Elements in Channel Design

1
Elements in Channel Design

• Distribution Channel Strategy
• Issues from Tailored Logistics
• E266-20002
• L. P. Bucklin

2
Key Insights and Principle 6

• End user volume is a key determinant of the
  potential for a independent channel design
• Every firm's end users have heterogeneous needs
  for logistic service
• A single logistic channel for all customers will
  provide an average service and average price for
  all
• Designing a separate channel for each EU
  optimizes VA
• Low volume channel segments will cause
  diseconomies that raise costs and offset benefits
  from segmentation

3
Logistic Channel Process

• Identify EU key logistical and product needs
• Cluster EU logistical needs across products to
  identify potential for pooling products to form
  product mix-logistical needs segments
• Design ideal prototype supply chains for each
  segment
• Balance diseconomies of scale cost to serve a
  segment against service losses from further
  channel pooling of full or partial channels
• Consider sharing systems, or partnering, with
  other firms or outsourcing all or part of the
  supply chain

4
Distinguish Inventory Types

• Speculative Inventory (Risk Holding Point)
• Inventories comprised of fungible products on
  first come/first basis
• Efficient when customer identities or future
  purchase requirements cannot be accurately
  forecast
• Transit Point (Ship-Through-Inventory Point)
• Inventories comprised of products marked for
  specific destinations /customers
• Facilitate rapid ingress, egress with little time
  at the inventory point

5
Independent vs. Pooled Channels
Supplier
Speculative Inventory
Off-the shelf orders
Transit Inventory
Pre-production orders
End User
End User
End User
6
Characteristic Affecting Channel Pooling

• Product unit valuea printing press or a hex nut
• EU order volume, individual order or shipment
  size
• Degree of order coordination and accuracy of
  delivery timing, product preparation
• Merchandising complexities, order taking
  requirements
• Order response times
• Delivery characteristics fragility, assembly,
  kits
• Product handling characteristics
• Substitutability of different product types of EU
  needs

7
Logistic Channel Options

• System Orders--coordinated staging with
  warehouse with speculative inventories\build
  assortments
• Inventory Replenishment--stocking points near or
  at largest customers
• Rapid Response--shipment of individual orders,
  high speed transport system
• Nuts Bolts--Sold in bulk from warehouse
• Slow Movers--Shift orders to suppliers, direct
• Bulk Cable--Specialized truckers, regional
  warehouses