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Chapter Topics
1) The Role of Logistics
2) Logistics Systems, Components, Cost
3) The Output of Logistics System: Customer Service and Competitive Advantage
4) Four Key Areas of Interface between Logistics and Channel Management
Chapter Outline
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 customers’ needs at a profit.”
In more recent years, with the growing emphasis on marketing channels cooperating in partnerships and
strategic alliances (see Chapter 9), the term supply chain management (SCM) has come into common
usage to describe logistical systems that emphasize close cooperation and comprehensive inter-
organizational management to integrate the logistical operations of the different firms into the channel.
1.) Transportation
Transportation is 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. Transportation is also quite often the component
accounting for the highest percentage of the total cost of logistics.
From a logistics management standpoint, the overriding issue facing the firm is choosing the optimum
mode of transportation to meet customer service demands. This can be a very complex and technical task
because there are so many considerations. A few of these are:
1. Should the firm use its own carriers or common carriers?
2. What are the different rates available?
3. What specific transportation services are offered?
4. How reliable are various common carriers?
5. What modes of transport are competitors using?
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 decisions, each of which can
be difficult and complex to deal with. The most basic of these decisions are:
(1) The location of warehouse facilities;
(2) The number of warehousing units;
(3) The size of units;
(4) The design of units, including layout and internal systems and
(5) The questions of ownership.
6.) Packaging
Packaging and the costs associated with the packaging of products are relevant as a component of the
logistics system because packaging can affect the other components of the system, and vice versa.
Packaging is far more than a promotional device for fostering product differentiation and attracting
consumer attention. Packaging has an important logistics dimension that can make a significant difference
in the effectiveness and efficiency of the logistics system. Indeed, a product in distinctive and effective
packaging will have even more appeal if it is also easy to handle, stacks up with no problem and takes
minimum space on the channel members’ shelves.
The Output of the Logistics System: Customer Service and 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 the customer’s mind the perception of an organization that is easy to do
business with.
The following nine categories of logistics service standards:
1) Time from order receipt to order shipment
2) Order size and assortment constraints
3) Percentage of items out of stock
4) Percentage of orders 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 placement 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) Post sale product support