TOPIC- 1 SUPPLY CHAIN MANAGEMENT Supply chain management- It is the management of the flow of goods. It includes the movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption. Interconnected or interlinked networks, channels and node businesses are involved in the provision of products and services required by end customers in a supply chain. Supply chain management has been defined as the design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally. In other words we can say the network created amongst different companies producing, handling and/or distributing a specific product. Specifically, the supply chain encompasses the steps it takes to get a good or service from the supplier to the customer. Supply chain management is a crucial process for many companies, and many companies strive to have the most optimized supply chain because it usually translates to lower costs for the company. Quite often, many people confuse the term logistics with supply chain. In general, logistics refers to the distribution process within the company whereas the supply chain includes multiple companies such as suppliers, manufacturers, and the retailers BASIC COMPONENT OF SUPPLY CHAIN- 1. Plan: The first stage in supply chain management is known as plan. A plan or strategy must be developed to address how a given good or service will meet the needs of the customers. A significant portion of the strategy should focus on planning a profitable supply chain. This is the strategic portion of SCM. Companies need a strategy for managing all the resources that go toward meeting customer demand for their product or service. A big piece of SCM planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers. 2. Develop (Source): Develop is the next stage in supply chain management .It involves building a strong relationship with suppliers of the raw materials needed in making the product the company delivers. This phase involves not only identifying reliable suppliers but also planning methods for shipping, delivery, and payment. Companies must choose suppliers to deliver the goods and services they need to create their product. Therefore, supply chain managers must develop a set of pricing, delivery and payment processes with suppliers and create metrics for monitoring and improving the relationships. And then, SCM managers can put together processes for managing their goods and services inventory, including receiving and verifying shipments, transferring them to the manufacturing facilities and authorizing supplier payments. 3. Make: At the third stage, make, the product is manufactured, tested, packaged, and scheduled for delivery. This is the manufacturing step. Supply chain managers schedule the activities necessary for production, testing, packaging and preparation for delivery. This is the most metric-intensive portion of the supply chain - one where companies are able to measure quality levels, production output and worker productivity. 4. Deliver: Then, at the logistics phase, customer orders are received and delivery of the goods is planned. This fourth stage of supply chain management stage is aptly named deliver. This is the part that many SCM insiders refer to as logistics, where companies coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments. 5. Return: The final stage of supply chain management is called return. As the name suggests, during this stage, customers may return defective products. The company will also address customer questions in this stage. This can be a problematic part of the supply chain for many companies. Supply chain planners have to create a responsive and flexible network for receiving defective and excess products back from their customers and supporting customers who have problems with delivered products. ACTIVITY OF SUPPLY CHAIN MANAGEMENT- Supply Chain Management has three levels of activities that different parts of the company will focus on: strategic; tactical; and operational. 1. Strategic: At this level, company management will be looking to high level strategic decisions concerning the whole organization, such as the size and location of manufacturing sites, partnerships with suppliers, products to be manufactured and sales markets. Strategic activities include building relationships with suppliers and customers, and integrating information technology (IT) within the supply chain. 2. Tactical: Tactical decisions focus on adopting measures that will produce cost benefits such as using industry best practices, developing a purchasing strategy with favored suppliers, working with logistics companies to develop cost effect transportation and developing warehouse strategies to reduce the cost of storing inventory. Studying competitors and making decisions regarding production and delivery would fall under the tactical category. 