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value chain

a series of activities involved in designing, producing, marketing, delivering, and supporting any product. Each link in the chain has the potential to either add or remove value from the product the customer eventually buys. Includes business functions like HR management and R&D. a way to look at how firms deliver benefits to consumers -- coordinate a range of activities that result in the customer's receipt of a satisfactory good or service.

inbound logistics

company receives materials it needs to manufacture its products; taking delivery of the input materials, warehousing, and inventory control. [#1 primary activity of a value chain]


activities transform the materials into final product form (machining, packaging, and assembly). [#2 primary activity of a value chain]

outbound logistics

ship the product out to customers [#3 primary activity of a value chain]

marketing and sales

handle advertising, promotion, channel selection, and pricing. [#4 primary activity of a value chain]


enhance or maintain the value of the product, such as by installation or repair. [#5 primary activity of a value chain]

support activities of a value chain

• 1. Procurement
• 2. Technology development
• 3. Human resources management
• 4. Firm infrastructure

supply chain

all the activities necessary to turn raw materials into a good or service and put it in the hands of the consumer or business customer.

distribution channels

subset of the supply chain

logistics management

the process of actually moving goods through the supply chain

supply chain management

the management of flows among firms in the supply chain to maximize total profitability. Not only the physical movement of goods but also the sharing of information about the goods - supply chain partners must synchronize their activities with one another.


a practice in which a company contracts with a specialist firm to handle all or part of its supply chain operations. (Ex. UPS now contracts with Toshiba to repair laptops - pg. 493).


a company delegates nonessential tasks to subcontractors

channel of distribution

the series of firms or individuals that facilitates the movement of a product from the producer to the final customer. Create efficiencies because they reduce the number of transactions necessary for goods to flow from many different manufacturers to large numbers of customers

direct channel

channel of distribution that consists of a producer (individual or firm that manufactures good/service) and a customer -- firms that sell products through web sites, catalogs, etc.

indirect channels

include one or more channel intermediaries (firms or individuals such as wholesalers, agents, brokers, or retailers who help move a product from the producer to the consumer or business user).

breaking bulk

dividing larger quantities of goods into smaller lots in order to meet the needs of buyers.

creating assortments

providing a variety of products in one location to meet the needs of the buyers.

facilitating functions

functions of channel intermediaries that make the purchase process easier for customers and manufacturers

disintermediaton [of the channel of distribution]

the elimination of some layers of the channel of distribution in order to cut costs and improve the efficiency of the channel. (ex. Technology means less need for intermediaries - go to ATM, use fast pass instead of giving money to a person, etc.).

knowledge management

a comprehensive approach to collecting, organizing, storing, and retrieving a firm's information assets (databases, company documents, practical knowledge of employees, etc.).

online distribution policy

the theft and unauthorized repurposing of intellectual property via the internet (ex. Unauthorized downloads of music).

wholesaling intermediaries

(firms that handle the flow of products from the manufacturer to the retailer or business user).

independent intermediaries

channel intermediaries that are not controlled by any manufacturer but instead do business with many different manufacturers and many different customers.

merchant wholesalers

intermediaries that buy goods from manufacturers (take title to them) and sell to retailers and other B2B customers

"take title"

to accept legal ownership of a product and assume the accompanying rights (can develop their own marketing strategies and set their own prices) and responsibilities (risks of not selling) of ownership.

full-service merchant wholesalers

provide a wide range of services for their customers, including delivery, credit, product-use assistance, repairs, advertising, and other promotional support - even market research.

limited-service merchant wholesalers

provide fewer services for their customers. Take title to merchandise but are less likely to provide services such as delivery, credit, or marketing assistance to retailers.

cash-and-carry wholesalers

provide low-cost merchandise for retailers and industrial customers that are too small for other wholesalers' sales representatives to call on. Customers pay cash for products and provide their own delivery (groceries, office supplies, etc.).

track jobbers

carry their products to small business customers locations for their inspection and selection (perishable items -- fruit, vegetables, to small grocery stores).

drop shippers

limited-function wholesalers that take title to the merchandise but never actually take possession of it. Take orders from and bill retailers and industrial buyers, but the merchandise is shipped directly from the manufacturer. Take title and assume risks.

