5/24/2013

1

Chapter-16: Logistics and Supply Chain Management

Lecture-12

Course: Marketing Channels (MKT 450)(MKT 450)

Faculty: Abdullah Al Faruq (AFq)

North South University (NSU)

What is Logistics?- Logistics is the management of the flow of physical materials.

- In the context of marketing channels “Logistics is a process of

systemizing information to facilitate the efficient and cost-

effective flows of goods & services to produce customer

satisfaction”.

- Logistics in marketing channels involves the processing and

tracking of factory goods during warehousing, inventory

control, transport, customs documentation and delivery to

customers.

- In sum “logistics” creates the “rights of passage” in marketing

channels.

Right Cost

Right Product

Right Place

Right Time Right condition

Figure: The logistics “Rights of Passage”

The Building Blocks of Logistics- The building blocks of logistics are:

a. Inventory.

b. Order fulfillment and transportation.

c. The documentation.

Inventory

- Inventory is the stocks of goods or the components of goods

that will be used for the production or successful delivery of a

service.

- There four good reasons for holding inventory they are:

a. Demand surge management.

b. Economies of scale in production.

5/24/2013

2

Inventory (Cont.)

- There four good reasons for holding inventory they are (Cont.):

c. Reduce the transportation loss time.

d. To meet uncertainty.

Order Fulfillment and Transportation

- The implementation of logistics ensures orders are receive quickly

from a customer and dispatch as early as possible.from a customer and dispatch as early as possible.

- Transportation is another important element in marketing channel

which has been made manageable by the implementation of

logistics.

- Transportation in marketing channel does not only involve the

product being transported to the shops/end-users but also the point

where the raw-materials are acquired and brought to the factory.

Order Fulfillment and Transportation (Cont.)

- The concept of “cross-docking” came into implementation.

- The cross-docking is an effective and efficient process of order

fulfillment and transportation of a goods for end-users.

- The steps of cross-docking are:

RetailerOrders product

Manufacturer F t

Packs the product and transfer to delivery unit

Delivery U it

- Nowadays, even third-party logistics provider is used to make the

process efficient and effective.

Factory Unit

Ships the product

Documentation

- The final blocks of logistics is removal of documentation i.e. filling up

order form, invoices, receipts etc are heavily minimized with the

utilization of logistical concept.

- The main player here has been the utilization of computers and

third-party computer software that has remove filling up bundles of

papers and substituted it with click and drag.

What is Supply Chain Management?- Supply chain management (SCM) is the process of planning,

implementing and controlling the operations of the supply

chain as efficiently as possible.

- Supply Chain Management spans all movement and storage of

raw materials, work-in-process inventory, and finished goods

from point-of-origin to point-of-consumption.

- The concept of SCM goes all the way back to the point where

the manufacturers acquires the materials to be used for

production of a product, how it reaches the factory, how it

leaves the factory to reach to the doors of the

wholesalers/retailers to be consumed by the end-user.

5/24/2013

3

Approaches to Supply Chain Management (SCM)

i. Efficient Consumer Response (ECR)

- Efficient Consumer Response (ECR) is a joint trade and industry

body working towards making the grocery sector as a whole

more responsive to consumer demand and promote the removal

of unnecessary costs from the supply chain.

Th i i l f ECR t fi d t t b tt th- The principle of ECR was to find out a way to better serve the

customers supplying only what was required.

- There are four areas of ECR:

a. Continuous Replenishment Program (CRP)

- The practice of replacing stock based on speedy knowledge of

consumer sales.

ii. Quick Response (QR)/Rapid Response

- Quick Response (QR) was developed in the early 1980s and it comes from the

fashion industry. The basic idea of QR is to let clients tell the whole channel what to

make and what to distribute and then do it fast. QR contains keeping production

flexibility as to what to do and how many to do

The Areas of QR

a. Unstable Market Nature

- Initially designed to face the unstable and changing demand of the market with

ease.

b. Manufacturing oriented

- QR is more manufacture based and thinks less of promotion and pricing thus they

are heavy users of flexible manufacturing techniques.

c. Transportation

- QR is about shipping the product as quickly as possible and if required pay premium

pricing for transportation

Which SCM Approach to choose?- Both the approaches has benefits but however, which approach to choose is a

critical question that needs to be answered by the manufacturer.

- The answer lies in the product/service itself i.e. certain products are

categorized as functional products/brands i.e. these are products whose

demands are predictable, serves basic stable need, people buy in many outlets

and long life cycles. For example, toothpaste, bread, tools etc.

- On the other hand, innovative products/brands has less age life cycle, demands

are unpredictable, does not serve stable and basic need, products are highly

differentiated. For example, cars, dresses etc.

- Functional products require holding down cost, fast delivery and as demand

are predictable decision taking are easy so ECR fits the profile i.e. physically

efficient production.

- Innovative products needs to be market responsive i.e. product designs needs

to equip to change or postponement any time, performance are less cost

driven so QR fits the profile here.