Chapter 13 - Summary Principles Of Marketing PDF

Preview

Summary

chapter 13...

Description

Chapter 13: Supply Chain Management and Marketing Channels 1. Supply Chains and Supply Chain Management Many modern companies are turning to supply chain management for competitive advantage. A company’s supply chain includes all of the companies involved in the upstream and downstream flow of products, services, finances, and information, extending initial suppliers to the ultimate customer. The goal of supply chain management is to coordinate and integrate all of the activities performed by supply chain members into a seamless process, from the source to the point of consumption, ultimate giving supply chain managers “total visibility and control” of the materials, processes, money, and finished products both inside and outside the company they work for. The philosophy behind the supply chain management is that by visualizing and exerting control over the entire supply chain, supply chain managers can balance supply and demands needs, maximize strengths, and increase efficiencies at each level of the chain. Understanding and integrating supply and demand-related information at every level enables supply chain managers to optimize their decisions, reduce waste, and respond quickly to sudden changes in supply or demand. Supply chain management, when performed well, reflects a completely customer-driven management philosophy. In the mass production era, manufacturers produced standardized products that were “pushed” down through marketing channels to consumers, who were convinced by salespeople to buy whatever was produced. In today’s marketplace, however, customers who expect to receive product configurations and services matched to their unique needs are driving demand. The focus of businesses has shift to determining how products and services are being “pulled” into the marketplace by customers, and on partnering with members of the supply chain to enhance customers value. This reversal of the flow of demand from “push” to “pull” has resulted in a radical reformulation of traditional marketing, production and distribution functions towards the philosophy of supply chain agility. 1.1. Benefits of Effective Supply Chain Management Supply chain management is a key means of differentiation for a firm, and therefore represents a critical component in marketing and corporate strategy. Companies that focus on supply chain management commonly report lower inventory, transportation, warehousing, and packaging costs; greater logistical flexibility; improved customer service; and higher revenues. Research has shown a clear relationship between supply chain performance and both profitability and company value.

2. Supply Chain Integration A key principle of supply chain management is that multiple entities should work together to perform tasks as a single, unified system, rather than as multiple individual units acting in isolation. Companies in a world-class supply chain combine their resources, capabilities, and innovations across multiple business boundaries so they are used for the best interest of the entire supply chain as a hole. The goal is that the overall performance of the supply chain will be greater than the sum of its parts. As companies become increasingly focused in supply chain management, they come to possess a supply chain orientation. This means that they develop management practices that are consistent with a “systems thinking” approach. Leading supply chain-oriented firms possess five characteristics that, in combination, set them apart from their partners: 1. They are credible. They have the capability to deliver on the promises they made. 2. They are benevolent. They are willing to accept short-term risks on behalf of others; are committed to others, and invest in others’ success. 3. They are cooperative. They work with rather than against their partners when seeking to achieve goals. 4. They have the support of top managers. These manager possess the vision requires to do things that benefit the entire supply chain in the short run so that they can enjoy greater company successes in the long run. 5. They are effective at conducting and directing supply chain activity. Thereby, they are better off in the long run financially than those who are not. Supply chain integration occurs when multiple firms or their functional areas in a supply chain coordinate business processes so they are seamlessly linked to one another. In the modern supply chain, integration can be either internal or external to a specific company or, ideally, both. From an internal perspective, the very best companies develop a managerial orientation toward demand-supply integration (DSI). Additionally, the practice of world-class supply chain management requires that different companies act as if a single mission and leadership connect them. To accomplish this task across companies that have different ownership and interests, five types of external integration are sought by firms interested in providing top-level service to customers.  Relationship integration is the ability of two or more companies to develop social connections that serve to guide their interactions when working together.  Measurement integration reflects the idea that performance assessment should be transparent and measurable across the borders of different firms, and should also assess the performance of the supply chain as a whole while holding each individual firm or business unit accountable for meeting its own goals.

