1 What are supply chains Chapter 9 Place and Convenience a Supply chain the total series of firms exchanges and transactions that produce goods and make them physically and commercially available to consumers Industrial supply chains the firms involved in getting materials to the producer 1 Typically include raw materials suppliers and component part makers 2 At the end of the industrial supply chain is the producer Retail supply chain the series of firms and exchanges required to get goods from the producer to the consumer 1 Members can also include wholesaler and retailers b Two basic divisions to supply chains Supply chains involve more than a producer of goods distributing those goods to consumers Supply chains also involve getting materials to producers This fact suggests that supply chains may be conveniently divided into two parts i ii i ii iii c Structures of retail supply chains i While the complexities of supply chains have increased in recent years the basic structures of supply chains are fairly straightforward 1 This figure shows three basic supply chain structures divided into two types indirect and direct supply chains ii Reverse supply chain when merchandise moves backwards through a supply chain from consumers to producers 2 The importance of supply chains a Shown below is a simple example of how one type of marketing intermediary retailers actually help consumers save considerable money b What moves through supply chains i ii iii iv Supply chains physically move materials and merchandise from suppliers to producers and from producers to consumers Supply chains also facilitate the flow of money back up Supply chains also facilitate the flow of information Supply chains also facilitate the flow of promotional efforts and assistance supply chain members provide to each other 3 Designing retail supply chains length and intensity a Length i When to use direct supply chains 1 If the producer can own and operate its own retail stores 3 Microsoft Nike Tesla etc ii When to use indirect supply chains a Large initial investment and ongoing operational issues 2 Using catalogs or online sales is a less expensive way to establish a direct retail supply chain a Catalog or online sales favor brands where pre purchase inspection is not important b Producers must have the technological resources to build and support online sales c Catalog and online sales are viable when consumers do not need the product immediately 1 Producers and or customers are not concentrated a Large numbers of transactions would be required many producers and customers 2 Key issues trends for indirect supply chains a Often a key question as to whether involve a wholesaler b Large and sometimes medium sized retailers bypass or not and how many wholesalers c Shift of power in supply chain in favor of large retailers d Smaller and medium sized retailers often benefit more from having a relationship with wholesalers b Intensity i Three levels of distribution intensity the level of availability for the product or service 1 Intensive distribution strategy producers who make their products easily obtainable a Place products in as many retail outlets as possible 2 Selective distribution when producers put their brands in many but not all possible outlets a Typically applies to shopping goods 3 Exclusive distribution associates most strongly with specialty goods these products are more difficult to obtain contributing to their exclusivity a Higher end and specialty products more likely 4 Retail supply chain strategy retailer selection a Retailer fit is answering a simple question does my brand belong in a particular retail store i Retailer fit can be judged on three dimensions 1 Retailer reach 2 Retailer type b Retailer reach is simply the ability of a retailer to attract consumers in a 3 Retailer image producer s target markets Online sales growing rapidly But almost 90 of retail sales still occur in physical stores c Retailer type low prices i Mass merchandisers stores that sell large volumes of merchandise at 1 Discount stores such as Walmart and Target Department stores large stores mainly featuring apparel and home furnishings 1 Smaller than mass merchandisers 2 Kohl s Belk and Bloomingdale s Special stores stores that carry narrow and deep inventories and feature high levels of customer service 1 Smaller than mass merchandisers and department stores 2 PetSmart Men s Wearhouse iv Category killers a store that focuses on a specific category that ends up killing department stores because of their wide variety and selection 1 Not all specialty stores are category killers but all category killers are specialty stores d Retailer image the position the stores hold in consumer s minds Factors of merchandise carried price and service prestige and in store atmosphere contribute to the retail experience 1 The totality of what the customer encounters from the moment they enter the store to the time they leave Important that the retail image is in line with the product image Built through promotions advertising and other marketing activities e Convincing retailers to carry brands Push strategy a strategy where the producer uses its salesforce to convince wholesalers and retailers to carry the producer s products 1 Producer is trying to push their product down the supply chain i ii ii iii i ii iii i ii Pull strategy a strategy where a producer goes directly to the consumer and attempts to build demand for its brands 1 Consumers then go to retailers looking for the product and eventually convincing retailers to stock it 5 Power and conflict in supply chains a Conflict in supply chains i Sources of conflict arise because supply chain members often have conflicting goals 1 Members have different goals a Financial managerial etc 2 Conflicting spans of responsibility with different ideas about who is responsible for which activities a Who should pay for promotion 3 Relationships can also be strained by conflicting marketplace perceptions a If the product felt innovation would enhance sales but the retailer is reluctant to support it b Power i ii For our purposes power one party s ability to convince another party to take some action they would not have taken otherwise How power can be used 1 Coercive power when one supply chain member threatens another in order to force compliance a You don t have to use it in order for it to work it could just be a threat for it to work 2 Reward power when one supply chain member offers