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Ray Wright, Business
-
to
-
Business Marketing: A Step
-
by
-
Step Guide

Pearson Education © 2004

Student Study Guide

Chapter 6: Managing Business Marketing
Channels

Summary

Questions

Activity

Case Study

Supplementary Informatio
n

Summary

In this chapter we looked at the management of business channels starting with the strategic
alternatives available. The major strategic decision facing the senior manager is the choice between
going direct or indirect in marketing to the buyin
g organisation Reasons given for choosing one way
rather than another were discussed and advantages and disadvantages of each evaluated. Methods used
in direct distribution where identified under the headings of; direct salesforce, agents, trader
exhibitio
ns, mail order, the internet and other media forms. We then went on to look at indirect
methods under the categories of supplier, broker, distributor and wholesaler. Again the pros and cons of
each were briefly outlined before going on to talk about the re
lationships between suppliers and
intermediaries, disintermediation, channel conflict, reintermediation and the role of the internet in the
supply chain. We then went on to identify other methods of distribution seen as a combination of both
direct and ind
irect. Here we examined the role of agents, franchising, licensing and contracting. The
many factors that need to be considered with strategic channel selection and the differences in the
process between B2B and B2C markets where shown as we moved toward t
he end of part one.

In part we began by examining the management of the supply chain relationships. It is important to
appreciate that B2B managers will operate in different types of marketing structures sometimes
demanding different approaches and to thi
s end many were identified and discussed including vertical
and horizontal integration, voluntary, contractual and hegemonic. The business supply chain has taken
on enormous importance over the last twenty years and understanding the need to manage in
part
nership with all members now dominates management thinking. Experience has demonstrated that
the supply chain must now be viewed as both an internal and external value chain if improvements are
to be made. Starting with the internal value chain. Each part
of the business process from inputs
through to outputs must be benchmarked so that it is as good as, if not better than the competition in
delivering eventual customer satisfaction. This concept must then be applied to the external value
chain, that is eve
ry other organisation involved in the supply chain, from one end to the other. Only in
this way can the competition be beaten or held at bay. Developments that improve this concept were
identified under the heading of Efficient Consumer Response (ECR). The
se included development
known under the following acronyms; CPFR, EDI, JIT, ABC, TQM and many others. We then
examined the upside and the downside of this close cooperation amongst supply chain members. The
growth of outsourcing as an as an alternative way

of operating certain business function has been
phenomenal and this was discussed in some detail before moving on the look at how, and why
companies merge or acquire other companies or form joint ventures and other types of strategic
alliances.

The role
of physical distribution and the management of logistics in B2B markets were discussed in
the final part. Organisations have to move goods and services from one point to another in the most
effective and economical manner possible. Better management unders
tanding coupled with the growth
in new technologies has brought great resource savings in this area across all the major areas that might
be categorised under the heading of logistics. We therefore chose to categorise under the headings of,
stock levels an
d inventory, order processing, warehousing and transportation. Concepts identified under
inventory included the following. Cost of holding stock, JIT stockholding, continuous replenishment,
Ray Wright, Business
-
to
-
Business Marketing: A Step
-
by
-
Step Guide

Pearson Education © 2004

direct procurement, materials requirement planning, enterprise res
ource planning and vendor
management inventory. Advantages and disadvantages were then outlined. If order processing takes to
long or is flawed in some way then costs can rise, orders can be lost and customers made dissatisfied.
Technology has played a big

part here allowing cost and time savings to be made and both seller and
buyer satisfaction levels to rise. Warehousing is yet another area where savings have been made
because of greater management understanding and business developments. Different ways o
f managing
transport were then identified before finally discussing the need to integrate logistics into all other
organisational functions

Ray Wright, Business
-
to
-
Business Marketing: A Step
-
by
-
Step Guide

Pearson Education © 2004

Questions

1

Identify the different channels that the B2B organisations can use in getting its products and
services

to its markets. What methods, and why, will best suit the following organisations?

