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Role of Shared Information Systems in Distribution Channels

Jos M. Snchez. Universidad Pablo de Olavide. Spain Carolina Ramrez. Universidad Pablo de Olavide. Spain

Facing the challenges associated with getting a product to the right place at the right time at the lowest cost, a manufacturing firm may sell their products through a set of independent firms (Stern et al., 1996). These dealers have greater market knowledge and flexibility, giving the manufacturer cost and investment reductions (Celly and Frazier, 1996). However, once the distribution channel is established, differences in objectives arise (Stern et al., 1996) and there is a lack of the advantages of a hierarchical structure (Gulati and Singh, 1998). This may be aggravated by the influence that a bad dealers service could have on the Manufacturers reputation. As parts of supply chains, distribution channels are configured as non-equity contractual alliances, with closer interactions than arms-lengths relationships. Within distribution channels typologies, we focus on industrial dealers, who have three distinctive features: 1. a revenue-sharing contract offered by the manufacturer; 2. a production or inventory quantity and retail price decision made by the manufacturer; and 3. inventory consignment, i.e., full ownership of inventory retained by the manufacturer.

Data collection and analysis


The necessary information to establish the sequence of analyzed events was obtained by means of archival sources, direct observations, and interview data. The most rich and detailed archival sources were the different types of contracts, the dealers evaluation system, the summary of all the periodical joint meetings, and the projects and procedures documents. Supplementary archival data contain a large number of financial and commercial reports, improvement project reports, and internal and external newsletters. Interviews were employed to gain more information and to complement and contrast the archival data, which served to triangulate our findings (Eisenhardt, 1989). On the basis of the revised literature, a guide for semi-structured interviews was developed to focus on the process of data collection in the development of the ISs. Thus, the interviews with the employees of CMD were carried out with a double aim: (a) to complete and to contrast the previously gathered information; and (b) to deepen understanding of aspects that were ignored and that were especially interesting in the study. We interviewed 20 members of CMDs management team face-to-face (November 2002 to June 2003). Interviewees were chosen based on their direct relation to the dealers IS development. All interviews were tape-recorded and transcribed, and the completed write-up was sent to the interviewees for comment. We also assisted in the four joint meetings (2001-2004), as well as several informal meetings and phone conversations with some of CMDs managers and dealers.

Distribution channel information system development


Antecedents. From its beginning, CMD entrusted in some transporters with its delivery and warehousing tasks for two primary reasons: logistic costs and market

positioning. From 1985 onwards, CMD began to establish the contractual framework of the relationship, focusing on the legal and labor aspects. As a result, a sole contract type is used for these independent entities, regardless of their varying sizes, legal constitution, and other activities. Also, CMD took advantage of the introduction of the contract to establish the sales commission system. Thus, the dealers operate in exclusivity and they are commissioned by its sales in a geographical area. However, on occasions, it is CMD who carries out the deliveries to the customer. On the other hand, CMD established its commercial department in the late 1980s to carry out the commercial functions of direct sales and attending to customers. CMD assigned each commercial employee a dealers group to supervise all its activities. Although the sales were carried out through the distribution channel, CMD billed its customers directly. This is because CMD sent books of delivery notes, which the dealers completed manually for each product delivery. These notes were sent once a month by postcard to the different centers of CMD for their records. With this system, CMD carried out the billing for its products to the final customers, but it could neither foresee nor assign appropriate stocks to the dealers, overstocking its own and dealers warehouses. At the same time, many errors of billing were detected.

Discussion

The case study allows us to explore the role of shared ISs to manage distribution channels that are already established, and their contribution to mitigation of the underlying control problems. The case study shows that since the 1980s, CMD managed the established relationship through contract, direct supervision and commission systems. But CMD has found that these systems caused an information asymmetry in the relationship. On one hand, these tools did not allow CMD to gain access to the dealers private information, about their behaviour, knowledge, performance, and environment. As argued by Martimort (1996), the dealers, due to their proximity, direct treatment and knowledge of the local market, observe aspects of their customers that CMD does not. This is aggravated by the necessity for information about the final market, a critical aspect to CMD. On the other hand, CMD also possesses privileged information, concerning strategies and promotion campaigns for its products, politics of sales, or about the evolution of the sector that would improve the decision-making process of the dealers. In terms of Merchant and Van der Stede framework (2003), this bi-directional informational imbalance caused control problems in an inter-organizational context: Lack of Direction problems, which arise because the contract and the commercial staff fail when transmitting to the dealers exactly what CMD expects from them. The contract is regarded as a mere starting point from which the relationship is developed. It is incomplete because it is understood to be the legal framework that outlines the principal obligations and rights of the parties. The commercial department was the only intermediary between CMD and the dealers, which led often to miscommunication, misinterpretation, or oversight. The commercial department staff did not guarantee the control and management of the dealers activities, given their limited monitoring capacity (Baldenius et al., 2002).

