Supply Chains and Value Delivery Networks: Optimizing Distribution Channels
Supply Chains and Value Delivery Networks
Upstream and Downstream Partners
- Upstream partners provide raw materials, components, parts, information, finances, and expertise for product or service creation.
- Downstream partners include marketing and distribution channels that reach the customer, such as retailers and wholesalers.
Supply Chain vs. Demand Chain
- Supply chain focuses on production and distribution, viewing the process as”make and sell”
- Demand chain emphasizes customer needs, starting with target customer requirements and organizing resources to meet those needs.
Value Delivery Network
The value delivery network consists of suppliers, distributors, and customers who collaborate to enhance the overall system’s performance.
Intermediaries
Intermediaries provide producers with greater efficiency in reaching target markets. They offer expertise, specialization, and scale, enabling firms to achieve more than they could independently.
How Channel Members Add Value
- Transform product assortments to meet consumer preferences.
- Bridge time, place, and possession gaps between goods/services and users.
- Offer firms capabilities beyond their own reach.
Marketing Channels
Marketing channels consist of firms that partner for mutual benefit, with each member playing a specialized role.
Channel Conflict
Channel conflict arises when channel members disagree on goals, roles, or rewards.
Conventional Distribution Systems
Conventional distribution systems involve independent producers, wholesalers, and retailers.
Vertical Marketing Systems (VMSs)
VMSs provide channel leadership and integrate production and distribution stages. Types include:
- Corporate vertical marketing system: Single ownership across production and distribution stages.
- Contractual vertical marketing system: Independent firms at different levels collaborate through contracts.
- Administered vertical marketing system: Dominance by a few channel members without common ownership.
Horizontal Marketing Systems
Horizontal marketing systems involve collaboration between companies at the same level to pursue new opportunities.
Multichannel Distribution Systems
Multichannel distribution systems involve a single firm using multiple channels to reach different customer segments.
Disintermediation
Disintermediation occurs when producers bypass traditional intermediaries or when new types of intermediaries emerge.
Marketing Channel Design
- Analyzing Consumer Needs: Determine target consumer preferences, segments, and optimal channels.
- Setting Channel Objectives: Establish customer service levels, balancing needs with feasibility and costs.
- Identifying Major Alternatives: Consider types, number, and responsibilities of intermediaries.
Distribution Strategies
- Intensive distribution: Product placement in as many outlets as possible.
- Exclusive distribution: Limited number of dealers with exclusive rights in specific territories.
- Selective distribution: Use of multiple but not all intermediaries willing to carry the product.
Exclusive Agreements
- Exclusive distribution: Seller restricts product distribution to certain outlets.
- Exclusive dealing: Seller requires dealers to avoid handling competitor products.
- Exclusive territorial agreements: Producer limits distribution to specific territories.
- Tying agreements: Dealer must purchase a substantial portion of the product line.
Supply Chain Management
Supply chain management involves managing the flow of materials, goods, and information among suppliers, the company, resellers, and consumers.