Marketing Ch. 15
Advantages to using a distribution center
- More accurate sales forecasts are possible when retailers combine forecasts for many stores serviced by one distribution center rather than doing a forecast for each store. By delivering most of the inventory to a distribution center and feeding the stores merchandise as they need it, the effects of forecast errors for the individual stores are minimized, and less backup inventory is needed to prevent stockouts. - Distribution centers enable the retailer to carry less merchandise in individual stores, which results in lower inventory investments systemwide. If stores get frequent deliveries from the distribution center, they need to carry relatively less merchandise as backup stock. - It is easier to avoid running out of stock or having too much stock in any particular store because merchandise is ordered from the distribution system as needed. - Retail store space is typically much more expensive than is space at a distribution center, and distribution centers are better equipped than stores to prepare merchandise for sale. Many retailers find it cost-effective to store merchandise and get it ready for sale at a distribution center rather than individual stores.
Making information flow: Flow #1: Customer to Store
-Universal Product code OR Radio Frequency Identification Tag: The black-and-white bar code found on most merchandise. It contains a 13-digit code that indicates the manufacturer of the item, a description of the item, and information about special packaging and special promotions. RFID's are tiny computer chips that automatically transmit to a special scanner.
Horizontal Channel Conflict
A horizontal channel conflict occurs when there is a disagreement or discord among members at the same level in the marketing channel, such as two retailers that are competing against one another. For example, because Amazon has redefined people's basic expectations for shipping standards, many small retailers have turned to Amazon itself and its Amazon Marketplace. Thousands of independent retail operators pay Amazon a fixed shipping rate and then Amazon takes care of the rest. Although the costs are still substantial, they are much less than would be required to ship the individual packages on their own, and the companies can also precisely predict the costs in advance. These partners are not required to participate in the prime program, but if they do not, their offerings appear much farther down in the search results, or not at all if customers limit their searches to prime offerings only.
Strategic Relationships/Partnering Relationships
A supply chain relationship that the members are committed to maintaining long term, investing in opportunities that are mutually beneficial; requires mutual trust, open communication, common goals, and credible commitments. There are significant incentives to establish a strategic relationship, even without contracts or ownership relations. Both parties benefit because the size of the profit pie has increased, so both the buyer and seller increase their sales and profits. These relationships are created explicitly to uncover and exploit joint opportunities, so members can depend and trust each other heavily; share goals and agree on how to accomplish these goals; and are willing to take risks, share confidential information, and make significant investments for the sake of the relationship. Successful strategic relationships require mutual trust, open communication, common goals, interdependence, and credible commitments.
Referent Power
A type of marketing channel power that occurs if one channel member wants to be associated with another channel member. The channel member with whom the others wish to be associated has the power and can get them to do what they want. Walmart may have the power if a supplier wants to be associated with Walmart because being known as an important Walmart supplier enables that supplier to attract other retailers' business.
Legitimate Power
A type of marketing channel power that occurs if the channel member exerting the power has a contractual agreement with the other channel member that requires the other channel member to behave in a certain way. This type of power occurs in an administered vertical marketing system.
Expertise Power
A type of marketing channel power that occurs when a channel member uses its expertise as leverage to influence the actions of another channel member. If Walmart exerts expertise power, it relies on its vast experience and knowledge to decide how to market Brown betty Dessert Boutique's products, without giving BBDB much of a say.
Coercive Power
A type of marketing channel power that occurs when a member uses threats or punishment of the other channel member for not undertaking certain tasks. Delaying payment for late delivery would be an example.
Reward Power
A type of marketing channel power that occurs when the channel member exerting the power offers rewards to gain power, often a monetary incentive, for getting another channel member to do what it wants it to do. For example, Walmart might promise to purchase larger quantities of Brown Betty Desert Boutique if they will lower its wholesale price.
Information power
A type of marketing channel power within an administered vertical marketing system in which one party (e.g., the manufacturer) provides or withholds important information to influence the actions of another party (e.g., the retailer). Because Walmart has vast information about the consumer goods market, it might exert information power over BBDB by providing or withholding important market information.
Just-in-time inventory systems & quick response inventory systems
Advertising and promotion must be coordinated with those departments that control inventory and transportation. There is no faster way to lose credibility with customers than to promise deliveries or run a promotion and then not have the merchandise when the customer expects it. To avoid this, many firms have developed Just-in-time inventory systems (quick response inventory systems), which are inventory management systems that deliver less merchandise on a more frequent basis than in traditional inventory systems. The firms get the merchandise just in time for it to be used in the manufacture of another product or sale when the customer wants it.
