To some managers, physical distribution means only trucks and warehouses. But modern logistics is much more than this. Physical distribution or marketing logistics involves planning, implementing and controlling the physical flow of materials, final goods and related information from points of origin to points of consumption to meet customer requirements at a profit. In short, it involves getting the right product to the right customer in the right place at the right time.
Traditional physical distribution has typically started with products at the plant and tried to find low-cost solutions to get them to customers. However, marketing logistics thinking starts with the marketplace and works backwards to the factory. Logistics addresses the problem of outbound distribution (moving products from the factory to customers) and that of inbound distribution (moving products and materials from suppliers to the factory). It involves the management of entire supply chains, value-added flows from suppliers to final users, as shown in Figure 21.6. Thus the logistics manager's task is to co-ordinate the whole channel physical distribution system - the activities of suppliers, purchasing agents, marketers, channel members and customers. These activities include forecasting, purchasing, production planning, order processing, inventory management, warehousing and transportation planning.
Companies today are placing greater emphasis on logistics for several reasons:
(marketing logistics) The caskfi involved in planning, implementing and controlling the physical flats of materials and final goods from points of origin to points of use to meet the needs of customers at a profit.
Customer service and satisfaction have become the cornerstones of marketing strategy in many businesses, and distribution is an important
Supply chain depicting value-added flows from suppliers to final users customer service element. Companies are finding that they can win and keep more customers by giving faster delivery, better service or lower prices through more effective logistics. On the other hand, companies may lose customers when they fail to supply the right products on time. Logistics is a major cost element for most companies. About 15 per cent of an average product's price is accounted for by shipping and transport alone. Companies that do not take advantage of modern decision tools for coordinating inventory levels, transportation modes, and plant, warehouse and store locations make poor logistics decisions that result in higher costs. Improvements in physical distribution efficiency can yield tremendous cost savings for both the company and its customers.
The explosion in product variety has created a need for improved logistics management. For example, in the early part of the twentieth century, Che typical grocery store carried only 200-300 items. The store manager could keep track of this inventory on about ten pages of notebook paper stuffed in a shirt pocket. Today, the average store carries a bewildering stock of thousands of items. Ordering, shipping, stocking and controlling such a variety of products presents a sizeable logistics challenge. Finally, developments in information technology have created opportunities for positive gains in distribution efficiency. The increased use of computers, electronic point-of-sale scanners, uniform product codes, satellite tracking, electronic data interchange (EDI) and electronic funds transfer (EFT) has allowed companies to create advanced systems for order processing, inventory control and handling, and transportation routing and scheduling. These recent technological advances benefit not only manufacturers, but also members at other levels of the channel. Take EDI, for example: it speeds up the sending of business information, such as invoices and orders. With the need for fast response time, a retailer connected up to its suppliers could ensure that the lead time between order and supply is shortened as far as is possible. The manufacturers or suppliers have up-to-date information on retailer stocking levels and needs, and can respond faster than by using traditional manual methods. Consumers further down the line gain in that they can buy what they want at the right time and the right place. Indeed, in some industry sectors, such as retailing, certain companies are demanding EDI connections as a condition of trading.
The starting point for designing a marketing logistics system is to study the service needs of customers. They may want several distribution services from suppliers: fast and efficient order processing, speedy and flexible delivery, presorting and pro tagging ot' merchandise, order-tracking Information, and a willingness to take back or replace defective goods.
Unfortunately, few companies can achieve the logistic objective of both maximizing customer service and minimizing distribution costs. Maximum customer service implies rapid delivery, large inventories, flexible assortments, liberal returns policies and a host of other services - all of which rai.se distribution costs. In contrast, minimum distribution cost implies slower delivery, small inventories and larger shipping lots — which represent a lower level of overall customer service.
Instead, the goal of the marketing logistics system should be to provide a targeted level of customer service at the leant cost by identifying the importance of various distribution services that customers require and then setting desired service levels for each segment, taking into account the level of service offered by competitors. The ultimate objective is to maximize profits, not sales. Therefore, the company must weigh the benefits of providing higher levels of service against the costs. Some companies offer less service than their competitors and charge a lower price. Other companies offer more service and charge higher prices to cover higher costs.
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