Conclusion

This case study allows us to explore the role of a shared IS in influencing the ongoing management in an outsourcing context, extending the scope beyond firm

limits. We report on how shared ISs are developed in an already established nonequity alliance to increase the extent of outsourcing, and to manage control problems. A shared IS allows the manufacturing firm to continue as the leader in market share and premium prices, which can lead to a sustainable competitive advantage. An inherent aspect of distribution channels is the conflict of objectives. This causes problems defined in an intra-organizational context (lack of direction, motivational problems, and personal limitations) to persist in an outsourced distribution channel, increasing when the manufacturing firm decides to enhance the quantity and complexity of the tasks delegated to the dealers. This, in turn, highlights the need to develop and increase interorganizational ISs that permit sharing information to coordinate and to monitor the key aspects of the relationship. Case findings show how a manufacturing firm accepts the potential risk that dealers may use the shared information against it weighed against the benefits of developing a partnership. Sharing an IS represents benefits derived from the increased information that, in turn, the manufacturer collects. A shared IS increases the data reliability, assuring that the manufacturing firm is monitoring operations with proper information. Additionally, a shared IS permits a manufacturer to foresee problems or correct them in a timely manner, as well as offering a way to see the final market through the distribution channel, reducing manufacturers dependence on its dealers. Thus, the growth of partnerships demands an IS that could be a key enabler of a strategic relationship. Although ISs have been traditionally seen as tools to improve functions and internal operations, they are necessary to facilitate the administration of management problems that are not eliminated when carrying out activities outside of the firm.

The Effects Of Channels Of Distribution On Nigerian Product Sales


Mrs. R.N. Obaji, University Of Lagos, Nigeria

Marketing Channel decisions are among the most important decisions that management
faces today. Indeed, if one look at the major strategy of the marketing mix product, price, promotion and distribution, the greatest potential for achieving a competitive advantage now lies in distribution. Distribution still offers a new frontier for competing successfully especially if the emphasis is placed on the design and management of superior marketing channel systems to provide excellent customer services. Yet designing optimal marketing channel system to boost sales, formulating innovative distribution strategies and managing channels system effectively is no simple task. Channel levels All products whether they be consumer goods, industrial goods or services require a channel of distribution. Mallen (1996) stated that industrial channels tend to be shorter than consumer channels because of the small number of ultimate customers, the greater geographic concentration of industrial customers, and greater complexity of the products which require close producer-customer liaison. Kotler and Keller (2006) presented three levels in consumer channels strategy. According to him a one level channel contains one selling intermediary such as a retailer. He found that the growth in retailer size has meant that it becomes economic for producers to supply retailers directly rather than through wholesalers, hence consumers now have the convenience of viewing and testing the product at the retail outlet. A two level channel contains two intermediaries, a wholesaler and a retailer. According to him channels like this tend to occur where there are influxes of small retailers with limited order quantities; wholesalers can buy in bulk from producers and sell

smaller quantities to numerous retailers. He maintained that a three level channel contains three- intermediaries that is sometimes used by companies entering into foreign markets and may delegate the task of selling the product to an agent (who does not take title to the goods). Moreover the agent contacts the wholesalers who supplys the retailers till it gets to the ultimate consumer.

