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PG & RESEARCH DEPARTMENT OF

MANAGEMENT SCIENCE
PARKS COLLEGE (AUTONOMOUS), TIRUPUR-5
I CIA CASE STUDIES (2X25 = 50)
RETAIL SUPPLY CHAIN MANAGEMENT
Case: 1
Summary:
By most measures, Harvard Drug is a healthy company, distributing a
deep catalog of
brand and generic pharmaceuticals, over-the-counter medications and
supplements to
more than 15,000 wholesale and retail customers. The privately-held
companys offerings
grew through a series of acquisitions that began in 2006, and today
includes more than
18,000 products over multiple divisions: Major Pharmaceuticals,
Wholesaler &
Distributor, Retail Pharmacy, Medical, Compounding and Veterinary
Sales. But
Maintaining that health wasnt easy. Despite the growth in catalog
products, Harvards
buyers were still using Excel spreadsheets to manage inventory across
the companys
Four warehouses. By early 2011, new CEO Terry Haas led a three-
month evaluation of
processes throughout the enterprise. Hass brought in Kerry Porter in
May of 2011 to
enable a new vision for Harvard Drug. The turn on inventory is
everything, says Porter,
Vice President of Inventory Management. He very quickly identified
that they had the
wrong vision driving the inventory management piece. They were more
of a sourcing
organization than a replenishment organization. For Harvard,
Inventory Optimization
from Manhattan Associates proved to be just what the doctor ordered.
Porters goal was
to bring continuity across all channels of the business from a buying
perspective.
Inventory Optimization gives us that platform to be able to leverage
that. The big draw
for Porter was Manhattans fast track implementation, which allowed
Harvard Drug to
see results at a much quicker pace than expected. Case in point: in
2012, Harvards
institutional division saw 6% growth just from having higher fill rates.
Inventory
Optimization allows Harvards buyers to forecast and replenish more
strategically. Even
in the drug industry, you have cold and cough season, you have allergy
season. Those
types of things are very critical to us. Out-of-stocks can be costly. With
Demand
Forecasting, Harvards buyers can plan the allergy season and make
smarter purchasing
decisions based on factors such as previous years trends. If nothing
else, says Porter,
they have the entire product that they need for that entire season,
and so they dont
experience out-of-stocks. Their sales team is confident that they have
the product and
they know their in-stock position is really strong. That confidence gives
Harvard Drug a
significant advantage in the marketplace, enabling them to service their
independent
Pharmacy customers when other distributors come up short on stock.
This company is very strong in the supply section and maintains the
stock in prefect and correct time uses the goods when they needed.
1. What are the strengths of the company?
Brand and healthy:

Harvard Drug is a healthy company, distributing a
deep catalog of brand and generic pharmaceuticals, over-the-counter
medications and supplements to more than 15,000 wholesale and retail
customers. The privately-held companys offerings
Grew through a series of acquisitions that began in 2006, and today
includes more than18,000 products over multiple divisions: Major
Pharmaceuticals, Wholesaler &Distributor, Retail Pharmacy, Medical,
Compounding and Veterinary Sales. But maintaining that health wasnt
easy. Despite the growth in catalog products, Harvards buyers were
still using Excel spreadsheets to manage inventory across the
companys four warehouses. By early 2011, new CEO Terry Haas led a
three-month evaluation of processes throughout the enterprise. Hass
brought in Kerry Porter in May of 2011 to enable a new vision for
Harvard Drug. The turn on inventory is everything, says Porter,
Vice President of Inventory Management. He very quickly identified
that they had the wrong vision driving the inventory management
piece. They were more of a sourcingorganization than a replenishment
organization. For Harvard, Inventory Optimization.

Fast track supply:

