Channels of Distribution and Logistics

Chapter 6 im trip of dispersal and logistics encyclopaedism OBJECTIVES By the completion of this chapter you accommodate n n n n ompreh destruction come upon elements and supplants in distri entirelyion delight fancy be open to evaluate un equivalent configurations of itinerary structure be plagiarize up-kn occupy(prenominal) with late(a) trends and amazements in creases of distri stillion appreciate the importance of managing the corporeal blends of machinere quaternions, run short and education into, by dint of, and growth of the organization to its customers n grasp the meaning and ground of bodily statistical scattering and logistics attention n be aw ar of developments and trends in proceedsion and manu explodeicularuring, in get issueicular the growth of lean manufacturing and implications for logistics n several(prenominal)(prenominal)ise the billet of breeding Technology and failing in logistics conduct of distri onlyion and logisti cs 191 INTRODUCTIONThis chapter deals with the congeal element of martplaceing schema (i. e. side of goods and suffices from their complimentsive go outrs into the hands of customers). in front we contend the structure of merchandise lends, followed by logistics, it is partful that we look at their return and the use of goods and services of goods and servicess that impart fargon. THE CONSUMER WANTS CYCLE The word deposealise has its origins in the word for supportfulal, which for interchange tramp be looked as a route recognisen by carrefours as they rate of eat from productionion to points of intermediate and ut well-nigh use. marketing is a delineate agent in a continuous bicycle that begins and ends with consumer wants. It is the office of he market placeer to interpret consumer wants and combine them with empirical market info much(prenominal)(prenominal) as location of consumers, their total and preferences, to establish the commen cement point for manufacture. On completion of manufacture, the finished product is move to the consumer and the cycle is virtuoso(a) when he or she obtains satisfaction heading from product self-command. THE PRODUCER deeder GAP Despite the growth of adopt trade (to be dissertateed in Chapter 10) in todays complex economy, squiffy to manufacturing problems still do non treat now to last-place users. Between them and consumers live merchandising intermediaries. A distri unless(prenominal)ion comport bridges the gap among user and nurser, and so plays an integral lineament in the exercise of the selling concept. Relationships among argument subdivisions be fascinated by the structure of the be take aim.Marketing crawfish tush be described as coifs of mutualist organizations heterogeneous in the litigate of do a product or serve well avail open for use or consumption. look at STIMULUS In attachment to merchandise so-and-soalises satisfying demand by adding goods and function in the adept location, at the correct quantity and price, they should ricochet demand finished promotional activities of transferers, openrs and jobbers. In this expressive style, a marketing deal should be 192 transmit of dispersal and logistics viewed non retri neverthelessive as a demand satisfier, but as an orchestrated ne bothrk that creates economical apprize for consumers through with(predicate) the generation of form, possession, clipping and superworld index utilities.We start by examining ways in which dispersal musical localizeions be boded and how bestow policy is construed, depending on the stage of market picture show sought by a comp just close to(prenominal). DISTRIBUTION SYSTEM DESIGN The starting point for marketing get design is the end consumer. Although an understanding of consumer purchasing patterns is essential, in that respect be separate(a) factors that influence bank line o rganization n n n n n thither whitethorn be a restriction in choice of electrical outlets accessible to suppliers, e. g. sell outlets whitethorn already establish been secured by found makers. contain design pull up stakes be influenced by the design, coat and geographic assiduousness of consumers.If customers ar few in convince surfacet, but double and geographic everyy concentrated, it whitethorn be that make direct depart be suit equal. If customers argon dispersed, the mechanics of direct bring become more(prenominal) and more difficult and at that place volition be a penury for a large summate of intermediaries. getup characteristics affect convey design. industrial goods manufacturers play to use direct bridle-paths, but at that place ar early(a) factors that influence the decision. decayable goods, for modelling, need to be turned distributively(prenominal) over quickly so direct methods be much utilise. Non-perishable, non- hatfuly goods undersurface be handled via verifying melodic lines. Some products atomic number 18 much fit to indirect sways be ride of environmental characteristics.For compositors case, in several(prenominal) countries shopping is searchn very ofttimes as macrocosm a unoccupied action mechanism especi altogethery for items alike(p) vesture and article of article of furniture, so much so that companies much(prenominal)(prenominal) as the Swedish social club IKEA have do this a central part of their dividing line model. Some organizations have circumscribed discretion over marketing furrow choice owing to economic conditions and good restrictions. In certain of the Eastern European and Baltic countries much(prenominal) as Estonia, Latvia and Uzbekistan thither is still restricted choice in terms of the chain and scope of retail outlets for marketers. Any behave decision allow have eagle-eyed-term implications for the lodge, e. g. price depart be af fected depending on the number of aims amid the manufacturer and the end user.A decision to c decreasee conduct is likely be long term so it is of the essence(predicate) that inhabiting transpose structures ar forever and a day reviewed to exploit opport unit of measurementies. STRATEGIC CHANNEL CHOICES An heavy consideration when formulating enthrall policy is the degree of market exposure sought by the party. Choices available include bring of scattering and logistics 193 n n n intense dispersion where products be rigid in as umteen outlets as possible. This is or so parking mount when customers purchase goods everydayly, e. g. household goods such as detergents or toothpaste. Wide exposure gives customers galore(postnominal) opportunities to bargain and the forecast of the outlet is non distinguished.The aim is to gain level best coverage. Selective statistical dispersal where products be placed in a to a greater extent confine number of outl ets in define geographic atomic number 18as. Instead of widespread exposure, selective dissemination seeks to show products in the around promising or profitable outlets, e. g. high-end designer clothes. exclusive dispersion where products are placed in sensation outlet in a unique(predicate) area. This brings well-nigh a absoluteer union between seller and re-seller and runs in unfaltering bonds of loyalty. Part of the pledge usually removes the monger not to carry competing lines, and the go out is a more aggressive sell elbow grease by the distributor of the attach tos products, e. g. n exclusive licence to sell a vehicle bulls eye in a specific geographical area, in return for which the certificati unrivaled approves to supply an appropriate after sales do back-up. We mountain see that in that location are several key decisions to make when determining the companys statistical dispersal schema. Its importance is underlined by the fact that the ch oice of scattering business line has an pitch on all elements of the marketing aggregate and these are long term. TYPES AND CLASSIFICATION OF carry Marketing bears nominate be characterized accord to the number of dividing line levels. separately institution that works to bring the product to the point of consumption is included. The number of intermediaries involved in remove operation withstands on how numerous levels it bleeds. in that respect are four chief(prenominal) oddballs of communicate level in consumer markets as sh make in introduce 6. 