Research methodology The data collected for this research work came through interview, observation and completed questionnaires by respondents. The adoption of questionnaires as source of primary data was to obtain the primary data needed while the follow-up interview was to sensitize the respondents view on some of the issues raised in the questionnaires. The importance of this method cannot be overemphasized considering some of the shortcomings of using questionnaires especially in this kind of research where adequate responses cannot be guaranteed. Secondary data was collected through publications, journals etc. The population of this study comprises of distributors, wholesalers, retailers and consumers situated in Lagos. The sample size of this study was 300 respondents while a stratified sampling technique was used to ensure that every member of the group has equal chance of being represented in the sample. In order to have a more effective sampling of the various groups and cadres, the following numbers were sampled from each group: 1. Channel Distributors 100 2. Consumers 180 3. Distribution and Marketing staff of manufacturing companies 20 Presentation and analysis of data The sample size of the study is three hundred (300) comprising of one hundred and eighty consumers, one hundred distributors and twenty company staffs. However, out of the three hundred questionnaires that were administered to the three types of respondents used in the study, the researcher was able to retrieve eighty (80) from the channel distributors, one hundred (100) from the consumers and twenty (20) from company staffs. The two hundred questionnaires were interpreted and analysed to test for the hypotheses formulated for the study. Conclusion from findings Many manufacturing companies have long looked upon distribution channels as customers and rarely bothered to look beyond .Yet the primary purpose of the distribution channel is to satisfy customer/end-user needs, and intermediaries are conduits to affect this goal. The profit margin derived by channel members in distributing the companys products is very low. This sometimes makes them reduce the level of inventory carried and switch for other competitive products. Channel members complained of transportation problems which distorts timely delivery of the product to their warehouse and stores, and invariably led to additional cost, damage and sometimes loss in transit. Also companies find it difficult to regulate sales margin of the channel members. This has gone a long way to affect the lack of price uniformity of the products. Hence the channel members took advantage of the brand

loyalty of consumers and exploit them. The bureaucracies and excessive costs generated by the activities of middle men which were not checked by the company gave the consumers the opinion that distribution channels are not performing to their full capacity but it must be pointed out that the consumers gave credence to companies that the channels used are not too cumbersome and can be managed if the company choose to do so. Recommendations Considering the above findings and conclusions, the following recommendations have been made. The channel members should Influence several key decisions such as customer service, delivery, and maintain inventory control Offer their suppliers real-time access to sales data including information showing how the products are selling by such characteristics as geographic location, type of customer, and product location. Count on resellers to provide feedback as to how customers are responding to products. This strategy will improve the profitable growth and market penetration level. Streamline their target market to avoid conflict among themselves Concentrate on a product line they wish to carry as distributors attempting to handle too many aspects of distribution may end up losing grip of market share. The Company should establish the following: Develop policies that will lead to the clarification of roles and area of jurisdiction of respective channel members. Proper registration and recognition of channel members. Set realistic and achievable targets for their distributors. Place a proper remuneration and compensation package for performing intermediaries. Give adequate promotional support Improve on delivery terms Evaluate channel members regularly to know which to retain or drop

Neves, Marcos Fava (FEA/University of So Paulo, Brazil); Zuurbier, Peter (University of Wageningen, Netherlands); Campomar, Marcos Cortez (FEA / Un. of So Paulo, Brazil)
Several food and agribusiness companies are unsatisfied with the distribution of their products and services. Distribution builds stable competitive advantages, since marketing channels are of longrange planning and implementation, and to build them needs a consistent structure and due also to the fact that they are focused on people and relationships. This sequence was elaborated based on the revision of four existing models available in the literature (Stern et al., 1996; Rosembloon, 1999; Berman, 1996 and Kotler, 1997), and other contributions on supply chains (Walters & Gattorna, 1996; Ziggers, Trienekens & Zuurbier, 1998; Trienekens & Zuurbier, 1996; among others). After this sequence was elaborated, it was submitted to 10 participants in the private sector, mostly food and beverage companies, who evaluated it and suggested contributions to be added.

Model for the Distribution Channels Planning Process

Description of the Whole Chain


The purpose of the model is to describe, in a chart, all the agents that perform functions in the chain, from first suppliers to final consumers, in order to have a general overview of the main industries operating in the chain, and, with this systemic approach, to make an analysis of the other chains that compete with the final product(s). If a company is operating in the poultry business, red meat business, sugar business, orange juice business, milk, or beer, for example, just one system will be described. But for companies operating in more businesses, all the systems (chains) should be described, inserting the agents that perform negotiation functions (suppliers, farms, industry, wholesalers, retailers and others) at the product flow. With the recent trends of traceability, it is even

more important to have this complete picture of the chain. This step will also add more insights to be discussed at the environmental analysis step.

