Retailing Chapter 5 Managing the Supply Chain

logistics network

Consists of all firms throughout the supply chain that are involved in moving physical inventory from its initial source to the retail store

1. Supply-Chain Length 2. Direct or Indirect 3. under Indirect, --- Supply-Chain Width (Intensive, Selective and Exclusive) or Controlling the Supply Chain

Exhibit 5.3 strategic decisions in supply-chain design

administered vertical marketing channels

Exist when one of the channel members takes the initiative to lead the channel by applying the principles of effective interorganizational management.

Solidarity

Exists when a high value is placed on the relationship between a supplier and retailer

Supply Chain

Is a set of institutions that move goods from the point of production to the point of consumption

Coercive power

Is based on B's belief that A has the capability to punish or harm B if B doesn't do what A wants

Expertise power

Is based on B's perception that A has some special knowledge

Reward power

Is based on B's perception that A has the ability to provide rewards for B

Referent power

Is based on the identification of B with A

Shopping goods

Items for which the consumer will make a price or value comparison before purchasing

Exclusive distribution

Means only one retail or is used to cover a trading area

Selective distribution

Means that a moderate number of retailers are used in a trade area

Domain

Refers to the decision variables that each member of marketing channel feels it should be able to control

1. Remember that satisfying the consumer is only way to be successful 2. Successful partners work together in good and bad times 3. Never abandon a partner at first sign of trouble 4. Offer products at appropriate prices 5. Never abuse power in negotiations 6. Share profits fairly 7. Limit the number of partners for each merchandise line 8. Set high ethical standards 9. Plan together 10. Treat your partner as you would wish to be treated

What are the best practices supply-chain members should follow?

Manufacturer to Retailer to Retailer, moderate number of retailers in each trading area sell the product

What is the width of selective distribution?

1. conventional marketing channel 2. vertical marketing channel

What two basic patterns do supply chains follow?

Convenience goods

Which are products that are frequently purchased --- those for which the consumer is not willing to expend a great deal of effort to purchase

conventional marketing channel

is one in which each channel member is loosely aligned with the others and takes a short-term orientation

Power

is the ability of one channel member to influence the decisions of the other channel members

Domain disagreements

occur when there is disagreement about which member of the marketing channel should make decisions

Dual distribution

occurs when a manufacturer sells to independent retailers and also through its own retail outlets

logistics inventory

physical inventory that is in the logistics network

Wholesaler-sponsored voluntary chains

involve a wholesaler that brings together a group of independently owned retailers and offers them coordinated merchandising and buying program that will provide them with economies like those their chain store rivals are able to obtain

Public warehouse

is a facility that stores goods for safekeeping for any owner in return for a fee, usually based on space occupied

Franchise

is a form of licensing by which the owner of a product, service, or business method obtains distribution through affiliated dealers

Diverter

is an unauthorized member of a channel who buys and sells excess merchandise to and from authorized channel members

Direct supply chain

is the channel that results when a manufacturer sells its goods directly to the final consumer or end user

Gray Marketing

is when branded merchandise flows across national boundaries and through unauthorized channels

Intensive distribution

means that all possible retailers are used in a trade area

Mutual trust

occurs when both the retailer and its supplier have faith that each will be truthful and fair in their dealings with the other

Perceptual incongruity

occurs when the retailer and supplier have different perceptions of reality

Contractual vertical marketing channels

use a contract to govern the working relationship between channel members and include wholesaler-sponsored voluntary groups, retailer-owned cooperatives, and franchised retail programs

Quick Response Systems (efficient consumer response systems)

Are integrated information, production, and logistics systems that obtain real-time information on consumer actions by capturing sales data at point of purchase terminals and then transmitting this information back through the entire channel to enable efficient production and distribution ceiling

primary marketing institutions

Are those channel members that take title to the goods as they move through the marketing channel. They include manufacturers, wholesalers, and retailers.

1. Facilitating (do not take title) 2. Agents/brokers, financial institutions 3. Market Researchers 4. Transporters 5. Advertising agencies 6. Warehouses 7. Insurers

Exhibit 5.2 on institutions participate in supply chain? Specifically Facilitating

1. Primary (take the title) 2. Manufacturers, Wholesalers, Retailers

Exhibit 5.2 on institutions participate in supply chain? Specifically Primary

Corporate vertical marketing system

Exist where one channel institution owns multiple levels of distribution and typically consists of either a manufacturer that has integrated vertically forward to reach the consumer or retailer that has integrated vertically backward to create a self supply network

Third party logistics provider (3PL)

Firms that provide service to retailers, and other customers, of outsourced (or 3rd party) logistics services for part, or all, of their storage, transporting, sorting, information gathering, and risk management functions.

by the number of institutions involved

How is classification determined?

Category Management

Is a process of managing all SKUs within a product category and involves the simultaneous management of price, shelf-space, merchandising strategy, promotional efforts, and other elements of the retail mix within the category based on the firm's goals, the changing environment, and consumer behavior.

total cost of business

Is a process where costs beyond simply producing a product are considered and includes all of the direct and indirect costs of manufacturing, distributing, and marketing a product.

