Supply Chain and Logistics

Supply Chain and logistics Supply Chain: Chain : the sequence of rms that constitute a system of eciently and eectively creating and delivering a good or service to consumers or industrial users. Supply chain management (SCM) involves the management of upstream upstream and downstream ow of materials, nished goods and services through the integration and organization of information and logistics activities across rms in a supply chain for the purpose of creating and delivering goods and services that provide value to consumers. Often used interchangealy with supply chain, one of the most confusing things is the dierence dierence etween logistics and supply chain management. Logistics has a much narrower scope. !t refers to those activities that focus on getting the right amount of the right products products to the right place at the right time in the right condition at the right "lowest possile# cost.

Logistics systems and distribution $ogistics is the process of planning, implementing and controlling eective ow and storage of materials, in%process inventory, nished goods and related information information from point of origin to point of consumption for the purpose of conforming to customer requirements.

Logistical activities are an integral part of the supply chain, including, transportation, order processing, inventory control, materials handling and information technology .

Inbound and outbound logistics Inbound logistics deals with the utilization of resources and raw materials within the manufacturing plant or usiness Outbound logistics deals with the movement of nished goods or products from the usiness to the end user. Logistics costs and value delivery network   &he total cost of mar'eting logistics can account for ()*+) per cent of a products cost. - lower logistics cost can lead to a lower price, a higher prot margin and thus, provide the rm with the competitive advantages. - value delivery networ made up of the company, suppliers, distriutors, and ultimately customers who partner/ with each other to improve the performance of the entire system. 0ective logistic systems play a critical role in the fast moving consumer goods "1234# industry y helping manufacturers save costs consideraly and improve customer satisfaction. 0ective logistic networ's can reduce cycle%time to move quic'ly from suppliers to transporters, distriutors, retailers and stores. 3ompanies will lose their customers if the logistics networ's are ineective. Marketing logistics  networ's dier according to the type of product and the industry. !n uilding its value delivery networ', a company has to manage a whole community of suppliers, assemlers, resellers and others who must wor' together eectively. •

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Supply chain goals and tradeofs

 &here is a cutting point representing the lowest total logistics costs, implying an optimal shipment size or numer of warehouses for a specic freight distriution system. 1inding such a alance is a common goal in logistical operations.

Marketing channels and Flows in marketing channels - mar'eting channel "also 'nown as distriution channel# is a set of interdependent organisations or intermediaries involved in the process of

ma'ing a product or service availale to users. 5hen a mar'eting channel has een developed, a series of ows emerges. &hese ows provide the lin's that tie channel memers and other agencies together in the distriution of goods and services. 1rom the standpoints of channel strategy and management, the most important of these ows are: !" #roduct $ow refers to the actual physical movement of the product from the manufacturer through all of the parties who ta'e physical possession of the product, from its point of production to nal consumers. %" &egotiation $ow represents the interplay of the uying and selling functions associated with the transfer of title "right of ownership# to products. '" Ownership $ow shows the movement of the title to the product as it is passed along from the manufacturer to nal consumers. " Information $ow refers to the e6change of information etween all the parties, up or downstream participating in the ow. " #romotion $ow refers to the ow of persuasive communication in the form of advertising, personal selling, sales promotion, and pulicity.

Value addition by channels 7se of intermediaries or channel memers oer several advantages to mar'eters. &hey add value y fullling three sets of important functions, namely speciali*ation and division of labor+ overcoming discrepancies and  providing contactual eciency" Speciali*ation and division of labor- 2ar'eting channels provide economies of  scale8 aid producers who lac' resources to mar'et directly and uild good relationships with customers. Overcoming .iscrepancies- 2ar'eting channels aid in overcoming discrepancies of quantity, assortment, time, and space created y •

economies of scale in production.

