CHAIN

MANAGEMEN
T
Chapter 14
Franchezka Pegollo
SUPPLY CHAIN MANAGEMENT

 Itis the integration of business processes

from end user through original suppliers
that provide products, services, and
information that add value for customers.
SUPPLY CHAIN MANAGEMENT
SUPPLY CHAIN MANAGEMENT

 The supply chain management is the management of all

key business processes across members of the supply
chain. the key processes typically would include:
 Customer relationship management
 Customer service management

 Demand management

 Order fulfillment

 Manufacturing flow management

 Procurement

 Product development and commercialization

SUPPLY CHAIN MANAGEMENT

 Key areas required for successful implementation of

SCM are:

 Executive support
 Leadership

 Commitment to change

 Empowerment
WHAT IS A CHANNEL OF
DISTRIBUTION?

 Channel of distribution - the collection of

organizational units, institutions, or agencies within or
external to the manufacturer, which perform the
functions that support product marketing.
WHY DO CHANNEL OF
DISTRIBUTION DEVELOP?
 The emergence of channel of distribution has been explained
in terms of the following factors:
 Intermediaries evolve in the process of exchange because they can
increase the efficiency of the process by creating time, place, and
possession utility.
 Channel intermediaries enable the adjustment of the discrepancy of
assortment by performing the functions of sorting and assorting.
 Marketing agencies from channel arrangements to make
transactions routine.
 Channels facilitate the searching process by consumers
WHY DO CHANNEL OF
DISTRIBUTION DEVELOP?
1. The Evolution of Marketing Channels
 Intermediaries Reduce Market Contacts
 Calculating the Advantage of an Intermediary
WHY DO CHANNEL OF
DISTRIBUTION DEVELOP?

2. The Discrepancy of Assortment and Sorting

 Intermediaries Provide Utility - intermediaries provide
possession, time, and place utility.

 The primary function of channel intermediaries is to adjust this

discrepancy by performing the following “sorting” processes:
 Sorting out
 Accumulating
 Allocation
 assorting
THE DISCREPANCY OF ASSORTMENT AND
SORTING

 “sorting” processes:

 Sorting out – grouping a heterogeneous supply into

relatively homogeneous separate stocks.
 Accumulating – bringing similar stocks together into a larger
homogeneous supply.
 Allocation – breaking down a homogeneous supply into
smaller lots.
 Assorting – building up the assortment of products for use or
sale in association with each other.
WHY DO CHANNEL OF
DISTRIBUTION DEVELOP?

3. Routinization of Transactions

 Routinization Reduces Costs - the cost of distribution can

be minimized if transactions are routine; that is, if every
transaction is not subject to bargaining with its resulting
loss of efficiency.
WHY DO CHANNEL OF
DISTRIBUTION DEVELOP?

4. Searching through Marketing Channels

 the use of intermediary reduces some or all of the
following costs:
 Selling costs
 Transportation costs

 Inventory carrying costs

 Storage costs

 Other processing costs

 Accounts receivable or bad debts

 Customer service costs.

SUPPLY CHAIN MANAGEMENT
Channel Structure, Flows in the
Channel of Distribution, and
Channel Design
By
Rose Ann A. Lambarte
CHANNEL STRUCTURE

Developed by Louis P. Bucklin.

Stated that the purpose of the channel is
to provide consumers with the desired
combination of it’s outputs at minimal
cost.
OUTSOURCING

Itis a decision where a firm deciding

where and when to use channel
intermediaries.
POSTPONEMENT
AND
SPECULATIONS
POSTPONEMENT

Costs can be reduced by:

1.) Postponing changes in the form and identity
of a product to the last possible point in the
marketing process.
2.) Postponing inventory location to the last
possible point in the time since risk and
uncertainty costs increase as the product
becomes more differentiated.
SPECULATION

Opposite of postponement, channel

institution assumes risk rather than
shifting it.
SPECULATIONS CAN REDUCE
MARKETING COST THROUGH:
1.) Economies of large scale production.
2.) Placement of large order that reduce
costs of order processing and
transportation.
3.) Reduction of stock outs and their
associated costs.
4.) Reduction of uncertainty.
TIME TO MARKET PRESSURES

