Questions on Distribution Channels - Essay Example

Questions on Distribution Channels Q Factors affecting the nature of market channels There are various issues which affect the nature and type of a supply chain. One such factor is the nature of goods being distributed. Depending on the type of product, the supply chain may need to be shortened so that the product can reach the customer as soon as possible before they go bad. However, other factors such as the level of customer experience that the producer wants to give the customer are also a contributing factor which determines the nature or type of distribution channel to be used. Some products require a comprehensive management of customer experience which means that the business is not only selling the product but the experience that the customer gets from using the product (Ross, 2010). The level of customer experience that the business may be seeking to provide the customer with is also determined by a number of factors. One such factor is customer’s expectations. When the customer’s expectation is high, the firm will have to know how to provide the customer service. This will require a more direct relationship between the customer and the business and thus the structure and nature of the supply chain will be affected. The other contributing factor will be determined by the firm’s business interests. If the firm realises that by having a more direct contact with the customers will help in increasing its market strength, it will be willing to have this even in cases where it is more expensive to do. In light of a bottled water company and a book company, the company selling bottled water is more likely to be worried about its brand and this will affect the kind of market channel it wants to use. Such a company will be seeking to have more control on the market channel so that they can determine how the customer experiences its product. This would then mean that the bottled water company will be seeking as much as possible to shorten the supply chain. In the case where the firm will use the intermediaries such as retailers, it will have to try to have more direct control such as by having the product displayed in the way they want. Many such firms are always seeking to have control at the retail stores to make sure that the product is displayed in the right way. For a firm dealing with books, the need to have a direct contact with the customer may not be as high as with the bottled water company. This also affects the nature, type and length of the market channel the firm will use. The nature of production also affects the market channels. For instance, a book publisher sells a product that is half physical and half service. Apart from the completed book, the firm will also be selling information and the supplier of this information is usually distributed into many people due to the fact that the firm has to deal with many authors. This nature of the product leads to a unique distribution channel. While a bottled water firm is trying to manage only one brand, the book company may be managing many brands because every author they publish is a brand on its own. This changes the game and affects the kind of distribution channel they use. Q2 One thing that is of concern here is with regard to the distributor in every country. It is necessary for any business to understand that any agent they use to distribute their product, at any level of the supply chain, will not necessary act in the best interests of the supplier. In fact, there is always a conflict and unless these conflicts are solved, the supplier stands to lose on so many levels such as losing control of their product, losing ability to please the customer, losing revenues and worst of all, losing the market (Copacino, 1997). In the Pretty Paper case, the company uses distributors for every country where they sell their product. This distributor has exclusive rights to import these products and distribute them. Here, two main issues arise which Pretty Paper must consider in a very serious way; Conflict between Pretty Paper and the agents One of the things to consider is the conflict of interests. All the agents involved in the distribution of Pretty Paper products have their bottom-line which is to make profit. They don’t necessarily have to make the profits by selling the Pretty Paper products. This means that they will not be as dedicated to making sure that the Pretty Paper products are as successful. It would be necessary for Pretty Paper to make sure that all these agents are not serving their bottom line at the expense of the Pretty Paper brand. The agents of course will have some of their interests which are not in support of the Pretty Paper products such as having variety in their stock, making a big profit margin etc. While Pretty Paper cannot necessarily control this, it is necessary for them to make sure that even as these agents serve these needs, they don’t do it at the expense of Pretty Paper products and brand. One way to achieve this is by setting a ceiling price for the Pretty Paper products to make sure that none of the agents will try to hike the prices up in the attempt to increase their margins. The other issue will be with regard to the delivery of the product to the customer, especially with regard to the display at the retail stores, the customer service, the after sale service. Pretty Paper may need to set minimum requirements for these issues to make sure that everything will be done in a way that the Pretty Paper brand is not hurt. Conflict between the distributors and the other members of the channel Pretty Paper has to consider the sharing of power and control among the various agents in the channel. If one of the agents in the channel has too much power, this will lead to a situation where the other agents will have to suffer and Pretty Paper products will also suffer too. Pretty Paper should also consider a power shift from Pretty Paper to the distributors who seem to have too much control. Evaluating