The big draw for Porter was Manhattans fast track
implementation, which allowed Harvard Drug to see results at a much
quicker pace than expected. Case in point: in 2012, Harvards
institutional division saw 6% growth just from having higher fill rates.
Inventory Optimization allows Harvards buyers to forecast and
replenish more strategically. Even
in the drug industry, you have cold and cough season, you have allergy
season. Those types of things are very critical to us. Out-of-stocks can
be costly. With Demand
Forecasting, Harvards buyers can plan the allergy season and make
smarter purchasing
Decisions based on factors such as previous years trends. If nothing
else, says Porter,
They have the entire product that they need for that entire season,
and so they dont
Experience out-of-stocks. Their sales team is confident that they have
the product and
They know their in-stock position is really strong. That confidence
gives Harvard Drug a
Significant advantage in the marketplace, enabling them to service their
independent Pharmacy customers when other distributors come up
short on stock and the supply main department to stock market in this
company manages the time proper in just in time in proper planning
and contribution of the sales and distribution
Their sales team is confident that they have the product and
they know their in-stock position is really strong. That confidence gives
Harvard Drug a
significant advantage in the marketplace, enabling them to service their
independent
pharmacy customers when other distributors come up short on stock.
supply chain operate more efficiently:
Whether you are looking for help in choosing the right supply chain
management solution or advice on how to make your supply chain
work more efficiently, the following tips, from supply chain
management experts and managers, can help.
Get rid of spreadsheets:
Too many enterprises still "plan their purchasing using slow and
unreliable spreadsheets," said Jason Averill, executive vice president at
Avercast. To make sure you are using the most up-to-date, accurate
information, "move up to an affordable supply chain platform."
Identify innovation partners:
Supply chain managers must determine which of their suppliers possess
capabilities they can tap into to help produce innovations in products,
services or go-to-market strategies, said Chris Sawchuk, principal at The
Hackett Group and practice leader of the firm's Global Procurement
Advisory. The procurement organization should play a key role, he
advised, by "becoming less of a process executioner and more of a
process enabler" and looking for opportunities to improve current
processes by leveraging supplier capabilities.
Segment your supply base:
To identify the right partners, segmentation of suppliers must become a
"foundational" skill, Sawchuk said. "You must be able to slice and dice
the supply base in many different ways in terms of enabling
innovation," he said. "Most organizations have a single, traditional way
to segment their suppliers, but they need to be able to segment them
in many different ways, around lots of different criteria."
Select supply chain software tailored for your industry:
"There are hundreds of off-the-shelf supply chain software packages or
component modules on the market today, and most implementations
end up requiring some level of customization and integration with
other systems," said John Freund, CEO of JumpTech. "Do your
homework and start your research with systems that were designed for
companies in your industry, or that are similar to yours in some key
aspect. Odds are your project will end up in the 'better, cheaper, faster'
category that way, and you'll likely get a number of handy system
features you won't get if you venture too far afield from your space."
Establish supply chain metrics:
"Despite decades of encouragement and hundreds of millions of dollars
dumped into information technology, most companies still don't have
their supply chain metrics under control," said Joe Francis, executive
director of Supply Chain Council. "Enterprise-wide balanced scorecards,
cascading supply chain metrics and management dashboards can
provide timely insights that help supply chain managers react to
disruptions -- and opportunities -- in today's volatile markets." Francis
recommends starting with metrics that can be benchmarked internally
and externally, such as cash-to-cash cycle time, return on working
capital, perfect order fulfillment and agility indicators.
Manage information, not information management:
"Enterprise solutions should facilitate proper collection, identification
and easy access to allow for rapid decisions," said Shawn Casemore,
founder of Casemore & Co. and an expert on supply chain and
operational excellence. "Collecting information that is not relevant, and
serves only to meet the criteria of an enterprise solution, is not the way
to efficiently manage a business. Collect the information that is more
relevant and aligns with business objectives. Then ensure information is
easily accessible."
Involve your employees:
"Give [employees] visibility into how they impact the customer,"
suggested Mike Ledyard, partner at Supply Chain Visions. "Create a
metrics program that links shop floor level metrics to customer needs
and corporate objectives."
Integrate sales, operations and finance:
"Integrate what Sales plans to sell, what Operations plans to make and
what Finance has forecast into a single consensus driven plan," advised
Ledyard. "Sales and Operations Planning (S&OP) provides the optimal
balance between customer demand, production capacities and
corporate financial performance."
Consider a single supply chain solution:
"Instead of looking for the least expensive option and having different
solutions for different locations, I recommend [having] one enterprise
solution that can support you everywhere you do business, even if it
means that you have to pay more," said Lenny Kharitonov, president of
Unlimited Furniture Group, Inc.
Monitor performance of all supply chain partners:
"The failure of a key supplier can be disruptive and ultimately impact
revenue," said Alex Cote, vice president of marketing at Cortera. "You
want to be constantly monitoring your suppliers so you don't get
caught off guard." To keep on top of your supplier network, "have a
system in place to measure, improve and, if necessary, replace
partners," said Kharitonov.
Implement tracking and mobile technologies:
"To improve efficiencies and minimize costs and inaccuracies, take
advantage of technology such as RFID, voice picking, mobility,
warehouse automation systems and warehouse management systems,"
said Kevin Beasley, CIO of VAI.
Analyze information to meet customer needs:
"Many believe that the supply chain starts at the warehouse and ends
when products have been delivered to stores," said Brendan Lowe,
president of USA business at Aldata. "This simply isn't true and is
symptomatic of the 'delivery' mindset that unenlightened retailers
have. More important than ensuring products are stocked on the
shelves is that those products are [considered] desirable by your
customers." So be sure to track which products your customers actually
want and which ones they don't as part of your supply chain
management strategy.
Integrate marketing expenditures into supply chain planning:
"Include marketing expenditures, which include costs, resource limits
and anticipated demand impact of proposed marketing initiatives, into
your supply chain plan to maximize corporate profitability," said Jeff
Karrenbauer, president of INSIGHT, Inc. "By doing this, companies [can]
identify which marketing campaigns should be implemented and which
should be avoided, the optimal target customers, channels and
products for each campaign and the corresponding optimal
procurement, manufacturing and distribution requirements, all in light
of supply chain costs, capacities, service requirements and the max
profit objective."