Technology and planning integration refers to the creation and maintenance of information technology systems that connect managers across the firms in the supply chain.  Material and service supplier integration requires firms to link seamlessly to those outsiders that provide goods and services to them so that they can streamline work processes and thereby provide smooth, high-quality customer experience.  Customer integration is a competency that enables firms to offer long-lasting distinctive, value-added offerings to those customers who represent the greatest value to the firm or supply chain. Success in achieving both internal and external types of integration is very important. Highly integrated supply chains have been shown to be better at satisfying customer, managing costs, delivering high-quality products, enhancing productivity, and utilizing company and business unit assets, all of which translate into greater profitability for the firms and their partners working together in the supply chain. Integration involves a balance between barriers and enablers. Companies that work closely with their suppliers encounter problems such as corporate culture, information hoarding, and trust issues. 3. The Key Processes of Supply Chain Management When firms practice good supply chain management, their functional departments or areas, such as marketing, research and development, and/or production, are integrated both within and across the linked firms. Business processes are composed of bundles of interconnected activities, that stretch across firms in the supply chain; they represent key areas that some or all of the involved firms are constantly working on to reduce costs and/or generate revenues for everyone throughout supply chain management. There are eight critical business processes on which supply chain managers must focus: 1. Customer relationship management 2. Customer service management 3. Demand management 4. Order fulfillment 5. Manufacturing flow management 6. Supplier relationship management 7. Product development and commercialization 8. Returns management 3.1. Customer Relationship Management The customer relationship management (CRM) process enables companies to prioritize their marketing focus on different customer groups according to each group’s long-term value to the company or supply chain. Once higher-value customers are identified, firms should focus more on providing customized products and better service to this group than to others. The CRM process includes customer segmentation by value and subsequent generation of customer loyalty for the most attractive segments. 

3.2. Customer Service Management The customer service management process presents a multi-company, unified response system to the customer whenever complaints, concerns, questions, or comments are voiced. When the process is well executed, it can have a strong positive impact on revenues, often as a result of quick positive response to negative customer feedback, and sometimes even in the form of additional sales gained through the additional customer contact. Customers expect service from the moment a product is purchased until it is disposed of. 3.3. Demand Management The demand management process seeks to align supply and demand throughout the supply chain by anticipating customer requirements at each level and creating customer-focused plans of actions prior to actual purchases being made. At the same time, demand management seeks to minimize the costs of serving multiple types of customers who have variable wants and needs. Though it is very difficult to predict exactly what items and quantities customers will buy prior to purchase, demand management can ease pressure on the production process and allow companies to satisfy most of their customers through greater flexibility in manufacturing, marketing, and sales programs. One key way this occurs is through the sharing of customer demand forecasts and data during sales and operations planning (S&OP) meetings, the demand-generating functions of the business work together with the production side of the business in a collaborative arrangement designed to both satisfy customers and minimize waste. 3.4. Order Fulfillment One of the most fundamental processes in supply chain management is the order fulfillment process, which involves generating, filling, delivering, and providing onthe-spot service for customer orders. The order fulfillment process is a highly integrated process, often requiring persons from multiple companies and multiple functions to come together and coordinate to create customer satisfaction at a given place and time. The best order fulfillment processes reduce order cycle time – the time between order and customer receipt – as much as possible, while ensuring that the customers receives exactly what he or she wants. Overall, the order fulfillment process involves understanding and integrating the company’s internal capabilities with customer needs, and matching these together so that the supply chain maximizes profits while minimizing the costs and waste. 3.5. Manufacturing Flow Management The manufacturing flow management process is concerned with ensuring that firms in the supply chain have the needed resources to manufacture with flexibility and to move products through multi-stage production process. Firms with flexible manufacturing have the ability to create a wide variety of goods and/or services with minimized costs associated with changing production techniques. The goal of the manufacturing flow management process are centered on leveraging the capabilities held by multiple members of the supply chain to improve overall manufacturing output in terms of quality, delivery speed, and flexibility, all which tie directly to profitability.

3.6. Supplier Relationship Management The supplier relationship management process is closely related to the manufacturing flow management process and contains several characteristics that parallel the customer relationship management process. The manufacturing flow management process is highly dependent on supplier relationships for flexibility. Supplier relationship management provides structural support for developing and maintaining relationships with suppliers. Just as firms benefit from developing close-knit, integrated relationships with customers, close-knit, integrated relationships with suppliers provide a means through which performance advantages can be gained. 3.7. Product Development and Commercialization The product development and commercialization process includes the group of activities that facilitate the joint development and marketing of new offerings among a group of supply chain partner firms. Commonly, a multi-company collaboration is used to execute new=product development, testing, and launch, among other activities. The capability for developing and introducing new offerings quickly is key for competitive success versus rival firms. The process requires the close cooperation of suppliers and customers, who provide input throughout the process and serve as advisers and co-producers for the new offering(s). Designing a new product with the help of suppliers and customers can enable a company to introduce features and cost-cutting measures into final products. Customers provide information about what they want from the product, while suppliers can help design for quality and manufacturability. 3.8. Returns Management The final supply chain management process deals with situations in which customers choose to return a product to the retailer or supplier, thereby creating a reversed flow of goods within the supply chain. The returns management process enables firms to manage volumes of returned product efficiently while minimizing returnsrelated costs and maximizing the value of the returned assets to the firms in the supply chain. 4. Sustainable Supply Chain Management In response to the need for firms to both reduce costs and act as leaders in protecting the natural environment, many are adopting sustainable supply chain management principles as a key part of their supply chain strategy. Sustainable supply chain management involves the integration and balancing of environmental, social, and economic thinking into al phases of the supply chain management process. In doing so, the organization both better addresses current business needs and develops long-term initiatives that allow it to mitigate risks and avail itself of future opportunities in ways that preserve resources for the future generations and ensure long-term viability. By enacting sustainable supply chain management principles, companies can simultaneously generate cost saving, protect the Earth’s natural resources, and endure that socially responsible business practices are enacted.