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#roviding contactual eciency- &his refers to the level of negotiation eort etween sellers and uyers relative to achieving a distriution o9ective. !t is a relationship etween an input "negotiation eort# and an output "the distriution o9ective#. /he use of additional intermediaries will often increase the level of contractual eciency"

Marketing channel members  perform many 'ey functions including information, promotion, contact, matching, negotiation, physical distriution, nancing and ris' ta'ing in the process of moving goods from producers and suppliers to consumers. !" Information" 4athering and distriuting mar'eting research and intelligence aout the environment for planning purposes. %" #romotion" eveloping and spreading persuasive communications aout an oer. '" Contact" 1inding and communicating with prospective uyers. " Matching" 3onsists of shaping and tting the oer to the uyers needs y manufacturing, grading, assemling, and pac'aging. " &egotiation" ;eaching an agreement on price and other terms. 0" #hysical .istribution" !nvolves transporting and storing of goods. 1" 2inancing" -cquiring < using funds to cover the costs of channel. 3" 4is /aing" -ssumes the ris' of carrying out the channel wor'. Contactual Efciency  ;efers to reduction and optimization of numer of e6change contacts needed to complete transactions with a view to attain a point of equilirium etween the quality and quantity of e6change relationships etween channel memers. Number o channel levels Channel levels refer to the layers of intermediaries that perform some wor' in ma'ing it possile for the nal uyer to own the product. •

Direct Marketing Channel:  this is a mar'eting channel that has no intermediary levels. &he company sells directly to nal consumers.

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Indirect Marketing Channels: these contain one or more intermediary levels. $evel one = a direct mar'eting channel $evel two channel has one middle% man level $evel three will contain two intermediary !t is possile to have channels with more levels.

Channels in the service sector 7se of mar'eting channels is not restricted to distriution of physical goods8 they are also used y the service sector in order to serve their target populations eectively. elivery of health and education distriution systems are typical e6amples as hospitals and schools should e located according to geographic space. Channel behaviour and organisation 2ar'eting channels are comple5 behavioural networs, in which dierent people and dissimilar, independent companies depend on each other to accomplish individual, company and channel goals and wor' together for their common good. isagreements may generate conicts which could e hori*ontal or vertical depending on the situation.

 A horizontal conict: etween rms at the same level of the channel. ealers and franchises of the same rm within the same mar'et may argue aout each other>s competitive practices. Vertical conicts:  ;efers to prolems etween rms at dierent levels in the channel. Vertical Marketing Networks!  3omprises producers, wholesalers and retailer acting in as a unied system. Cororate VM!: &he corporate ody comines and owns successive stages of production and distriution. Contractual VM!: 3onsists of independent rms at dierent levels of production and distriution o more economies and sales than each memers could achieve alone. ?as three types: wholesaler%sponsored chain, retailer o cooperative, franchise organisation.  Administered VM!: 3oordinates distriution y the power e6erted y of one of its memers in the mar'etplace, not y contract or ownership. •

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Inno"ations in Channel organisation #orizontal marketing net$orks 1ormed when two or more companies at one level 9oin to pursue a new mar'eting opportunity.  &hese may e temporary arrangements such as a 9oint promotion or more permanent distriution agreements. Multichannel Marketing %ystems:  -lso called hybrid marketing channels, these utilize more than one channel to reach customers more eectively and with greater e6iility. Dual Distribution: !nvolves an arrangement wherey a rm reaches dierent uyers y employing two or more dierent types of channels for the same asic product. •

Channel Alternatives: Distribution Strategies Number of Marketing Intermediaries

"isintermediation and reintermediation .isintermediation refers to the removal of intermediaries or cutting out the middlemen from traditional distriution channels and dealing with •

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every customer directly, for e6ample via the !nternet. 4eintermediation refers to reversing disintermediation through the reintroduction of an intermediary etween the manufacturer and the end users.

Intensive

"istribution utilizes as many outlets as ossible and is esecially aroriate &or con"enience goods and common ra$ materials' #$clusive

"istribution consists o& a "ery limited number o& outlets hold all the rights to distribute a roduct line' (his strategy is aroriate &or many high restige goods' Distributor selling e)ort is usually "ery strong' Selective

"istribution uses more than one outlet er market but less than all a"ailable outlets' (his strategy gains good market co"erage and gains better than a"erage selling e)ort'

%etailing ;etailing is dened as all activities involved in selling goods or services directly to nal consumers for their personal, non%usiness use. ?owever, non%store retailing such as retailing snac's through vending machines and -&2 machines are also quite common these days. &ypes o %etailers ;etail stores can e classied y several characteristics. &he most common ways to classify retailers are discussed elow. Classi*cation by amount o& ser"ice ierent products need dierent amounts of service as well as customer

service. ;etailers may e classied on the levels of service provided. Self6service retailers are those that provide few or no services to shoppers8 shoppers perform their own locate%compare%select process. Limited6service retailers provide only a limited numer of services to shoppers. 2ull6service retailers are those that provide a full range of services to shoppers. - typical e6ample is 9ewellery shop. •

