 Purchasing
 Manufacturing
 Storage
 Transport
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Logistics: Implementing
the Supply Chain (cont’d)
• Physical distribution: the activities used to
move finished goods from manufacturers
to final customers
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Logistics Functions
• Order processing
• Warehousing
• Materials handling
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Logistics Functions (cont’d)
• Transportation: mode by which products
move among channel members
• Modes differ in their-•
•
•
•
•
•
Dependability (safety and punctuality)
Cost
Speed of delivery
Accessibility (different locations served)
Capability (variety of products handled)
Traceability (ability to locate goods in shipment)
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Modes of Transportation
• Railroads: carry heavy, bulky items over
long distances
• Water: carry large, bulky goods (especially
internationally)
• Trucks: carry consumer goods in short
haul; allow flexibility in locations
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Modes of Transportation (cont’d)
• Air: carry high value-items; fastest and
most expensive mode
• Pipelines: carry petroleum/chemical
products
• Internet: distribute
•
services such as banking,
• news, and entertainment
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Logistics Functions (cont’d)
• Inventory control: activities to ensure foods
are always available to meet customers’
demands
 Radio frequency identification (RFID)
 Just in time (JIT)
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Real People, Real Choices
• Darden Restaurants (Jim Lawrence)
• Jim chose option 3: work with traditional
systems distributors under a new
operating model.
 Restaurants experienced greater manager
satisfaction and significant savings from collaborative
efforts of all supply chain partners
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Marketing in Action Case:
You Make the Call
• What is the decision facing Procter and
Gamble?
• What factors are important in
understanding this decision situation?
• What are the alternatives?
• What decision(s) do you recommend?
• What are some ways to implement your
recommendation?
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Keeping It Real: Fast-Forward to Next
Class, Decision Time at Eskimo Joe’s
• Meet Stan Clark, entrepreneur.
• New law increased drinking age to 21,
threatening the future of a college-town
beer bar.
• The decision: how to survive the new law?
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