MARKETING LOGISTICS AND SUPPLY CHAIN MANAGEMENT
Use Chapter Objective 5 here.
Use Key Term Marketing Logistics (Physical Distribution) here.
Nature and Importance of Marketing Logistics
Marketing logistics—also called physical distribution—involves planning, implementing,
and controlling the physical flow of goods, services, and related information from points of
origin to points of consumption to meet customer requirements at a profit.
Marketing logistics involves outbound distribution (moving products from the factory to
resellers and ultimately to customers), inbound distribution (moving products and materials
from suppliers to the factory) and reverse distribution (moving broken, unwanted, or excess
products returned by consumers or resellers).
Use Key Term Supply Chain Management here.
Use Figure 10.5 here.
It involves the entirety of supply chain management—managing upstream and downstream
value-added flows of materials, final goods, and related information among suppliers, the
company, resellers, and final consumers (Figure 10.5).
Companies today are placing greater emphasis on logistics for several reasons.
1. Companies can gain a powerful competitive advantage by using improved logistics to
give customers better service or lower prices.
2. Improved logistics can yield tremendous cost savings to both the company and its
customers.
3. The explosion in product variety has created a need for improved logistics management.
4. Improvements in information technology have created opportunities for major gains in
distribution efficiency.
5. Logistics affects the environment and a firm’s environmental sustainability efforts (the
development of a green supply chain).
Sustainable Supply Chain
Designing sustainable supply chains is simply the right thing to do. It’s one more way that
companies can contribute to saving our world for future generations.
Not only are sustainable channels good for the world, they’re also good for a company’s bottom
line.
Companies green up their supply chains through greater efficiency, and greater efficiency means
lower costs and higher profits.
Goals of the Logistics System
The goal of marketing logistics should be to provide a targeted level of customer service at the
least cost.
Major Logistics Functions
Warehousing
A company must decide how many and what types of warehouses it needs and where they will
be located.
Storage warehouses store goods for moderate to long periods.
Use Key Term Distribution Center here.
Distribution centers are designed to move goods rather than just store them.
Inventory Management
Just-in-time logistics systems: Producers and retailers carry only small inventories of parts or
merchandise, often only enough for a few days of operations.
Transportation
Trucks have increased their share of transportation steadily and now account for 40 percent of
total cargo ton-miles.
70 percent of all the freight tonnage moved in the United States goes on trucks.
Trucks are highly flexible in their routing and time schedules, and they can usually offer faster
service than railroads.
They are efficient for short hauls of high-value merchandise.
Railroads account for 26 percent of total cargo ton-miles moved.
They are one of the most cost-effective modes for shipping large amounts of bulk products—
coal, sand, minerals, and farm and forest products—over long distances.
Water carriers account for 7 percent of cargo ton-miles and transport large amounts of goods by
ships and barges on U.S. coastal and inland waterways.
Although the cost of water transportation is very low for shipping bulky, low-value,
nonperishable products, it is the slowest mode and may be affected by the weather.
Pipelines account for 17 percent of cargo ton-miles and are a specialized means of shipping
petroleum, natural gas, and chemicals from sources to markets.
Air carriers transport less than 1 percent of the nation’s goods. Airfreight rates are much higher
than rail or truck rates.
The Internet carries digital products from producer to customer via satellite, cable, or phone
wire.
Use Key Term Multimodal Transportation here.
Use Marketing Ethics here.
Use Discussion Question 10-5 here.
Multimodal transportation: Combining two or more modes of transportation.
Piggyback: Rail and trucks;
Fishyback: Water and trucks;
Trainship: Water and rail;
Airtruck: Air and trucks.
Logistics Information Management
Electronic data interchange (EDI) is the computerized exchange of data between organizations.
Vendor-managed inventory (VMI) systems or continuous inventory replenishment systems, is
the customer sharing real-time data on sales and current inventory levels with the supplier. The
supplier then takes full responsibility for managing inventories and deliveries.
Use Key Term Integrated Logistics Management here.
Use Critical Thinking Exercise 10-9 here.
Integrated Logistics Management
Integrated logistics management is a concept which recognizes that providing better
customer service and trimming distribution costs require teamwork, both inside the company and
among all the marketing channel organizations.
Cross-Functional Teamwork inside the Company
The goal of integrated supply chain management is to harmonize all of the company’s logistics
decisions.
Close working relationships among departments can be achieved in several ways.
