Marketing Channels and Logistics Management - Chapter 1 PDF

**COURSE: MARKETING CHANNELS AND LOGISTICS MANAGEMENT** **CHAPTER ONE** **An overview of logistics & channel management** **1.1 Definition of logistics** Logistic is concerned with getting products and services where they are needed and when they are desired. It is the process of planning, imple...

**COURSE: MARKETING CHANNELS AND LOGISTICS MANAGEMENT** **CHAPTER ONE** **An overview of logistics & channel management** **1.1 Definition of logistics** Logistic is concerned with getting products and services where they are needed and when they are desired. It is the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and related information from the point of origin to the point of consumption for the purpose of meeting the requirements of customers. The logistics customer-service goal is to provide the right goods and services, at the right place, at the right time, and in the desired condition, at the lowest possible cost. This is accomplished through good management of the key logistics activities -- transportation, inventory maintenance, order processing, and the several additional activities that support these. Logistics is the positioning of resource at the right time, in the right place, at the right cost, at the right quality. The overall AIM OF LOGISTICS is to achieve high customer satisfaction. It must provide a high quality service with low -- or acceptable -- costs. Logistics is the efficient movement of finished product from the end of the production line to the consumer, and in some cases includes the movement of raw materials from the source of supply to the beginning of the production line. **Objectives of Logistics** The **General objectives of the logistics can be summarized as:** - Cost reduction - Service improvement The specific objective of an ideal logistics system is to ensure the flow of supply to the buyer, The right product, right quantities and assortments, right places, right time, right cost / price and, right condition. This implies that a firm will aim at having a logistics system which maximizes the customer service and minimizes the distribution cost. **1.2 Activities in Logistics Management** - **Primary activities in logistics management** The foregoing definitions identify those activities that are primary importance in achieving the cost and service quality objectives of logistics. The key activities are: - Transportation - Inventory maintenance - Order processing These activities are considered as primary to the effective management of logistics because they contribute most to the total cost of logistics. They are essential for the effective coordination and completion of the logistics task. **Transportation:** one of the operational area of logistics. It is the movement of goods and persons from one place to another. Transportation is the most important logistics activity simply because it absorbs (cover), on the average, approximately one-third to two-third (50% up to 75%) of logistics costs. It is essential, because no modern firm can operate without providing for the movement of its raw materials and/or finished products in some way for their customers. **Inventory Maintenance** It is usually not possible or practical to provide instant production or instant delivery to customers. In order to achieve a reasonable degree of product availability, inventories need to be maintained as safeguards between supply and demand. The extensive use of inventories results in the fact that, on the average, they account for approximately one-third to two-third of logistics costs, making inventory maintenance a key logistics activity. **Order Processing** The cost of order processing is minor compared to transportation or inventory maintenance costs. But, order processing is a primary logistics activity. Its essential nature comes from the fact that there is a critical "time" element in getting goods and services to customers at the right time. It is also the primary activity that initiates product movement and service delivery. - **Supporting Activities** Even if transportation, inventory maintenance, and order processing are the main ingredients that contribute to the availability and condition of goods and services, there are a number of additional activities carried out by the logistics organization that support the primary activities. These are: Ware housing, Materials handling, Protective packaging, Acquisition, Product scheduling, Information maintenance. **Warehousing** Warehousing refers to the management of the space required to hold inventories. It involves such issues like site selection, space determination, stock layout, stock retrieval (Stock returned), dock design (port design), and warehousing structure. **Materials Handling** **The way of managing and controlling products.