Horizontal Marketing Systems A horizontal marketing system is a channel arrangement in which two or more companies at one level join

together to follow a new marketing opportunity. By working together, companies can combine their financial, production, or marketing resources to accomplish more than any one company could alone. Companies can join forces with competitors or noncompetitors. McDonalds places express versions of its restaurants in Wal-Mart stores. McDonalds benefits from Wal-Marts considerable store traffic, while Wal-Mart keeps hungry shoppers from having to go elsewhere to eat. Multichannel Distribution Systems A multichannel distribution system is a distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments. This is also called a hybrid marketing channel. Multichannel distribution systems offer many advantages to companies facing large and complex markets. With each new channel, the company expands its sales and market coverage and gains opportunities to tailor its products to the specific needs of diverse customers. Multichannel distribution systems, however, are harder to control, and they generate conflict as more channels compete for customers and sales.

Vertical Marketing System

A vertical marketing system (VMS) is one in which the main members of a distribution channelproducer, wholesaler, and retailerwork together as a unified group in order to meet consumer needs. In conventional marketing systems, producers, wholesalers, and retailers are separate businesses that are all trying to maximize their profits. When the effort of one channel member to maximize profits comes at the expense of other members, conflicts can arise that reduce profits for the entire channel. To address this problem, more and more companies are forming vertical marketing systems.Vertical marketing systems can take several forms. In a corporate VMS, one member of the distribution channel owns the other members. Although they are owned jointly, each company in the chain continues to perform a separate task. In an administered VMS, one member of the channel is large and powerful enough to coordinate the activities of the other members without an ownership stake. Finally, a contractual VMS consists of independent firms joined together by contract for their mutual benefit. One type of contractual VMS is a retailer cooperative, in which a group of retailers buy from a jointly owned wholesaler. Another type of contractual VMS is a franchise organization, in which a producer licenses a wholesaler to distribute its products.The concept behind vertical marketing systems is similar to vertical integration. In vertical integration, a company expands its operations by assuming the activities of the next link in the chain of distribution. For example, an auto parts supplier might practice forward integration by purchasing a retail outlet to sell its products. Similarly, the auto parts supplier might practice backward integration by purchasing a steel plant to obtain the raw materials needed to manufacture its products. Vertical marketing should not be confused with horizontal marketing, in which members at the same level in a channel of distribution band together in strategic alliances or joint ventures to exploit a new marketing opportunity. As Tom Egelhoff wrote in an online article entitled "How to Use Vertical Marketing Systems," a VMS can hold both advantages and disadvantages for small businesses. "The main advantage of VMS is that your company can control all of the elements of producing and selling a product. In this way, you are able to see the whole picture, anticipate problems, make changes as they become necessary, and thus increase your

efficiency. However, being involved in all stages of distribution can make it difficult for a small business owner to keep track of what is happening. In addition, the arrangement can fail if the personalities managing of the different areas do not fit together well." For small business owners interested in forming a VMS, Egelhoff recommended starting out by developing close relationships with suppliers and distributors. "What suppliers or distributors would you buy if you had the money? These are the ones to work with and form a strong relationship," he stated. "Vertical marketing can give many companies a major advantage over their competitors."
Distribuion cost
Cost or expense incurred in moving goods from the point of production to the point of consumption. Also called distribution expense.

Supply chain management (SCM) is the management of the flow of goods. It includes the movement and storage ofraw materials, work-in-process inventory, and finished goods from point of origin to point of consumption. Interconnected or interlinked networks, channels and node businesses are involved in the [2] provision of products and services required by end customers in a supply chain. Supply chain management has been defined as the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging [3] worldwide logistics, synchronizing supply with demand and measuring performance globally." SCM draws heavily from the areas of operations management, logistics, procurement, and information technology, and strives for an integrated approach.

