DISTRIBUTION SUPPLY CHAIN MANAGEMENT STRATEGY

Distribution supply chain management strategy: Distribution and Supply Chain Concepts – providing time, place, and possession utility for consumer and business buyers. Strong and carrying inventory-key factors in ensuring products available for customers

Marketing Channels-An organized a system of marketing institutions through which products, resources, information, funds, and/or product ownership flow from the point of production to the final user.  Some channel members or intermediaries physically take possession or title of products (wholesalers, distributors, retailers) whereas others simply facilitate the process (agents, brokers, financial institutions)
Physical distribution-Coordinating the flow of information and products among members of the channel to ensure the availability of products in the right places, in the right quantities, at the right times, and in a cost-efficient manner.  Physical distribution or logistics includes activities such as customer service/order entry, administration, transportation, warehousing (storage and materials handling), inventory carrying, and the systems and equipment necessary for these activities.

This supply chain process is designed to increase inventory turns and get the right products to the right place at the right time, maintaining the appropriate service and quality standards.

Marketing Channel Functions
The most basic benefit of marketing channels is contact efficiency, where channels reduce the number of contacts necessary to exchange produces.   Contact efficiency allows companies to maximize product distribution by selling to select intermediaries.

Sorting-intermediaries overcome this discrepancy of assortment
Breaking bulk-intermediaries, retailers particularly, overcome this discrepancy of quantity.
Maintaining inventories-intermediaries overcome this temporal time discrepancy.
Maintain convenient locations-intermediaries overcome this temporal (time) discrepancy.
Maintaining convenient locations-channel must overcome spatial discrepancy by making products available in convenient locations
Provide services-offer facilitating services and standardizing the exchange process
Channel effectiveness and efficiency
Distribution decisions are being evaluated using two criteria
1)Channel effective?
2) Channel efficient?
Effectiveness involves meeting the goals and objectives of both the firm and its customers.  The key effectiveness issues are whether the channel provides exceptional time, place, and possession utility.
Exceptional place utility remains elusive for many firms.  The primary reason is the expense.
The key issue in channel effectiveness with respect to possession utility is the ease of the actual purchase process.

Strategic issues in distribution and supply chain management
With the traditional channel, each channel member has its main concern about how much profits it makes or the size of its piece of the pie.  In a supply chain, the primary concern is the share of the market that the entire channel captures.
Any single firm can demand a larger portion of the profit made from the channels’ activities, but if the channel’s share of the markets shrinks then the firm will earn less profit.  On the other hand, if the channels’ share increases, a firm may get a smaller share or maintain a constant share, yet still, earn more profits.
Key strategic aspects of any supply chain: the structure of the channel, channel integration, and the means to build value in the supply chain.

Marketing Channel Structure
Distribution often becomes highly inflexible due to long-term contracts, sizable investments, and commitments among channel members.

Exclusive distribution-usually 1 to 1 marketing.  level of involvement is less risky.  It is the most restrictive type of market coverage.  Firms using this strategy give one merchant or outlet the sole right to sell a c product within a defined geographic region.  This channel structure is most commonly associated with prestige products, major industrial equipment, or with firms that attempt to give their products and more exclusive or prestige image.  Firms that purse exclusive distribution usually targets a single, well-defined market segment.  Exclusive distribution is a necessity in cases where the manufacturer demands a significant amount of input regarding the presentation of its products to buyers.
Selective distribution-give several merchants or outlets the right to sell a product in a defined geographic region.  Used in clothing, cosmetics, electronics, and premium pet food.  Allows the manufacturer to have more control over prices product display, and selling techniques.
Intensive distribution-makes a product available at the maximum number of merchants or outlets in each area to gain as much exposure and as many sales opportunities as possible.  The option of choice for most consumer convenience goods, such as candy, soft drinks, over-the-counter drugs, or cigarettes, and for business office supplies like paper and toner cartridges.  Manufacturers must give a good degree of control over pricing and product display.  Direct vehicles of the Internet and showcase store.  Firms that employ a mass marketing approach to segmentation often opt for intensive distribution strategy.
Channel Integration
Through informational, technological, social, and structural linkages, the goal of channel integration is to create a seamless network of collaborating suppliers, vendors, buyers, and customers.

Connectivity-the informational and technological linkages among firms.  Can access real-time information about the flow in the supply chain network.
Community-the sense of compatible goals and objectives among firms in the supply chain networks.  All firms must be willing to work together to achieve a common mission and vision.
Collaboration-the recognition of mutual independence among members of the supply chain network.
Creating and Enhancing Value in the Supply China
Synergy (the idea that the whole is greater than the sum of the parts) is the driving force behind value creation in the supply chain.  By combining and integrating their unique capabilities, channel members can create synergies that enhance communication and sales, improve after-sale services, increase the efficiency of product delivery, add products enhancements, or offers solutions rather than individual products.  This type of vale building can be done at any level of the supply chain.

