Ch. 13 Managing Supply Chain and Logistics Relationships
Ch. 13 Managing Supply Chain and Logistics Relationships MKTG 3650
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This 6 page Class Notes was uploaded by Alora Lornklang on Monday May 2, 2016. The Class Notes belongs to MKTG 3650 at University of North Texas taught by David Strutton in Spring 2016. Since its upload, it has received 12 views. For similar materials see Foundations of Marketing in Marketing at University of North Texas.
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Date Created: 05/02/16
MKTG 3650 Foundations of Marketing Practice Chapter 13 Managing Supply Chain and Logistics Relationships The purpose of supply chains is to create opportunities for Firms to achieve results collectively that those Firms could never achieve individually. Supply chains emerge from the mandate that B2B and B2C customer needs must be served in the best manner possible. Supply chains operate in states of continuous change and must constantly adapt to those changes. One Simple Product, One Stunningly Convoluted Supply Chain The example of the long process and necessity for a variety of knowledge and skills to make a pencil. What if Supply Chains Did Not Exist? Supply chains are typically neither glamorous nor sexy, except, surely, among Firms and people who reap huge financial gains from their supply chain participation What is Logistics and How Does Logistics Relate to Supply Chains? Logistics o May be defined as “inventory in motion or at rest throughout the supply chain.” o Logistics are about my Firm or your Firm, but only my or your Firm. o Is about my Firm’s inbound and outbound and throughbound flows of raw materials, component parts, finished products, financial resources, and ultimately information. The major logistics functions that must be performed include warehousing, order processing, and transportation. “Materials management” is the movement of parts, materials, and other resources into the manufacturing process. “Physical distribution” is the movement of finished goods from manufacturers to ultimate users. The channel of distribution consists of the set of organizations and people through which finished goods move from producers to consumers o Typically consist of producers, wholesaling, intermediaries, retailers, and consumers The Supply chain o Captures and expands on the channel of distribution. o It is the totality of the organizations and people involved in moving goods form source providers to ultimate users. o Consists of networks of Firms that systematically partner in an organized fashion with each other at each level of logistical systems. Supply chain managerial processes happen between Firms. These systematic supply chain partnering processes unfold with a 3headed purpose in mind: o To maximize logistics values o To minimize logistics costs o To deliver expected levels of value and satisfaction to customers at every level in the supply chain o Is about the entire network of Firms involved in the supply chain working together for the mutual benefit of every Firm engaged in the supply chain. Logistics is about “me.” Supply chain is about “us.” Logistical and supply chain processes are each driven by two factors: the derivation and sharing of information, and the development and application of the proper metrics. The supply chain that possesses and exploits the best or most accurate information, likely because it has implemented and employed the best metrics, usually will win marketing competitions. The supply chain management process involves planning, implementing, and controlling the flow and storage of products, services, and related information from point of origin to point of consumption, with the end goal of satisfying customer needs at the lowest possible cost. Supply chains are where the most strategic marketing decisions occur. Decisions are made about: o How many products to make or develop o Which markets or customers that should be targeted o How to price, distribute, and promote products’ unique values Economies of scale are cost advantages that the Firms obtain due to their size, output, or scale of operation. “Dirttodirt” o You have eaten, worn, or typed on nothing today that did not originate in the dirt and dirt is also exactly the place to which each thing you’ve eaten, worn, or typed on will eventually return. Profit leveraging of costs: o If the net profit margin on each sales dollar earned 5%, a supply chain operational savings of $5,000 yields the same return to the Firm’s bottom line as would a sales increase of $100,000. Supply Chains Used to be Called “Marketing Channels” Marketing channels amount to a group of independent Firms involved in the process of making a product or service available for use or consumption by organizations or consumers. Manufacturer Wholesaler Retailer Consumer o Manufacturer: producer of a finished product o Wholesaler: A middleman does not make or consume the product. Resells to other wholesalers, retailers, manufacturers or other institutions o Retailer: A type of of middleman that resells the product to the ultimate consumer o Consumer: Those who buy or use the finished product Drop shippers are wholesaling middlemen that buy and sell bulky commodities such as coal and building materials. They will buy the product and have it shipped directly to the customer. Middlemen Intermediaries o Channel or supply chain intermediaries are individuals or organizations who mediate the exchange and creation of value in relationships involving two or more partners. Supply Chains are Critical Because… Any Firm’s supplychain related decisions directly affect every other marketing mix decision that it makes. The supply chains to which Firms belong influence the products that management elects to create, modify, or continue to market; how management prices those products; and how management should distribute, display, discuss, and promote them. The Longer Run Supply chain partnerships or relationship are more like fullycommitted marital relationships than dating relationships. It is difficult emotionally, practically, and financially to exit Walmart: Almost Always a Special Case Supply chain relationships offer the last best chance for most Firms to achieve sustainable competitive advantage. Walmart’s