13A

SUPPLY CHAIN MANAGEMENT:

AN OVERVIEW

LO1Recognize the relationship between marketing channels, logistics, and supply chain management.

Describe how a company’s supply chain aligns with its marketing strategy.

LO2

LEARNING OBJECTIVES (LO)

AFTER READING CHAPTER 16, YOU SHOULD BE ABLE TO:

16-2

LO3Identify the major logistics cost and customer service factors that managers consider when making supply chain decisions.

Describe the key logistics functions in a supply chain.LO4

LEARNING OBJECTIVES (LO)

AFTER READING CHAPTER 16, YOU SHOULD BE ABLE TO:

16-3

SUPPLY CHAIN MANAGEMENT

• Supply chain management is the design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer.

-Institute for Supply Management

•

EMPOWERED CUSTOMERS

• Customers – have access to extensive product and pricing

information,– are continually demanding better – faster –

cheaper and better service.

•

SUPPLY CHAIN MANAGEMENT

MARKETSConsumers:CustomersProspectsSuspects

SUPPLIER’SSUPPLIERS

FOCAL FIRM

CUSTOMERS

FOCAL FIRMNEW PRODUCT DEVELOPMENT

CUSTOMER’SCUSTOMERS

SUPPLIERSor

SUPPLIERS

CREATING CUSTOMER VALUEREVIEW

Benefits

Quality

Cost

Flexibility

Delivery

Innovation

The experience, and many more.

BENEFITS

• Benefits are

• Benefits may be– – –

•

• Therefore, we must deliver benefits at every step in the supply chain!

THE MANY ASPECTS OF QUALITY

• Design and Specifications*

• Manufacturing

• Quality processes*

• Service*

• Cost

• Flexibility

• Delivery

• Innovation

QUALITY: DESIGN & SPECIFICATIONS

• Design to meet market needs

• Design to meet customer needs–

• Design for manufacturability

• Exceed standards organizations specifications

QUALITY: PROCESSES

• Works right the first time and every time!

• [Acceptance] Acceptable Quality Level [AQL]– – Customer specified level– Standards include

• Mil-Std-105E; ANSI / ASQC Z1.4-1993 and 2003; ISO 2859-1 [1999]

– Found in• Food, pharmaceutical, medical devices, communications,

apparel, software, and many more industries.

QUALITY: PROCESSES

• Six Sigma [≤3.4 defects per million]– – Found in

• Communications, computer chips and boards, financial services, healthcare, many manufacturing firms, and more.

• Supplier rating / categorization– Supplier rating level and its requirements–

QUALITY: SERVICE

• Exceeding expectations is the key to value realization.– You purchased something for its perceived benefits.– It performed better than expected.– So it was a better value than you initially thought.– RESULT: CUSTOMER SATISFACTION !

– B2B: 100% quality, complete exact order quantities, and on-time delivery!

• Must be seamless for the customer

• Must exceed all customer expectations

THE FIRM’S ENVIRONMENTS

EXTERNAL

- Competitive

- Cultural

- Economic

- Legal

- Political

INTERNAL

-Corporate culture

- Functional and cross-functional relationships

- Reward systems

- Strategic priorities

FIRM’S CAPABILITIES

- Comparative advantages

-Core competencies and key success factors

- Overall competitiveness

INFLUENCE CONTROL MUTUAL EFFECTS

SUPPLY CHAIN MANAGEMENT

FIRM’SENVIRONMENT

MARKET POSITION

STRUCTURE &OPERATIONS

[SCM]

THE PROCESS IS SOUND. THE PATH IS UNKNOWN. THAT IS WHY WE USE

CONTINGENCY THEORY

• Contingency theory sets the framework to evaluate alternatives using scenario planning.

• Every good executive and manager is continually aligning the firm’s resources to take advantage of opportunities in the marketplace.

• The central question a supply chain manager must continually answer is …– How do we create more value at every step in the

supply chain?

SUPPLY CHAIN MANAGEMENT

• requires – a common understanding by all entities and

their supply chain objectives;

– the ability to work together;

– flexibility; and,

– providing excellent customer value.

SUPPLY CHAIN MANAGEMENT

MARKETS

Consumers:CustomersProspectsSuspects

CUSTOMERS

FOCAL FIRMNEW PRODUCT DEVELOPMENT

FOCAL FIRM

FOCAL FIRMSUPPLIERS and

SUPPLIER’S SUPPLIERS

SUPPLY CHAIN MANAGEMENT

ENTITIES AND THEIR ROLES – Information Requirements – Flows and Processes – Repelling Competitive Thrusts – Building Relationships

SUPPLIER’SSUPPLIERS

FOCAL FIRM

CUSTOMERSSUPPLIERSCUSTOMER’S CUSTOMERS

THE SUPPLY CHAIN AT WORK:AUTO INDUSTRY MODEL

DOWNSTREAMUPSTREAM

STEEL

COMPANY

3RD TIER

STEEL

UPSTREAM

SUPPLIER

2ND TIER

FASTENERS

DIRECT

SUPPLIER

1ST TIERManage all other tiers.

