1. 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. © McGraw-Hill Companies, Inc. McGraw-Hill/Irwin 1

2. 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

3. 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

4. Logistics or Physical Distribution
Physical Distribution Gets products to Customers (transporting, storing, handling goods)
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Logistics or Physical Distribution 6

5. Physical Distribution Customer Service
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6. Trade-Offs among Physical Distribution Costs, Customer Service Level, and Sales
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7. Factors Affecting PD Service Levels
Physical Distribution Concept Focuses on the Whole Distribution System to find the lowest cost for the right service level
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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

8. Physical Distribution Customer Service Level
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© 2011 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 10

9. Checking Your Knowledge
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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

10. Coordinating Logistics Activities
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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

11. Better Information Helps Coordinate PD
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Areas Where Computers Help PD
Service
Continuously Updated Information Systems
Electronic Data Interchange 14

12. Ethical Issues May Arise
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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

13. Physical Distribution (PD) Concept
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© 2011 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 16

14. The Transporting Function Adds Value to a Marketing Strategy
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15. 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)
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16. Water Transportation is slowest but low in cost
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17. Airfreight Is Expensive but Fast and Growing
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18. Interactive Exercise: Transportation Modes
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19. Checking Your Knowledge
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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

20. The Storing Function and Marketing Strategy
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Needed When Production Doesn’t Match Consumption
Keeps Prices Steady
Achieves Production Economies of Scale
Builds Channel Flexibility 23

21. Total Inventory Cost Total Inventory Cost Cost of storage facilities
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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

22. Specialized Storing Facilities May Be Required
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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

23. Specialized Storing Facilities May Be Required
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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

24. © 2011 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin
Distribution Center
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© 2011 McGraw-Hill Companies, Inc., McGraw-Hill/Irwin 26

25. Study Question 1
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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, %
Inland waterways , %
Truck , %
Rail & warehouse , %     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

26. Study Question 2 Electronic data interchange (EDI):
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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

27. Study Question 3
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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

28. Study Question 4
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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

29. Study Question 5 Regarding the storing function:
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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