Final Exam Study Set

They must determine how best to distribute the product.

With certain products, the distribution functions require minimal resources, and the manufacturer can manage the entire supply chain.

In most supply chains though, the service is better fulfilled by a company focusing on distribution functions.

The distributor fills the role!

Core customers.

Each indicator is weighted according to importance to distributors and suppliers.

Direct to consumer.

Less control of product specifications, inflexible shipping schedules, and cost of membership fees.

Usually represent companies whose sales in a territory do not support a full salaried employee

May call on distributors, end users, specifiers, and manufacturers

Complimentary products

Do not typically stock inventory

May also be referred to as a manufacturer rep or manufacturer rep agent (agency)

• Product knowledge

• Market knowledge

• Negotiation skills

• Teaching skills

• Interpersonal skills

Architects

Engineers

Designers

Lower cost of goods, lower shipping costs, centralized ordering and support.

Common in industries with heavy logistical requirements

Stocks products of represented manufacturers

Only sells to distributors, not to end users

Typically, complimentary products

May also be referred to as a wholesaler

May also function as a manufacturer’s agent

• Order Lead Time

• Perfect Order Rate

• Back Order rate

• Lost Sales

• Order Cycle Time

• Health and Safety Incident Rate

• Employee Turnover

• Vendor Performance

• Labor and Equipment Utilization

• Put Away Cycle Time

Intensive

Selective

Exclusive

Penetrate the market

As many outlets as possible

No cap on stores or locations

Specific locations

Limited number of stores

Target consumer

High-end and exclusive brands

Limited outlets

Particular locations

• Order Lead Time

• Perfect Order Rate

• Back Order rate

• Lost Sales

• Order Cycle Time

• Health and Safety Incident Rate

• Employee Turnover

• Vendor Performance

• Labor and Equipment Utilization

• Put Away Cycle Time

• Prefer Stability “Play it Safe”

• Research & Development

• Salesperson becomes expert

• Design, Create and Build

• Combination of standardized, catalogued product and custom equipment

• Demand Creation at distributor & end user

• Sell through multiple channels – direct to end customer, through distribution, or through manufacturer’s rep agency

• Responsible for one portion of the project, example for electrical is “the gear”

• Higher Risk, Higher Reward

• Hundreds of lines authorized to sell – salesperson knows a little about a lot

• Demand Creation with contractors and end users

• Transactional & Solution Selling

• The “bank” for manufacturers

• Must innovate constantly, and find creative approaches

• Responsible for all items on the BOM

• RELATIONSHIPS are the utmost of importance to succeed (with both vendors & customers)

Participate in true partnership

• Engage and encourage joint sales calls and social activities

Keep high levels of standard inventory

Be an extension of manufacturer’s sales force

Bridge the gap on end customer credit worthiness, terms and conditions

Provide feedback on pricing, performance, and ways to improve as a vendor

Reach growth goals year over year

Use our e-commerce tools for self sufficiency

Participate in a true partnership

• Engage and encourage joint sales call and social activities

Provide accurate information for lead times and ship dates

Get their products specified

Support the distributor salespeople and end customers from a technical perspective

Train their salespeople on products and processes

Make it easy for them to do business with – dealing with hundreds of vendors’ e-commerce platforms, billing & invoicing, thousands of shipments a year

• Manufacturers

• Master Distributor

• Manufacturer’s Agent

• Distributor

• 3PL

• Assembler and Processor

• End User (Customer)

• Developing new products

• Sourcing components and materials

• Manufacturing products

• Quality

• Efficiencies

• Cost Control

• Distribution of products

• Sourcing components and materials

• Manufacturing products

• Quality

• Efficiencies

• Cost Control

• Distribution of products

Total

• Involving the entire department of the company.

Quality

• Achieving customer satisfaction all the time.

Management

• Maintaining a high-level quality in every sector.

The primary driver for manufacturing is market share resulting in efficient use of resources.