Delivering merchandise directly to customer from fulfillment centers
Because of the "prime effect" retailers of all sizes now offer free expedited shipping. But with the rise in demand for package delivery, package theft has risen too, creating nightmares for logistics providers as well as for consumers. Another trend concerns the way merchandise will be delivered to customers in the future. Driverless delivery vehicles and drones are currently in the experimentation phase, but safety and federal regulations are still a consideration. Amazon has received FAA approval for its Prime Air Drones company called FlyTrex.
Getting merchandise to customers
Customers can buy in the traditional way by picking up merchandise in a store that they have purchased online, or they can have merchandise delivered. Shipping merchandise to stores from a distribution center has become increasingly complex. As a result, stores are provided with an accurate estimated time of arrival and vehicle usage is maximized. Technology advancements have changed customers' expectations of their shopping experience. They want the option of making the purchase online and then picking up in store. For this option to be successful, retailers need to ensure that the products that show up as being available online will actually be in stock and ready for pickup. This requires a high level of accuracy inherent in the retailers inventory management system.
Advantages of direct store delivery
Distribution centers aren't appropriate for all retailers. If a retailer has only a few outlets, the expense of a distribution center is probably unwarranted. Also, if many outlets are concentrated in metropolitan areas, merchandise can be consolidated and delivered by the vendor directly to all stores in one area economically. Direct store delivery gets merchandise to stores faster and thus is used for perishable items such as meat and produce; items that help create the retailer's image of being the first to sell the latest products. Some manufacturers provide direct store delivery for retailers to ensure that their products are on the store shelves, properly displayed, and fresh.
Wholesalers
Firms that buy products from manufacturers and resell them to retailers Walmart is a massive retailer, and many of its products come from massive partners such as Procter & Gamble. While Walmart certainly needs P&G to supply with with toothpaste, diapers, paper towels, and other consumer goods, P&G also desperately needs stores like Walmart to agree to stock its products because 40% of its sales take place through brick-and-mortar stores.
Simple agrarian economy
In a simple agrarian economy, the best supply chain likely does follow a direct route from manufacturer to consumer. The Consumer goes to the farm and buys food directly from the farmer. Modern eat-local environmental campaigns suggest just such a process. Each participant in the channel adds value. At each step in the supply chain process, the product becomes more costly to the consumer but also more valuable.
Typical Flow of Manufactured goods
In a typical flow of manufactured goods, manufacturers ship to a wholesaler or to a retailer's distribution center or directly to their stores. Many variations of this supply chain exist. Some retail chains such as Home Depot or Costco function as both retailers and Wholesalers; they sell directly to consumers acting as retailers and sell to other businesses, such as building contractors or restaurant owners, acting as wholesalers.
Making Merchandise Flow
In general, the merchandise flow steps are... 1. Sony to Best Buy's distribution Centers or 2. Sony directly to stires 3. If merchandise goes through distribution centers, it is then shipped to stores 4. and then to the customer 5. Or fulfillment center ships to customer Making merchandise flow first involves deciding whether the merchandise will go from the manufacturer to a retail distribution center, or directly on to stores. The ultimate decision is usually up to the retailer, and depends on characteristics of the merchandise and nature of the demand. To determine which distribution system is better (distribution centers or direct store delivery), retailers consider the total cost associated with each alternative and the customer service criterion of having the right merchandise at the store when the customer wants to buy it.
Making information flow: Flow #4: Store to Manufacturer
In some situations, the sales transaction data are sent directly from the store to the manufacturer, and the manufacturer decides when to ship more merchandise to the distribution centers and the stores. In other situations, especially when the merchandise is reordered frequently, the ordering process is done automatically, bypassing the buyers. By working together, the retailer and manufacturer can better satisfy customer needs.
Mobile Task Management
Mobile task management technology is a wireless network and a mobile device that receives demand notifications and enables a speedy response. This solution allows the associate closest to the ordered item to pull it and verify its availability physically.
Trust
Mutual trust holds a strategic relationship together. Trust is the belief that a partner is honest, relaiable, stands by its word, fulfills its obligations, and is concerned about the other parties welfare. When vendors and buyers trust one another, they are more willing to share relevant ideas, clarify goals and problems, and communicate efficiently. With trust, there is less need for the supply chain members to constantly monitor each other's actions because each believes the other won't take advantage even if given the opportunity. Monitoring supply chain management becomes particularly important when suppliers are located in less developed countries, where issues such as the use of child labor, poor working conditions, and below-subsistence wages have become a shared responsibility.
