MARKETING LOGISTICS

Logistics & its Objectives

Logistics is the process of planning, implementing
and controlling the efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements at the Lowest possible cost.

Logistics & its Objectives

Supply chain Management on the other hand is
much larger in scope and is concerned with and encompasses the entire gamut of activities of the enterprise in bound logistics, various MM functions such as sourcing, vendor development, purchasing, and storing, conversion of inputs into products, physical distribution of the finished goods, and the channel functions of taking the product to the ultimate consumers.

Basic Concepts
Inward Transport Transport which is/are used to procure raw materials for the manufacture of goods and convert it into finished products Receiving Receiving goods can be either Raw Materials for manufacture of goods . In this case, adequate care have to be taken care in terms of order of quantity, status of receipt, inspection note or report, and discrepancies ,if any. Warehousing A safe place, as per qualitative specifications, where goods are received and stored for supply to either manufacturing plants or finished goods stored ready for distribution.

Basic Concepts
Stock Control Most important activity, where records are maintained in the warehouse to ensure adequate stock availability for immediate requirement as per company norms. Order Picking - Orders received for the company with the help of sales executives. Materials Handling - Ensure that materials received are handled as per the required protocols, effectively while ensuing optimized usage. Outward Transport - Finished goods ready for dispatches to Market // C&F agents or Super Distributors or various agents to move the products to the market and the customer.

Basic Concepts
Recycling -- A concept by which wasted materials are once again collected back and used for recycling . The finished goods may be raw goods used for various purposes as defined before the process. Returns and Waste Disposal -- Goods which are defective, damaged in transit either to packaging deficiency, rain, manhandling or any other reason gets returned for analysis and replacement. These goods are again recycled for fresh produce or used as waste disposal as per the norms.

Need for Logistics

1. Logistics supports Marketing Activities Ensures materials are available at the right point of time of requirement Ensure a wide mix of products at one place as per the requirement, when required and where required is taken care. 2. It adds value by creating Time & Place Utility Form Utility Right product Production dept. Possession Utility Right communication and Price Marketing dept. Time Utility When it is required Place Utility - Where it is required.

The Role of Logistics

Suppliers

Manufacturing

Logistics
Trade & Consumers

Distribution & Sales

3 Cs of Logistics Management

Customers

Company

Competitors

LOGISTIC MIX AND ITS FUNCTION

Logistics Management
Planning and co-ordinating activities necessary to achieve superior levels of service at lowest cost. Logistics management optimises material flow within the organisation, while supply chain management extends material flow integration upstream to suppliers and downstream to customers.

Marketing Logistics/Physical Distribution

In business, logistics system has two major product movement:
1. Physical Supply 2. Physical Distribution

BUSINESS LOGISTIC SYSTEM

Physical supply
Raw materials Components Supplies

Industrial Manufacturer

Physical distribution

Material storage

Manufacturing

Finished Goods storage

Industrial customers Industrial Distributors/Dealers

TASKS OF PHYSICAL DISTRIBUTION

Sl No 1 Tasks Brief Description TRANSPORTATION It is the means of moving goods from production unit to customer. It is the most important cost area in physical distribution. a. Mode & Carrier selection, b. Carrier routing and c. Key Elements - Vehicle scheduling. WAREHOUSING It provides storage space for products which are made available to customer when needed. It can improve customer service & transportation cost. Key Elements - a. Space determination, b. Warehouse configuration and c. Stock Layout and placement. INVENTORY Inventory is used to insure the products are available to CONTROL / MGMT. customers in the right product mix, at the right location, & at the right time. Key Element A. Stock-level policies, b. Short-term sales forecasting, c. Product mix by location and d. Stocking locations.

TASKS OF PHYSICAL DISTRIBUTION

Sl No 4 Tasks PACKAGING Key Element Brief Description It provides protection to products & maintains product identity when products arrive at the market place. a. Design for handling b. Design for storage c. Design for protection. It increases speed & minimizes costs of order- picking, moving products between storage & transport carriers, loading & unloading operations. a. Equipment & personnel , b. Order picking proceedures and c. Stock storage and retrieval.