• Due to high fixed costs (facilities, equipment, and labor), higher market share creates higher volume which reduces cost per item to manufacture.

• The selected distributors and channel should offer the greatest market access.

• The relationship should provide for a solid information exchange and mutually supportive deployment of resources.

• Manufacturer

• Master Distributor

• Manufacturer’s Agent

• Distributor

• 3PL

• Assembler/Processor

• End User (Customer)

A master distributor is a wholesale distributor who sells product to resellers (wholesalers). They have direct relationships with brand owners who recognize them as exclusive distributors of their product.

Manufacturers' agents or representatives are independent contractors.

They work on commission to sell products for more than one manufacturer.

They are not under the immediate supervision of the manufacturers (principals) for whom they sell.

The relationship generally falls into client-customer patterns.

Manufacturers' agent firms range from businesses operated by a sole entrepreneur to considerably more extensive organizations armed with numerous salespeople covering specific territories.

Key value add is that they are generally paid on commission, thus if there are not sales, there are no costs.

There are no fixed costs to bring them on board.

They generally offer compatible—but not competing—products to the same industry.

Competition

Reputation

Property damage

Inability to obtain supply

Legal penalties

Product liability

Theft

Equipment breakdown

Incident tracking

A third-party logistics warehouse, or 3PL for short, is an outsourced business that takes care of a company’s supply chain and logistics operations.

• Outsourcing third-party warehouse and distribution needs for their customer’s inventory and fulfillment services.

• Managing 3PL stock

• Holding, and shipping the inventory of multiple businesses or other businesses in addition to their own inventory.

A 3PL fulfills and stores orders for both their own business as well as their clients.

Every manufacturer assembles goods.

An assembler is determined based on how much of the content of your product is built in-house versus by a supplier.

Risk varies substantially based on whether you are a manufacturer or supplier.

Property damage

Inability to obtain supply

Legal penalties

Product liability

Theft

Equipment breakdown

Incident tracking

Fabrication of products from raw materials destined for industrial use

Output from industrial manufacturing keeps other mass manufacturers in business

Produces

• Massive industrial machines

• Simpler household machines

Other industrial use products

Additionally manufacturer wide range of other industrial use products

• Hardware

• Paper and packaging materials

• Glass

• Fixtures

A crucial role in producing the goods and services vital to the economy in a timely and cost-efficient manner and range of products is vast and shares a common function.

Standard equipment

Custom built equipment

Cheaper to build

Used in various industries

Cannot fulfill specific needs of new factories

More expensive

More profitable

Takes longer to build

Can be tailored to incorporate specific attributes, as needed

by the buyer

7 different segments

Agricultural, Construction and Mining

Industrial

Commercial and Service

Ventilation equipment

Heating and cooling equipment

Engine and engine related equipment

Other general-purpose machinery

• Assembly lines of the future will incorporate robotics, technology, AI, and people to be more consistent, efficient, quick, and more profitable.

• As manufacturers innovate and improve how they manufacture products, the distributor must also innovate and improve to remain relevant.

The bullwhip effect describes the increasing fluctuations in inventory in response to changing consumer demand as one moves up the supply chain.

Observing, analyzing and understanding how the bullwhip effect influences the supply chain can provide us with important insights for improvement.

Customer orders come in for the retailer, but this information is quickly lost upstream.

This situation is reflective of supply chains with low levels of trust.

Absent customer demand data, forecasts rely on the incoming orders at each successive stage.

The delay or pause in information using traditional forecasting methods and inventory strategies create the bullwhip effect.

The discount incentive works!

Typically discounts prompt partners to withhold small orders.

Yet, the tradeoff is that the practice further aggravates the bullwhip effect by:

• Causing an added delay in information flow.

• Muting the information associated with the order.

• Upstream partner can’t be sure whether a bulk order reflects true demand, or a downstream partner’s need for cost savings.

Implement efficient replenishment practices.

Efficiently manage inventory with Quick Response, Continuous replenishment, Vendor Managed Inventory (VMI).