Problems addressed[edit]
Supply chain management addresses the following problems: Distribution network configuration: the number, location, and network missions of suppliers, production facilities, distribution centers, warehouses, cross-docks, and customers. Distribution strategy: questions of operating control (e.g., centralized, decentralized, or shared); delivery scheme (e.g., direct shipment, pool point shipping, cross docking, direct store delivery, or closed loop shipping); mode of transportation (e.g., motor carrier, including truckload, less than truckload (LTL), parcel, railroad, intermodal transport, including trailer on flatcar (TOFC) and container on flatcar (COFC), ocean freight, airfreight); replenishment strategy (e.g., pull, push, or hybrid); and transportation control (e.g., owner operated, private carrier, common carrier, contract carrier, or third-party logistics (3PL)). Trade-offs in logistical activities: The above activities must be coordinated in order to achieve the lowest total logistics cost. Trade-offs may increase the total cost if only one of the activities is optimized. For example, full truckload (FTL) rates are more economical on a cost-per-pallet basis than are LTL shipments. If, however, a full truckload of a product is ordered to reduce transportation costs, there will be an increase in inventory holding costs, which may increase total logistics costs.

The planning of logistical activities therefore takes a systems approach. These trade-offs are key to developing the most efficient and effective logistics and SCM strategy. Information: The integration of processes through the supply chain in order to share valuable information, including demand signals, forecasts, inventory, transportation, and potential collaboration. Inventory management: Management of the quantity and location of inventory, including raw materials, work in process (WIP), and finished goods. Cash flow: Arranging the payment terms and methodologies for exchanging funds across entities within the supply chain.

Supply chain execution means managing and coordinating the movement of materials, information and funds across the supply chain. The flow is bi-directional. SCM applications provide real-time analytical systems that manage the flow of products and information throughout the supply chain network.

Functions[edit]
Supply chain management is a cross-functional approach that includes managing the movement of raw materials into an organization, certain aspects of the internal processing of materials into finished goods, and the movement of finished goods out of the organization and toward the end consumer. As organizations strive to focus on core competencies and becoming more flexible, they reduce their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other firms that can perform the activities better or more cost effectively. The effect is to increase the number of organizations involved in satisfying customer demand, while reducing managerial control of daily logistics operations. Less control and more supply chain partners led to the creation of the concept of supply chain management. The purpose of supply chain management is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and the velocity of inventory movement.

Importance[edit]
Organizations increasingly find that they must rely on effective supply chains, or networks, to compete in [11] the global market and networked economy. In Peter Drucker's (1998) new management paradigms, this concept of business relationships extends beyond traditional enterprise boundaries and seeks to organize entire business processes throughout a value chain of multiple companies. In recent decades, globalization, outsourcing, and information technology have enabled many organizations, such as Dell and Hewlett Packard, to successfully operate collaborative supply networks in which each specialized business partner focuses on only a few key strategic activities (Scott, 1993). This inter-organisational supply network can be acknowledged as a new form of organisation. However, with the complicated interactions among the players, the network structure fits neither "market" nor "hierarchy" categories (Powell, 1990). It is not clear what kind of performance impacts different supply network structures could have on firms, and little is known about the coordination conditions and trade-offs that may exist among the players. From a systems perspective, a complex network structure can be decomposed into individual component firms (Zhang and Dilts, 2004). Traditionally, companies in a supply network concentrate on the inputs and outputs of the processes, with little concern for the internal management working of other individual players. Therefore, the choice of an internal management control structure is known to impact local firm performance (Mintzberg, 1979).

In the 21st century, changes in the business environment have contributed to the development of supply chain networks. First, as an outcome of globalization and the proliferation of multinational companies, joint ventures, strategic alliances, and business partnerships, significant success factors were identified, complementing the earlier "just-in-time", lean manufacturing, and agile [12] manufacturing practices. Second, technological changes, particularly the dramatic fall in communication costs (a significant component of transaction costs), have led to changes in coordination among the members of the supply chain network (Coase, 1998). Many researchers have recognized supply network structures as a new organisational form, using terms such as "Keiretsu", "Extended Enterprise", "Virtual Corporation", "Global Production Network", and "Next [13] Generation Manufacturing System". In general, such a structure can be defined as "a group of semiindependent organisations, each with their capabilities, which collaborate in ever-changing constellations to serve one or more markets in order to achieve some business goal specific to that collaboration" (Akkermans, 2001). The security management system for supply chains is described in ISO/IEC 28000 and ISO/IEC 28001 and related standards published jointly by the ISO and the IEC.Supply Chain Management draws heavily from the areas of operations management, logistics, procurement, and information technology, and strives for an integrated approach.

