Delivering Value Through
Supply Chain
Management: Channels of
Distribution and Logistics
Chapter Objectives
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value chain
key elements in a supply chain
distribution channel
functions of distribution channels
wholesaling intermediaries
 found in distribution channels
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Chapter Objectives
• types of distribution channels
• steps for distribution channel strategies
• how supply chain uses logistics
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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:
LIDROCK.COM
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Figure 15.2: The Generic Value Chain
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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
UPS.COM
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Links in the Supply Chain
• Supply chain management:
physical movement of goods
sharing of information about goods
In-sourcing:
• contracting with a specialist
• that services the company’s supply chains
UPS.COM
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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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Figure 15.3: Supply Chain
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The Importance of Distribution
• You Can’t Sell What Isn’t There
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The Importance of Distribution:
You Can’t Sell What Isn’t There!
• Direct channel:
 a producer to a customer
• Indirect channel:
 one or more intermediaries
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The Importance of Distribution:
You Can’t Sell What Isn’t There!
• intermediaries
wholesalers,
brokers,
agents,
retailers

 they 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
• logistics or physical distribution functions
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Functions of Distribution Channels
• 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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Figure 15.4: Reducing Transactions via Intermediaries
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Functions of Distribution Channels
• 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
DELL
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Channel Composition:
Types of Wholesaling Intermediaries
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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
sell to retailers
and other B2B customers
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Independent Intermediaries
• Merchant wholesalers:
 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
• Merchandise Agents/Brokers:
• provide services in exchange for commissions
Manufacturers’ agents/reps
Selling agents
Commission merchants
Merchandise brokers
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Independent Intermediaries
• Manufacturer-Owned Intermediaries
Sales branches
Sales offices
Manufacturers’ showrooms
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Types of Distribution Channels
• Consumer Channels
• Direct channel:
 producer sells directly to customers
• Indirect channel:
 producer uses one or more intermediaries
 to reach consumers
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Types of Distribution Channels (cont’d)
• Business-to-business channels
• Dual distribution systems
• Hybrid marketing systems
MERCK.COM
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Figure 15.6: Steps in
Distribution Planning
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Planning a Channel Strategy
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Step 1:
Develop distribution objectives
that support the firm’s
overall marketing goals.
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Planning a Channel Strategy
• Step 2:
• Evaluate internal and external
environmental influences
• to develop best channel structure.
ability to handle distribution functions
Channel intermediaries available
How competition distributes products
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Planning a Channel Strategy (cont’d)
• 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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Planning a Channel Strategy (cont’d)
• Step 3: Choose a distribution strategy
Vertical marketing system (VMS):
 formal cooperation among channel members
• Administered VMS
• Corporate VMS
• Contractual VMS
• Retailer cooperative
• Franchise organizations
IGAINC.COM
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Planning a Channel Strategy (cont’d)
• Step 3: Choose a distribution strategy
 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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Planning a Channel Strategy (cont’d)
• Step 3: Choose a distribution strategy
Distribution intensity
 Exclusive distribution:
• selling only through a single outlet in a region
 Selective distribution:
• using fewer outlets than intensive
• but more than exclusive distribution
 Intensive distribution:
• selling through all suitable wholesalers or retailers
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Planning a Channel Strategy (cont’d)
• Step 4: 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
ENTERPRISE
RENT-A-CAR
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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)
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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)
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Transportation:
mode by which
products move
among channel members
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Logistics Functions
• Transportation 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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THE END
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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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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
DARDEN.COM
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Marketing Plan Exercise
• Dell Computer has used one simple
supply chain system—direct sales over the
Internet or by phone to both business and
consumer users.
• --If you were a marketing executive at Dell,
what new supply chain options would you
suggest?
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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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Group Activity
• Your group of marketers has been hired by
a furniture manufacturer.
• You feel marketing should have input into
supplier selection, but the purchasing
department disagrees.
 --Explain the importance of the value chain
perspective.
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Discussion
• The supply chain concept looks at both
inputs and ways to move the product from
manufacturer to consumer.
 --Should marketers concern themselves with the total
supply chain concept? Why or why not?
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Discussion
• Some say music, video, or textbook
downloading, even if unauthorized, merely
creates a more efficient supply chain by
“cutting out the middleman.”
 --Do you agree?
 --Why or why not?
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Group Activity
• You’re responsible for direct marketing at
a firm that sells its industrial cleaning
products through manufacturers’ reps.
• You’re considering adding a direct Internet
channel to your distribution strategy, but
you wonder about channel conflict.
 --List the pros and cons of adding an Internet
channel.
 --What do you think is the best decision?
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Discussion
• You’ve probably heard someone say, “The
reason products cost so much is all the
intermediaries.”
 --Do intermediaries increase the cost of products?
 --Would consumers be better off or worse off without
intermediaries?
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Discussion
• Many entrepreneurs choose to start a
franchise business rather than “go it
alone.”
 --Do you think franchises offer the typical
businessperson good opportunities?
 --What are some positive and negative aspects of
purchasing a franchise?
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Discussion
• Colleges and universities
seeking better ways to
satisfy their customers
are increasingly looking
at the distribution of their
product – education.
--Describe your school’s
channel(s) of distribution.
--What innovative distribution
methods do you think your
school could try?
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