RADIATORS

FORD, GM

CHRYSLER

FOCAL FIRM

OEM

VEHICLES

DEALERS

RENTAL

AGENCIESFLEETS

SPECIAL

VEHICLES

CONSUMERS

Raw materials, semi-finished, and component products Finished products and components

BUSINESSES

CONSUMERS

A SUPPLY CHAIN

• – Markets– Suppliers– Processes– Technologies

• – FLOWS

• Products, services, information, and money

– PROCESS INTEGRATION• Suppliers • Focal firm• Customers• Complete [End-to-End Integration]

SUPPLY CHAIN GOAL

• To combine the support and direct activities to create value as perceived by the target market[s] segment[s].

SUPPLY CHAIN: VALUE ANALYSIS

A cost-reduction method where every component is analyzed to determine if it can be standardized, redesigned and improved at a lower cost, or made by a

less expensive production method.

SUPPLY CHAIN SUPPORT ACTIVITIES

• – of the firm and its supply chain[s]

• Human resources

• Materials Management– Purchasing or procurement function

• Technology and its development

EXTERNAL VALUE CHAINS

• MARKET[S] SEGMENT[S]– Customers– Prospects

• SUPPLIERS

• ALL OTHER STAKEHOLDERS

INTERNAL VALUE CHAIN

C-LEVEL

MARKETINGRESEARCH AND DEVELOPMENT OPERATIONS

LOGISTICSFINANCE AND ACCOUNTING

SUPPLY CHAIN MANAGEMENT

INFORMATION TECHNOLOGY

HUMAN RESOURCES

MARKETConsumers:CustomersProspectsSuspects

FOCAL FIRM

CUSTOMERS

CUSTOMERS’CUSTOMERS

SUPPLIERS

SUPPLIERS’SUPPLIERS

A SUPPLY CHAIN

• REPELLING COMPETITIVE THRUSTS– Increase market [segment] share– Continually develop large customers– Continually improve– Attract outstanding human resources– Attract and continually improve

A SUPPLY CHAIN

• BUILDING RELATIONSHIPS– Suppliers– Focal firm stakeholders

• Customers • Employees• Shareholders• Suppliers• Special interest groups• …

SIGNIFICANCE OF SCMSCM AND MARKETING STRATEGY

LO2

Aligning a Supply Chainwith Marketing Strategy

• Understand the

• Understand the

• Harmonize the Supply Chainwith the Marketing Strategy

16-30

Aligning a Supply Chainwith Marketing Strategy

• Wal-Mart: An Efficient Supply Chain

• Dell: A Responsive Supply Chain

SIGNIFICANCE OF SCMSCM AND MARKETING STRATEGY

LO2

16-31

TYPICAL SUPPLY CHAIN MANAGER JOB DESCRIPTION

• Manages and oversees overall supply chain operations, including purchasing and inventory of materials as well as selection of vendors. Makes recommendations to improve productivity, quality, and efficiency of operations ...

• Interacts with customers...

• Requires a bachelor's degree in area of specialty and 5-7 years of experience in the field ...

• Relies on extensive experience and judgment to plan and accomplish goals …

• A wide degree of creativity and latitude is expected. Typically reports to top management.

• Base range $75,000 - $125,000 base salary + bonus + benefits• High end range $250,000 - $600,000 base salary + bonus + extra benefits

Source: http://swz.salary.com/salarywizard/layouthtmls/swzl_compresult_national_MM18000090.html#bottom

MARKETING DEGREE:Emphasis in Supply Chain Management

• MKT 3353 Supply Chain Management• MKT 4358 International Marketing• MKT 4370 Logistics Management• MKT 4371 Logistics Analytical Methods• IB 4361 International Commerce

See my website for the brochure or your advisor for degree plan information.

http://awhitebread.ba.ttu.edu

13B

SUPPLY CHAIN MANAGEMENT:

LOGISTICS

Customer wantsdetergent and goes

to Kroger

Customer wantsdetergent and goes

to Kroger

KrogerSupermarket

KrogerSupermarket

Kroger or thirdparty DC

Kroger or thirdparty DC

P&G or otherdetergent

manufacturer

P&G or otherdetergent

manufacturer

PlasticProducerPlastic

Producer

ChemicalRefinery

ChemicalRefinery

TennecoPackaging

pulp – paper - boxes

TennecoPackaging

pulp – paper - boxes

Paper Manufacturer

chips - pulp - paper

Paper Manufacturer

chips - pulp - paper

TimberIndustry

trees - chips

TimberIndustry

trees - chips

Chemical RefineryChemical Refinery

SUPPLY CHAINS

paper

boxes

trees

chips

pulp

Oil RefineryOil Refinery

Oil wellOil well

SUPPLY CHAIN MANAGEMENT [SCM] COMPONENTS

Transportation

Purchasing

Packaging

Standards

Warehousing

Return Goods Handling

Salvage and scrap disposal

Facility Location

Customer Service

Order Processing

Demand forecasting

Production Scheduling

Facility Management

Material Handling

Inventory & Control

L

O

G

I

S

T

I

C

S

Logistics Management

Logistics management is that part of SCM that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers’ requirements.