3. Operational: Decisions at this level are made each day in businesses that affect how the products move along the supply chain. Operational decisions involve making schedule changes to production, purchasing agreements with suppliers, taking orders from customers and moving products in the warehouse. The operational category includes the daily management of the supply chain, including the making of production schedules. Distribution in Marketing In marketing, distribution refers to the process of making a product or service available for use or consumption by a consumer or business user. It is one of the four elements of the marketing mix. The other three elements include product, pricing and promotion. Meaning: • This is a movement of Goods or Services between manufacturer and marketer to the end user or consumer or customer. • The main parts or elements of distribution channels are Producers/ marketers, intermediaries and consumers. • The main objective is to deliver product or service to the end user at right time in a right quantity with right quality at right place. • Intermediaries can improve the efficiency of process by managing all activities of routes of transactions properly. • They can help to do research properly and more accurately to analyse market demand and consumer preferences. Important Functions of Marketing Channel Although some of these functions may be performed by a single channel member, most functions are accomplished through both independent and joint efforts of channel members. When managed effectively, the relationships among channel n embers can also form supply chains that benefits all members of the channel, including the ultimate consumer. 1) Information Provider: Middlemen have a role in providing information about the market to the manufacturer. Developments like changes in customer demography, psychography, media habits and the entry of a new competitor or a new brand and changes in customer preferences are some of the information that all manufacturers want. Since these middlemen are present in the market place and close to the customer they can provide this information at no additional cost. 2) Price Stability: Maintaining price stability in the market is another function a middleman performs. Many a time the middlemen absorb an increase in the price of the products and continue to charge the customer the same old price. This is because of the intra-middlemen competition. The middleman also maintains price stability by keeping his overheads low. 3) Promotion: Promoting the product/s in his territory is another function that middlemen perform. Many of them design their own sales incentive programmes, aimed at building customers traffic at the other outlets. 4) Financing: Middlemen finance manufacturers’ operation by providing the necessary working capital in the form of advance payments for goods and services. The payment is in advance even though the manufacturer may extend credit, because it has to be made even before the products are bought, consumed and paid for by the ultimate consumer. 5) Title: Most middlemen take the title to the goods, services and trade in their own name. This helps in diffusing the risks between the manufacturer and middlemen. This also enables middlemen to be in physical possession of the goods, which in turn enables them to meet customer demand at very moment it arises. 6) Help in Production Function: The producer can concentrate on the production function leaving the marketing problem to middlemen who specialize in the profession. Their services can best utilized for selling the product. The finance, required for organizing marketing can profitably be used in production where the rate of return would be greater. 7) Matching Demand and Supply: The chief function of intermediaries is to assemble the goods from many producers in such a manner that a customer can affect purchases with ease. The goal of marketing is the matching of segments of supply and demand. The matching process is undertaken by performing the following functions: • Contractual: Finding out buyers and sellers. • Merchandising: Producing goods that will satisfy market requirements. • iii) Pricing: Process of attaching value to the product in monetary terms. • iv) Propaganda: Sales promotion activities. • v) Physical Distribution: Distribution activities. • VI) Termination: Settlement of contract, i.e., paying the value and receiving the goods. 8) Pricing: In pricing a product, the producer should invite the suggestions from the middlemen who are very close to the ultimate users and know what they can pay for the product. Pricing may be different for different markets or products depending upon the channel of distribution. 9) Standardizing Transactions: Standardizing transactions is another function of marketing channels. Taking the example of the milk delivery system, the distribution is standardized throughout the marketing channel so that consumers do not need to negotiate with the sellers on any aspect, whether it is price, quantity, method of payment or location of the product. By standardizing transactions, marketing channels automate most of the stages in the flow of products from the manufacturer to the customers. 10) Matching Buyers and Sellers: The most crucial activity of the marketing channel members is to match the needs of buyers and sellers. Normally, most sellers do not know where they can reach potential buyers and similarly, buyers do not know where they can reach potential sellers. From this perspective, the role of the marketing channel to match the buyers’ and sellers’ needs becomes very vital. For example, a painter of modern art may not know where he can reach his potential customers, but an art dealer would surely know. Types of Distribution Channels: The first step in selecting a marketing channel is determining which type of channel will best meet both the seller’s objectives and the distribution needs of customers. 