Chapter 13Chapter 13

Logistics & Channel Management

• Definition:

– Consists of the planning, implementing, and controlling of the physical flows of materials and final goods/services from points of origin to points of use to meet customers’ needs/wants at a profit.

1313LogisticsLogistics

Objective 1:

• Definition:

– Logistical perspective* that emphasizes close cooperation and comprehensive interorganizational management to integrate the logistical operations of the different firms within the channel.

* substituted “perspective” for “systems”

1313Supply-Chain ManagementSupply-Chain Management

Objective 2:

• In essence…

– Logistics is focused on the physical movement of product…

• In the right amount,

• Of the right product,

• To the right place, and

• At the right time.

1313The Role of Logistics The Role of Logistics

Objective 3:

• Specialize in performing most, if not all, of the logistical tasks that manufacturers or other channel members would normally perform themselves.

• Represent a growing industry because…

– Provide services at lower costs than the firms could do themselves

131333rdrd Party Logistics Providers Party Logistics Providers

1313The “Systems” ConceptThe “Systems” Concept

& Its “Core” Components& Its “Core” Components

Objective 4 & 5:

TheLogisticalSystem

Warehousing

OrderProcessing

MaterialsHandling

InventoryControl

Transportation

Packaging

• Given customers’ desired service levels…

– The optimum combination of basic logistical components is sought while focusing on all the costs of logistics together, rather than the separate costs of the individual components together.

• Goal = minimize total costs rather than individual costs

1313The “Total Cost” ApproachThe “Total Cost” Approach

• The most fundamental & necessary component of logistics

• Accounts for the highest percentage of the total costs of logistics

• Key Issue(s):– Choose the optimum mode of transportation that

will meet the customers’ service demands at the lowest price possible.

1313Logistical Component:Logistical Component:

TransportationTransportation

• Consists of all the activities and equipment involved in the placement and movement of products within storage areas.

• Key Issue(s):– Choosing the correct mechanical equipment– Making the best use of labor– Minimizing the distances products are moved within

the warehouse during the course of receiving, storage, and shipping.

1313Logistical Component:Logistical Component:

Materials HandlingMaterials Handling

• The task of filling customer orders

• Its importance lies in its relationship with order cycle time, which is the time between when an order is placed & when it’s received by the customer.

• Key Issue(s):– Developing an efficient order processing center

so that order cycle time (and possibly other logistical costs) is minimized

1313Logistical Component:Logistical Component:

Order ProcessingOrder Processing

• Seeks to hold the least inventory as possible while still meeting customer demand

• Key Issue(s):– Keeping inventory at its lowest possible level while

simultaneously placing orders in large quantities

– Determining one’s economic order quantity, which lies at the point where ICC plus ordering costs (i.e., total costs) are at their minimum.

1313Logistical Component:Logistical Component:

Inventory ControlInventory Control

• Concerned with the holding of products until they’re ready to be sold.

• Key Issue(s):– Locating warehouse facilities– Determining the number of warehouse units– Determining the size of each unit– Designing the units– Determining who should own the unit(s)

1313Logistical Component:Logistical Component:

WarehousingWarehousing

• Packaging and its associated costs significantly affect the other components of the system.

• Key Issue(s):– Designing packaging to enhance the efficiency

and effectiveness of the logistical system beyond that of simply acting as a promotional or educational device for consumers.

1313Logistical Component:Logistical Component:

PackagingPackaging

• Customer Service– The collection of activities performed in

fulfilling orders and keeping customers happy or creating in the customer’s mind the perception of an organization that is easy to do business with.

• Enumerated or defined in terms of

one’s “Service Standards”

1313The OutputThe Output

of a Logistics Systemof a Logistics System

Objective 6:

1. Time from order receipt to order shipment2. Order size and assortment constraints3. Percentage of items out of stock4. Percentage of orders filled accurately5. Percentage of orders filled within a given

number of days from receipt of the order6. Percentage of orders filled7. Percentage of customer orders that arrive in

good condition8. Order cycle time9. Ease and flexibility of order placement

1313Nine Common Categories ofNine Common Categories of

Service StandardsService Standards

• Product availability

• Order cycle time

• Distribution system flexibility

• Distribution system information

• Distribution system malfunction

• Post-sale product support

1313Key Elements of Customer Key Elements of Customer

ServiceService

• Logistics management– Concerned primarily with the product flow.

• Channel management– The administration of all the major channel

flows (ref. Ch. 1).

1313Logistics Management vs.Logistics Management vs.

Channel ManagementChannel Management

Objective 7:

• Interface 1:– Determining logistics' service standards

• Interface 2:– Evaluating whether the logistics program meets

channel members’ service standards

• Interface 3:– Selling the logistics system

• Interface 4:– Monitoring the results of the logistics program

1313Interfaces Between LogisticsInterfaces Between Logistics

and Channel Managementand Channel Management

Objective 8:

• The higher the service standards, the higher the total costs associated with logistics.

• Key Issue for Channel Manager:– Determining accurately the types and levels of

logistics service desired by channel members (including end-run customers).

1313Defining Logistics’ Service Defining Logistics’ Service

StandardsStandards

• If considered a major component of the channel manager’s approach to supporting channel members’ needs, the logistics program may be the key feature of a strategic alliance.

• Key Issue for Channel Manager:– Ensuring that the program prepared is what the

channel members want and need.

1313Evaluating the Logistics Evaluating the Logistics

ProgramProgram

• Often a function of…– Minimizing stock-out occurrences– Reducing members’ inventory requirements– Strengthening relationship with members

• Key Issue for Channel Manager:– Extending superior logistics capabilities to help

members improve their logistics and marketing capabilities.

1313Selling the Logistics ProgramSelling the Logistics Program

• Logistics systems must be continually monitored, both in terms of how successful they perform for the channel manager as well as how they meet members’ changing needs.

• Key Issue for Channel Manager:– Continually monitoring members’ reactions to the

logistical programs in place (e.g., through audits and internal research)

1313Monitoring the Logistics SystemMonitoring the Logistics System