Efficiently manage logistics through warehousing practices, Direct

Delivery, Cross-Docking.

Other practices such as JIT delivery (auto industry with Kanban system.

Annual spending in the economy by…

• Consumer Spending: 67.1%

• Government Spending: 16.5%

• Business Spending (investment): 16.5%

Consumer spending does not drive the economy, instead the supply chain does.

• Business spending (gross investment): 62%

• Consumer spending: 31.5%

• Government spending: 6.5%

Gross Output (GO) complements Gross Domestic Product (GDP). GO is the missing piece in macroeconomics.

Revenues or Sales

Total Income

• Gross Output (GO) measures revenues at all stages of production

Earnings or Net Income

Profits

• GDP means “value added” or final product (similar to “gross profit” in financial statements)

• Expand beyond GDP to include GO-the whole production process.

• Analyze not just the CPI, but the PPI and Commodity Price Index.

• Look beyond "the" interest rate to the yield curve.

• Examine more than "the" rate of unemployment, but the structure of employment and unemployment.

• Go beyond the broad stock indexes (S&P 500) and look at various industries.

Manufacturers, Construction companies, Service firms, transportation companies, select professional groups, distributors, wholesalers, retailers

Schools, health care orgs, libraries, foundations, non-profits, etc.

Federal government (defense & non-defense), state, local, municipalities, counties, townships

Composed of supply tiers

Any activity needed to transfer goods from raw material extraction through consumption by the final consumer.

Includes both the movement of products as well as critical service operations.

Tier 1 suppliers - Companies that provide materials to to a manufacturer

Tier 2 suppliers - Companies that provide products to Tier 1 suppliers

Tier 3 suppliers - Companies that provide products to Tier 2 suppliers

Usually represent companies whose sales in a territory do not support a full salaried employee

May call on distributors, end users, specifiers, and manufacturers

Complementary products

Do not typically stock inventory

May also be referred to as a manufacturer rep or manufacturer rep agent (agency)

Common in industries with heavy logistical requirements

Stocks products of represented manufacturers

Only sells to distributors, not to end users

Typically, complementary products

May also be referred to as a wholesaler

May also function as a manufacturer’s agent

High value on brand recognition and perceived product quality

High fixed cost

Significant need for volume

High market share is an extreme predictor of profitability

Less value on brand and quality and more value to customer relationships

High variable cost

Less need for volume

Market share less of a predictor of profitability

• Extended payment terms

• Cash discounts

• Consignments

• Stock rotations and return allowances

• Cooperative and market development funds

• Special pricing agreements

• Volume incentives

The fastest and most effective way for a company to realize its maximum profit is to get its pricing right.

Getting the price right is one of the most fundamental and important management functions.

“3 C’s” of Pricing

• Cost

• Competition

• Customer

Distribution helps to satisfy the needs of consumers by supplying assortment of different products of different producers.

• Larger market share

• Reduce cost per item (recall large fixed costs)

• Increased importance to distributor

More customers

More sales or profit

More employees

More facility locations

More products and additional inventory

Sell more to existing customers.

Find or build new customers.

Expand or broaden inventory, market, services, and capabilities including eCommerce.

Using business analytics to determine a strategy and implementation plan for growth.

A classification of customers into groups based on profitability, cost to serve, loyalty, and buying power.

Increase sales to existing customers

New products and services to existing customers

New customers similar to existing customers

New markets

Product innovations

eCommerce

• The paths products and services take on the way from the manufacturer or service provider to the end consumer.

• The channel involves a set of interdependent organizations in the process of making a product or service available for use or consumption.

Distribution strategy is the method used to bring products, goods and services to customers or end-users.

Ensuring an easy and effective way to get your goods and services to people, depending on the item, and its distribution needs.

Organizations consider which distribution strategy is best while being cost-effective and increasing overall profitability.

Can even use multiple or overlapping distribution strategies to reach target audiences and meet company goals or objectives.