MATERIAL HANDLING Key Element

ORDER PROCESSING
Key Element

It starts the physical distribution process & directs various activities which are necessary to deliver the products to customers. Speed & accuracy of order processing affect customer service & costs. a. Sales order-inventory interface b. Order information transmittal and c. Ordering rules.

TASKS OF PHYSICAL DISTRIBUTION

Sl No 6 Tasks
COMMUNICATION

Brief Description
Information is exchanged between the countries physical distribution or marketing logistic department & its customer. It assist in performing various tasks.

FACTORY AND WAREHOUSE LOCATIONS Key Elements CUSTOMER SERVICE

Key Elements

Right locations of manufacturing plants & warehouse (or godowns) increase customer service & reduce transportation (or freight) costs. a. Space determination, b. Warehouse configuration and c. Stock layout and placement. The result of physical distribution activities is customer service, it create customer value (or benefits) that has impact companies market shares, total cost & profitability. a. Determine customer needs , b. Analyze customer reponse to service and c. Set Customer service levels.

Functions of Logistics Management

Right Quantity
Right Place

Right Quality

Right Price

Right Time Right service

Right Relations

Customer

Logistics Management Flow Chart

Material

Production

Distribution

Supplier

Customer

Flow of Inputs Inbound Logistics

Flow of Input & Output

Inplant Logistics

Flow of output Outbound Logistics

Logistics = Supply + Materials management + Distribution

LOOKING BEYOND BASIC

LOGISTIC TODAY COVERS Responsiveness Reliability Rationalization Relationship

Key components of Logistics Strategy

Customer Service STRATE G I C Channel Network Design Strategy S T R U C T U R A L
Warehouse Design & Operations Transportatio n Management Materials Manageme nt

F U N C T I O N A L Organizatio Information Policies & Facilities & n & Change Systems Procedures Equipments Manageme nt I M P L E M E N T A T I O N

Logistics in the Firm The Micro Dimension

Logistical Activities :: Materials Handling Inventory control Order fulfillment Demand forecasting Procurement planning or purchasing planning Purchasing Customer service levels Plant and warehouse site location Return goods handling Parts and service support Salvage and scrap disposal.

Logistics in the Firm The Micro Dimension

A. Logistics Interfaces with Operations / Manufacturing Length of production runs, Seasonal demand, supply-side interfaces, protective package, foreign and third-party alternatives. B. Logistics Interfaces with Marketing -- Marketing Mix, Carrier Pricing, matching schedules, volume relationships, consumer packaging, push vs pull promotional strategy, channel competition, Logistics impact, Wholesalers vs Retailers, Customer service. Logistical Activities :: Traffic & Transportation Warehousing & Storage (Inventory planning MRP / JIT) Industrial packaging

Approaches to Analyzing Logistics Systems

Materials Mgmt. Vs Physical Distribution Materials Mgmt. Inward bound logistics Involves inward transport, procurement /purchasing, receiving goods on time and in right quantity as per the order, GRN / MRN, Storing the goods in a safe place for product manufacturing. Also ensures adequate stock availability, stock control, Balanced system (flow balance of inbound and outbound sides of logistics) Experiences sometimes heavy inbound and simple outbound . For eg., car or bus or aircraft manufacturing.

Approaches to Analyzing Logistics Systems

Reverse systems in order to ensure repairs, replacement, return for trade-in (buy back of materials), for salvage and for disposal. Importance of Communication in Logistics Communication is essential to understand the changes in the market place It is necessary to ensure smooth flow of demand and supply management. Communication helps to reduce inventory and related costs to a great extent.

Communication in Logistics
Being interrelated, Logistics functions need Integrated Handling. Communication between marketing team and SCM is essential to maintain equity between demand and supply and ensure right product at the right place and at the right time. Communication links the departmental needs and fulfils all the requirements of the dept. for its smooth functioning. Communication helps to maintain regular supply and ensure inventory levels at a pre-determined level.

 Advent of Technology MRP software, SCM software, SAP, ERP etc., ensures a consolidated and holistic approach to the whole concept of Logistics and Inventory management.