1.Long & Short Channels Distribution channels can be described as being either short or long. A short channel involves few intermediaries. A long channel, on the other hand, involves many intermediaries working in succession to move goods from producers to consumers. In general, business products tend to move through shorter channels than consumer products due to geographical concentrations and comparatively few business purchases. Service firms market primarily through short channels because they sell intangible products and need to maintain personal relationships within their channels. Not-for-profit institutions also tend to work with short, simple, and direct channels. Please note Table 15.1 below that highlights the characteristics of short and long marketing channels. 2. Consumer Channels The simplest and shortest distribution channel is a direct channel. A direct channel carries goods directly from a producer to the business purchaser or consumer. One of the newest means of selling in a direct channel is the Internet. A direct channel may allow the producer to serve its customers better and at a lower price than is possible using a retailer. Sometimes a direct channel is the only way to sell the product because using channel intermediaries may increase the price above what consumers are willing to pay. Another reason to use a direct channel is control. Many producers, however, choose to use indirect channels to reach consumers. Customers are familiar with certain retailers or other intermediaries and habitually turn to them when looking for what they need. Intermediaries also help producers fulfill the channel functions previously cited. By creating utility and transaction efficiencies, channel members make producers’ lives easier and enhance their ability to reach customers. The producer-retailer-consumer channel is the shortest indirect channel. GE uses this channel when it sells small appliances through large retailers such as Wal-Mart or Sears. The producer-wholesaler-retailer-consumer channel is another common distribution channel in consumer marketing. 3. Business-to-Business Channels B2B distribution channels facilitate the flow of goods from a producer to an organizational customer. Generally, B2B channels parallel consumer channels in that they may be direct or indirect. The simplest indirect channel in industrial markets occurs when the single intermediary—a merchant wholesaler referred to as an industrial distributor rather than a retailer—buys products from a manufacturer and sells them to business customers. Direct channels are more common to business-to-business markets because B2B marketing often means selling high-dollar, high-profit items to a market made up of only a few customers. In such markets, it pays for a company to develop its own sales force and sell directly to customers at a lower cost than if it used intermediaries. 4. Channels for Services Because services are intangible, there is no need to worry about storage, transportation, and the other functions of physical distribution. In most cases, the service travels directly from the producer to the customer. Some services, however, do need an intermediary, often called an agent, who helps the parties complete the transaction. Examples include insurance agents, stockbrokers, and travel agents. 5. Horizontal Marketing Systems A horizontal marketing system is a channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity. By working together, companies can combine their financial, production, or marketing resources to accomplish more than any one company could alone. Companies can join forces with competitors or noncompetitors. McDonald’s places “express” versions of its restaurants in Wal-Mart stores. McDonald’s benefits from Wal-Mart’s considerable store traffic, while Wal-Mart keeps hungry shoppers from having to go elsewhere to eat. 6. Multichannel Distribution Systems A multichannel distribution system is a distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments. This is also called a hybrid marketing channel. Multichannel distribution systems offer many advantages to companies facing large and complex markets. With each new channel, the company expands its sales and market coverage and gains opportunities to tailor its products to the specific needs of diverse customers. Multichannel distribution systems, however, are harder to control, and they generate conflict as more channels compete for customers and sales. Channel Strategy: Marketers face several strategic decisions in choosing channels and marketing intermediaries for their products. Selecting a specific channel is the most basic of these decisions. Marketers must also resolve questions about the level of distribution intensity, the desirability of vertical marketing systems, and the performance of current intermediaries. 1. Distribution Intensity Distribution intensity refers to the number of intermediaries through which a manufacturer distributes its goods. The decision about distribution intensity should ensure adequate market coverage for a product. In general, distribution intensity varies along a continuum with three general categories: intensive distribution, selective distribution, and exclusive distribution. 2. Intensive Distribution An intensive distribution strategy seeks to distribute a product through all available channels in an area. Usually, an intensive distribution strategy suits items with wide appeal across broad groups of consumers, such as convenience goods. 