- Council of Supply Chain Management Professionals

LOGISTICS

Cost-effectively getting the

right products,

to the right places,

at the right times,

in the right quantity,

in the right configuration,

and in the right sequence.

The Logistics Process

• Materials management is concerned with the inbound movement and storage of raw materials, purchased components, and subassemblies entering and flowing through the conversion process.

• Physical distribution focuses on the outbound transportation and storage of finished products from point of manufacture to where customers wish to acquire them.

Basic Logistics Activities Examples

Activity Basic Roles and Responsibilities

Customer Service

Focus on understanding customers requirements and measuring logistics performance against them.

Demand Forecasting

Must be developed to help plan other logistics activities, allocate resources, and provide high levels of service at low cost.

Documentation

Accuracy helps assure that the product gets to the customer on time. Documentation accuracy is particularly vital in international shipments.

Information Management

Data on carriers, customers, and inventories must be turned into useful decision-making information.

Inventory Management

Product must be available to meet production requirements and customer demand. Inventory control must support high levels of customer service with minimum inventory.

LOGISTICS SYSTEMS

Materials HandlingMoving Products Into,

Within, andOut of Warehouses

Materials HandlingMoving Products Into,

Within, andOut of Warehouses

Warehousing Quantity Needed

WhereWhat Type

Warehousing Quantity Needed

WhereWhat Type

Inventory Control

When to orderHow much to order

Timing

Inventory Control

When to orderHow much to order

Timing

Order ProcessingReceived

ProcessedShipped

Order ProcessingReceived

ProcessedShipped

Transportation Rail, Water, Trucks,

Air, Pipeline, Internet

FIGURE 16-4FIGURE 16-4 Supply chain managers balance total logistics cost factors against customer service factors.

16-42

INFORMATION ANDLOGISTICS MANAGEMENT IN A

CUSTOMER-DRIVEN SUPPLY CHAIN

LO3

Total Logistics Cost Concept consists of expenses associated with transportation, materials handling, warehousing, inventory, stockouts, order processing, and return goods handling.

16-43

THE TOTAL LOGISTICS COST APPROACH

• LOGISTICS COST =– Transportation + warehousing + inventory +

materials management

• STOCKOUT COST =– Failure to deliver customer service as expected

MARGINAL INVENTORY COST

0.002.004.006.008.00

10.0012.0014.0016.00

100 500 1000 2500 5000

UNITS IN INVENTORY

Set-up cost

Production cost

Holding cost

Total cost

CYCLE TIME

Cycle frequency, duration, and magnitude

[stockout, minimum, maximum, average, safety stock]

INVENTORY PER TIME PERIOD

0

200

400

600

800

1000

1200

1400

1600

1 2 3 4 5 6 7 8 9 10 11 12

1 2

INFORMATION AND LOGISTICS MANAGEMENTIN A CUSTOMER-DRIVEN SUPPLY CHAIN

CUSTOMER SERVICE FACTORS

LO3

Time

• Lead Time• Order cycle time•

INFORMATION AND LOGISTICS MANAGEMENTIN A CUSTOMER-DRIVEN SUPPLY CHAIN

CUSTOMER SERVICE FACTORS

LO3

• Quick Response in inventory management systems, are designed to reduce the retailer’s lead time forreceiving merchandise which then lowersa retailer’s inventory investment, improves customer service levels, and reduces logistic expenses. Also called efficient consumer response.

• Efficient Consumer Response designed to reduce the retailer’s lead time for receiving merchandise whichthen lowers a retailer’s inventory investment, improves customer service levels, and reduces logistic expenses. Also called quick response.

