Logistics and Channel Management

CHAPTER 13
 THE ROLE OF LOGISTICS

• Logistics, also often referred to as Physical

Distribution (PD), has many definitions, but
most share the same underlying theme
expressed in Kotler’s classic definition, which
defines logistics as “Planning, implementing,
and controlling the physical flows of materials
and final goods from points of origin to points
of use to meet customer’s needs at a profit.
 THE ROLE OF LOGISTICS

• The term supply chain management has come into common

usage to describe logistical systems that emphasize close
cooperation and comprehensive interorganizational
management to integrate the logistical operations of the
different firms into the channel. Even the most carefully
designated and managed marketing channel must rely on
logistics to actually make products available to customers. The
movement of the right amount of the right products to the
right place at the right time – a commonly heard description of
what logistics is supposed to do – is more than a catchy
phrase. It is in fact, the essence of the role of logistics in the
marketing channel.
 LOGISTICS SYSTEMS, COMPONENTS AND COST

• 1. Transportation – the most fundamental and obviously necessary

component of any logistics system, for clearly, in the case of physical
products that must be moved from one location to another, a
transaction cannot be completed until transportation has occurred.
• 2. Materials Handling – encompasses the range of activities and
equipment involved in the placement and movement of products in
storage areas. Issues that must be addressed when designing
materials handling systems include how to minimize the distance
products are moved within the warehouse during the course of
receiving, storage, and shipping; what kinds of mechanical equipment
(such as conveyor belts, cranes, and forklifts) should be used and how
to make the best use of labor when receiving, handling and shipping
products.
 LOGISTICS SYSTEMS, COMPONENTS AND
COST
• 3. Order Processing – the task of filling customer orders
may at first appear to be a minor part of logistics and
rather routine activity that does not require a great deal
of thought to do well. The importance of order
processing in logistics lies in its relationships with order
cycle time, which the time between when an order is
placed and when it is received by the customer.
• 4. Inventory Control – it refers to the firm’s attempt to
hold the lowest level of inventory that will still enable it
to meet customer demand.
 LOGISTICS SYSTEMS, COMPONENTS AND
COST
• 5. Warehousing – the warehousing or storage component of a logistics
system is concerned with the holding of products until they are ready to
be sold. Warehousing can actually be one of the more complex
components of a logistics system because, quite often, warehousing
options entail several key decision, each of which can be difficult and
complex to deal with. The most basic of these dimensions are (1) the
location of warehouse facilities (2) the number of warehousing units (3)
the size of units (4) the design of units, including lay-out and internal
systems and (5) the questions of ownership.
• 6. Packaging – packaging and the cost associated with packing of products
are relevant as a component of the logistics system because packaging
can affect the other components system, and vice versa. For example, the
type of transport used can affect packaging and packing costs.
THE OUTPUT OF THE LOGISTICS
SYSTEM: CUSTOMER SERVICE
& COMPETITIVE ADVANTAGE
THE OUTPUT OF THE LOGISTICS SYSTEM:
CUSTOMER SERVICE
& COMPETITIVE ADVANTAGE
• Johnson, et.al capture succinctly the meaning and importance
of customer service in the context of logistics: Customer
service is the collection of activities performed in filling orders
and keeping customers happy or creating in customer’s mind
the perception of an organization that is easy to do business
with. A number of attempts have been made to define and
enumerate these services and to measure performance in
terms of what logistics experts refer to as service standards.
Heskett, Galskowsky and Ivie, for example, stress the following
nine categories of logistics service standards:
• 1. Time from order receipt to order shipment
• 2. Order size and assortment constraint
• 3. Percentage of items out of stock
• 4. Percentage of ordered filled accurately
• 5. Percentage of orders filled within a given number of
days from receipt of the order
• 6. Percentage of orders filled
• 7. Percentage of customer orders that arrive in good
condition
• 8. Order cycle time (time from order shipment to order
delivery)
• 9. Ease and flexibility of order placement
 La Londe describes customer service in terms of the six key
elements:

