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Unit V: Channel Conflicts, Reasons, Managing Channel Conflicts, Supply Chain Management, Managing Logistics.

Unit V: Channel Conflict


Channel Conflict
Channel conflict occurs whenever channel members have distinctly different opinions or perceptions about distribution channel affairs. If no interdependence exists, there would be no basis for conflict. Mutual dependence creates the basis for conflict. Types of Channel Conflict 3 types: Horizontal conflict Intertype conflict Vertical conflict Horizontal Conflict Occurs amongst similar firms at the same level in a distribution channel. Intertype Occurs amongst different intermediaries at the same level in a channel. Differs from horizontal in that bit occurs among dissimilar institutions. Vertical - Occurs amongst different levels within a channel of distribution. Causes of Channel Conflict Goal incompatibility Though channel members share the common goal of maximising their joint effectiveness, each is a separate legal entity. Each has its own employees, owners and interest groups who help shape goals and strategies, some of which may not be totally compatible with those of other channel members. This incompatibility may be the underlying cause of stress, ultimately creating conflict. Position, Role and Domain Incongruency Changes in specification of position or poorly defined roles may cause conflict. Incompatibility develops within channel arrangements as roles and methods of operation change. Conflict also arises when there is lack of agreement concerning appropriate domain of members. Communication Breakdown Often is the reason for channel conflict. Could occur in 2 ways: 1) When a firm fails to exchange vital information with other channel members. 2) Through noise and distortion Different Perceptions of Reality Conflict occurs when different channel members differ in methods of achieving mutual goals or have different solutions to a mutual problem.

Even when they have a strong desire to cooperate, conflict can result from different perceptions of the facts. Ideological Differences Are similar to those resulting from differences in perceived roles and expected behaviours. Can result from big-business and small-business perceptions of the appropriate role of management. Resolution of Channel Conflict Various methods of resolving channel conflict. Problem Solving. Persuasion Negotiation Politics Withdrawal Problem Solving: Two techniques Superordinate Goals : Essentially a goal that all channel members desire but that cannot be achieved by anybody acting alone.. Development of a superordinate goal overrides individual member goals. Communication Processes : Seeks to alleviate communication noise in distribution channels. More efficient communications in the channel will permit channel members to find solutions to their problems based on common objectives. Meetings and trade publications allow members to develop solutions to common problems and reinforce relationships. Persuasion Emphasis is on influencing behaviour through persuasion rather than only sharing information. Specifically, it seeks to reduce conflict about domain. Negotiation The objective is to halt a conflict, no attempt is made to fully satisfy a channel member. Could lead to a compromise, once basic reason for stress is arrested. Politics Refers to the resolution of conflict by the involvement of new parties in the process of reaching an agreement. 3 solutions exist: Coalition formation : Refers to formation of trade bodies. This is an attempt to alter channel power structure. Mediation & Arbitration : In mediation, the 3rd party may suggest a solution to the conflict but the channel members are not bound to accept that solution, whereas in arbitration the solution suggested is binding upon the conflicting parties. Lobbying & Judicial Appeal : Channel members may resort to the Govt. process to resolve conflicts. Attempts to influence the legislative process through lobbying activities are frequent. Court litigation is another means. Withdrawal If all other methods fail, then the last option for the termination of conflict is for one firm to withdraw from the relationship.

Supply Chain Management


Definition Understanding Supply Chain Supply chain encompasses all organizations and activities associated with the flow and transformation of goods from the raw materials stage through to the end customer, as well as the associated information flows. Material and information flows both up and down the supply chain. - Handfield and Nichols, Jr. Supply Chain Redesign Upstream Operational Activities Include purchasing and procurement, and inbound logistics. SC member partners are suppliers and suppliers suppliers. Downstream operational Activities Include outbound logistics and service. SC member partners are distributors, warehouses, and retailers.

Understanding Supply Chain Management


Supply chain management is the integration and management of supply chain organizations and activities through cooperative organizational relationships, effective business processes, and high levels of information sharing to create high-performing value systems that provide member organizations a sustainable competitive advantage. Handfield and Nichols, Jr. Supply Chain Redesign Supply chain management is the design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer. Institute for Supply Management Managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, and delivery to the customer. The Supply Chain Council

Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize systemwide costs while satisfying service level requirements. Simchi-Levi, Kaminsky and Simchi-Levi Designing and Managing the Supply Chain, 3nd Ed).

Material and Information Flows in SCM

PC Industry Supply Chain: Another Example

Why Supply Chain Management?


