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CHAPTER THIRTEEN

MARKETING CHANNELS AND


LOGISTICS MANAGEMENT

Text by Profs. Gene Boone & David Kurtz


Multimedia Presentation by
Prof. Milton Pressley
The University of New Orleans
13-1
Copyright © 2001 by Harcourt, Inc. All rights reserved.
CHAPTER
CHAPTER OBJECTIVES
OBJECTIVES
• Describe the roles that marketing channels
and logistics play in marketing strategy
• Describe the various types of distribution
channels available to marketers
• Outline the major channel strategy decisions
• Describe the concept of management, conflict,
and cooperation within the marketing channel
• Identify and compare the major components of
a physical distribution system

13-2
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CHAPTER
CHAPTER OBJECTIVES
OBJECTIVES
• Outline the suboptimization problem in logistics
• Explain the impact of transportation
deregulation on logistics activities
• Compare the major transportation alternatives
on the basis of speed, dependability, costs,
frequency of shipments, availability in different
locations, and flexibility and handling products
• Discuss how transportation intermediaries and
combined transportation modes can improve
physical distribution

13-3
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STRATEGIC
STRATEGIC IMPLICATIONS:
IMPLICATIONS: THE
THE
ROLE
ROLE OF
OF MARKETING
MARKETING CHANNELS
CHANNELS IN
IN
MARKETING
MARKETING STRATEGY
STRATEGY
• Channels provide the means by which the firm
moves the goods and services it produces to
ultimate users
• Channels perform four important functions. They:
• Facilitate the exchange process by cutting the number
of contacts necessary
• Adjust for discrepancies in the market’s assortment of
goods and services via sorting
• Standardize payment terms, delivery schedules, prices,
and purchase lots
• Facilitate searches by both buyers and sellers
© PhotoDisc 13-4
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Figure
Figure 13.1:
13.1:
Marketing
Marketing
Channels
Channels ––
Bringing
Bringing Buyers
Buyers
and
and Sellers
Sellers
Together
Together

13-5
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1-800-flowers.com
1-800-flowers.com

One
One Marketing
Marketing Channel
Channel
for
for Flower
Flower Buyers
Buyers

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13-6
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reserved.
TYPES
TYPES OF
OF MARKETING
MARKETING CHANNELS
CHANNELS

Figure
Figure 13.2:
13.2:
Alternative
Alternative
Marketing
Marketing
Channels
Channels

13-7
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TYPES
TYPES OF
OF MARKETING
MARKETING
CHANNELS
CHANNELS
• Marketing channel: system of marketing
institutions that promotes the physical flow of
goods and services, along with ownership title,
from producers to consumer or business user;
also called a distribution channel
• Marketing intermediary: wholesaler or retailer
that operates between producers and consumers
or business users; also called a middleman
• Wholesaler: marketing intermediary that takes
title to goods and then distributes these goods
further; also called a jobber or distributor
© PhotoDisc
13-8
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U.S.
U.S. FoodService
FoodService

A
A Wholesaler
Wholesaler Is
Is aa
Marketing
Marketing Intermediary
Intermediary

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13-9
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TYPES
TYPES OF
OF MARKETING
MARKETING
CHANNELS
CHANNELS
• Logistics: process of coordinating the flow of
information, goods, and services among
members of the distribution channel
• Physical distribution: activities to achieve
efficient movement of finished goods from the
end of the production line to the consumer

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Direct
Direct Selling
Selling
• Direct channel: marketing
channel that moves goods
directly from a producer to
ultimate user
• Direct selling: strategy
designed to establish direct
sales contract between
producer and final user

© PhotoDisc

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Figure
Figure 13.3:
13.3: Avon:
Avon: Using
Using Direct
Direct Selling
Selling as
as aa Marketing
Marketing Strategy
Strategy

13-12
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Tupperware:
Tupperware: aa Direct
Direct Seller
Seller

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Dell
Dell

Dell
Dell Computer:
Computer:
A
A Direct
Direct Seller
Seller
of
of Computers
Computers

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13-14
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WinBook:
WinBook: Another
Another Direct
Direct Seller
Seller of
of Computers
Computers

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13-15
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Channels
Channels Using
Using Marketing
Marketing
Intermediaries
Intermediaries
• Producer to wholesaler to
retailer to consumer
• Producer to wholesaler to
business user
• Producer to agent to
wholesaler to retailer to
consumer
• Producer to agent to
wholesaler to business
user
• Producer to agent to
business user
13-16
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DUAL
DUAL DISTRIBUTION
DISTRIBUTION
• Dual distribution: network that moves
products to a firm’s target market through
more than one marketing channel

© PhotoDisc
13-17
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Class Discussion

What, if any, problems exist


when dual channels are
utilized?

