Chp 12: distribution channels

Question 1

how do distribution channels add value

Answer 1

Distribution channels (place) add value for customers because they get products to customers efficiently: quickly and at low cost

Question 2

define distribution channel

Answer 2

institutions that transfer ownership of goods and move goods from point of production to point of consumption

Question 3

define supply chain management

Answer 3

refers to set of approaches + techniques firm use to efficiently and effectively integrate their suppliers, manufacturers, warehouses, stores, transportation intermediaries into seamless value chain in which goods are produced and distributed in right quantities, to right locations at right time

Question 4

define wholesaler

Answer 4

firms engaged in buying, taking title to, often storing and physically handling goods in large quantities, and then reselling the goods (usually in smaller quantities) to retailers or industrial or business users

Question 5

what does supply chain management include

Answer 5

distribution management and logistics management

Question 6

what is distribution channel part of

Answer 6

overall supply chain

Question 7

define retailers

Answer 7

sell products directly to consumers

Question 8

define logistics management

Answer 8

integration of 2+ activities for purpose of planning, implementing, and controlling the efficient flow of raw materials, in process inventory, and finished goods from point of origin to point of consumption

Question 9

what are some examples of logistics management

Answer 9

Includes materials handling, demand forecasting, customer service, inventory control etc

Question 10

typical supply chain management

Answer 10

1) Logistics management: Suppliers -> (inbound flow of raw materials + parts) -> producers -> (outbound flow of finished products) -> consumers
2) Supply chain goes to suppliers and producers
3) Distribution channels flows to consumers and flows from producers

Question 11

explain direct supply chain no retailer

Answer 11

manufacturers sell directly to consumers. Each transaction costs money - manufacturer must fill order, package it, write up paperwork and ship it, and each cost is passed to consumer

Question 12

explain indirect supply chain with retailer

Answer 12

transactions decrease with retailer. Manufacturers go through single retailer. Because transactions decrease, supply chain is more efficient which adds value for consumer by making it more convenient and less expensive to buy goods

Question 13

what does sales department need to do

Answer 13

coordinate its delivery promises with factory or distribution centers (when products are designed + manufactured, how and when critical components reach factory must be coordinated with production)

Question 14

define distribution centre

Answer 14

facility for receipt, storage and redistribution of goods to company stores or customers; may be operated by retailers, manufacturers or distribution specialists

Question 15

what is distribution channel composed of

Answer 15

entities that are buying (retailers/wholesalers), selling (manufacturer, wholesalers), or helping facilitate exchange (transport companies)

Question 16

what can distribution channel relationships be

Answer 16

close working partnerships to one time arrangements

Question 17

what happens if one member in distribution channel is not working right

Answer 17

If one member in distribution channel believes another isn’t doing role correctly or efficiently it can usually replace that member

Question 18

3 functions performed by intermediaries (distribution channels)

Answer 18

1) transactional function
2) logistical function
3) facilitating function

Question 19

explain transaction function of intermediaries

Answer 19

1) Buying - purchase goods for resale to other intermediaries or consumers
2) Risk taking - own inventory that can become outdated
3) Promotion - promote products to attract customers
4) Selling - transact with potential customers

Question 20

explain logistical function of intermediaries

Answer 20

1) Physical distribution - transport goods to point of purchase
2) Risk taking - maintain inventory and protect goods

Question 21

explain facilitating function of intermediaries

Answer 21

1) Gathering info - share competitive intelligence about customers or other channel members
2) Financing - extend credit and other financial services to consumers

Question 22

define channel conflict

Answer 22

results when supply chain members are not in agreement about goals, roles, or rewards

Question 23

4 ways to manage distribution channels

Answer 23

1) managing channels through vertical marketing system

2) managing supply chain through strategic relationships

Question 24

when is channel conflict more pronounced and less pronounced

Answer 24

1) Conflict more pronounced when channel members are independent entities
2) Channels more closely aligned, whether by contract or ownership, share common goals and are less prone to conflict

Question 25

define independent marketing channel

Answer 25

each members attempt to satisfy own objectives and maximize own profits, often at expense of other members. None of the participants have control over the others

Question 26

define vertical marketing system

Answer 26

supply chain in which members act as unified system. Can maximize individual benefits by working together to make system more efficient. The more formal, the less likely conflict will ensue.