Increased globalization and global competition: Increased manufacturing complexity. Increasing demand for broad product line offerings and their availability to satisfy the needs of different segments of the market. Matching Demand with Supply. Spiraling inventories mounting into billions of dollars. Increased Outsourcing: Pressure on companies to search for suppliers who can provide not only quality materials and components but also design assistance, rather than using their own resources. Increased pressure on companies to search for suppliers. Heightened pressure to improve for factory performance to compete strongly. Challenges faced by suppliers, manufacturers, and distributors with different and conflicting goals and objectives. A strong desire to move towards paperless systems to integrate and exchange information among supply chain partners.

Need for Supply Chain Management


Increased globalization and global competition. Increased Complexity in Global Manufacturing. Increasing demand for broad product line offerings and their availability to satisfy the needs of different Matching Demand with Supply. Heightened pressure on suppliers to improve their performance. - Quality - On time delivery - Manufacturing lead times - Cost - Reliability - Dependability Heightened pressure to improve for factory performance to compete strongly: Customers are demanding products at affordable prices without compromising on quality and reliable service. Manufacturers need to produce products and services efficiently and deliver them to customers at right place in right quantities without missing the customer due dates. Manufacturers need to focus on new business models: Dell Direct Business Model. Build-to-Order Strategy. Challenges faced by suppliers, manufacturers, and distributors with different and conflicting goals and objectives. 1. Purchasing/Supply Stable volume orders. Flexible delivery schedules. Little variation in product-mix. Large quantity orders. Long-term contracts. 2. Manufacturing Stable production runs. Higher quality. Higherproductivity. Lower production cost. Larger component-mix from suppliers. Higher performance from suppliers. 3. Warehousing: Low inventory. Reduced transportation costs. Quick replenishment capability.

4. Customers:

Short order lead time. Higher levels in stock. Enormous variety of products. Low prices. 5. Transportation: Fast delivery. Delivery on-time. 6. Information and Communication Technologies: Platform Compatibility. Security. Access to database. Sharing information with suppliers and customers. A strong desire to move towards paperless systems to integrate and exchange information among supply chain partners. Demand-driven information: Proctor & Gamble and Wal-Mart Partnership: Vendor Managed Inventory (VMI). Manufacture-driven knowledge. Order Processing. Invoicing, and Payment, etc. Increasing demands on purchasing, manufacturing and distribution functions to operate across functions within the organization (Intra-organizational), across several organizations (Inter-organizational), and across national boundaries. Spiraling inventories mounting into billions of dollars: - What are the Inventories? - Why inventories exist? Impact of Inventories: US GNP and Inventories (in $ Billions) ________________________________________________ Time GNP Inventories Inventories Period as a % of GNP ________________________________________________ 1950s 1,203.7 278.1 23.1 1960s 1,665.3 370.0 22.2 1970s 2,416.2 571.1 23.6 1980s 3,187.1 769.1 24.1 1990s 4,155.8 908.1 21.9 _________________________________________________

Excessive inventories would result in: Higher capital costs. Higher operating costs, and Decreased production efficiency. Too low inventories would result in: - More stoppages of order processing. - More occurrences of not meeting the order promising dates: Boeing aircraft, one of America's leading capital goods producers, was forced to announce write downs of $2.6 billion in October 1997, due to Raw material shortages, internal and supplier parts shortages. - Lost sales: Compaq computer estimates it lost $500 million to $1 billion in sales in 1995 because its laptops and desktops were not available when and where customers were ready to buy them. - More unsatisfied customers.

The Bullwhip Effect


Each segment further down the whip goes faster than the one above it. Same effect often observed in supply chains: Apparel Industry. Chemical Industry. Computer Industry. Automobile Industry. Impact of Bullwhip Effect: Excessive inventories through out the supply chain. Poor product forecasts. Insufficient or excessive capacities at manufacturing plants. Poor customer service due to unavailable products or long backlogs. Uncertain production scheduling (i.e., Excessive Revisions) at manufacturing plants. High costs of corrections such as expedited shipments and overtime.

Process View of a SC
A supply chain is considered to be a sequence of processes and flows that take place within and between different stages. Chopra and Meindl defined two different views of these processes: Cycle view: The processes in a SC are divided into a series of cycles, each performed at the interface between two successive stages of a SC. Push/Pull view: The processes in a SC are divided into two categories depending on whether they are executed in response to a customer order, or in anticipation of customer orders. Chopra, S., and Meindl, P. (2007): Supply Chain Management, Strategy, Planning, and Operation, 3rd Edition, Prentice Hall.

Process View of a SC: Push/Pull View

Push/Pull View: Push Process: With push process, execution is initiated in anticipation of customer orders. Demand for products is not known and therefore, it is forecasted. Push processes are also referred to as Speculative Processes because they respond to speculated or forecasted demand rather than actual demand. Pull Process: With pull process, execution is initiated in response to a customer order. Demand for products is known with certainty. Pull processes are also referred to as Reactive Processes because they react to customer demand. Push/Pull Boundary: The push/pull boundary in a supply chain separates push processes from pull processes.