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IBM:
IBM: AnAn Example
Example of of aa Firm
Firm That
That Uses
Uses Dual
Dual
Distribution
Distribution to
to Sell
Sell Its
Its Personal
Personal Computers
Computers

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13-19
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REVERSE
REVERSE CHANNELS
CHANNELS
• Reverse channels: channels
designed to return goods to
their producers

© PhotoDisc

13-20
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The
The Environmental
Environmental Protection
Protection Agency
Agency WWW
WWW
Site
Site Related
Related to
to Reducing,
Reducing, Reusing
Reusing &
&
Recycling
Recycling Municipal
Municipal Solid
Solid Waste
Waste

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13-21
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CHANNEL
CHANNEL STRATEGY
STRATEGY DECISIONS
DECISIONS

Selection
Selectionof
of aa
Marketing
MarketingChannel
Channel • Factors which impact the
selection of a marketing
channel include:
• Market factors
• Product factors
• Organizational factors
• Competitive factors

13-22
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Figure
Figure 13.4:
13.4:
Distribution
Distribution
Channel
Channel
Influenced
Influenced byby
Product
Product Features
Features

13-23
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Cold
Cold Care
Care Tissue
Tissue

The
The Product
Product Factor
Factor of
of
Low
Low Product
Product Unit
Unit
Values
Values Typically
Typically
Causes
Causes Firms
Firms to
to Use
Use
Longer
Longer Marketing
Marketing
Channels
Channels

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13-24
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Hewlett-Packard,
Hewlett-Packard, Which
Which Sells
Sells Directly
Directly to
to Consumers
Consumers Through
Through Its
Its Web
Web
Site,
Site, Avoids
Avoids Antagonizing
Antagonizing Its
Its Intermediaries
Intermediaries by
by Making
Making Regional
Regional
Dealers
Dealers Responsible
Responsible for
for Installation
Installation and
and Service
Service After
After the
the Sale
Sale

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Table 13.1: Factors Influencing Marketing Channel Strategies

Characteristics of Short  Characteristics of Long 
Channels Channels
Market  Business users Consumers 
factors
Geographically  Geographically diverse
concentrated

Extensive technical  Little technical knowledge 
knowledge and regular  and regular servicing not 
servicing required required

  Large orders Small orders
Product  Perishable Durable
factors
Complex Standardized
Expensive Inexpensive

Continued on next slide . . .


13-26
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Table 13.1: Factors Influencing Marketing Channel
Strategies (Continued)

Characteristics of Short  Characteristics of Long 
Channels Channels
Producer  Manufacturer has  Manufacturer lacks 
factors adequate resources to  adequate resources to 
perform channel  perform channel 
functions functions
Broad product line Channel control 
important
Limited product line Channel control not 
important
Competitive  Manufacturing feels  Manufacturer feels 
factors satisfied with marketing  dissatisfied with 
intermediaries’  marketing 
performance in  intermediaries’ 
promoting products performance in 
promoting products
13-27
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CHANNEL
CHANNEL STRATEGY
STRATEGY DECISIONS
DECISIONS
• Distribution intensity: number
Selection of a of intermediaries through which
Marketing Channel a manufacturer distributes its
goods
• Intensive distribution: channel
Determining policy in which a manufacturer
Determining of a convenience product
Distribution
DistributionIntensity
Intensity attempts to saturate the market
• Selective distribution: channel
policy in which a firm chooses
only a limited number of
retailers to handle its product
line
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Schick
Schick

Warner-Lambert
Warner-Lambert Uses
Uses
an
an Intensive
Intensive Distribution
Distribution
Strategy
Strategy for
for Its
Its Shaving
Shaving
Products
Products

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Figure
Figure 13.5:
13.5: Using
Using aa Selective
Selective Distribution
Distribution Strategy
Strategy

13-30
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CHANNEL
CHANNEL STRATEGY
STRATEGY DECISIONS
DECISIONS

Selection of a
Marketing Channel • Exclusive distribution:
channel policy in which a
firm grants exclusive rights
Determining
Determining
to a single wholesaler or
Distribution
DistributionIntensity
Intensity retailer to sell its products
and a particular geographic
area

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Redken
Redken

Exclusive
Exclusive Distribution
Distribution
Used
Used for
for Redken
Redken Hair-
Hair-
Care
Care Products
Products

