978-1259709074 Chapter 16 Part 1

Chapter 16 – Supply Chain and Channel Management Marketing 6th

McGraw-Hill Education.

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Chapter 16

Supply Chain and Channel Management

Tools for Instructors

• Brief Chapter Outline

• Learning Objectives

• Extended Chapter Outline with Teaching Tips

• Answers to End of Chapter Learning Aids

• Chapter Case Study

• Additional Teaching Tips

• Connect Activities

Brief Chapter Outline

The Importance of Marketing Channel/Supply Chain Management

Designing Marketing Channels

Managing the Marketing Channel and Supply Chain

Making Information Flow through Marketing Channels

Making Merchandise Flow through Marketing Channels

Chapter Case Study: Zara Delivers Fast Fashion

Learning Objectives

LO16-1 Understand the importance of marketing channels and supply chain management.

Marketing channels allow companies to get their products in the appropriate outlets in sufficient quantities

to meet consumer demand. To anticipate this demand, advertising and promotions must be coordinated

with the departments that control inventory and transportation. Otherwise, customers would come in

seeking a promotion and not find the product.

Without the members in a marketing channel, consumers would be forced to find raw materials,

LO16-2 Understand the difference between direct and indirect marketing channels.

There are two ways by which businesses get their goods to consumers. Using a direct marketing channel,

a customer can purchase goods from the manufacturer without needing to go through a retailer or

retailer (e.g., Walmart), implementing an indirect marketing channel strategy.

LO16-3 Describe how marketing channels are managed.

The more closely aligned the marketing channel members are with each other, the less likely there will be

significant conflict. An administered marketing channel occurs when a dominant and powerful marketing

Chapter 16 – Supply Chain and Channel Management Marketing 6th

McGraw-Hill Education.

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channel member has control over the other members. In a contractual marketing channel (e.g.,

franchising), coordination and control are dictated by contractual relationships between members.

Corporate marketing channels can operate relatively smoothly because one firm owns the various levels

LO16-4 Describe the flow of information and merchandise in the marketing channel.

Information flow involves: flow 1 (customer to store), flow 2 (store to buyer), flow 3 (buyer to

manufacturer), flow 4 (store to manufacturer), flow 5 (store to distribution center), and flow 6

Extended Chapter Outline with Teaching Tips

I. The Importance of Marketing Channel/Supply Chain Management

A. Marketing Channels Add Value

B. Marketing Channel Management Affects Other Aspects of Marketing

II. Designing Marketing Channels

A. Direct Marketing Channel

B. Indirect Marketing Channel

III. Managing the Marketing Channel and Supply Chain

A. Managing the Marketing Channel and Supply Chains through Vertical Marketing Systems

1. Administered Vertical Marketing System

2. Contractual Vertical Marketing System

3. Corporate Vertical Marketing System

B. Managing Marketing Channels and Supply Chains through Strategic Relationships

1. Mutual Trust

2. Open Communication

3. Common Goals

4. Interdependence

5. Credible Commitments

1. What are the differences between an indirect and a direct marketing channel?

Answer: There are no intermediaries between the buyer and seller in a direct marketing channel.

Chapter 16 – Supply Chain and Channel Management Marketing 6th

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Marketing Applications

1 Describe marketing channel management by identifying the major activities that it involves.

Identify several ways that marketing channel management adds value to a company’s

offerings, with regard to consumers as well as business partners.

A marketing channel is the set of institutions that transfer the ownership of and move goods from the

point of production to the point of consumption. A marketing channel consists of all the institutions and

marketing activities in the marketing process.

product.

2 In what ways can the flow of information be managed in the supply chain? How can the ready

flow of information increase a firm’s operating efficiencies?

Information flows from the customer to stores, to and from distribution centers, to and from wholesalers,

to and from product manufacturers, and then on to the producers of any components and the suppliers of

to improve forecasting and planning, as well as to better understand demand.

3 Describe how B2B transactions might employ EDI to process purchase information.

Considering the information discussed in Chapter 7 about B2B buying situations, determine

which buying situation (new task, modified rebuy, or straight rebuy) would most likely align

with the use of EDI technology. Justify your answer.

EDI is the computer-to-computer exchange of business documents from a retailer to a vendor and back.

In addition to sales data, purchase orders, invoices, and data about returned merchandise can be

4 What are the differences between the use of a traditional distribution center and one that

relies on cross-docking? Discuss the extent to which one is more efficient than the other,

being sure to detail your reasoning.

After the merchandise is received and checked, it is either traditionally stored or cross-docked. When

merchandise is stored, the cartons are transported by a conveyor system and forklift trucks to racks that

go from the distribution center’s floor to its ceiling. Then, when the merchandise is needed in the stores, a

forklift driver or a robot goes to the rack, picks up the carton, and places it on a conveyor system that

routes the carton to the loading dock of a truck going to the store.

Chapter 16 – Supply Chain and Channel Management Marketing 6th

McGraw-Hill Education.

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5 Discuss the advantages to a retailer like Macy’s of expending the time and effort to get

merchandise floor-ready at either the point of manufacture or in the distribution center rather

than having retail store staff members do it in the stores. Provide the logic behind your

answer.