the value of each party Finally, there is a need for Pretty Paper to consider what value each of the agents contributes to the value chain. Pretty Paper should consider the value each these agents contribute to the value chain and compare it to the amount of power and control they take aware from Pretty Paper. In particular, Pretty Paper will need to consider the value that the distributors contribute and the amount of power and control they have taken and then analyse whether they need to be scrapped away from the value chain. Q 3 Efficient Consumer Response is geared towards streamlining the demand and supply equilibrium. In this sense, an Efficient Consumer Response program is beneficial and needed for almost every product with a demand-supply cycle. However, the behaviour of demand and supply, and especially demand, is not uniform for all types of products. With regard to demand, some products have fluctuating and uncertain events affecting the demand. This affects the way the supply is able to meet the demand. Depending on how unstable the demand and supply of a product is, the product may benefit more from an Efficient Consumer Response program than others. In this regard, an Efficient Consumer Response program cannot be equally beneficial to a FMCG (eg breakfast cereals) as it would to shopping goods (e.g. clothing). In the above example of FMCG and shopping products, what comes to mind in terms of how each can benefit from an Efficient Consumer Response program is the nature of demand and supply for specific products. In this regard, fast-moving consumer goods are more likely to benefit more from a Efficient Consumer Response program because such products require fast pace of movement and the faster the pace they move at the more they will require someone fast response of the customers want any response (Scott, Lundgren & Thompson, 2011). Shopping products however have longer spans of time in the shelves and the customers have more time to get their needs regarding these products met. In this regard, they don’t need an Efficient Consumer Response program as much as the fast moving products such as groceries. At the same time, it is necessary to note that that does not necessarily mean that these products will not benefit from an Efficient Consumer Response. In fact, even some of the shopping products also require a well planned Efficient Consumer Response program. Fashion products for instance, although they are part of shopping products, may require a Efficient Consumer Response program due to the fact that fashion changes very fast and the customers would like to receive the products or anything else related to such products in as short a time as possible. In this regard, how useful an Efficient Consumer Response program is to a product is not necessary determined by the nature of category of the product but rather by the nature of its demand-supply cycles. Those products with shorter and less predictable demand-supply cycles would benefit the most because these would help to manage these uncertainties, making it easy for the customers to access the products as and when they want while at the same time making sure that the supply side does not incur losses associated with luck of certainties. The shopping products on the other hand wouldn’t find the Efficient Consumer Response as useful as the fast-moving consumer goods because even without it, the demand-supply cycle would still be stable, both to the benefit of the suppliers as well as the buyers. This however, as already indicated, does not necessarily mean that the non-fast-moving consumer goods (shopping goods) would not benefit from an Efficient Consumer Response program. Rather, it only means that such a program would not be as useful to them as to the fast-moving consumer goods. Q 4 Power and control of their product One of the biggest challenges that WDFC will have to face is the issue of power relations in the relationship between itself and the customers. WDFC is a small scale supplier and most of the buyers of heir products are likely to be very big and this leaves the strategic power on the buyer side. When the buyer is too strong, the seller is always at risk because he cannot call any shots and the business is always at risk (Cox et al, 2003). In designing the supply chain, this is a factor which the WDFC must consider critically to make sure that it does not end up in a situation where the customer ends up having so much power that he can determine how they produce their products. WDFC is committed to organic farming, yet due to the fact that organic farming may not be able to produce a lot of products, the buyers may start influencing them to change to non-organic farming. Efficiency due to perishable nature of the product Farm products are almost always of a perishable nature and this introduces new challenges to managing the supply chain. A small problem in the supply chain can lead to huge losses financially and also in loss of customer brand loyalty. As they plan their supply chain, this is one issue which has to be considered to make sure that WDFC’s products don’t get bad before they reach the customer. At this level, it will be necessary for WDFC to consider which parts of the supply chain are unnecessary and need to be scrapped out. It may also need to look at whether there are more nodes which may need to be added to the supply chain to increase efficiencies. For instance, if the WDFC realises that they need a logistics manager to manage the transport, as opposed to management the transport themselves, WDFC may need to do so to increase efficiencies. Demand management Before WDFC is able to have an efficient supply chain that will prevent problems with product flow, being able to manage the demand will be an important part of the supply chain. Managing demand can be done in two main ways. The first is to have a direct contact with customers and have demand information from the POS data. Knowing what the customers are going to need and at what time