ELEMENTS OF DISTRIBUTION AND LOGISTICS

Distribution
"Distributors must provide security and maintain product quality while in storage or in delivery to several carries and destination points, all at a cost effective price for both the supplier and customer." -American Fast Freight, Inc.

Source:
'Distribution' is one of the four aspects of marketing. A distribution business is the middleman between the manufacturer and retailer or (usually) in commercial or industrial the business customer. After a product is manufactured by a supplier/factory, it is typically stored in a distribution company's warehouse. The product is then sold to retailers or customers. The other three parts of the marketing mix are product management, pricing, and promotion.

The distribution channel:

Frequently there may be a chain of intermediaries, each passing the product down the chain to the next organization, before it finally reaches the consumer or end-user. This process is known as the 'distribution chain' or, rather more exotically, as the 'channel'. Each of the elements in these chains will have their own specific needs; which the producer must take into account, along with those of the all-important end-user.

Channels:
A number of alternative `channels' of distribution may be available:

Selling direct (via a salesforce) Mail order (including Internet and telephone sales) Retailer Wholesaler Agent (who acts on behalf of the producer)

Distribution channels may not be restricted to physical products. They may be just as important for moving a service from `producer' to consumer in certain sectors; since both direct and indirect channels may be used. Hotels, for example, may sell their services (typically rooms) direct or through travel agents, tour operators, airlines, tourist boards, centralized reservation systems, and so on. There have also been some innovations in the distribution of services. For example, there has been an increase in franchising and in rental services - the latter offering anything from televisions through to DIY tools. There has also been some evidence of service integration, with services linking together, particularly in the travel and tourism sector: for example, links now exist between airlines, hotels and car rental services. In addition, there has been a significant increase in retail outlets for the service sector; outlets such as estate agencies and building society offices, for example, are crowding out the traditional grocers and greengrocers from the high street

Channel members
Distribution channels can, thus, have a number of `levels'. Kotler defined the simplest level, that of direct contact with no intermediaries involved, as the `zero-level' channel. The next level, the `one-level' channel, features just one intermediary; in consumer goods a retailer, for industrial goods a distributor, say. In recent years this has been the level which, together with the zero-level, has accounted for the greatest percentage of the overall volumes distributed in, say, the UK; although the very elaborate distribution systems in Japan are at the other end of the spectrum, with many levels being encountered even for the simplest of consumer goods. In the UK, a second level, a wholesaler for example, is now mainly used to extend distribution to the large number of small, neighbourhood retailers.

Channel structure:
To the various `levels' of distribution, which they refer to as the `channel length', Lancaster and Massingham also added another structural element, the relationship between its members:

'Conventional or free-flow - This is the usual, widely recognized, channel with a range of `middle-men' passing the goods on to the end-user.

Single transaction - A temporary `channel' may be set up for one transaction; for example, the sale of property or a specific civil engineering project. This does not share many characteristics with other channel transactions, each one being unique.

Vertical marketing system (VMS) - In this form, the elements of distribution are integrated.

Logistics
"Managing logistics requires experience and knowledge of organizing, purchasing, transportation, warehousing and planning so that the coordination of resources can be optimized and that projects can succeed." -AFF

Source:
Logistics can be considered as a tool for getting the products and services where they are needed and when they are desired. It is difficult to accomplish any marketing or manufacturing without logistical support. It involves the integration of information, transportation, inventory, warehousing, material handling, and packaging. The operating responsibility of logistics is the geographical repositioning of raw materials, work in process, and finished inventories where required at the lowest cost possible.

Background:
Logistics can be defined as having the right quantity at the right time for the right price. It is the science of process. Incorporates all industry sectors, and manages the fruition of project life cycles, supply chains and resultant efficiencies. Logistics as a concept is considered to evolve from the military's need to supply themselves as they moved from their base to a forward position. In ancient Greek, Roman and Byzantine empires, there were military officers with the title Logistikas who were responsible for financial and supply distribution matters. The Oxford English dictionary defines logistics as: The branch of military science having to do with procuring, maintaining and transporting material, personnel and facilities. Logistics as its own concept in business evolved only in the 1950s. This was mainly due to the increasing complexity of supplying one's business with materials and shipping out products in an increasingly globalized supply chain, calling for experts in the field.