• 1. Product availability
• 2. Order cycle time
• 3. Distribution system flexibility
• 4. Distribution system information
• 5. Distribution system malfunction
• 6. Postsale product support
FOUR KEY AREAS OF INTERNET BETWEEN
LOGISTICS
AND CHANNEL MANAGEMENR
• 1. Defining Logistics Service Standards
• In general, the higher the service standards offered by the
manufacturer, the higher the cost will be. While well-
designed logistics systems and modern technology can
keep these cost under control, it is usually not possible to
completely escape the trade-off of higher costs for higher
service standards .A manufacturer or other channel
member must cover the costs either indirectly in the price
it charges for products or by passing them along to
channel members in the form of service charges.
• 2. Evaluating the Logistics Program
• Inadequate evaluation of a logistics system
can lead to horrendous problems in business-
to-business markets as well. This is especially
the case when so-called “killer software app”
(high-tech software for synchronizing the
supply chain) do not live up to over-hyped
expectations.
• 3. Selling the Channel Members on the Logistics
Program
• Regardless of how good a manufacturer perceives its
logistics program to be, it still must convince channel
members of its value. Steward made this point
succinctly in the seminal discussion of this topic:
• A word of caution! Changes in physical distribution
must be palatable to the company’s customers channel
members. Changes which provide cost benefits only to
the manufacturer without corresponding benefits to
customers may be more difficult to implement than
those that offer incentives to customers to change.
• Stewart went on to suggest several types of
appeals that, if emphasized by the manufacturer
in attempting to sell the logistics program, may
help the manufacturer to be more convincing.
They are as relevant today as ever. Manufacturers
should emphasize that a new logistics program
can foster:
• o Fewer out-of-stock occurrences
• o Reduced channel member inventories
• o Increased manufacturer support for channel
members
• 4. Monitoring the Logistics System
• The most effective way of monitoring channel
member reactions is to conduct a survey of a
sample of channel members. If the number of
channel members is small, it may be feasible
to include all of them.
Evaluating Channel Member
Performance

CHAPTER 14
 FACTORS AFFECTING SSCOPE AND FREQUENCY
OF EVALUATION
• 1. Degree of Control
• The degree of control a producer, manufacturer or franchisor has over its
channel members plays a major role in determining the scope and
frequency of its evaluation. If control is based on strong contractual
agreements with channel members, the channel manager is in a position
to demand a great deal of information on channel member performance
on virtually every aspect of the channel members’ operations.
• 2. Importance of Channel Members
• For the manufacturer who sells all of its output through intermediaries,
the evaluation of channel members is likely to be much more
comprehensive than for manufacturers who rely less on intermediaries.
This is because the firm’s success in the market is so directly dependent
on the channel members’ performance.
• 3. Nature of the Product
• Generally, the more complex the product is, the broader the
scope of the evaluation and vice versa. For example, a
manufacturer of high-volume products of low unit value
requiring little after-sale servicing may settle for routine sales
data as the basis for an evaluation of channel members.
• 4. Number of Channel Members
• For the manufacturer using distribution, channel member
evaluation may be little more than a cursory“once over
lightly” look at current sales figures. Some manufacturers
find it necessary to use an“evaluation by exception” process
whereby a more thorough evaluation is reserved only for
those channel members who show sales figures that are
unusually out of line.
PERFORMANCE EVALUATION VERSUS DAY-TO-DAY MONITORING

• Pegram identified two basic types of evaluating approaches:

• The first type of evaluation is basically a routine, day-to-day
monitoring of performance of the channel members based almost
exclusively on sales criteria. Billings of sales to the channel members,
reflected in standard sales analysis reports (such as from scanner
data), can furnish the basic information needed for this kind of
evaluation.
• The second approach is much broader evaluation procedure that
usually involves a number of criteria besides sales. As an example of
this more comprehensive approach to channel member evaluation,
consider the case of the well-known paint manufacturer Glidden.
Glidden sells a large portion of its paints through giant home
improvement retailer home depot.
CHANNEL MEMBER PERFORMANCE AUDIT

• The channel member performance audit is a periodic and

comprehensive review of channel member performance. The
audit may be done for one, several or all of the channel
members at the wholesale and/or retail levels. The frequency
of the audit varies, bbut seldom is it done more frequently
than once per year per channel member. The channel member
performance audit consists of three phases: (1) developing
criteria for measuring channel member performance; (2)
periodically evaluating the channel member’s performance
against the criteria and (3) recommending corrective actions to
reduce the number of inadequate performances.
QUIZ
• 1. The most fundamental and obviously necessary component of any
logistics system?
• 2. The task of filling customer orders may at first appear to be a minor
part of logistics and rather routine activity that does not require a great
deal of thought to do well ?
• 3. Packing of products are relevant as a component of the logistics
system because packaging can affect the other components system,
and vice versa?
• 4. A producer, manufacturer or franchisor has over its channel
members plays a major role in determining the scope and frequency of
its evaluation?
• 5. the more complex the product is, the broader the scope of the
evaluation and vice versa?