IGNOU : M.COM : IBO 5 : UNIT 1 : Q - 5. Comment on the following statements. a) Traditionally, physical distribution is considered as the other half of marketing. b) Distribution, marketing and manufacturing can’t be viewed as separate activities within the business, particularly at the strategic level. c) Logistics system helps in improving the customer service.

 

Ans.  (C) Customer service is the thread that links the logistics and marketing processes because the end-product of the logistics system is customer service. The skill lies in managing the twin arms of marketing and logistics in such a way as to - maximize the value added through customer service while seeking a cost advantage.

The role of customer service is to provide time and place utilities in the transfer of goods and services between buyer and seller. There is no value in a product or service until it is in the hands of customer or consumer. It follows that making the product or service available is what, in essence, the distribution function of the business is all about. However, 'Availability' is in itself a complex concept which is influenced by a galaxy of factors. These factors, for example, include delivery frequency, reliability, stock levels and order cycle time. Ultimately, customer service is determined by the interaction of all those factors that affect the process of making products and services available to the buyer.

Now-a-days, customer service has changed its dimensions to quick and easy availability of products with reduced inventory costs. Customers have started analyzing cost of the product with lead time of suppliers and the inventory cost thereof. As such, low volume purchase, but with larger frequency, is increasing. A customer may ultimately buy a large quantity but at different intervals of time. Such service is only possible through a good network of warehousing and appropriate logistics management in fact, today logistics management not only ensures the supply of product at lowest cost but also acts as a marketing tool for increased sales.

IGNOU : M.COM : IBO 5 : UNIT 1 : Q - 3. Why do you regard logistics as an important activity of marketing? Explain it with special reference to international trade.

 

Ans. IMPORTANCE OF MARKETING LOGISTICS

The importance of a logistics system lies in the fact that it leads to ultimate consummation of the sales contract. The buyer is not interested in the promises of the seller that he can supply goods at competitive price but that he actually does so. Delivery according to the contract is essential to fulfilling the commercial and legal requirements. In the event of failure to comply with the legally penalized, if the sales contract so specifies. There is no doubt that better delivery schedule is a good promotional strategy when buyers are reluctant to invest in warehousing keeping higher level of inventories. Similarly, better and/or timely delivery helps in getting repeat orders through creation of goodwill for the supplier. Thus, as effective logistics system contributes immensely to the achievements of the marketing objectives of a firm. It creates time and place utilities in the products and thereby helps in maximizing the value satisfaction to consumers. By ensuring quick deliveries in minimum time and cost, it relieves the customers holding excess inventories. It also brings down the cost of carrying inventory, material handling, transportation and other related activities of distribution. In nutshell, an efficient system of physical distribution has a great potential for improving customer service and reducing costs.

The ready acceptance of the dynamics of marketing logistics has been due to a number of factors, including :

i) Technological advancement in the fields of information processing and communication

ii) Technological development in transportation and material handling

iii) Change in the attitude towards the total cost approach rather than direct cost approach.

As a result of these developments, the decision maker has a number of choices to work out the most ideal marketing logistics system. Essentially, this system implies that people at all levels of management Link and act in terms of integrated capabilities and adoption of a total approach to achieve pre-determined logistics objectives. Logistics is also important on the global scale. Efficient logistics system throughout the world economy are a basis for trade and a high standard of living for all of us. Lands, as well as the people who occupy them, are not equally productive. That is, one region often has an advantage over all others in some production Speciality. Ancient logistics system allows a geographical region to exploit its inherent advantage by specializing its productive efforts in those products in which it has an advantage and by exporting these products to other regions, The system allows the products landed cost (production plus logistics cost) and quality to be competitive with those from any other region. Common examples of this specialization have been Japan's electronics industry, the agricultural, computer and aircrafts industries of United - sates and various countries dominance in supplying raw materials such as oil, gold, bauxite, and chromium.

The other reasons why logistics has gained importance in the international trade can be summarized as follows:

1. Any companies are restructuring their products on a global basis. Some manufacturers are centralizing production to gain economies of scale.

2. Product lines are proliferating. More and more product line variety is needed to satisfy the growing range of customer tastes and requirements, and stock levels in both field and factory inevitably rise.

3. Product life cycles are contracting. Companies that have gone all-out to slash costs by turning to large scale batch production regularly, find themselves saddled with obsolete stocks and are unable to keep pace with competitors' new-product introductions.

