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1 Introduction
With the advance of information technology and internationalization, all industries have been
involved into the environment of the supply chain competition. In this economic environment, some
enterprises can have the outstanding achievement, some of them lost in the competition. In automobile
industry, the one who controls the distribution channels gains more market share. Conflict in the channel
can be lowed down with the governance of automobile distribution channel. With the governance,
products can be delivered perfectly to customers. The satisfaction and the market share will be enhanced
and the advantage of the whole supply chain can be maximized. Therefore, channel governance is the
issue deserved to be researched.
Distribution channel was mentioned in system discussion of marketing channel by Stern and
EI-Ansary (1972) at first. Philip (1997) considers that a distribution channel is the process that goods
and service are moved from maker to consumer, the entities that gain the ownership of goods and the
service just helps to transfer the ownership. The distribution channels that are operated and coordinated
by the parties produce the form use, the ownership use, the time use and the place use, and create value
for the final customer [1]. In the former development of the commodity trade, the idea of the supply chain
has not formed yet, enterprises only pay attention to the hybrid modes. With the development of the
marketing theory, governance of the channel is market modes. At this moment, the thinking of the
supply chain becomes mature and used in kinds of industries. Because of the need of cooperation
between the enterprises, the channel governance modes have changed, therere some modes between the
hybrid modes and the market modes, such as strategic alliance, contract.
Governance in different area has different meaning, and is used differently in each industry.
Governance is generally used in the management and the political activities of the countrys public
affairs. Governance is a kind of management activity, but it emphasizes the control, leading and
operation in politics, connects with power, benefit, responsibility, and obligation and so on. Under the
background of supply chain, controlling the frangibility of supply chain needs more concern, in order to
strengthen the link and make the whole chain go well.
If single enterprise is governed, the aim is to improve the flexibility of enterprise. If the whole supply
chain needs to be governed, various factors must be considered, such as the whole stock, attaining the
coordination, reaction speed, delivery of the product. Thus the supply chain can be fitted for changing
environment, and gains competition ability. This is the root of the supply chain governance.
In distribution channel governance, different frail factors must be considered, then find out the right
way to deal with them. Conflict with different kinds is the main frail factor of supply chain. The conflict
(I.EL-Ansary, Louis W.Stern, 1992) is a member discovers that other members are obstructing and
hindering a target which will be finished. Conflict (Louis W.Stern, 1996) is also considered as a member
of hostile consciousness or hostile motion. Webb and Didow(1997) put forward the conflict of hybrid
distribution, which meant another manufacturer or supplier of hybrid distribution forms "quasi- alliance"
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carry out arrestment or injure the behavior of another "quasi- alliance" [2].
With the conflict arising, its necessary to build up the mechanism of coordination to govern it and
dissolve the damage of conflict. Current theory research is mainly in view of the organization behavior,
social psychology, system economics etc. The Burk (2001) put forward a frame, pointing out
coordination method in strategy to reach consistency. The coordination in the governance of distribution
channel is also one of the problems worth researching. This issue is concerned by some scholars from
organization theory, law and economics etc. Then many theories are put forward such as resources
theory and trade cost theory, organization control theory and contract etc.. The coordination mechanism
CCO (manufacturer's commitment, coordination and performance outcomes) model is put forward by
David (David, 1997) on the foundation of previous research [3]. Three-parts promise relation
coordination model is proposed by Wang Tieming (Wang Tieming, 2005), adding the variants such as
environment and time, making the model more adaptable [4]. There are some scholars thought that the
distribution conflict is caused by information dissymmetry (He Qing, 2004), brought out the advices of
information integration distribution mode and outlet the information integration of hybrid distribution
mode based on the information theory [5].
Above all, the conflict of distribution channel is analyzed in previous literatures, and the conflict is
dealt with certain strategy to carry on coordination governance. But there is still no literature focusing
on any certain industry, either any use under the background of supply chain, and all members in the
chain were neither treated as a benefits system to be governed.
This paper focus on auto-mobile industry analyzes the frail factors of distribution channel under the
framework of supply chain and the conflict of supply chain, brings forward strategy solutions to govern
the distribution channel, in order to attain lower transaction cost, raise the customers satisfaction and
increase the whole benefits of the supply chain. The start-point of distribution channel is the car
manufactory in this paper, the end-point is customer. Governance of the auto-mobile distribution is
based on the frame of coordination mechanism.
enterprises restrict each other mutually. (5) Governance essentially requests to be able to build a
coordination frame, melt the benefit conflict among the channels and establish corresponding strategies.
x = V (N);
(b)xi V (i)
V ( N ) indicates the total income of I gamblers, V (i ) indicates the income the gambler
does not
[7]
1The distributors and manufacturer begin to compete for the core status in the chain. Some large
distributors already have the ability to control the auto-mobile supply chain.
(2)The automobile channel lacks effective governance. The pattern of distribution channel only makes
the products well sold and maintains high channel profit. The manufacturer controls the distributors
through the product. As a result, the entire market becomes chaos.