** Materials handling goes hand-in-hand with warehousing, and it also supports inventory maintenance. It is an activity that is concerned with the movement of the product at their stocking point. For example, transfer of goods from warehouse receiving point to storage location and from storage location to warehouse delivery point. **Protective Packaging** One of the objectives of logistics is to move goods with no more damage that is economically reasonable. Good design of the package for the product's protection helps to assure damage-free movement. In addition, proper package dimensions encourage efficient storage and handling. **Acquisition** Acquisition is the logistics activity that makes the product available to the logistics system. It is concerned with the selection of supply-source locations, quantities to be acquired, timing of purchases, and form in which the product is to be acquired. The importance of acquisition to logistics is that buying decisions have geographical and time dimensions that affect logistics costs. **Product Scheduling** Whereas acquisition relates to the supply (in bound) side of a manufacturing firm, product scheduling relates to the distribution (out bound) side. It refers primarily to the aggregate quantities to be produced, and where and when they should be produced. It does not refer to the detailed production scheduling that is carried out on a daily basis by production planners. **Information Maintenance** It is impossible to operate/ function logistics within a firm without important cost and performance information. Information is essential to good logistics planning and control. Maintaining a database of important types of information like customer locations, sales volume, shipping patterns and inventory levels -- supports efficient and effective management of both primary and supporting activities. **1.3 The role and importance of logistics** **Basic benefit of Logistics** **1. Improving customer service:** As we know, the marketing concept assumes that the sure way to maximize profits in the long run is through maximizing the customer satisfaction. As such, an important objective of all marketing efforts, including the physical distribution activities, is to improve the customer service. An efficient management of physical distribution can help in improving the level of customer service by developing an effective system of warehousing, quick and economic transportation, all maintaining optimum level of inventory. **2. Rapid Response:** Rapid response is concerned with a firm\'s ability to satisfy customer service requirements in a timely manner. **3. Reduce total distribution costs:** The cost of physical distribution consists of various elements such as transportation, warehousing and inventory maintenance, and any reduction in the cost of one element may result in an increase in the cost of the other elements. Thus, the objective of the firm should be to reduce the total cost of distribution and not just the cost incurred on any one element. For this purpose, the total cost of alternative distribution systems should be analyzed and the one which has the minimum total distribution cost should be selected. **4. Generating additional sales:** Another important objective of the physical distribution/logistics system in a firm is to generate additional sales. A firm can attract additional customers by offering better services at lowest prices. For example, by decentralizing its warehousing operations or by using economic and efficient modes of transportation, a firm can achieve larger market share **5. Creating time and place utilities:** The logistical system also aims at creating time and place utilities to the products. Unless the products are physically moved from the place of their origin to the place where they are required for consumption, they do not serve any purpose to the users. Similarly, the products have to be made available at the time they are needed for consumption. Both these purposes can be achieved by increasing the number of warehouses located at places from where the goods can be delivered quickly and where sufficient stocks are maintained so as to meet the emergency demands of the customers. Moreover, a quicker mode of transport should be selected to move the products from one place to another in the shortest possible time. Thus, time and place utilities can be created in the products through an efficient system of physical distribution. **6. Price stabilization:** Logistics also aim at achieving stabilization in the prices of the products. It can be achieved by regulating the flow of the products to the market through a careful use of available transport facilities and compatible warehouse operations. For example, in the case of industries such as cotton textile, there are heavy fluctuations in the supply of raw materials. In such cases if the market forces are allowed to operate freely, the raw material would be very cheap during harvesting season and very dear during off season. By stocking the raw material during the period of excess supply (harvest season) and made available during the periods of short supply, the prices can be stabilized. It is useful, at this point, to consider logistics in the context of business and the economy as a whole. **8**. **Leads to customer satisfaction through superior customer service** Logistics addresses delivery and Profitability objectives which lead to customer satisfaction through superior customer service **9. Competitive edge:** In the aggressive competitive environment logistics provides the edge/power. **1.4** **Interfaces between Logistics & Channel Management** Physical distribution and logistics are part of the „place‟ element of the marketing mix and these have a major impact on channel strategy and design. Effective management of physical distribution and logistics has a substantial impact on a company and its customers‟ costs, efficiency and effectiveness. If these are well planned and implemented, they are competitive tools that can build sustainable competitive advantage. Providing better customer service and effective distribution requires teamwork, both inside the company and among all the marketing channel organizations. Inside the company, the various functional departments must work closely together to maximize the company's own logistics performance. The company must also integrate its logistics system with those of its suppliers and customers to maximize the performance of the entire distribution system. **Four Key Areas of Interface between Logistics and Channel Management** Channel management and logistics management go together hand in hand to provide effective and efficient distribution. The meshing of channel management and logistics management requires good coordination. This especially applies to four major areas of interface between channel management and logistics management. 