Logistics Information Systems

Decision Support System

Leading-Edge Application Software Reengineered Logistics Processes

Timely & Accurate Data Capture

Logistic strategy
When a company creates a logistics strategy it is defining the service levels at which its logistics organization is at its most cost effective. Because supply chains are constantly changing and evolving a company may develop a number of logistics strategies for specific product lines, specific countries or specific customers.

 Steep 1: Visioning

Strategic Logistics Planning Process

Corporate Strategy Customer Requirements External Control Logistics Vision Sessions

Strategic Direction & Requirements for Logistics

Customer Service Requirements

External Focus

Strategic Alternatives & Focus

Final Logistics Plan

 Step 2: Logistics Strategy Analysis

Customer Service Channel Design Network Analysis Warehousing Transportation Materials Management Organization Systems

Strategic Logistics Planning Process

 Step 3: Logistic Planning

Mission & Goals Programs Activities Timetable Responsibility Measures

Strategic Logistics Planning Process

 Step 4: Managing Change

Strategic Logistics Planning Process

Visible Plan A champion in the management ranks Training & coaching

WAREHOUSE
FUCTIONS
CONSOLIDATION BREAK-UP CROSS DOCKING

SITE SELECTION IS VERY IMPORTANT

Transportation Mode Selection

Larger Shipments Slower

Shipment Size

Smaller Shipments

Speed

Faster

Ship

Intermodal

Rail

Truckload

LTL

Parcel

Air Premium

Less Expensive

More Expensive

Transportation Cost
Slower More Expensive

Service Cost Inventory Cost

Faster Less Expensive

MATERIAL MANAGEMENT

Implementation

Organizatio Information Policies & Facilities & n & Change Systems Procedures Equipments Manageme nt I M P L E M E N T A T I O N

Implementation Level
Information system is used to support logistics vital. Policies & procedures to guide day-to-day logistics operations Installation & maintenance of facilities & equipment Organization & people issues vital.

Warehouse & its Objectives

Number of Warehouses Depends on inventory level requirement as it affects the
profitability of the company to a great extent. 4 factors considered while deciding about the no. of w/h. They are i. Cost of Lost Sales. ii. Inventory Cost iii. Warehousing costs. iv. Transportation costs.

Need for an Inventory

1, Improves Customer Service 2, Smoothens the Operations of the Logistics system. 3, Reduces Costs

Objectives of Inventory Management ::

A. Fill Rate Expression Fill Rate is defined as the ratio of the no. of orders completely serviced to the total no. of orders received during a particular time period. Line Fill Rate (LFR) = Total no. of units received ---------------------------------- Total no. of units ordered

Inventory Planning
Order Fill Rate = Total SKU categories for which 100% of units ordered were received ---------------------------------------------Total no. of SKU categories ordered

Costs Associated with Inventory :

Costs associated with inventory can be broadly classified into three types

i. Inventory procurement costs, ii. Inventory carrying costs and

iii. Stock out costs. These costs are in conflicting tones with each other and hence should be traded off appropriately in the inventory system.

Components of Inv. Carrying costs

Capital costs Inventory service costs Inventory carrying costs Inventory Investments Insurance and taxes
Warehouse rent , maintenance charges

Storage space costs

Obsolescence Damage and pilferage Shrinkage

Inventory carrying costs

Relocation costs

Warehousing - Its Main Functions

Inventory Procurement costs -- Ordering costs for the
inventory. These are fixed costs which have to be incurred in setting up the machinery, procurement of related materials, transportation, order processing, etc. Hence when the order quantity is large, the procurement costs will come down.

Inventory Carrying Costs Involved in the distribution

of finished goods. Carries more importance as it involves the efficiency of the logistics system. Can be classified into 4 basic categories i. Capital costs ii. Inventory service costs (Insurance and taxes) iii. Storage space costs (w/h rent, maintenance charges etc. and iv. Inventory Risk Costs

Main Decisions in Warehousing

Location of the w/h
Supply point for the entire market. Proper location - greater customer need fulfillment at a lesser cost. Helps to achieve lesser lead times and lower transportation cost. According to Lambert (1998), the macro perspective examines the issue of locating the w/h within a broad geographic area and location issues whether near the plant or near the market // customers. The Micro perspective attempts to have a more precise approach to this issue and pinpoint locations using optimization techniques.

