Distribution Strategies Unit V
Supply Chain Management (SCM)
Supply Chain Management refers to the
management of the flow of goods and services from raw material sourcing to
final delivery to the customer. It involves coordination and integration of
suppliers, manufacturers, warehouses, transportation, and retailers to ensure
products are produced and delivered efficiently and cost-effectively.
Features of
Supply Chain Management
1.
Integration
of Processes: SCM aims to
integrate all key business processes across the supply chain, from suppliers to
manufacturers, wholesalers, retailers, and ultimately, the end consumer.
A car manufacturer integrates its
design, production, and procurement processes with its parts suppliers (e.g.,
tire manufacturers, engine component suppliers) to ensure timely delivery and
quality control.
2.
Customer
Focus: The ultimate goal of SCM is to deliver
value to the customer by ensuring the right product is available at the right
time, place, and price.
An
e-commerce company like Amazon focuses on efficient warehousing and delivery
networks to provide quick and reliable shipping options, enhancing customer
satisfaction.
3.
Information
Sharing and Technology: Effective
SCM relies heavily on the timely and accurate sharing of information among all
supply chain partners, often facilitated by advanced technologies like ERP
(Enterprise Resource Planning) systems, RFID (Radio-Frequency Identification),
and IoT (Internet of Things).
A global apparel brand uses real-time
sales data from its retail stores to inform its manufacturing plants and raw
material suppliers, allowing for dynamic adjustments to production schedules.
4.
Strategic
Partnerships and Collaboration: SCM
encourages the formation of long-term, collaborative relationships with key
suppliers and customers rather than transactional interactions.
A coffee company might establish a
long-term partnership with a specific coffee bean farm, working together on
sustainable farming practices and ensuring a consistent supply of high-quality
beans.
5.
Risk
Management: SCM involves
identifying, assessing, and mitigating various risks throughout the supply
chain, such as supply disruptions, demand fluctuations, and natural disasters.
During the COVID-19 pandemic, many
companies diversified their supplier base and increased inventory levels to
mitigate the risk of factory shutdowns and shipping delays.
6.
Efficiency
and Cost Reduction: By optimizing
processes, reducing waste, and improving logistics, SCM aims to enhance
operational efficiency and reduce overall costs across the supply chain.
A supermarket chain optimizes its
delivery routes and warehouse operations to minimize transportation costs and other
expenses of perishable goods.
7.
Dynamic and
Adaptive: Supply chains are not static; they
must be dynamic and adaptive to changing market conditions, technological
advancements, and customer demands.
A smartphone manufacturer must
constantly adapt its supply chain to incorporate new technologies, respond to
rapid product cycles, and manage the end-of-life process for older models.
Importance or
Relevancy of Supply Chain Management:
1.
Improved
Customer Satisfaction: By ensuring
timely and accurate product delivery, SCM directly enhances customer
satisfaction and loyalty.
A well-managed supply chain ensures
that a customer receives their online order on time and in good condition,
leading to a positive shopping experience.
2.
Reduced
Costs: Optimizing processes, minimizing
waste, and improving logistics lead to significant cost savings throughout the
supply chain.
A manufacturing company can reduce its
inventory holding costs by implementing a just-in-time (JIT) inventory system
through effective SCM.
3.
Enhanced
Efficiency and Productivity: Streamlined
operations and better coordination among supply chain partners increase overall
efficiency and productivity.
A car assembly plant can increase its
production output by having a tightly coordinated supply chain that delivers
parts precisely when needed.
4.
Competitive
Advantage: An efficient and responsive
supply chain can be a significant source of competitive advantage, allowing
companies to offer better products, prices, or services.
Zara's fast fashion model relies on an
exceptionally agile supply chain that can quickly design, produce, and
distribute new clothing lines, giving it a competitive edge over slower rivals.
5.
Better Risk
Management: SCM helps
identify and mitigate potential disruptions, ensuring business continuity even
in the face of unexpected events.
Companies with diversified supplier
networks were better able to withstand supply chain shocks during the global
pandemic than those reliant on single sources.
6.
Sustainable
Practices: SCM can
facilitate the adoption of sustainable practices by optimizing resource usage,
reducing waste, and promoting ethical sourcing.