Permanent logistics committees, made up of managers responsible for different physical
distribution activities
Supply chain manager positions that link the logistics activities of functional areas
System-wide supply chain management software
Building Logistics Partnerships
Cross-functional, cross-company teams: For example, Nestlé’s Purina pet food unit has a team
of dozens of people working in Bentonville, AR, the home of Wal-Mart. They work jointly with
their counterparts at Wal-Mart to find ways to squeeze costs out of their distribution system.
Shared projects: For example, Home Depot allows key suppliers to use its stores as a testing
ground for new merchandising programs.
Third-Party Logistics
Third-party logistics (3PL) providers help clients tighten up overstuffed supply chains, slash
inventories, and get products to customers more quickly and reliably. (Also called outsourced
logistics or contract logistics.)
Companies use third-party logistics providers for several reasons.
1. These providers can often do it more efficiently and at lower cost.
2. Outsourcing logistics frees a company to focus more intensely on its core business.
3. Integrated logistics companies understand increasingly complex logistics environments.
Use Key Term Third-Party Logistics (3PL) Provider here.
Use Discussion Question 10-6 here.
Video Case: Progressive
Progressive has attained top-tier status in the insurance industry by focusing on innovation.
Progressive was the first company to offer drive-in claims service, installment payment of
premiums, and 24/7 customer service. But perhaps Progressive’s most innovative moves involve
its channels of distribution. Whereas most insurance companies distribute via intermediary
agents or direct-to-consumer methods, Progressive was one of the first to see value in doing
both. In the late 1980s, it augmented its agency distribution with a direct 800-number channel.
Two decades ago, Progressive moved into the digital future by becoming the first major insurer
to launch a Web site. Soon after, it allowed customers to buy auto insurance policies online in
real time. Today, customers can use Progressive’s Web site to do everything from managing their
own account information to reporting claims directly. Progressive even offers one-stop concierge
claim service.
After viewing the Progressive video segment, answer the following questions about marketing
channels.
10-15. Apply the concept of the supply chain to Progressive.
10-16. Using the model of consumer and business channels found in the chapter, sketch
out as many channels for Progressive as you can. How does each of these channels meet
distinct customer needs?
10-17. Discuss the various ways that Progressive has had an impact on the insurance
industry.
Company Cases
10 Apple Pay/15 7-Eleven
See Appendix 1 for cases appropriate for this chapter.
Case 10, Apple Pay: Taking Moble Payments Mainstream. In the past, Apple has disrupted
marketing channels with revolutionary products. With Apple Pay, Apple is proving once again
that it can deliver.
Case 15, 7-Eleven: Adapting to The World’s Many Cultures. Just a convenience store in the
U.S., 7-Eleven has a strong global presence by catering to different distribution strategies
throughout the world.
MyMarketingLab
If assigned by your instructor, complete these writing sections from your Assignments in the
MyLab.
10-18. Why does channel conflict occur? Name and describe the various types of channel
conflict. (AACSB: Communication)
10-19. Should retailers be responsible for safety conditions in garment supplier factories in other
countries? Discuss. (AACSB: Written and Oral Communication; Reflective Thinking;
Ethical Understanding and Reasoning)
GREAT IDEAS
Barriers to Effective Learning
1. Students will probably not have previously considered the complicated nature of getting
products to consumers before, and the concepts of “supply chain” and “value delivery
network” will most likely be foreign. Figure 10.1 is excellent in showing how complex
delivery networks could become without intermediaries, and an early focus should be
placed on this figure.
2. Vertical marketing systems can be difficult to understand. It might actually be easier to
begin discussion of the contractual VMS with the illustration of franchises. Most students
understand that McDonald’s is a franchise organization, and so the concept will be
understood quickly and easily. A corporate VMS then becomes easy to understand
because those consumer outlets are all owned by the company whose logo is on the door.
Administered VMS can be illustrated by the example of Wal-Mart, whose marketplace
power has been making news.
3. Students will recognize horizontal VMS if they have been in a grocery store recently. The
addition of bank branches, and in some grocery stores, Starbucks outlets, easily explains
this concept.
4. Multichannel distribution systems can be illustrated by discussing how PC
manufacturers, like HP, sell through retail outlets but also have their own sales forces for
business customers. Dell will sell to consumers via its Web site, to large companies
through its own sales force, and to small businesses through many certified resellers.
5. In marketing logistics, the concepts of inbound and reverse logistics should be fully
explained. Most students, at this point in the chapter, will have no problems with
outbound logistics.