Understand channel context

Set firm-level financial goals

Translate firm goals to channel goals

Identify channel success factors

Better Supply Chain = Improved Profitability.

Invest in Technology and Talent.

Effective Supply Chain enables a Distributor to compete on Service, Sourcing, and Cost.

Invest in right Processes.

Turn ‘Cost Center’ into ‘Profit Center’.

Avoid Disruptions.

Be aware of ‘Amazonification’

Channel conflict can be explained as any dispute, difference, or discord arising between two or more channel partners (e.g. supplier and customer).​

The conflict of interest causes channel members to work against each other rather than working together. ​

One or more members believe they are not being treated fairly.​

• Produce quality/competitive products

• Create new markets

• End-user and specifier calls

• Advertising in magazines, trade journals, internet, trade shows, etc.

• Provide up-to-date printed or electronic catalogs

• Provide technical information and training

• Understand value and compensate channel partners

The primary driver for manufacturing is market share resulting in efficient use of resources.

Due to high fixed costs (facilities, equipment, and labor), higher market share creates higher volume which reduces cost per item to manufacture.

The selected distributors and channel should offer the greatest market access.

The relationship should provide for a solid information exchange and mutually supportive deployment of resources.

Trust

Communication

Commitment

Demonstrated and earned over time

• Willingness to honor commitments—integrity

• Ability to honor commitments—track record, skill sets, authority, and resources

• Believe the other person’s best interest is understood and will be pursued

Difficult to build

Easy to destroy

The firm belief in the reliability, truth, ability, or strength of someone or something

Trust is not between firms, but individuals

Trust is earned over time and is for a long-term relationship

Trust is lost very quickly

Trust is about performance, NOT intent

The purpose of a system is what it does.

Open, honest and a two-way street

• Ask questions

• LISTEN

• Provide constructive performance feedback

• Discuss opportunities

• Develop mutual goals

• Dedicated personnel and facilities

• Efforts to learn about operation

• Coordinated reporting systems

• Coordinated planning efforts

• Coordinated training efforts

• Alignment in the mind of the end-user

• Dedicated personnel and facilities

• Build relationships with manufacturer’s organization

• Investment in product training and support

• Investment in compatible reporting system

• Alignment in the mind of the end-user

• Train customer to use manufacturer’s products

Reputation for treating partners fairly

Demonstration of fair treatment and understanding of supply chain partner

• Don’t beat up the manufacturers

• A distributor is a partner, not a customer

• How you react when conflict exists is critical!

Provides insight and knowledge into how the manufacturer operates.

Provides information on hot buttons and yields opportunities to secure incentives based on need.

Forms the bonds of trust and mutual understanding.

Builds communication.

Genuine long-term commitment and trust

Willingness to sacrifice and share

Alignment of goals

Becoming dependent on partners

• Better coverage at lower cost

• Better presentation

• Better coordination of marketing efforts

• Greater access to information

• Pool of potential partners drying up

  • Loss of distribution

  • Loss of power

Choose their customers based on a certain technological offering.

Make a substantial investment in production equipment that is highly inflexible.

Need a distribution channel that can reach and support their customers and help the manufacturer to efficiently control their production investments.

• Assured and dependable supply of desirable products

• Enhance marketing efforts

• Cut cost

• Eliminate redundancy

• Differentiate themselves from competition

• Discourage competition

Choose a customer market to serve and built the resources needed to serve that market.

Choose a set of suppliers with the products, technology, brand name, and service to set market demand.

Determine and create a network of warehouses, transportation, equipment, and other service capabilities to excel in the chosen market.

Invest in and carry inventories matching the customers’ needs with manufacturers’ capabilities.

• Fabrication

• Assembly

• Volume Influence

• Aftermarket Service

• Marketing Support

• Product Training

Customization

Value-added Services

Distributor Branding

Rapid Response Times

Order Tracking

Inventory Management

Branding

Expertise

National Accounts

Marketing Support

Minimal Inventory

Variable Delivery Schedule

Manufacturing Technology and Sourcing