Supply Chain and
Supply Chain and logisticslogistics Supply Chain
Supply Chain: the sequence of rms that : the sequence of rms that constitute a system of ecientlyconstitute a system of eciently and eectively creating and delivering a good or service to consumers or and eectively creating and delivering a good or service to consumers or industrial users.
industrial users.
Supply chain management (SCM)
Supply chain management (SCM) involves the management of involves the management of upstrupstream andeam and downstream ow of materials, nished goods and services through the
downstream ow of materials, nished goods and services through the integration and organization of information and logistics activities across integration and organization of information and logistics activities across rms in a supply chain for the
rms in a supply chain for the purpose of creating and delivering goods andpurpose of creating and delivering goods and services that provide value to consumers. Often used interchangealy with services that provide value to consumers. Often used interchangealy with supply chain, one of the most
supply chain, one of the most confusing things is the dierencconfusing things is the dierence etweene etween logistics and supply chain
logistics and supply chain management.management. Logistics
Logistics has a much narrower scope. !t refers to those activities that focus onhas a much narrower scope. !t refers to those activities that focus on getting the right amount of the
getting the right amount of the right producright products to the ts to the right place at the rightright place at the right time in the
time in the right condition at the right "lowest possile# cost.right condition at the right "lowest possile# cost.
Logistics systems and distribution Logistics systems and distribution $
$ogistics is the process of planning, implementing and controlling eectiveogistics is the process of planning, implementing and controlling eective ow and storage
ow and storage of materials, in%process inventory, nished goods andof materials, in%process inventory, nished goods and related informat
related information from point of ion from point of origin to point of origin to point of consumption for theconsumption for the purpose of conforming to customer requirements.
Logistical activities are an integral part of the supply chain, including,
transportation, order processing, inventory control, materials handling and information technology .
Inbound and outbound logistics
Inbound logistics deals with the utilization of resources and raw materials within the manufacturing plant or usiness
Outbound logistics deals with the movement of nished goods or products from the usiness to the end user.
Logistics costs and value delivery network
&he total cost of mar'eting logistics can account for ()*+) per cent of a products cost. - lower logistics cost can lead to a lower price, a higher prot margin and thus, provide the rm with the competitive advantages.
- value delivery networ made up of the company, suppliers, distriutors, and ultimately customers who partner/ with each other to improve the performance of the entire system.
• 0ective logistic systems play a critical role in the fast moving consumer goods "1234# industry y helping manufacturers save costs consideraly and improve customer satisfaction.
• 0ective logistic networ's can reduce cycle%time to move quic'ly from suppliers to transporters, distriutors, retailers and stores. 3ompanies will lose their customers if the logistics networ's are ineective.
Marketing logistics networ's dier according to the type of product and the industry. !n uilding its value delivery networ', a company has to manage a whole community of suppliers, assemlers, resellers and others who must wor' together eectively.
&here is a cutting point representing the lowest total logistics costs, implying an optimal shipment size or numer of warehouses for a specic freight
distriution system. 1inding such a alance is a common goal in logistical operations.
Marketing channels and Flows in marketing channels
- mar'eting channel "also 'nown as distriution channel# is a set of
ma'ing a product or service availale to users. 5hen a mar'eting channel has een developed, a series of ows emerges. &hese ows provide the lin's that tie channel memers and other agencies together in the distriution of goods and services. 1rom the standpoints of channel strategy and
management, the most important of these ows are:
!" #roduct $ow refers to the actual physical movement of the product from the manufacturer through all of the parties who ta'e physical possession of the product, from its point of production to nal consumers.
%" &egotiation $ow represents the interplay of the uying and selling functions associated with the transfer of title "right of ownership# to products.
'" Ownership $ow shows the movement of the title to the product as it is passed along from the manufacturer to nal consumers.
" Information $ow refers to the e6change of information etween all the parties, up or downstream participating in the ow.
" #romotion $ow refers to the ow of persuasive communication in the form of advertising, personal selling, sales promotion, and pulicity.
Value addition by channels
7se of intermediaries or channel memers oer several advantages to mar'eters. &hey add value y fullling three sets of important functions, namely speciali*ation and division of labor+ overcoming discrepancies and providing contactual eciency"
Speciali*ation and division of labor- 2ar'eting channels provide economies of scale8 aid producers who lac' resources to mar'et directly and uild good relationships with customers.
• Overcoming .iscrepancies- 2ar'eting channels aid in overcoming discrepancies of quantity, assortment, time, and space created y
economies of scale in production.