Push Vs Pull Inventory System

Is based on the way, the companys production system is managed. Push method inventory management is considered to be appropriate where the production quantities exceed the short-term requirements of the inventories. Not preferred as it is not adaptable quickly as per the changes in the market. Pull system of inventory planning - Is a typical bottom approach, where the inventory levels are decided in a decentralized manner with the wrehouses and other storage points. Based on inventory requirements from different storage points as per the customers demand rather than forecast.

Optimizing Inventory
Based on Pareto principle (Vital few Trivial many) 80 : 20 rule. a. ABC Analysis :: High value A, Medium value B and low value C b. Determining Inventory Levels :: Goal of Inv. Planning is to provide desired customer service at the lest total cost in physical distribution. To obtain the lowest overall cost, managers must strike a balance between order processing costs and inventory carrying costs

Factors Influencing the Choice of a Public Warehouse

Intermediate Positioned Warehouses :: INVENTORY :: Act as a buffer against supply and demand uncertainities. Inventory Carrying Cost (ICC) Determined as a percentage of total Inventory Value. Inventory costs should include only those costs that vary with the level of inventory and can be grouped into four basic categories : i. Inventory acquisition costs , ii. Inventory service costs, such as property taxes and insurance , iii. Storage space costs and iv. Inventory risk costs, including damage, pilferage, obsolescence, and relocation costs.

Warehousing & Inventory

Cost of Restocking - i. cost of transmitting and processing inventory transfer ii. Cost of handling at the shipping and receiving points, iii. Transportation costs, and iv. The cost of associated documentation. The EOQ model -- The cost trade-offs involved in determining the most economical order quantity. THE EOQ model understands to run the feasibility between Ordering costs, Inventory carrying cost and total cost. EOQ = 2PD ( Where P = ordering cost (INR per order) D = Annual Demand (No. of cv units) C = Annual Inventory carrying cost , V = aveg. Cost

Cost Trade-offs required to determine the most Economic Order Quantity (EOQ)

Lowest Total Cost (EOQ)

Annual Cost In INR

Total Cost

Inventory Carrying cost

Ordering Cost

Size of Order

Economic Order Quantity (EOQ)

EOQ model has received widespread attention
and is broadly used in industry. But it is applied under conditions of uncertain demand and is restricted by its underlying conditions :: i. Rate of demand is continuous, constant and known ii. Lead time is a constant or known. iii. Price is constant and is independent of order quantity or time.

Economic Order Quantity (EOQ)

iv. All orders are filled (no stock outs are permitted) v. There is no inventory in transit vi. There is no interaction between different items in inventory vii. The planning horizon is infinite viii. Capital funds are unlimited.

Fixed Order Quantity Model

Fixed Order Quantity Model :: Order cycle and transit time is generally inconsistent, given the environmental adversity and seasonal trends. Helps to ensure avoid stock outs through determining order point, based on lead delivery time ( on receipt of order) and minimum and maximum inventory levels. Computer Simulation :: Automated Inventory management program. IMPACT Inv. Mgmt program & control technique Helps mgmt. to forecast demand, determine minimum qty. reqd. as safety stock, determine order qty. and time to reorder, consider the effect of freights rates and qty. discounts, and determine expected results of the inventory plan.

Warehousing & Inventory

Order Processing from stock checking to ordering and shipment of material -- credit check, providing sales credit to the sales person, getting finance approval, contacting w/h for shipment, updating master inventory tracking, translating shipping documents into an invoice and a permanent sales record. Materials Handling Cost effectiveness based on volume, labor costs, minimizing idle time, breakdowns, breakage, errors, using mechanized handling equipment like forklifts, handtrucks, conveyors, retrieval equipment effectively to minimize the cost to the company.

