Value Chain Management:
Channels of Distribution,
Logistics, and Wholesaling
What is a Distribution Channel?
• Series of firms or individuals that facilitates
the movement of a product from the
producer to the final customer
– Direct
– Indirect
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Functions of Distribution Channels
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Time, place, and ownership utilities
Logistics functions
Transportation and storage functions
Efficiency creation
Facilitating functions
Repair and maintenance functions
Risk-taking
Communications and transaction functions
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Creating Efficiencies
• Breaking bulk - channel members purchase
large quantities from manufacturers and sell
smaller quantities to many different
customers
• Creating assortments - channel members
provide a variety of products on one
location
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Figure 17.1: Reducing Transactions
via Intermediaries
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The Internet
• Even small firms with limited resources can
enjoy competitive advantages by making
products available to customers around the
globe at a very low cost
• Disintermediation - process by which
traditional intermediaries are eliminated as
companies question the value added by
layers in the distribution channel
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Types of Wholesaling Intermediaries
• Wholesaling intermediaries are firms that
handle the flow of products from the
manufacturer to retailer or business user
– Independent
– Manufacturer-owned
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Independent Intermediaries
• Merchant wholesalers
– Full-service
– Limited-service
– Cash-and-carry
wholesalers
– Truck jobbers
– Drop shippers
– Mail-order
wholesalers
– Rack jobbers
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• Merchandise Agents
or Brokers
– Manufacturers’
agents
– Selling agents
– Commission
merchants
– Merchandise
brokers
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Manufacturer-Owned
Intermediaries
• Sales branches
• Sales offices
• Manufacturers’ showrooms
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Figure 17.2: Types of Distribution
Channels
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Types of Distribution Channels
• Consumer channels
– Direct
– Manufacturer-retailer-consumer
– Manufacturer-wholesaler-retailer-consumer
• Business-to-business channels
– Direct
– Manufacturer-industrial distributor-business
customer
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Consumer Channels
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B2B Channels
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Dual Distribution Systems
• Multiple channel usage
• Example:
– pharmaceutical industry sells to hospitals,
clinics, and organizational customers
directly and to consumers indirectly
through drug retailers
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Figure 17.3: Steps in Distribution
Planning
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Marketing Systems
• Conventional - multi-level distribution
channel in which members work
independently of one another
• Vertical - channel in which there is
cooperation among channel members at two
or more different levels of the channel
• Horizontal - two or more firms at the same
channel level agree to work together
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Vertical Marketing Systems
• Administered - channel members remain
independent but voluntarily work together
• Corporate - single firm owns
manufacturing, wholesaling, and retailing
operations
• Contractual - cooperation is enforced by
contracts that spell out member rights and
the terms of cooperation
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Contractual Vertical Marketing
Systems
• Wholesaler-sponsored - wholesalers get
retailers to work together under their
leadership in a voluntary chain
• Retailer-cooperative - group of retailers
with a wholesaling operation to help them
compete more effectively with large chains
• Franchise organizations - cooperation is
explicitly defined and strictly enforced by
franchiser
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Distribution Intensity
Decision Factors:
Company,
Customers,
Channels,
Constraints, and
Competition
Intensive, Exclusive, or Selective Distribution
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Developing Distribution Tactics
• Selecting channel partners
• Managing the channel of distribution
– Channel leader is the dominant firm that
controls the channel
– Channel leaders have some form of
power relative to other members
• economic power
• legitimate power
• reward or coercive power
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Logistics:
Implementing the Value Chain
• Process of designing, managing, and
improving the movement of products
through the supply chain
– purchasing
– manufacturing
– storage
– transport
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Supply Chain Management
• The supply chain includes all the firms that
engage in activities that are necessary to
convert raw materials into a good or service
and put it in the hands of the consumer or
business customer
• Supply chain management is the
management of flows among the firms in a
supply chain to maximize total profitability
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Figure 17.4: Supply Chain
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Logistics and Customer Satisfaction
• Traditionally, logistics was thought of as
physical distribution
– order processing, warehousing, materials
handling, transportation, and inventory
control
– objective to deliver product at lowest cost
• Now, customers’ goals become the logistics
provider’s goals
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Logistics Functions
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Order processing
Warehousing
Materials handling
Transportation
Inventory Control
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Transportation Mode
Considerations
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Dependability
Cost
Speed of Delivery
Accessibility
Capability
Traceability
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Modes of Transportation
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Rail
Water
Truck
Air
Pipeline
Internet
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