Supply Chain and logistics

Supply Chain: the sequence of firms that constitute a system of efficiently

and effectively creating and delivering a good or service to consumers or
industrial users.
Supply chain management (SCM) involves the management of upstream and
downstream flow of materials, finished goods and services through the
integration and organization of information and logistics activities across
firms in a supply chain for the purpose of creating and delivering goods and
services that provide value to consumers. Often used interchangeably with
supply chain, one of the most confusing things is the difference between
logistics and supply chain management.
Logistics has a much narrower scope. It refers to those activities that focus on
getting the right amount of the right products to the right place at the right
time in the right condition at the right (lowest possible) cost.

Logistics systems and distribution

Logistics is the process of planning, implementing and controlling effective
flow and storage of materials, inprocess inventory, finished goods and
related information from point of origin to point of consumption 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 business
Outbound logistics deals with the movement of finished goods or products
from the business to the end user.
Logistics costs and value delivery network
The total cost of marketing logistics can account for 3040 per cent of a
products cost. A lower logistics cost can lead to a lower price, a higher profit
margin and thus, provide the firm with the competitive advantages.
A value delivery network made up of the company, suppliers, distributors,
and ultimately customers who partner with each other to improve the
performance of the entire system.
Effective logistic systems play a critical role in the fast moving consumer
goods (FMCG) industry by helping manufacturers save costs considerably
and improve customer satisfaction.
Effective logistic networks can reduce cycletime to move quickly from
suppliers to transporters, distributors, retailers and stores. Companies will
lose their customers if the logistics networks are ineffective.
Marketing logistics networks differ according to the type of product and
the industry. In building its value delivery network, a company has to manage
a whole community of suppliers, assemblers, resellers and others who must
work together effectively.

Supply chain goals and tradeoffs

There is a cutting point representing the lowest total logistics costs, implying
an optimal shipment size or number of warehouses for a specific freight
distribution system. Finding such a balance is a common goal in logistical
operations.

Marketing channels and Flows in marketing channels

A marketing channel (also known as distribution channel) is a set of
interdependent organisations or intermediaries involved in the process of

making a product or service available to users. When a marketing channel

has been developed, a series of flows emerges. These flows provide the links
that tie channel members and other agencies together in the distribution of
goods and services. From the standpoints of channel strategy and
management, the most important of these flows are:
1. Product flow refers to the actual physical movement of the product from
the manufacturer through all of the parties who take physical possession
of the product, from its point of production to final consumers.
2. Negotiation flow represents the interplay of the buying and selling
functions associated with the transfer of title (right of ownership) to
products.
3. Ownership flow shows the movement of the title to the product as it is
passed along from the manufacturer to final consumers.
4. Information flow refers to the exchange of information between all the
parties, up or downstream participating in the flow.
5. Promotion flow refers to the flow of persuasive communication in the form
of advertising, personal selling, sales promotion, and publicity.

Value addition by channels

Use of intermediaries or channel members offer several advantages to
marketers. They add value by fulfilling three sets of important functions,
namely specialization and division of labor; overcoming discrepancies and
providing contactual efficiency.
Specialization and division of labor: Marketing channels provide economies of
scale; aid producers who lack resources to market directly and build good
relationships with customers.
Overcoming Discrepancies: Marketing channels aid in overcoming
discrepancies of quantity, assortment, time, and space created by

economies of scale in production.

Providing contactual efficiency: This refers to the level of negotiation

effort between sellers and buyers relative to achieving a distribution
objective. It is a relationship between an input (negotiation effort) and an
output (the distribution objective). The use of additional intermediaries
will often increase the level of contractual efficiency.