Conclusion:
By most measures, Harvard Drug is a healthy company,
distributing a deep catalog of
brand and generic pharmaceuticals, over-the-counter medications and
supplements to
more than 15,000 wholesale and retail customers. The privately-held
companys offerings
grew through a series of acquisitions that began in 2006, and today
includes more than
18,000 products over multiple divisions: Major Pharmaceuticals,
Wholesaler &
Distributor, Retail Pharmacy, Medical, Compounding and Veterinary
Sales. But
maintaining that health wasnt easy. Despite the growth in catalog
products, Harvards
buyers were still using Excel spreadsheets to manage inventory across
the companys
four warehouses. By early 2011, new CEO Terry Haas led a three-month
evaluation of
processes throughout the enterprise. Hass brought in Kerry Porter in
May of 2011 to
enable a new vision for Harvard Drug. The turn on inventory is
everything, says Porter,
Vice President of Inventory Management. He very quickly identified
that they had the
wrong vision driving the inventory management piece. They were more
of a sourcing
organization than a replenishment organization. For Harvard,
Inventory Optimization
from Manhattan Associates proved to be just what the doctor ordered.
Porters goal was
to bring continuity across all channels of the business from a buying
perspective.
Inventory Optimization gives us that platform to be able to leverage
that. The big draw
for Porter was Manhattans fast track implementation, which allowed
Harvard Drug to
see results at a much quicker pace than expected. Case in point: in
2012, Harvards
institutional division saw 6% growth just from having higher fill rates.
Inventory
Optimization allows Harvards buyers to forecast and replenish more
strategically. Even
in the drug industry, you have cold and cough season, you have allergy
season. Those
types of things are very critical to us. Out-of-stocks can be costly. With
Demand
Forecasting, Harvards buyers can plan the allergy season and make
smarter purchasing
decisions based on factors such as previous years trends. If nothing
else, says Porter,
they have the entire product that they need for that entire season,
and so they dont
experience out-of-stocks. Their sales team is confident that they have
the product and
they know their in-stock position is really strong. That confidence gives
Harvard Drug a
significant advantage in the marketplace, enabling them to service their
independent
pharmacy customers when other distributors come up short on stock.
these are the steps to improve the supply channel development to
attain the good name and brand


Case: 3
Summary:
ABC Company wants to start a new venture to include the supply chain of the
readymade housing products. How will they start it and what are the different
channels that they can use to reach the retailers. Providing a consistent and
integrated experience for customers has never been so critical. Retail customers
are increasingly well informed, leveraging a vast amount of information applied to
product research and comparison shopping. Beyond the information available to
customers today, the avenues available for sales execution, traditionally viewed
as point-of-sale, extend well beyond the traditional cash register. Multi-channel
retailing extends to all aspects of the buying experience where the customer and
the retailer can interact. This can include such processes as product research,
product comparison, product inquiries, and wish-listing. A critical component of
the multi-channel experience includes the actual purchase, where the customer
uses methods that are most convenient for them, including the use of their
preferred method of payment. Armed with information and a demand for
superior convenience, customers expect a seamless experience. Customers
expect that product availability, brand presence, pricing, general product
information, and purchasing options will be consistent, regardless of the channel.
This shift in approach requires that retailers adopt a point-of-service mentality.
This imperative demands that retailers meet customers where they are and
provide a customer-centric buying experience. At the heart of today's retail
environment is the need for retailers to not only exist, but to thrive in a multi-
channel environment. Multi-channel retailers provide multiple methods by which
interaction with customers can occur. A chance to interact effectively with a
customer increases the opportunity for a sale, while the opposite represents a
missed opportunity. The opportunity to reach customers no longer ends when the
store closes.

1. Draw an illustration for the routes?


Criteria in selecting channel members. Typically, the most important
consideration whether to include a potential channel member is the cost at
which he or she can perform the required functions at the needed level of
service. For example, it will be much less expensive for a specialty foods
manufacturer to have a wholesaler get its products to the retailer. On the other
hand, it would not be cost effective for Procter & Gamble and Wal-Mart to
involve a third party to move their merchandiseWal-Mart has been able to
develop, based on its information systems and huge demand volumes, a more
efficient distribution system. Note the important caveat that cost alone is not
the only considerationpremium furniture must arrive in the store on time in
perfect condition, so paying more for a more dependable distributor would be
indicated. Further, channels for perishable products are often inefficiently short,
but the additional cost is needed in order to ensure that the merchandise moves
quickly. Note also that image is importantWal-Mart could very efficiently
carry Rolex watches, but this would destroy value from the brand.
"Piggy-backing." A special opportunity to gain distribution that a manufacturer
would otherwise lack involves "piggy-backing." Here, a manufacturer enlists
another manufacturer that already has a channel to a desired customer base, to
pick up products into an existing channel. For example, a manufacturer of
rhinoserous and hippopotamus shampoo might be able to reach zoos by
approaching a manufacturer of crocodile teeth cleaning supplies that already
reaches this target. In the case of reciprocal piggy-backing, the shampoo
manufacturer might then, in turn, bring the teeth cleaning supplies through its
existing channel to exotic animal veterinarians.
Parallel Distribution. Most manufacturers find it useful to go through at least
one wholesaler in order to reach the retailer, and it is simply not efficient for
Colgate to sell directly to pathetic little "mom and pop" neighborhood stores.
However, large retail chains such as K-Mart and Ralphs buy toothpaste and
other Colgate products in such large volumes that it may be efficient to sell
directly to those chains. Thus, we have a "parallel" distribution network
whereby some retailers buy through a distributor and others do not. Note that
we may also be tempted to add a direct channele.g., many clothing
manufacturers have factory outlet stores. However, note that the full service
retailers will likely object to being "undercut" in this manner and may decide to
drop or give less emphasis to the brand. It may be possible to minimize this
contract by precautions such as (1) having outlet stores located in vacation
areas not within easy access of most people, (2) presenting the merchandise as
being slightly irregular, and/or (3) emphasizing discontinued brands and
merchandise not sold in regular stores.

