Chapter 4

Managing the Supply Chain

(Channel Behavior)
 Learning Objectives

 Discuss the retailer’s role as one of the institutions

involved in the supply chain.
 Describe the types of supply chains by length,
width, and control.
 Explain the terms dependency, power, and conflict
and their impact on supply chain relations.
 Understand the importance of a collaborative
supply-chain relationship.

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 The Supply Chain

 Definition - is a set of institutions that move

goods from the point of production to the point of
consumption.
 Channel - Used interchangeably with supply
chain.

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 The Supply Chain**

 The supply chain, or channel, is affected by five

external forces:
Consumer behavior
Competitor behavior
Socioeconomic environment
Technological environment
Legal and ethical environment

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 The Supply Chain**

 A supply chain or channel must perform eight

marketing functions:
Buying Sorting
Selling Financing
Storing Information gathering
Transporting Risk taking

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 The Supply Chain**

 The institutions involved in performing the eight

marketing functions are usually broken into:
Primary marketing institutions - Channel members
that take title to the goods as they move through the
marketing channel.
Facilitating marketing institutions - Channel
members that do not actually take title but assist in the
marketing process by specializing in the performance
of certain marketing functions.

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 Institutions Participating in the Supply
Chain**

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 Types of Supply Chains**

1. Supply chain length

2. Supply chain width
3. Control of the supply chain

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 1. Supply chain length**

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 1. Supply chain length**

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 1. Supply chain length**

 Sometimes the length of a supply chain is hard to

determine.
 The desired length is determined by many
customer-based factors such as
 the size of the customer base
 geographical dispersion
 behavior patterns like purchase frequency
 average purchase size
 the particular needs of customers
 nature of products
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 2. Supply chain width**

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 3. Control of the supply chain**

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 3. Control of the supply chain**

 Conventional marketing channel - Each channel

member is loosely aligned with the others and
takes a short term orientation; is an unproductive
method for marketing goods.
 Vertical marketing channels - Capital-intensive
networks of several levels that are professionally
managed and centrally programmed to realize the
technological, managerial, and promotional
economies of a long-term relationship orientation.
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 3. Control of the supply chain**

 Quick response (qr) systems/ efficient

consumer response (ECR) systems - Integrated
information, production, and logistical systems
that obtain real-time information on consumer
actions by capturing sales data at point-of-
purchase terminals and then transmitting this
information back through the entire channel to
enable efficient production and distribution
scheduling.
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 3. Control of the supply chain**

 Corporate vertical marketing channels - Exist

where one channel institution owns multiple
levels of distribution and typically consists of
either a manufacturer that has integrated vertically
forward to reach the consumer or a retailer that
has integrated vertically backward to create a self
supply network.
It is not difficult to program the channel for
productivity and profit goals since a well-established
authority structure already exists.

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 3. Control of the supply chain**

 Contractual vertical marketing channels - Use

a contract to govern the working relationship
between channel members and include:
Wholesaler-sponsored voluntary groups - The
wholesaler brings together a group of independently
owned retailers and offers them a coordinated
merchandising and buying program that will provide
them with economies like those their chain store rivals
are able to obtain.

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 3. Control of the supply chain**

Retailer-owned cooperatives - Wholesale

institutions, organized and owned by member retailers,
that offer scale economies and services to member
retailers, which allows them to compete with larger
chain buying organizations.
Franchise - Form of licensing by which the owner of
a product, service, or business method (the franchisor)
obtains distribution through affiliated dealers
(franchisees).

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 3. Control of the supply chain** (Franchise)

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 3. Control of the supply chain**

 Administered vertical marketing channels -

Exist when one of the channel members takes the
initiative to lead the channel by applying the
principles of effective interorganizational
management.

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 Managing Retailer-Supplier Relations**

 The basic concepts of interorganizational

management that a retailer needs to understand:
Dependency
Power
Conflict

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 Managing Retailer-Supplier Relations**

 Dependency
Occurs when a retailer needs another supply chain
member or vice versa to perform certain marketing
functions.
Interdependent - When two members of the supply
chain are dependent on each other.
Interdependency is at the root of the collaboration found in
today’s supply chains, and is the major cause of conflict
found in supply.

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 Managing Retailer-Supplier Relations**

 Power - Ability of one channel member to

influence the decisions of the other channel
members.

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 Managing Retailer-Supplier Relations**
Reward power Based on B’s perception that A has the ability to provide
rewards for B.
Expertise power Based on B’s perception that A has some special knowledge.
Referent power Based on the identification of B with A.
Coercive power Based on B’s belief that A has the capability to punish or
harm B if B doesn’t do what A wants.
Legitimate power Based on A’s right to influence B, or B’s belief that B
should accept A’s influence.
Informational Based on A’s ability to provide B with factual data.
power

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 Managing Retailer-Supplier Relations**

 Conflict
Major sources of conflict between retailers and their
suppliers:
Perceptual incongruity
Goal incompatibility
 Dual distribution
Domain disagreements
 Diverter
 Gray marketing
 Free riding

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 Managing Retailer-Supplier Relations**
Perceptual The retailer and supplier have different perceptions of reality.
incongruity
Goal Achieving the goals of either the supplier or the retailer
incompatibility would hamper the performance of the other.
Dual distribution Manufacturer sells to independent retailers and also through
its own retail outlets.
Domain Disagreement about which member of the marketing channel
disagreements should make decisions.
Diverter Unauthorized member of a channel who buys and sells
excess merchandise to and from authorized channel
members.

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 Managing Retailer-Supplier Relations**
Gray marketing Branded merchandise flows through unauthorized channels.
Free-riding Consumer seeks product information, usage instructions, and
sometimes even warranty work from a full-service store but
then, armed with the brand’s model number, purchases the
product from a limited service discounter or over the Internet.

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 Facilitating Channel Collaboration**

 Collaboration in channel or supply chain relations

is facilitated by three important types of behavior
and attitude:
Mutual trust
Two-way communication
Solidarity

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 Facilitating Channel Collaboration**
Mutual trust Both the retailer and its supplier have faith that each will be
truthful and fair in their dealings with the other; allows the
channel to grow and prosper.
Two-way Both retailer and supplier communicate openly their ideas,
communication concerns, and plans.
Solidarity High value is placed on the relationship between
a supplier and retailer; results in flexible dealings
where adaptations are made as circumstances
change.

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