Marketing channel members perform many key functions including

information, promotion, contact, matching, negotiation, physical distribution,
financing and risk taking in the process of moving goods from producers and
suppliers to consumers.
1. Information. Gathering and distributing marketing research and
intelligence about the environment for planning purposes.
2. Promotion. Developing and spreading persuasive communications about
an offer.
3. Contact. Finding and communicating with prospective buyers.
4. Matching. Consists of shaping and fitting the offer to the buyers needs by
manufacturing, grading, assembling, and packaging.
5. Negotiation. Reaching an agreement on price and other terms.
6. Physical Distribution. Involves transporting and storing of goods.
7. Financing. Acquiring & using funds to cover the costs of channel.
8. Risk Taking. Assumes the risk of carrying out the channel work.
Contactual Efficiency
Refers to reduction and optimization of number of exchange contacts needed
to complete transactions with a view to attain a point of equilibrium between
the quality and quantity of exchange relationships between channel
members.
Number of channel levels
Channel levels refer to the layers of intermediaries that perform some work in
making it possible for the final buyer to own the product.

Direct Marketing Channel: this is a marketing channel that has

no intermediary levels. The company sells directly to final
consumers.

Indirect Marketing Channels: these contain one or more

intermediary levels.

Level one - a direct marketing channel

Level two channel has one middle man level
Level three will contain two intermediary
It is possible to have channels with more levels.

Channels in the service sector

Use of marketing channels is not restricted to distribution of physical goods;
they are also used by the service sector in order to serve their target
populations effectively. Delivery of health and education distribution systems
are typical examples as hospitals and schools should be located according to
geographic space.
Channel behaviour and organisation
Marketing channels are complex behavioural networks, in which different
people and dissimilar, independent companies depend on each other to
accomplish individual, company and channel goals and work together for
their common good.
Disagreements may generate conflicts which could be horizontal or vertical
depending on the situation.

A horizontal conflict: between firms at the same level of the

channel. Dealers and franchises of the same firm within the same
market may argue about each other's competitive practices.
Vertical conflicts: Refers to problems between firms at different
levels in the channel.
Vertical Marketing Networks: Comprises producers, wholesalers
and retailer acting in as a unified system.
Corporate VMN: The corporate body combines and owns
successive stages of production and distribution.
Contractual VMN: Consists of independent firms at different levels
of production and distribution
o more economies and sales than each members could achieve
alone.
o Has three types: wholesalersponsored chain, retailer
cooperative, franchise organisation.
Administered VMN: Coordinates distribution by the power exerted
by of one of its members in the marketplace, not by contract or
ownership.
Innovations in Channel organisation
Horizontal marketing networks
Formed when two or more companies at one level join to pursue a new
marketing opportunity.
These may be temporary arrangements such as a joint promotion or
more permanent distribution agreements.
Multichannel Marketing Systems: Also called hybrid marketing
channels, these utilize more than one channel to reach customers
more effectively and with greater flexibility.
Dual Distribution: Involves an arrangement whereby a firm reaches
different buyers by employing two or more different types of channels
for the same basic product.

Channel Alternatives: Distribution Strategies

Number of Marketing Intermediaries

Disintermediation and reintermediation

Disintermediation refers to the removal of intermediaries or cutting out
the middlemen from traditional distribution channels and dealing with

every customer directly, for example via the Internet.

Reintermediation refers to reversing disintermediation through the
reintroduction of an intermediary between the manufacturer and the end
users.

Intensive Distribution utilizes as many outlets as possible

and is especially appropriate for convenience goods and
common raw materials.
Exclusive Distribution consists of a very limited number of
outlets hold all the rights to distribute a product line. This
strategy is appropriate for many high prestige goods.
Distributor selling effort is usually very strong.
Selective Distribution uses more than one outlet per
market but less than all available outlets. This strategy gains
good market coverage and gains better than average selling
effort.

Retailing
Retailing is defined as all activities involved in selling goods or services
directly to final consumers for their personal, nonbusiness use. However,
nonstore retailing such as retailing snacks through vending machines and
ATM machines are also quite common these days.
Types of Retailers
Retail stores can be classified by several characteristics. The most common
ways to classify retailers are discussed below.
Classification by amount of service
Different products need different amounts of service as well as customer

service. Retailers may be classified on the levels of service provided.