they are going to need it is always an efficient way to manage demand to match it with supply and avoid inefficiencies. The second way to deal with demand management is to have agreements with the buyers who in this case are the retailer. Although WDFC should have an interest in the demand at the consumer level, it is necessary, the most important thing for them to mange the demand at the retailer level. The reason why this is important is because the retailers can choose to change their suppliers abruptly and this would break the supply chain for WDFC, making it harder to reach the customer. To avoid such inefficiencies, it is necessary for WDFC to have agreements which will create exit barriers for the retailers who buy from them. This way, WDFC would not have to worry about waking up one day and finding that the retailers have declined their supplies. For this to work however, cooperation with the buyers (retailers) is absolutely necessary both at physical levels of the supply chain as well as the operational level. The physical levels will include the physical channels of distribution such as the transport, warehousing (if necessary), etc. while the operational level will be the inventory management, electronic data interchange, to get the right information at the right time, etc. Q 5 There are several reasons why market chain members would collaborate and make alliances. To begin with, it is necessary to take note that these members have a common interest which is to reach the market. Regardless of where the agent or member of a value chain is placed, whether it is at the manufacturing, distribution, retail etc, the only way of staying in business is by ensuring that the whole supply chain is efficient and that the product reaches the consumer. By realising this, these members of the supply chain may sometimes recognise that they are better off working together to remove any inefficiency in the supply chain (Jacoby, 2012). They also realise that benefits from one point of the supply chain flow to the next person in the supply chain and that any inefficiencies flow forward and also backward to affect everyone in the supply chain. Such members may therefore want to form an alliance in order to achieve some sort of an efficiency by implementing an Efficient Consumer Response program which will lead to the a better and a smoother value chain. This alone may make it easy for the members of a supply chain to want to join forces because doing so will help each and every one of them. These joint forces may happen only between two members of the supply chain or among all the members of the market channel, depending on what is being achieved. For instance, a supplier and a manufacturer within a supply chain may want to make a merger while the rest of the members in the supply chain may decide to remain independent. The decision to merge will therefore is determined primarily on whether there is any economic, strategic, or operational advantage to be achieved. It is however to be noted that every business entity in a supply chain is seeking to achieve a selfish bottom-line and there are only two main reason why such a business will want to be in a merger within the supply chain; First, as already discussed, the business will only consider a merger if there is a definite advantage it will benefit Lack of option The business will also consider such a merger if it stands to lose something. The supply chain, as Porter (2008) pointed out in his book about five forces of businesses strategic sources, is always a battle filed of the members and the strongest win. If a supplier is stronger than the buyer, he will be able to dictate the terms of the relationship. In such a case, a buyer may consider entering the alliance because failing to do so may lead to him losing the supply of the materials he needs for his operations. At the same time, if the buyer is the one with the power, he will be able to force the supplier to join the alliance. A good example of this is Walmart Retail stores which uses their power to dictate the way the suppliers will operate. Walmart is so powerful due its ability to buy in bulk, that, although it is just a retailer, it is able to control the whole supply chain right from the producer. Q 6 Although supply chain theories and strategies were developed for the purposes of marketing and delivery of goods, they are also to some extent useful in the delivery of services such as financial services. This is because the supply chain strategies and theories are designed to achieve the following strategic issues which are relevant in the delivery of both physical as well as service products; Demand management Whether it is a physical product or it is a service, demand management is always a requirement to guarantee the success of the firm in the market. The principles of distribution channel strategy management are geared towards guaranteeing that there will be a smooth flow between the supply side and the demand side. These principles are not just for managing the supply chain but also play a vital role in business strategy and management. Customer management The principles of distribution channel strategy management are also geared towards managing the customer in terms of ensuring best service and that the customer experiences the service in a way that he or she will like the service. Service products also need to manage effectively for the customer to experience the product in a positive way. Cooperation between suppliers This is probably the most important in that it applies directly to the management of such products. The principles of distribution channel strategy management have a specific central focus on collaboration between and among the participants of the supply chain. This collaboration can happen between two or more parties at the same level of the supply chain (horizontally) or between parties who are at different levels of the supply chain (vertically). It is in the interest of any financial services firm to share