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13-32
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CHANNEL
CHANNEL STRATEGY
STRATEGY DECISIONS
DECISIONS
• Legal problems of exclusive
Selection of a distribution
Marketing Channel • Exclusive-dealing
agreement: arrangement
between manufacturer and
e-marketing intermediary
Determining
Determining that prohibits the
Distribution
DistributionIntensity
Intensity intermediary from
handling competing
product lines
• Closed sales territories:
exclusive geographic
selling region of a
distributor
13-33
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CHANNEL
CHANNEL STRATEGY
STRATEGY DECISIONS
DECISIONS

Selection of a
Marketing Channel • Legal problems of
exclusive distribution
(continued)
• Tying agreement:
Determining
Determining Arrangement that
Distribution
DistributionIntensity
Intensity requires a marketing
intermediary to carry
items other than those
they want to sell

13-34
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CHANNEL
CHANNEL STRATEGY
STRATEGY DECISIONS
DECISIONS

Selection of a
Marketing Channel • Fundamental principle
that governs channel
decisions:
Determining Channel members can shift
Distribution Intensity responsibilities for the
performance of certain
marketing functions, but
Who
WhoShould
ShouldPerform
Perform
they cannot eliminate
Channel
ChannelFunctions?
Functions?
central functions

13-35
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CHANNEL
CHANNEL MANAGEMENT
MANAGEMENT
AND
AND LEADERSHIP
LEADERSHIP
• Channel Captain: a dominant
and controlling member of a
marketing channel

© PhotoDisc

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Figure
Figure 13.6:
13.6:
Channel
Channel
Leadership
Leadership

13-37
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Channel
Channel Conflict
Conflict
Horizontal Conflict • Most often, horizontal
Vertical Conflict conflict causes sparks
The Gray Market between different types of
marketing intermediaries that
handle similar products
• Sometimes results from
disagreements among
channel members at the same
level

© PhotoDisc
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Channel
Channel Conflict
Conflict
Horizontal Conflict • Channel members at
Vertical Conflict different levels find many
The Gray Market reasons for disputes
• Example: when retailers
develop private brands to
compete with producers’
brands or when producers
establish their own retail
outlets or WWW Sites

© PhotoDisc
13-39
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Channel
Channel Conflict
Conflict
Horizontal Conflict • Grey Good: product made
Vertical Conflict abroad under license from a
The Gray Market U.S. firm and then sold in
the U.S. market in
competition with that firm’s
own domestic output
• Viewed by producers as
undesired competition

© PhotoDisc
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Achieving
Achieving Channel
Channel
Cooperation
Cooperation
• Channel Cooperation, achieved via
effective cooperation among channel
members,is the desired antidote to
channel conflict
• It is Best achieved when all channel
members regard themselves as
components of the same organization

13-41
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VERTICAL
VERTICAL MARKETING
MARKETING
SYSTEMS
SYSTEMS
• Vertical marketing system (VMS):
planned channel system designed to
improve distribution efficiency and
cost effectiveness by integrating
various functions throughout the
distribution chain

© PhotoDisc
13-42
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VERTICAL
VERTICAL MARKETING
MARKETING
SYSTEMS
SYSTEMS
Corporate • Corporate marketing
Systems system: a VMS in which
a single owner operates
at each stage in its
marketing channel
• Example: Hartmarx
markets its Hart
Schaffner and Marx suits
through company-owned
stores and selected
independent retailers
13-43
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Figure
Figure 13.7:
13.7:
A
A Corporate
Corporate
Vertical
Vertical
Marketing
Marketing
System
System

13-44
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VERTICAL
VERTICAL MARKETING
MARKETING
SYSTEMS
SYSTEMS • Administered marketing
system: VMS that
Corporate achieves channel
Systems coordination when a
dominant channel
member exercises its
Administered power
Systems • Example: Goodyear sells
tires through
independently owned
dealers, but controls the
stock that the dealers
carry
13-45
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VERTICAL
VERTICAL MARKETING
MARKETING
SYSTEMS
SYSTEMS • Contractual marketing
Corporate system:
VMS that coordinates
Systems channel activities
through formal
agreements among
Administered channel members like:
Systems • Wholesaler-Sponsored
Voluntary Chains
Contractual
• Retail Cooperatives
Systems • Franchises
13-46
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Figure
Figure 13.8:
13.8:
Duraclean
Duraclean –– A
A
Franchised
Franchised
Cleaning
Cleaning and
and
Maintenance
Maintenance
Service
Service