mail-order wholesalers

sell products to small retailers and other industrial customers, often located in remote areas, through catalogs rather than a sales force. (ex. Cosmetics, hardware, etc.).

rack jobbers

supply retailers with specialty items such as health and beauty products and magazines. Own and maintain the product display racks in grocery stores, drugstores, and variety stores. Visit retail customers on a regular basis to maintain levels of stock and refill their racks with merchandise.

merchandise agents or brokers

channel intermediaries that provide services in exchange for commissions but never take the title to the product

manufacturers' agents/manufacturers' reps

independent salespeople who carry several lines of noncompeting products.

selling agents, including export/import agents

market a whole product line or one manufacturer's total output. Often work like an independent marketing department because they perform same functions as full-service wholesalers but do not take title to products.

commission merchants

sales agents who receive goods, primarily agricultural products on consignment - they take possession of products without taking title.

merchandise brokers

including export/import brokers, are intermediaries that facilitate transactions in markets such as real estate, food, and used equipment, in which there are lots of small buyers and sellers

sales branches

manufacturer-owned facilities that, like independent wholesalers, carry inventory and provide sales and service to customers in a specific geographic area.

sales offices

manufacturer-owned facilities that, like agents, do not carry inventory but provide selling functions for the manufacturer in a specific geographic area

manufacturers' showrooms

manufacturer-owned or leased facilities in which products are permanently displayed for customers to visit.

channel levels

[distribution channels]; the number of distinct categories of intermediaries that populate a channel of distribution

industrial distributor

B2B - the simplest indirect channel is when the single intermediary (a merchant wholesaler referred to as industrial distributor rather than a retailer) buys products from a manufacturer and sells them to business customers.

dual distribution systems

producers, dealers, wholesalers, retailers, and customers may participate in more than one type of channel (aka dual or multiple distribution systems).

hybrid marketing system

a marketing system that uses a number of different channels and communication methods to serve a target market.

slotting allowance

a fee paid in exchange for agreeing to place a manufacturer's products on a retailer's valuable shelf space

plan a channel strategy

1. develop distribution objectives; 2. evaluate internal and external environmental influences; 3. choose a distribution strategy; 4. develop distribution tactics

1. develop distribution objectives

in general, the overall objective of any distribution plan is to make a firm's product available when, where, and in the quantities customers want at the minimum cost.

2. evaluate internal and external environmental influences

short, often direct channels may be better suited for B2B marketers for whom customers are geographically concentrated and require high levels of technical know-how and service; frequently sell expensive or complex products directly to final customers; short channels with selective distribution for perishable products; longer channels with more intensive distribution are generally best for inexpensive, standardized consumer goods that need to be distributed broadly and require little technical expertise. Examine issues like own ability to handle distributions, what intermediaries are available, ability of customers to access intermediaries, and how competition distributes products.

3. choose a distribution strategy

• 1. Decisions about # of levels in the distribution channel
• 2. Decisions about channel relationships - whether a conventional or highly integrated system will work best
• 3. Distribution intensity/number of intermediaries at each level of the channel

conventional marketing system

a multiple-level distribution channel in which channel members work independently of one another. Relationships are limited to simply buying and selling from one another. Each firm seeks its own benefit.

vertical marketing system

a channel of distribution in which there is formal cooperation among members at the manufacturing, wholesaling, and retailing levels. Reduce costs incurred in channel activities; maximizes efficiency.

administrative VMS

channel members remain independent but voluntarily work together because of the power of a single channel member.

corporate VMS

single firm owns manufacturing, wholesaling, and retailing operations. Firm has complete control over all channel operations.

contractual VMS

cooperation is enforced by contracts (legal agreements) that spell out each member's rights and responsibilities and how they will cooperate. Channel members can have more impact as a group than they could alone.

retailer cooperative

group of retailers that establish a wholesaling operation to help them compete more effectively with the large chains

franchise organizations

include a franchiser (manufacturer or service provider) who allows an entrepreneur (franchisee) to use that franchise name and marketing plan for a fee. Contractual agreements define and enforce channel cooperation. Franchiser provides services for franchisee, franchiser receives % of revenue from franchisee.

horizontal marketing system

an arrangement within a channel of distribution in which two or more firms at the same channel level work together for a common purpose.

intensive, exclusive, or selective distribution?

