The value chain is a group of vertically aligned organizations that add value to a good or service in moving from basic supplies to finished products to consumer and organizational end-users

A)  Distribution Functions

	The channel of distribution is a network of value-chain organizations performing functions that connect goods and services with end-users.  Note: See Exhibit 10-1 for common channels of distribution
	Several value-added activities are necessary in moving products from producers to end users:  Buying and selling; assembly; transportation; processing and storage; advertising and sales promotion; reduction of risk; personal selling; communications; servicing

B)  Channels for Services

Services such as air travel, banking, entertainment, health care, and insurance often involve distribution channels

C)  Direct Distribution by Manufacturers

	Manufacturers have three distribution alternatives:  direct distribution; use of intermediaries; or both
	Buyer considerations:  Manufacturers look at the amount and frequency of purchases
	Product characteristics:  Complex products and services often require close contact, and high volume may make direct distribution feasible
	Financial and control considerations:  Direct distribution gives manufacturers control over distribution

A) Types of Distribution Channels (Step 1 -- Selecting Channel Type)

Conventional channel:  Is a group of vertically linked independent organizations, each trying to look out for itself, with limited concern for the total performance of the channel

Vertical channel (VMS) :  The channel is managed as a coordinated or programmed system of participating organizations Ownership VMS:  Ownership form source of supply to end user involves a substantial amount of capital investment Contractual VMS:  Includes various formal arrangements between channel participants Administered VMS:  Exists because one of the channel members has the capacity to influence channel members Relationship VMS:  This channel form shares certain characteristics with the administered VMS but differs in that a single firm does not exert substantial control over other channel members

	Distribution intensity is best examined in reference to how many retail outlets carry a particular brand in a geographic area Intensive approach:  For many outlets Exclusive:  For one or two outlets Selective:  Falls between the above two
	Note:  See page 352 for a list of the major issues in deciding distribution strategy

C)  Channel Configuration  (Step 3 -- Selecting the Number of Levels of Organizations)

	End user considerations:  Intermediaries are expected to provide an avenue to the target market
	Product characteristics:  The complexity of the product and servicing needs are useful in guiding the choice
	Manufacturer's capabilities and resources:  Large producers with extensive capabilities and resources have a lot of flexibility
	Required functions:  Storage, transportation, etc., must be taken into consideration
	Availability and skills of intermediaries:  Qualified channel members may not be available

D)  Selecting Channel Strategy

	Includes:  Choosing the types of channels to be used; determining the desired intensity of distribution; and selecting the channel configuration
	Market access:  Market target decision is not determined until the channel strategy is selected
	Value added competencies:  The channel selected should offer the most favorable combinations of value added competencies
	Financial considerations:  $$ must be available
	Flexibility and control considerations:  Must decide how much flexibility is needed
	See Exhibit 10-6 for an illustration of channel strategy evaluation

 

A)  Management Activities

Management activities include choosing how to support intermediaries; developing operating policies; providing incentives; selecting promotional programs; and evaluating results

 

A)  Factors affecting Channel Selection

Cost, capital requirements, control, coverage, strategic product-market fit, and the likelihood that the middlemen will remain in business over a reasonable time horizon.  Also, the political stability of the country is very important

 

	Collaboration and information sharing have become central to supply chain design
	Lean supply chains:  See the following for elements of a lean supply chain