Question 27

3 types of vertical marketing systems

Answer 27

1) administered 2) contractual 3) corporate

Question 28

define administered vertical marketing system

Answer 28

no common ownership and no contractual ownership but dominant channel member controls channel relationship

Question 29

define contractual vertical marketing system

Answer 29

system in which independent firms at different levels of supply chain join together through contracts to obtain economies of scale and coordination and to reduce conflict

Question 30

common type of contractual vertical marketing system

Answer 30

franchising

Question 31

define franchising

Answer 31

contractual agreement between franchisor + franchisee that allows franchisee to operate retail outlet, using a name and format developed and supported by franchisor

Question 32

explain franchising

Answer 32

Franchisee pays lump sum + royalty on sales in return for right to operate business in specific location. Franchisee operates in accordance with procedures by franchisor. Franchisor provides assistance in locating + building business, developing products sold, training and advertising. Franchisor ensures all outlets provide same quality to maintain reputation.

Question 33

define corporate vertical marketing system

Answer 33

system in which parent company has complete control and can dictate priorities and objectives of supply chain; may own facilities such as manufacturing plants, warehouse facilities, retail outlets, design studios

Question 34

in conventional distribution channel, how do things work

Answer 34

relationships between members based on split of profit pie: if one party gets ahead, other falls behind. This type of approach is acceptable if parties have no interest in long term relationships

Question 35

define strategic/partnering relationship

Answer 35

supply chain relationship that members are committed to maintaining long term, investing in opportunities that are mutually beneficial; requires mutual trust, open communication, common goals and credible commitments

Question 36

explain pie in strategic/partnering relationship

Answer 36

Both parties benefit, size of profit pie increases, both parties can increase sales and profit

Question 37

3 things needed for strategic/partnering relationship

Answer 37

1) mutual trust 2) open communication 3) common goals 4) credible commitments

Question 38

explain mutual trust in strategic/partnering relationship

Answer 38

1) Trust is belief that partner is honest and benevolent (concerned about other party’s welfare) 2) When there is mutual trust, parties will share ideas, clarify goals + problems, communicate effectively. Less need to monitor each other’s options.

Question 39

when is monitoring in strategic/partnering needed

Answer 39

important when suppliers are located in less developed countries where issues like child labour, poor working conditions, below living wages are shared responsibility

Question 40

explain open communication in strategic/partnering relationship

Answer 40

Understand what drive’s each others business, their roles in the relationship, firm’s strategies, problems that may arise

Question 41

explain common goals in strategic/partnering relationship

Answer 41

Share goals give members incentive to pool strength and abilities and exploit potential opportunities together

Question 42

explain credible commitment in strategic/partnering relationship

Answer 42

Involve spending money to improve products provided to consumer

Question 43

3 types of distribution channels

Answer 43

1) direct distribution 2) indirect distribution 3) multi channel distribution/hybrid

Question 44

3 points to direct distribution

Answer 44

1) No intermediaries between buyer and seller 2) Typically seller is manufacturer, but can be individual (person sells sweaters at craft fairs) 3) Some companies may be forced to do direct distribution because they are unable to secure shelf space in retail outlets or are unable to pay high listing fees demanded by retailers for shelf space

Question 45

6 points to indirect distribution

Answer 45

1) 1+ intermediaries work with manufacturer to provide goods to consumers 2) Often seen in automotive manufacturers 3) Typically only one intermediary is used in case of large retailers 4) Selling through retailers adds costs to a company due to margins that need to be paid to them, retail outlets can reach broader market 5) Wholesalers often used when company does not buy in sufficient quantity to make it cost-effective for manufacturer to deal with retailer 6) Use of wholesalers common for low cost or low unit value items like chips

Question 46

explain multichannel distribution/hybrid

Answer 46

Using combination of direct and indirect distribution channels to better reach business + consumers customers

Question 47

2 distribution strategies

Answer 47

push vs pull

Question 48

define push marketing strategy

Answer 48

designed to increase demand by focusing on wholesalers, distributors, or salespeople, who push product to consumers via distribution channels

Question 49

4 points to push marketing strategy

Answer 49

1) Manufacturer focuses promotion efforts on channel members to convince them to carry product 2) Pushes the product through distribution channel to end consumer 3) To get shelf space, companies need to get retailers onside and show them how their product can help grow a category, bring new consumers to category, or add to profit

Question 50

4 points to listing fees in push marketing strategy

Answer 50

1) Manufacturers pay list fees to have products stocked (listing fees can include costs or rearranging store shelves + warehouse, and admin costs with adding new product) 2) Listing fees can determine if item is placed at eye level or down on bottom shelf where its hard to find 3) Fee depends on: potential sales volume, trade allowances, product promotion offered (samples, in store demos, promotional pricing), product category, company size 4) Some category leaders don’t need to pay listing fees because they know retailers must stock popular products