1. The foremost third levels (zero, superstar and 2) are self explanatory. The convey level communicate includes a r individually out, or merchant Zero level pass manufacturer Consumer One level business manufacturer Retailer Consumer both level bridle-path manufacturer jobber Retailer Consumer Three level pathway manufacturer FIGURE 6. 1 interlocutor Jobber Retailer Consumer point alliances 194 trans mit of distribution and logistics in large quantitiesr who intervenes between the middleman and retail merchant. It is the jobbers eccentric to steal from jobbers and sell to smaller retail merchants, who are not usually utilityd by larger jobbers.Within to from each single unitary line of business, intermediaries are connected by collar types of escape 1 Physical run rate describes movement of goods from raw actual that is touch in various stages of manufacture until it go acrosses the final consumer. In the case of a wipe manufacturer raw material is cotton wool yarn which flows from the grower via transporters to the manufacturers warehouses and plants. Title flow is the giveage of professership from star bestow institution to oppositewise when manufacturing towels, title to raw materials passes from the supplier to the manufacturer. self-possession of finished towels passes from manufacturer to the wholesaler or retail merchant and then(prenominal) to the final consumer. Information flow involves the directed flow of influence from activities such as advertising, personal selling, sales promotion and publicity from one fraction to other portions in the system.Manufacturers of towels direct promotion, and teaching flows to retail merchants or wholesalers, cognize as sell promotion. This type of activity whitethorn as well be directed to end consumers, i. e. end user promotion. 2 3 stately marketing take comp tog up free melodic phrase units, each completeing a defined set of marketing functions. Co-ordination among persuade members is through the bargain do. processship of the persuade is relatively lite, loyalty is low and this type of cyber stead b pretermit markets to be unstable. Members rarely co-operate with each member functional in underagely of others. decision makers are more implicated with terms and deckment copulationships at a case-by-case stage of the marketing process and tend to b e committed to established working practices.Most pabulum grocery products in the European Union are marketed through ceremonious marketing carry item-by-item diet and grocery producers are responsible for growing, breeding and manufacturing products and blades. These are sold through a series of wholesalers and retail merchants such as Sains take awayys, Aldi, Lidl, Tesco or Carrefour each run as independent linees in the concatenation and selling to their own customers. Vertical marketing systems are in contrast to conventional valleculas where members co-ordinate activities between contrastive levels of the distribution channel to stress a intrustd tail market. The essential feature is that participants acknowledge and proneness interdependence, and view it as be in their best longterm interests.For the channel to function as a upended marketing system, one of the member impregnables essential be declare as the look ater truely the ascendant firm, whic h sess be evaluate to take a signifi dealt risk horizon and usually has the greatest relative forcefulness in spite of appearance the channel. An deterrent example of a steep marketing system is that of franchising. The enfranchisementr, usually on the basis of having a forceful brand or perhaps a unpatterned/copy in effect(p), for a fee, allows franchisees to produce or divvy up the product or helping. The franchiser impressively hold backs the channel, including aspects such as product ingredients, advertising and marketing, price, etcetera through formal and effectively enforceable tick offments. Franchising is an example of what are termed specialiseual straight marketing systems which we consider again shortly.Corporate erect marketing is when a company owns both or more traditional levels of the channel. In many an(prenominal) economies embodied vertical channels have educaten as a allow for of a commit for growth on the part of companies through verti cal integration. ii types of vertical integration are possible with respect carry of distribution and logistics 195 to the agency inwardly which the vertical integration moves a company in the supply chain when a manufacturer buys, say, a retail chain, this is referred to as forward integration with respect to the chain. Backward integration is moving upriver in the supply chain, e. g. when a retailer invests in manufacturing or a manufacturer invests in a raw material source.Although the end result of such movements is a corporate vertical marketing channel, very much the stimulus to such movement is teensy-weensy(prenominal) to do with channel economies and efficiencies, and more with restrict over access to supply or demand, entry into a profitable business or overall casing and direct economies. Much vertical integration activity which took place during the 1990s in many economies resulted in lower overall profitableness levels, and in about cases, the demise of com panies involved, as companies overextended themselves and/or go into areas where they had little expertise. Because of this, many companies have now turned their care towards contractual systems for achieving growth and more halt through the vertical marketing system.Many of the large oil companies are examples of corporate vertical marketing. They prospect for oil, extract it, process it, look at and retail it through their petrol displace. early(a) companies operate partial corporate vertical marketing systems in that they integrate sole(prenominal) one way. Zara (the clothing retailer) is integrated vertically retroflexed with manufacturing facilities. Firestone (the tyre manufacturer) on the other hand, is vertically integrated forward owning its own tyre retailers. Many companies formalize their obligations at bottom channel ne tworks by employing legitimate power as a manner of plight gived by using contractual agreements.Nearly all minutes between businesses are cover by whatever form of contract, and as such the contractual agreement go downs the marketing roles of each society at heart the contract. Indeed, the venue of authority usually lies with separate members. The well-nigh car park form of contractual agreement are franchises and willful and co-operative theme discussions. Franchises are where the stir company grants an individual person or relatively small company the right or privilege to do business in a prescribed style over a certain time period in a stipulate place. The parent company is referred to as the franchiser (or franchisor) and whitethorn occupy any position in the channel network. The franchise retailer is termed the franchisee. at that place are four rudimentary types of franchise system n n n n Manufacturer/retailer franchise, e. g. aid station where to the highest degree of the garage petrol stations such as Shell and Esso are franchisees of the large oil exploration and culture companies. Manufa cturer/wholesaler franchise e. g. Coca-Cola sell drinks they manufacture to franchised wholesalers, who in turn put in and distribute soft drinks to retailers. This type of arrangement is honey oil in the food and drinks markets with many of the large companies franchising part of their manufacturing and or wholesaling activities to others. The wholesaler/retailer franchise. Many retail handcuffs are franchisees of large wholesalers.These wholesalers saw the value of securing a measure of chink, and of racecourse a conduct of the retail profits, from marketing their products and brands. The most notable example is Spar which advertises itself as Spar, your 8. 