13-47
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Snap-on
Snap-on

Snap-on:
Snap-on: AA Franchise
Franchise
Marketer
Marketer of
of Hand
Hand Tools
Tools

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13-48
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THE
THE ROLE
ROLE OF
OF LOGISTICS
LOGISTICS IN
IN
DISTRIBUTION
DISTRIBUTION STRATEGY
STRATEGY
• Supply (value) chain: sequence of
suppliers that contributes to the
creation and delivery of a good or
service

© PhotoDisc

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Ryder
Ryder

Ryder,
Ryder, aa Member
Member ofof the
the
Supply
Supply Chain,
Chain, Helps
Helps
Firms
Firms Control
Control Their
Their
Delivery
Delivery Costs
Costs

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13-50
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THE
THE ROLE
ROLE OF
OF LOGISTICS
LOGISTICS IN
IN
DISTRIBUTION
DISTRIBUTION STRATEGY
STRATEGY
• Enterprise resource
planning: software system
that moves data among a
firm’s units

© PhotoDisc
13-51
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Logistical
Logistical Cost
Cost Control
Control
• Third party (contract) logistics
firm: company that specializes
in handling logistics activities
for other firms

© PhotoDisc
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Figure
Figure 13.9:
13.9:
Penske
Penske –– A
A Third
Third
Party
Party Logistics
Logistics
Firm
Firm

13-53
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BAX
BAX Global
Global

A
A Specialized
Specialized Logistics
Logistics
Firm
Firm

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13-54
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Loglink
Loglink Has
Has Catalogs
Catalogs and
and Databases
Databases Containing
Containing Links
Links
and
and Abstracts
Abstracts of
of Over
Over 100,000
100,000 Internet
Internet Websites
Websites
Including
Including These
These Third
Third Party
Party Logistics
Logistics Websites
Websites

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13-55
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PHYSICAL
PHYSICAL DISTRIBUTION
DISTRIBUTION
• System: Organized group of components linked
according to a plan for achieving specific
objectives
• A company’s physical distribution system contains
the following elements:
• Customer Service
• Transportation
• Inventory Control
• Protective packaging and materials handling
• Order Processing
• Warehousing

© PhotoDisc 13-56
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The
The Problem
Problem of
of
Suboptimization
Suboptimization
• Suboptimization: condition that
results when individual operations
achieve their objectives but interfere
with progress toward broader
organizational goals

13-57
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Customer Service
Standards
• Customer Service Standard: statement
of goals and acceptable performance for
the quality of service that a firm expects
to deliver to its customers

© PhotoDisc
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Figure
Figure 13.10:
13.10: Allocation
Allocation of
of Physical
Physical Distribution
Distribution
Expenditures,
Expenditures, 2000-2003
2000-2003

13-59
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Transportation
Transportation
• Class Rate: standard transportation rate
established for shipments of a specific
commodity between any pair of destinations
• Commodity Rate: special, favorable
transportation rate granted by a carrier to a
selected shipper as a reward for either
business or a large quantity shipment

© PhotoDisc
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Transportation
Transportation
• Began in Transportation • 1980: Motor
1977 with Carrier Act and
Deregulation
removal of Staggers Rail
air cargo act deregulated
carrier trucking and
Classes of railroad
regulation Carriers industries
• 1978: Airline
Deregulation
Act
Major Modes of
Transportation

13-61
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Transportation
Transportation
• Common Transportation • Private carriers
carriers move do not offer
Deregulation
freight via all services for hire,
modes of but provide
transportation transportation
for the general Classes of services solely
public Carriers for internally
• Contract generated
carriers do freight
not serve the Major Modes of
general public Transportation

13-62
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Transportation
Transportation
• Railroads Transportation • Freight
• Motor Deregulation Forwarders
Carriers and
Supplemental
• Water
Classes of Carriers
Carriers
• Pipelines
Carriers • Intermodal
Coordination
• Air Freight
Major Modes of
Transportation

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Figure
Figure 13.11:
13.11: Railroads
Railroads –– Efficient
Efficient Transportation
Transportation for
for Commodities
Commodities

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FedEx
FedEx

FedEx:
FedEx: NowNow Offering
Offering aa
Form
Form ofof Multinational
Multinational
Intermodal
Intermodal Coordination
Coordination
for
for Freight
Freight When
When Speed
Speed
Is
Is Needed
Needed