Business logistics:
In business, logistics may have either internal focus, or external focus covering the flow from originating supplier to end-user (see supply chain management). The main functions of a logistics manager include purchasing, transport, warehousing, and the organizing and planning of these activities. Logistics managers combine a general knowledge of each of these functions so that there is a coordination of resources in an organization. There are two fundamentally different forms of logistics. One optimizes a steady flow of material through a network of transport links and storage nodes. The other coordinates a sequence of resources to carry out some project.

Military logistics:
In military logistics, experts manage how and when to move resources to the places they are needed. In military science, maintaining one's supply lines while disrupting those of the

enemy is a crucialsome would say the most crucialelement of military strategy, since an armed force without food, fuel and ammunition is defenseless. The Iraq war was a dramatic example of the importance of logistics. It had become very necessary for the US and its allies to move huge amounts of men, materials and equipment over great distances. Logistics was successfully used for this effective movement. The defeat of the British in the American War of Independence, and the defeat of Rommel in World War II, have been largely attributed to logistical failure. The historical leaders Hannibal Barca and Alexander the Great are considered to have been logistical geniuses.

Distribution Systems:
In a broader sense distribution systems are embedded in a changing macro- and microeconomic framework, which can be roughly characterized by the terms of flexibilization and globalization:

Flexibilization implies a highly differentiated, strongly market and customer driven mode of creating added-value. Contemporary production and distribution is no longer subject to single-firm activity, but increasingly practiced in networks of suppliers and subcontractors. The supply chain bundles together all this by information, communication, cooperation, and, last but not least, by physical distribution.

Globalization means that the spatial frame for the entire economy has been expanded, implying the spatial expansion of the economy, more complex global economic integration, and an intricate network of global flows and hubs.

The flow-oriented mode affects almost every single activity within the entire process of value creation. The core component of materials management is the supply chain, the time- and spacerelated arrangement of the whole goods flow between supply, manufacturing, distribution and consumption. Its major parts are the supplier, the producer, the distributor (e.g. a wholesaler, a freight forwarder, a carrier), the retailer, the end consumer, all of whom represent particular interests. Compared with traditional freight transport systems, the evolution of supply chain management and the emergence of the logistics industry are mainly characterized by three features:

Integration. A fundamental restructuring of goods merchandising by establishing integrated supply chains with integrated freight transport demand. According to macroeconomic changes, demand-side oriented activities are becoming predominant. While traditional delivery was primarily managed by the supply side, current supply chains are increasingly managed by the demand.

Time mitigation. Whereas transport was traditionally regarded as a tool for overcoming space, logistics is concerned with mitigating time. Due to the requirements of modern distribution, the issue of time is becoming increasingly important in the management of commodity chains. Time is a major issue for freight shipping as it imposes inventory holding and depreciation costs, which becomes sensitive for tightly integrated supply chains.

Specialization. This was achieved by shifts towards vertical integration, namely subcontracting and outsourcing, including the logistical function itself. Logistics services are becoming complex and time-sensitive to the point that many firms are now sub-contracting parts of their supply chain management to what can be called thirdparty logistics providers (3PL; asset based). More recently, a new category of providers, called fourth-party logistics providers (4PL; non asset based) have emerged.

While many manufacturing corporations may have in-house transportation departments, increasingly the complex needs of the supply chain are being contracted out to third parties. Third party logistics providers(3PL) have emerged from traditional intermediaries such as the forwarders, or from the transport providers such as FEDEX or Maersk. Both groups have been at the forefront of the intermodal revolution that is now assuming more complex organizational forms and importance. In offering door to door services, the customer is no longer aware or necessarily concerned with how the shipment gets to its destination. The modes used, and the routing selected are no longer of immediate concern. The pre-occupation is with cost, reliability and level of service. This produces a paradox, that for the customer of intermodal services geographic space becomes meaningless; but for the intermodal providers routing, costs and service frequencies have significant geographical constraints. The effectiveness of intermodal transport systems is thus masking the importance of transportation to its users.

Logistics is thus concomitantly concerned by distribution costs and time. In addition, many dimensions are added to the function of distribution. While in the past it was a simple matter of delivering an intact good at a specific destination within a reasonable time frame, several components have become linked with distribution:

Distribution time, notably the possibility to set a very specific ETA for deliveries and a low tolerance for delays.