(a) A company selling paint

(b) A business consultants

(c) A chemical manufacturer

2

Identify the differences between marketing direct and indirect in the B2B market. Giv
e real
examples of each and explain why the companies chose to supply in this way.

3

Discuss and evaluate the methods that might be used in both direct and indirect distribution. Give
examples.

4

Describe and analyse the criteria that will used when select
ing a B2B channel to market. How
will this differ when compared with channel choice in B2C markets.

5

Discuss the value of the internal and external value chain and identify the major differences in its
use between the organisations described here.

(a) Pu
blic sector

(b) Nor
-
for
-
profit sector

(c) Manufacturing sector

(d) Service sector

6

Examine the business process of outsourcing. What are its many forms and why do you think
there has been such a growth in it use, at both the tactical and strategic level o
ver the last few
years? What are its major disadvantages?

7

Discuss the development of just
-
in
-
time inventory management systems. What part did it play in
the development of supply chain management

8

60% of strategic supply chain alliances fail over the fi
rst three year period. Discuss why you
think this might be.

9

Identify and evaluate the part that technology now plays across the supply both in the running of
the supply chain relationships and the in physical distribution.

10

How important is benchmark
ing and how might it add to supply
-
chain effectiveness. Give live
examples.

Website addresses

Benchmarking Association


(
www.benchmarking.co.uk
)

Data Interchange Standards Association


(
www.disa.org
)

ECR Asia


(
www.ecrasia.com
)

ECR Australasia


(
www.ecraustralasia.org.au
)

Efficient Consumer Response, Europe


(
www.ecrnet.org
)

Global Commerce Initiative
-

(
www.globalcommerceinitiative.org

)

Green Consumer Guide

(
www.greenconsumerguide.
com
)

MarketingShout, marketing resource website


(
www.MarketingShout.com
)

Outsourcing and Benchmarking Centre


(
www.outsourcing
-
center.com
)

Outsourcing

Institute


(
www.outsourcing.com
)

StudentShout student business and marketing resource website


(
www.StudentShout.com
)

The International Reciprocal Trade Associatio
n


(
www.irta.com

)

The Supply Chain Website


(
www.thesupplychain.com
)

Trade Exhibitions


(
www.exhibitions.co.uk
)

UNSPSC (
Universal Standard Products and Services Classification) (
www.unspsc.org
)

Ray Wright, Business
-
to
-
Business Marketing: A Step
-
by
-
Step Guide

Pearson Education © 2004

Activity

1

Identify a selection of business to business suppliers on the Internet across five different
industries. What products and service
s to they offer and which channels of distribution do they
use?

2

Identify the role of benchmarking and outsourcing by looking at an outsourcing and
benchmarking website
www.outsourcing
-
benchmarking.
com
. Evaluate the future of these
business concepts.

3

Identify sites for efficient consumer response (ECR) across the world and discuss the reasons for
development. Do you think they are beneficial for all members.

Website addresses

Benchmarking Associa
tion


(
www.benchmarking.co.uk
)

Data Interchange Standards Association


(
www.disa.org
)

ECR Asia


(
www.ecrasia.com
)

ECR Australas
ia


(
www.ecraustralasia.org.au
)

Efficient Consumer Response, Europe


(
www.ecrnet.org
)

Global Commerce Initiative
-

(
www.globalcommerceinitiative.org

)

Green Consumer Guide

(
www.greenconsumerguide.com
)

MarketingShout, marketing resource website


(
www.MarketingSh
out.com
)

Outsourcing and Benchmarking Centre


(
www.outsourcing
-
center.com
)

Outsourcing Institute


(
www.outsourcing.com
)

StudentShout student business and
marketing resource website


(
www.StudentShout.com
)

The International Reciprocal Trade Association


(
www.irta.com

)

The Supply Chain Website


(
www.thesupplychain.com
)

Trade Exhibitions


(
www.exhibitions.co.uk
)

UNSPSC (Universal Standard Products and Services Classification) (
www.unspsc.org
)

Ray Wright, Business
-
to
-
Business Marketing: A Step
-
by
-
Step Guide

Pearson Education © 2004

Case Study

ECR has developed at a tremendous rate over the last twenty years and is practiced by most of the
world’s leading supermarket supply chains. It is recommended that students visit the ECR sites for
current practice knowledge.