A food company can implement
sustainable SCM practices by sourcing ingredients from local, organic farms and
optimizing its transportation to reduce carbon emissions.
Process of Supply
Chain Management (Step-by-Step)
The SCM process typically involves
several interconnected stages:
1.
Planning: This initial stage involves strategizing and
designing the supply chain. It includes forecasting demand, planning
production, managing inventory, and determining logistics.
A new smartphone company plans its production
volume based on market research and anticipated sales, considering lead times
for components from various suppliers.
2.
Sourcing
(Procurement): This step
involves identifying, evaluating, and selecting suppliers for raw materials,
components, or finished goods. It also includes managing supplier
relationships.
A bakery sources its flour, sugar, and other
ingredients from specific suppliers, negotiating contracts and ensuring quality
standards are met.
3.
Manufacturing
(Production): This stage
focuses on transforming raw materials and components into finished products. It
includes production scheduling, quality control, and factory management.
A textile company takes raw cotton, spins it
into yarn, weaves it into fabric, and then cuts and sews it into finished
garments.
4.
Delivery
(Logistics/Distribution): This
involves managing the movement of finished products from the manufacturer to
the customer. It includes warehousing, transportation, and order fulfillment.
An online retailer picks and packs
customer orders from its warehouse, then arranges for their shipment via
various courier services to reach the end consumer.
5.
Return
(Reverse Logistics): This often
overlooked but crucial step involves managing the return of products from
customers due to defects, dissatisfaction, or end-of-life recycling.
Components of
Supply Chain Management
1.
Suppliers
o Provide raw materials or parts.
o Intel
supplies processors to PC manufacturers.
2.
Manufacturers
o Transform inputs into finished goods.
o Samsung
manufactures electronics.
3.
Warehouses
o Store inventory until needed.
o BigBasket stores perishable items in regional
warehouses.
4.
Distribution
Centers
o Coordinate packaging and redistribution.
o Amazon’s fulfillment centers.
5.
Retailers
o Sell goods to end consumers.
o Reliance Digital, Croma.
6.
Customers
o Final recipients of the product or service.
o A
person ordering from Zomato.
7.
Logistics
and Transportation
o Movement of goods across the chain.
o DHL,
Blue Dart.
2. Designing
Marketing Channels
Marketing channels are the pathways
through which goods and services flow from producers to customers. Designing
involves selecting the best channel structure to meet customer needs, minimize
costs, and ensure coverage.
Types of
Marketing Channels
A. For Individual
Customers (Consumer Products)
1.
Direct
Channel (Manufacturer to Consumer)
o Apple
selling via its website.
2.
Retailer
Channel
o Manufacturer → Retailer → Customer
o Nestlé
products sold through Big Bazaar.
3.
Wholesaler
Channel
o Manufacturer → Wholesaler → Retailer →
Customer
o Britannia biscuits sold through Kirana stores.
4.
Agent
Channel
o Manufacturer → Agent → Wholesaler → Retailer →
Customer
o Imported cosmetics sold via agents.
B. For Organizational
Customers (Industrial Products)
1.
Direct
Channel
o Manufacturer → Industrial Buyer
o Steel
supplier directly selling to a car manufacturer.
2.
Industrial
Distributor Channel
o Manufacturer → Industrial Distributor → Buyer
o Bearings sold to factories via industrial
distributors.
3.
Agent/Manufacturer’s
Rep Channel
o Manufacturer → Agent → Buyer
o Pharmaceutical equipment sold via agents to
hospitals.
Channel Dynamics
Channel dynamics refer to the changes
and evolution in marketing channels over time due to competition, customer
needs, or technology.
In simple terms, refers to the ongoing
changes, adaptations, and power shifts that occur within a marketing channel
over time. It recognizes that channels are not static entities but rather
evolving systems influenced by various internal and external factors. These
dynamics can involve changes in channel structure, roles, power relationships,
and conflict resolution mechanisms.
Natures of
Channel Dynamics:
1.
Evolutionary: Channels evolve in response to market
changes, technological advancements, and shifts in consumer behavior.
2.