Dependability

Communication

Convenience

INFORMATION AND LOGISTICS MANAGEMENTIN A CUSTOMER-DRIVEN SUPPLY CHAIN

CUSTOMER SERVICE FACTORS

LO3

16-49

MEASURING LOGISTICS PERFORMANCE

Out-of-Stock (%) and On-Time-Delivery (%)

Out-of-Stock (%) =

# of Outlets Where a Brand/Product is Listed but Unavailable

Total # of Outlets Where a Brand/Product is Listed

On-Time Delivery (%) =

# of Deliveries Achieved in the Timeframe Promised

Total # of Deliveries Initiated in a Time Period

16-50

MODES OF TRANSPORTATION

Rail Cost-effective for shipping bulk products [piggy-back]

Rail Cost-effective for shipping bulk products [piggy-back]

WaterLow cost for shipping bulky, low-value[non-perishable goods, slowest form]

WaterLow cost for shipping bulky, low-value[non-perishable goods, slowest form]

TruckMost important carrier

TruckMost important carrier

AirHigh cost, ideal when speed is needed or

distant markets have to be reached

AirHigh cost, ideal when speed is needed or

distant markets have to be reached

PipelinePetroleum based products,

very low cost, requires little energy

PipelinePetroleum based products,

very low cost, requires little energy

InternetWeb sites have products and

services available

InternetWeb sites have products and

services available

KEY LOGISTICS FUNCTIONSIN A SUPPLY CHAIN

WAREHOUSING AND MATERIALS HANDLING

LO4

Storage Warehouses

Distribution Centers

Materials Handling

16-52

MATERIAL HANDLING DEVICES

• Conveyors

• Palletizers

• Pallet lifting

• Trucks

• Robots

• AGV’s

• AS/RS

KEY LOGISTICS FUNCTIONSIN A SUPPLY CHAIN

ORDER PROCESSING

LO4

Order Processing

•

• EDI/EFT

16-54

KEY LOGISTICS FUNCTIONSIN A SUPPLY CHAININVENTORY MANAGEMENT

LO4

Reasons for Inventory

• Capital Costs

• InventoryService Costs

Inventory Costs

• Storage Costs

• Risk Costs

16-55

KEY LOGISTICS FUNCTIONSIN A SUPPLY CHAININVENTORY MANAGEMENT

LO4

Supply Chain Inventory Strategies

•

• Vendor-Managed Inventory (VMI) an inventory-management system whereby the supplier determines the product amount and assortment a customer (such asa retailer) needs and automatically delivers the appropriate items.

16-56

WAREHOUSE SECURITY

• AREAS OF CONCERN– Dock– Carrier

• Especially for high-value or highly-sought items

– Inventory• Mislabeled, spoilage, inaccurate transfers

– Employees• Theft

INVENTORY AND CONTROLInventory pricing methods

• FIRST IN, FIRST OUT (FIFO)– The oldest cost [first in] incurred is the first

cost charged to production. The latest costs are shown in the inventory.

• LAST IN, FIRST OUT (LIFO)– The latest cost [last in] incurred is the first

cost charged to production. The oldest costs are shown in the inventory.

INTERNATIONAL CYCLES AFFECTED BY

• – For complete order documents– Inserting the order into the schedule

• – Ports– Ship arrival, loading, transit, and unloading

• VERIFICATIONS AND INSPECTIONS– Customs [Eritrea – 6+ weeks to clear]– Other inspections required by the importing country or

customer

THIRD PARTY LOGISTICS PROVIDERS [3PL’s]

• Outsourced logistics functions include [but are not limited to]– Freight and transportation services, payments, and auditing– Fleet management– Carrier selection and rate negotiations– Warehousing operations– Logistics information systems– Shipment planning– Packaging, product assembly, product installation– Order processing, order fulfillment, returns, relabeling,

repackaging, and rework– Inventory and spare parts management

CLOSING THE LOOP:REVERSE LOGISTICS

LO4

Reverse Logisticsa process

of reclaiming recyclable and reusable materials, returns, and reworks from the point of consumption or use for repair, remanufacturing, redistribution,or disposal.

16-61

13C

SUPPLY CHAIN MANAGEMENT:

GLOBAL DISTRIBUTION SYSTEMS

THE IMPORTANCE OF DISTRIBUTION

•

• If your product is not there, consumers will likely buy – – –

• Business consumers will eventually switch suppliers and may bill you for the inconvenience.

• Effective distribution has a multiplicative effect on sales!

THE MULTIPLICATIVE EFFECT

• Your firm’s employees selling.

• Your firm’s employees selling to other firms [resellers] and training their sales people to sell to others.

THE MULTIPLICATIVE EFFECT:EXAMPLE

1. A firm has 10 sales people that can each handle 40 accounts.

10 * 40 = 400 Accounts

2. Our 10 sales people call on 400 [above] resellers that have one sales person and they can handle 60 accounts.

3. If the resellers have 5 sales people then you can get to

CHANNELS OF DISTRIBUTION:You must understand their functional level!

