For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Chapter 12: Distribution Customer Service and Logistics

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Understanding Physical Distribution Physical distribution (PD) or logistics - the transporting, storing, and handling of goods to match target customers’ needs with a firm’s marketing mix, both within individual firms and along a channel of distribution. It is the invisible part of marketing. PD activities typically make up half or more of the total marketing costs for a product. Customers want a certain customer service level - but tradeoffs are involved (see next slide).

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Exhibit Understanding Physical Distribution Costs ($) Customer Service Level % Transporting Cost Lost Sales Inventory Cost Total Cost of PD

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Physical Distribution Concept Physical distribution concept - all transporting, storing, and product-handling activities of a business and a whole channel system should be coordinated as one system that seeks to minimize the cost of distribution for a given customer service level. Involves taking a total cost approach (see OH). Involves coordinating logistics activities (next slide).

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Coordinating Logistics Activities Better Information-EDI and Internet Chain of Supply JIT Reducing Conflict Sharing and Shifting 12-4

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill The Transporting Function 12-5 Modes of Transportation Water Air Rail Truck Pipeline

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill The Storing Function Storing is the marketing function of holding goods. Storing is necessary when production does not match consumption. It involves costs - e.g., interest expense on inventory, warehouse expense, product damage, losses due to theft, obsolescence expense, insurance. Can use private or public warehouses (next slide). Can use distribution centers - a special kind of warehouse designed to speed the flow of goods and avoid unnecessary storing costs.

For use only with Perreault and McCarthy texts. © The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Exhibit Comparing Private and Public Warehouses Adequacy Control Fixed Investment Characteristics Private Highly adequate High Very high Flexibility Low Public May not be convenient Low managerial control No fixed investment High Type of warehouse Unit Cost High if volume is low Very low if volume is very high Low