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Table 13.2: Comparison of Transport Modes
Mode Speed Depend­ Frequency  Availabil­ Flexibility  Cost
ability in  of  ity in  in 
Meeting  Shipments Different  Handling
Schedules Locations
Rail Average Average Low Low High Average
Water Very slow Average Very low Limited Very high Very low
Truck Fast High High Very  Average High
extensive
Pipeline Slow High High Very  Very low Low
limited
Air Very fast High Average Average Low Very high

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European
European Rail
Rail Shuttle
Shuttle B.V.
B.V. -- Operates
Operates Daily
Daily
Container
Container Trains
Trains Throughout
Throughout Europe
Europe

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13-67
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Warehousing
Warehousing
• Storage Warehouse:
warehouse that holds goods
for moderate to long periods
prior to shipment, usually to
buffer seasonal demand
• Distribution Warehouse:
facility designed to assemble
and then redistribute goods
in a way that facilitates rapid
movement to purchasers
© PhotoDisc

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Warehousing
Warehousing
Automated
Warehouse
Technology
• Distribution costs can
be cut and customer
service improved by
automating
warehouse systems © PhotoDisc

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Figure
Figure 13.12:
13.12: Goods
Goods Moving
Moving Through
Through aa Break-Bulk
Break-Bulk Distribution
Distribution Center
Center

13-70
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Integrated
Integrated Systems
Systems Technology,
Technology, Inc.,
Inc., aa leading
leading
software
software provider
provider to
to the
the distribution
distribution industry
industry

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Warehousing
Warehousing
Warehouse Locations
• Major logistics decision involving the
number and location(s) of storage facilities
• Two cost categories influence the choice:
• Warehousing and materials-handling costs
• Delivery costs from warehouse to
customers

© PhotoDisc
13-72
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Inventory
Inventory Control
Control
Systems
Systems
• Important since firms need to maintain enough
inventory to meet customer demand without
incurring unneeded costs for carrying excess
inventory
• Some firms attempt to keep inventory levels
under control by implementing just-in-time
(JIT) production

© PhotoDisc
13-73
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Traker
Traker Systems
Systems Offers
Offers aa Comprehensive
Comprehensive
Inventory
Inventory Control,
Control, Inventory
Inventory Management
Management and
and
Inventory
Inventory Tracking
Tracking Software
Software Application,
Application,

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Order
Order Processing
Processing
• Stockout: order for a
product that is unavailable
for shipment or sale

© PhotoDisc
13-75
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Mobile
Mobile Dyne’s
Dyne’s Order
Order Processing
Processing Combines
Combines Three
Three
Techniques,
Techniques, Plus
Plus the
the Actual
Actual Work
Work Performed
Performed atat
Each
Each Step:
Step: 1.
1. Workflow
Workflow Routing,
Routing, 2.
2. Handoff
Handoff
Management,
Management, andand 3.3. System
System Integration
Integration

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13-76
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© 2001
2001 by
by Harcourt,
Harcourt, Inc.
Inc. All
All rights
rights reserved.
reserved.
Protective
Protective Packaging
Packaging and
and
Materials
Materials Handling
Handling
• Materials Handling: set
of activities that move
production inputs and
other goods within plants,
warehouses, and
transportation terminals

© PhotoDisc

13-77
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Protective
Protective Packaging
Packaging and
and
Materials
Materials Handling
Handling
• Unitizing: process of
combining individual
materials into large loads for
easy handling
• Containeriztion: process of
combining several unitized
loads into a single, well-
protected load
© PhotoDisc

13-78
Copyright © 2001 by Harcourt, Inc. All rights reserved.
Packaging
Packaging Technologies
Technologies Provides
Provides Packaging
Packaging Material
Material Such
Such As
As
Corrugated
Corrugated Cartons;
Cartons; Polyethylene,
Polyethylene, Static-shield
Static-shield Bags;
Bags;
Protective
Protective Foam
Foam and
and Bubble
Bubble Wrap;
Wrap; Poly
Poly and
and Steel
Steel Strapping
Strapping

Copyright
13-79
Copyright ©
© 2001
2001 by
by Harcourt,
Harcourt, Inc.
Inc. All
All rights
rights reserved.
reserved.
Material
Material Handling
Handling Equipment
Equipment Distributors
Distributors
Association:
Association: Information
Information for
for the
the Trade
Trade
Association
Association for
for the
the Material
Material Handling
Handling Industry
Industry

Copyright
13-80
Copyright ©
© 2001
2001 by
by Harcourt,
Harcourt, Inc.
Inc. All
All rights
rights reserved.
reserved.