Student Projects
1. Why do some manufacturers establish contractual relationship with their dealers instead
of owning them?
2. Draw the diagram of the channel of distribution for Green Giant canned corn and Rolex
watches. (You may have to do a little Internet research if you’re not familiar with the
brands.) How does distribution differ between these two products?
3. How do channel members add value? Give specific examples.
4. One of the major trends is disintermediation. Why are companies turning to this? What
are the primary advantages and disadvantages associated with disintermediation? Under
what conditions does it make the most sense?
Small Group Assignment
Form students into groups of three to five. Each group should read the opening vignette to the
chapter on Uber. Each group should then answer the following questions:
1. How has Uber’s strategy been different from other competitors’ strategies?
2. What is Uber doing to stay ahead of competition?
3. Most firms cannot bring value to customers by themselves. How does Uber bring value to
its customers?
4. What is the source of Uber’s competitive advantage? Can competitors easily duplicate
this? Explain.
Each group should share its findings with the class.
Individual Assignment
Mobile phone manufacturers largely distribute their products through service providers like
T-Mobile and AT&T. Why do you believe this is so? Do you think this is the most efficient
method?
Think-Pair-Share
Consider the following questions, formulate answers, pair with the student on your right, share
your thoughts with one another, and respond to questions from the instructor.
1. What are the major channel alternatives open to a company?
2. What are some of the ways that companies have to evaluate channel members?
3. What is the difference between an “upstream” channel member and a “downstream”
member?
4. The term “supply chain” seems pretty limiting. What phrase would you use to replace it?
Why?
5. What are some of the key functions that members of the marketing channel typically
perform?
Classroom Exercise/Homework Assignment
Read about Starbucks’ commitment to help indigenous farmers in underdeveloped countries.
(http://www.starbucks.com/responsibility/community/farmer-support). After reading, write up
your interpretation of the full distribution channel – from beans in the field to the finished cup of
coffee you enjoy at your local Starbucks.
Classroom Management Strategies
We have a chapter with a lot of very important material, but planned carefully, this chapter can
easily be covered in one class period.
1. The first two sections of this chapter, Supply Chains and the Value Delivery Network and
The Nature and Importance of Marketing Channels, can be covered in 5 minutes each.
Both sections are important for establishing a vocabulary and baseline for the remainder
of the chapter and, as such, are relatively short and to the point. Utilizing Figures 10.1
and 10.2 will be extremely helpful.
2. The next section, Channel Behavior and Organization, should be covered in 15 minutes.
The concept of vertical marketing systems will most likely take the majority of that time,
because it can be a difficult concept to comprehend. Utilizing lots of examples will help
3. Channel Design Decisions should also take 15 minutes to discuss. In this section, an
equal amount of time should be spent on virtually all the subheadings, although
Identifying Major Alternatives may take several minutes longer than the remaining
sections.
4. The next two major sections, Channel Management Decisions and Public Policy and
Distribution Decisions, can be covered in 5 minutes each. Again, these sections are short,
with the information presented in a concise manner.
5. Finally, Marketing Logistics and Supply Chain Management can be covered in 10
minutes. Half of this time should be spent on the subsection Major Logistics Functions. If
the students are required to take an Operations Management course, they will cover these
topics in more detail, but if not, this could be the only time they are exposed to these
concepts while in college.
PROFESSORS ON THE GO
Marketing Channels: Delivering Customer Value
Key Concepts
Value delivery network
Channel members add value
Channel behavior
Vertical and horizontal marketing systems
Describe at least three different distribution channels a new textbook might take to get
from the publisher to the student-consumer?
Take a product or service of your choice and draw a diagram of the channel of
distribution that is used to bring the product or service to the marketplace.
Why are marketing intermediaries used?
Key Concepts
Making channel design decisions
Making channel management decisions
What are some of the methods companies use to motivate channel partners?
College students frequently want food late at night, you are going to launch a
business that picks up and delivers food to on-campus dormitories. Using the
information in the text, design your channel of distribution. What are the needs of the
consumer? What are your channel objectives? Do you want to use any
intermediaries?
Key Concepts
Marketing logistics and its functions
Integrated logistics management
Why would a company consider outsourcing its own logistics functions?
What are the overall goals of integrated supply chain management? What can a
company do to achieve the close working relationships necessary for effective supply
chain management?
What do you think is the most critical function performed in logistics? Explain why
and describe how the field is changing and what you think will happen in the future.