Gap Analysis and Quick Adjustments


The company has its own ideas about what it wants as a distribution channel and about consumers desires, and at this step all these should be confronted in order to make the best and feasible strategic decision for the company. All the goals should be confronted with market (consumer) restrictions and company restrictions. Quick adjustments refers to a step described in Stern et al. (1996) in which companies could get some insights from all the steps conducted so far and implement them immediately in existing channels, if they are clearly advantageous.

Selection of Channels and Negotiation


Once the objective is set, the company can select the channel structure and channel members, if it has the flexibility to do so, which depends on the availability of agents in the channel, the kind of relationship that will be build and several other factors analyzed in the preceding steps. For the negotiation process, several techniques are available, and a framework to build successful negotiations can be found in the work by Lynch (1993).

The Objectives of the Company


These should agree with the strategic planning program, if the company has one, or they should at least be consistent with the price, product and communication strategies. The objectives (goals) should be set in relation to several variables, like volume ($), profit, sales margins, inventory turnover, market share, customer satisfaction, sales expenses, return on investment in channels, inventory expense, overall customer service level, volume (units) by product type, volume ($) per salesperson, volume ($) per quota, profit by supplier, volume ($) by product type, profit by product type and others. In terms of behavior-based measures, the most important measures to be considered are service department, warranty claims processing, building/facilities, office systems, employee incentive plans, coverage of trade area, product knowledge/salesperson, selling skills/salespeople, dealership financial plan, dealership business plan, advertising and promotion program, number of customer complaints, buyer credit management, sales forecast-accuracy, sales call-total no., calls-current customer, calls-noncustomers, number of product demonstrations and others. At this step, the company will produce several tables, forecasts, and other kinds of goal setting tools. Some useful insights can be given by Kumar et al. (1992); Spriggs (1994); Berman (1996); Stern et al. (1996), Rosenbloom (1999), Gattorna & Walters (1996).

The Consumers Objectives, Needs and Buying Process


This step relates to marketing research with final consumers and intermediaries to gain insights about the perfect distribution systems from the consumers point of view. The high cost of marketing research means that the kind of research that should be done depends on each company and their

objectives; but it is very important to build customer-driven distribution systems (Stern et al., 1996). According to Gattorna & Walters (1996), several methods are available to measure consumer satisfaction. First, in a design stage, it is important to establish the service and product expectations held by consumers. For this stage, a qualitative phase to generate a list of relevant service and product attributes based upon customer experience is interesting. This list will be used for the design of a questionnaire to be used in the quantitative phase. All the functions and lists used in step 3.2 can be used here to facilitate the understanding of consumer needs. Marketing research books (Malhotra, 1996; Hair et al., 1995; Aaker & Day, 1982) provide sufficient information and techniques. The buying process of clients and consumers must be considered and analyzed.

Channels Management
The last step of the process is the management of the relationships. The literature on channel management is vast and it suggest several techniques and management skills. Only some aspects relating to building successful partnerships and trust, something of fundamental importance, will be highlighted here. The suggestion is to use references and tools of the relationship marketing, commitment and trust theory to help channels management (Morgan & Hunt, 1994). The physical process and logistics should also be strongly considered. Motivation of the members is an important task that the company should address, and Rosenbloom (1999) provides a list of common motivation techniques that could be used by the company. There is extensive literature on trust and trust development in transactions, and these works are useful at this step. A good starting point is the research done by Doney & Cannon (1997), which stresses several contributions of the literature. Kozak and Cohen (1997) bring a list of statements for companies to use to achieve the level of trust and commitment with suppliers, which can be adapted in this case to distributors.

Final Comments
Finally, this Distribution Channels Planning Process should be done frequently, to effectively address competitive advantages. The first time it is completed, the process will be time and money consuming, mainly for the companies that are starting from zero. However, once the process is done, the following analyses will be easier, because data are more organized and easily available, the knowledge of the planning process is known by the company and further decisions will consider what is new in the environment. At this moment, we can say that the model is applicable, but not that it produces positive results in terms of measures taken by companies, because it has not been tested yet. The process is currently being used for a food company, and the results (to see if the sequence [model] is useful) will be presented later. Of course not all companies will complete all the steps presented here; some of the channels will not be available (retailers, for instance), and for a company with several products, the analysis is more difficult, but extremely important due to the fact that distribution channels provide competitive advantage.