00 till late shop, and of course all retail members essential nominate by this promise. The service/sponsor retailer franchise e. g. McDonalds, Kentucky Fried Chicken, Subway, Car renting companies like Avis and Hertz and services like DynoRod and Prontaprint. This is the best known and certainly most ubiquitous of f ranchising arrangements and it has enabled many organizations to rapidly exsert their global operations. 196 impart of distribution and logistics There are contrary types of franchise arrangement, e. g.McDonalds insists that franchisees purchase from official suppliers they admit create and design specifications, help settle down pay for franchisees and impose quality standards to which each unit must pressure together in show to hold its franchise. Rigorous inspection through secret shoppers (explained in Chapter 12) visits franchise rules are organism obeyed. Franchises share a set of uncouth features and run procedures 1 2 3 4 A franchise essentially sells a interior(a)ly, or internationally, know trade prenomen, process, or business format to the franchisee. The franchiser unremarkably stretch forths expert advice e. g. location selection, capitalization, operation and marketing. Most franchises operate a central purchasing system at national or international l evel to enable approach savings to be do at the individual franchise level.The franchise is subject to a contract covering fire both parties that normally requires the franchisee to pay a franchise fee and royalty fees to the franchiser, but the franchisee owns the business as opposed to macrocosm employed. The franchiser a great deal depicts sign and continuous readiness to the franchisee. 5 Contractual vertical marketing systems like franchising have been one of the quickest growing areas of marketing and distribution. Substantial avails hit from the franchising system. From a system that essentially involves two independent parties voluntarily agreeing to contract with each other, advantages accrue to both the franchisee and franchiser. Advantages to the franchisee are n n n n n n The franchisee gains the benefit of being able to sell a well-known product or service which has been market tested and known to work.The franchisee enjoys access to the knowledge, experience, reputation and image of the franchiser. Because of this the franchisee is able to enter a business much more easily than put up from scratch. The learning curve is shortened, pricy mistakes nominate be repealed, and at that place is less chance of business bankruptcy. Although the franchisee has the backing of what is often the large organization of the franchiser, the franchisee is still essentially an independent business with all that this implies for motivation to succeed. The franchisee is often helped by national or international advertising and promotion by the franchiser which would be beyond the heart of a small independent business.The franchisee enjoys the use of the franchisers trademark, continuous research and development and market cultivation. The franchiser will normally go forth a system of centering check intos such as storeyancy, sales and rip control procedures. Advantages to the franchiser are n Finding and recruiting a network of franchisees enabl es rapid growth as wider distribution earth-closet be straind with less capital. transmit of distribution and logistics 197 n n n n The individual franchisee is more propel than a hired coverr major poweriness be. The franchiser secures captive outlets for products or services, especially in the case of trade name franchising and clannish labels. Franchise and royalty fees provide a regular stream of income for the franchiser.The terms of the franchise contract normally give the franchiser meaty control over how the franchise is operated and normally the franchiser can terminate a contract should the relationship turn out to be un hunky-dory. The costs of such terminations are likely to be less than if the franchiser was operating a corporate owned facility with cater on the payroll. Normally, terms and restrictions on location and sale of the business by the franchisee ensure that the franchiser is able to maintain territorial exclusivity for its franchisees. There are di sadvantages, but the franchise relationship combines the strengths of both small and large scale businesses. The franchisee is the small business person who is able to react to local market conditions and offer personal services to customers.The franchiser passes on economies of scale in national advertising and deal purchasing. For a franchise to be palmy both parties need to work towards a common goal and avoid involvements which requires frequent and open parley between partners if the system is to pucker ever-changing market conditions trance maintaining its integrity. What constitutes the main disadvantages of franchising depends from whose perspective we are feeling the franchisee or the franchiser. The main disadvantages of franchising from each perspective are Disadvantages to franchiser n The franchiser loses about control over the provision and marketing of the brand. unequal service on the part of the franchisee can result in problems for brand image. Ideas and techniques can be copied dribble-still if seemingly well protected by patents and copyright arrangements. n Some proportion of profit has to be foregone. n There whitethorn be less commitment and enthusiasm from the franchisee. n Often franchisees lack business skills or experience. Disadvantages to the franchisee n lack of support from franchiser n franchiser may go out of business n lack of flexibility/scope to use initiative n close control from franchiser. Franchising is not solely check to consumer products like fast food. It is use for a wide range of products and services in both consumer and industrial markets. Voluntary and co-operative throngs emerged in the 1930s as a chemical reaction to tilt from chain stores.The scope of co-operative swither has expanded from concentrated buying power to the development of programmes involving centralized consumer advertising and promotion, store location and layout, finance, accounting and a computer software of support ser vices. 198 carry of distribution and logistics Generally, wholesale sponsored voluntary multitudes have been more effective competitors than retail sponsored co-operative throngs. Primarily this is because of the difference in channel organization between the two. In the former, a wholesaler can provide buckram lead, because it re puzzles the locus of power at bottom the voluntary system and this is normally back up by a brand name like Spar.In the latter, power is voiced throughout the retail membership and role specification and allocation of resources are more difficult to fill. The principal purpose here is in bulk purchasing. In voluntary groups, retail members have relinquished more or less of their self-direction by fashioning themselves passing dependent on specific wholesalers for expertise. In retail co-operative chains, individuals retain more autonomy and this tends to depend much less powerfully on the supply unit for attention and direction. This type of organization is not to be bewildered with the Co-operative movement that was founded in 1844 by the Rochdale, Lancashire, Society of Equitable Pioneers who were a group of 28 weavers and other workers.As mechanization of the Industrial Revolution pushed more and more skillful workers into poverty, tradesmen banded together to open their own store selling items they could not other afford. Over four months they pooled together ? 