Conflict and Collaboration in the Supply Chain
Move from a “win-lose” competitive attitude to a “win-win” collaborative approach in which there is a common realization that all firms in the supply chain must prosper.

The basis of Conflict in the Supply Chain
Each firm in a supply chain has its own mission, goals, objectives, and strategies.  Self-seeing interests behavior is natural in both business and everyday life.  Second, the recognition and acceptance o mutual interdependence within the supply chain goes against our natural self-interest-seeking tendencies.
Conflict also arises in a supply chain because each from possesses different resources, skills, and advantages.  Power can be defined as the influence one channel member has over others in the supply chain.

Legitimate power – firm’s position in the supply chain.
Reward power-the ability to help other parties reach their goals and objectives the crux of reward power.  rewards may come in terms of higher volume sales, sales with more favorable margins, or both.  Inidudivaul salespeople at the buyer of the channel may be rewarded with cash payments, merchandise, or vacations to gain more favorable presentation of a manufacturer’s or wholesaler’s products.  Free goods or services.
Coercive power-ability to take positive outcomes away from other channel members, or the ability to inflict punishment on other channel members.  Legislative and judicial actions.  A manufacturer may slow down delivers or postpone the availability of some portions of a product to a wholesaler or retailer.  A retailer can decide not to carry a product, not to promote a product, or to give a product unfavorable placement on its shelves.
Information power-having and sharing knowledge.  Makes channel members more effective and efficient.  Stems from knowledge concerning sales forecasts, market trends, competitive intelligence, the product use and usage rates or other critical pieces of information,  In may supply chains, retailers hold the most information power
Referent power-personal relationships and the fact that one party like another.
Firms want to sell a product for as much as possible, provided a few additional services as it can get away with obtaining payment in advance, and deliver the product at its own convenience.  By contrast, buyers want to purchase a product for as little as possible, get a larger number of additional services both now and in the future, pay month o even years later with no interest, and get immediate delivery.  Need for effective development, communication, and utilization of information.

Collaborative Supply Chains
Trust appears at the center.  Other keys include top management commitment and investment.
One of the best and most widespread collaborative supply chain initiatives is category management and ongoing and highly successful initiative by innovative members of food product distribution channels.  Category management is a supplier process of managing categories of products as strategic business units, producing enhanced business results by focusing on delivering continuously enhanced consumer value.

Customer-driven
Strategically driven
Multifunctional-finance, logistics, quality control, and facilities management.
Financially based
Systems dependent
Focus on immediate consumer response
Trends in Marketing Channels
The growth of electronic commerce
Created new methods for placing and filling orders for both business buyers and consumers.  Radiofrequency identification (RFID), which involves the use of tiny computer chips with radio transmission capability that can be attached to a product or its packaging.  The radio signals reflected from the chip can be used to track inventory levels and product spoilage or prevent theft.  They also can be used for instantaneous checkout of an entire shopping cart of times.  Large retailers and packaged goods manufacturers have funded research to develop RFID, which will eventually replace bar codes a means to manage inventory.  Innovations in web-based communication technologies, such as global positions, are also takin rail and truck equipment to a new level service in supply chain integration.  Consumer demands for convenience, as well as increased pressures on channel members to cut distribution expenses, have been the primary sparks for the growth in technologies like e-commerce and RFID.  Faster, better, and cheaper.  The Internet has become a critical channel component for both manufacturers and retailers to consider.

Shifting Power in the Channel
The scarcity and popularity of many products allowed manufacturers to dictate strategy throughout the supply chain.  Manufactures were the best source of information about sales, product trends, and customer preferences.  The power of manufactures eroded as UPC barcode technology, point-of-sale systems, and inventory management system converged to give retailers control over information at the point of sale.  Today, discount mass merchandise retailers and category-focused retailers (category killers) hold the power in most consumer channels.  First, the sheer size and buying the power of these firms allows them to demand price concessions from manufacturers.  Second, these firms perform their own wholesaling functions, therefore they receive trade discounts traditionally reserved for true wholesalers.  Third, their control over retail shelf space allows them to dictate when and where new products will be introduced.  MANUFACTURES TYPICALLY MUST PAY HEFTY FEES, CALLED SLOTTING ALLOWANCES. FINALLY, THEIR CLOSEST TO MILLIONS OF CUSTOMERS ALLOWS THESE LARGER TRRATIARLS TO GATHER VALUABLE INFORMATION AT THE POINT OF SALE.