Question 51

define pull marketing strategy

Answer 51

designed to get consumers to pull the product into supply chain by demanding that retailers carry it

Question 52

2 points to pull marketing strategy

Answer 52

1) May be used if channel members reluctant to stock product (push doesn’t work) 2) Consumers who see tv commercials or ads or coupons regarding new products may ask retailers to stock these products

Question 53

define distribution intensity

Answer 53

number of channel members to use at each level of supply chain

Question 54

3 types of distribution intensity

Answer 54

1) intensive distribution 2) exclusive distribution 3) selective distribution

Question 55

define intensive distribution

Answer 55

strategy designed to get products into as many outlets as possible

Question 56

2 points to intensive distribution

Answer 56

1) Most consumer packaged goods companies use this | 2) The more exposure products get, the more they sell

Question 57

define exclusive distribution

Answer 57

strategy of granting exclusive rights to sell to one or very few retail consumers so no other consumer can sell a particular brand

Question 58

4 points to exclusive distribution

Answer 58

1) Manufacturers benefit by assuring them that most appropriate customers represent their products 2) Selling high end products to discount stores, grocery stores may weaken image 3) Sometimes limiting distribution can limit sales 4) In case of limited supply or when firm is starting out, providing exclusive customers helps ensure enough inventory to offer customer adequate selection (guaranteeing adequate supply gives them strong incentive to push product).

Question 59

dealer benefit to exclusive distribution

Answer 59

Dealers know there is no competing retailer to cut prices, so profit margins are protected and more incentive to carry more inventory and use extra ads, personal selling and sales promotion

Question 60

define selective distribution

Answer 60

lies between intensive and exclusive distribution strategy; uses few selected consumers in territory

Question 61

2 points to selective distribution

Answer 61

1) Helps seller maintain particular image and control flow of goods into area. Many shopping manufacturers use them (goods for which consumers willing to spend time comparing alternatives like apparel items, home items, consumer electronics) 2) Retailers still have strong incentive to sell products but not to same extent as exclusive distribution

Question 62

5 interrelated activities emerge in supply chain management

Answer 62

1) designing distribution channels 2) making info flow 3) managing relationships among supply chain partners 4) making goods flow 5) managing inventory

Question 63

2 ways logistics management affects distribution strategy

Answer 63

1) makes info flow | 2) makes goods flow

Question 64

5 flows of information in logistics management

Answer 64

1) customer to store 2) store to buyer 3) buyer to manufacturer 4) store to manufacturer 5) store to distribution centre

Question 65

3 points to customer to store info flow

Answer 65

1) UPC tag contains code that includes manufacturer, info about special packaging + promotions 2) Associate scans UPS and customer receives receipt

Question 66

define universal product code (UPC)

Answer 66

black and white bar code found on goods

Question 67

2 points to store to buyer info flow

Answer 67

1) Point of sale terminal records purchase info and sends it to buyer 2) This info incorporated into inventory management system and used to monitor and analyze sales (to reorder, change price, plan promotion)

Question 68

2 points to buyer to manufacturer info low

Answer 68

1) Purchase info from store aggregated by retailer and creates order for new goods to manufacturer 2) Buyer communicates with manufacturer to get info on and negotiate prices, shipping dates, promotional events or other merchandise related issues

Question 69

2 points to store to manufacturer info flow

Answer 69

1) Sometimes sales data sent from store to manufacturer and manufacturer decides when to ship more goods to distribution centers and stores 2) Sometimes when goods ordered frequently, ordering process done automatically, bypassing buyers

Question 70

1 point to store to distribution info flow

Answer 70

Stores communicate with distribution centre to coordinate deliveries and check inventory status

Question 71

2 points to data warehouse

Answer 71

1) Purchase info collected at point of sale (flow 2) goes into database (data warehouse) 2) Info available in various dimensions and levels (like data for region, total corporation, division)

Question 72

explain manufacturers and data warehouse

Answer 72

Sometimes manufacturers can have access to data warehouse and communicate with retailers through electronic data interchange and vendor managed inventory

Question 73

define electronic data interchange

Answer 73

computer to computer exchange of business documents from retailer to vendor and back

Question 74

3 points to electronic data interchange

Answer 74

1) Info includes vendor promotions, cost changes, purchase order changes, transport routines 2) advanced shipping notice 3) Small retailers lack cost and IT expertise to be EDI-enabled