SPEED- can be used as a source of

competitive advantages.
OTHER ISSUES IN CHANNEL
STRUCTURE:

Additional Factors:
Technological, Cultural, Physical,
Social and Political Factors.
Physical Factors.
Local, State and Federal Laws.
Social and Behavioral Variables.
FLOWS IN THE
CHANNEL OF
DISTRIBUTION
PRODUCT AND INFORMATION FLOWS

Information Flows Precede Product

Flows.
Customers are the source of Sales and
Market Research Information.
Information Flows Affect Inventory
Levels.
COMMUNICATION LINKAGE

FirmsNeed Communications Link with

Consumers.
Communication Acts as a Buffer.
MARKETING STRATEGY

Management must coordinates a firm’s

logistics strategy with the other
components of the marketing mix to
successfully implement an overall
marketing strategy.
CHANNEL SEPARATION

Product Flows directly from the

manufacturer to the dealer, resulting in
greater logistics efficiency.
SUCCESSFUL CHANNEL SEPARATION
REQUIRES:

1. A fast, reliable transportation system.

2. An on-line, interactive order processing
system.
3. Swift, efficient information flows, such as
inward Wide Area Telephone Service (WATS)
lines or computer-to-computer transmission
of orders and other information.
CHANNEL DESIGN

Most Channels of Distribution are not

planned.
Steps in the Design Process.
STEPS:
1. Establish objectives.
2. Formulate a Strategy.
3. Determine Structure Alternatives.
4. Evaluate Structure Alternatives.
5. Select Structures.
6. Determine alternatives for individual channel
members.
7. Evaluate and Select Individual Members.
8. Measures and Evaluate Channel
Performance.
9. Evaluate Alternatives when performance
objectives are not met, or a attractive new
option become available.
MANUFACTURER’S PERSPECTIVE

A manufacturerhas market power

when customers demand it’s product.
WHOLESALERS PERSPECTIVE
Wholesalers make it possible to
efficiently provide possession, time and
place utility.
Wholesalers are economically justified
because they improve distribution
efficiency by breaking bulk, building
assortments of goods, providing financing
for retailers or industrial customers.
RETAILERS PERSPECTIVE

Retailers exist in the channel of

distribution when they provide
convenient product assortments,
availability, price, and image within
the geographic market served.
CONSIDERATIONS OF
CHANNEL DESIGN

JOIVY VILLANUEVA
 MARKET COVERAGE
OBJECTIVES


 Customer Buying behavior

 Types of Distribution
• Intensive Distribution- the product is sold to as many appropriate
retailers or wholesalers as possible.
• Selective Distribution- the number of outlets that may carry a
product is limited.
• Exclusive Distribution- when a single outlet is given an exclusive
franchise to sell the product in a geographic area.
 Channel Structure
 Control
PRODUCT
CHARACTERISTICS
 Product Value
 Technicality of the product

 Degree of Market Acceptance

 Degree of Substitutability

 Product Bulk

 Product Perish ability

 Degree of Market Concentration

 Seasonality

 Width and Depth of the Product Line

CUSTOMER SERVICE OBJECTIVES

CUSTOMER SERVICE
MEASURES
 Availability
 Order Cycle
 Communication
PROFITABILITY

 The profitability of various channels of

distribution is the major criterion in
channel design.
 CHANNEL PERFORMANCE MEASUREMENT

The Logistics and Marketing literature rarely

focuses on measuring channel performance
for a number of reasons.