Floor-ready merchandise is merchandise that is ready to be placed on the selling floor. Macy’s getting

merchandise floor-ready entails ticketing, marking, and, in the case of some apparel, placing garments on

hangers (or maybe attaching RFID chips). For Macy’s it is essential that products ship in ready–to–sell

6 A just-in-time (JIT) inventory system appears to be an important success factor for retailers

like H&M and Forever 21. Choose a local retailer and examine the advantages and

disadvantages of its use of a JIT system. Do you believe it should use JIT? Why?

A JIT system is an inventory management system designed to deliver less merchandise on a more

frequent basis than traditional inventory systems. Firms get the merchandise just–in-time for it to be used

in the manufacturing of another product, or to sell. The benefits of a JIT system include reduced lead

7 Give an example of a retailer that participates in an independent (conventional) supply chain

and one involved in a vertical marketing system. Discuss the advantages and disadvantages

of each.

An independent supply chain is one in which several independent members—a manufacturer, a

wholesaler, and a retailer—attempt to satisfy their own objectives and maximize profits, often at the

expense of other members. A benefit is that neither party feels responsible for the other and there are

few switching barriers between channel partners. A disadvantage is that one party may attempt to

8 For each of the following consumer products, identify the type of vertical marketing system

used, and justify your answer: (a) Bertolli pasta sold through grocery stores, (b) Krispy Kreme

donuts sold through franchises, and (c) www.polo.com by Ralph Lauren.

(a) Bertolli pasta sold through a grocery store is an example of an administered vertical marketing

system.

Chapter 16 – Supply Chain and Channel Management Marketing 6th

McGraw-Hill Education.

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(b) Krispy Kreme donuts sold through franchises is an example of a contractual vertical marketing

system.

(c) www.polo.com by Ralph Lauren is an example of a corporate vertical marketing system.

9 Why might a big company like Lenovo want to develop strategic partnerships with locally

owned computer stores? Describe what Lenovo would have to do to maintain such

relationships.

Strategic relationships occur when supply chain members are committed to maintaining the relationship

over the long term and investing in opportunities that are mutually beneficial. Lenovo might want to

10 You are hired as an assistant brand manager for a popular consumer product. One day in an

emergency meeting, the brand manager informs the group that there is a problem with one of

the suppliers and that he has decided to send you over to the manufacturing facilities to

investigate the problem. When you arrive at the plant, you learn that a key supplier has

become increasingly unreliable in terms of quality and delivery. You ask the plant manager

why the plant doesn’t switch suppliers, because it is becoming a major problem for your

brand. He informs you that the troubled supplier is his cousin, whose wife has been very ill,

and he just can’t switch right now. What course of action should you take?

Students’ answers to this question may vary. The brand manager has an obligation to his/her company

and shareholders to sell a quality product. The brand will be impacted if it is using parts from a

Quiz Yourself

1 All of the following are examples of the value provided by a supply chain in the production of kitchen

stoves except

a. the transportation company gets the stove to the retailer.

b. the retailer educates the customer about product features, and delivers and installs the stove.

c. the product design team develops initial drawings for a new product offering.

d. the stove maker turns the components into the stove.

e. the components manufacturer helps the stove manufacturer by supplying parts and materials.

2 When supply chain members that buy and sell to one another are not in agreement about their goals,

_____ channel conflict can occur.

a. vertical

b. independent

c. competitive

d. horizontal

e. administered

Chapter 16 – Supply Chain and Channel Management Marketing 6th

McGraw-Hill Education.

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Case Study: Zara Delivers Fast Fashion

1 How does an individual firm like Zara manage a supply chain? How does it get new products

from design to store so quickly?

Zara has set up its supply chain so that stores can respond immediately to customer demand for

merchandise. Zara has factory locations that are close in geographic proximity to the company’s

2 What are some of the ways that Zara’s supply chain management system has helped create

value for its customers? Provide specific examples.

Zara is able to create value for customers in several ways. First, Zara is able to provide customers with a

“fast fashion” product faster than its competitors with short cycles and lead times. Second, Zara is able to

3 What challenges did Zara’s focus on supply chain efficiency create? Are all such systems

destined to suffer such growing pains?

Zara limits the amount of inventory in stores and produces and ships in small quantities. This sometimes

creates a sense of scarcity among customers. Because Zara is in a fashion business, Zara merchandise

must reflect changing fashion trends. Sometimes the system does not respond fast enough and Zara

Additional Teaching Tips

This chapter introduces the student to supply chain management. Instructors should tie in the role of the

supply chain to value creation and how it contributes to the marketing effort. Students can understand

how a product gets from point A to the end delivery point but may not understand the role of the

intermediaries in transport and their responsibility to the marketing effort. These factors should be

addressed in teaching the chapter.

Students can find this chapter difficult to fully understand. Showing the DVD for this chapter titled “New

Balance: Managing Supply from U.S. and Overseas” may clarify the role of supply chain management in

the marketing effort.

Instructors may want to assign students to roles in the distribution channel (manufacturer, warehouse

distributor, truck driver or transport person, wholesale, retailer) and various intermediaries with the

assignment given to them as follows: How does your role add to the marketing effort? This exercise gets

students to think about the connection to “Place,” one of the elements of the marketing mix, to the overall

marketing strategy.

Similar to the last chapter, the instructor may want to review the vocabulary of the chapter by having

students complete story problems surrounding the vocabulary words presented in this chapter.