Digital Communication in Logistics

Albert Einstein said : Its has become appallingly obvious that our technology has exceeded our humanity. Technology helps to play a major role in operational effectiveness and increase efficiency of various functional areas. IT has become a great boon for information process and analysis Adoption process initially slow in India picked up rapidly thanks to liberalisation process, opening up of economy, advent of foreign competitors in indian markets

Digital Communication in Logistics

Latest technology in the logistics are in the areas of : a. Automatic Identification b. Communication c. Materials handling and d. Facility Design. Direct entry of data or indormation into computer without operating a keyboard. Includes Bar Coding, RFID (Radio frequency Identification Technology), data communication, magnetic strip and voice recognition. It can be used for tracking rail cars, a carton moving on a conveyor belt etc.,

Automatic Identification Technology ---Bar Coding

Used for identification, handling, retrieval, storage of goods. Individual inventory items, cartons etc., are all fixed with bar coding. They are sequence of parallel lines of different thickness and with spaces in between.

These barcodes can be read by a barcode scanner attached to an online computer. Helps in showing an inventory identity during storage, retrieval and dispatch.

Automatic Identification Technology -RFID

Used by accounts dept. / w/h in preparation of bills.

These bars have items have info. In a codified form, which needs to be decodified for reading using the help of scanner. Radio Frequency Identification It Is automated identification and data capture technology It is most preferred these days and helps in communication between objects and systems. It consists of 2 main elements - a tag and a reader that communications through radio transmission.

Automatic Identification Technology RFID

The tag contains a small chip and an antennae and can be placed on any object. Info. Stored on the tag can be transmitted to an RAD reader over a distance of few metres. Info. Stores may be product type, product item, manufacturer, date expiry, etc., RFID is been used in passports.

Automatic Identification Technology RFID

Simultaneous reading as compared to individual reading in Bar coding technology Automated and low labor costs in RFID as compared to Bar coding. Large info. Memory as compared to limited info. Memory in Bar coding technology. Difficult to replicate as compared to Bar coding, where replication for criminals is easry.

GPS -- Global Positioning System.

It is a space based global navigation system that provides reliable location of objects. Used in logistics for tracking the locations of trucks carrying goods. GPS system has a voice-over facility for driver to speak and hear instructions A GPS receiver needs to be mounted on the truck Its also has LCD supported by a key board to transmit and receive text messages. GPS is used in India extensively - even in cabs for communication and tracking areas or locations.

GPS -- Global Positioning System

GPS info. Would be in latitudes and longitudes. Automated Material Handling -- Automation for loading, unloading, storing of goods in warehouses. It would reduce intensity of labor in these activities. Automation will be more useful where handling of hazardous materials takes place. AGVS or Automated Guided Vehicle System :: This system makes use of magnetic or optical guidance system. Its mobile robot that follows markers or wires in the floor

AGVS or Automated Guided Vehicle System

These robots can be programmed by built-in micro-processors for performing various tasks in warehouses. Performs without any human involvement.

Need for Distribution Channels

As defined by Stern and El Ansary (1992), Distribution channels are sets of interdependent organizations involved in the process of making a product or service available for us or consumption. It is a process of exchange exchange of his services with a reward of service charges or product commission as per the mutual agreement or MOU.

Marketing Channel/Distributi on Channel/Trade Channel

A set of interdependent organizations that make a product or service available to customers for use.

Marketing Logistics/Physi cal Distribution

Consists of delivering the completed products to customers and channel intermediaries.

Need for Distribution Channels

Pit et all (1999) -- Intermediaries exists to perform 3 vital functions as follows :: i. to adjust the discrepancy of assortment through the process of sorting, accumulation, allocation, and assorting. ii. To minimize the distribution costs through routinising, and standardizing transactions, which makes the exchange more efficient and effective and

Need for Distribution Channels

iii. The intermediaries facilitate the searching process of both buyers and sellers by structuring the information network essential to both the parties as well as providing a place and opportunity for both parties to meet each other, and reduce uncertainty.

Discrepancy between manu and consumer

Manufacturer produces a large quantity only with a limited variety of goods. Consumers usually desire only a limited quantity with a wide variety of goods. This discrepancy is smoothened by the advent of intermediaries Super distributor OR Wholesaler OR Retailer

Discrepancy that a channel experiences

The general discrepancies that exist can be broadly classified into four 1. Spatial discrepancy 2. Temporal discrepancy 3. Need to break the bulk 4. Need to provide assortment

Factors Affecting the Nature of Industrial Channels

Geographic Distribution Channel Size Characteristics of Intermediaries Mixed System

