Distribution System Management

1
Distribution System Management

• Distribution System the series of institutions
  and functions linking manufacturers to markets
• Transaction Channel
• Physical Distribution (logistics) Channel

2
Distribution System Management

• Channel Structure
• Number of channels
• Number of channel levels
• Number of middlemen per channel level
• Structural justification for intermediaries

3
Distribution System Management

• Channel Functions
• research
• promotion
• market contact
• assortment
• physical distribution
• financing
• risk taking
• negotiation
• storage

4
Distribution System Management

• Negotiatory versus Facilitating Flows
• Some are buying, selling, and taking title.
• Others are performing non-negotiatory tasks.

5
Distribution System Management

• Channel Functions/Flows
• Performance of functions determines compensation.
• Margins
• Commissions
• Price Reductions

6
The Concept of Flows in Distribution System
Management
(functions that move)
Physical Possession Ownership Promotion
Negotiation Financing Risk Taking
Ordering Payment Research
All but physical possession and ownership could
be e-flows. All flows can be shifted up or
down the channel. All are subject to economy
of scale efficiencies. All must be performed.
If one flow fails, the entire channel can
fail. Performance of flows determines
compensation.
7
Channel Structure and Flows
Manufacturer
Structure
Flows
B2B
The manufacturer and wholesaler sellers normally
go to the buyers so B2B is a natural for
eCommerce. The buyers are already trained to
deal with distant sellers, and do not care where
where the seller is located as long as they can
perform the required functions (flows).
Wholesaler
B2B
Retailer
The retail level of the channel is the only
channel level where the buyer goes to the
seller. Retailers can use location dominance to
achieve sustainable competitive advantage. B2C
retailing does not have a dominant competitive
advantage over traditional stores.
B2C
Consumer
8
Distribution System Management

• Channel Functions/Flows
• Changes in who performs functions reflect
  discoveries of more efficient ways to combine or
  separate the functions at various levels.

9
eChannel Structure Alternatives
Store
Enterprise Focus
Supplier
Retailer
Consumer
Manufacturer
1-800
Current
Collaborative Systems
Store
Partner Focus
Supplier
Retailer
Consumer
Manufacturer
1-800
Near Term
Web
Virtual Fulfillment
Shared Market Data
Direct Focus
Web
Manufacturer
Supplier
Consumer
Emerging
10
Multi-Channel Fulfillment
Shared Market Data
Flow Focus
1-800
Manufacturer
Supplier
Consumer
Web
Retailer
(Not stolen from Alistair)
Bricks versus Clicks
Because of their location in the structure and
the flows they perform, retailers have a
strategic advantage in the channel of
distribution. They are closest to the consumer in
terms of contact and direct interaction. B2C
marketers have access to about 66 of the
market. Retailers already have the entire market
as customers. It will be much easier for
Retailers to convert their own customers to web
purchase behavior than it will be for eMarketers.
New web users are a major growth area for B2C
web sales. Store (location dominance) or catalog
based customer loyalty can be transferred to the
web. Webonly price-based competition builds no
loyalty, no sustainable competitive advantage. No
form of intermediary has ever been eliminated
from the channel. B2B marketers have most of
the advantages of B2C marketers without the
disadvantages
11
Distribution System Management

• Distribution Intensity
• Intensive (convenience goods)
• Mass distribution and promotion
• Selective (shopping goods)
• Reduced distribution, assortment breadth, channel
  cooperation
• Exclusive (specialty goods)
• Sacrifice market coverage for channel control and
  prestige

12
Distribution System Management

• Hanes Case
• Fully integrated distribution strategy to enter
  new markets with existing and modified products