Question 75

define advanced shipping notice

Answer 75

electronic document that supplier sends retailer in advance of shipment to tell retailer exactly what to expect in shipment

Question 76

3 benefits of electronic data interchange

Answer 76

1) reduces time between decision to place order and receipt of goods, inventory turnover is higher (goods move from vendor to retailer quickly) 2) improves quality of communications through better record keeping, fewer errors in inputting and receiving order, less human error in interpreting data 3) data transmitted is in computer readable format that can be analyzed and use for tasks like evaluating vendor delivery performance and automating reorder process

Question 77

define vendor managed inventory

Answer 77

approach in which manufacturer is responsible for replenishing inventory to meet retailers needs

Question 78

2 points to vendor managed inventory

Answer 78

1) By sharing data in data warehouse and communicating that info via EDI, manufacturer automatically sends goods to retailer store or distribution center when store inventory reaches pre-specified level 2) Provides better match between retail demand and supply, reduces costs (manufacturer sales people don’t spend time on generating orders on items already in store, role shifts to selling new items + maintaining relationships) (retail buyers + planners don’t need to monitor inventory levels + place orders)

Question 79

2 ways logistics management makes goods flow

Answer 79

1) distribution centre vs direct store delivery 2) distribution or fulfillment centre 3) inventory management through just in time systems

Question 80

2 points to distribution centre vs direct store delivery

Answer 80

1) Manufacturers can ship goods to retail stores (direct store delivery) or to its distribution centers 2) Ultimate decision is retailer and depends on characteristics of good and nature of demand

Question 81

explain fulfillment centres vs distribution

Answer 81

Fulfillment centers do same activities as distribution but since they deliver directly to consumers rather than stores, they do not have to get goods floor ready

Question 82

5 steps for distribution or fulfillment centres

Answer 82

1) inbound transportation 2) receiving and checking using UPC or RFID 3) storing + cross docking 4) getting goods floor ready 5) shipping goods to stores

Question 83

define dispatcher

Answer 83

person who coordinates deliveries to distribution centers

Question 84

explain receiving

Answer 84

process of recording receipt of goods as it arrives from distribution centre or store

Question 85

explain checking

Answer 85

process of going through goods upon receipt to ensure they have arrived undamaged and that goods are what was ordered

Question 86

define radio frequency identification

Answer 86

tiny computer chips that automatically transmit to a special scanner all the info about a container’s contents or individual products

Question 87

2 points to receiving + checking using UPC or RFID

Answer 87

1) EDI minimizes (and can eliminate) these processes 2) Advanced shipping notice tells distribution centre what is in each box. Scanning UPC code or RFID, identifies boxes contents and they are counted as being checked + received 3) Advantage: don’t need to handle items individually, can receive truckloads of goods without checking each in. tags can track cartons

Question 88

explain cross docking

Answer 88

cartons repackaging for specific store

Question 89

explain storage

Answer 89

distribution centre is warehouse where goods are unloaded from trucks and placed on shelves for storage

Question 90

4 points to getting goods floor ready

Answer 90

1) Goods that’s ready to be placed on selling floor immediately 2) Involves ticketing, marketing, placing garments on hangers 3) More efficient to perform at distribution centre because work is time consuming and messy 4) Requiring suppliers to ship goods floor ready eliminates this time consumption and expensive process for retailers

Question 91

explain ticketing and marketing

Answer 91

creating price + identification labels and putting them on goods

Question 92

3 points to shipping goods to stores

Answer 92

1) Distribution centers use routing and scheduling computer system that considered rate of sales in stores, road conditions and transport operating constraints to develop efficient routes 2) Different shipping methods chosen based on nature of goods, cost, location of customers relative to manufacturers, needs of consumers 3) Can include land, rail, air, sea

Question 93

define just in time inventory management

Answer 93

inventory management systems designed to deliver less goods on a more frequent basis than traditional inventory systems; the firm gets goods “just in time” for it to be used in manufacture or of another product; aka quick response systems in retailing

Question 94

define quick response

Answer 94

inventory management system used in retailing, goods are received just in time for sale when customer wants it

Question 95

define lead time

Answer 95

amount of time between recognition that order needs to be placed and arrival of needed goods at seller’s store, ready for sale

Question 96

3 points to just in time

Answer 96

1) Advantage of JIT/QR: reduces lead time (by eliminating paper transactions by mail and overnight deliveries), increased product availability, lower inventory investment 2) Costs: distribution function more complicated with frequent deliveries, smaller orders which are more expensive to transport 3) JIT requires strong commitment by firm and vendors to corporate, share data and develop systems