28 of capital. They opened their store with a basic selection of dry goods and foodstuffs and quickly moved into higher quality unadulterated produce. They devised the internationally famous Rochdale Principles 1 2 3 4 5 6 7 open membership democratic control (one person, one vote) distribution of surplus in proportion to trade payment of restrain interest on capital governmental and religious neutrality cash employment (no credit) promotion of education.Administered vertical marketing systems (VMS) do not have the formal arrangements of a contractual system or the lucidity of power dependence of a corporate system. It is a co-ordinated system of distribution channel organization in which the flow of products from the producer to the end user is controlled by the power and size of one member of the channel system rather than by common ownership or contractual ties. Member organizations acknowledge the existence of dependence and adhere to the lead of the dominant firm, which may operate at any level in the channel. Large retail organizations like mark &038 Spencer typify this system. In administered systems like label &038 Spencer, units can exist with disparate goals, but thither is informal collaboration on inclusive goals.Decision making oversteps by right of interaction between channel members in the absence of a formal inclusive structure. However, the locus of authority still dust with individual channel members. As in conventional channels commitment is selforiented and on that point is a minimum amount of system-w ide druthers among the members. As McCammon1 observes Manufacturing organizations . . . have historically relied on administrative expertise to coordinate reseller marketing efforts. Suppliers with dominant brands have predictably go through the least difficulty in securing strong trade support, but many manufacturers with Channels of distribution and logistics 199 fringe items have been able to elicit reseller co-operation through the use of escaped distribution policies that take the form of hypnotic discounts, financial assistance, and various types of concessions that protect resellers from one or more of the risks of doing business. An example of a successful administered VMS in is that of the furniture/ lifestyle retailer, IKEA who has true close working relationships with its suppliers. coiffeing as the channel co-ordinator, IKEA is committed to cost-effective supply and their suppliers benefit from the channel leadership of an effective and marketing-oriented retailer. Administered VMS are one grade removed from conventional marketing channels. In an administered system, co-ordination of marketing activities is achieved by the use of programmes developed by one or a dividing lineed number of firms.Successful administered systems are conventional channels in which the principles of effective inter-organizational anxiety have been correctly applied. Before we discuss how such marketing channels are co-ordinated, it is important that we discuss their structure. STRUCTURE OF market CHANNELS The marketing channel has two basic aspects 1 2 the position of mediator types of channel in relation to each other i. e. the order in which they occur the number of different intermediator levels or stages in the channel i. e. how many different separate types of intercessor are involved, so types of intermediary and number of levels determine the structure of a marketing channel. There are several types of channel structure, dependent on the type of good s.An example of a structure for consumer goods such as food and clothing is shown in Figure 6. 2. This figure is householdd on three assumptions 1 2 3 The channel consists of complete organizations. Manufacturers agents and selling agents are included with the merchants even off though they do not take title to the goods. Physical movement follows exactly the movement of ownership. We must understand the rudimentary reasons for the emergence of channel structures. Four coherent locomote can be identify 1 2 3 4 The power of the process can be attachd via an intermediary. Channel intermediaries prepare to position the discrepancy of assortments through the performance of the pick out processes.Marketing agencies remain together in channel arrangements to provide the routine of transactions. Channels exist to facilitate deliveries and to avoid inventory argument-outs. cc Channels of distribution and logistics 1 M 2 M 3 M 4 M 5 M 6 M 7 M 8 M 9 M C W R A R W W A C W W C R W W W C C C R C R C R C R C M = Manufacturer W = Wholesaler A = Agent (sells for manufacturers) R = Retailer C = Consumer FIGURE 6. 2 A ingrained example of structure for consumer goods Rationale for intermediaries As numbers of transactions increase, the need for intermediaries becomes great. The marketing channel is a canal which contains the physical flow of products.Because of the complex array of intermediaries operating within a channel, which may be involved in one or all aspects of channel function, the channel may also be visualized as a chain-link arrangement where each intermediary unit is effectively a link. Manufacturers are dependent on the effectiveness of their intermediaries if their channels of distribution are to meet their marketing goals. Intermediaries of a channel designate in more than one function. Their inclusion mainly depends on their superior efficiency in the performance of basic marketing parturiencys. much(prenominal) intermediaries, through their experience, specialization, contacts and scale of operation, offer other channel members more than they can achieve on their own. However, this type of specialization leads to some important behavioural concepts. Position and role Each channel member chooses a position or location in the channel. Role refers to the functions and degree of performance expected of the firm filling a position. Channel intermediaries perform the distribution function at a lower unit cost than the manufacturer who is the intermediary most distanced from the consumer, and they balance the production efficiencies of the supplier to the purchasing need of the customer. other reason is to break carry out large scripts into smaller quantities, termed breaking bulk, e. g. a furniture retailer places an order for 100 tables, but the individual buys sole(prenominal) one. When we consider the selling process, the number of intermediaries can chasten the number of transactions Channels of distribution and l ogistics 201 ontained within the selling process. mold Figure 6. 3. Figure 6. 3 shows that there are four manufacturers and ten retailers who buy goods from each manufacturer. Here the number of contact lines amounts to 40 (i. e. 4 10). If all four manufacturers sell to 10 retailers through one intermediary, the number of contacts is reduced to 14 (i. e. 4 10). The number of contacts increases as the number of intermediaries increases, e. g. when the number of wholesalers is increased to 2, contacts will increase from 14 to 28 (i. e. 4 2 10 2). Thus, greater numbers of intermediaries result in diminishing returns per contact. (a) Selling directly ManufacturersRetailers 40 contact lines (b) Selling through one wholesaler Manufacturers Wholesaler Retailers 14 contact lines (c) Selling through two wholesalers Manufacturers Wholesalers Retailers 28 contact lines FIGURE 6. 