Interdependent: The actions of one channel member affect
others, creating a web of interconnected relationships.
3.
Conflict-Prone: Due to differing goals and perspectives,
conflict is an inherent, though not always negative, aspect of channel
dynamics.
4.
Power-Oriented: Channel members often seek to exert influence
and power over others to achieve their objectives.
5.
Strategic: Companies continuously evaluate and adjust
their channel strategies to maintain competitiveness and adapt to new
opportunities or threats.
Types of Channel
Dynamics:
1.
Channel
Structure Changes:
Forward
Integration: A company moves
downstream in the channel.
A clothing manufacturer opening its own retail
stores.
Backward
Integration: A company moves
upstream in the channel.
A retailer buying a factory to produce its own
private label goods.
Horizontal
Integration: A company
acquires or merges with another company at the same level of the channel.
One supermarket chain acquiring another
supermarket chain.
Disintermediation: Eliminating intermediaries from the channel.
Customers buying directly from manufacturers
online, bypassing traditional retailers.
Reintermediation: Adding new types of intermediaries to the
channel, often due to new technologies.
The rise of online travel agencies (OTAs) like
Expedia, acting as new intermediaries between hotels/airlines and consumers.
Hybrid Channels: Using multiple channels to reach customers.
A company selling online, through its own
stores, and through independent retailers.
2.
Power
Shifts:
Manufacturer
Power: When manufacturers have strong brands
or proprietary technology, they can exert significant influence over resellers.
Retailer Power: Large retailers (e.g., Walmart, Amazon) often
have immense buying power and can dictate terms to manufacturers.
Consumer Power: Informed and connected consumers can
influence channel decisions through online reviews, social media, and direct
feedback.
3.
Conflict and
Cooperation:
The dynamic interplay between channel
members can lead to both conflict (due to goal divergence or role ambiguity)
and cooperation (when members work together to achieve shared objectives). This
is a central theme in channel dynamics.
Relevancies of
Channel Dynamics:
1.
Strategic
Advantage: Understanding channel dynamics allows
companies to anticipate changes and adapt their strategies to gain a
competitive edge.
2.
Risk
Management: Helps identify
potential disruptions or shifts in power that could threaten a company's market
access or profitability.
3.
Optimized
Performance: By adapting to
dynamics, companies can ensure their channels remain efficient, responsive, and
aligned with customer needs.
4.
Innovation: Dynamics often spur innovation in
distribution methods, technology adoption, and customer service.
5.
Relationship
Building: Proactive management of channel
dynamics can foster stronger, more collaborative relationships among channel
partners.
Channel Conflict
Channel conflict refers to a situation
where one channel member's actions prevent another channel member from
achieving its goals. It arises when channel members have differing objectives,
perceptions, or roles, leading to friction and disagreement within the
distribution system. While often perceived negatively, a certain level of
conflict can sometimes indicate healthy competition or highlight areas for
improvement.
Natures of
Channel Conflict:
1.
Inevitable: Conflict is almost inherent in marketing
channels because different firms operate with their own objectives, resource
constraints, and perceptions.
2.
Functional
vs. Dysfunctional: Conflict can be
functional (constructive, leading to better solutions or innovation) or
dysfunctional (destructive, harming relationships and performance).
3.
Perceptual: Conflict often arises from misperceptions or
misunderstandings about another channel member's intentions or actions.
4.
Goal
Incompatibility: The most common
source of conflict, where different channel members pursue conflicting goals.
5.
Role
Ambiguity: Unclear definitions of roles and
responsibilities among channel members can lead to friction.
Types of Channel
Conflict:
1.
Vertical
Channel Conflict:
Occurs between different levels within the
same channel.
Examples:
Manufacturer vs.
Retailer: A manufacturer might conflict with
its retailers over pricing (e.g., the manufacturer wants higher prices to
maintain brand image, while the retailer wants lower prices to drive volume),
promotional efforts (e.g., manufacturer wants retailers to carry out specific
promotions they don't agree with), or territory disputes (e.g., manufacturer
selling directly to customers, bypassing the retailer).
Wholesaler vs.
Retailer: A wholesaler might be accused by a
retailer of slow delivery or damaged goods.
