Marketing Logistics

Logistics is a military term that refers to the management of various activities  like transportation, inventory, warehousing right from the stage of processing  the raw materials by the manufacturer to convert it into finished goods till they  are made available to the customer for use. While logistics management helps to  optimize the flow of material within the organization, supply chain management  crosses the boundaries of organization extending material flow integration  upwards to suppliers and also descending down to customers.  Logistics basically represents two primary product movements, (i) Physical  supply, concerned with supply of raw materials, component parts, and other  related supplies necessary for the manufacturing process. This comes under the  purchase function (Materials Management) and (ii) Physical distribution,  concerned with delivering the finished product to customers and the middlemen.  This comes under the marketing management that is also called as Marketing  Logistics.

Marketing logistics is the process of delivering the finished goods to the  intermediaries as well as customers. An efficient delivery system helps to reduce  the costs, improve customer service, and minimize time that finally helps to gain  customer loyalty. A physical distribution system involves various tasks (as given  in the table below) that interact with each other and play an important role in the  overall performance of the logistics system.

Tasks Key Aspects
1. Transportation An important activity that involves movement of goods from the manufacturer to the customer.
2. Warehousing A place where goods are stored till they are made available in the market place when needed.
3. Inventory Management Ensures that right mix of products are available at right place/time in sufficient quantity.
4. Packaging Protects the products, maximizes use of warehouse space, maintains product identity.
5. Materials Handling Maximizes speed, minimizes cost of order-picking, moving to and from storage, loading and unloading operations.
6. Order Processing Communicates requirements to appropriate locations through inventory management. Starts the physical distribution process.
7. Production Planning Goods are made available for inventory. Planning of warehouse facility utilization, transportation requirement
8. Customer Service Establishes customer service levels with marketing objectives as well as cost limitations
9. Plant Location Facilities planning (factory and warehouse location) to ensure capacity & reduce transportation costs

A particular logistics activity cannot  be performed without evaluating its impact on other areas. For instance, the  objective of maximized customer service may develop into a conflict with the  objective of minimized distribution cost. Hence, total cost approach has to be  considered to manage such inconsistency.

The total cost approach focuses to balance two essential variables: (i) total  distribution costs, and (ii) the level of logistical service provided to the  customers. The total cost approach is designed in such a way that it tries to  achieve a combination of cost and service levels that maximizes the profits to  the company and the channel members.

  1. In this approach, the total cost of  distribution is considered instead of the individual cost of the elements of  physical distribution as the decision made for one logistical variable affects all  or some of the other logistics variables. For example, if inventory is reduced  below the required quantity in order to reduce inventory costs, it may result in  stockouts and increase in order backlogs. This may necessitate extra productions  to provide the stockout items and air-freight them at high cost to customers  whose production stopped due to non-delivery of products. All this would  finally lead to reduction in future orders from the unsatisfied customers due to  poor delivery performance. Thus, to save a small individual cost, the total cost  substantially increased. The interactions among logistics activities (i.e.  transportation, inventory, warehousing) involves a cost trade off as these cost  elements are sometimes in economic conflict with one another. Thus, manager  must be willing to trade-off a cost increase in one activity for a larger cost  decrease in another activity that should finally result in reduced total logistics  costs.
  2. Service aspect is the other half of the total cost approach.  It is to be understood that all customers or products do not require same level of  service. Each element of service has different  levels of importance that the industrial marketer should recognize. The cost  involved in providing the level of service must be evaluated in light of the  revenue generated. Once the important elements of customer service are  determined by the industrial marketer, he should set goals of customer service  levels for each service element, compare the actual with goals and finally take  corrective actions to minimize the difference.

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