4. In many industries, the value added by manufacturing is declining as the cost of materials and distribution climbs.

5. The balance of power in distribution chain is shifting from the manufacturers to the trader.

6. The advantage of low-cost, high volume data processing and transmission is revolutionizing logistics control systems. Because of new technologies, managers can now update sales and inventory planning faster and more frequently, and factories can respond with more flexibility lo volatile market conditions.

IGNOU : M.COM : IBO 5 : UNIT 1 : Q - 2. What are the main activities involved in marketing logistics? Explain them briefly.

 

Ans. LOGISTICS TASKS

The important decisions in respect of physical distribution are : (1) how orders should be handled? (2) where should the warehouse be located ? (3) how much stock should be kept on hand? and (4) how should the goods be transported ? and (5) how is the logistics information monitored?

Let us discuss about the components in detail.

Order Processing : The starling point of the physical distribution activities is the processing of customers' orders. In order to provide quicker customer service, the orders received from customers should be processed within the least possible time. Order processing includes receiving the order, recording the order, filling the order, and assembling all such orders for transportation; etc. The company and the customers benefit when these steps are carried out quickly and accurately. The error committed at this stage at times can prove to be very costly. For example, if a wrong product or the same product with different specifications is supplied to the customer, it may lead to calculation of the original order (apart from loss in the credibility of the firm). Similarly, if the order is rot executed within a reasonable time, it may lead to serious consequences. High speed data processing techniques are now available which allow for rapid processing of the orders.

Warehousing : Warehousing refers to the act of storing and assorting products in order to create time utility. The basic purpose of the warehousing activity is to arrange placement of goods, provide storage facility to store them consolidate them with other similar products, divide them into smaller quantities and build up assortment of products. Some of the important decision areas in respect of warehousing are:

1. how many warehouses should the firm have?

2. where should these warehouses be located?

3. what should be the pattern of ownership of the warehouse (owned or rented)?

Generally, larger number of warehouses a firm has the lesser would be the time taken in serving customers at different locations, but greater would be the cost of warehousing, Thus, the firm has to strike a balance between the cost of warehousing and the level of customer service.

Inventory Control : Linked to warehousing decisions are the inventory decisions which hold the key to success of physical distribution especially where the inventory costs may be as high as 30-40 per cent (e.g., steel and automobiles). No wonder, therefore, that the new concept of Just-in-Time-Inventory decision is increasingly becoming popular with a number of companies.

 The decision regarding level of inventory involves estimation of demand for the product. A correct estimate of the demand helps to hold proper inventory level and control tie inventory costs. This not only helps the firm in term of the cost of inventory and supply to customers in time but also to maintain production at a consistent level. The major factors determining the inventory levels are :

1. The firm's policy regarding the customer service level

2. Degree of accuracy of the sales forecasts

Responsiveness the distribution system i.e., ability of the system to inventory needs to the factory and get the products in the market

The cost of inventory consists of holding cost (such as cost of warehousing, tied up capital and obsolescence and replenishment Cost (including the manufacturing cost).

Transportation: Transportation seeks to move goods from points of production and sale to points of consumption in the quantities required at times needed and at a reasonable cost. The transport Jon system adds time and place utilities to the goods landed and, thus, increases their economic value. To achieve these goals, transportation facilities must be adequate regular, dependable and equitable in terms of costs and benefits of the facilities and service provided.

Information Monitoring : The physical distribution managers continuously need up-to-date information about inventory, transportation and warehousing For example, in respect on inventory, information about present stock position at each location, future commitment and replenishment capabilities are constantly required. Similarly, before choosing a carrier, information about the availability of various modes of transport, their costs, services and suitability for a particular product is needed. About warehousing, information with respect to space utilization, work schedules unit load performance, etc., is required.

In order to receive all the information stated above an efficient management information system  would be of immense use in controlling costs, improving services and determining the overall effectiveness of distribution, of course, it is difficult to correctly assess the cost of physical distribution operations. But if correct information is available it can be analyzed systematically and a great deal of saving can be ensured.

IGNOU : M.COM : IBO 5 : UNIT 1 : Q - 1. Define Marketing Logistics and explain its objectives.