2.
Horizontal
Channel Conflict:
Occurs between channel members at the
same level of the channel.
Examples:
Retailer vs.
Retailer: Two independent retailers selling the
same brand in close proximity might engage in price wars or aggressive
promotional tactics that hurt each other's sales.
Franchise vs.
Franchise: Two franchisees of the same fast-food
chain in the same city might compete for customers.
Two Distributors: Two distributors for the same manufacturer
competing for the same customers in the same territory.
3.
Multichannel
(or Inter-type) Channel Conflict:
Arises when a single firm uses two or
more marketing channels to reach the same target market, and these channels
compete with each other. This is increasingly common with the rise of
e-commerce.
Examples:
Manufacturer's
Online Store vs. Independent Retailers:
A brand selling its products directly through its own e-commerce website might
create conflict with its traditional brick-and-mortar retailers who feel
undercut or bypassed.
Company Sales
Force vs. Distributors: A company's
direct sales force might compete with its authorized distributors for the same
corporate clients.
How to Resolve
Different Types of Channel Conflict:
Resolving channel conflict effectively
is crucial for maintaining healthy channel relationships and ensuring efficient
distribution. Strategies vary depending on the type and nature of the conflict:
1.
Superordinate
Goals:
Establish a shared vision or goal that
can only be achieved through cooperation, making channel members work together.
Application: Useful for all types of conflict.
A manufacturer and its retailers agree
to launch a new product line with a challenging sales target that requires
close collaboration in marketing and inventory management.
2.
Exchange of
Personnel:
Bring individuals from one channel
level to work at another level to gain a better understanding of each other's
perspectives and operations.
Application: Primarily for vertical conflict.
A retailer's store manager spends a
week working at the manufacturer's distribution center, or a manufacturer's
sales representative spends time on the retail floor.
3.
Joint
Membership in Trade Associations/Councils:
Channel members from different levels
or the same level participate in formal or informal groups to discuss common
issues and find solutions.
Application: Useful for vertical and horizontal conflict.
A trade association for electronic
retailers might have a forum where members discuss competitive practices and
best ways to handle multichannel distribution.
4.
Co-optation:
An effort by one organization to win
the support of leaders of another organization by including them in advisory
councils or boards.
Application: Primarily for vertical conflict.
A large manufacturer inviting key
distributors to join its advisory board to provide input on product development
and marketing strategies.
5.
Diplomacy,
Mediation, and Arbitration:
§ Diplomacy:
Each side sends a person to meet with the other side to resolve the conflict.
§ Mediation:
A neutral third party is called in to mediate the dispute, offering suggestions
but without binding power.
§ Arbitration:
A neutral third party makes a binding decision for the conflicting parties.
Application: Useful for all types of conflict, especially
when internal resolution fails.
A manufacturer and a disgruntled
retailer hire an independent mediator to resolve a dispute over overdue
payments and inventory issues.
6.
Legal
Recourse:
Taking the conflict to court, though
this is usually a last resort due to cost and potential damage to
relationships.
Application: For severe conflicts when other methods have
failed.
A retailer suing a manufacturer for
breach of contract due to unfair termination of their dealership agreement.
7.
Channel
Captain (Channel Power):
A strong channel member (often the
manufacturer or a dominant retailer) can exert power to enforce agreements or
resolve disputes, especially when there is clear dependency.
Application: Primarily for vertical conflict.
Walmart, as a powerful retailer, might
dictate terms to its suppliers regarding delivery schedules, pricing, and
product specifications, and suppliers often comply due to the volume of
business Walmart represents.
8.
Fair Pricing
and Allocation Policies:
Establishing clear, transparent, and
equitable policies for pricing, discounts, promotions, and product allocation
across different channels.
Application: Especially crucial for multichannel conflict.
A manufacturer implements a
"minimum advertised price" (MAP) policy to prevent its online store
from undercutting its brick-and-mortar retailers, or ensures fair allocation of
limited-edition products to all channel partners.
By implementing these strategies,
companies can effectively manage and resolve channel conflicts, ensuring their
distribution channels remain efficient, collaborative, and ultimately,
contribute to overall business success.
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