(3) The information transmission of automobile distribution channel has barrier. The marketing
decision-making dependency of automobile manufacturer reduces.
(4)The strategy is carried out difficultly in the automobile distribution. In the channel, information is
concealed by distributors, causing customer satisfaction get worse.
(5)The fund chain of automobile distribution channel is extremely frail.
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VN =1/
(C L )
N
Effectiveness
; V0 V() = 0 ; Vd presents the distributors use value; Vd' presents distributors use value
stock after outsourcing; V n presents the manufacturer use value ; V n' presents manufacturers use
value stock after outsourcing; Vi represents any member's use value in the alliance; S represents
alliance; Vi ( S ) represents use value of composition alliance. Suppose that therere 1 distributor and 5
kinds of automobile in area A, and there is 1 third party logistics act as an agent to manage the stock in
this area.
The worst situation faced by the distributor is that 1 distributor in the alliance receives all stocks of 5
manufacturers in the business, therefore, the characteristic function of distributor
satisfy: Vd = 1/
(C
Ln ), n = 5, if the distributors and the third party logistics build up an alliance, the
distributors will give the stock to the 3PL, because the core competitive ability of 3PL is the stock cost
control, the unit stock cost of distributor is transferred to the unit stock keeping cost paid for 3PL. The
5
(C
3 pl
Ln ), n = 5 , by supposition
Vd' > Vd
. The
manufacturer
also
may
build
up
an
alliance
with
3PL,
namely:
Vn = 1 /(C n
= 1 /(C3 PL Ln ), n = 1, 2, L 5 . Because of the economic man supposition, all
distributors in the area outsource the stock to 3PL. 3PL can use the scope economy and the scale
economies to promote the profit. Obviously, any manufacturer, the distributor and 3PL building up an
alliance is more effective than that the single enterprise operates. If use vector is optimal,
namely V i ( S ) > V i , iS , alliance S is the cooperation gambling solution. The cooperation gambling
solution under the supposition premise is: S = {manufactur er1 L manufactur er 5 distributo r 3PL}
In order to reduce the stock cost, it must refer the enterprise mutually gambles process in the chain.
The supposition of the automobile supply chain has only three pitch points: The manufacturer, the
distributor and 3PL. They can achieve information sharing. This paper supposes that the enterprises
share the stock cost for the gambler 1, gambler 2 and gambler 3. The strategies choices are showed
below:
Gambler 1: Strategy A1 is VMI. Strategy A2 is manufacturer extrudes stock to distributors.
Gambler 2: Strategy B1 is outsourcing the stock to 3PL. Strategy B2 is digesting the manufacturer
stock by the way of reducing price.
Gambler 3: Strategy C1 is cooperation with distributors or manufacturer, providing the stock
management service. Strategy C 2 is stock coordination of the entire chain.
According to each strategy, three gamblers can have eight strategies combinations,
( A1 , B1 , C1 ) , ( A1, B1, C 2) , ( A1 , B2 , C1 ) , ( A1, B2 , C2 ) , ( A2 , B1 , C1 ) , ( A2 , B1 , C2 ) , ( A2 , B2 , C1 ) , ( A2 , B 2 , C 2 ) .Based
on the present actual situation of domestic automobile entire vehicle stock management and each
enterprise's actual situation, considered the gamblers and the strategy collection, payment matrix is
constructed as follows, a, b, c represent three gamblers payment matrix. Its showed as table 1.
The stock problem of the automobile distribution multi-people cooperation game model characteristic
function solutions are as follows:
According to the analysis above, the automobile supply chain multi- people cooperation game model
entire vehicle stock characteristic function must satisfy:
Ln ) > Vn'
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1
A1
strategy
B1
payment
( a, b, c )
(212)
(312)
(432)
(231)
(142)
(112)
(120)
(3 2 3)
C1
A1
B1
C2
A1
B2
C1
A1
B2
C2
A2
B1
C1
A2
B1
C2
A2
B2
C1
A2
B2
C2
V ( ) = 0
V ({1}) = 2
V ({1,2}) = 5
V ({2}) = 1
V ({1,3}) =
16
3
2
3
9
V ({2,3}) =
2
V ({3}) =
V ({1,2,3}) = 9
i =1
i=1
Therefore this is a substantive gambling. Namely: participating in the entire vehicle stock gambling,
the stock is managed by the third party, the governance strategy is to build up the local strategic alliance,
carrying on JMI, finally reduce the stock cost of the entire chain. Because each entity benefit can be
enhanced, enterprise has the possibility to build up an alliance.
(2)The effective revolution of fund flows is very important to an enterprise. Only the account
receivable effective management can cause enterprise operation smoothly. The entire vehicle
manufacturer implements credit administration on the downriver enterprise in automobile supply chain.
Enterprise must strengthen the risk guard consciousness.