• #roviding contactual eciency- &his refers to the level of negotiation eort etween sellers and uyers relative to achieving a distriution o9ective. !t is a relationship etween an input "negotiation eort# and an output "the distriution o9ective#. /he use of additional intermediaries will often increase the level of contractual eciency"
Marketing channel members perform many 'ey functions including
information, promotion, contact, matching, negotiation, physical distriution, nancing and ris' ta'ing in the process of moving goods from producers and suppliers to consumers.
!" Information" 4athering and distriuting mar'eting research and intelligence aout the environment for planning purposes.
%" #romotion" eveloping and spreading persuasive communications aout an oer.
'" Contact" 1inding and communicating with prospective uyers.
" Matching" 3onsists of shaping and tting the oer to the uyers needs y manufacturing, grading, assemling, and pac'aging.
" &egotiation" ;eaching an agreement on price and other terms. 0" #hysical .istribution" !nvolves transporting and storing of goods. 1" 2inancing" -cquiring < using funds to cover the costs of channel. 3" 4is /aing" -ssumes the ris' of carrying out the channel wor'. Contactual Efciency
;efers to reduction and optimization of numer of e6change contacts needed to complete transactions with a view to attain a point of equilirium etween the quality and quantity of e6change relationships etween channel
memers.
Number o channel levels
Channel levels refer to the layers of intermediaries that perform some wor' in ma'ing it possile for the nal uyer to own the product.
•
Direct Marketing Channel: this is a mar'eting channel that has
no intermediary levels. &he company sells directly to nal
•
Indirect Marketing Channels: these contain one or more
intermediary levels.
• $evel one = a direct mar'eting channel
• $evel two channel has one middle% man level • $evel three will contain two intermediary
• !t is possile to have channels with more levels.
Channels in the service sector
7se of mar'eting channels is not restricted to distriution of physical goods8 they are also used y the service sector in order to serve their target
populations eectively. elivery of health and education distriution systems are typical e6amples as hospitals and schools should e located according to geographic space.
Channel behaviour and organisation
2ar'eting channels are comple5 behavioural networs, in which dierent people and dissimilar, independent companies depend on each other to accomplish individual, company and channel goals and wor' together for their common good.
isagreements may generate conicts which could e hori*ontal or vertical depending on the situation.
A horizontal conict: etween rms at the same level of the
channel. ealers and franchises of the same rm within the same
mar'et may argue aout each other>s competitive practices.
Vertical conicts: ;efers to prolems etween rms at dierent
levels in the channel.
Vertical Marketing Networks! 3omprises producers, wholesalers
and retailer acting in as a unied system.
•
Cororate VM!: &he corporate ody comines and owns
successive stages of production and distriution.
•
Contractual VM!: 3onsists of independent rms at dierent levels
of production and distriution
o
more economies and sales than each memers could achieve
alone.
o
?as three types: wholesaler%sponsored chain, retailer
cooperative, franchise organisation.
•
Administered VM!: 3oordinates distriution y the power e6erted
y of one of its memers in the mar'etplace, not y contract or
ownership.
Inno"ations in Channel organisation
#orizontal marketing net$orks
1ormed when two or more companies at one level 9oin to pursue a new
mar'eting opportunity.
•
&hese may e temporary arrangements such as a 9oint promotion or
more permanent distriution agreements.
Multichannel Marketing %ystems: -lso called hybrid marketing
channels, these utilize more than one channel to reach customers
more eectively and with greater e6iility.
Dual Distribution: !nvolves an arrangement wherey a rm reaches
dierent uyers y employing two or more dierent types of channels
for the same asic product.
Channel Alternatives: Distribution Strategies
Number of Marketing Intermediaries
"isintermediation and reintermediation
• .isintermediation refers to the removal of intermediaries or cutting out the middlemen from traditional distriution channels and dealing with
every customer directly, for e6ample via the !nternet.
• 4eintermediation refers to reversing disintermediation through the
reintroduction of an intermediary etween the manufacturer and the end users.
Intensive "istribution utilizes as many outlets as ossible
and is esecially aroriate &or con"enience goods and
common ra$ materials'
#$clusive "istribution consists o& a "ery limited number o&
outlets hold all the rights to distribute a roduct line' (his
strategy is aroriate &or many high restige goods'
Distributor selling e)ort is usually "ery strong'
Selective "istribution uses more than one outlet er
market but less than all a"ailable outlets' (his strategy gains
good market co"erage and gains better than a"erage selling
e)ort'
%etailing
;etailing is dened as all activities involved in selling goods or services directly to nal consumers for their personal, non%usiness use. ?owever, non%store retailing such as retailing snac's through vending machines and -&2 machines are also quite common these days.
&ypes o %etailers
;etail stores can e classied y several characteristics. &he most common ways to classify retailers are discussed elow.