5 decision factors: company, customers, channels, constraints, and competition

intensive distribution

selling a product through all suitable wholesalers or retailers that are willing to stock and sell the product. Chewing gum, soft drinks, milk, and bread.

exclusive distribution

selling a product through a single outlet in a particular region. Pianos, cars, executive training programs; products with high price tags. Enables wholesalers and retailers to better recoup the costs associated with long-selling processes for each customer, and, in some cases, extensive after-sale service

selective distribution

distribution using fewer outlets than intensive distribution but more than exclusive distribution. Shopping products - household appliances and electronic equipment - customers are willing to spend time visiting different retail outlets to compare alternatives.

step 4. develop distribution tactics

• Usually about type of distribution system to use, such as direct or indirect; or conventional or integrated.
• Select channel partners: Ex. Some want Walmart as a partner because a small firm could up to triple its business; others recognize that they would be relinquishing control in decision-making.
• If you only have one retailer and they stop carrying the product, the company will lose all its customers and be back to square one.
• Another consideration is competitors' channel partners; people spend time comparing brands when purchasing a shopping product so firms need to make sure they display their products near similar competitors' products.

manage the channel -- channel leader

a firm at one level of distribution that takes a leadership role, establishing operating norms and processes based on its power relative to other channel members. Power comes from:
o 1. A firm has economic power when it has the ability to control resources.
o 2. A firm such as a franchiser has legitimate power if it has legal authority to call the shots.
o 3. A producer firm has reward or coercive power if it engages in exclusive distribution and has the ability to give profitable products and to take them away from the channel intermediaries.


the process of designing, managing, and improving the movement of products through the supply chain. Logistics includes purchasing, manufacturing, storage, and transport. Purchasing, manufacturing, storage, and transport.

inbound to the firm [logistics]

raw materials, parts, components, and supplies

outbound from the firm [logistics]

work-in-process and finished goods

reverse logistics

product returns, recycling and material reuse, waste disposal


the art of getting the timing right and delivering on promises

physical distribution

the activities that move finished goods from manufacturers to final customers, including order processing, warehousing, materials handling, transportation, and inventory control. How marketers physically get products where they need to be, when they need to be there, and at the lowest possible cost. The core of successful logistics. When doing logistics planning, focus should be on the customer.
• Goal: to provide the product at the lowest cost possible as long as the firm meets delivery requirements.

logistics functions

1. order processing; 2. warehousing; 3. materials handling; 4. transportation; 5. inventory control -- JIT and fast fashion

Logistics Functions - 1. order processing

the series of activities that occurs between the time an order comes into the organization and the time a product goes out the door

enterprise resource planning systems (order processing of logistics functions)

a software system that integrates information from across the entire company, including finance, order fulfillment, manufacturing, and transportation, and then facilitates sharing of the data throughout the firm

Logistics Functions - 2. warehousing

storing goods in anticipation of sale or transfer to another member of the channel of distribution. Provide time utility to consumers by holding on to products until consumers need them

private warehouses

high initial investment but lose less inventory due to damage.

public warehouses

allow firms to pay for a portion or warehouse space

distribution center

a warehouse that store goods for short periods of time and provides other functions, such as breaking bulk

Logistics Function - 3. materials handling

the moving of products into, within, and out of warehouses

Logistics Function - 4. transportation

the mode by which products move among channel members.

4. transportation -- dependability

the ability of the carrier to deliver goods safely and on time

4. transportation -- cost

the total transportation costs to move a product from one location to another, including any charges for loading, unloading, and in-transit storage.

4. transportation -- speed of delivery

the total time to move a product from one location to another, including loading and unloading

4. transportation -- accessibility

the number of different locations the carrier serves

4. transportation -- capability

the ability of the carrier to handle a variety of different products such as large or small, fragile, or bulky

4. transportation -- traceability

the ability of the carrier to locate goods in shipment

Logistics Functions - 5. Inventory Control: JIT and Fast Fashion

inventory control; radio frequency identification; just in time (JIT)

inventory control

activities to ensure that goods are always available to meet customers' demands.

radio frequency identification

product tags with tiny chips containing information about the item's content, origin, and destination.

just in time (JIT)

inventory management and purchasing processes that manufacturers and resellers use to reduce inventory to very low levels and ensure that deliveries from suppliers arrive only when needed.

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