 Measuring Supply Chain is difficult

 Some aspects of Supply chain performance are hard to
quantify, making it difficult to establish a common
performance standard.
 Differences in supply chains make it difficult to establish
standards for comparison.
 CHANNEL
STRUCTURE
EFFICIENCY

include channel member turnover,

competitive strength of the channel
and related issues.
 POTENTIAL QUALITATIVE
MEASURES

- some Potential Qualitative Measures of

channel performance include distribution
cost per unit errors in order filling and
percent of damaged merchandise.
COST TRADE - OFF ANALYSIS

- for the supply chain, the goal is to improve overall

efficiency by reallocating functions and therefore costs
among its member.
 Increased Customer Service Levels
 Lower Inventories

 Speedier Collections

 Decreased Transportation Cost

 Lower Warehousing Cost

 Improvement in Cash Flow

 High Return on Assets

AUTOMATION AND INTEGRATION
OF SYSTEMS WITHIN THE SUPPLY
CHAIN

- supply chain leaders may wish to consider

automating and integrating the order
processing and information systems within
the channel.
 PROCESSES OF
INTEGRATED SUPPLY
CHAIN MANAGEMENT

By:
Emer John Manlapaz
 THE CUSTOMER IS THE PRIMARY
FOCUS IN SUPPLY CHAIN
MANAGEMENT(SCM).

 Achieving good customer-focused systems means

that information must be processed with accuracy
and timeliness, because quick response systems
require frequent changes in response to
fluctuations in customer demand.
 7 PROCESSES IN SUPPLY CHAIN
MANAGEMENT
 
 Customer Relationship Management
 Customer Service Management

 Demand Management

 Order Fulfillment

 Manufacturing Flow Management

 Procurement

 Product Development and Commercialization

 CUSTOMER RELATIONSHIP
MANAGEMENT

 New customer interfaces lead to improved

communications and better predictions of
customer demand, which in turn lead to
improved service for customers.
CUSTOMER SERVICE MANAGEMENT

 Customer service provides the single

source of customer information. It
becomes the key point of contact for
administering the product and service
agreement.
 DEMAND MANAGEMENT

 The demand management process must

balance the customer’s requirements with
the firm’s supply capabilities. Part of
managing demand involves determining
what and when customers will purchase.
 ORDER FULFILLMENT

 The key to effective SCM is meeting or

exceeding customer need dates.
 Performing the order fulfillment process
effectively requires integration of the
firm’s manufacturing, distribution and
transporting plans.
 MANUFACTURING FLOW MANAGEMENT

 Manufacturing process management (MPM) is a

collection of technologies and methods used to
define how products are to be manufactured.
 Products were pushed through the plant to meet
a schedule. Often the wrong mix of products was
produced, resulting in unneeded inventories,
excessive inventory carrying costs and
markdowns and transshipments of product.
 PROCUREMENT
 Procurement is the acquisition of
appropriate goods and/or services at the
best possible total cost of ownership to
meet the needs of the purchaser in terms
of quality and quantity, time, and location.
 PRODUCT DEVELOPMENT
AND COMMERCIALIZATION

As product life cycles shorten, the

right products must be developed and
successfully launched in ever shorter
in ever shorter time frames for the
firm to remain competitive.
 GOALS OF MANAGING THE
SUPPLY CHAIN PROCESS
 Provide a point of contact for all customers which efficiently
handle their inquiries.
 Continually gather, compile and update customer demand to
match requirements with supply.
 Develop flexible manufacturing systems that respond quickly to
changing market conditions.
 Manage supplier partnerships that allow for quick response and
continuous improvement.
 Fill 100 percent of customer orders accurately and on time.

 Enhance profitability by managing the returns channel.

 REENGINEERING
IMPROVEMENT INTO THE
SUPPLY CHAIN

A typical reengineering process proceeds through three

stages:

 Fact Finding.
 Identifying areas for improvement to business process
redesign.
 Create improvements.
IMPLEMENTING INTEGRATED
SUPPLY CHAIN MANAGEMENT

To successfully implement SCM, all

firms within the supply chain must
overcome their functional silos and
accept a process approach.
THE REQUIREMENTS FOR THE
SUCCESSFUL IMPLEMENTATION OF SCM
INCLUDE:

 Executive support, leadership and commitment to

change.
 An understanding of the degree of change
necessary.
 Agreement on the SCM vision and the key
processes.
 The necessary commitment of resources and
empowerment to achieve the stated goals.