Power in the marketing channel
Power in a marketing channel exists when one firm has the means or ability to dictate another member's actions at a different distribution level. When operating entities within a marketing channel are closely aligned, whether by contract or ownership, they share common goals and therefore are less prone to conflict as a result of one party exerting its power over another. In a CORPORATE VERTICAL MARKETING SYSTEM: The parent company has complete power and can dictate the priorities and objectives of the marketing channel because it owns multiple segments of the channel, such as manufacturing plants, warehouse facilities, and retail outlets. At the other extreme in an INDEPENDENT MARKETING CHANNEL/CONVENTIONAL MARKETING CHANNEL: Several independent members such as a manufacturer, a wholesaler, and a retailer--- attempt to satisfy their own objectives and maximize their profits, often at the expense of the other members. In some cases, especially when the channel members are of similar size, either all small or all large, none of the participants have power over the others. But if one channel member is dominant due to its size or presence, it can exert power over the other members.
marketing channel management/supply chain management
Refers to a set of approaches and techniques firms employ to efficiently and effectively integrate their suppliers, manufacturers, warehouses, stores, and transportation intermediaries into a seamless operation in which merchandise is produced and distributed in the right quantities, to the right locations, and at the right time as well as to minimize the systemwide costs while satisfying the service levels their customers require Marketing Channel Management adds value to "place" in the marketing mix because it gets products to customers efficiently, quickly, and at a low cost. Even if firms execute all other activities flawlessly, unless they can secure the placement of products in appropriate outlets in sufficient quantities exactly when customers want them, they are likely to fail.
Fulfillment centers
Similar to a distribution center, instead of shipping to stores, fulfillment centers are used to ship directly to customers. A fulfillment center is a warehouse facility used to ship merchandise directly to customers.
Making information flow: Flow #5: Store to Distribution Center
Stores also communicate with the Best Buy distribution centers to coordinate deliveries and check inventory status. When the store inventory drops to a specified level, more TV's are shipped to the store, and the shipment information is sent to the Best Buy computer system.
Credible Commitments
Successful relationships develop because both parties make credible commitments to, or tangible investments in the relationship. These commitments involve spending money to improve the products or services provided to the customer and on information technology to improve supply chain efficiency.
Common Goals
Supply chain members must have common goals for a successful relationship to develop. Shared goals incentivize both members of the relationship to pool their strengths and abilities together and exploit potential opportunities together. Common goals also offer assurance that the other partner won't do anything to hinder the achievement if those goals within a relationship.
Open Communication
To share information, develop sales forecasts together, and coordinate deliveries, Walmart and its suppliers maintain open and honest communication. Open, honest communication is a key to developing successful relationships because supply chain members need to understand what is driving each others business, their roles in the relationship, each firm's strategies, and any problems that might arise over the course of the relationship.
Making information flow: Flow #2: Store to Buyer
The Point-of-sale terminal records the purchase of information and electronically sends it to the buyers corporate office. The sales information is incorporated into an inventory management system and used to monitor and analyze sales and decide when to reorder more TV's, change a price, or plan a promotion. Buyers also send information to stores about overall sales for the chain, ways to display the merchandise, upcoming promotions, and so on.
Making information flow: Flow #3: Buyer to Manufacturer
The purchase information from each Best Buy store is typically aggregated by the retailer, creating an order for new merchandise and sending it to Sony. The buyer at Best Buy may also communicate directly with Sony to get information and negotiate prices, shipping dates, promotional events, or other merchandise-related issues.
Distribution Center
When products are designed and manufactured, how and when the critical components reach the factory must be coordinated with the production. A DISTRIBUTION CENTER is facility for the recipt, storage, and redistribution of goods to company stores, they may be operated by retailers, manufacturers, or distribution specialists.
Vertical Channel Conflict
When supply chain members that buy and sell to one another are not in agreement about their goals, roles, or rewards, there is a vertical channel conflict. Avoiding vertical channel conflict demands open, honest communication. Buyers and vendors must understand what drives the other party's business, their roles in the relationship, each firm's strategies, and any problems that might arise over the course of the relationship. With a common goal, both firms have the incentive to cooperate because they know by doing so, each will boost its sales. Common goals also help sustain the relationship when expected benefits fail to arise. If one DeWalt shipment fails to reach a Home Depot fulfillment of distribution center due to an uncontrollable event such as a demand forecasting miscalculation, Home Depot does not suddenly call off the whole arrangement. Instead, it recognizes the incident as a simple, isolated mistake and maintains a good working relationship because Home Depot knows that both DeWalt and it are committed to the same goals in the long run. A vertical channel conflict is conflict between two entities who are working with one another, such as the manufacturer and the retailer.
Making information flow: Flow #6: Manufacturer to Distribution Center and Buyer
When the manufacturer ships the TV's to the Best Buy distribution center, it sends an advanced shipping notice to the distribution center. An advanced shipping notice is an electronic document that the supplier sends the retailer in advance of a shipment to tell the retailer exactly what they expect in the shipment. The center then makes an appointment for the trucks to make a delivery at a specific time, date, and loading dock. When the shipment is received at the distribution center, the buyer is notified and authorizes payment to the vendor.