3. Selective Distribution Selective distribution is distribution of a product through only a limited number of channels. This arrangement helps to control price cutting. By limiting the number of retailers, marketers can reduce total marketing costs while establishing strong working relationships within the channel. Moreover, selected retailers often agree to comply with the company’s rules for advertising, pricing, and displaying its products. Where service is important, the manufacturer usually provides training and assistance to dealers it chooses. Cooperative advertising can also be utilized for mutual benefit. Selective distribution strategies are suitable for shopping products such as clothing, furniture, household appliances, computers, and electronic equipment for which consumers are willing to spend time visiting different retail outlets to compare product alternatives. Producers can choose only those wholesalers and retailers that have a good credit rating, provide good market coverage, serve customers well, and cooperate effectively. Wholesalers and retailers like selective distribution because it results in higher sales and profits than are possible with intensive distribution where sellers have to compete on price. 4. Exclusive Distribution Exclusive distribution is distribution of a product through one wholesaler or retailer in a specific geographical area. The automobile industry provides a good example of exclusive distribution. Though marketers may sacrifice some market coverage with exclusive distribution, they often develop and maintain an image of quality and prestige for the product. In addition, exclusive distribution limits marketing costs since the firm deals with a smaller number of accounts. In exclusive distribution, producers and retailers cooperate closely in decisions concerning advertising and promotion, inventory carried by the retailers, and prices. Exclusive distribution is typically used with products that are high priced, that have considerable service requirements, and when there are a limited number of buyers in any single geographic area. Exclusive distribution allows wholesalers and retailers to recoup the costs associated with long selling processes for each customer and, in some cases, extensive after-sale service. Specialty goods are usually good candidates for this kind of distribution intensity. 5. Channel Conflict The channel captain or leader, the dominant and controlling member of a distribution channel, must work to resolve conflicts between channel members. Conflicts can be horizontal and vertical. Horizontal & Vertical Conflict Horizontal conflict occurs among firms at the same level of the channel (i.e. between two retailers). Vertical conflict is conflict between different levels of the same channel (i.e. between a wholesaler and a retailer). Some conflict in the channel takes the form of healthy competition. Severe or prolonged conflict, however, can disrupt channel effectiveness and cause lasting harm to channel relationships. 6. Vertical Marketing Systems A vertical marketing system (VMS) is a distribution channel structure in which producers, wholesalers, and retailers act as a unified system. One channel member owns the others, has contracts with them, or has so much power that they all cooperate. A conventional distribution channel consists of one or more independent producers, wholesalers, and retailers. A vertical marketing system, on the other hand, provides a way to resolve the channel conflict that can occur in a conventional distribution channel where channel members are separate businesses seeking to maximize their own profits—even at the expense sometimes of the system as a whole. The VMS can be dominated by the producer, wholesaler, or retailer. There are three major types of vertical marketing systems: corporate, contractual, and administered. A corporate VMS is a vertical marketing system that combines successive stages of production and distribution under single ownership—channel leadership is established through common ownership. A little-known Italian eyewear maker, Luxottica, sells its many famous eyewear brands—including Giorgio, Armani, Yves Saint Laurent, and Ray-Ban—through the world’s largest optical chain, LensCrafters, which it also owns. A contractual VMS is a vertical marketing system in which independent firms at different levels of production and distribution join together through contracts to obtain more economies or sales impact than they could achieve alone. Coordination and conflict management are attained through contractual agreements among channel members. The franchise organization is the most common type of contractual relationship. There are three types of franchises:manufacturer-sponsored retailer franchise system (Ford Motor Co.), manufacturer-sponsored wholesaler franchise system (Coca-Cola bottlers), and service-firm-sponsored retailer franchise system (McDonald’s). The fact that most consumers cannot tell the difference between contractual and corporate VMSs shows how successfully the contractual organizations compete with corporate chains. An administered VMS is a vertical marketing system that coordinates successive stages of production and distribution, not through common ownership or contractual ties, but through the size and power of one of the parties. Manufacturers of a top brand can obtain strong trade cooperation and support from resellers (P&G). Large retailers such as Wal-Mart can exert strong influence on the manufacturers that supply the products they sell. 7. Logistics: Logistics is the process of designing, managing, and improving the movement of products through the supply chain. The supply chain is all the firms that engage in activities necessary to turn raw materials into a product and put it in the hands of the consumer or business customer. The difference between a supply chain and a distribution channel is the number of members and their function. A supply chain consists of those firms that supply the raw materials, component parts, and supplies necessary for a firm to produce a product plus the firms that facilitate the movement of that product from the producer to the ultimate users of the product—the channel members. 