Page 424 - Foundations of Marketing

Marketing Channels and Supply-Chain Management | Chapter 13 391

and controlled by a single leader, or channel captain. A chan- Order processing is the receipt and transmission of sales
nel captain may be a producer, wholesaler, or retailer. A mar- order information. It consists of three main tasks—order
keting channel functions most effectively when members entry, order handling, and order delivery—that may be done
cooperate. When members deviate from or ignore their roles, manually but are more often handled through electronic
channel conflict can arise. data interchange (EDI) systems. Inventory management
Channel members can transfer, but not eliminate, supply- involves developing and maintaining adequate assortments
chain functions. When various channel stages are combined of products to meet customers’ needs. Logistics managers
under a single channel captain this is called channel integra- must strive to find the optimal level of inventory to satisfy
tion. Vertical integration combines two or more stages of customer needs while keeping costs down. Materials han-
the distribution channel under one management. A vertical dling, the physical handling of products, is a crucial element
marketing system (VMS) is managed centrally for the mutual in warehousing and transporting products. Warehousing
benefit of all channel members. Vertical marketing systems involves the design and operation of facilities for storing
may take corporate, administered, or contractual forms. and moving goods and may be privately owned or public.
Horizontal integration combines institutions at the same level Transportation, the movement of products from where they
of channel operation under a single management. Horizontal are made to where they are purchased and used, is the most
integration can be problematic in that it may not reduce costs, expensive physical distribution function. The basic modes of
nor improve the competitiveness, of a firm. transporting goods include railroads, trucks, waterways, air-
ways, and pipelines. These modes can be combined—called
5. Examine physical distribution as a part of intermodal transportation—in order to take advantage of the
supply-chain management. benefits of each different mode.
Physical distribution, or logistics, refers to the activities used 6. Explore legal issues in channel management.
to move products from producers to customers and other end
users. These activities include order processing, inventory Federal, state, local, and international laws regulate channel
management, materials handling, warehousing, and transpor- management to protect competition and free trade. Courts
tation. An efficient physical distribution system is an impor- may prohibit or permit a practice depending on whether it
tant component of an overall marketing strategy, because it violates this underlying principle. Channel management
can decrease costs and increase customer satisfaction. Within practices are subject to legal restraint, including dual distribu-
the marketing channel, physical distribution activities are tion, restricted sales territories, tying agreements, exclusive
often performed by a wholesaler, but they may also be per- dealing, and refusal to deal. When these practices strengthen
formed by a producer or retailer, or outsourced to a third weak competitors or increase competition among dealers,
party. Efficient physical distribution systems can decrease they may be permitted. In most other cases, when competi-
costs and transit time while increasing customer service. tion may be weakened, they are considered illegal.

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Key Concepts

distribution 361 dual distribution 369 horizontal channel private warehouses 385
supply chain 361 strategic channel alliance integration 379 public warehouses 385
operations management 370 physical distribution 379 distribution centers 385
361 intensive distribution 373 cycle time 381 transportation 385
logistics management 361 selective distribution 373 order processing 381 intermodal transportation
supply management 361 exclusive distribution 374 electronic data interchange 387
supply-chain channel captain 376 (EDI) 382 freight forwarders 387
management 361 channel power 376 inventory management 382 megacarriers 388
marketing channel 362 vertical channel just-in-time (JIT) 383 tying agreement 389
marketing integration 378 materials handling 383 exclusive dealing 389
intermediaries 363 vertical marketing system warehousing 384
industrial distributor 368 (VMS) 378

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