Question

A retailer forms long-term supply relationships with several of its key manufactures who supply it with product to sell in its store. Part of the long-term agreement involves setting prices instead of on a transaction-by-transaction basis.

Has a supply-side gap been closed here? What flow or flows have been involved in this change? Are there instances where this can increase (rather than decrease) the cost of running the channel?

*Please answer all three questions as detailed as possibled

Answer 1

Supply side gap has been closed here by forming long term supply relationships with its key manufacturers. As a result each of the supplier has to be competitive and supply in time at the lowest possible charges due tolong term relationship.Moreover maintaining relationships with many of the suppliers make each of them competitive to deliver best of the services.

The following flows have been involved in this change:

• Information Flow : Information to supply the products reach from retailer tosupplier.
• Product Flow : Manufacturer supplies the required products to the retailer.
• Money Flow : Retailer pays the money to the manufacturer for the supply of products.

This might increase the cost of running the channel as the manufacturer as well as retailer have to invest in information technology to provide real time information to all the stages of the supply chain. Thus it would prevent the out of stock condition.

Maintaining long term relationship also reduce the cases of negotiations between the two parties and thus the retailer has to agree to the price quoted by the manufacturer. Thus it increases the cost of running the channel.