Classi*cation by amount o& ser"ice
service. ;etailers may e classied on the levels of service provided. • Self6service retailers are those that provide few or no services to
shoppers8 shoppers perform their own locate%compare%select process. • Limited6service retailers provide only a limited numer of services to
shoppers.
• 2ull6service retailers are those that provide a full range of services to shoppers. - typical e6ample is 9ewellery shop.
Classi*cation by +roduct line
;etailers can e classied y the length and readth of their product assortments. @everal most important types are e6plained elow.
• Specialty stores and combination stores- &hese are retail stores that carry a narrow product line with a deep assortment within that line. 0.g.
furniture and oo'.
• .epartment stores- - department store is a retail organisation that carries a wide variety of product lines. 0.g. Aig 5 and avid Bones.
• Supermarets- - supermar'et is a large, low%cost, low%margin, high%
volume, self%service store that carries a wide variety of food, laundry and household products 0.g. 3oles and 5oolworths.
• Convenience stores- 3onvenience stores, such as C%0leven and 1ood Dlus, oer a limited line of high%turnover goods, such as mil' and read.
o Mass merchants- 0.g. Aunnings warehouseE
• Service businesses- 1or many usinesses, such as hotels, an's, hospitals and movie theatres, the Fproduct line is actually service, which may e intangile.
Classi*cation by ,elati"e rices
;etailers can e classied according to their prices.
• .iscount stores sell standard merchandise at lower prices y accepting lower margins and selling higher volumes.
• O76price 4etailers uy at lower than regular wholesale and sell under regular retail. 1actory Outlets, 5holesale clus and catalogue
showrooms.
Classi*cation by -rganisation aroach
!n -ustralia, all retailing turnover are dominated y a few chains, i.e., two or more outlets owned and controlled y one organisation, employing central uying and merchandising, and selling similar lines of merchandise.
• Corporate Chains consist of two or more outlets that are commonly owned and controlled, employ central uying, and sell similar lines. • 8oluntary Chains are wholesaler sponsored chains that nominally
independent outlets 9oin to save in costs. &he wholesaler controls planning "centralized# uying, and promotion decisions.
• 4etailer Cooperatives are 9ointly owned wholesale operations controlled y the retail memers.
• 2ranchises are a contractual association etween a manufacturer, wholesaler, or service organization and independent usinesspeople. Merchandising Conglomerates are corporations that combine
diferent retailing orms under central ownership' share distribution and management(
%etailer marketing decisions
;etailers, who in the past attracted customers with unique product
assortments and more or etter services, are constantly in search for new mar'eting strategies to attract and hold customers.
,etailers must
de*ne their target markets and then decide $hat osition to
adot $ithin these markets'
• /arget maret and positioning decisions- ;etailers must dene their target mar'ets and then decide what position to adopt within these mar'ets. 7ntil they dene and prole their mar'ets, they cannot ma'e consistent decisions aout product assortment, services, pricing, advertising, store decor, or any of the other decisions that must support their positions.
• #roducts and service assortment decisions- ;etailers must decide on three main product variales: product assortment , services mi5 and store" &he retailers product assortment should dierentiate it while matching target shoppers e6pectations. &he services mi5 can also help to set one retailer apart from another, e.g. some retailers invite customers to as' questions or consult service representatives in person or y phone or 'eyoard. &he store atmosphere including the stores physical layout provides customers with a Ffeel ma'ing the customers feel cheerful, plush, somre or
• #rice decisions- - retailers price policy must t its target mar'et and positioning, product and service assortment, and competition. 2ost retailers tend to see' either high mar'%ups on lower volume "most
specialty stores# or low mar'%ups on higher volume "mass merchandisers and discount stores#.
• #romotion decisions- ;etailers use any or all of the promotion tools * advertising, personal selling, sales promotion, pulic relations and direct mar'eting * to reach consumers. &hey advertise in newspapers,
magazines, radio, television, and on the !nternet.
• #lacement decisions- ierent stores cluster together to increase their customer pulling power and give consumers the convenience of one%stop shopping. 3entral usiness districts "3A#, the main form of retail cluster efore the late GHI)s, is the area of usiness at the heart of a city or town and consists of department stores, specialty stores, an's and movie
theatres. - shopping centre is a group of retail usinesses planned,
developed, owned and managed as a unit. @ome shopping centres are li'e small towns and house a very large numer of retailers and service
organisations8 5esteld @hopping 3entres in -ustralia are good e6amples. • #eople, processes and physical evidence decisions- @tore atmosphere and
physical layout and other elements of the servicescape are important retailing decisions. @ome retailers are now moving towards Fe6periential retailing where the e6perience of visiting the store is entertaining and memorale.
