B2B 5/e: Chapter 10

Managing Business Marketing Channels and Supply Chains

Learning Objectives
LO1: Understand the distinctive nature of business marketing channels.
LO2: Learn how distributors add value to upstream and downstream
channel members.
LO3: Classify the participants in business marketing channels.
LO4: Describe the step by step process of channel design.
LO5: Learn how to manage channel partners.
LO6: Know the basics of supply chain management and logistic.
LO7: Explain market logistics/physical distribution.
How are Business Marketing Channels Different
(From Consumer Marketing Channels)

• Geographical Distribution :Business intermediaries (such as distributors or

dealers) are concentrated geographically.
• Length of the Channel :Shorter than a consumer marketing channel.
• Characteristics of Intermediaries : Business intermediaries are often
technically knowledgeable .
• Multiple channels(also known as Hybrid channels) used by B2B
Marketing firms for different segments , including e-channels. So much
diversity is not found in a B2C context.
Direct and Indirect Channels
Direct channels
• Direct sales or personal selling
• Direct marketing: Direct mail, Internet, Catalogue and telemarketing

Indirect channels
• Distributors
• manufacturer’s reps
• Brokers
• Commission merchants
• Jobbers,
• VARs(value Added Resellers)
How Do Channels Add Value?

A well-established distribution net-work is a strategic asset to a

supplier firm and therefore a major differentiator.
Distribution channels add value to the product by providing:
• Time(temporal)
• Space(spatial)
• Ownership and
• Information utilities.
Utilities Provided by Distribution Channels

• Place : Making the product available at a place convenient to customers.

• Time: A customer buys products from the retailer whenever he/she
needs it.
• Ownership : The title (ownership)of the goods is transferred to the buyer
• Information: Industrial distributor/dealer responds to most of the
queries pertaining to the items purchased,
• Form :A dealer breaks the goods received in bulk from the manufacturer
into convenient lots
Participants of Business Marketing Channels
• Manufacturer’s branch and regional sales offices
• Distributors or dealers
• Manufacturer’s representatives or agents
• Brokers
• Commission merchants
• Value – added resellers (VARs)
• Jobbers
Channel Design
The steps involved in channel design are:
1. Developing channel objectives
2. Analyzing channel constraints
3. Defining channel tasks
4. Identifying the feasible channel alternatives
5. Evaluating the channel alternatives, and
6. Selecting the marketing channel.
Channel Design
1.Channel objectives
• Channel objectives are derived from the firm’s marketing objectives.
• Focus should be on customers’ needs in terms of service levels required by the target
market segments.
2.Channel constraints
• Legal issues
• Competitors’ tactics
• Company constraints
• Product characteristics
• Customers’ geographic location
Channel Design
3.Defining channel tasks
• List out the tasks to be performed to move the product from the manufacturer to
the customers
• From the above Identify the tasks to be performed by the company and those
channel partners have to perform
4.Identifying the channel alternatives
• The types of intermediaries
• The number of intermediaries
• The number of channels
• The terms and responsibilities of channel members
Channel Design: Identifying Channel Alternatives

Types of Intermediaries
• Value added resellers(VARs)
• Distributors or dealers
• Manufacturer’s representatives (reps) or agents
• Brokers
• Commission merchants
• Jobbers
Channel Design: Identifying Channel Alternatives
Number of Intermediaries
Three alternative strategies available:
• Intensive distribution
• Selective distribution
• Exclusive distribution
Manufacturer should consider following factors for selecting one of the
three strategies:
• End – users’ willingness to search.
• Do the intermediaries make enough money?
• Price competition among intermediaries.
• Judgment to be used for exact number of intermediaries.
Channel Design :Identifying Channel Alternatives

 Number of channels
Use of more than one marketing channel may become necessary (multi-channel
or hybrid marketing)
 Advantages of multi-channel marketing
• Increased market coverage
• Lower channel costs
• More customized selling
Possible problem with multi-channel marketing: Conflict between the channels due
to lack of clarity with regard to territories or customers
Channel Design :Identifying Channel Alternatives
Terms and Responsibilities of Channel Members
Manufacturer and dealer should broadly agree on:
• Objectives
• Responsibilities
• Sales policy
• Territory or market
Channel Design

5.Evaluation of Channel Alternatives

Criteria for evaluation
• Economic performance
• Degree of control
• Adaptability to changing market situations
• Superior value to target customer
6. Selecting the channel structure
Managing Channel Members

Tasks involved
• Selecting
• Motivating
• Controlling , and
• Evaluation of performance of channel members.
Selecting Channel Members
Selection process consists of :
• Generating a list of intermediaries through ads., databases of consultants and trade
associations
• Visiting prospective channel members
• Negotiating with short-listed intermediaries
• Finalizing agreements
Selection criteria generally used are:
• Location
• Relevant experience
• Financial standing
• Infrastructure
Specific criteria may differ for different types of intermediaries and product – market
situations
Motivating Channel Members
Understand channel members’ needs
Use appropriate techniques:
• Partner relationship management (PRM) system
• Vendor managed inventory (VMI) system
• Reasonable discount / margins
• Distributor council meetings
• Training and coaching
• Developing channel positioning
• Quick response system
• Computer aided management techniques
Controlling/Managing Channel Conflicts
Undertake surveys of intermediaries to assess sources of conflicts,
viz.
• Differences in objectives, interests, perceptions
• Dealings with customers
• Compensation
• Unclear territory boundaries
Methods for managing / controlling conflicts
• Effective communication network
• Joint goal – setting
• Diplomacy, mediation, or arbitration
• Vertical marketing system (VMS)
Evaluating Channel Member’s Performance
Purpose
• Know good/bad performers
• Reward / counsel, retrain, re-motivate, or terminate

Evaluation Criteria / factors

• Sales achieved vs quota
• Customer service / satisfaction
• New customers generated
• Market feedback
1.Assign weights to above factors
2.Use weighted factor method for evaluation

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Supply Chain Management
Def: “The systematic, strategic coordination of the traditional business functions
and the tactics across these business functions within a particular company and
across businesses within the supply chain for the purposes of improving the long –
term performance of the individual companies and the supply chain as a whole.”