Selfservice retailers are those that provide few or no services to
shoppers; shoppers perform their own locatecompareselect process.
Limitedservice retailers provide only a limited number of services to
shoppers.
Fullservice retailers are those that provide a full range of services to
shoppers. A typical example is jewellery shop.
Classification by Product line
Retailers can be classified by the length and breadth of their product
assortments. Several most important types are explained below.
Specialty stores and combination stores: These are retail stores that carry
a narrow product line with a deep assortment within that line. E.g.
furniture and book.
Department stores: A department store is a retail organisation that carries
a wide variety of product lines. E.g. Big W and David Jones.
Supermarkets: A supermarket is a large, lowcost, lowmargin, high
volume, selfservice store that carries a wide variety of food, laundry and
household products E.g. Coles and Woolworths.
Convenience stores: Convenience stores, such as 7Eleven and Food Plus,
offer a limited line of highturnover goods, such as milk and bread.
o Mass merchants: E.g. Bunnings warehouse/
Service businesses: For many businesses, such as hotels, banks, hospitals
and movie theatres, the product line is actually service, which may be
intangible.
Classification by Relative prices
Retailers can be classified according to their prices.
Discount stores sell standard merchandise at lower prices by accepting
lower margins and selling higher volumes.
Ofprice Retailers buy at lower than regular wholesale and sell under
regular retail. Factory Outlets, Wholesale clubs and catalogue
showrooms.
Classification by Organisation approach
In Australia, all retailing turnover are dominated by a few chains, i.e., two or
more outlets owned and controlled by one organisation, employing central
buying and merchandising, and selling similar lines of merchandise.
Corporate Chains consist of two or more outlets that are commonly
owned and controlled, employ central buying, and sell similar lines.
Voluntary Chains are wholesaler sponsored chains that nominally
independent outlets join to save in costs. The wholesaler controls
planning (centralized) buying, and promotion decisions.
Retailer Cooperatives are jointly owned wholesale operations
controlled by the retail members.
Franchises are a contractual association between a manufacturer,
wholesaler, or service organization and independent businesspeople.
Merchandising Conglomerates are corporations that combine

different retailing forms under central ownership, share distribution

and management.

Retailer marketing decisions

Retailers, who in the past attracted customers with unique product
assortments and more or better services, are constantly in search for new
marketing strategies to attract and hold customers. Retailers must

define their target markets and then decide what position to

adopt within these markets.

Target market and positioning decisions: Retailers must define their target
markets and then decide what position to adopt within these markets.
Until they define and profile their markets, they cannot make consistent
decisions about product assortment, services, pricing, advertising, store
decor, or any of the other decisions that must support their positions.
Products and service assortment decisions: Retailers must decide on three
main product variables: product assortment, services mix and store. The
retailers product assortment should differentiate it while matching target
shoppers expectations. The services mix can also help to set one retailer
apart from another, e.g. some retailers invite customers to ask questions
or consult service representatives in person or by phone or keyboard. The
store atmosphere including the stores physical layout provides customers
with a feel making the customers feel cheerful, plush, sombre or
suffocated.

Price decisions: A retailers price policy must fit its target market and
positioning, product and service assortment, and competition. Most
retailers tend to seek either high markups on lower volume (most
specialty stores) or low markups on higher volume (mass merchandisers
and discount stores).
Promotion decisions: Retailers use any or all of the promotion tools
advertising, personal selling, sales promotion, public relations and direct
marketing to reach consumers. They advertise in newspapers,
magazines, radio, television, and on the Internet.
Placement decisions: Different stores cluster together to increase their
customer pulling power and give consumers the convenience of onestop
shopping. Central business districts (CBD), the main form of retail cluster
before the late 1950s, is the area of business at the heart of a city or town
and consists of department stores, specialty stores, banks and movie
theatres. A shopping centre is a group of retail businesses planned,
developed, owned and managed as a unit. Some shopping centres are like
small towns and house a very large number of retailers and service
organisations; Westfield Shopping Centres in Australia are good examples.
People, processes and physical evidence decisions: Store atmosphere and
physical layout and other elements of the servicescape are important
retailing decisions. Some retailers are now moving towards experiential
retailing where the experience of visiting the store is entertaining and
memorable.