1. Defining the kinds of logistics service standards that channel members want 2. Making sure that the proposed logistics program designed by the manufacturer meets the channel member service standards 3. Selling the channel members on the logistics program 4. Monitoring the results of the logistics program once it has been instituted - Fewer out-of-stock occurrences. - Reduced channel member inventories - Increased manufacturer support for channel members. - Minimizing Out-Of-Stock Occurrences **Monitoring the Logistics System** Logistics systems must be continuously monitored, both in terms of how successful they are in performing for the manufacturer and, just as important, how well they are meeting channel member needs. The channel manager should continually monitor the channel members' reactions to the logistics program. The most effective way is to conduct a survey of a sample of channel members. The survey should be part of the overall marketing channel audit. If the survey or audit finds areas for improvement or deficiencies, the manufacturer must actually follow through and make these improvements or correct these deficiencies. Channel member satisfaction with the manufacturer's logistics program tends to decrease when channel members, who pointed out the deficiencies, do not see subsequent improvements or attempts to improve. A manufacturer is more likely to make these changes if it views the logistics program as an integral part of its overall marketing program. **1.5 Integration of Logistics** Integrated logistics refers to bringing of those related activities in to a single function or process of logistics directed towards serving the customer effectively and at the lowest total cost all functional activities taken together. The integration of logistical activities can determine in to two ways: **Integration within the organization (internal integration) and Integration within the supply chain (external integration)** **1**. **Internal integration**:-refers to making of all traditionally fragmented activities to work together as a single function in order to compromise conflict of interest among each activities within the enterprise. To achieve better internal integration logistical activities need to be combined in three operational areas: A. Procurement B. Manufacturing support C. Physical distribution **A**. **Procurement**:-concerned with purchasing and arranging materials, parts and/or finished inventories **Activities of logistic in procurement:** - Selection of supplier and negotiation - Inbound transportation - Inspection **B. Manufacturing support**:-concentrate on managing work in process inventories as it flows between storage of manufacturing. Here logistics participate in the design of master of production scheduling and timely availabilities of materials. Activities of logistics in manufacturing support: - Packaging - Storing and handling - Inventory related tasks **C. Physical distribution**:-represent movement of finished products to customers. In physical distribution customer is the final destination of the market channel. Activities of logistics in physical distribution:- - Order processing - Transportation - Warehousing - Return goods handling this is because of damage, change in customer demand etc. **Barriers of internal integration** 1. **Organization structure**: traditional organization structure prevents cross functional collaboration. In traditional organization structure each department accomplish their task by their own. 2. **Measurement system**:-each department separately measures their performance. 3. **Inventory ownership**: - for example production department need high inventory because by producing large amount to minimize costs. In contrast, inventory control needs low inventory to easily control and manage the inventory. 4. **Information technology**:-information is the key source for both internal and external integration. In traditional system, there is no accessibility to get specific data base. 5. **Knowledge transfer capability**:-the level and ability of sharing experience between each functional system. In traditional system there is no experience sharing, when the experienced employee leave the work place (organization) by any reason the problem will raise in the organization system. - **Genuine co-operation between all parts of the supply chain, with shared information and resources.** - **Lower costs -- due to balanced operations, lower stocks, less expediting, economies of scale, elimination of activities that waste time or do not add value, and so on** - **Improved performance -- due to more accurate forecasts, better planning, higher productivity of resources, rational priorities, and so on** - **Improved material flow, with co-ordination giving faster and more reliable movements** - **Better customer service, with shorter lead times, faster deliveries and more customization** - **More flexibility, with organizations reacting faster to changing conditions** - **Standardized procedures, becoming routine and well-practiced with less duplication of effort, information, planning, and so on** - **Reliable quality and fewer inspections, with integrated quality management programs.**