(3) The entire vehicle manufacturer usually makes use of the government mechanisms as follows:
The incentive plan, monitoring processes, enforceable contracts and so on to control their distributors
and reduce the conflict. Of the many mechanisms available, the channel incentive is generally
recognized as the one most likely to motivate specific distributor action. Because channel incentives are
so closely tied to specific performance, they play a key role in allowing lots of suppliers to maintain
productive relationships with channel members [9].
Each distributor has different pursuit, some pursue difference, some pursue achievement and so on [10].
Therefore it needs to formulate the incentive mechanism which may be accepted. Based on Dabid I.
Gilliland in the distribution channel research, we propose the following formulation incentive
mechanism frame as figure 1 followed.
Distributors concerned with the attainment of economic goals will evaluate an offered incentive by
how it supports bottom-line performance. In this case, two bases for incentive rejection are salient.
These bases are related to the attainment of economic goals. Incentive magnitude refers to the monetary
size of the offered incentive.
Distributors concerned with system integration are interested in the extent that the incentive supports
or detracts from its ongoing marketing program. In this case, an incentive might be rejected for reasons
of destabilization.
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Regarding the distributors concern for harmony, as stress and tensions rise, equity, the extent of the
incentive is fair becomes an important aspect of consideration. In turn, these pledges are often met with
reciprocal pledges of commitment and loyalty. On the other hand, inadequate commitments and policies
may be rejected by distributors concerned about the strength of their social attachments with the supplier
or other distributors.
The distributor focuses on the need for adaptability. It is concerned about its capacity to maintain the
flexibility and responsiveness
The sale returns is commonly used in the automobile industry, returns have many types: cash returns
according to the sales volume, returns and the cash reward unifies, returns and the market propaganda,
training, clear returns, dark returns and so on . Return is actually one way of benefit sharing, and it is the
profit redistribution in the supply chain.
The members in the automobile supply chain have malicious behaviors, for example: Fleeing goods,
destroying price system, and then we should use the opportunism of transaction cost theory to explain.
The opportunism that is controlled by the contract governance is not enough. It should be used as the
assets property [11]. The corresponding governance strategy is that the manufacturer and the distributors
invest to marketing channel facility construction and the correlation fixed asset of this brand together,
tying up the benefit.
The perfect channel establishment and the policy still have limitations. Even if the benefit share
principle guarantees the fairness, the execution process can cause "malfunctions" phenomenon.
Therefore the government main concern is how to establish the trust mechanism. The auto-mobile
distributors are ranked, and suitable elimination mechanism is constructed.
6. Conclusion
The distribution channel of automobile supply chain is discussed in this paper; and some appropriate
governance strategies are proposed to solve the channel conflict. The cooperation game method is used,
and the third party logistics is introduced to solve the automobile stock. The fund credit administration is
used to solve the distributor which doesnt return the funds to the manufacturer immediately. The
incentive mechanism is used to solve the channel conflict. Thus, the benefit redistribution and sharing in
the supply chain will realize, the channel member's coordination is going to achieve and the channel
governance goal will finally come true.
This work is supported by new century outstanding talent plan in Fujian.
387
Reference
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[2]Anderson.E. The use of pledges to build and sustain commitment in distribution channels. Journal of
Marketing Research, 1992: 18-34
[3]David I.G. Manufacturers' commitment to industrial distributors: governance implications and performance
consequences. Dissertation of Georagia State University, 1997: 321-338
[4]Wang Tieming. The channel conflict and coordination mechanism of the distribution channel. Hua Zhong
Science University, 2005(9):76-80 (in Chinese)
[5]He Qing. Reviews for the Present Inter-channel Conflict Settlement Mechanism. Finance and Economic
Research, 2006(1) (in Chinese)
[6]Stoker, Gerry. Governance as theory: five propositions. International Social Science Journal, 1998,155 (3): 17-28
[7]Guillermo Owen. Game Theory. (2nd.ed) Naval Postgraduate School, 1998:193-197
[8]SP/Computer product and circulation. Beijing: Enterprise Management Publishing, 2004:145-212 (in Chinese)
[9] David I.Gilliland. Designing channel incentives to overcome reseller rejection. Industrial Marketing
Management, 2004: 8795
[10]David I.Gilliland. Toward a business-to-business channel incentives classification scheme. Industrial Marketing
Management, 2003:5567
[11]Hans Voordijk, Job de Haan, Geert-Jan Joosten. Changing governance of supply chains in the building industry:
a multiple case study. European Journal of Purchasing& Supply management, 2006(6):217-225
Ji Guojun PhD, Dongnan university and Washington State University jointly train the post-doctor, Washington
University visits professor, research area are information system, systems engineering, supply chain management
Publishes paper more than 120, publication work 4.
Zhang Qiaohong master, School of Management Science and Engineering, Xiamen University, China. Research
area is logistics and supply chain management.
The Author can be contacted from Email: jiking@xmu.edu.cn zhangqiaohong01@163.com
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