Evaluating Channel Performance. The performance of channel members should
be periodically monitoreda channel member may have looked attractive
earlier but may not, in practice be able to live up to promises. (This can be
either because of complacency or because the channel member simply did not
realize the skills and resources needed to perform to standards). Thus,
performance level (service outputs) and costs should be evaluated. Further,
changes in technology or in the market place may make it worthwhile to shift
certain functions to another channel member (e.g., a distributor has expanded
its coverage into another region or may have gained or lost access to certain
retail chains). Finally, the extent to which compensation is awarded in
proportion to performance should be reassessede.g., a distributor that ends
up holding inventory longer or taking on more returns may need additional
compensation.

Gap Analysis
Market Deficiencies. "Gap" analysis involves analyzing current market offering
to assess the extent to which they meet customer demands. Demand side gaps
involve a market situation where consumers are not satisfied buying what is
availableusually either because the level of service provided is not adequate
or because the offering is too expensive. Supply side gaps, in contrast, involve
firms that provide services that are needed, but ones that can be met elsewhere
at lower prices.
Demand Side Gaps. Customer satisfaction abounds, and many consumers would
like to replace their current suppliers. This can happen either generallythere is
a widespread dissatisfaction with banks among consumers, and many would
switch if they found one that they thought to provide better serviceor the gap
can be with one segment that is not being well served. As an example of the
latter, consider parents who, if they had not had children, would have been
perfectly satisfied with an ordinary Internet service provider but are now
worried that their children can be exposed to inappropriate material online.
Therefore, the PAX Network, which features family-oriented television
programming, stepped in to offer a service that claims to block out most
objectionable sites. Further, one auto parts store owned by a woman ran an
advertising campaign aimed at women, acknowledging that women were often
being asked by their husbands and boyfriends to be "parts runners." The ad
then went on to talk about the cleanliness of the store and non-condescending
attitudes of the sales people.
this service. Many consumers would like to have their dry cleaning picked up
and delivered, but when push comes to shove, they would not be willing to pay
for the extra service.
Wheel of Retailing. An interesting phenomenon that has been consistently
observed in the retail world is the tendency of stores to progressively add to
their services. Many stores have started out as discount facilities but have
gradually added services that customers have desired. For example, the main
purpose of shopping at establishments like Costco and Sams Club is to get low
prices. These stores have, however, added a tremendous number of services
e.g., eye examinations, eye glass prescription services, tire installation,
insurance services, upscale coffee, and vaccinations. To the extent these
services can be added in a cost effective manner, that is a good thing. Ironically,
however, what frequently happens is that "room" now opens up for a "bare
bones" chain to come in and fill the void that the original store was supposed to
have filled! New stores can now come in and offer lower prices before
additional, costly services "creep" in. Note that upscaling over time may be an
appropriate strategy and that the owner of the "rising" chain may itself want to
start another, lower-service division (e.g., Ralphs may want to own another
chain such as Food 4 Less).
Supply Side Gaps. Supply side gaps come about when a business finds that the
services that it has traditionally offered to customers in the past are now too
expensive to justify the value they provide. For example, in the "old days" (i.e.,
until the early 1990s), travel agents provided a valuable servicethey would
"match" travelers and airlines, finding a reasonable fare and travel time and
issuing the ticket to the customer who, then, did not have to call all the airlines
for a fare and then visit the airport or an airline office. However, nowadays, it is
much more convenient for consumers to carry e-tickets, and it is frequently
easier to go online to compare fares and travel time at ones convenience.
Therefore, travel agents, to command their commissions, will often need to
provide something extra that the online services cannot. The problem is that,
for most consumers, there just isnt much that the travel agent can offer other
than fancy coffee or donuts, which you can get more conveniently elsewhere
anywhere. Maybe they can take passport photos or arrange bus transportation
to a cruise ship, but is that enough to justify people coming to them? Online
services are starting to offer package dealsair fare, hotel, and car rental
anyway.
Finding opportunities. Again, it is important to emphasize the need for market
balance. Frequently, there will be room for higher cost services for one
segment, and perhaps a diametrically opposed service for the lower cost
service.
Gaps, costs, and performance. Generally, we find that gaps do not exist when
cost and service are "in line" with customer expectations. Thus, for example,
Nordstrom serves a segment that desires high service. Nordstrom incurs a great
deal of costs in this, which are ultimately passed on to the consumer, but
Nordstroms customers are willing to pay for this. Similarly, Wal-Mart provides
some, but less, service and does so at a very low cost. Thus, another segments
preferences are served. Thus, service output demand is matched with supply.
On the other hand, many auto repair facilities provide less service than is
expected and do not adequately make up for this by low prices. Therefore, an
opportunity might exist for someone to offer better service at a not much
higher cost. On the other hand, nowadays people may not be willing to pay the
extra cost for going to a butcher shop and pay significantly more if what they
get is only a little better than what is available in the supermarket meat section.
Closing gaps. Firms may be able to close, or reduce, their gaps by reconsidering
their offerings. A gasoline station that offers an "average" level of service at
prices higher than those of self-service stations might either target the low cost
segment, lowering prices and cutting costs, or targeting a premium service and
"beefing up" service. Similarly, a firm that faces a segmented market might
branch off" into different units that offer different levels of service to different
customers. For example, Toyota started the Lexus division for consumers who
demanded more service than would have been cost effective to offer to its
traditional customers. On the supply side, closing gaps mostly involves
improving efficiency and/or reducing costs in other ways. Alternatively, existing
channels may be reassessede.g., airlines have deemphasized travel agents.