Structure of Industrial Channel

Direct Channel
The manufacturers perform all the functions Approach is viable when: The value of each transaction is large

Indirect Channel
The manufacturer and the intermediaries share the tasks between them. Approach is appropriate when:

Structure of Industrial Channel

Direct Channel
The selling includes extensive technical and commercial negotiations at various levels The buying process lengthy The industrial buyers insist on buying directly from the manufacturers

Indirect Channel
The value of transactions or sales are low The manufacturer has limited resources The industrial buyers purchase many product items in one transaction

Why Industrial Marketers use Intermediaries? Buying Assorting Warehousing Transportation Risk taking * Promotion and Selling * Financing * Grading * Information * Technical Service

Why Industrial Customers Buy from Distributors? Dependable Delivery Information Variety Liberal Credit

Types of Industrial Middlemen/Intermediaries Manufacturers Representatives Industrial Distributors(Dealers) Responsibilities Main Categories Brokers Commission Merchants Value-added Resellers(VARs)

Channel Design Framework

Channel
Objectives

Channel Constraints
Channel Alternatives Evaluation of Alternatives Selection of Channel

Channel Tasks

Channel Design Contd.

Developing Channel Objectives Analyzing Channel Constraints: External Environment Competition Company Product Characteristics Customer Analyzing Channel Tasks

Channel Design Contd.

Identifying Channel Alternatives Involves 4 major issues: 1. Types of intermediaries: Value Added Resellers Industrial Distributors or Dealers Manufacturers representative or Agents Brokers Commission Merchants

Channel Design Contd.

Identifying Channel Alternatives Involves 4 major issues: 2. Number of Intermediaries: Selective Distribution Intensive Distribution Exclusive Distribution 3. Number of Channels 4. Terms and Responsibilities of Channel Members

Channel Design Contd.

Evaluating the Channel Alternatives: Economic Performance Degree of Control Adaptability to changing market situations Selection of Channel

CHANNEL ALTERNATIVE
Agent / Manufacturer's Channel

Company's Sales-Force Channel

Total Selling
Cost (Rs.)
Break Even Point

Sales Revenue (Rs.)

The Framework of Channel Management

Designing channel structure Ex-ante phase Distribution Channel Strategy Channel Objective Activity Finalization Organizing the activities Developing policy guidelines Establishing the Channel

Motivating channel members Ex poste Resolving conflicts phase among channel members

Managing Channel Members

Selecting Intermediaries Motivating Middlemen Partnership Concept Vendor (or Supplier) Managed Inventory System (VMI) Reasonable Discounts and Commission Distributor Councils Other Motivational Practices

Controlling Channel Conflicts

Sources of Channel Conflicts Differences in Objectives Dealings with Customers Differences in Interests Differences in Perceptions Compensation Unclear Territory boundaries

Evaluating Channel Members

Sl No Evaluation Factors Weightage Evaluation Middlemen Score

Sales Achieved vs Sales Quota

0.40

3.20

2 3 4 5

Customer Delivery Service Customer Complaints Market Feedback

0.20 0.15 0.10

6 6 5 4

1.20 0.90 0.50 0.60 6.40

New Customers Generated 0.15 Min Total Score = 6.0

Supply Chain Management:

A network of connected and interdependent organisations mutually and cooperatively working together to control, manage and improve the flow of materials and information from suppliers to end users

OBJECTIVES:
a) Reduce cost per unit for end customer

FUNCTIONS:
a) b) c) d) Purchase Product Design Production Planning Production

Supply Chain Management:

OBJECTIVES:
b) Minimize order to delivery cycle time c) Reduce waste and duplication d) Ensure superior delivery service

FUNCTIONS:
a) Processing Customer Orders b) Inventory Control c) Warehousing d) Material Handling e) Customer Service

Supply Chain Management Framework

Information Flow Cash Flow

Product Flow Distribu tion and logistic s

Suppliers of raw materials and compone nts

Planni ng and foreca sting

Purcha se

Product ion or Operati on

Custom er Service

Perfor mance and evalua tion

Business Custome rs or end users

Total Cost Approach

Focuses on balancing two important elements: 1. Total Distribution Costs = Freight + Warehouse Cost + Inventory Cost + Cost of Lost Sales due to delayed delivery 2. The level of service provided to customers (a) customers service need. (b) competitors service level. (c) companys profitable objective.