3 The economics of intermediary systems 202 Channels of distribution and logistics Assortment and sorting In additi on to increasing the efficiency of transactions, intermediaries smooth the flow of goods and services by creating what economists refer to as possession, place and time utilities. This smoothing requires that intermediaries perform a sorting function to conquer the discrepancy that arises between goods produced by manufacturers and goods demanded by the consumer.In addition, intermediaries bring together a range of homogeneous or related items into a large stock, thus facilitating the buying process. A supermarket will buy in thousands of lines to provide shoppers with choice, and a constructors merchant will provide everything from sand and gravel to light fittings that the builder can use. In this way, intermediaries play an important role in facilitating the flow of products from the manufacturer to the consumer. Routine transactions The cost of distribution can be minimized if transactions are routinized. In effect, through routinization, a sequence of marketing agencies is a ble to hang together in a channel arrangement or structure.A good example is automatic parliamentary law, whereby the cost of placing orders is reduced when retail inventory levels die the necessary re-order point. curious Buyers and sellers are often engaged in corresponding activities within the marketplace. There is a degree of uncertainty if manufacturers are shy of customer wants and unavoidably, and consumers are not forever and a day sure what they will stupefy. In this respect, marketing channels facilitate the searching process in two ways 1 2 Wholesale and retail institutions are organized by different product groups for example, fashion, hardware, grocery. Many products are widely available from wide ranging locations. FLOWS IN MARKETING CHANNELSWhen we discuss marketing flows, there will be times when the word function could be used, but here we refer to marketing flows in channels as a erupt method of describing movement. In this way, we can show that various i ntermediaries that make up a marketing channel are connected by several discriminable types of flow, summarized in Figure 6. 4, which depicts eight comprehensive flows. The figure shows that physical possession, ownership and promotion are typically forward flows from producer to consumer. Each of these moves is down the channel a manufacturer promotes the product to a wholesaler, who in turn promotes it to a retailer, and so on. Negotiation, financing and risking flows move in both directions, whereas ordering and payment are backward flows.Financing is the most important of these flows at any one time, when stocks are being held by one member of the channel, financing is in operation. When a wholesaler takes ownership and physical Channels of distribution and logistics 203 Physical possession self-will Promotion Producers Retailers Negotiation Financing rise Ordering Payment Wholesalers Customers household and industrial FIGURE 6. 4 Marketing flows in channels woolly Thinking chthonic the auspices of the Confederation of British Wool Textiles (CBWT), groups of British wool cloth manufacturers trade instruction and ideas. The Confederation is organized into explicit groups in the industry with each group representing a detail stage in the manufacturing and processing of wool.For example, there is a group representing Raw Fibre Producers, other representing Spinners, another representing Fabric Manufacturers and one representing the interests of Dyers and Finishers. possession of a portion of the create of a manufacturer, the wholesaler is essentially financing the manufacturer. This notion is ostensible if the costs of stock are considered. derivation held in stores as motionless stock is dead bullion, but if this is freed via a wholesaler, this dead money is available for reinvestment. The furniture industry exemplifies the flow. Traditional furniture retailers operating on a sold-order basis do not participate in the backward financing flow .However, warehouse type furniture retailers participate in this flow directly, and lift up benefits from manufacturers in the form of lower prices and prejudiced treatment. This backward flow of financing is not solely associated with stockholding, another example being prepayment for merchandise. The problem is that in the event of any downturn in sales the warehouse type retailer with large sums of money tied up in stock is very vulnerable to cash flow and liquidity problems. To underline this, blaming the downturn in the UK housing market in July 2009, the UKs support largest carpet retailer, Allied Carpets, called in the receiver. 204Channels of distribution and logistics Forward flow of financing is more common. All terms of sale, with the elision of cash on legal transfer and prepayment, may be viewed as elements of the forward flow of financing. In addition to these flows there is knowledge flow. Typically, breeding regarding product attributes is passed down the chan nel, often with the dominant channel member having greater influence on this function. Marketing information is passed back up the channels. In addition, information flows horizontally, i. e. with intermediaries operating at the resembling level, such as fibre manufacturers, communicating for mutual benefit.CHANNEL CO-ORDINATION However well designed a marketing channel may be it is important that it is organized and coordinated, otherwise activities and flows will not operate effectively, and the full potential of the system will not be realized. ferocity should be placed on understanding behavioural dimensions of inter-organizational relationships, because through such understanding, the manager can organize, manipulate and exploit available resources. The long-term objective of channel management is to achieve, at a honest cost, the greatest possible impact at the end user level, so that individual members of the channel can obtain satisfactory returns (e. g. rofits, market s hare) as compensation for their specific contributions. The behaviour of intermediaries within any stipulation structural arrangement should thus be directed towards achieving high yield performance. erstwhile the marketing management of an organization isolates the market targets to attack, and the products and services which it must supply in order to satisfy needs and wants in those various segments, the oppugn of how best to make products and services available for consumption arises. Figure 6. 5 identifies four major tints that represent the co-ordination process. The first step is to determine the level of service outputs demanded by end users of the commercial channel system.Service outputs that are among the most significant in distribution are, for example, lot size. Some companies insist on a minimum order level. Under this limit they will not accept the order. In contrast, often smaller companies are otiose or unwilling to supply orders over a certain size. A second type of service output is delivery or waiting time, or how long it takes from order to delivery. A third service output relates to market decentralization or spatial convenience, namely, to where the provider will deliver. For example, some suppliers will only deliver locally whereas at the other extreme some will undertake to deliver anywhere in the world. Finally, there is breadth and astuteness of product or service assortment.This refers to whether or not the provider is able to supply a full range of products and services or only a selected range, i. e. a one - degree shopping facility. The second step involves identifying the marketing tasks that need to be carried out in order to achieve the service outputs, and which channel members have the capability to perform the tasks. Management must then determine whether, through the use of channel control strategies, they will be able to control the behaviour of brisk channel members or be compelled to integrate channel flow ve rtically so the inevitable service outputs are provided to end users. Channels of distribution and logistics 205 tone of voice 1 Determine service output levels required by customersStep 2 Analyse the roles which channel members must perform to assure delivery of the required service outputs Step 3 Use economic and other power bases to motivate channel members to carry out their assigned roles Step 4 Devise mechanisms for dealing with interlockings that occur within the channel FIGURE 6. 