Barriers to Implementing SCM


1. Inability to broaden the supply chain vision.

2. Lack of trust and partnering with suppliers. 3. Setting clear guidelines for creating or terminating alliances with their supply chain partners. 4. Failure to develop and implement appropriate supply chain performance measures including those for monitoring alliances. 5. Lack of effective use of information and communications technologies throughout the entire supply chain. 6. Lack of accurate and valid data to support supply chain performance measures. 7. Organizational structures and turf issues. Benefits of Using SCM Reduced operating costs. Reduced inventory levels. Improved asset productivity. Reduced order cycle times. Reduced paperwork. Increased customer service levels. Increased customer satisfaction. Increased market share. Improved relationships with upstream and downstream partners of the entire supply chain. Improved teamwork and cooperation among employees.

What is Supply chain?

Consists of all parties involved, directly or indirectly, in fulfilling a customer request OBJECTIVE: Objective is to be able to have the right products in the right quantities (at the right place) at the right moment at minimal cost.

Bull Whip Effect Each organisation seek to solve the problem from its own perspective

Small changes in consumer demand result in large variations in orders placed upstream Dramatic order size variation Amplification of order size variation as one moves up the supply chain

Causes: Little or no communication between supply chain partners. Delay times between order processing, demand, and receipt of products. Over reacting to the backlog orders. Inaccurate demand forecasts. http://www.supplychainonline.com/previews/SCM101/3.html

Managing Logistics

Logistics is the flow of material, information and money between consumers and suppliers (Frazelle 2002). It incorporates the planning and execution of activities to move products from origin to destination. Logistics is often called supply chain management because a chain of partners, products, money, and information ultimately delivers the food (supply) to the patron (customer). Figure 1, a distribution plan or pipeline for a typical supply chain, shows the many partners, facilities, and shipments that can make up a supply chain. Products arrive at a destination port by an ocean vessel, plane, or truck carrier; then a customs broker clears them through customs. Depending on the terms and service of the transportation, which defines who is responsible for what, another carrier transports the goods to a central warehouse, also called a distribution center. From there, products move through the distribution system until they reach the client. Even before the shipment reaches the port, many transactions; negotiations; and steps that include product selection, forecasting, financing, and procuring the products; must be completed efficiently.

Managing the Logistics Cycle


In some ways, the logistics cycle is similar to a human bodyorgans function both alone and with other body parts to maintain life. In the logistics cycle, many people perform a variety of functions for a common goal, although the activities are often based on individual motivations and seemingly independent, elemental activities. Managing the logistics cycle requires dedication and persistence. Ensuring good customer service requires system evaluation. Evaluation requires accurate, complete, and timely data. Individual tasks that spin the cycle require staff, supervision, and a budget. Evaluation Proper monitoring of the logistics cycle begins with evaluating its activities. Constant assessment or evaluation of the logistics system performance will ensure that logistics activities are completed as efficiently and effectively as possible. Drugs and consumables represent a significant percentage of health budgets. Activities designed to ensure quality, reduce waste, and improve accountability should be designed with measurable, quantitative performance indicators to determine changes in efficiency after improvement activities are introduced. Product availability at the service delivery point and reduced stockouts are strong indicators of logistics effectiveness. An improved

system should impact customer service by increasing the availability of affordable, highquality health products at the service delivery level; this, in turn, will have an impact on health program outcomes. Management Information Systems To effectively evaluate a system, a manager needs relevant information. Information drives the logistics cycle; without it, the logistics system cannot run smoothly. Managers gather information about each activity in the system and then analyze that information to make decisions. For example, information about inventory levels and consumption must be collected to ensure that a manager knows how much product to procure. See the Information Systems section for more detail on this subject. Organization and Staffing A logistics system can only work when the staff are well-trained and operate in a supportive environment. They must have the right tools to do their jobs, whether they place orders, coordinate shipments, oversee deliveries, or keep a warehouse functioning effectively to ensure that the right product, in the right quantity, is shipped to the client. To ensure that goods are available for clients, all tasks are important. Health programs must be organized to provide the appropriate resources (for example, supervision authority and technical knowledge) to complete logistics activities. Organization and staffing, therefore, are an important part of the cycle. All staff involved in logistics functions must understand the six rights and make them a top priority. Supervision If the logistics system is carefully watched, it will run smoothly and staff will anticipate any needed changes. The effective supervision of logistics activities minimizes problems and/or resolves them quickly before any one problem becomes a crisis. Budget Budgeting affects the product selection, quantity of products procured, amount of storage space available, transport, and number of staff working in logistics. To have the entire system operating effectively, logistics activities must be included in operational planning and receive sufficient funds. Logistics Management is that part of Supply Chain Management that plans, implements, and controls the efficient, effective, forward, and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers requirements.