Inbound and outbound logistics should be seen as the two basic components of the distribution mix. Both deal with physical flows and title flows. Channels refer to a number of marketing institutions linked so that title and products can flow to consumers. The selection of these channels, or routes for reaching consumers, is usually based on sales and communications. It is concerned with the physical flow of goods to markets. It views the institutions comprising channels as points of assembly and dispersion of goods. It is concerned with achieving economies in the logistical transfer of goods from one point in the channel to another. Thus it deals with the transportation, movement, loading, stocking, handling and warehousing activities of the channel as a whole.
Inbound logistics should be seen as a part of the integrated logistics as it helps companies to coordinate internal processes and activities. A unique contribution of inbound logistics is its perspective. It adopts a systems orientation to plant location, transportation, warehousing, inventory, and movement and handling activities. These activities are designed as a coordinated system and linked with the other elements of the marketing mix.
Thus, physical distribution has brought a change in concept. The gap between logistics and marketing thinking is evident in many companies’ distribution approaches; little has been done to relate transportation methods and service to the objectives of the distribution system in support of marketing efforts. Modern marketing programs require the logical design of distribution networks that adapt the transportation and warehousing systems to changing market conditions and variations in other elements of the marketing mix (Baudin, 2005).
The activities encompassed by these terms are concerned with the movement and storage of products and supplies to implement marketing strategies and tactics and satisfy customer needs. They focus on coordinating supply and demand and creating place, time, and possession utilities (Stroh, 2006). The emergence of inbound logistics is now receiving increasing attention because of the rising costs of distribution and the growing emphasis on consumer demand for services (Naylor 2002).
Conversion operations allow companies to manage their resources and create effective schedules for the whole company. Conversion operations can be performed several times in the distribution of a final product as products are assembled and stored and bulk is broken. Terminals are located at points to balance market requirements with the movement and shipment size. The latter are dictated by movement-and-handling technology (Christopher, 2005). Thus, the major decisions in designing a physical-distribution system involve:
- the number and location of plants;
- the number, size, and location of warehouses; and
- transportation and handling methods.
Up to the point of processing, the location of raw materials and cumulation of volume shipments (largely concentration) are the most important factors in designing distribution systems. Beyond this point, customer needs and purchasing habits (largely dispersion) take on increasing importance. Any physical-distribution system must be designed with flexibility and an awareness of future market dynamics. Changes in markets, raw materials, or movement-and-storage technology can force alterations. Investments in plants and warehouses introduce investment “lumpiness” and rigidities. Changes in the market and other environmental changes can greatly affect the value of such fixed investments (Cohen and Roussel, 2004).
Outbound logistics helps to connect suppliers with the company and manager external resources. It cannot be effectively managed without Conversion operations and inbound logistics. On the one hand, logistics activities are performed as a number of independent functions rather than as a system. To plan, direct, and coordinate physical distribution activities, it is desirable to group them all within a single department.
This is usually achieved in retailing and wholesaling under the operations department. Manufacturing, however, generally lacks such coordination. Physical distribution as a concept sees the physical movement of goods as a set of related activities carried on by a number of firms at various levels, linked together to form a total distribution system (Chase and Jacobs 2003). Logistical decisions and the design of a company’s movement-and-storage system result from cost-market requirement analysis of alternatives. On the other hand, inbound logistics and conversion operations depend upon outbound logistics and vice verse. Effectively organizing physical-distribution activities is a difficult task, because it involves such technical matters as transportation rates, materials handling, scheduling movements, and laying out warehouses (Chase and Jacobs 2003).
Thus, it has general relationships with manufacturing, marketing, and purchasing functions. Logistics does not lie exclusively within the jurisdiction of any one of these divisions; it is affected by and affects all of them. For effective control and direction, conversion operations activities should be grouped into a single department under the direction of the marketing manager. Only recently has management begun to focus attention on the organization of physical distribution (Kotler and Armstrong. 2008).
In an integrated company that serves multiple markets with wide product lines, the convergence of products on market segments requires different distribution networks and functions. Here a direct relationship exists between channels of distribution and physical distribution. The assembly and bulk-breaking activities of physical distribution must be related to markets, product lines, and the channels of distribution that connect them. Physical distribution links channel elements to one another and to the markets.
The chief logistics executive may have the title of distribution manager or vice president in charge of distribution. Specific organization arrangements will be related to the significance of physical distribution within the firm, particularly its impact on costs and market cultivation. Decentralization of distribution tends to be the practice in companies with the following operating characteristics: a large number of small shipments are made, production facilities are decentralized and widespread markets exist, the products transported and stored are heterogeneous and shipments cannot be consolidated, and different geographic areas require different services.
Coordination of distribution activities requires a perspective that takes into account the properties of products, markets, and logistical process; the breakdown of lines among carriers and methods of movement and handling; and the development of integrated systems that utilize many physical-distribution modes in order to lower costs. Even if all these factors are considered, however, managerial and organizational limitations often prevent the reduction of costs, for the authority of a distribution manager extends only to activities undertaken after products are made (Slack et al 2002).
Inbound logistics, conversion operations and outbound logistics are often clustered by market potentials. But markets are variable, unevenly distributed, and separated from a company in space and time. To cultivate them, companies require different distribution policies. For example, decentralized distribution points can serve large markets profitably. Smaller markets may be serviced by direct shipments (Chase and Jacobs 2003).
Accurate estimates of demand are critical in designing distribution systems, for they help to establish the feasibility of capital expenditures on plant and warehouse additions, which in turn shapes the distribution network. There is some fragmentary evidence that the average shipment size has been decreasing (Simchi-Levi et al 2008). Designing logistics systems to meet market needs is a dynamic problem, for continuous changes in markets, products, and processes bring about new physical-distribution techniques and patterns. Competition and pressures to reduce costs are also stimuli. Demand characteristics are directly related to physical-distribution systems.
Where demand is widely variable, then distribution facilities are usually concentrated in fewer locales. Where demand is continuous and rather consistent, as is the case for some food products, distribution facilities can be decentralized (Chase and Jacobs 2003). A highly variable demand makes it difficult to design effective physical-distribution systems and control costs, while a stable demand permits it. In between these extremes, where demand patterns can be discerned through analysis, as with seasonal products, reasonable distributions systems may be approximated. A heavy stock of low-value items, on the other hand, does not have a significant effect on total inventory costs, but costs of these items are greatly affected by transportation costs (Simchi-Levi et al 2008).
In sum, conversion operations, outbound, inbound logistics dictates immediate shipping, handling, or storing. Seasonality has implications for inventory storage. The integrated logistics reveals that a small proportion of products account for a large proportion of sales or profits should be managed using all three areas of logistics management. Physical-distribution systems are geared to the optimization of the system as a whole rather than of any part of it. To achieve this requires analysis of the total logistics pattern, for changes leading to cost reductions or improved services in one part of the system often result in increased costs in other parts.
The design of effective distribution systems requires total cost analysis, which takes into account all costs affected by changes in the logistical system. It requires the identification of physical-distribution activities and their related costs, the development of cost information and cost estimates, and the analysis of system performance under various conditions (Murphy and Wood, 2005). The efficiency of the total physical-distribution system is measured in terms of cost of inputs as they relate to outputs. If the costs cannot be reduced further without reducing the level of service, then obviously the system is highly efficient.
Bibliography
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