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Chapter ElevenChapter Eleven

The Nature of The Supply The Nature of The Supply Chain and DistributionChain and Distribution

Unlike real estate, location is Unlike real estate, location is becoming progressively less becoming progressively less

relevant. The three critical factors for relevant. The three critical factors for the Internet age are logistics, the Internet age are logistics,

logistics, logistics.logistics, logistics. - William B. Lipsin, CEO, Ironside Technologies - William B. Lipsin, CEO, Ironside Technologies

ObjectivesObjectives

Explain general purpose of distribution & logisticsShow distribution system’s contributionsExamine tradeoff between customer satisfaction

& costs in distributionUnderstand a total cost approach to distributionUnderstand pervasive nature of distribution Introduce channel intermediaries and various

distribution channels Introduce vertical marketing systemsOverview distribution’s interaction with other

aspects of the marketing mixExamine channel relations

Distribution’s FunctionDistribution’s Function

The major purpose of marketing is to satisfy human needs by delivering products of various types to buyers when and where they want them and at a reasonable cost.

The “when and where” is the function of Distribution

DefinitionsDefinitions

LogisticsLogistics

Component parts & Raw material In-process inventory Finished goods

Supply ChainSupply Chain

Physical Distribution Physical Distribution ActivitiesActivities

Inventory management

Order processingWarehousing and

storageMaterials handlingProtective packaging

& containerizationOutbound

transportation

Physical Distribution Physical Distribution Objectives Objectives

Minimize Costs

Maximize Customer Service

Channel of DistributionChannel of Distribution

All intermediaries involved in the exchange process

Excludes pre-manufacturing (raw materials or component parts)

Facilitate movement of physical goods and title

PRODUCER

INTERMEDIARIES

CONSUMER

Transportation& storage

Reducingtransactions

Physical Distribution Physical Distribution FunctionsFunctions

Breaking bulk

Accumulating bulkCreating

assortments

Modes of Modes of TransportationTransportation

MotorMotor RailRail

AirAir

PipelinePipeline

WaterWater

Modes of Modes of TransportationTransportation

RailroadsMedium cost and

speedLow reliabilityMany damaged goodsGood Geographic

flexibility

Modes of Modes of TransportationTransportation

Motor carrierMedium reliabilityGood speedGood flexibilityAbove average damageNow more competitive

and unregulated

Modes of Modes of TransportationTransportation

Air freightExpensiveVery fastAbove average

reliabilityAverage flexibilityAverage reputation

for undamaged goods

Modes of Modes of TransportationTransportation

Water transportationLow costLow reliabilityLimited flexibilityLimited damage

Modes of Modes of TransportationTransportation

PipelineMostly gas and

petroleumLow costHigh reliabilityLimited flexibility

Texas

Kansas

Modes of Modes of TransportationTransportation

Intermodal transportationShip + Truck (fishyback)Rail + Truck (piggyback)Air + Truck (birdyback)

Storage & Inventory Storage & Inventory COntrolCOntrol

Storage

BreakingBulk

Total Cost: A Systems Total Cost: A Systems ApproachApproach

Total Cost: A Systems Total Cost: A Systems ApproachApproach

Communication & Communication & Transaction FunctionsTransaction Functions

Gather & DisseminateInformation

19

24

13723

57

Buying & Selling

PersonalSelling

AdvertisingSales

Promotion

Facilitating FunctionsFacilitating Functions

Extra Services

Payment &Credit Services

Risk Taking

Typical Channels of Typical Channels of DistributionDistribution

ANUFACTURER

ONSUMER

HOLESALER

ETAILER

GENT

Business-to-Business Business-to-Business ChannelsChannels

Direct

Wholesaler

Vertical Marketing Vertical Marketing SystemsSystems

Corporate systems - total ownership

Administered - strong leadership

Contractual - legal relationships

Planning the Channel of Planning the Channel of DistributionDistribution

Determining the structureMarketing mix strategyOrganizational resourcesExternal environmental factorsMarket characteristicsConsumer preferences and behaviorThe nature and availability of IntermediariesOther environmental factors

Intensive DistributionIntensive

Distribution

Seeks to obtain maximum

product exposure at the retail level

Seeks to obtain maximum

product exposure at the retail level

ProducerProducer

RetailerRetailer RetailerRetailerRetailerRetailer

RetailerRetailer

RetailerRetailer RetailerRetailer

RetailerRetailer

RetailerRetailer

RetailerRetailer RetailerRetailer RetailerRetailer

RetailerRetailer

RetailerRetailer RetailerRetailer RetailerRetailer

Selective DistributionSelective Distribution

Product is sold in a Product is sold in a limitedlimited number of number of

outletsoutlets

Product is sold in a Product is sold in a limitedlimited number of number of

outletsoutlets

ProducerProducer

RetailerRetailer RetailerRetailerRetailerRetailer

RetailerRetailer RetailerRetailer RetailerRetailer

Product is sold in Product is sold in only only oneone outlet in outlet in

a given areaa given area

Product is sold in Product is sold in only only oneone outlet in outlet in

a given areaa given area

ProducerProducer

RetailerRetailer

Exclusive Distribution

Channel RelationshipsChannel Relationships

Cooperation

Conflict

PowerCoerciveExpertLegitimate

Other Distribution Other Distribution Management IssuesManagement Issues

Reverse distributionOne Coca Cola

Distributor

One thousand retailers

OKEthical, Political, &

Legal

Difficult

Backwardchannel

ReviewReview

Explain general purpose of distribution & logisticsShow distribution system’s contributionsExamine tradeoff between customer satisfaction

& costs in distributionUnderstand a total cost approach to distributionUnderstand pervasive nature of distribution Introduce channel intermediaries and various

distribution channels Introduce vertical marketing systemsOverview distribution’s interaction with other

aspects of the marketing mixExamine channel relations