 

Ans.  MARKETING LOGISTICS

The word 'logistics' is derivative of a French word 'loger' which means the art of transport, supply and quartering of troops. Essentially a military concept, it is now commonly applied to marketing management. Fighting a war requires the setting of an objective, and to achieve this objective meticulous planning is needed so that the troops are properly deployed and the supply line consisting, inter-alia, weaponary, food, medical assistance, etc. is maintained. Similarly, the plan should be such that there is a minimum loss of men and material while, at the same time, it is capable of being altered if the need arises. As in the case of fighting a war in the battle-field, the marketing managers also need a suitable logistics plan that is capable of satisfying the company objective of meeting profitably the demand of the targeted customers.

OBJECTIVES OF MARKETING LOGISTICS

The basic objective of an ideal logistics system is to ensure the flow of supply to the buyer:

i) in correct quantity,

 ii) at desired location,

 iii) at required time,

 iv) in usable condition, and

v) at the lowest cost

This implies that a6mi will aim at having a logistics system which maximizes the customer service and minimizes the distribution cost. However, one can approximate the reality by defining the objective of logistics system as achieving a desired level of customer service i.e., the degree of delivery support given by the seller to the buyer. This comprises such elements as (a) speed of delivering normal orders, (b) speed of meeting emergency or non-anticipated order, (c) care in packing and handling distribution, (d) degree and speed of replacing defective goods, and (e) provision for sales services and maintenance of inventory, Thus, logistics management starts with ascertaining customer need till its fulfillment through product supplies and, during this process of supplies, it considers all aspects of performance which include arranging the inputs, manufacturing the goods and the physical distribution of the products. However, there are some specific objectives to be achieved through a proper logistics system. These can be described as follows:

Improving customer service : As you know, the marketing concept assumes that the sure way to maximize profits in the long run is through maximizing the customer satisfaction. As such, an important objective of all marketing efforts, including the physical distribution activities, is to improve the customer service.

An efficient management of physical distribution can help in improving the level of customer service by developing an effective system of warehousing, quick and economic transportation, and maintaining optimum level of inventory. But, as discussed earlier, the level of service directly affects the cost of physical distribution. Therefore, while deciding the level of service, a careful analysis of the customers' wants and the policies of the competitors is necessary. The customers may be interested in several things like timely delivery, careful handling of merchandise, reliability of inventory, economy in operations, and so on. However, the relative importance of these factors in the minds of customers may vary.

Reduce total distribution costs: Another most commonly stated objective is to minimize the cost of physical distribution of the products. As explained earlier, the cost of physical distribution consists of various elements such as transportation, warehousing and inventory maintenance, and any reduction in the cost of one elements may result in an increase in the cost of the other elements. Thus, the objective of the firm should be to reduce the total cost of distribution and not just the cost incurred on ally one element. For this purpose, the total cost of alternative distribution systems should be analyzed and the one which has the minimum total distribution cost should be selected.

Generating additional sales : Another important objective of the physical distribution system in a firm is to generate additional sales. A firm can attract additional customers by offering better services at lower prices. For example, by decentralizing its warehousing operations or by using economic and efficient modes of transportation, a firm can achieve larger market share. Also by avoiding the out-of-stock situation, the loss of loyal customers can be arrested.

Creating time and place utilities: The physical distribution system also aims at creating time and place utilities in the products. Unless the products are physically moved from the place of their origin to the place where they are required for consumption, they do not serve any purpose to the users. Similarly, the products have to be made available at the time they are needed for consumption: Both these purposes can be achieved by increasing the number of warehouses located at places from where the goods can be delivered quickly and where sufficient stocks are maintained so as to meet the emergency demands of the customs. Moreover, a quicker mode of transport should be selected to move the products from one place to another in the shortest possible time. Thus, time and place utilities can be created in the products through an efficient / system of physical distribution.

Price stabilization: Physical distribution may also aim at achieving stabilization in the prices of the products. It can be achieved by regulating the flow of the products to the market through a judicious use of available transport facilities and compatible warehouse operations. For example, in the case of industries such as cotton textile, there are heavy fluctuations in the supply of raw materials. In such cases if the market forces are allowed to operate freely, the raw material would be very cheap during harvesting season and very dear during off season. By stocking the raw material during the period of excess supply (harvest season) and made available during the periods of short supply, the prices can be duly stabilized.