Distribution Customer Services and Logistics Chapter Twelve Distribution Customer Services and Logistics Chapter 12 Distribution Customer Service and Logistics For use only with Perreault/Cannon/McCarthy or Perreault/McCarthy texts. © 2011 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 1

At the end of this presentation, you should be able to: This slide refers to material on pp. 310. Understand why logistics (physical distribution) is such an important part of Place and marketing strategy planning. Understand why the physical distribution customer service level is a key marketing strategy variable. Understand the physical distribution concept and why the coordination of storing, transporting, and related activities is so important. See how firms can cooperate and share logistics activities that will provide added value to their customers. 2

At the end of this presentation, you should be able to: This slide refers to material on pp. 310. Know about the advantages and disadvantages of various transportation methods. Know how inventory and storage decisions affect marketing strategy. Understand the distribution center concept. Understand important new terms. 3

Logistics or Physical Distribution Physical Distribution Gets products to Customers (transporting, storing, handling goods) This slide refers to material on pp.310-311.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Logistics or Physical Distribution 6

Physical Distribution Customer Service This slide relates to material on pp. 311-312. 7

Trade-Offs among Physical Distribution Costs, Customer Service Level, and Sales This slide refers to material on pp. 312-313.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). 8

Factors Affecting PD Service Levels Physical Distribution Concept Focuses on the Whole Distribution System to find the lowest cost for the right service level This slide refers to material on pp. 313-314.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Info on Product Availability Order Processing Time Backorder Procedures Inventory Storage Order Accuracy Damage in Transit Online Status Information Advance Info on Delays Delivery Time and Reliability Compliance with Customers Defect – Free Deliveries Factors Affecting PD Service Levels Handling Adjustments/ Returns 9

Physical Distribution Customer Service Level This slide refers to material on pp.313-314. © 2011 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 10

Checking Your Knowledge This slide relates to material on pp. 314. A manufacturer of accessories for personal computers evaluates all the alternative systems combining order processing, transportation, inventory management, and storage. If the total cost approach is followed, which physical distribution system should the manufacturer select? The one that maximizes customer service at the highest total cost. The one that maximizes customer service at the lowest total cost. The one that meets the customer service requirement at the lowest total cost. The one that meets the customer service requirement and minimizes transportation cost. The one that maximizes customer service and minimizes the cost of each individual component of physical distribution. Answer: C 12

Coordinating Logistics Activities This slide refers to material on pp. 315-317.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Shifting and Sharing functions in the channel Conflict Handling is reduced through a coordinated effort JIT Supply Chain (complete set of firms, facilities, and logistics activities involved in procuring materials, transforming them into intermediate & finished products, & distributing them to customers) 13

Better Information Helps Coordinate PD This slide refers to material on pp. 317-318.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Areas Where Computers Help PD Service Continuously Updated Information Systems Electronic Data Interchange 14

Ethical Issues May Arise This slide refers to material on pp. 318.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Product Availability False expectations about delivery speed Selling products that are not available Running out of popular products that are promoted heavily. Coordination of PD Intentional delays in order confirmation Shifting of burden of holding inventory 15

Physical Distribution (PD) Concept This slide refers to material on pp.313. © 2011 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 16

The Transporting Function Adds Value to a Marketing Strategy This slide refers to material on pp. 318-319. 17

Which Transporting Alternative Is Best Which Transporting Alternative Is Best? (Railroads can move large loads at low cost; Trucks are more expensive, but are flexible & essential—at least 75% of U.S. consumer products travel at least part of the way by trucks) This slide refers to material on pp. 320.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). 18

Water Transportation is slowest but low in cost This slide relates to material on pp. 321. 19

Airfreight Is Expensive but Fast and Growing This slide relates to material on pp. 321-323. 20

Interactive Exercise: Transportation Modes This slide refers to material on pp. 320-323. 21

Checking Your Knowledge This slide relates to material on pp. 320. The best transportation alternative for shipping chickens from farms in West Virginia to processing plants in Maryland would be: air. truck. rail. water. none of the above. Answer: B 22

The Storing Function and Marketing Strategy This slide refers to material on pp. 324.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Needed When Production Doesn’t Match Consumption Keeps Prices Steady Achieves Production Economies of Scale Builds Channel Flexibility 23

Total Inventory Cost Total Inventory Cost Cost of storage facilities This slide refers to material on pp. 324-325.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Cost of storage facilities Interest expense & opportunity cost Handling costs Total Inventory Cost Cost of inventory becoming obsolete Cost of damage while in inventory Cost of risks (e.g., theft & fire) 24

Specialized Storing Facilities May Be Required This slide refers to material on pp. 325-328.  Indicates place where slide “builds” to include the corresponding point (upon mouse click). Type of Warehouse Characteristics Private Public Fixed investment Very high No fixed investment Unit cost High if volume is low – very low if volume is very high Low – charges are made only for space needed Control High Low managerial control Adequacy for product line Highly adequate May not be convenient Flexibility Low – fixed costs have already been committed High – easy to end arrangement 25

Specialized Storing Facilities May Be Required This slide relates to material on pp. 333-335. Type of Warehouse Characteristics Private (company owned or leased) Public (independent storage facilities open to many firms) Fixed investment Very high No fixed investment Unit cost High if volume is low very low if volume is very high Low – charges are made only for space needed Control High Low managerial control Adequacy for product line Highly adequate May not be convenient Flexibility Low – fixed costs have already been committed High – easy to end arrangement

© 2011 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin Distribution Center This slide refers to material on pp. 327. © 2011 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 26

Study Question 1 This slide relates to material on pp. 332-335. A merchant wholesaler is considering four physical distribution systems and estimates the total cost and customer service level for each as follows: TOTAL COST CUSTOMER SERVICE Airfreight $1,000,000 90% Inland waterways 250,000 50% Truck 300,000 60% Rail & warehouse 425,000 70%     The best alternative is:  A. truck. B. airfreight. C. rail and warehouse. D. inland waterways. E. Cannot be determined without knowing how the target customers feel about the customer service level. Answer: E

Study Question 2 Electronic data interchange (EDI): This slide relates to material on pp. 332-335. Electronic data interchange (EDI):  A. Puts information in a standardized format that can be shared between different computer systems. B. Improves information flow between buyers and suppliers. C. Allow customers to transmit orders directly to a supplier's computer. D. Replaces many of the paper documents previously used for purchase orders and shipping reports. E. All of the above. Answer: E

Study Question 3 This slide relates to material on pp. 332-335. All of the following are advantages of using trucks EXCEPT:  A. flexibility. B. fast delivery speed. C. reliability in meeting delivery schedules. D. handling a variety of goods. E. serving a limited number of locations.   Answer: E

Study Question 4 This slide relates to material on pp. 332-335. A marketing manager who wants to ship small quantities (1,500 pounds) of relatively high-value products short distances at an economical cost should use:  A. inland waterways. B. pipelines. C. railroads. D. trucks. E. airways. Answer: D

Study Question 5 Regarding the storing function: This slide relates to material on pp. 332-335. Regarding the storing function:  A. Public warehouses are storing facilities owned or leased by companies for their own use. B. Private warehouses are most useful when a company does not have a regular need for space. C. Public warehouses are independent storing facilities and provide a full range of services. D. All of the above. E. None of the above. Answer: C