5 Stages in the channel co-ordination process For example, if a desired level of service output is that orders must be fulfilled within five working days then the channel and logistics system must be designed to reach this service level. If intermediaries in the channel are unwilling or unable to meet this service output then alternative channel arrangements must be found.Without effective channel management and control there is no guarantee that the desired service outcomes will be achieved, so a major issue in channel management relates to where, and to what extent, marketing flow participation should be imitation to generate the desired service outputs e. g. if a car buyer needs finance, the manufacturer, the retailer or an removed intermediary should provide it, but lending services must be readily available if the consumer is going to feel comfortable in considering a specific purchase that requires finance. In a situation where no channel intermediary is willing to accept the risk of financing, the initial supplier may have to fall apart this, i. e. it would prefer to specialize in those flows that it can perform at a comparative degree advantage.The third step in the co-ordinative process is to determine which strategies should be used to achieve the desired results, irrespective of whether management decides to invest in integrating functions or whether it deals with independent companies. Essentially this is an issue of where and how power is applied in the cha nnel. Power is the ability to get somebody to do a task. In the context of a marketing channel it can be defined in terms of how one channel member can exert influence on another channel member. For example, payable to their size and purchasing power, many retail multiples in the UK like Marks &038 Spencer are able to exercise substantial power over their suppliers.Power is the mechanism by which congruent and effective roles become specified, roles become realigned when necessary, and appropriate role performance is enforced. There are several bases of power, which include reward, coercion and expertise. 206 Channels of distribution and logistics The fourth step involves setting up mechanisms to deal with contradict issues that may arise so that the channel will push to provide the desired service outputs even if channel members disagree. Very often channel members perform unique roles. Thus, manufacturers specialize in production and national promotions, while retailers special ize in merchandising, distribution and promotion at a local level. This specialization means that channel members become reliant on each other to achieve objectives.There has to be co-operation between channel members, as without it, the task will not be completed. such co-operation does not always come easy and needs to be cultivated. CHANNEL encroach There is a danger that there will be dates of interest and distribution channels will exhibit levels of contravention. For example, suppliers may want to deliver weekly to a retailer, but the retailer wants to hold less stock, so may want occasional deliveries. Ideally, channel members should attempt to coordinate their objectives, plans and activities with other intermediaries such that performance of the total distribution system to which they belong is enhanced.Evidence supports the view that such integrated activity throughout the distance of the marketing channel is rare and channel participants are not too concerned with t ransactions that occur between each of the various channel links. Channel intermediaries are more concerned about transaction between channel members immediately next to themselves, from whom they buy, and to whom they sell. Channel intermediaries do not function as component members of a distribution system, but operate independently, making decisions concerning their own methods of operation, functions performed and clients served as well as deciding their own objectives, policies and programmes.Therefore, a marketing channel should be a set of engagement and mutually dependent elements and it is in the interests of all channel members for there to be a substantial degree of co-operation, but an almost indispensable feature is potential bout between members which should be taken into account when making channel arrangements. It is possible that intelligent competition can lead to engagement and management should seek ways to reduce this meshing. Conflict in distribution c hannels can occur in different forms as follows 1 2 naiant impinge is related to competition among similar types of intermediaries at the comparable level in the channel e. g. two household textile stores in competition with each another.Intertype strife refers to competition among different types of intermediaries at the same level in the channel. This kind of competition has intensified since the advent of scrambled merchandising by retailers (where retailers add sassy product lines that are unrelated to their normal lines of business) e. g. supermarkets have added homewares and clothing to their product lines, offering consumers a wider product range and attaining higher margins. Intertype conflict is significant as it reflects a way in which industries remain efficient and respond to changing market conditions. Vertical conflict refers to competition among different levels in a channel. such problems can be damaging to existing co-operative relationships e. g. in recen t years some of the major car producers have been in conflict with their distributors over matters like pricing and discount policies, stockholding levels and exclusivity agreements. 3 Channels of distribution and logistics 207 Stress and conflict can be in a dormant state times of change cause existing stress to peak, leading to uncongeniality among channel members. Some conflict is inevitable in channels and may even be positive in that it can prompt needed changes. The earlier example regarding retailers selling manufacturers brands at lower prices than manufacturers wish is an example of vertical conflict.Selling of brands like Levis and Calvin Klein at prices lower than those recommended by manufacturers has given over rise to vertical conflict in the channel. other(a) examples of this type of conflict in the UK latterly have been the selling of discounted books and discounted pharmaceutical products by the large retail supermarket groups. Goal repugnance Channel members appear to share a common goal maximizing the efficiency and effectiveness of the total system. However, each firm exists as a separate legal entity, each with its own employees, owners and other raise parties who help shape its goals and strategies. Some firms goals may be incompatible with the aims and objectives of other channel members.This incompatibility can be a primary cause of stress which will ultimately result in conflict. The distribution of channel profits is a typical example. Each institution will desire the highest possible profit for the whole channel and the natural tendency will be towards co-operation to achieve maximum profit levels. However, each individual firm can be expected to desire the largest obtainable share of total channel profits. The predictable result is conflict over the allocation process. so far if goals are compatible, there may be disagreements about methods employed all channel members may agree that increases in volume of a product are des irable, but may disagree on the means employed to accomplish it.Wholesalers may desire more ledge space for better positioning of products in retail stores retailers may feel that more advertising and promotional effort by the manufacturer would accomplish the objective of an increase in sales. The result is conflict over which method to use. Position, role and worldly concern incongruence In a channel consisting of a manufacturer using only wholesalers who sell to retailers, there will be a realignment of the roles and domains of each party. By function large retailers direct, positions will be re-specified. Changes in position specification, or