-----------------------------------------------------------------------Channel conflict occurs when manufacturers (brands) disintermediate their channel partners, such as distributors, retailers, dealers, and sales representatives, by selling their products directly toconsumers through general marketing methods and/or over the Internet. Some manufacturers want to capture online markets for their brands but do not want to create conflicts with their other distribution channels. The Census Bureau of the U.S. Department of Commerce reported [1] that online sales in 2005 grew 24.6 percent over 2004 to reach $86.3 billion dollars. By comparison, [1] total retail sales in 2005 grew 7.2 percent from 2004. These numbers made the online marketplace attractive to manufacturers, but raised the question of how to participate without harming existing channel relationships. According to Forrester Research and Gartner from 2007, despite the rapid growth of online commerce, an estimated 90 percent of manufacturers did not sell their products online. Of these, 66 percent identified [citation needed] channel conflict as their single biggest issue . However, results from a survey show that clickand-mortar businesses have an 80% greater chance of sustaining a business model during a three year period than those operating just in one of the two channels. E-commerce is the most popular second distribution channel because of its low overhead expenses and communication costs. This advantage is also a disadvantage, since consumers can also communicate less expensively and more easily with one another in the online marketplace. Therefore, price and [2] product differentiation is more challenging in online markets. Channel conflict can also occur when there has been over production. This results in a surplus of products. Newer versions of products, changes in trends, insolvency of wholesalers and retailers and the distribution of damaged goods also affect channel conflict. In this connection, a company's stock clearance strategy is important.

To avoid a channel conflict in a click-and-mortar business, it is necessary to ensure that both traditional and online channels are fully integrated. This reduces possible confusion with customers while providing [3][4][5][6] the business benefits of a dual channel. Manufacturers today sell their products through a broad array of channels. Since most manufacturers sell through several channels simultaneously, channels sometimes find themselves competing to reach the same set of customers. When this happens, channel conflict is virtually guaranteed. In turn, such conflict almost invariably finds its way back to the manufacturer. This can also be termed as a situation when a producer or supplier bypasses the normal channel of distribution and sells directly to the end user. Selling over the Internet while maintaining a physical distribution network is an example of channel conflict. Channel conflict comes in many forms. Some are mild, merely the necessary friction of a competitive business environment. Some are actually positive for the manufacturer, forcing out-of-date or uneconomic players to adapt or decline. Other conflicts, however, can undermine the manufacturer's business model. Such high-risk conflicts generally occur when one channel targets customer segments already served by an existing channel. This leads to such a deterioration of channel economics that the threatened channel either retaliates against the manufacturer or simply stops selling its product. The result is disintermediation, in which the manufacturer suffers. The two main disintermediation causes are finance and internet.

Finance[edit]
Elimination of financial intermediaries (banks, brokers) between the suppliers of funds (savers/investors) and the users of funds (borrowers/investees). Disintermediation occurs when inflation rates are high but bank interest rates are stagnant and the bank depositors can get better returns by investing in mutual funds or in securities.

Internet[edit]
Elimination (by the online sources) of the traditional middleman the intermediary between the seller and the buyer (such as an agent, broker, or reseller), or between the source and the recipient of information (such as an agency, official, or gate keeper).

Type of channel conflicts

There are three types of channel conflicts. Vertical channel conflicts :

Vertical conflict occurs when a manufacturer's action disrupts the supply chain. For example, a manufacturer who normal distributes its products through retails would cause a vertical channel conflict if they start doing direct mail and advertise directly to consumers. Horizontal channel conflicts:

Horizontal conflict occurs among firms at the same level of the channel. For example, two franchisees who open two restaurants across the street from each other would be in a horizontal conflict.

Multilevel/ Multi channel conflicts:

Multi channel conflict exist when the manufacturer has established two or more channels that sell to the same market. For example, when Levi's agreed to distribute its jeans through Sears and JCPenny in addition to its normal store channel, the specialty stores complained. ----------------------------------------------------------------------------------------------------

Physical Distribution decision areas Locating Warehouses Number of warehouses Types of warehouses Materials Handling Equipments Mode of Transportation Routing Size of shipments Inventory Levels protective Packaging

Broadly, all the above mentioned areas can be grouped into four categories: Order Processing Inventory Control System Warehousing Transportation Order Processing It includes the activities of receiving, recording, filling and assembling the orders for shipment. An order cycle is the period between the time of the placement of an order by the customer to the time of the arrival of the goods at his destination. The cycle is made up of the transmission of the order, document processing in the department and shipment of the goods The following information is vital for accurate and timely order fulfillment: Order number, delivery date and address Product name and number, quantity and unit price of product Customer number, address and industry branch Sales and sales territory Means of transport, freight costs Special instructions, where necessary