Supply chain manag
ement for best results.

‘Supply chain management is driven by the need to drive down costs and increase customer value
across the whole supply/demand chain’.

Over the last twenty years the realisation of the importance of suppliers, producers, manufacture
rs,
wholesalers and retailers all working closely together has gathered momentum. As national and
international competition has increased and the search for competitive advantage has intensified the
need to constantly look toward efficiency, effectiveness
and economy has moved to the top of the
agenda. Internal value chain analysis, benchmarking every step in the business process from internal
logistics, production external logistics and marketing became a way of life for the most successful
companies. They

were absolutely certain in knowledge that every value
-
added stage through the
organisation must be continually monitored and upgraded against the best if the company was to stay in
the forefront of their chosen industry. But businesses in very competitive

markets soon began to realise
that this wasn’t enough. As they pushed for perfection they saw that every organisation was reliant on
every other organisations along the supply chain and that if suppliers and suppliers’ suppliers,
manufacturers, retailers
etc. were inefficient this would reverberate right through to the supply chain
from the one end to the other. The end result would be that the end consumer would have less value in
the end product or service, catastrophic in a highly competitive environmen
t. This enlightenment,
combined with the growth in enabling information technology became the driver for closer and closer
partnerships and the extension of value
-
chain and benchmarking practices along the upstream and
downstream along the whole supply cha
in.

Flexible supply chains

As companies grow and expand their products and market penetration, supply chain network
reconfigurations need to keep pace with the proliferation of products, customers, and channels. If not
companies can find themselves servic
ing different customer segments with the same supply chain
strategies, making their performance less than competitive. For example, an electronic Original
Equipment Manufacturer (OEM) selling through multiple channels, from direct to retail, has the same
s
upply chain network for all products, making its supply chain delivery performance unacceptable in
one channel segment and not cost competitive in another. A company must create a mixed supply chain
strategy to monitor and improve the performance for diffe
rent customer segments. There are many
outside agencies with the skills to assist in the process.

Efficient Consumer Response

"Working Together to Fulfil Consumer Wishes Better, Faster and at Less Cost".

No industry has adopted this supply/value chain re
volutionary concept more eagerly than the
grocery business although they state that the principles that are followed can be applied to many, if not
all, other industry sectors. Under the name of ‘Efficient Consumer Response’ or ECR a business
concept has b
een built up with the clear aim of satisfying consumer needs by the combination of
benchmarking every business process and trading partners working closely together. ECR principles
begin the whole supply chain process from the perspective of the end consum
er were as ‘demand chain
management’ looked at efficiency form the needs of the channel members. Focusing on the total supply
chain, including suppliers, manufacturers, wholesalers, retailers and third party service providers it
supports the belief that bu
siness success comes from delighting the consumer through meeting or
exceeding their expectations. This can only be done through working together to remove inefficiencies,
streamline processes, and lowering costs whilst constantly adding value for the cons
umer. To do this
every business process back up through the value chain must have this overriding concept as the
Ray Wright, Business
-
to
-
Business Marketing: A Step
-
by
-
Step Guide

Pearson Education © 2004

driving force. Supporters of ECR argued that properly understood and implemented it can deliver
improved product ranges, more value, better and

better service and convenience offerings leading in
turn to ever
-
greater consumer satisfaction.

