Distribution Customer Service and Logistics

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Perreault and McCarthy

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© 2005 McGraw-Hill

Companies, Inc.

McGraw-Hill/Irwin

CHAPTER TWELVE

Distribution Customer Service and Logistics

Physical Distribution Gets It to Customers

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Logistics

or

Physical

Distribution

Physical Distribution Gets It to Customers

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Logistics is the transporting, storing, and handling of goods to

match target customers’ needs with a firm’s marketing mix.

Physical distribution (PD) is another name for logistics

Key Issues

•Physical distribution provides time and place utility and makes

possession utility possible.

•Physical distribution activities typically make up half or more of

total marketing costs.

•By making physical distribution more efficient, an organization

can increase its profits, cut prices, improve service, or achieve

some combination of all three.

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Physical Distribution Concept Focuses on the Whole Distribution System

Info on Product Availability

Order Processing Time

Backorder Procedures

Inventory Storage

Order Accuracy

Damage in Transit

Online Status Information

Advance Info on Delays

Delivery Time

Compliance with Customers

Defect – Free Deliveries

Factors Affecting PD

Service Levels

Handling Adjustments/

Returns

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A Cost Comparison of Alternative Systems Exhibit 12-3

Shifting and Sharing Shifting and Sharing

JIT JIT

Conflict Handling Conflict Handling

Chain of Supply

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Coordinating Logistics Activities

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•Chain of supply:

• the complete set of firms, facilities and logistics activities

involved in procuring materials, transforming them into

intermediate and finished products, and distributing them to

customers.

Better Information Helps Coordinate PD

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Internet

Electronic

Data

Interchange

Electronic

Data

Interchange

Continuously

Updated

Information

Systems

Continuously

Updated

Information

Systems Areas Where

Computers

Help PD

Service

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Product

Availability

• False expectations

about delivery

speed

• Selling products

that are not

available

• Running out of

popular products

Coordination

of PD

• Intentional

delays in order

confirmation

• Shifting the

burden of

holding

inventory

Ethical Issues May Arise

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The Transporting Function Adds Value to a Marketing Strategy

Exhibit 12-4

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Which Transporting Alternative Is Best? Exhibit 12-5

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Water Transportation

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Airfreight Is Expensive but Fast and Growing

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Economies of Scale in Transporting

High

High Low

Low

Shipping

Cost

$

Shipping Quantity

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Economies of Scale in Transporting

Most transporting rates are based on the idea that large

quantities can be shipped at a lower cost per pound than

smaller quantities. There are often significant cost differences

between full loads and smaller loads.

Key Issues

•Freight forwarders accumulate economical shipping

quantities.

»They combine the small shipments from many shippers

and reship them in larger quantities to obtain lower

transportation rates.

»Freight forwarders are especially useful in international

shipping.

© 2005 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin

Economies of Scale in Transporting

•A key question for some firms is, “Should you do it

yourself?”

»Some companies have their own fleets of trucks,

ships, or even airplanes.

»Taking on the transportation function increases the

amount of control a firm has over its physical

distribution and may save money.

Achieves Production Economies of Scale Achieves Production Economies of Scale

Keeps Prices Steady Keeps Prices Steady

Needed When Production Doesn’t Match Consumption

Needed When Production Doesn’t Match Consumption

Builds Channel Flexibility

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The Storing Function and Marketing Strategy

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Goods Are Stored at a Cost Exhibit 12-6

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Specialized Storing Facilities May Be Required Exhibit 12-7

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