information with the other firms to serve the market in an efficient way and without any hiccups. By sharing information about the market and the customers, it becomes very easy and possible to deliver the services in a more efficient way. Personal financial services also have a value chain which they go through before they reach the customer. In most cases, the customer does not necessarily use the service directly from the supplier of the service but rather the service goes through a chain of market channel participants. For instance, if a person is taking a mortgage loan to buy a home, there will be at least three to four parties who will be concerned with the process before the customer can actually enjoy the service. In this regard, it means that as long as there are various parties who are engaged in the delivery of the product to the customer, the principles of distribution channel strategy management will be useful in streamlining this process and making it possible to deliver the service to the consumer (Xu, 2007). Sharing of critical information Conversely, the principles of distribution channel strategy management are also important for the financial services players because these firms are then able to share critical information such as the credit-worthiness of a potential customer. This and other types of information make is possible to deliver the services to the customer with as much efficiencies as possible which leads to the customer being able to enjoy the service as much as possible. Financial services have an externality aspect to them which means that how one person uses it has an impact on how the others will enjoy it. If for instance too many customers who are not creditworthy take loans, this will lead to others not being able to enjoy the same. As such, sharing information in order to detect these people would be to the interest of every service provider and would lead to a better delivery of service to the customers who deserve. Q 7 Jackson Engineering is in a situation where it has to make a critical decision which may be a critical determining factor on how it is going to relate with its biggest as well as smaller customers. There are a number of factors which Jackson Engineering will have to consider in dealing with the situation. The first issue which comes up from the case is that GEH, Jackson Engineering’s biggest customer, is having too much power over Jackson Engineering and therefore is able to dictate the terms and also give Jackson Engineering ultimatums with regard to the service they render. This in itself is an indication of weakness for Jackson Engineering and there is a need for them to look for ways to try and shift the power equation. On the other hand, what GEH is pushing for is something that cannot be ignored by Jackson Engineering. A modern business, big or small, must consider looking for ways to use Information Systems to increase its strategic edge and manage efficiencies in its operation. Introduction of IS may not be so much of a choice and sooner than later, Jackson Engineering will have to consider the use of IS to not only remain relevant, but to also to link up with the other parties of the supply chain that helps them to deliver the product to the end consumer. Jackson Engineering must consider the implementation of IT, not only because GEH is pushing for it, but because it is an eventuality which must be considered as a part of business continuity strategy. However, the main issue to be careful about when considering the implementation of the IS systems is to avoid technology hype. Jackson Engineering must therefore consider the following; Separating the useful technology from the hype One of the main issues with business technology is that most of it is usually hyped up and only ends delivering little or nothing to the business while sucking up all the funds of the business (Kersten, Blecker & Ringle, 2013). According to the case, it is evident that GEH is pushing for a number of systems to be implemented. Jackson Engineering must consider which of these systems will be useful to their business and which will be useless or unproductive technology. Return on capital of the systems Once Jackson Engineering has identified the useful technology which will help them to deliver the products in a better and efficient way, they should be able to carry out an analysis of the technologies in terms of returns from the technology. Jackson Engineering must also work to find out what other resources will be necessary for the systems to be useful to the business. These other resources include human resources, which will be used to mange the network. Once these issues are sorted out and Jackson Engineering has found the right systems to implement, the next thing in line will be to increase awareness among the other partners in the system in order to help them appreciate the importance of including technology in their business and the management of the supply chain. Reference list: Copacino, W. (1997). Supply Chain Management: The Basics and Beyond. New York, NY: CRC Press. Cox, A. et al. (2003). Supply Chains, Markets and Power: Managing Buyer and Supplier Power Regimes. London, UK: Routledge. Jacoby, D. (2012). Optimal Supply Chain Management in Oil, Gas, and Power Generation. New york, NY: PennWell Corporation. Kersten, W., Blecker, T. & Ringle, C.M. (2013). Sustainability and Collaboration in Supply Chain Management: A Comprehensive Insight Into Current Management Approaches. New York City, NY: BoD – Books on Demand. Porter, M. (2008). Competitive Advantage: Creating and Sustaining Superior Performance. New York City, NY: Simon and Schuster. Ross, D. (2010). Introduction to Supply Chain Management Technologies, Second Edition. New York, NY: CRC Press. Scott, C., Lundgren, H., & Thompson, P. (2011). Guide to Supply Chain Management. New York City, NY: Springer. Xu, S. (2007). Supply Chain Synergy in Mergers and Acquisitions: Strategies, Models and Key Factors. New York City, NY: ProQuest. Read More