8. Physical Distribution Logistics has the objective of delivering exactly what the customer wants—at the right time, in the right place, and at the right price. In planning for the delivery of goods to customers, marketers have usually looked at a process termed physical distribution, which refers to the activities used to move finished goods from manufacturers to final customers. Physical distribution activities include order processing, warehousing, materials handling, transportation, and inventory control. This process impacts how marketers physically get products where they need to be, when they need to be there, and at the lowest possible cost. In logistics, the focus is on the customer. When planning for the logistics function, firms consider the needs of the customer first. The customer’s goals become the logistics provider’s goals. With most logistics decisions, firms must compromise between low costs and high customer service. Selection of Distribution Channels (A) Considerations Related to Market- When a manufacturer selects some channel of distribution he/she should take care of such factors which are related to the quality and nature of the product. They are as follows: 1) Nature of Product: The is the first and most important consideration. Product features, size, shape, color, durability, perishability, Value of product etc are the factors that constitute the product characteristics. Perishable items needs strong packaging and shorter channel whereas items with long life can have longer channels. Size and handling also affects the channel. Odd sizes, difficult handling are often found to have shorter channel. Industrial machinery, that requires particular customer preference are often sold through direct channels. 2) Unit Value of the Product: When the product is very costly it is best to use small distribution channel. For example, Industrial Machinery or Gold Ornaments are very costly products that are why for their distribution small distribution channel is used. On the other hand, for less costly products long distribution channel is used. 3) Standardized or Customized Product: Standardized products are those for which are pre-determined and there has no scope for alteration. For example: cigarettes of ITC, to sell this long distribution channel are used. On the other hand, customized products are those which are made according to the discretion of the consumer and also there is a scope for alteration, for example; specialized furniture. For such products face-to-face interaction between the manufacturer and the consumer is essential. So for these Direct Sales is a good option. 4) Perishability: A manufacturer should choose minimum or no middlemen as channel of distribution for such an item or product which is of highly perishable nature. On the contrary, a long distribution channel can be selected for durable goods. 5) Technical Nature: If a product is of a technical nature, then it is better to supply it directly to the consumer. This will help the user to know the necessary technicalities of the product. The technology component of the product also affects the channel selection. Products which are not technology oriented can have longer channels are product Is not needed to be explain to the customers. However, if the product is highly technical, requires a shorter direct channel, as it functioning is to be explained to the consumers. (B) Considerations Related to Market: Market considerations are given below: 1) Customer Characteristics: If the product has got huge customer base and are geographically dispersed, buying product in small quantities requires longer channels. This is because producers need to have wide network of retailers and wholesalers to make the product easily accessible in the local market. For eg product like Pepsi needs a longer channel. Unlike above, industrial products, where customers have preferences regarding the technology and the functions to be incorporated needs shorter channel, because the product is needed to be adjusted according to customer preference. 2) Number of Buyers: If the number of buyer is large then it is better to take the services of middlemen for the distribution of the goods. On the contrary, the distribution should be done by the manufacturer directly if the number of buyers is less. 3) Types of Buyers: Buyers can be of two types: General Buyers and Industrial Buyers. If the more buyers of the product belong to general category then there can be more middlemen. But in case of industrial buyers there can be less middlemen. 4) Buying Habits: A manufacturer should take the services of middlemen if his financial position does not permit him to sell goods on credit to those consumers who are in the habit of purchasing goods on credit. 5) Buying Quantity: It is useful for the manufacturer to rely on the services of middlemen if the goods are bought in smaller quantity. 6) Consumption Pattern: Consumption pattern is also a factor to be considered before designing the channel. If the product is consumed regularly, may be periodic, then such products should longer channels, as consumers would like such product to be easily accessible. People will not like to make great research and run around for such product, and will buy anything which is easily available. 