📣Honors Marketing Unit 7 – Distribution channels and logistics

Key Concepts and Definitions

• Distribution channels refer to the pathways through which products or services move from the manufacturer or producer to the end customer
• Logistics encompasses the planning, implementation, and control of the efficient flow and storage of goods, services, and related information from the point of origin to the point of consumption
• Supply chain management (SCM) involves the coordination and integration of all activities involved in sourcing, procurement, conversion, and logistics management
• Inventory management focuses on the control and oversight of the storage, tracking, and ordering of products or materials
• Channel intermediaries are organizations or individuals that act as a link between the producer and the end customer, such as wholesalers, retailers, and agents
• Vertical integration occurs when a company owns or controls multiple stages of the distribution channel, from production to retail
• Horizontal integration involves a company expanding its operations at the same level of the distribution channel, such as acquiring a competitor

Types of Distribution Channels

• Direct distribution involves the manufacturer selling directly to the end customer without the use of intermediaries
  • Can be achieved through company-owned stores, e-commerce websites, or direct sales representatives
• Indirect distribution utilizes intermediaries, such as wholesalers and retailers, to reach the end customer
  • One-level channel: Manufacturer -> Retailer -> Consumer
  • Two-level channel: Manufacturer -> Wholesaler -> Retailer -> Consumer
• Dual distribution combines both direct and indirect channels, allowing a manufacturer to reach different customer segments
• Reverse channels handle the flow of products from the customer back to the manufacturer, such as for returns, repairs, or recycling
• Multi-channel distribution involves using multiple channels simultaneously to reach customers, such as brick-and-mortar stores, e-commerce, and mobile apps

Channel Design and Strategy

• Channel design involves determining the most effective and efficient way to deliver products or services to the target market
• Factors to consider in channel design include target market characteristics, product attributes, company resources, and competitive landscape
• Intensive distribution aims to make products widely available through as many outlets as possible (soft drinks, snacks)
• Selective distribution involves limiting the number of intermediaries to maintain greater control over the product and brand image (luxury goods, high-end electronics)
• Exclusive distribution grants a single intermediary the right to sell a product within a specific geographic area (luxury automobiles)
• Channel conflict can arise when members of the distribution channel compete with each other or with the manufacturer for sales and profits
  • Effective communication, clear roles and responsibilities, and incentive alignment can help mitigate channel conflict

Supply Chain Management

• Supply chain management (SCM) focuses on the integration and coordination of all activities involved in the flow of goods and services from raw materials to the end customer
• Key components of SCM include sourcing, procurement, manufacturing, logistics, and distribution
• Effective SCM aims to improve efficiency, reduce costs, and enhance customer satisfaction by streamlining processes and improving collaboration among supply chain partners
• Just-in-time (JIT) inventory management involves receiving goods only as they are needed in the production process, reducing inventory holding costs and waste
• Vendor-managed inventory (VMI) is a practice where the supplier manages the inventory on behalf of the customer, ensuring optimal stock levels and timely replenishment
• Supply chain visibility refers to the ability to track and monitor the movement of goods and information throughout the supply chain in real-time

Logistics and Transportation

• Logistics involves the planning, implementation, and control of the efficient and effective flow of goods, services, and related information from the point of origin to the point of consumption
• Transportation is a critical component of logistics, involving the physical movement of goods from one location to another
• Modes of transportation include road (trucks), rail, air, water, and pipeline
  • Intermodal transportation combines two or more modes of transport to optimize efficiency and cost
• Third-party logistics (3PL) providers offer outsourced logistics services, such as transportation, warehousing, and inventory management
• Reverse logistics deals with the management of product returns, repairs, and recycling, ensuring efficient handling and disposition of returned goods
• Logistics technology, such as transportation management systems (TMS) and global positioning systems (GPS), enables real-time tracking, route optimization, and improved decision-making

Inventory Management

• Inventory management involves the control and oversight of the storage, tracking, and ordering of products or materials
• Effective inventory management aims to balance the costs of holding inventory with the need to meet customer demand and avoid stockouts
• ABC analysis categorizes inventory items based on their value and importance, with "A" items being the most valuable and "C" items being the least valuable
• Economic order quantity (EOQ) is a model that determines the optimal order quantity that minimizes total inventory holding and ordering costs
• Safety stock is an additional quantity of inventory held to mitigate the risk of stockouts due to unexpected demand or supply disruptions
• Inventory turnover measures how quickly inventory is sold and replaced, calculated as the cost of goods sold divided by the average inventory value
• Cycle counting is a method of verifying inventory accuracy by regularly counting a subset of items rather than conducting a full physical inventory count

Channel Performance Metrics

• Channel performance metrics are used to assess the effectiveness and efficiency of distribution channels in meeting organizational goals
• Sales volume measures the total number of units or revenue generated through a specific channel over a given period
• Market share represents a company's sales relative to the total sales in the market or industry
• Channel profitability evaluates the financial performance of each distribution channel, considering revenue, costs, and margins
• Fill rate measures the percentage of customer orders that are fulfilled from available inventory without backorders or lost sales
• On-time delivery tracks the percentage of orders that are delivered to customers within the promised timeframe
• Customer satisfaction surveys provide insights into how well the distribution channel meets customer expectations and identifies areas for improvement

Emerging Trends in Distribution

• Omnichannel retailing integrates multiple channels, such as brick-and-mortar stores, e-commerce, and mobile apps, to provide a seamless customer experience
• Direct-to-consumer (DTC) sales models bypass traditional intermediaries, allowing manufacturers to sell directly to end customers through e-commerce platforms
• Subscription-based distribution involves customers paying a recurring fee for regular delivery of products or access to services (meal kits, software)
• Drone delivery is an emerging technology that uses unmanned aerial vehicles (UAVs) to transport packages directly to customers' locations
• Blockchain technology has the potential to enhance supply chain transparency, traceability, and security by creating an immutable record of transactions
• Collaborative logistics involves the sharing of transportation and warehousing resources among multiple companies to improve efficiency and reduce costs
• Sustainable distribution practices focus on minimizing the environmental impact of distribution activities, such as reducing packaging waste and optimizing transportation routes