ARELLANO UNIVERSITY

Distribution Management
Chap. 13. Logistics and
Channels Management

Professor: Dr. Ronaldo A. Poblete, CFMP

 Learning Objectives
 The definition of, logistics
 The meaning of supply chain
management
 The role of logistics
 The systems concept of logistics
 Logistics system components
 The output of a logistics system
 Logistics management
 Key interface areas between logistics
and channel management
1
Logistics

Definition: Planning,
implementing, and controlling the
physical flows of materials and final
goods from points of origin to points
of use to meet customers’ needs at a
profit.
 Supply Chain Management

Definition: Logistical systems that

emphasize close cooperation and
comprehensive inter-organizational
management to integrate the logistical
operations of the different firms in the channel.
The Role of Logistics

Its Essence

The movement of the right amount of

the right products to the right place
at the right time
Third - Party Logistics Providers
(3PLs)

Specialize in performing most or all of the

logistical tasks that manufacturers
or other channel members
would normally perform themselves

Provide service at lower cost than the

firms who hire third-party providers

Currently growing rapidly into

a major industry
 Systems Concept

Transportation

Materials
Warehousing Handling
Interrelated
components
of a
system Order
Inventory
Control Processing

Packaging
 Total Cost Approach

Basic components of
A logistics system

Total Cost
Systems Concept
Approach
Management views logistics
Management attempts
as a system of
to minimize the cost
Interrelated
of using the components
components
taken as a whole
Logistics System Components

Transportation
Materials Handling
Order Processing
Inventory Control
Warehousing
Packaging
 Transportation

• Most fundamental and necessary

component
• Accounts for the highest percentage of the
total cost of logistics

• Overriding issue facing the firm:

Choosing the optimum mode of
transportation to meet customer
service demands
 Materials Handling

Range of activities & equipment involved

in the placement & movement of products
in storage areas
Issues:
1. Minimizing the distances products are
moved within the warehouse during the
course of receiving, storage, & shipping
2. Choosing the kinds of mechanical
equipment that should be used
3. Making the best use of labor when receiving,
shipping, & handling products
 Order Processing

Its importance in logistics lies in its

relationship with order cycle time—
the time between when an order is
placed & when it is received by the
customer.

Issue:
Developing an efficient order
processing system
 Inventory Control

The firm’s attempt to hold the

lowest level of inventory that will still
enable it to meet customer demand

Issue:
Keeping inventory at the lowest
possible level while concurrently
placing orders for goods in large
quantities
 Warehousing

The holding of products until they are ready to

be sold
Issues:
1. The location of warehouse facilities
2. The number of warehousing units
3. The size of the units
4. The design of the units
5. The question of ownership
 Packaging

Packaging & its associated costs can

affect the other components of the
system
Issue:
Using packaging to make a
significant difference in the
effectiveness & efficiency of the
logistics system
 The Output of a Logistics System

Customer service is the collection of

Activities performed in filling orders and
keeping customers happy or creating
in the customer’s mind the perception
of an organization that is easy
to do business with.
 Logistics Service Standards

1. Time from order receipt to order shipment

2. Order size & assortment constraints
3. Percentage of items out of stock
4. Percentage of orders filled accurately
5. Percentage of orders filled within a given
number of days from receipt of the order
6. Percentage of orders filled
7. Percentage of customer orders that arrive in good condition
8. Order cycle time
9. Ease & flexibility of order placement

(9 Standards developed by Heskett, Galskowsky, & Ivie)

 Key Elements of Customer Service

LaLonde Classification of Customer Service:

1. Product availability

2. Order cycle time

3. Distribution system flexibility

4. Distribution system information

5. Distribution system malfunction

6. Post-sale product support

 Logistics Management
7

Logistics Channel
Management Management

Concerned The administration

specifically of all the major
with product flow channel flows
 Key Interface Areas between
8 Logistics & Channel Management

Interface 1
Defining of logistics service standards

Interface 2
Making sure the logistics program meets
channel members’ service standards

Interface 3
Selling the logistics program

Interface 4
Monitoring the results of the logistics
program
Defining Logistics Service Standards

The higher the service standards,

the higher the costs.

Key issue for Channel Manager:

Determining precisely the types and levels
of logistics service desired by channel
members
Evaluating the Logistics Program

If included as a major component of the

manufacturer’s overall approach for supporting
channel member needs, the logistics program may be
the key feature of a strategic alliance.

Key issue for Channel Manager:

Ensuring that the program the experts
prepare is what the channel members want.
Selling the Logistics Program

1. Minimize out-of-stock occurrences.

2. Reduce channel member inventory requirements.
3. Strengthen the manufacturer-channel member
relationship.

Key issue for Manufacturers:

Extending superior logistics capabilities to help
channel members improve their logistics
and marketing capabilities.
Monitoring the Logistics System
Logistics systems must be continually
monitored, both in terms of how successfully
they are performing for the manufacturer
and how well they are meeting changing
channel member needs.

Key issue for Channel Manager:

Continually monitoring the channel members’
reactions to logistics programs.
 Discussion Question #2
Timberland Company is one of the world’s best known
manufacturers of casual shoes and sports boots. For many years the
company’s logistical system was geared to large orders. Hence
priority was given to major department stores and retail chains that
purchased in large quantities. But market reports were indicating that
consumers were shopping in increasing numbers at small
independent retailers and boutiques for the kinds of shoes and boots
sold by Timberland. So, the problem facing Timberland was how to
service the large numbers of small retailers with their tiny orders while
still maintaining high levels of efficiency and low order processing
costs. To meet this challenge, Timberland reengineered its logistical
system by using modern scanning equipment to control inventory,
track merchandise and handle all paperwork automatically.
Does this situation represent an interface between channel
management and logistics management? Explain.
 Discussion Question #3

U.S. Jaguar dealers used to wait at least one week to

receive parts from England. Parts were shipped in bulk by
Jaguar to a U.S. warehouse where they were split up,
repackaged and then shipped to individual dealers. Working
closely with Federal Express, Jaguar initiated a new logistics
system that shortened the time by four days. Under the new
system, dealers order a part directly from Jaguar in England
and the part is then air expressed via Federal Express. The
time between order placement and receipt at the dealership
is no longer than three days.
Comment on the change in Jaguar’s logistics system in
terms of its relevance for providing customer service and the
possible trade-offs in higher costs.
 Discussion Question #7

Walmart is contacting all of the manufacturers that supply its

more than 4,000 U.S. stores with a logistics proposition: The
world’s largest retailer wants to use its own fleet of trucks to pick
up products directly from manufacturers and deliver the
merchandise to Walmart’s stores. In short, Walmart’s truck fleet
would replace manufacturers’ or common carriers’ trucks. By doing
so, Walmart believes it will enjoy substantial cost savings while
allowing manufacturers to concentrate on what they do best—
making products rather than managing logistical systems.
Walmart, with about 6,500 trucks and over 50,000 trailers,
believes it has the capacity to implement this new logistical
program.
Do you think Walmart’s logistical initiative is a good idea? Why
or why not? Explain.