Channel Management and Conflict
Vertical integration. Generically speaking, products may come and reach
consumers through a chain somewhat like this:
Raw materials ---> component parts ---> product manufacturing
---> product/brand marketing ---> wholesaler ---> retailer
---> consumer
Money can be made at each stage in the chain and it may be tempting for firms
to try to get into all aspects. For example, Henry Ford wanted to make all the
components for his own cars, so Ford tried to run its own rubber plantation with
limited success. The temptation to try to expand vertically can be especially
strong when an industry faces limited growth and thus presents limited
opportunities for reinvestment into traditional operations (e.g., if the auto
industry is not growing as much as desired, one way to reinvest profits, rather
than having to pay them back to stockholders who would then have to pay
taxes on the
dividends, might be to buy steel mills. The problems, however, is that the
management is not used to running such businesses and that managerial time
will be spread among more areas.
Business structures. A business can be squarely focused in just one area.
Generally, such investments are risky because of problems with management
oversight. In Japan, many firms are part of a keiretsu, or a conglomerate that
ties together businesses that can aid each other. For example, a keiretsu might
contain an auto division that buys from a steel division. Both of these might
then buy from a iron mining division, which in turns buys from a chemical
division that also sells to an agricultural division. The agricultural division then
sells to the restaurant division, and an electronics division sells to all others,
including the auto division. Since the steel division may not have opportunities
for reinvestment, it puts its profits in a bank in the center, which in turns lends
it out to the electronics division that is experiencing rapid growth. This practice
insulates the businesses to some extent against the business cycle, guaranteeing
an outlet for at least some product in bad times, but this structure has caused
problems in Japan as it has failed to "root out" inefficient keiretsu members
which have not had to "shape up" to the rigors of the market.
Motivations for outsourcing. While firms, as discussed above, often have certain
motivations for trying to "gobble" up as many business opportunities as
possible, there are also reasons for "outsourcing" or contracting out certain
functions to others. Auto makers, for example, have often found it profitable to
buy a number of components from non-union manufacturers. Often small
vendors, run by entrepreneurs, are better motivated to perform certain
servicese.g., insurance agents can have an incentive to build up and service a
client base more effectively than an internal staff could. It is also possible for
outsiders to specializechemical firms, for example, may be better able to
research and develop paints than auto manufacturers. Smaller independent
firms may also operate more leanly, facing market competition better than
large, centralized firms. A firm specializing in just making nuts and bolts may
have greater economies of scale than Rolls Royce, which makes only a limited
number of cars.
Channel Power. Some channel members need others more than others need
them. Channel conflict. We have seen throughout the term that conflict exists
between channel members.