7) Size of Market: The location and the coverage of the market also determines the channel selection. If the market is dense, spread across in length and breath, requires longer channel. Whereas if the product has niche market, the channel can be short. If the market area of the product is scattered fairly, then the producer must take the help of middlemen. (C) Considerations Related to Manufacturer/Company Considerations related to manufacturer are given below: 1) Goodwill: Manufacturer’s goodwill also affects the selection of channel of distribution. A manufacturer enjoying good reputation need not depend on the middlemen as he can open his own branches easily. 2) Desire to control the channel of Distribution: A manufacturer’s ambition to control the channel of distribution affects its selection. Consumers should be approached directly by such type of manufacturer. For example, electronic goods sector with a motive to control the service levels provided to the customers at the point of sale are resorting to company owned retail counters. 3) Financial Strength: A company which has a strong financial base can evolve its own channels. On the other hand, financially weak companies would have to depend upon middlemen. (D) Considerations Related to Government Considerations related to the government also affect the selection of channel of distribution. For example, only a license holder can sell medicines in the market according to the law of the government. In this situation, the manufacturer of medicines should take care that the distribution of his product takes place only through such middlemen who have the relevant license. (E) Others 1) Cost: A manufacturer should select such a channel of distribution which is less costly and also useful from other angles. The cost of maintaining the channel is also a key consideration. Every producer would like to have shorted channel, may be direct channel, but its cost. Now this cost has to be compared with the benefits derived. Longer channel, with high number of middleman also tend to raise the price of the product, because every middleman, looks for his share and wants a larger share.1 2) Availability of Middleman: Sometimes some other channel of distribution can be selected if the desired one is not available. Availability of middleman in foreign nations is one other factor to be considered, specially for industrial product, or product with high end specification. Product which are customer oriented, which are brought regularly, may be everyday, which is a necessity can use longer channel, as middleman are very easily available. However product with specific technology, industrial equipments, middlemen are not easy to come by. Even middleman needs to be trained with the product feature thereby marketing the same in their local markets. 3) Possibilities of Sales: Such a channel which has a possibility of large sale should be given weight age. 4) Time: Time taken by the channel to make the product available to the consumer, is one other factor. Longer channel are often found to take shorter time. This is because the middleman are well versed with the market and are efficient in distribution of product. Keeping a channel short means that the customers have to first look for distributor and place his orders. 5) Competition: Manufacturers are often found to use the same channel of distribution as the competitors are using. If one deviates, other plan for the same. Longer, indirect channels are to be used if the competition is intense, however shorter channel can be used, if competition is less. For eg Industrial product, where the competition is less uses more direct and shorter channel than the FMCG products where the competition is more. WHAT IS MARKETING- As far as one of the most recent definitions is concerned, marketing activities do not actually impact on wider society. It was the excessive managerial emphasis of this definition that led to a series of heated exchanges both online and in the Journal of Public Policy and Marketing. Ultimately, the American Marketing Association went quickly back to their drawing board, bringing out a new, updated definition that responded to the criticism by scholars, so that the latest definition reads: ‘Marketing is the activity, set of institutions and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large’ (Lib, 2007). According to Philip Kotlar Marketing is – Marketing is the science and art of exploring, creating, and delivering value to satisfy the needs of a target market at a profit. Marketing identifies unfulfilled needs and desires. It defines measures and quantifies the size of the identified market and the profit potential. It pinpoints which segments the company is capable of serving best and it designs and promotes the appropriate products and services. Marketing is often performed by a department within the organization. This is both good and bad. It’s good because it unites a group of trained people who focus on the marketing task. It’s bad because marketing activities should not be carried out in a single Marketing’s key processes are: (1) Opportunity identification, (2) New product development, (3) Customer attraction, (4) Customer retention and loyalty building, and (5) Order fulfillment.
Posted on: Mon, 29 Dec 2014 11:18:41 +0000
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