An International Movement

The ECR movement began in the United States in 1993. Its main driver was an increasing population
of sophisticated consumers demandi
ng better prices, more variety and better service. Europe followed
in 1994, when senior managers from across the European supply chain met in Brussels and identified
the need for an official ECR Europe body. Efficient Consumer Response organisations now ex
ist in
over 40 countries and regions. Europe is addressing business areas such as ECR scorecards,
collaborative planning, EDI, Cross Docking, forecast and replenishment, category management and e
-
commerce. The United States, on the other hand, is shifting
its focus very much to e
-
commerce both
business
-
to
-
business and business
-
to
-
consumer. In Asia, there is a growing recognition of the need for
consistent, reliable, product identification, EDI messaging systems and industry catalogues and for
improved proce
sses to reduce inventory and improve product availability on shelf.

The Global ECR Scorecard

The Global ECR Scorecard is a Capability Assessment Tool, and has been designed to give a detailed
understanding of company ECR capability and to highlight specifi
c improvement opportunities for
each company. Before a company is ready to start with ECR, however, the following should be
considered:



Which activities are done in different departments?



How are these activities related to each other?



Is there a mor
e efficient way that we can organise our business?



Do we have an insight into the costs and profitability at product, distribution channel and customer
levels?



What kind of information is available in the different departments, and how can we use this
information to create greater value to the business as a whole?

Searching for standardisation

There are parallel projects in Europe, USA and elsewhere which create the risk of duplication or
incompatible, regional solutions. Even where international standa
rds exist, such as EAN product
identification and EDI messaging, national deviations lead to substantial inefficiencies for
manufacturers. This situation led major international suppliers and retailers to launch the Global
Commerce Initiative (GCI) to addr
ess key technologies and improve the performance of the
international supply chain through the collaborative development and endorsement of recommended
standards and key business processes. They include electronic data interchange, product numbering and
id
entification, standardised product tagging, global scorecard development and industry extranets. The
Global Commerce Initiative explicitly acknowledges ‘supply chain practices between manufacturers
and retailers have often not kept pace with the realities
of global sourcing and trading’.

Winners and losers

According to a ECR Europe spokes person studies have also shown that the adoption of best practice in
ECR techniques, such as efficient replenishment, can reduce order lead
-
times by 80%, storage capacity
by 60%, working capital by 60% and improving service levels from 97.5 to 99.5%. Leading
practitioners are estimating benefits worth 10% or more on the supply side, and profitability gains of
30% or more on the demand side. There are losers, however, in the

process. Many upstream suppliers
complain that the winners are the most powerful in the supply chain such as the big grocery retailers or
global manufacturers. They argue that the five all
-
powerful supermarkets that dominate British food
retailing (75%) a
nd have used their increasing position of strength to deliver competition in the high
-
street at the expense of their suppliers. They use their dominant buying power to demand lower prices
from suppliers so as to reduce costs transfer risk to improve produc
tivity and demand extra money for
contractual relationships. Most suppliers, farmers and small manufacturers, are unwilling to complain
because they in live in fear of upsetting their few available powerful customers.

Ray Wright, Business
-
to
-
Business Marketing: A Step
-
by
-
Step Guide

Pearson Education © 2004

Sources:

ECR Europe


www.ecrnet.org

ECR Australasia


www.ecraustralasia.org.au

ECR Asia


www.ecrasia.com

Global Commerce Initiative
-

globalcommerceinitiative.org

Case study questions

1

Identify all the factors that have lead to the development of ECR.

2

Supporters of ECR believe that la
rge saving can, and have been made through collaborative
cooperation and planning. Trace the process along the supply chain and try to identify where
these saving might be made.

3

There are winners and loser in close supply chain relationships. What they a
nd how might they
be overcome?

4

Identify all the factors that have lead to the development of ECR.

5

Supporters of ECR believe that large saving can, and have been made through collaborative
cooperation and planning. Trace the process along the supply ch
ain and try to identify where
these saving might be made.

6

There are winners and loser in close supply chain relationships. What they and how might they
be overcome?