%etailing trends and developments
@lowdown in population and economic growth, greater competition and new types of retailer, and changing of consumer demographics, lifestyles and shopping patterns are aecting retailing and will impact its future
development. 2ost goods and services are sold through Fric's and mortar stores. irect and online forms of retailing are growing rapidly. Jew retail technologies play an important role in competition. &he wheel of retailing concept states that new types of retailer usually egin as low%margin, low% price, low%status operations ut later evolve into higher%priced, higher%service operations, eventually ecoming li'e the conventional retailers they replaced. !t can e6plain, in part, many retailing innovations. &he initial success and
later troules of department stores, supermar'ets and discount stores, and the recent success of o% price retailers seem to follow this concept. Jew retail forms will continue to emerge to meet consumer needs and new situations, and newer forms will eventually replace these.
)holesaling
5holesaling means uying from goods and services from producers to sell to retailers, industrial consumers and other wholesalers who uy for resale or usiness use rather than selling to individual consumers. &he rms that are primarily engaged in wholesaling activity are 'nown as wholesalers. &hey dier from retailers in the areas of consumer, mar'et and legal regulations and ta6es.
&ypes o wholesalers
&here are three ma9or groups of wholesalers: they are merchant wholesalers, broers and agents, and manufacturers9 sales branches and oces"
Merchant $holesalers
- merchant wholesaler is an independently%owned usiness that ta'es title to the merchandise it handles. 2erchant wholesalers are the largest single
group of wholesalers and can e divided into two sugroups% the full service wholesalers and the limited service wholesalers.
.ull/ser"ice $holesalers:
&his type of wholesalers provide full range of services "such as carrying stoc', using a sales force, oering credit, ma'ing deliveries and providing
management assistance#. &hey can e categorised as either wholesale merchants or industrial distriutors.
• :holesale merchants- &hey usually carry several product lines of goods to sell to retailers and provide a full range of services. &hey oer customers a wide choice of goods and a good level of product 'nowledge. ?ardware wholesalers and pharmaceutical wholesalers are typical e6amples.
• Industry distributors are merchant wholesalers. &hey may carry a road range of merchandise, a general line or a specialty line to sell to producers rather than retailers.
Limited/ser"ice $holesalers: &hese wholesalers, such as cash%and%carry wholesalers, truc' wholesalers, drop shippers, producers cooperatives and
mail order wholesalers, oer fewer services to their suppliers and customers. 0rokers and agents
!n contrast to merchant wholesalers, ro'ers and agents dont ta'e title to goods. &hey aid in uying and selling and earn a commission on the selling price.
0rokers: - ro'er is a wholesaler who does not ta'e title to goods and whose function is to ring uyers and sellers together and assist in negotiation. 1ood ro'ers, and real estate ro'ers are common e6amples.
Agents: -n agent is a wholesaler who represents uyers or sellers on a more permanent asis, performs only a few functions and does not ta'e title to goods. &hey usually have a formal agreement with the uyers or sellers whom they are representing and have a long%term relationship with them. Manufacturers9 agents, selling agents, purchasing agents, and commission merchants are common types of agents"
)holesaler marketing decisions
5holesalers face competitive pressures, more demanding customers, new technologies, and direct%uying programs among industrial, institutional and retail uyers. &hey must ta'e a fresh loo' at their mar'eting strategies and as with retailers, their mar'eting decisions include choice of target mar'ets, positioning and the mar'eting mi6 * product and service assortment, price, promotion and place.
• Segmentation, targeting, di7erentiation and positioning decisions- $i'e retailers, wholesalers must dene their target mar'ets and position themselves according to factors such as size of customer "only large retailers#, type of customer "convenience stores only#, and need for service "customers who need credit*(
• Mareting mi5 decisions- 5holesalers must decide on product assortment and ancillary services, price "mar' up the cost of goods y a standard percentage8 cut their margin on some lines to win important new customers8 negotiate special price rea's with suppliers sales, "trade advertising, sales promotion, personal selling and pulic relations is largely scattered and unplanned, they now need to develop overall
promotion strategy#, and placement "choice of locations, facilities and we locations#.
&rends in wholesaling
5holesalers must constantly improve their services and reduce their costs in order to increase the eciency and eectiveness of the services to meet the changing needs of oth suppliers and target customers.
&he numer of rms in the wholesaling industry may signicantly a decrease in the future. &he remaining wholesaling companies will grow larger through acquisition, merger and geographical e6pansion. &he distinction etween large retailers and large wholesalers is ecoming more and more unclear. 5holesalers constantly ad9ust their performance to meet the demands of target customers and see' cost%reducing methods of doing usiness.