Distribution Intensity Decisions
We have seen distribution intensity issues throughout the course, so here we
will mostly consider overall strategic issues related to these decisions.
Distribution opportunities. First of all, we must consider what is realistically
available to each firm. A small manufacturer of potato chips would like to be
available in grocery stores nationally, but this may not be realistic. We need to
consider, then, both who will be willing to carry our products and whom we
would actually like to carry them. In general, for convenience products, intense
distribution is desirable, but only brands that have a certain amount of power
e.g., an established brand namecan hope to gain national intense distribution.
Note that for convenience goods, intense distribution is less likely to harm the
brand imageit is not a problem, for example, for Haagen Dazs to be available
in a convenience store along with bargain brandsit is expected that people
will not travel much for these products, so they should be available anywhere
the consumer demands them. However, in the category of shopping goods,
having Rolex watches sold in discount stores would be undesirablehere,
consumers do travel, and goods are evaluated by customers to some extent
based on the surrounding merchandise. (Please see the chart in the PowerPoint
notes).
The product life cycle. In general, a brand can expect lesser distribution in its
early stagesfewer retailers are motivated to carry it. Similarly, when a product
category is new, it will be available in fewer stores
Brief review of distribution intensity issues:
Full service retailers tend dislike intensive distribution.
Low service channel members can "free ride" on full service sellers.
Manufacturers may be tempted toward intensive distribution
appropriate only for some; may be profitable in the short run.
Market balance suggests a need for diversity in product categories where
intensive distribution is appropriate.
Service requirements differ by product category.
Termination of brands. A retailer may terminate a brand when carrying it under
existing terms no longer seems attractive. This can be done overtlythe
channel member explicitly announces that the brand will no longer be carried
or more indirectly in the sense that inventory holdings are reduced and
customers are recommended substitute brand and/or products.
Maintaining channel member performance. One way to motivate channel
members to carry ones product is through a pull strategy. This involves
establishing consumer demand, usually through advertising and/or a strong
brand image. For example, most pharmacies need to carry the brand name
Bayer aspirin to satisfy their customers. Note, however, that Bayer has invested
a great deal of money in this. Alternatively, a firm may offer contract provisions
making it attractive to be carriede.g., prices may be guaranteed for some
period of time. Geographical or target market exclusivity may also be offereda
retailer who knows that no one else in the area carries the Vengeful Visions gun
line will be more motivated to aggressively push the brand. Stopping short of
exclusivity, a firm may attempt to stop supplying channels that sell below a
certain retail price "maintenance" levele.g., Levis may decide that they will
sell to anyone who wants to carry their jeans so long at such retailers do not sell
them below a certain price. Then, retailers can be assured that a certain margin
can be achieved, and can invest in services.
"Simulating" exclusivity. When truly exclusive distribution proves undesirable,
intra-brand competition can be reduced by offering slightly different, and thus,
non-comparable versions to different retailers.
Making exclusivity attractive. Manufacturers can motivate channel members to
emphasize their brands by creating mutual dependence. For example, Sony \
Retailing
Retail positioning. There are several ways in which retail stores can position
themselves. One strategy involves low-cost, low-service. On the opposite side of
the spectrum, others may offer high-cost-high-service. Generally, having a clear
strategy and position tends to be more effective since "average" stores tend to
face a greater scope of competitione.g., Sears competes both "below" with K-
Mart and "above" with Macys. K-Mart, in contrast, competes mostly laterally,
facing Wal-Mart and Target.
There are two theoretical forms of retailing. The "High-Low" method involves
selling products at high prices most of the time but occasionally having
significant sales. In contrast, the "everyday low price" (EDLP) strategy involves
lower prices all the time but no sales. In practice, there are few if any EDLP
storesmost stores put a large amount of merchandise on sale much of the
time. It has been found that offering lower everyday prices requires a very large
increase in sales volume to be profitable.
Increasing power of retailers. As more and more products compete for space in
supermarkets, retailers have gained an increasing power to determine what is
"in" and what is "out." This means that they can often "hold out" for better
prices and other "concessions" such as advertising support and fixtures. A
significant trend in recent years has been toward manufacturers "private label"
brandsthat is, the retailers' own brands competing against the national ones.
For example, Del Monte peas may now have to compete against Ralphs brand
of peas in those stores. Although private label brands sell for lower prices than
national brands, margins are greater for retailers because costs are lower. For
example, it is more profitable to sell a can of peas $1.00 when it cost $0.60 to
supply than it is to sell a name brand can at $1.25 when that cost $1.05 at
wholesale.
"Power" and "category killer" retailers. A number of retailers have become a
great deal more efficient in recent years than has been traditional in the
industry. Firms like Wal-Mart have invested greatly in information technology
and logistics and have committed to taking a risk on placing large orders placed
well in advance of the need. These stores have frequently attracted a large
customer base by charging consistent low prices. The philosophy here is to
make a little bit of profit on each thing sold and then selling a great deal. A
special case is the "category killer" which focuses on a specific product
categorye.g., Circuit City buys up very large volumes of electronics and thus
can bargain for low prices from manufacturers. Manufacturers get the benefit of
large, consistent orders, but must in turn offer exceptionally low prices or risk
having business shifted to other brands. Note that in practice, the category killer
tends to carry a large variety of brands, buying a large volume of each. Thus, the
mere threat of switching to other brands is enough to get a concession from
each brand.
Retailing polarity. A number of retailers have tended to go to one extreme or
the othereither toward a great emphasis on price or a move toward higher
service. Rapid economic growth has made high service retailers more attractive
to a growing number of affluent consumers, and less affluent consumers have
become more accustomed to intense price competition between different
retailers.

2. How many channels can they have for a city and how many for the
suburban areas?

Distribution: Channels and Logistics
Distribution (also known as the place variable in the marketing mix, or the 4 Ps)
involves getting the product from the manufacturer to the ultimate consumer.
Distribution is often a much underestimated factor in marketing. Many marketers
fall for the trap that if you make a better product, consumers will buy it. The
problem is that retailers may not be willing to devote shelf-space to new
products. Retailers would often rather use that shelf-space for existing products
have that proven records of selling.