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Classi*cation by +roduct line ;etailers can e classied y the length and readth of their product assortments. @everal most important types are e6plained elow. Specialty stores and combination stores- &hese are retail stores that carry a narrow product line with a deep assortment within that line. 0.g. furniture and oo'. .epartment stores- - department store is a retail organisation that carries a wide variety of product lines. 0.g. Aig 5 and avid Bones. Supermarets- - supermar'et is a large, low%cost, low%margin, high% volume, self%service store that carries a wide variety of food, laundry and household products 0.g. 3oles and 5oolworths. Convenience stores- 3onvenience stores, such as C%0leven and 1ood Dlus, oer a limited line of high%turnover goods, such as mil' and read. o Mass merchants- 0.g. Aunnings warehouseE Service businesses- 1or many usinesses, such as hotels, an's, hospitals and movie theatres, the Fproduct line is actually service, which may e intangile. •

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Classi*cation by ,elati"e rices ;etailers can e classied according to their prices. .iscount stores sell standard merchandise at lower prices y accepting lower margins and selling higher volumes. O76price 4etailers uy at lower than regular wholesale and sell under regular retail. 1actory Outlets, 5holesale clus and catalogue showrooms. •

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Classi*cation by -rganisation aroach !n -ustralia, all retailing turnover are dominated y a few chains, i.e., two or more outlets owned and controlled y one organisation, employing central uying and merchandising, and selling similar lines of merchandise. Corporate Chains consist of two or more outlets that are commonly owned and controlled, employ central uying, and sell similar lines. 8oluntary Chains are wholesaler sponsored chains that nominally independent outlets 9oin to save in costs. &he wholesaler controls planning "centralized# uying, and promotion decisions. 4etailer Cooperatives are 9ointly owned wholesale operations controlled y the retail memers. 2ranchises are a contractual association etween a manufacturer, wholesaler, or service organization and independent usinesspeople. •

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Merchandising Conglomerates are corporations that combine

diferent retailing orms under central ownership' share distribution and management(

%etailer marketing decisions ;etailers, who in the past attracted customers with unique product assortments and more or etter services, are constantly in search for new mar'eting strategies to attract and hold customers. ,etailers must

de*ne their target markets and then decide $hat osition to adot $ithin these markets' •

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/arget maret and positioning decisions- ;etailers must dene their target mar'ets and then decide what position to adopt within these mar'ets. 7ntil they dene and prole their mar'ets, they cannot ma'e consistent decisions aout product assortment, services, pricing, advertising, store decor, or any of the other decisions that must support their positions. #roducts and service assortment decisions- ;etailers must decide on three main product variales: product assortment , services mi5 and store" &he retailers product assortment should dierentiate it while matching target shoppers e6pectations. &he services mi5 can also help to set one retailer apart from another, e.g. some retailers invite customers to as' questions or consult service representatives in person or y phone or 'eyoard. &he store atmosphere including the stores physical layout provides customers with a Ffeel ma'ing the customers feel cheerful, plush, somre or suocated.

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#rice decisions- - retailers price policy must t its target mar'et and positioning, product and service assortment, and competition. 2ost retailers tend to see' either high mar'%ups on lower volume "most specialty stores# or low mar'%ups on higher volume "mass merchandisers and discount stores#. #romotion decisions- ;etailers use any or all of the promotion tools * advertising, personal selling, sales promotion, pulic relations and direct mar'eting * to reach consumers. &hey advertise in newspapers, magazines, radio, television, and on the !nternet. #lacement decisions- ierent stores cluster together to increase their customer pulling power and give consumers the convenience of one%stop shopping. 3entral usiness districts "3A#, the main form of retail cluster efore the late GHI)s, is the area of usiness at the heart of a city or town and consists of department stores, specialty stores, an's and movie theatres. - shopping centre is a group of retail usinesses planned, developed, owned and managed as a unit. @ome shopping centres are li'e small towns and house a very large numer of retailers and service organisations8 5esteld @hopping 3entres in -ustralia are good e6amples. #eople, processes and physical evidence decisions- @tore atmosphere and physical layout and other elements of the servicescape are important retailing decisions. @ome retailers are now moving towards Fe6periential retailing where the e6perience of visiting the store is entertaining and memorale.