Manufacturer

B2B Consumers

DistributorsWholesalers

DealersRetailers

B2C Consumers

Company Sales Force

Manufacturer’s Reps

http://www.census.gov/naics/2007/NAICOD07.HTM#N42

DIRECT [AVON]INDIRECT

NATURE AND IMPORTANCE OF MARKETING CHANNELS

THE VALUE CREATED BY INTERMEDIARIES

LO1

-Market coverage-Sales contact-Negotiation

-Risk / Inventory-Order processing

-Information-Customer support

-Promotion-Distribution / Logistics

-Market coverage-Sales contact-Negotiation

-Risk / Inventory-Order processing

-Information-Customer support

-Promotion-Distribution / Logistics

-Information-Credit / Financing-Customer service-Technical support

-Allocation / expediting

-Information-Credit / Financing-Customer service-Technical support

-Allocation / expediting

Three major distribution functions are [1] transactional, [2] logistical, and [3] facilitating.

CONSUMER [B2C] CHANNEL MAP[Steps and Levels]

Wal-Mart DCDistribution Center

Wal-Mart[Mass merchandiser]

Wrigley’s Gum

Candy & TobaccoWholesaler

Small Retailer[Convenience Store]

CONSUMERS

Wal-MartRetail Store

B2B CHANNELS – TYPES OF DISTRIBUTORS http://www.census.gov/epcd/www/naicstab.htm

• General Line• Material handling / Material handling supplies• Plastic• MRO• Electrical• HVAC• Plumbing• Power distribution• Medical instruments / Medical supplies• Chemical / Food / Grocery / …many more

CHANNEL STRUCTURE & ORGANIZATIONDUAL DISTRIBUTION &

STRATEGIC CHANNEL ALLIANCES

LO2

involves the blending of different communication and

delivery channels that are mutually reinforcing in attracting, retaining, and building relationships with consumers who shop and buy in traditional intermediaries and online.

allows a firm to reach different buyers by employing

two or more different types of channels for the same basic product.

15-70

CHANNEL STRUCTURE & ORGANIZATIONCHANNEL INTERMEDIARIES

LO2

Agents / Brokers /Manufacturer’s Representatives

-Never take Title to Goods

-Help negotiate business arrangements

Agents / Brokers /Manufacturer’s Representatives

-Never take Title to Goods

-Help negotiate business arrangements

Merchant Wholesalers

-Take Title to Goods

-Distributors / Dealers / Jobbers / …

Merchant Wholesalers

-Take Title to Goods

-Distributors / Dealers / Jobbers / …

Both are independently

owned!

CHANNEL STRUCTURE & ORGANIZATIONCHANNEL INTERMEDIARIES

LO2

Merchant Wholesalers

• Limited-Service Wholesalers• Rack Jobbers• Cash & Carry Wholesalers• Drop Shippers / Desk Jobbers• Truck Jobbers

15-72

• Full-Service Wholesalers• General Merchandise [full-line]• Specialty Merchandise [limited-line]

CHANNEL STRUCTURE & ORGANIZATIONCHANNEL INTERMEDIARIES

LO2

Agents, Brokers, & Representatives

• Manufacturer’s Representatives

• Brokersindependent firms or individuals whose principal function is to bring buyers and sellers together to make sales

15-73

CHANNEL STRUCTURE & ORGANIZATIONVERICAL MARKETING SYSTEMS [VMS]

LO2

CORPORATECommon Ownership at Different

Levels of the Channel

CORPORATECommon Ownership at Different

Levels of the Channel

CONTRACTURALContractual Agreements Among

Channel Members

CONTRACTURALContractual Agreements Among

Channel Members

ADMINISTEREDLeadership is Assumed by One or

a Few Dominant Members

ADMINISTEREDLeadership is Assumed by One or

a Few Dominant Members

CHANNEL STRUCTURE & ORGANIZATIONVERICAL MARKETING SYSTEMS [VMS]

LO2

What does McDonald’s use?

Vertical Marketing

Systems (VMS)

Vertical Marketing

Systems (VMS)

CorporateVMS

CorporateVMS

AdministeredVMS

AdministeredVMS

ContractualVMS

ContractualVMS

RetailerCooperatives

2007 – 4,600+

RetailerCooperatives

2007 – 4,600+

FranchiseOrganizations

FranchiseOrganizations

WholesalerSponsored

VMS

WholesalerSponsored

VMS

Sherwin-Williams

GE, Coors

IGA Ace Hardware Hertz

CHANNEL SELECTION & MANAGEMENTDISTRIBUTION INTENSITY:

TARGET MARKET COVERAGE

LO3

IntensiveDistribution[Frito-Lay]

IntensiveDistribution[Frito-Lay]

Exclusive Distribution

[Bentley, Jaguar, …]

Exclusive Distribution

[Bentley, Jaguar, …]

SelectiveDistribution[Panasonic]

SelectiveDistribution[Panasonic]