Retailing trends and developments

Slowdown in population and economic growth, greater competition and new
types of retailer, and changing of consumer demographics, lifestyles and
shopping patterns are affecting retailing and will impact its future
development. Most goods and services are sold through bricks and mortar
stores. Direct and online forms of retailing are growing rapidly. New retail
technologies play an important role in competition. The wheel of retailing
concept states that new types of retailer usually begin as lowmargin, low
price, lowstatus operations but later evolve into higherpriced, higherservice
operations, eventually becoming like the conventional retailers they replaced.
It can explain, in part, many retailing innovations. The initial success and
later troubles of department stores, supermarkets and discount stores, and
the recent success of off price retailers seem to follow this concept. New
retail forms will continue to emerge to meet consumer needs and new
situations, and newer forms will eventually replace these.

Wholesaling
Wholesaling means buying from goods and services from producers to sell to
retailers, industrial consumers and other wholesalers who buy for resale or
business use rather than selling to individual consumers. The firms that are
primarily engaged in wholesaling activity are known as wholesalers. They
differ from retailers in the areas of consumer, market and legal regulations
and taxes.
Types of wholesalers
There are three major groups of wholesalers: they are merchant wholesalers,
brokers and agents, and manufacturers sales branches and offices.
Merchant wholesalers
A merchant wholesaler is an independentlyowned business that takes title to
the merchandise it handles. Merchant wholesalers are the largest single
group of wholesalers and can be divided into two subgroups the full service
wholesalers and the limited service wholesalers.
Fullservice wholesalers:
This type of wholesalers provide full range of services (such as carrying stock,
using a sales force, offering credit, making deliveries and providing
management assistance). They can be categorised as either wholesale
merchants or industrial distributors.
Wholesale merchants: They usually carry several product lines of goods to
sell to retailers and provide a full range of services. They offer customers
a wide choice of goods and a good level of product knowledge. Hardware
wholesalers and pharmaceutical wholesalers are typical examples.
Industry distributors are merchant wholesalers. They may carry a broad
range of merchandise, a general line or a specialty line to sell to producers
rather than retailers.
Limitedservice wholesalers: These wholesalers, such as cashandcarry
wholesalers, truck wholesalers, drop shippers, producers cooperatives and

mail order wholesalers, offer fewer services to their suppliers and customers.
Brokers and agents
In contrast to merchant wholesalers, brokers and agents dont take title to
goods. They aid in buying and selling and earn a commission on the selling
price.
Brokers: A broker is a wholesaler who does not take title to goods and whose
function is to bring buyers and sellers together and assist in negotiation. Food
brokers, and real estate brokers are common examples.
Agents: An agent is a wholesaler who represents buyers or sellers on a more
permanent basis, performs only a few functions and does not take title to
goods. They usually have a formal agreement with the buyers or sellers
whom they are representing and have a longterm relationship with them.
Manufacturers agents, selling agents, purchasing agents, and commission
merchants are common types of agents.
Wholesaler marketing decisions
Wholesalers face competitive pressures, more demanding customers, new
technologies, and directbuying programs among industrial, institutional and
retail buyers. They must take a fresh look at their marketing strategies and as
with retailers, their marketing decisions include choice of target markets,
positioning and the marketing mix product and service assortment, price,
promotion and place.
Segmentation, targeting, diferentiation and positioning decisions: Like
retailers, wholesalers must define their target markets 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).
Marketing mix decisions: Wholesalers must decide on product assortment
and ancillary services, price (mark up the cost of goods by a standard
percentage; cut their margin on some lines to win important new
customers; negotiate special price breaks with suppliers sales, (trade
advertising, sales promotion, personal selling and public relations is
largely scattered and unplanned, they now need to develop overall
promotion strategy), and placement (choice of locations, facilities and web
locations).
Trends in wholesaling
Wholesalers must constantly improve their services and reduce their costs in
order to increase the efficiency and effectiveness of the services to meet the
changing needs of both suppliers and target customers.
The number of firms in the wholesaling industry may significantly a decrease
in the future. The remaining wholesaling companies will grow larger through
acquisition, merger and geographical expansion. The distinction between
large retailers and large wholesalers is becoming more and more unclear.
Wholesalers constantly adjust their performance to meet the demands of
target customers and seek costreducing methods of doing business.