Logistics and Distribution AG BM 460

Mini Case Mushroom compost Farm byproduct Very heavy Low value Costs money for disposal Can be used by green industry How do you handle it?

Logistics is a critical element of success for most businesses Logistics = physical distribution Activities –Order processing –Inventory management –Materials planning –Warehousing –Transportation These activities either help to –create time utility –create place utility –reduce operational expenses

Logistics objectives Meeting standards of customer service Reducing total distribution costs Reducing cycle time One of the common ways to deal with these objectives is to outsource functions: Freight forwarders Brokers

Evaluating the Major Alternatives economic criteria; choose the channel based on profits control issues; choose the channel where it has the highest control. adaptive criteria; choose the channel which is most flexible to the changing marketing environment.

Physical Distribution and Logistics Management Find the best way to store, handle and move products so that they are available to customers in the right amount, at the right time, and in the right place Logistics affects –customer satisfaction –company costs (15% of the product’s price)

Nature of Logistics Material flows one way money flows the other way Information flows both ways Thinking starts with the marketplace and works backwards

Logistics manager coordinates the whole physical distribution system the activities of suppliers purchasing agents marketers channel members customers

Goals of the Logistics System provide a targeted level of customer service at the least cost. maximize profits, not the sales. So, the company must compare the benefits of providing higher levels of service with the costs. Some companies may offer fewer services and charge less, but others may offer more services than its competitors and charge higher prices to cover their costs.

Major Logistics Functions The major logistics functions include; order processing inventory management materials planning warehousing transportation

Order Processing Orders can be submitted in many ways; by mail, telephone, through salespeople, or via computer. Order processing systems prepare invoices and order information. The warehouse receives instructions to pack and ship the ordered items. And bills send out.

Inventory (1) when to order and (2) how much to order. when to order - risk of running out of stock vs cost of carrying too much. how much to order - order-processing costs vs. inventory-carrying costs. Just-in-time logistic systems are used by some companies in which the producers carry only small inventories only enough for a few days of operations. Such systems result in savings in inventory carrying and handling costs.

Materials Planning Easy to think about output side Input side is just as important, esp. with perishable food products –Hogs –Vegetables –Restaurant

Warehousing Every company stores its goods while they wait to be sold. A company must decide on (1) how many and (2) what types of warehouses it needs and (3) where they will be located. The company might own private warehouses or rent space in public warehouses or both.

Both has advantages and disadvantages. Owning a private warehouse; –bring more control –ties up capital –is less flexible if locations change On the other hand, public warehouses; –charge for rented space –provide additional services for inspecting, packaging, shipping and invoicing goods but at a cost –offer wide choice of locations and warehouse types

Basic types of warehouses are; (1) storage warehouses and (2) distribution centers. –storage warehouses store goods for moderate to long periods –distribution centers are designed to move goods rather than just store them. They are large and automated warehouses designed to receive goods from suppliers, take orders and deliver goods to customers.

Transportation choice of transportation carriers affects –(1) the pricing of products –(2) delivery performance –(3) condition of the goods when they arrive all affect customer satisfaction.

Modes of transportation RailTrucksWaterAir Moderate costHigh costVery lowVery high Avg. speedFast speedVery slowVery fast Avg. depend.High depend.Avg. depend.High depend. High load flexibility Avg. load flexibility Very high load flexibility Low load flexibility High accessVery high accessLimited accessAverage access Low frequencyHigh frequencyVery low freq.Average freq. Coal, grain, cars, steel Clothing, books, livestock Oil, grain, iron ore Flowers, perishables, emergency items

In choosing a transportation mode, shippers consider five criteria; –speed of delivery –Timeliness (are they late?) –ability to handle various products –number of geographic points served –cost per ton-mile

Concluding Comments This stuff is easily overlooked Can be complex Profit center or loss generator?