competitors have rarely been able to match the competitive advantages that the Firm has generated through its adroit and often ruthless supply chain management practices. In Walmart’s mercilessly rational supply chains, functioning as “Channel Captain” dictates that: o Suppliers will lower their prices in exchange for their receipt of value known as higher sales volume available by selling through Walmart o Suppliers will track the status and location of each product throughout entire supply chain o Drivers will never let trucks idle for more than 30 seconds. Unions will stay out, thus lowering employeedriven costs inside supply chains. EDLP strategy Everyday low prices Walmart has cultivated Customer Intimacybased advantages for its brand in selected consumer market segments Typical Supply Chain Functions Matching o Bringing buyers and sellers together to match supply with demand Negotiating o Negotiations relate most often to final prices and product placement within retail settings and generally performed on behalf of manufacturers by various agents or manufacturers’ salespersons only Allocating o “Breakingbulk” o Creating the “right sized” product assortment Accumulating o “Makingbulk” o Involves buying units of the same product from multiple sources of supply to create larger quantities that will be sold to customers preferring to buy in large amounts. Sorting o A function typically performed by assemblers once “bulk” has been accumulated. o When products are sorted, they are separated into categories based on differences in “grade” or some other aspect of “quality.” Assorting o Means combining a variety of different products together to offer variety to customers. Storage and Inventory Management o When products must be held for significant time periods before they are sold o The storage function creates time utility for customers o Distribution centers store products just long enough to perform any required accumulating, sorting, and allocating functions that are needed to make them available to the next channel member Transportation (shipping) o Involves the physical movement of finished goods, raw materials, and component parts. o Each shipping medium is called a transportation mode. o Intermodal transportation is used when multiple transportation modes— trains, planes, automobiles, trucks, pipelines, barges, etc.—are employed to ship any item Communications o The most fundamental reason for communication up and down the supply chain is to create exchanges; actual buying and selling results in the transfer of ownership of products from one channel member to the other. Financing and Risk Taking o By accepting ownership a supply chain member is risk taking, accepting some degree of risk. If products don’t sell, spoil while in storage, or are otherwise damaged during shipment or storage, losses are incurred. o A number of businesses entities provide financing to members of the supply chain, making it possible for them to engage in the myriad of supply chain functions. Primary Supply Chain Designs Conventional Supply Chains (CMS) o Aka conventional marketing system o Each level in the supply chain operates under independent ownership Vertical Marketing Systems o Corporate vertical marketing system In which one member of the supply chain has vertically integrated, either forward or backward (or both), to own and control much of the supply chain. o Contractual Vertical Marketing Systems In which there exist contractual agreements between supply chain members dictating how relationships between members should be conducted Franchises Franchises involve contractual agreements between a parent company and independent business operators. In this contract, the franchisor grants the franchisee the right to operate under its trademark. The business format franchise is the most common form of franchise operation. The biggest advantage to the franchise is the tremendous reduction in risk associated with running one’s own business due to the tested and proven format of the franchise operation. Ability to share promotional costs The franchisor needs less capital for expansion and can expand more rapidly. The risk of doing business is essentially shared with the franchisees. Three Major Supply Chain Design-Related Decisions Types of Intermediaries to Use o The general menu of choices includes manufacturers; intermediary firms, including shippers and transportation specialists; wholesalers; warehouses; agents; retailers; and various marketing firms that specialize in delivering either branding, advertising, or promotional management functions. How Many Supply Chain Intermediaries to Use o Direct channels are most common in B2B supply chains. o Indirect channels are more common in B2C supply chains. o Distribution intensity Intensive distribution: convenience goods Selective distribution: shopping goods Exclusive distribution: specialty goods Number and Types of Supply Chain Functions to be Performed o Determining which supply chain functions must be performed and which intermediaries are best suited to perform these functions. Which Firm will perform what supply chain function? The first design choice criterion relates to customers needs, specifically, the satisfaction of customer needs. o The delivery of higher levels of supply chain customer service is necessary to satisfy customer needs is simply going to cost more. The second criterion relates to “cost versus control.” o Will my Firm be better off it can lower costs by outsourcing the performance of a supply chain function to some other Firm or Firms inside our supply chain? Two Supply Chain Principles If a Firm performs a supply channel function itself, it pays more because performance of the function probably will cost more. But the Firm maintains control over how the function is performed. If the Firm engages another firm in its supply chain to perform a supply chain function, the decisionmaking Firm generally will pay less for the function to be performed but the originating Firm will give up some control over how the function is performed. Formal Procedural Steps for Negotiating Conflict Identify and Define the Problem Generate Possible Solutions Evaluate possible solutions Select solution Evaluate the results
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