Supply Channel Analysis

Chapters 4&5 with Duane Weaver

OUTLINE

 Channel Flows
 Customizing Flows
 Channel Efficiency Template
 Zero-based Channel Design
 Equity Principle
 Who SHOULD be in the Channel?
 Single or Dual Channel
Channel Flows

8 generic flows Costs

Physical Possession Storage, delivery, sustainability

Ownership Inventory, Shipping, Loss

Promotion Selling, ads, promos, public relations,

publicity…
Negotiation Time, legal costs, templates, contracts

Financing Credit terms, terms, conditions of sale, risks

Risking Price guarantees, warranties, insurance, repair,

after-sale support/service, reputation
Ordering Administration, technology, time

Payment Processing, collection, bad debt servicing

Customizing Flows

 It is possible to remove intermediaries and thus

minimize profit sharing, however, the flow must
continue somehow!

 Look at clumping flows to one member

 Look at splitting flows to sub-flows and sub-

members

 IMPORTANT CONSIDERATIONS:
 Recognizable channel members
 Channel Layout matches Channel Cost/Usage
 Accounts for all the relevant costly flow activities
Channel Efficiency Template

EFFICIENCY TEMPLATE

Weights for Flows Proportional Flow Performance of Channel Member

Final
Cost Benefit Weight 1 2 2 4 Total

Physical
Possession

Ownership

Promotion

Negotiation

Financing

Risking

Ordering

Payment

Total 100 100

Normative Profit
Share 100
Zero-based Channel Design

1. Meets target market segment’s demand for service

outputs while…
2. Minimizing the cost of performing the necessary flows
for those service output demands

 It’s all about maximizing profitability by maximizing customer

satisfaction…key…
“KNOW THY CUSTOMER WELL”
 How?
Define target markets, understand each target market’s buyer
behavior and end-user demands, meet those requirements with
maximum utility and minimum cost (more efficiently than
competitors)
 GAP ANALYSIS? - look for points of leverage…means by which
you can increase satisfaction with a lower incremental cost
(this might mean reducing one satisfaction measure that is high
cost in return for satisfying more significant factors that are
lower cost in total)
Equity Principle

 Normative profit share measures that

portion of the total channel profits
that each channel member’s efforts
generates.
 Therefore, competition in channel
distribution should be given based
on value provided relative to degree
of participation (flaw=this can vary by
weighting (monopoly, limited supply, accessiblity)
Type of Channel?

 Do you use intermediaries at all?

 Do you select a retail or non-retail channel
partner?

 Decisions should be based on the ability of

that channel type to meet the end user’s
service output demands regarding any
positive or negative impacts that type
could have on other service output
demands
Deciding who SHOULD be in
the Channel?

 Let’s look at Figure 5.2, p. 111

 Get together in your groups.
 Select a single product or service to
provide and discuss the advantages and
disadvantages of non-retail vs. retail
intermediaries.
 Why would you choose one over the
other?
 Discuss your findings with the class.
Single or Dual Channel

 Dual Distribution = …whenever more than

one channel coexists in a market
 Criteria:
 Demand – segmentation
 Users with differing service output demands
 Supply – cost
 Actual cost to distribute in that manner
 Coordination
 Increased conflict, overhead,
management…exclusivities, conditions
THANKS!

 IN THE END:
The chosen channel structure must
help to meet targeted segments’
expressed demands for service
outputs while looking at economies
of scope, scale and inherent
efficiencies.