The reliability of distribution measured in terms of the availability of the ordered goods and the frequency at which orders are correctly serviced in terms of quantity and time.

The flexibility of distribution in terms of possible adjustments due to changes in the quantity, the location or the delivery time.

The quality of distribution concerns the condition of delivered goods and if the specified quantity was delivered.

The Nature of Logistics:

The growing flows of freight have been a fundamental component of contemporary changes in economic systems at the global, regional and local scales. These changes are not merely quantitative with more freight in circulation, but structural and operational. Structural changes mainly involve manufacturing systems with their geography of production, while operational changes mainly concern freight transportation with its geography of distribution. As such, the fundamental question does not necessarily reside in the nature, origins and destinations of freight movements, but how this freight is moving. New modes of production are concomitant with new modes of distribution, which brings forward the realm of logistics; the science of physical distribution. Logistics involves a wide set of activities dedicated to the transformation and distribution of goods, from raw material sourcing to final market distribution as well as the related information flows. Derived from Greek logistikos (to reason logically), the word is polysemic. In the Nineteenth century the military referred to it as the art of combining all means of transport, revictualling and sheltering of troops. Today it refers to the set of operations required for goods to be made available on markets or to specific locations.

The application of logistics enables a greater efficiency of movements with an appropriate choice of modes, terminals, routes and scheduling. The implied purpose of logistics is to make available goods, raw materials and commodities, fulfilling four major requirements related to order, delivery, quality and cost fulfillment. Logistics is thus a multidimensional value added activity including production, location, time and control of elements of the supply chain. It represents the material and organizational support of globalization. Activities comprising logistics include physical distribution; the derived transport segment, and materials management; the induced transport segment. Physical distribution is the collective term for the range of activities involved in the movement of goods from points of production to final points of sale and consumption. It must insure that the mobility requirements of supply chains are entirely met. Physical distribution includes all the functions of movement and handling of goods, particularly transportation services (trucking, freight rail, air freight, inland waterways, marine shipping, and pipelines), transshipment and warehousing services (e.g. consignment, storage, inventory management), trade, wholesale and, in principle, retail. Conventionally, all these activities are assumed to be derived from materials management demands. Materials management considers all the activities related in the manufacturing of commodities in all their stages of production along a supply chain. It includes production and marketing activities such as production planning, demand forecasting, purchasing and inventory management. Materials management must insure that the requirements of supply chains are met by dealing with a wide array of parts for assembly and raw materials, including packaging (for transport and retailing) and, ultimately, recycling discarded commodities. All these activities are assumed to be inducing physical distribution demands. The close integration of physical distribution and materials management through logistics is blurring the reciprocal relationship between the derived transport demand function of physical distribution and the induced demand function of materials management. This implies that distribution, as always, is derived from materials management activities (namely production), but also, that these activities are coordinated within distribution capabilities. The functions of production, distribution and consumption are difficult to consider separately, thus recognizing

the integrated transport demand role of logistics. Distribution centers are the main facilities from which logistics are coordinated. Distribution Center. Facility or a group of facilities that perform consolidation, warehousing, packaging, decomposition and other functions linked with handling freight. Their main purpose is to provide value-added services to freight. DCs are often in proximity to major transport routes or terminals. They can also perform light manufacturing activities such as assembly and labeling. Since it would be highly impractical to ship directly goods from producers to retailers, distribution centers essentially act as a buffer where products are assembled, sometimes from other distribution centers, and then shipped in batches. Distribution centers commonly have a market area in which they offer a service window defined by delivery frequency and response time to order. This structure looks much like a hub-and-spoke network. The wide array of activities involved in logistics, from transportation to warehousing and management, have respective costs. Once compiled, they express the burden that logistics impose on distribution systems and the economies they support, which is known as the total logistics costs. Costs are however not the only consideration in supply chain management since supply chains can also be differentiated by time, reliability and risk level. The nature and efficiency of distribution systems is strongly related to the nature of the economy in which they operate. Worldwide logistics expenditures represent about 10-15% of the total world GDP. In economies dependent on the extraction of raw materials, logistical costs are comparatively higher than for service economies since transport costs account for a larger share of the total added value of goods. For the transport of commodities, logistics costs are commonly in the range of 20 to 50% of their total costs