In addition to environmental sustainability, modern businesses are also balancing economic success with social sustainability practices like human rights, labor rights, employee diversity initiatives and quality of life concerns. 5. Marketing Channels and Channel Intermediaries A marketing channel can be viewed as a canal or pipeline through which products their ownership, communication, financing and payment, and accompanying risk flow to the consumer. A market channel (also called a channel of distribution) is a business structure of interdependent organizations that reaches from the point of production to the consumer and facilitates the downstream physical movement of goods through the supply chain. Channels represent the “place” or “distribution” elements of the marketing mix, in that they provide a route for company products and services to flow to the consumer. Channel members (also called intermediaries, resellers, and middlemen) negotiate with one another, buy and sell products, and facilitate the change of ownership between buyer and seller in the course of moving finished goods from the manufacturer into the hands of the final consumer. As products move toward the final consumer, channel members facilitate the distribution process by providing specialization and division of labor, overcoming discrepancies, and providing contact efficiency. 5.1. How Marketing Channels Work Marketing channels attains economies of scale through specialization and division of labor by aiding upstream producers in marketing to end users or consumers. Producers engage other channel members such as wholesalers and retailers to do what the producers are not well suited to do. Some channel members can accomplish certain tasks more efficiently than others because they have built strategic relationship with key suppliers or customers or have unique capabilities. Their specialized expertise enhances the overall performance of the channel. Marketing channels are valuable because they aid producers in creating time, place, and exchange utility for customers, such that products become aligned with their needs. Producers, who sit at the top of the supply chain, provide form utility when they transform oats grown on a distant farm into the Cheerios that we like to eat for breakfast. Time and place utility are created by channel members when, for example, a transport company hired by the producer physically moves boxes of cereal to a store. And the retailer, who is often the closest channel members to the consumer, provides a desired product for some amount of money we are reasonably willing to give, creates exchange utility in doing so. 5.2. Functions and Activities of Channel Intermediaries Intermediaries in a channel negotiate with one another, facilitate transfer of ownership for finished goods between buyers and sellers, and physically move products from the producer toward the final consumer. Retailers and merchant wholesalers are examples of intermediaries that take title to products in the marketing channel and resell them. Merchant wholesalers are organizations that facilitate the movement of products and services from the manufacturer to producers, resellers, governments, institutions, and retailers.

Other intermediaries do not take title to goods and services they market but do facilitate exchanges of ownership between sellers and buyers. Agents and brokers facilitate the sales of products downstream by representing the interests of retailers, wholesalers, and manufacturers to potential customers. Retailers are those firms in the channel that sell directly to consumers as their primary function. 5.3. Channel Functions Performed by Intermediaries Intermediaries in marketing channels perform three essential functions that enable goods to flow between producer and consumer. Transactional functions involve contacting and communicating with prospective buyers to make them aware of existing products and to explain their features, advantages, and benefits. Intermediaries in the channel also provide logistical functions. Logistical functions typically include transportation and storage assets, as well as their sorting, accumulation, consolidation, and/or allocation for the purpose of conforming to customer requirements. The third basic channel function, facilitating, includes research and financing. 6. Channel Structures A product can take any of several possible routes to reach the final consumer. Marketers and consumers each search for the most efficient channel from many available alternatives. Producers use a direct channel to sell directly to consumers in order to keep purchase prices low. Direct marketing activities – including telemarketing, mail order and catalog shopping and shop-at-home television networks are good examples of this type of channel structure. There are no intermediaries. By contrast, when one or more channel members are small companies lacking in marketing power, an agent/broker channel may be the best solution. Agents or brokers bring manufacturers and wholesalers together for negotiations. Most consumer products are sold through distribution channels similar to the other two alternatives: the retailer channel and the wholesaler channel. A retailer channel is most common when the retailer is large and can buy in large quantities directly from the manufacturer. A wholesaler channel is commonly used for low-cost items that are frequently purchased. 6.1. Channels for Business and Industrial Products First, direct channels are typical in business and industrial markets. Alternatively, companies selling standardized items of moderate or low value often rely on industrial distributors. Industrial contributors are wholesalers and channel members that buy and take title to products. Additionally, the Internet has enabled virtual distributors to emerge and has forced traditional industrial distributors to expand their business models. Many manufacturers and consumers are bypassing distributors and going direct, often via the Internet. 6.2. Alternative Channel Arrangeme...