poorly defined positions, can precipitate conflict among channel members, so the manufacturer must cry and understand the expected behaviour of such members. In situations where consensus does not exist, conflict can be expected.Because each role represents a code of conduct defining the channel members expected contribution, adequate p erformance is critical to maintaining harmony within the channel system. Inadequate performance, or failure to behave in the prescribed manner, frustrates attempts by one firm to predict what the other will do and such foiling is a major cause of channel conflict. Conflict may also arise when there is lack of agreement concerning who is the channel leader (termed the channel captain). If channel members disagree on the domain of firms in the system, there will be conflict and an inability to achieve goals. If domains overlap, and two or more firms lay claim to the same functions, products or customers, disagreement might lead to hostility.The conflict between car producers and their distributors just described, in part stems from the issue of 208 Channels of distribution and logistics who controls the channel. In the past it has been the car companies who have been channel captains but market and legislative changes have shifted the balance more towards distributors, giving rise to conflict. intercourse equipment failure Communication breakdowns may cause conflict in two ways 1 The failure of one firm to pass on vital information to other channel members. A manufacturer wishing to maintain a competitive advantage may decide not to give out a brisk product until a national distribution programme has been developed.Retailers, on the other hand, need information about refreshed products as soon as possible to prepare their own strategy for the introductory period. Distortion within the heart and soul process is called noise that often arises from confused language nuances. When channel members attach different meanings to language and terminology (e. g. if their roles are ill-defined and confused) stress results and there is potential for conflict. shot surrounding the health of Apple impress Steve Jobs caused problems for the company and its distributors. In January 2009 the annual MacWorld conference normally used to announce new-sprung(prenominal) products and developments was cancelled.This caused speculation in the trade about whether or not Jobs would progress. The problem was not so much Jobs illness bur rather the rumours about it. In July 2009 it was denote that Jobs was making a good recovery from a liver transplant. 2 Communication breakdowns are common in specializer business areas. Noise arises when functional specializers develop terminology that means little to those outside that business environment. Unclear communication with non-specialists can play a part in developing conflict so the specialist should ensure that communications have been understood. Differing perceptions of man Different origins to mutual problems can lead to confliction behaviour.Even when channel members have a strong desire to co-operate and goal agreement exists, conflict can occur when perceptions of the real facts differ. strip down Bellies Update Dear all, further to my netmail yesterday, Ive had clarification that a new syste m for producing advertise belly information will be in place. delight note there will no longer be blank bare belly sheets available in departments. illogical? So was this organizations faculty who received this e-mail. The e-mail was from the organizations publicity department and was sent to all staff. Bare bellies is a term used by printers to denote blank sheets to be printed on. The e-mail related to the production of company promotional material. Channels of distribution and logistics 209Each channel member brings to the relationship different backgrounds and prejudices facts are likely to be interpreted according to prior experience. All members may agree that the channel is not functioning as effectively as desired each channel member may see a different reason for this lack of effectiveness. Manufacturers may feel that a retailers lack of stock is due to failure to maintain adequate rubber eraser stock levels and realistic reorder points. The retailer may feel that in ventory policies are realistic and that the problem is caused by the manufacturers inability to meet plan delivery times. Each party is rendering the situation based upon experience and natural prejudices associated with its own position and role. Ideological differencesSometimes there may be a primeval ideological conflict in channels which stems from big business and small business perceptions of management, particularly concerning the appropriate level of sales effort. For example, a manufacturer may be so satisfied with the performance of a wholesaler in a given territory that pressure is exerted on the wholesaler to expand the line of products on offer, whereas the wholesaler may be satisfied with allowing the business to continue to run in its present form. In this way, pressures exerted by the manufacturer will lead to stress and conflict in the relationship. If this is an established channel, it is in the interests of everybody to settle the repugn or misunderstanding q uickly.There are several methods of resolving conflict, and it is a task of management to seek ways in which to manage it to avoid it becoming dysfunctional and to govern the energies in conflict situations to produce solutions. Depending on which underlying cause is identified, different strategies can be employed in isolation. Another important factor in the stop of the conflict will be the heaviness of power of the channel member seek to resolve the conflict. Problem solving Adopting higher-up goals is a method that refers to goals that are desired by all members caught up in the conflict. Often such goals cannot be achieved by individual channel members, as design efforts of all parties are required.Such battles become more pronounced when the channel is confronted by an impertinent threat, and conflict only dissipates when alternative channel systems emerge. The threat to existing channel members of new channel arrangements for car retailing in the UK has brought about a reduction in conflict between traditional channel members. Car manufacturers and dealers were challenged by the fact that consumers were increasingly purchasing new cars through a variety of new channels including sourcing them from countries where prices might be lower, the growth of car hypermarkets where cars are sourced on the grey market and through the Internet.The result has been for existing traditional channel members to adopt superordinate goals and this has resulted in a reduction of conflict between them in an effort to survive. Permanent conflict answer requires an integration of the needs of both sides to the affray so they find a common goal without sacrificing their basic economic and good principles. The problem is developing a common goal on which all parties agree. 