Although many firms advertise that they save the consumer money by selling
"direct" and eliminating the middleman, this is a dubious claim in most
instances. The truth is that intermediaries, such as retailers and wholesalers, tend
to add efficiency because they can do specialized tasks better than the consumer
or the manufacturer. Because wholesalers and retailers exist, the consumer can
buy one pen at a time in a store located conveniently rather than having to order
it from a distant factory. Thus, distributors add efficiency by:
Breaking bulkthe consumer can buy small quantities at a time. Small and
modest scale retailers (e.g., the USC bookstore) can buy modest quantities.
This service reduces quantity discrepancy in the supply-demand
relationship between manufacturers and end customers.
Consolidation and Distribution. It would be highly inconvenient for
customers to have to buy each product at a different store. Most American
consumers today also have limited patience with specialty stores in most
categories. Rather than having to go to one store to buy produce, one store
to buy meat, and other stores for other household products, there is
considerable value in having everything available in a supermarket. The
consumers can buy at a neighborhood store, which in turn can buy from a
regional warehouse. It would also be very inconvenient for supermarkets
and most other retailers to have to receive deliveries individually from each
manufacturer. Wholesalers consolidate products from different
manufacturers so that a large number of different products can be received
in one shipment. This reduces costs by increasing the efficiency with which
products can be (1) delivered and (2) received. Consolidation and
distribution services offered by wholesalers reduce the assortment
discrepancy between manufacturers on the one hand and local retailers
and consumers on the other. NOTE: Some very large retail chains such as
Wal-Mart may be able to handle distribution more effectively than outside
wholesalers. Wal-Mart often insists on sales directly to the chain from the
manufacturer rather than sales through wholesalers. This is the exception
to the rule since Wal-Mart is large enough to be able to handle distribution
itself rather than going through retailers. It should be noted that Wal-Mart
has made very large investments to make this possible, and these
capabilities have taken a long time to develop. Wal-Mart had a very difficult
time breaking into the grocery businessespecially for perishable items
and took several years to perfect this capability.
Carrying inventory. This service reduces the temporal discrepancy between
o Manufacturers who may need to schedule production at relatively
constant levels and consumers who need certain products only at
certain times (e.g., turkeys needed mostly at Thanksgiving and
Christmas)
Financing. Certain small manufacturers may have difficulty waiting for
payment until goods are sold to the end-customer. Wholesalers and
retailers may negotiate lower prices from the manufacturer in return for
quick payment.
Many of the cost savings associated with having an efficient system of
intermediaries result from specialization. Manufacturers specialize in what they
do wellmanufacturing productswhile others specialize in handling various
phases of the distribution path. Some specialize in retailingusually selling a large
assortment of goods in small quantities to a large number of end customers.
Wholesalers, in turn, specialize in moving and goods from numerous
manufacturers to a large number of retailers.
Channel structures vary somewhat by the nature of the product.

Jet aircraft are custom made and shipped directly to the airline. Automobiles,
because they are difficult to move, are shipped directly to a dealer. Other
products are shipped through a wholesaler who can more efficiently handle, and
combine, products from many different suppliers. Several layers of wholesalers
may exist, depending on the product. Occasionally, agents may also be involved.
Agents usually do not handle products, but instead take care of the business
aspect of negotiating with distributors, which manufacturers may feel
uncomfortable or ill prepared for doing themselves.
"Wheel of Retailing. An interesting phenomenon that has been consistently
observed in the retail world is the tendency of stores to progressively add to their
services. Many stores have started out as discount facilities but have gradually
added services that customers have desired. For example, the main purpose of
shopping at establishments like Costco and Sams Club is to get low prices. These
stores have, however, added a tremendous number of servicese.g., eye
examinations, eye glass prescription services, tire installation, insurance services,
upscale coffee, and vaccinations.


MANUFACTURER DISTRIBUTION PREFERENCES
Most manufacturers would prefer to have their products distributed widelythat
is, for the products to be available in as many stores as possible. This is especially
the case for convenience products where the customer has little motivation to go
to a less convenient retail outlet to get his or her preferred brand. Soft drinks
would be an extreme example here. The vast majority of people would settle for
their less preferred brand in a vending machine rather than going elsewhere to
get their top choice. This is one reason why being a small share brand in certain
categories can become a vicious cycle that perpetuates itself.
For most manufacturers, wide distribution is not realistically obtainable. In food
product categories, for example, the larger supermarkets can carry a large
number of brands. Smaller convenience stores and warehouse stores, however,
are likely to carefully pick a few brands. After all, if convenience stores were to
carry as many products as supermarkets, the purpose of having a neighborhood
store with easy entry and exit would be defeated.
In a very small number of cases, some manufacturers prefer to have their
products selectively, or even exclusively, distributed. This is usually the case for
high prestige brands (e.g., Estee Lauder) or premium quality image brands (e.g.,
high end electronic products) that require considerable before and after sales
service.
DISTRIBUTION INTERESTS: RETAILERS VS. MANUFACTURERS
Manufacturers of different kinds of products have different interests with respect
to the availability of their products. For convenience products such as soft drinks,
it is essential that your product be available widely. Chances are that if a store
does not have a consumers preferred brand of soft drinks, the consumer will
settle for another brand rather than taking the trouble to go to another store.
Occasionally, however, manufacturers will prefer selective distribution since they
prefer to have their products available only in upscale stores.
Parallel distribution structures refer to the fact that products may reach
consumers in different ways. Most products flow through the traditional
manufacturer - -> retailer --> consumer channel. Certain large chains may,
however, demand to buy directly from the manufacturer since they believe they
can provide the distribution services at a lower cost themselves. In turn, of
course, they want lower prices, which may anger the traditional retailers who feel
that this represents unfair competition. Firms may also choose to utilize factory
outlet stores. To allay concerns held by conventional stores, however, these
factory outlet stores are usually located in areas where they are not easily
accessible.