Outsourcing channels
Outsourcing shifting work activities to businesses outside the firm.  By outsourcing noncore activities, firms can improve their focus on what they do best, free resource for other purposes, and enhance product differentiation-all of which lead to greater opportunities to develop and maintain competitive advantages.  Developing countries have improved their manufacturing capabilities, infrastructure, and technical and business skills, making them more attractive regions for global sourcing.  Firms that outsource give up a measure of control over key factors such as data security and the quality of service delivered to customers.  Offshoring is when companies set up their own offshore operations (called captives) to handle tasks such as IT, business process, or customer service in foreign countries where wage rates are lower.  Information technology is the primary activity outsourced today.  These supporting processes include administrative activities, distribution, human resources, financial analysis, call centers, and even sales, and marketing.  when a firm has significant needs and insufficient in-house expertise, the importance of outsourcing will increase.  (39ls) third-party logistics providers have emerged in the United States and Europe as retailers look toward outside experience as a way to reduce costs and make their products more readily available.

The growth of DIrect Distribution and Nonstore Retailing
Customers demands for lower prices and greater convenience have put pressure on all channel intermediates to justify their existence.  The channel must evolve into a more direct from or risk its very survival.  Nontraditional channels include no store retailing, or activities that occur outside the traditional bricks and mortar of physical stotes.

Catalog and Direct marketing
Direct selling-sells through face-to-face contact with sales associates.
Home shopping networks
Vending
Direct Response Advertising-infomercials, a cross between an advertisement, a news program, and a documentary, are also popular programs for products such as exercise equipment and kitchen appliances.  Distribution activities have also changed as manufacturers expand their direct offerings to customers.  In some cases, manufacturers have increased direct distribution by opening their own retail outlets.
The growth of Dual Distribution
Supply chain strategy often requires multiple channels to reach various markets.  Multiple channels enable a manufacturer to offer two or more lines of the same merchandise through two or more means, thus increasing salads coverage.  Example Hallmark’s extensive use of dual distribution.  Dual distribution requires considerable resources to implement as it spreads time, effort, and money across tow or more channels.  The dual distribution also increases the risk if disintermediation, where customers deal directly with manufacturers and bypass traditional channel intermediaries.  The use of dual channels can create conflict between the manufacturer and its supply chain members.  This is particularly true when target market segments do not have clear definitions or distinctions for each channel.

Legal and Ethical Issues in Supply Chain
Dual Distribution
Concerns arise when a manufacturer uses its own physical or online stores to dominate independent retailers or to drive them out of business.  To avoid these issues, manufacturers should not undercut the prices that independent retailers can charger with a reasonable margin.  Because most manufacturers do not want to run a complex retail system, their relationships with retail intermediaries are critical to success.

Exclusive Channel Arrangements
Benefit a manufacturer by limiting the distribution of its products in one of two ways.  First, manufacturers can limit distribution by allowing intermediaries to sell their products in restricted geographic territories.  Second, manufacturers can require that wholesalers, brokers, agents, or retailers not carry or represent products from any competing manufacturer.  Exclusive arrangements give manufacturers control over pricing, distribution, and sales activities.  Such arrangements are useful when a brand image or quality control is critical to the manufacturer’s success.  First, the arrangement cannot block competitors from 10 percent or more of the overall market.  Second, the sales revenue involved must not be so sizable that competition could be disrupted.  Finally, the manufacturer cannot be much larger (and therefore more intimidating) than the intermediary.  Regulators view exclusive arrangements most favorably when consumers and business buyers have access to similar products from other channels or when the exclusivity of a relationship strengthens the otherwise weak market position of the manufacturer.

Tying Arrangements
Occur when a firm conditions the availability of one product (the tying product) on the purchase of a different product (the “tied” product).  Tying arrangements, which are considered to be illegal in certain circumstances, can occur at any level in a marketing channel.  First, the arrangement is more likely to be legal if the tying and tied products are in close relation to each other, required for the proper functioning of the other product, or part of a total package or solution.  Franchisors can often successfully arguer for tying arrangements when raw material or components are required for the market power of the firm reading the arrangement.  Powerful firms are less likely to be successful in tying because it gives them an unfair advantage.  Finally, a tying arrangement is illegal if they restrain trade or competition in a meaningful way.

Counterfeit Products
Clothing, Audio, and video products, and computer software.
The loss of tax revenues has a huge impact on governments, as they can’t collect both direct and indirect taxes on the sale of counterfeit products.  Likewise, counterfeit products leech profits necessary for ongoing product development away from the channel, as well as thousands of jobs at legitimate companies.  Customers also feel the impact of counterfeit products, as their quality almost never lives up to the quality of the original.