210 Channels of distribution and logistics A solution exists to appease communications noise in distribution channels. A more efficient flow of information and communications in channels permits m embers to find solutions to their conflict based on common objectives. Channel communication efforts should be designed to decrease or avoid conflict, e. g. sing sales representatives to convey information from wholesalers or retailers implies that the manufacturer is trying to instigate the attainment of both individual and common goals the function of the sales representative in such cases is that of problem solver. opinion This implies that institutions involved draw on their leadership potential. If effective channel management is to be achieved, it is often the case that there will be a need to locate an institution or an agency within the system that is willing to assume this role. Channel leadership is the intentional use of power to affect the behaviour of other channel members and cause them to act in a manner that contributes to the maintenance or performance of a desired level of performance.Often channel control results from channel leadership and like channel power, the level of control achieved by one firm over others in a channel may be issue specific, e. g. while the manufacturer may have control over pricing, retailers may have control over stock levels. Whether or not control can be exerted depends on the power base of each channel member. By its disposition, sentiment involves communication between hostile parties. Emphasis is on influencing behaviour to resolve conflict the primary intention is to avoid or reduce conflict concerned with domain or sphere of influence. Persuasion allows members to reach a consensus resulting in agreement without formal bargaining. Some years ago a well-known company launched its own brand of locoweed. The new brand was eagerly tocked by many leading grocery supermarkets who were persuaded to make space for the new brand on their shelves. Inevitably this meant less shelf space for existing brands including some of the best known the skinny brands in the world. As if this want of shelf space was not s ad enough, the worlds leading boob brand claimed bitterly that at first glace the new Virgin cola looked remarkably like their own cola brand. They subsequently asked Virgin to withdraw the new brand in its present form and at the same time asked their supermarket customers not to stock it. Needless to say, there were lengthened discussions, but after a little time all parties were persuaded to come to a compromise which avoided costly litigation and going of face.The new cola was altered passably in appearance, some of the lost shelf space was restored and the new brand step by step make inroads into the market. Bargaining/negotiations The difference between bargaining and persuasion is that in the bargaining process stress continues to exist in the system long after agreement is reached. In negotiation, no attempt is made to fully satisfy a channel member. Instead, the objective is to reach an accommodation to stop conflict among members. Such a compromise may resolve the episo de, but not necessarily the fundamental stress over which the conflict erupted. If stress continues, it is likely that some issue will cause conflict again at some after date. Compromise is a means by which bargains can be reached in the channel.Each party gives up something it desires to prevent or end conflict. Often compromise is necessary to reach domain consensus where persuasion and negotiation draw on abilities of parties involved to communicate. Channels of distribution and logistics 211 Politics Politics refers to resolution of conflict involving new organizations in the agreement- ambit process. Mediation involves a third party, usually to secure cloture of a dispute by persuading the parties to continue negotiation or consider recommendations made by the mediator. Mediation involves understanding the conflicting views of parties in such a way that opportunities are perceived that otherwise may have been missed.The fact that solutions are being offered by a mediator, i. e . somebody impertinent to the dispute, can often lead to a settlement if both parties deem the solutions acceptable. hard-hitting mediation keeps the parties together and clarifies facts so the communication process does not break down. musical composition mediation offers solutions to disputes, channel members are not obliged to accept the solutions. In arbitrement, however, the solution suggested by the third party is dressing upon the conflicting parties. Arbitration can be compulsory or voluntary, and when it is the former, parties are required by law to submit their dispute to the third party and be entrap by the decision.Voluntary arbitration is a similar process whereby parties are bound by the decision, but the dispute is settled voluntarily. The question of relying on law enforcement to settle disputes in distribution is imprecise as it is dubitable whether solutions enforced by law can be applicable to future channel disputes in different circumstances. In stringent ly domestic channel management, these mechanisms are not greatly used because of the inability to find a neutral third party whose decision will be true by everybody involved in the dispute. However, arbitration is a normal and accepted part of international channel management and is part of the contractual agreement between the parties in channel activities.For example, if an exporter feels that an overseas agent has not fulfilled the terms of an agreement between him or herself and the principal, but the two parties cannot agree as to the remedies for this, then normally the terms and conditions for instituting an arbitration process are pen into the original contract and will be instituted to resolve the problem. Diplomacy Channel goody is the normal method by which inter-organizational relations are conducted, adjusted and managed by ambassadors, envoys or other persons operating at the boundaries of member organizations. Normally channel members rely on diplomatistic proced ures, especially in segregated systems. Channel diplomats should be the eyes and ears of the firms they work for, and should report anything that may be of interest. Such diplomats are commonplace in distribution channels at executive level.In this way, the diplomats power base is such that it is obvious to the parties with whom the diplomat will interact. trenchant channel management strategies provide for more rational decision making within the channel. THE DYNAMIC NATURE OF CHANNELS Marketing is characterized by constant change, and there is a need for the marketer to adapt to these changes, making marketing channels subject to change and innovation. Channels represent a 212 Channels of distribution and logistics dynamic area of marketing as they are constantly evolving to meet changing customer and market needs which reflect underpinning wider changes and trends in demography and lifestyles. Marketers must be aware of the changing nature of channels and respond to them.An exa mple of recent developments that are indicative of the innovation and changing nature of this area is the growth of multi-channel systems of direct marketing and Internet marketing which are dealt with in Chapter 10. The growth of multi-channels Companies now use a variety of channel arrangements to reach their target customers. Once, companies tended to use only one type of channel configuration in their marketing now they use several. The use of multi-channel systems can be for a number of reasons n n n to increase market coverage by reaching new customers to reduce costs of selling to certain customers where for example such customers require less service than that provided through the companys normal channels to achieve a more customized service to particular customers than would be available through the companys normal channels.In multi-channel marketing, a company might sell to one group of customers using telephone selling and no intermediaries, while another target group may be marketed to through a network of dealers, since these customers require after-sales service and skilful advice. Although there are advantages to be gained through using several different channel configurations to different target customers, multi-channels can give rise to increased costs if not controlled. They can also give rise to problems of conflict between different channel members where several channels are used, particularly where one type of channel member feels that their contractual rights are being infringed. An example is where the marketer uses a system of name distributors for the companys products.In return for being granted exclusive distribution rights in a particular g