Drop Ship

Is a technique wherein the retailer does not hold inventory, but instead transmits customer orders and shipping details to either the manufacturer or a wholesaler, who then ships the goods directly to the customer.

Legitimate power

Is based on A's right to influence B, or B's belief that B should accept A's influence

Freeriding

Is when a consumer seeks product information, usage instructions, and sometimes even warranty work from a full-service store but then, armed with the brand's model number, purchases the product from a limited-service discounter or over the Internet.

Goal incompability

Occurs when achieving the goals of either the supplier or the retailer would hamper the performance of the other

Two-way communication

Occurs when both retailer and supplier communicate openly their ideas, concerns, and plans.

Channel

Used interchangeably with supply chain

Specialty goods

Usually high-prestige branded products that the consumer expressly seeks out

1. Access to a well-known brand name, trademark, or product 2. Assistance in location decisions 3. Assistance in buying decisions 4. being part of a successful format 5. Acquiring rights to well-defined trade area 6. Lower risk of failure 7. Standardized marketing and operational procedures 8. By borrowing from the franchisor, the franchisee has access to a lower cost of capital

What are advantages for franchisee?

1. Since franchisee is the owner, more motivated managers on site 2. Local identification of the owner 3. Economics of scale 4. Franchisee must make royalty payments regardless of profitability 5. The rapid rollout of a success full concept requires less capital

What are advantages for franchisor?

1. Higher costs because of fees due to franchisor 2. Must give up some control of the business 3. Franchisor may not fulfill all promises 4. Can be terminated or not renewed

What are disadvantages to franchisee?

1. Loss of some profits 2. loss of some control 3. franchise may not fulfill all parts of the agreement

What are disadvantages to franchisor?

1. advertising allowances 2. cash discount 3. order quantity 4. freight charges

What are other key elements in the transaction between retailer and supplier that can result in conflict?

1. time for factory shipment to seaport drops from 6 days to 4 days 2. Time it takes to consolidate shipments from five different factories drops from 4 days to 2 days 3. Import inspection in US port of entry declines from 3 days to 1.5 days

What are sources of reduced inventory?

1. Buying 2. Selling 3. Storing 4. Transporting 5. Sorting 6. Financing 7. Information gathering 8. risk taking

What are the eight marketing functions that must be performed by any supply chain or channel?

1. Consumer behavior 2. competitor behavior 3. the socioeconomic environment 4. the technological environment 5. the legal and ethical environment

What are the five external forces that affect supply-chain channels?

1. Reward power 2. Expertise power 3. Referent power 4. Coercive power 5. Legitimate power

What are the five types of power?

1. Discuss the retailer's role as one of the institutions involved in supply chain 2. Describe the types of supply chains by length, width, and control 3. Explain the terms dependency, power, and conflict and their impact on supply-chain relations 4. Understand the importance of a collaborative supply-chain relationship

What are the four learning objectives?

1. mutual trust 2. Two-way communication 3. Solidarity

What are the three important types of behavior and attitude in collaborations in channel or supply chain relations?

1. Provide information 2. Aid in financing 3. Insurance firms assume some of the risk

What are the ways facilitating institutions help the supply chain?

1. Perceptual incongruity 2. Goal incompatibility 3. Domain disagreement

What are three major sources of conflict between retailers and their suppliers?

1. Dependency 2. Power 3. Conflict

What are three principal concepts of interorganizational management?

1. supply chain length 2. width 3. control

What are three strategy decisions to be made when designing an efficient and competitive supply chain?

1. corporate 2. contractual 3. administered

What are three types of vertical marketing channels?

1. Manufacturer 2. Consumer

What is a direct supply chain?

First Example: 1. Manufacturer 2. Retailer 3. Consumer ----- Second Example 1. Manufacturer 2. Wholesaler 3. Retailer 4. Consumer

What is an indirect supply chain?

1. Retailer has 73 days of supply chain inventory valued at $250 million 2. 5.5 days of reduced logistics inventory or 5.5/73 = 7.5% inventory reduction 3. 7.5%times $250 million = $18.75 million reduced inventory 4. 12% cost of carrying inventory times $18.75 million = $2.25 million in annual savings

What is some examples of financial gain when reducing inventory?

Sorting involves breaking down heterogeneous materials or products into more homogenous groups such as sorting oranges into those that are good for eating versus good for juice

What is the concept of sorting?

Manufacturer to Retailer, only one retailer in trading area sells the product

What is the width of exclusive distribution?

Manufacturer to Retailer X4, all possible retailers in the trading area sell the product

What is the width of intensive distribution?

Vertical marketing channel

are capital-intensive networks of several levels that are professionally managed and centrally programmed to realize the technological, managerial, and promotional economies of a long-term relationship orientation

facilitating marketing insitutions

are those that do not actually take title but assist in the marketing process by specializing in the performance of certain marketing functions

retailer-owned cooperatives

are wholesale institutions, organized and owned by member retailers, that offer scale economies and services to member retailers, which allows them to compete with larger chain buying organizations