Website addresses

Benchmarking Association


(
www.benchmarking.co.uk
)

Data Interchange Standards Association


(
www.disa.org
)

ECR Asia


(
www.ecrasia.com
)

ECR Australasia


(
www.ecraustralasia.org.au
)

Efficient Consumer Response, Europe


(
www.ecrnet.org
)

Global Commerce Initiative
-

(
www.globalcommerceinitiative.org

)

Green

Consumer Guide

(
www.greenconsumerguide.com
)

MarketingShout, marketing resource website


(
www.MarketingShout.com
)

Outsourcing and Benchmarking Centre


(
www.outsourcing
-
center.com
)

Outsourcing Institute


(
www.outsourcing.com
)

StudentShout student business and marketing resource website


(
www.StudentShout.com
)

The International Reciprocal Trade Association


(www.irta.com)

The Supply Chain Website


(
www.thesupplychain.com
)

Trade Exhibitions
-

www.exhibitions.co.uk

UNSP
SC (Universal Standard Products and Services Classification) (
www.unspsc.org
)

Ray Wright, Business
-
to
-
Business Marketing: A Step
-
by
-
Step Guide

Pearson Education © 2004

Supplementary Information

Efficient Customer Response

The impetus for ECR came from a study commissioned by the grocery industry to help
them determine
how to react to the entry of mass market discounters, such as Wal
-
Mart, into the grocery industry. The
study concluded that $30 billion in waste could be cut from the distribution chain and still leave a
potential cut in prices to the consum
er of as much as twelve per cent. The industry sat up and took
notice.

ECR consists of four main components: store assortment, product replenishment, promotion, and
product introductions. Store assortment is simply what is on the shelf. Traditionally shelf

management
meant knowing what had sold in the past or was selling at the moment and replacing it. Today, using
data available from technological advances such as EDI (Electronic Data Interchange) and scanner
data, along with the more traditional sources o
f information, the firm can focus more on the
optimisation of future sales.

Product replenishment or CRP (continuous replenishment) involves developing an integrated
network between the manufacturers and the retailers. Under the ideal arrangement, they wi
ll work
together in forecasting consumer demand and determining shelf space allotments. Then an EDI system
will be set up that monitors the actual sales in light of the forecasted sales, and the system adjusts the
pre
-
booked shipments accordingly. Ultimate
ly the system develops to the point that the retailer gives
the manufacturer carte blanche to decide what to stock under the provision that the retailer does not
own the merchandise until it is sold.

Advantages of the system include a significant decrease

in excess inventory and the elimination of
the need for warehouse and distribution centres, saving both the manufacturer and the chain stores a
significant portion of their storage costs as well as the costs of double shipping. For the manufacturer, it
al
lows for more efficient production schedules, better category management, and lower warehousing
costs as well. For both, it minimises ordering, billing, and pricing errors; deductions; credits, and the
general processing of documents. In essence, it cleans

up the system so as to provide maximum
efficiency for both parties.

The third component of ECR is more efficient promotion. The traditional manufacturer
-
retailer
relationship is fraught with inefficiencies that are derived from forward buying, diverting,
special deals,
and multiple deals that vary from store to store, depending upon the sales representative
-
buyer
relationship. ECR eliminates most of this by negotiating set low prices that will maximise profit and
efficiency for both. However, this does not

mean the complete eradication of promotions. It simply
means that by using the EDI technology, the manufacturer and retailer can monitor results on a daily
basis and develop promotional activities that move the maximum product at the optimal profit on a
s
tore
-
by
-
store basis if desired.

The fourth component of ECR is that of new product introduction. This is the area viewed as the
most difficult into which to integrate ECR. In a truly integrated system the theory would call for a
partnership to jointly dev
elop new products that meet the wants, needs, and desires of the consumer.
This is more of a challenge.

While ECR offers many potential advantages to the consumer, including fresher merchandise and
lower prices,
--

it remains to be seen if a significant a
mount of the savings will be passed on, other than
that required by competition. That, after all, was what gave rise to the ECR strategy in the first place.