Determining customer service levels

Set the goals of customer services levels for each of the important service elements. Measure the actual performance for each service element.
Analyze the variance between actual service performance and the goal. Take corrective actions to minimise the variances.

Elements of Customer Service

Customer service

Presale service

During- Sale service

Post-sale service

Advising Service Technical Service Ordering ease Patronage Awards

Keeping Adequate stocks Speed and accuracy of delivery Product substitution

Product warranty Maintenance contract Repair service Installation service Customer training

Customer service
Pre-transaction phase
order status information customer complaints, returns customer education and training

Transaction phase
delivery of goods order convenience product substitute

Post-transaction phase
after sale service Customer education and training

 Manufacturer Customer Manufacturer Retailer Customer Manufacturer Wholesaler Retailer Customer Manufacturer Agent Wholesaler Retailer Customer ---- > ex: ITC

Channel Design and Network strategy

Customer Service Audit

Helps to acquire both Quantitative and Qualitative information on target markets perceptions and desires for service. Provides a viable means of assessing, and provides transparent information on both healthy and unhealthy practices that impacts the customers performance. IDENTIFYING COST CENTRES :: Objective is to provide a desired logistical service at lowest possible cost. Total-cost analysis begins with identification of relevant cost centres (i.e. transportation, warehousing inventory, materials handling and order processing)

IDENTIFYING COST CENTRES

Objective of Total cost analysis : i. Identify the costs by activity center. ii. Evaluate these costs in terms of a desired level of customer service. iii. Seek trade-offs between and among the various activity centers so that a possible cost increase in one activity centers cost is managed by offsetting method. A, Cost Trade-Offs ::: Trade offs - is quite simple - within a single activity center eg., Transportation by choosing alternatives like rail over motor carrier or vice versa. Finding trade-offs within that mode is possible.

IDENTIFYING COST CENTRES

Objective of Total cost analysis : Trade-offs between and among centers is quite difficult. Hence total cost analysis begins with the identification of relevant cost centers. Transportation :: Speed, Dependability, Availability, Product movement, Proper time management, Delivery on time etc., is vital for ensuring right product at the right place at the right time, when the customer requires the same. a. Airfreight :: Very high speed of movement of goods, shorter duration, but very costly. Used only in emergency and in life saving and high value items.

Transportation
Truck : Most commonly used. Very beneficial to move goods from one town to another or between road connected neighbouring cities. Train : Railroads specialize in transporting raw materials, metallic ores, coal, gravel, unprocessed agricultural products, scrap and automobiles. Pipeline : Limitations seen. Only liquid items and gasoline items like petrol, gas can be transported.

Transportation
Intermodal Transportation : Used in overseas transportation and in large distances (for eg., sea and road, rail and road, air and road, etc.,) Freight Forwarders : Helps to consolidate shipments to get lower rates for their customers, and are considered transportation middlemen. Usually cheap than truckload lots (LTL) but little costlier than TL or CL shipments.

Warehousing & Inventory

Is a place where work-in-progress goods, or usable goods as safety stock is stored for future usage by the production department. Location of the warehouse plays a very crucial role on a firms sales volume and distribution costs. Private or Public Facilities :: Warehouse space may be owned, rented, or leased. When owned or leased it is called as private w/h When rented it is called as public w/h.

Factors Influencing the Choice of a Public Warehouse

1. Review reasons for your requirement. 2. Develop a list of w/h you want to survey for suitability 3. Make a personal visit with proper appointment. Consider these factors for decision making . a. Housekeeping Neatness, hygiene, sanitation, ventilation b. Equipment Status of the equipment. c. Operations control. Study the procedures that the w/h uses to control costs and improve efficiency. d. Facilities Basic facilities, like well maintained status, locking facility and safety aspect. e. Management clerical procedures control on IM, CS, claims, shipment logs, etc.,

Factors Influencing the Choice of a Public Warehouse

f. Insurance Status and need based approach. Existing whether covered or not. g. Proximity to rail yard / road connectivity or Transportation access 4. Obtain outside references and cross check thoroughly on every aspect w.r.t. warehouse 5. W/h financial status and overall health of the warehouse. Market Positioned warehouse :: Production Positioned warehouse :

