• Building Channel Partnerships

• Building Channel Partnerships

The members of a distribution channel are linked closely in delivering customer satis­ faction and value. One company's distribution system is another company's supply system. The success of each channel member depends on the performance of the entire supply chain. For example, a big supermarket can charge the lowest prices at retail only if its entire supply chain ­ consisting of thousands of merchandise suppliers, transport companies, warehouses and service providers ­ operates at maximum efficiency.

Companies must do more than improve their own logistics. They must also work with other channel members to improve whole­channel distribution. This would enable everyone involved to enhance total customer satisfaction. For example, it makes little sense for a clothing manufacturer to ship finished apparel to its own warehouses, then from these warehouses to a department store's ware­ houses, from which they are then shipped to the department store. If the two companies can work together, the apparel producer might he able to ship much of its merchandise directly to the department store, saving time, inventory and

93­1 Chapter 21 Managing Marketing Channels

shipping costs for both. Today, clever companies are co­ordinating their logistics strategies and building strong partnerships with suppliers and customers Lo

improve customer service and reduce channel costs.' 7

These channel partnerships can take many forms. Many companies have created cross­fimctionat, cross­company teams. Other companies partner through shared projects. For example, many larger retailers are working closely with suppliers on ill­store programmes. Sonic retailers even allow key suppliers to

use their stores as a testing ground for new merchandising programmes. The suppliers spend time at the stores watching how their product sells and how customers relate to it. They then create programmes specially tailored to the store and its customers. In this way, both supplier and customer benefit from such partnerships.

Channel partnerships may also take the form of information sharing and continuous inventory replenishment systems. Companies manage their supply chains through information. Suppliers link up with customers through TCI.) I systems to share information and co­ordinate their logistics decisions. The recent success of America's big drug wholesalers or Pharmacy Benefit Managers has been, in part, due to their ability to supply such information services to retailers and bulk buyers of medicines. Benetton, the Italian company, has also gained competitive advantage through its management of total supply or throughput time. It uses direct feedback from its franchised outlets to monitor sales trendy, links this information into its computer­aided design and manufacturing system and.

making use of its highly flexible manufacturing processes, quickly produces (even

small quantities) to order. 2S

Today, as a result of such partnerships, many companies have switched from anticipatory­based distribution systems to response­based distribution systems. 2 ' 1 In anticipatory distribution, the company produces the amount of goods called for by a sales forecast, holding stocks at various supply points such as the plant, distribution centres and retail outlets. Each supply point reorders auto­ matically when its order point is reached. When sales are slower than expected, the company tries to reduce its inventories by offering discounts, rebates and promotions.

A response­based distribution system, in contrast, is customer­triggered. The producer continuously builds and replaces stock as orders arrive. It produces what is currently selling. For example, Japanese car makers take orders for cars,

then produce and ship them within tour days. Some large appliance manufac­ turers, such as Philips­Whirlpool, are moving to this system. And Benetton uses a

quick­response system ­ it dyes its sweaters and garments in grey, so that these can be swiftly re­dyed in the new 'in' colours for the season, instead of trying to guess long in advance which colours people will want. Producing for order rather