CHANNEL SELECTION & MANAGEMENTROLES & EXPECTATIONS

LO3

• Manufacturer expects of reseller

– Product– Price– Place– Promotion– Coverage– …

• Reseller expects of manufacturer

– Product– Price– Place– Promotion– Coverage– …

M

Ds

De

BC

M

W

R

C

CHANNEL SELECTION & MANAGEMENTROLES, EXPECTATIONS, & CONTROLS

LO3

ITEM MANUFACTUREREXPECTS OF THE

WHOLESALER

WHOLESALEREXPECTS OF THEMANUFACTURER

THE CONTROL TOOLTHE MANUFACTURER

WILL USE TOEVALUATE THEWHOLESALER

PRODUCT Carry our full line of products

Have ample inventory of all products – stockouts are rare

Sales report

INFORMATION

ORDERING [size, frequency]

PRICE

CHANNEL SELECTION & MANAGEMENTSELECT THE BEST SELECTION CRITERIA

LO3

Formulating channel strategy

Designing channel strategy

Selecting the channel members

Motivating the channel members

Coordinating with marketing mix

Evaluating member performance

Objective 4

Prospective channel member

Management

succession

Sales

PerformanceMarket

Coverage

Reputation

Product

Lines

Sales

Strength

Credit and

Financial

Condition

Size

Attitude

Management

Ability

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved.

CHANNEL SELECTION & MANAGEMENTCHANNEL CONTROL

LO3

• The ability to manage the efforts of channel members.

• .

CHANNEL SELECTION & MANAGEMENTCHANNEL CONTRACTS

LO3

15-81

• Distributor / Dealer

• Manufacturer’s agent / representative

• Tying – Franchises – Full line purchases

CHANNELS: SO MANY CHOICES

• Determine the channel[s] where the market [segment] prefers to purchase.

– Dual distribution 1. Using multiple channels for the same product

2.

–

SEGMENTS AND CHANNELS MUST ALIGN FOR MAXIMUM PERFORMANCE!

Manufacturer

Medical equip. distributors

9,800 in U.S.

ESD distributors

25

General line distributors

Grainger, McMaster-Carr

Sophistical medical equip.

customers

Sophisticated customers –

large facilities

Unsophisticated customers

Electrostatic Discharge Product Market Segment

Your success depends on selecting the best channels!

CHANNELS: SO MANY CHOICES

• The channel selection plus the competitive environment will mostly determine or influence– – the type of sales people and their

compensation;– the terms and conditions of sale;– –

CHANNEL CHOICE AND MANAGEMENTCHANNEL CHOICE CONSIDERATIONS

LO3

Profitability

• Margins Earned

• Channel Costs

15-85

CHANNEL CHOICE AND MANAGEMENTCHANNEL RELATIONSHIPS: CHANNEL CONFLICT

LO4

• The amount of conflict is directly related to the cleanliness of channels and programs. – A lot of channel conflict indicates

• Conflict must

• Sources of channel conflict– – –

MEXICO BEARING INDUSTRY - 2000Domestic Mfgs.

Foreign Mfgs. + subs.

Wholesalers (also V. Large End-Usersmajor importers) (auto assembly, …)

53% of consumption

Distributors(11,000) brands

Retailers or Dealers(20,000)

Major End-Users(few in number)

Sm. & Med. End-Users(???)

Copyright A. Whitebread 3/1/98, updated 12/1/00

CHANNEL PROBLEMS CAUSED BY RAPID GROWTH

• Number of channels

• Amount of channel control and conflict

• Packaging : Alice’s Dressings

• Logistics

A

CHANNEL CHOICE AND MANAGEMENTCHANNEL RELATIONSHIPS

LO4

Legal Considerations

•Dual Distribution

•Vertical Integration

•Exclusive Dealing

•Tying Arrangements

•Refusal to Deal

•Resale Restrictions

15-89

14A

INTERNATIONAL MARKETING:

INTRODUCTION, TRADE AREAS, andMARKET ENTRY

Global Perspective Country Economic Structure Economic Geography

National Perspective GDP Balance of Trade

DYNAMICS OF WORLD TRADEWORLD TRADE FLOWS

LO1

PER CAPITA INCOMEINDUSTRIALIZED G7

INDUSTRIALIZING

RAW MATERIAL EXPORTING

SUBSISTENCE

INDIA

MEXICO

BRUNEI - OIL

COSTA RICA - BANANAS

AFGHANISTAN

ETHIOPIA$100

$35,000+

$11,999

$5,000

$19,999

COUNTRY ECONOMIC STRUCTURE

INDIA

MEXICO

BRUNEI - OIL

COSTA RICA - BANANAS

AFGHANISTAN

ETHIOPIA

G8

BRAZIL

MEXICO

CHINA

INDONESIA

CHAD

INDIA

G8

STAGE OF DEVELOPMENT

PER CAPITA INCOME

It is common for lesser developed nations to be in very different positions on different scales.