Supply chain
frame work
Functions Performed by a Supply Chain
• Purchase
• Product design
• Production planning
• Production
• Processing of customer orders
• Inventory control
• Warehousing
• Material handling, and
• Customer service
Components of a Supply Chain

• Upstream supply chain

• Internal supply chain
• Downstream supply chain
Supply Chain Integration
All organizations involved in SCM should work together to optimize the total
supply chain across organizational boundaries.
Benefits of supply chain integration
• Reliable demand management, with more accurate sales forecasts.
• Higher levels of customer service.
• Reduced cycle time (between order placement and delivery).
• Reduction in supply chain and working capital costs.
• Improved customer satisfaction
All organizations that are involved in SCM should have partnering relationships.
Trends in Supply Chain Management

• Use of technology (EDI,ERP,RFID,GPS,EPS)

• World class supply chain management(WCSCM)
• Lean and agile supply chains
Logistics
Def: The design and management of all activities (mainly
transportation, warehousing, and inventory) necessary to make
materials available for manufacturing and to make finished
goods/products available to customers.
Scope of Logistics : (1) Inventory management and control (2) Customer
service (3) Transportation (4) Warehousing (5) Plant and warehouse locations
(6) Order processing (7) Logistics information system (8) Packaging, and (9)
Material handling.
Market Logistics
Also known as physical distribution.
Scope: Delivering the finished product to customers and intermediaries
Tasks of Physical Distribution

• Transportation
• Warehousing
• Inventory control
• Packaging
• Material handling
• Order processing
• Information
• Factory/warehouse locations
• Customer service
Total Cost Approach

Focus : Balancing two important elements of Market Logistics viz. (i) total
distribution costs., and (ii) the level of service provided to customers.
Distribution costs:
• Minimizing total distribution cost: The firm must consider the total distribution
cost of the available alternative distribution systems and select the system that
minimizes the total distribution cost.
• Return On Investment (ROI) approach
Sales Revenue-Total physical distribution cost
ROI = _________________________________ x100
Capital Investment
Total Cost Approach : Customer Service
How to improve customer service?
• Set the goals of customer service levels for each of the important
service elements.
• Measure the actual performance for each service element.
• Analyze the variance between actual service performance and the
goals.
• Take corrective actions to minimize the variance.
Improving the Performance of Physical
Distribution in the Entire Channel
• Develop computerized information system that will link individual
channel members to the manufacturer’s system to provide realistic
sales and inventory of the channel members to the manufacturer.
• Standardize packaging and material handling at all channel members
to assist in efficient operations.
• The manufacturer and the channel members should improve the
performance of their respective tasks or services.
Latest Trends in Logistics Management
Outsourcing:
• 3PL Service providers:Activities like warehousing and transportation are out
sourced to 3PL service providers who invest in assets such as warehouses, fleet of
transport vehicles and IT.
• 4PL Service providers :4PL service providers act as logistics consultants to the
clients. Apart from designing the logistics system, they also ensure its
implementation by coordinating with one or more 3PL service providers, on
behalf of their clients.
4PL companies do not own any assets unlike 3PL companies
Latest Trends in Logistics Management
Green Logistics
• An initiative to measure and minimize the ecological impacts of
logistics activities
• Focus is to adopt environment friendly and sustainable logistics
solutions
• Deployment of green and emission free vehicles
Major Cost Centres for Market Logistics :Transportation

Modes of Transportation :Road, Rail ,Air ,Water , Pipeline

Types of carriers
• Common carriers:Provide services between predetermined geographical points .
These services are available to all shippers at standard rates(Eg. Indian Railways)
• Contract carriers:independent organizations offering transportation services to
others on a contract basis
• Private carriers:Are those shippers who own trucks or air fleets to ensure
consistent delivery performance.
Major Cost Centres for Market Logistics: Warehousing

Warehousing decisions are influenced by the channel structure used by

a company.
• Private warehouses :Owned by the manufacturer. Better control. Less flexibility.
• Public warehouses: Owned by service providers who offer warehousing services
on a rental basis. Less control. Better flexibility.
Major Cost Centres for Market Logistics: Inventory

Inventory carrying costs :

• Storage charges
• Cost of capital
• Taxes and insurance
• Inventory risk costs (such as damage, pilferage, and obsolescence)
Inventory decisions
• When to order (Reorder point)
• How much to order(Reorder quantity)
Customer demands like JIT(Just in Time) and VMI(Vendor Managed Inventory)
have changed the way inventories are managed.
Major Cost Centres for Market Logistics : Order
Processing
• Order Processing (OP) starts with order receipt from a customer and ends
when the customer receives the product as per delivery schedule and
quantity in the order.
• Functions involved in OP: Sales, marketing, finance, marketing logistics,
production planning and control (PPC) and production.
• Effective coordination and communication by:
• Training relevant people
• Rewarding OP group
• Appointing a head of OP
Customer satisfaction depends on success of OP, which is possible with effective
coordination and communication
Major Cost Centres for Market Logistics: Material
Handling
Guidelines for material handling
• Optimize material flow
• Simplify material handling by minimizing, combining, and eliminating
material movements
• Use gravity principle
• Make optimum use of building space by using cubic space, instead of floor
space(Vertical storage system)
• Select right kind of material handling equipment.
• Standardize material handling methods and types of equipment.
• Adopt safety principles.
End of PPt