We must consider what is realistically available to each firm. A small
manufacturer of potato chips would like to be available in grocery stores
nationally, but this may not be realistic. We need to consider, then, both who will
be willing to carry our products and whom we would actually like to carry them.
In general, for convenience products, intense distribution is desirable, but only
brands that have a certain amount of powere.g., an established brand name
can hope to gain national intense distribution. Note that for convenience goods,
intense distribution is less likely to harm the brand imageit is not a problem, for
example, for Haagen Dazs to be available in a convenience store along with
bargain brandsit is expected that people will not travel much for these
products, so they should be available anywhere the consumer demands them.
However, in the category of shopping goods, having Rolex watches sold in
discount stores would be undesirablehere, consumers do travel, and goods are
evaluated by customers to some extent based on the surrounding merchandise.
In general, a brand can expect lesser distribution in its early stagesfewer
retailers are motivated to carry it. Similarly, when a product category is new, it
will be available in fewer storese.g., in the early days, computer disks were
available only in specialty stores, but now they can be found in supermarkets and
convenience stores as well. Certain products that are not well established may
have to get their start on "infomercials," only slowly getting entry into other types
out outlets. (Please see PowerPoint chart).
Different parties involved in the marketing of products tend to have different, and
often conflicting, interests:
Full service retailers tend dislike intensive distribution.
Low service channel members can "free ride" on full service sellers.
Manufacturers may be tempted toward intensive distributionappropriate
only for some; may be profitable in the short run.
Market balance suggests a need for diversity in product categories where
intensive distribution is appropriate.
Service requirements differ by product category.
Diversion occurs when merchandise intended for one market is bought up by a
distributor that then ships it to a different market. Sometimes, a manufacturer
will run a promotion in one region but not in another, and speculators will then
buy extra quantity in the promoted area and ship it another area. The speculator
will then sell it to local retailers or distributors for a price slightly lower than what
is being charged through the regular channel but at a price that still allows a nice
profit. Certain products sell for different prices in different countries. As we
discussed in the unit of international marketing, a gray market occurs when a
product is bought in one country and exported to another where the price is
generally higher. Both Louis Vuitton suitcases and golf clubs were imported to
Japan, depressing prices there.
Recent retail trends. Over the past decade, there has been considerable growth in
both extremes of the continuum from low price, low service to high price, high
service retailers. There has been considerably growth both in the Wal-Mart and
Nordstrom-type retailers than there has been in between.
For some time, during difficult economic times in the mid 2000s, discount stores
like Wal-Mart actually tended to increase sales as consumers seemed to switch
their purchases of the same products from higher priced to lower priced stores
rather than reducing the quantity and quality bought in the product categories. It
appears that consumers have done most of the switching that can be reasonably
done this way already. More recently, Wal-Mart has felt more of an effect of
weak economic times. Observations have been made that more and more
customers seem to be running out of money at the end of the month.
During the last two decades, there has been strong growth in the category killer
chains which specialize in a moderate assortment of goods. Chains like CompUSA,
Best Buy, Staples, Circuit City, Office Depot, and Home Depotwhich were rare
before the 1990shave expanded rapidly and have captured a very large share of
the market in their respective areas of emphasis. These chains operate from two
sources of strength: Although their total purchase volumes are usually smaller
than those of the giants such as Wal-Mart and Target, these purchases are
focused in more limited areas. Thus, the purchases of each giant account for a
large proportion of the sales of many firms. Best Buy, for example, accounts for a
large percentage of the sales of firms that make DVD players, TV sets, video
games, and, to a lesser extent, computers and printers The mega store chains will
often negotiate very large contracts early in the purchasing cycle. Manufacturers
are often willing to offer especially low prices to a buyer who will commit to
taking large quantities well ahead of the time that these products are actually
needed. This guarantees the manufacturers a certain volumealbeit at small
marginsfreeing the firm to commit to production and produce large quantities
without having to worry about selling a large portion the production. Such deals
often account for the very low sale prices that can be offered on select models in
various product categories.
Conclusion:
ABC Company wants to start a new venture to include the supply chain of
the readymade housing products. How will they start it and what are the different
Channels that they can use to reach the retailer . Multi-channel retailing extends
to all aspects of the buying experience where the customer and the retailer can
interact. This can include such processes as product research, product
comparison, product inquiries, and wish-listing. A critical component of the multi-
channel experience includes the actual purchase, where the customer uses
methods that are most convenient for them, including the use of their preferred
method of payment. Armed with information and a demand for superior
convenience, customers expect a seamless experience. Customers expect that
product availability, brand presence, pricing, general product information, and
purchasing options will be consistent, regardless of the channel. This shift in
approach requires that retailers adopt a point-of-service mentality. This
imperative demands that retailers meet customers where they are and provide a
customer-centric buying experience. At the heart of today's retail environment is
the need for retailers to not only exist, but to thrive in a multi-channel
environment. Multi-channel retailers provide multiple methods by which
interaction with customers can occur. A chance to interact effectively with a
customer increases the opportunity for a sale, while the opposite represents a
missed opportunity. The opportunity to reach customers no longer ends when the
store closes.