Factors Influencing the Choice of a Public Warehouse

Intermediate Positioned Warehouses :: INVENTORY :: Act as a buffer against supply and demand uncertainities. Inventory Carrying Cost (ICC) Determined as a percentage of total Inventory Value. Inventory costs should include only those costs that vary with the level of inventory and can be grouped into four basic categories : i. Inventory acquisition costs , ii. Inventory service costs, such as property taxes and insurance , iii. Storage space costs and iv. Inventory risk costs, including damage, pilferage, obsolescence, and relocation costs.

Optimizing Inventory
Based on Pareto principle (Vital few Trivial many) 80 : 20 rule. a. ABC Analysis :: High value A, Medium value B and low value C b. Determining Inventory Levels :: Goal of Inv. Planning is to provide desired customer service at the lest total cost in physical distribution. To obtain the lowest overall cost, managers must strike a balance between order processing costs and inventory carrying costs

Warehousing & Inventory

Cost of Restocking - i. cost of transmitting and processing inventory transfer ii. Cost of handling at the shipping and receiving points, iii. Transportation costs, and iv. The cost of associated documentation. The EOQ model -- The cost trade-offs involved in determining the most economical order quantity. THE EOQ model understands to run the feasibility between Ordering costs, Inventory carrying cost and total cost. EOQ = 2PD ( Where P = ordering cost (INR per order) D = Annual Demand (No. of cv units) C = Annual Inventory carrying cost , V = aveg. Cost

Cost Trade-offs required to determine the most Economic Order Quantity (EOQ)

Lowest Total Cost (EOQ)

Annual Cost In INR

Total Cost

Inventory Carrying cost

Ordering Cost

Size of Order

Economic Order Quantity (EOQ)

EOQ model has received widespread attention and is broadly used in industry. But it is applied under conditions of uncertain demand and is restricted by its underlying conditions :: i. Rate of demand is continuous, constant and known ii. Lead time is a constant or known. iii. Price is constant and is independent of order quantity or time.

Economic Order Quantity (EOQ)

iv. All orders are filled (no stock outs are permitted) v. There is no inventory in transit vi. There is no interaction between different items in inventory vii. The planning horizon is infinite viii. Capital funds are unlimited.

Fixed Order Quantity Model

Fixed Order Quantity Model :: Order cycle and transit time is generally inconsistent, given the environmental adversity and seasonal trends. Helps to ensure avoid stock outs through determining order point, based on lead delivery time ( on receipt of order) and minimum and maximum inventory levels. Computer Simulation :: Automated Inventory management program. IMPACT Inv. Mgmt program & control technique Helps mgmt. to forecast demand, determine minimum qty. reqd. as safety stock, determine order qty. and time to reorder, consider the effect of freights rates and qty. discounts, and determine expected results of the inventory plan.

Warehousing & Inventory

Order Processing from stock checking to ordering and shipment of material -- credit check, providing sales credit to the sales person, getting finance approval, contacting w/h for shipment, updating master inventory tracking, translating shipping documents into an invoice and a permanent sales record. Materials Handling Cost effectiveness based on volume, labor costs, minimizing idle time, breakdowns, breakage, errors, using mechanized handling equipment like forklifts, handtrucks, conveyors, retrieval equipment effectively to minimize the cost to the company.

Impact of Marketing Logistics on Intermediaries

The industrial marketer can improve the performance of physical distribution in the entire channel system by taking the following steps:

1. Develop computerized information system that will link individual channel members to the manufacturers system. This will provide realistic sales and inventory of the channel members to the manufacturer.

Impact of Marketing Logistics on Intermediaries

2. Standardize packaging and material handling at all channel members to assist in efficient operations 3. The manufacturer and the channel members should improve the performance of their respective tasks or services. Thus the physical distribution must be integrated with channel members to improve marketing effectiveness.

Role of Marketing Logistics

Should be considered as a long term strategic issue. Considered as a source of creating a unique competitive advantage. Important role in future due to global competition, world wide sourcing, JIT system and TQM.