Porter’s “Diamond Model” Determinants of national advantage

DYNAMICS OF WORLD TRADECOMPETITIVE ADVANTAGE OF NATIONS

LO1

Factor Conditions Demand Conditions

Firm Strategy, Structure, and Rivalry

Related and Supporting Industries

7-94

MARKETING IN A BORDERLESSECONOMIC WORLD

TREND 1—DECLINE OF ECONOMIC PROTECTIONISMLO3

• WORLD TRADE ORGANIZATION [WTO]–

• TARIFFS

– – – – SAFEGUARDS / PROTECTIONISM /

QUOTAS– INFRASTRUCTURE

• CHINA: ACCOUNTING, PENSIONS

• EU• NAFTA• ASEAN / EAEC• MERCOSUR• DOZENS MORE

TRADE AREAS

• CE MARKING – OBTAIN CE CERTIFICATION [3 DIFFERENT WAYS]

•

– AFFIX THE CE LOGO

– THE CE MARK & A Declaration of Conformity are legally required for a product to be sold in the EU.

– IN ALL MEMBER COUNTRIES

– ENFORCEMENT BY INDIVIDUAL COUNTRY

• “RETURN TO ORIGIN”

– FINLAND TOYS EXAMPLE

EU – KEY ISSUES

• U.S., CANADA AND MEXICO• AGREEMENT ON TRADE, INVESTMENT & JOBS

– ELIMINATE TARIFFS BY 2005

• •

TRADING AREAS - NAFTA

• Full Members– Argentina, Brazil, Paraguay and Uruguay

• Signed by 4 initial members Jan. 1, 1991– Immediately eliminated tariffs on 90% of the goods

traded within the bloc– Exceptions phased out in 1999

• Associate Members– Chile, Bolivia, Colombia, Ecuador, and Peru– Do not enjoy full voting rights – Do not have complete access to markets of Mercosur's

full members.

TRADING AREAS – MERCOSUR

• November 6, 2001: ASEAN + 3 also includes China, Japan, & South Korea• Gross GDP >$2 trillion

MARKETING IN A BORDERLESSECONOMIC WORLD

TREND 3—GLOBAL COMPETITIONLO3

Global Competition

Strategic Alliances

• Divisions or Subsidiaries

7-101

• GLOBAL?

• REGIONAL [multinational]

• COUNTRY / NATIONAL

• PRODUCT

INTERNATIONAL MARKETS

CULTURE: DEFINITION

“Culture is a set of traditional beliefs and values that are transmitted and shared in a given society.”

Name some things that are part of culture.

A GLOBAL ENVIRONMENTAL SCANCULTURAL DIVERSITY

LO3

• • International Anti-Dumping and Fair Competition

Act (1998)

Cross-Cultural Analysis

Values – modes of conduct

Customs – ordinary practices

7-104

@ 2003 The McGraw-Hill Companies, Inc. MODIFIED

THE GREATER THE POWER DISTANCE SCORE, THE GREATER THE SPACING. THIS WOULD BE TRUE FOR COLOMBIA, PAKISTAN, THAILAND, AND SIMILAR SCORES.

PERSONAL SPACE CATEGORIES IN THE UNITED STATES

PublicSocialPersonal

Intimate

Past Present FutureUnited States

Japan Past PresentFuture

China

Russia

Past Present Future

Past Present Future

Riding the Waves of Culture, Trompenaars and Hampden-Turner, 2nd edition, 2000

THE NOTION / PERCEPTION OF TIME

A GLOBAL ENVIRONMENTAL SCANCULTURAL DIVERSITY

LO3

• Communication using words and symbols with rules for their assembly into sentences.

• It reflects and shapes methods of thinking.

• Non-verbal aspects [e.g., body language, gestures, ...] and successful interpretation of all forms of communication are often even more culturally dependent.

• Write at an appropriate level.• Speak clearly, simply, and slowly. • Make your counterpart feel comfortable with your

language—be helpful.• Literal translations often don't make sense.• Use highly qualified native translators [written] and

interpreters [spoken].– Levels of interpreter expertise

– Interpreter specialization• Engineering, chemistry, business, medical, …

COMMUNICATIONS

A GLOBAL ENVIRONMENTAL SCANECONOMIC CONSIDERATIONS

LO3

Economic Infrastructure

Consumer Income and Purchasing Power

Currency Exchange Rate

7-109

A GLOBAL ENVIRONMENTAL SCANPOLITICAL-REGULATORY CLIMATE

LO3

Political Stability

Trade Regulations

7-110

• • • • PIRACY• EMBARGO• COMMITMENT

MARKET ENTRY FACTORS-CHALLENGES-

• DETERMINE MARKET ATTRACTIVENESS– ECONOMIC GEOGRAPHY– DRIVING FACTORS– MARKET RESEARCH

• EVALUATE AND MANAGE RISKS

• EVALUATE THE COMPETITIVE POSITION– COMPETITOR INFORMATION– HOW IS INFORMATION TREATED?