%etailing trends and developments @lowdown in population and economic growth, greater competition and new types of retailer, and changing of consumer demographics, lifestyles and shopping patterns are aecting retailing and will impact its future development. 2ost goods and services are sold through Fric's and mortar stores. irect and online forms of retailing are growing rapidly. Jew retail technologies play an important role in competition. &he wheel of retailing concept states that new types of retailer usually egin as low% margin, low% price, low%status operations ut later evolve into higher%priced, higher%service operations, eventually ecoming li'e the conventional retailers they replaced. !t can e6plain, in part, many retailing innovations. &he initial success and later troules of department stores, supermar'ets and discount stores, and the recent success of o% price retailers seem to follow this concept. Jew retail forms will continue to emerge to meet consumer needs and new situations, and newer forms will eventually replace these.

)holesaling 5holesaling means uying from goods and services from producers to sell to retailers, industrial consumers and other wholesalers who uy for resale or usiness use rather than selling to individual consumers. &he rms that are primarily engaged in wholesaling activity are 'nown as wholesalers . &hey dier from retailers in the areas of consumer, mar'et and legal regulations and ta6es. &ypes o wholesalers  &here are three ma9or groups of wholesalers: they are merchant wholesalers, broers and agents, and manufacturers9 sales branches and oces" Merchant $holesalers - merchant wholesaler is an independently%owned usiness that ta'es title to the merchandise it handles. 2erchant wholesalers are the largest single group of wholesalers and can e divided into two sugroups% the full service wholesalers and the limited service wholesalers. .ull/ser"ice $holesalers:  &his type of wholesalers provide full range of services "such as carrying stoc', using a sales force, oering credit, ma'ing deliveries and providing management assistance#. &hey can e categorised as either wholesale merchants or industrial distriutors. :holesale merchants- &hey usually carry several product lines of goods to sell to retailers and provide a full range of services. &hey oer customers a wide choice of goods and a good level of product 'nowledge. ?ardware wholesalers and pharmaceutical wholesalers are typical e6amples. Industry distributors are merchant wholesalers. &hey may carry a road range of merchandise, a general line or a specialty line to sell to producers rather than retailers. Limited/ser"ice $holesalers:  &hese wholesalers, such as cash%and%carry wholesalers, truc' wholesalers, drop shippers, producers cooperatives and •

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mail order wholesalers, oer fewer services to their suppliers and customers. 0rokers and agents !n contrast to merchant wholesalers, ro'ers and agents dont ta'e title to goods. &hey aid in uying and selling and earn a commission on the selling price. 0rokers: - ro'er is a wholesaler who does not ta'e title to goods and whose function is to ring uyers and sellers together and assist in negotiation. 1ood ro'ers, and real estate ro'ers are common e6amples.  Agents: -n agent is a wholesaler who represents uyers or sellers on a more permanent asis, performs only a few functions and does not ta'e title to goods. &hey usually have a formal agreement with the uyers or sellers whom they are representing and have a long%term relationship with them. Manufacturers9 agents, selling agents, purchasing agents, and commission merchants are common types of agents" )holesaler marketing decisions 5holesalers face competitive pressures, more demanding customers, new technologies, and direct%uying programs among industrial, institutional and retail uyers. &hey must ta'e a fresh loo' at their mar'eting strategies and as with retailers, their mar'eting decisions include choice of target mar'ets, positioning and the mar'eting mi6 * product and service assortment, price, promotion and place. Segmentation, targeting, di7erentiation and positioning decisions- $i'e retailers, wholesalers must dene their target mar'ets and position themselves according to factors such as size of customer "only large retailers#, type of customer "convenience stores only#, and need for service "customers who need credit *( Mareting mi5 decisions- 5holesalers must decide on product assortment and ancillary services, price "mar' up the cost of goods y a standard percentage8 cut their margin on some lines to win important new customers8 negotiate special price rea's with suppliers sales, "trade advertising, sales promotion, personal selling and pulic relations is largely scattered and unplanned, they now need to develop overall promotion strategy#, and placement "choice of locations, facilities and we locations#. •

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&rends in wholesaling 5holesalers must constantly improve their services and reduce their costs in order to increase the eciency and eectiveness of the services to meet the changing needs of oth suppliers and target customers.  &he numer of rms in the wholesaling industry may signicantly a decrease in the future. &he remaining wholesaling companies will grow larger through acquisition, merger and geographical e6pansion. &he distinction etween large retailers and large wholesalers is ecoming more and more unclear. 5holesalers constantly ad9ust their performance to meet the demands of target customers and see' cost%reducing methods of doing usiness.