Inventory Control System The main objective in maintaining any inventory is to meet market demands i.e. to make sales and fulfill customers orders Basic elements of the Inventory Control System: a) Ordering Cost b) Inventory Carrying Cost c) Cost of stock outs. a) Ordering Cost This is the total ordering expenses for the ordering or purchasing department This cost includes: 1. Cost of staff posted for ordering of goods 2. Inspection cost of incoming materials 3. Expenses incurred on transportation of goods purchased 4. Cost of stationary, typing, postage, telephone charges Inventory Carrying Cost This is the total cost of all the expenses involved in maintaining inventory. Such expenses include: 1. The cost of capital invested in inventories. An interest will be paid on the amount of capital locked up in inventories 2. The loss of material due to deterioration and obsolescence. Cost of spoilage in handling the materials Insurance cost Cost of storage which could have been used for other purposes Physical Distribution Management meaning The management of all activities which facilitate movement and coordination of supply and demand in the creation of time and place utility in goods. The above activities can be summarized as, Transportation (Opportunity cost)

 Warehousing Packing and Packaging Handling of Materials Maintenance of stocks and inventory controls Orders, processing, dispatch Customer Services, Complaints, Redressals Maintenance of records related to these activities Modes of transportation Railways Road Transportation Air Transportation Sea Transportation (Marine) Inland Waterways Ropeways Postal Courier Hand Carts, Thelas, Cycle Richshaws Bullock Carts Fast in Service, specially when its fully loaded Railways advntge Freight rates are lower Goods are kept in sealed wagons/boxes, so chances of breakage are less. Small consignments can also be booked through railways. Railway receipts are authentic documents and are acceptable for negotiation purpose by banks Maximum barriers/check posts and so much time is not lost in hold-ups.

Advantages of Road Transportation Speedy Warehouse to Warehouse Delivery Possible Competitive freight rates for many commodities No need for trans-shipment/loading or unloading Minimum Breakages or Damages to Goods. Easy to settle claims with transport companies, as they care for clients. Advantages Of Airways The fastest of all. Can be sent to remotest of locations in the world Useful when goods are of high value, are perishable in nature or small in volume. What is LogisticsLogistics is the . . . process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.
Logistics management is the part of supply chain management that plans, implements, and controls the efficient, effective, forward, and reverse flow and storage of goods, services, and relatedinformation between the point of origin and the point of consumption in order to meet customer's requirements. A professional working in the field of logistics management is called a logistician. 1. Materials management 2. Channel management 3. Distribution (or physical distribution) 4. Supply-chain management

Functions Purchasing / Procurement Inventory Control Warehousing Materials Handling

Facility Location / Network Design Transportation Customer Service Order Processing

Distribuion cost Cost or expense incurred in moving goods from the point of production to the point of consumption. Also called distribution expense. adv vms Eliminate competition and conflict A centralized management has direct control over all aspects of the business Provide clear lines of authority and a tight span of control as a company can control all of the elements of producing and selling a product, which can lead to high operating efficiency.

Dis adv Employees at the bottom of a vertical structure may feel less valued than those higher up in the chain. It can also take a great deal of time for top management decisions to filter down through multiple layers, reducing the organization's ability to react quickly to a rapidly changing business climate. Because of the centralized control of power, weak leadership at the top can hamper the effectiveness of the entire organization.

Adv hms Employees may attain greater satisfaction in a horizontal structure due to greater freedom and autonomy. The use of cross-function teams can also lead to high levels of cooperation throughout the organization. The heavy emphasis on innovation can lead to better ideas that keep the organization ahead of the competition. The absence of multiple structural layers provides streamlined communication and reporting processes, making the organization more flexible and adaptable to change.

Dis adv The decentralized structure could lead to a "loose ship," as the team and project leaders have high levels of responsibility for achieving results but little real authority over their team members. A resulting lack of control can lead to finger-pointing when things go awry, which can hinder productivity. Organizations attempting to convert from a vertical to a horizontal structure can face challenges, as management needs to adjust to a less authoritarian and a more peerlike relationship with subordinates