Chapter 5
Managing the Supply Chain
The Supply Chain



Is a set of institutions that move goods from the point of
production to the point of consumption.
Channel - Used interchangeably with supply chain.
The supply chain, or channel, is affected by five
external forces:
Consumer behavior
 Competitor behavior
 Socioeconomic environment
 Technological environment
 Legal and ethical environment

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LO 1
The Supply Chain

A supply chain or channel must perform eight
marketing functions:
Sorting
Buying
Financing
Selling
Information gathering
Storing
Risk taking
Transporting
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LO 1
The Supply Chain

The institutions involved in performing the eight
marketing functions are usually broken into:
 Primary
marketing institutions - Channel members
that take title to the goods as they move through the
marketing channel.
 Facilitating marketing institutions - Channel members
that do not actually take title but assist in the marketing
process by specializing in the performance of certain
marketing functions.
 E.g.
Public warehouse - Facility that stores goods for
safekeeping for any owner in return for a fee, usually based
on space occupied.
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LO 1
Exhibit 5.1 - Institutions Participating
in the Supply Chain
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LO 1
Types of Supply Chains



Supply chain length
Supply chain width
Control of the supply chain
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LO 2
Exhibit 5.2 - Strategic Decisions in
Supply-Chain Design
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LO 2
Exhibit 5.3 - Direct and Indirect Supply
Chains
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LO 2
Supply Chain Length


Sometimes the length of a supply chain is hard to
determine.
The desired length is determined by many customerbased factors such as
 the
size of the customer base
 geographical dispersion
 behavior patterns like purchase frequency
 average purchase size
 the particular needs of customers
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LO 2
Exhibit 5.4 - Width of Supply-Chain
Structure
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LO 2
Exhibit 5.5 - Marketing Channel
Patterns
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LO 2
Control of the Supply Chain
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Conventional marketing channel - Each channel
member is loosely aligned with the others and takes
a short term orientation; is an unproductive method
for marketing goods.
Vertical marketing channels - Capital-intensive
networks of several levels that are professionally
managed and centrally programmed to realize the
technological, managerial, and promotional
economies of a long-term relationship orientation.
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LO 2
Control of the Supply Chain

Quick response (qr) systems/ efficient consumer
response (ECR) systems - Integrated information,
production, and logistical systems that obtain realtime information on consumer actions by capturing
sales data at point-of-purchase terminals and then
transmitting this information back through the entire
channel to enable efficient production and
distribution scheduling.
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
LO 2
Control of the Supply Chain

Corporate vertical marketing channels - Exist
where one channel institution owns multiple levels of
distribution and typically consists of either a
manufacturer that has integrated vertically forward
to reach the consumer or a retailer that has
integrated vertically backward to create a self
supply network.
 It
is not difficult to program the channel for productivity
and profit goals since a well-established authority
structure already exists.
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LO 2
Control of the Supply Chain

Contractual vertical marketing channels - Use a
contract to govern the working relationship between
channel members and include:
 Wholesaler-sponsored
voluntary groups - The
wholesaler brings together a group of independently
owned retailers and offers them a coordinated
merchandising and buying program that will provide
them with economies like those their chain store rivals
are able to obtain.
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
LO 2
Control of the Supply Chain
 Retailer-owned
cooperatives - Wholesale institutions,
organized and owned by member retailers, that offer
scale economies and services to member retailers,
which allows them to compete with larger chain buying
organizations.
 Franchise - Form of licensing by which the owner of a
product, service, or business method (the franchisor)
obtains distribution through affiliated dealers
(franchisees).
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LO 2
Exhibit 5.6 - Advantages and
Disadvantages of Franchising
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LO 2
Control of the Supply Chain

Administered vertical marketing channels - Exist
when one of the channel members takes the
initiative to lead the channel by applying the
principles of effective interorganizational
management.
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LO 2
Managing Retailer-Supplier Relations

Dependency
 Occurs
when a retailer needs another supply chain
member or vice versa to perform certain marketing
functions.
 Interdependent - When two members of the supply
chain are dependent on each other.
 Interdependency
is at the root of the collaboration found in
today’s supply chains, and is the major cause of conflict
found in supply.
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LO 3
Managing Retailer-Supplier Relations

Power - Ability of one channel member to influence
the decisions of the other channel members.
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LO 3
Managing Retailer-Supplier Relations
Reward power
Based on B’s perception that A has the ability to provide
rewards for B.
Expertise power
Based on B’s perception that A has some special knowledge.
Referent power
Based on the identification of B with A.
Coercive power
Based on B’s belief that A has the capability to punish or
harm B if B doesn’t do what A wants.
Legitimate power
Based on A’s right to influence B, or B’s belief that B should
accept A’s influence.
Informational
power
Based on A’s ability to provide B with factual data.
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
LO 3
Managing Retailer-Supplier Relations

Conflict
 Major
sources of conflict between retailers and their
suppliers:
 Perceptual
incongruity
 Goal incompatibility

Dual distribution
 Domain



disagreements
Diverter
Gray marketing
Free riding
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LO 3
Managing Retailer-Supplier Relations
Perceptual
incongruity
The retailer and supplier have different perceptions of reality.
Goal
incompatibility
Achieving the goals of either the supplier or the retailer
would hamper the performance of the other.
Dual distribution
Manufacturer sells to independent retailers and also through
its own retail outlets.
Domain
disagreements
Disagreement about which member of the marketing channel
should make decisions.
Diverter
Unauthorized member of a channel who buys and sells excess
merchandise to and from authorized channel members.
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LO 3
Managing Retailer-Supplier Relations
Gray marketing
Branded merchandise flows through unauthorized channels.
Free-riding
Consumer seeks product information, usage instructions, and
sometimes even warranty work from a full-service store but
then, armed with the brand’s model number, purchases the
product from a limited service discounter or over the Internet.
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LO 3
Exhibit 5.7 - Supply Chain
Management Best Practices
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LO 4
Facilitating Channel Collaboration
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Mutual trust - Occurs when both the retailer and its
supplier have faith that each will be truthful and
fair in their dealings with the other; allows the
channel to grow and prosper.
Two-way communication - Occurs when both
retailer and supplier communicate openly their
ideas, concerns, and plans.
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
LO 4
Facilitating Channel Collaboration
Mutual trust
Both the retailer and its supplier have faith that each will be
truthful and fair in their dealings with the other; allows the
channel to grow and prosper.
Two-way
Both retailer and supplier communicate openly their ideas,
communication concerns, and plans.
Solidarity
High value is placed on the relationship between
a supplier and retailer; results in flexible dealings
where adaptations are made as circumstances
change.
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LO 4
Category Management
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Category management (CM) - Process of
managing all the SKUs within a product category.
It involves the simultaneous management of price,
shelf space, merchandising strategy, promotional
efforts, and other elements of the retail mix within
the category based on the firm’s goals, the
changing environment, and consumer behavior.
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LO 4
Category Management
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
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.
In cases where the solidarity of the channel partners
is high, a supplier may serve as the retailer’s
category advisor.
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
LO 4