Logistic Management. LOGISTIC MANAGEMENT. A. Push Versus Pull Strategy: B. Physical Distribution and Logistics Management. a. Nature and Importance of Physical Distribution and Marketing. Logistics To some managers, physical distribution means only trucks and warehouses. But modern logistics is much more than this. Physical distribution—or marketing logistics—involves planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit. In short, it involves getting the right product to the right customer in the right place at the right time. Traditional physical distribution typically started with products at the plant and then tried to find low-cost solutions to get them to customers. However, today's marketers prefer market logistics thinking, which starts with the marketplace and works backward to the factory. Logistics addresses not only the problem of outbound distribution (moving products from the factory to customers) but also the problem of inbound distribution (moving products and materials from suppliers to the It involves the management of entire supply chains, value-added flows from suppliers to final users, as shown in Figure . Thus, the logistics manager's task is to coordinate activities of suppliers, purchasing agents, marketers, channel members, and customers. These activities include forecasting, information systems, purchasing, production planning, order processing, inventory, warehousing, and transportation planning. Companies today are placing greater emphasis on logistics for several reasons. First, customer service and satisfaction have become the cornerstones of marketing strategy, and distribution is an important customer service element. More and more, companies are finding that they can attract and keep customers by giving better service or lower prices through better physical distribution. Second, logistics is a major cost element for most companies. According to one study, in a recent year American companies "spent $670 billion—a gaping 10.5 percent of gross domestic product— to wrap, bundle, load, unload, sort, reload, and transport goods." About 15 percent of an average product's price is accounted for by shipping and transport alone. Poor physical distribution decisions result in high costs. Improvements in physical distribution efficiency can yield tremendous cost savings for both the company and its customers. Third, the explosion in product variety has created a need for improved logistics management. Finally, improvements in information technology have created opportunities for major gains in distribution efficiency. The increased use of computers, point-of-sale scanners, uniform product codes, satellite tracking, electronic data interchange (EDI), and electronic funds transfer (EFT) has allowed companies to create advanced systems for order processing, inventory control and handling, and transportation routing and scheduling. b. Goals of the Logistics System. c. Major Logistics Functions. i. Order Processing. ii. Warehousing. iii. Inventory. iv. Transportation. d. Integrated Logistics Management. Cross-Functional Teamwork Inside the Company. e. Building Channel Partnerships. f. Third-Party Logistics. KEY TERMS (Lesson # 28-29) distribution channel. A set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user. Channel level. A layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer. Direct marketing channel. A marketing channel that has no intermediary levels. Indirect marketing channel. Channel containing one or more intermediary levels. Channel conflict. Disagreement among marketing channel members on goals and roles—who should do what and for what rewards. Conventional distribution channel. A channel consisting of one or more independent producers, wholesalers, and retailers, each a separate business seeking to maximize its own profits even at the expense of profits for the system as a whole. Vertical Marketing System (VMS) A distribution channel structure in which producers, wholesales, and retailers act as a unified system. One channel member owns the others, has contracts with them, or has so much power that they all cooperate. Corporate VMS. A vertical marketing system that combines successive stages of production and distribution under single ownership—channel leadership is established through common ownership. Contractual VMS. A vertical marketing system in which independent firms at different levels of production and distribution join together through contracts to obtain more economies or sales impact than they could achieve alone. Franchise organization. A contractual vertical marketing system in which a channel member, called a franchiser, links several stages in the production-distribution process. Administered VMS. vertical marketing system that coordinates successive stages of production and distribution, not through common ownership or contractual ties but through the size and power of one of the parties. Horizontal marketing system. A channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity. Hybrid marketing channel. Multi channel distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments. Intensive distribution. Stocking the product in as many outlets as possible. Exclusive distribution. Giving a limited number of dealers the exclusive right to distribute the company's products in their territories. Selective distribution. The use of more than one, but fewer than all, of the intermediaries who are willing to carry the company's products. Physical distribution (or marketing logistics) The tasks involved in planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit. Distribution center. A large, highly automated warehouse designed to receive goods from various plants and suppliers, take orders, fill them efficiently, and deliver goods to customers as quickly as possible. Integrated logistics management. The logistics concept that emphasizes teamwork, both inside the company and among all the marketing channel organizations, to maximize the performance of the entire distribution system. Third-party logistics provider. An independent logistics provider that performs any or all of the functions required to get their clients' product to market.
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