Supply Chain and Distribution Channel Functions and Technologies

Vertical Marketing System (VMS)

A coordinated channel system in which members act as a unified team.

Traceability: highest

Air or truck.

Capability: lowest

Air.

Transit time: fastest

Air.

Transportation cost: highest

Air.

Total cost approach

Balances logistics cost with required customer service levels.

Function of agents/brokers

Bring buyers and sellers together; do NOT take title to goods.

Technology improving order processing

EDI, RFID, and automated real-time ordering systems.

Types of VMS: Contractual

Independent firms join together through contracts (e.g., franchises).

Contact efficiency

Intermediaries reduce the number of buyer-seller contacts.

Just-In-Time (JIT) inventory system

Inventory delivered precisely when needed; minimizes waste.

Basic assumption of JIT

Inventory is waste.

Function performed when intermediaries carry inventory

Logistical function: storing and risk-taking.

Channels used by producers with widely dispersed markets

Longer channels with more intermediaries.

Types of VMS: Corporate

One firm owns multiple levels of the channel.

Types of VMS: Administered

One powerful member controls or influences the channel.

Accessibility: lowest

Pipeline.

Reliability: highest

Pipeline.

Build-to-order (BTO)

Products made only after an order is placed.

Function of a distribution center

Receives, stores, sorts/breaks bulk, and redistributes goods efficiently.

Channel intermediary that sells mainly to consumers

Retailer.

Big change from supply chain management

Shift to demand-driven systems with real-time data and lower inventory.

Containerization

Shipping goods in standard containers across modes without unpacking.

Channels used by government buyers

Short channels; they often buy directly from producers.

Channel captain

The channel member with the most power or authority.

How complex, customized, expensive products are distributed

Through direct channels (producer → buyer).

Essential functions of channel intermediaries

Transactional, logistical, and facilitating functions.

Accessibility: highest

Truck.

Intermodal transportation

Using multiple transportation modes together (e.g., truck → rail → truck).

Transportation cost: lowest

Water or pipeline.

Capability: highest

Water or rail.

Reliability: lowest

Water.

Traceability: lowest

Water.

Transit time: slowest

Water.

Can intermediaries be eliminated?

Yes, but their functions must still be performed by someone.