SELECTING FOREIGN MARKETS

DIRECT

EXPORTING

FRANCHISING

INDIRECT

EXPORTING

DIRECT

INVESTMENT

CONTRACT

MANUFACTURING

LICENSING

COPYRIGHT A. WHITEBREAD, 2001-2010

FOREIGN MARKET ENTRY ALTERNATIVES

Manufacturer

Agents /Distributors[in home country]

ENTERING FOREIGN MARKETS: INDIRECT EXPORTING

COPYRIGHT A. WHITEBREAD, 2001-2010

Manufacturer

Resellers

IndividualAccounts

OEM’s

ENTERING FOREIGN MARKETS: DIRECT EXPORTING

COPYRIGHT A. WHITEBREAD, 2001-2010

ManufacturerSubsidiary

(Manufacturing)

Resellers

IndividualAccounts

ENTERING FOREIGN MARKETS: DIRECT FOREIGN INVESTMENT [DFI]

ACQUISITION, GREENFIELD, BROWNFIELD – NOT FPI

COPYRIGHT A. WHITEBREAD, 2001-2010

ManufacturerLicensees

Franchisees

Resellers

IndividualAccounts

Owned Facilities?

ENTERING FOREIGN MARKETS: LICENSING & FRANCHISING

COPYRIGHT A. WHITEBREAD, 2001-2010

ManufacturerContractual

(Manufacturing)

Resellers

IndividualAccounts

ENTERING FOREIGN MARKETS:CONTRACTUAL ARRANGEMENTS

JOINT VENTURE, STRATEGIC ALLIANCE, CONTRACT MANUFACTURING

COPYRIGHT A. WHITEBREAD, 2001-2010

FOREIGN TRADE ZONE [FTZ]

• FTZs are secure areas are usually located in or near a customs or border patrol area.

• An FTZ is a port of entry but it is legally considered to be outside the customs territory for the purpose of product entry procedures and tariff laws.

• FTZs are part of a duty deferral program.

Countries Impose Pricing Constraints

CRAFTING A WORLDWIDEMARKETING PROGRAMDISTRIBUTION AND PRICING STRATEGIES

LO5

Channels Usually Long and Complex

Prices May Be Too High or Too Low

7-120

14B

INTERNATIONAL MARKETING:

LOGISICS, INCOTERMS, and

TRADE FINANCE

DESIGNING GLOBAL PROGRAMS

• SENSITIVITY– CULTURE

• SYMBOLS, HEROES, RITUALS, VALUES• RELIGIONS, SUPERSTITIONS

– ETIQUETTE, CUSTOMS, TRADITIONS– – LANGUAGE & ITS USE– – NOTION OF TIME

GLOBAL BRAND ISSUES

• LOGOS

• WHAT TYPE OF BRAND?

• PROMOTION

• PACKAGING AND LABELING

• DISTRIBUTION AND LOGISTICS

INTERNATIONAL CYCLES AFFECTED BY

• – For complete order documents– Inserting the order into the schedule

• – Ports– Ship arrival, loading, transit, and unloading

• – Customs – Other inspections required by the importing country or

customer

DISTRIBUTION AND LOGISTICS

• – ROLE– SERVICES

•

• PACKAGING, INSURANCE, DAMAGE– CONTAINERS

DISTRIBUTION AND LOGISTICS-EXPORT DOCUMENTATION-

• • • • • CERTIFICATE OF ORIGIN

– Simple– Trade Area

• OCEAN BILL OF LADING• SHIPPER’S EXPORT DECLARATION [SED]

GLOBAL PRICING ISSUES

• GRAY TRADE

• Channel members offering unauthorized lower prices because of exchange rates

8,500 EurosStd. RETAIL Price

is 15,000 Euros

9,350 Euros

Distributor Price

10,500 Euros

This is an example of what kind of pricing strategy?

GLOBAL PRICING ISSUES

• INCOTERMS– –

• PLANT or DESTINATION [U.S. aberrations]

• NAMED PLACE [PORT]

– – CIF PORT [Cost Insurance and Freight Paid To …]

– http://www.iccwbo.org/incoterms/wallchart/wallchart.pdf

GLOBAL COLLECTION ISSUES

• • VALUE-ADDED TAX [VAT]• • METHODS OF PAYMENT

– EXIMBANK–

LEGAL ISSUES

• • • • CORRUPTION

– FOREIGN CORRUPT PRACTICES ACT

CISG MEMBER COUNTRIESCONVENTION FOR THE INTERNATIONAL SALE OF GOODS

(UN 1980)

GLOBAL MANAGEMENT

• THE ORGANIZATION– GOALS AND OBJECTIVES– CONTROL AND FLEXIBILITY