Logistics Management and Distribution
Retail Management Notes B.Com 5th Sem CBCS Pattern
Meaning of Logistics
Logistics
means to make the goods available to the end customer at the right place on the
right time. In this fast moving world, the companies want to reach to their
customers more efficiently and quickly than their competitors so that the
customers purchase their products. In this situation it becomes very essential
for the businesses to keep a close track on the overall process starting from
the procurement of the material to how the finished products are supplied to
the front end so that they can be in reach of the target segment.
Logistics
consists of all parties involved, directly or indirectly, in fulfilling a
customer request. It not only includes the manufacturers and suppliers, but
also transporters, warehouse, retailers, and customers themselves. It consists
of the flow of products and services from:
Ø
Raw materials suppliers.
Ø
Final goods manufacturers.
Ø
C & F agents, Wholesalers, distributors
Ø
Retailers.
Ø
End customer.
Logistic Management
The
word ‘warehousing’ means the efficient management of the stock
(inventory/finished goods) and supplying it at the time of need. ‘Inventory
Management’ means handling the inventory at all the stages of the product so
that the production and the sales process runs smoothly. ‘Transportation
Management’ means the control of the part of travelling of the goods from one place
to another. Thus ‘Logistics Management’ can be referred as the linkage between
various stages of transferring the goods starting from the manufacturer (owner)
to the needy (end customer). The idea of an organization behind this sequence
is to make the goods available to the end customer effectively, efficiently and
economically.
This process of Logistic Management is
explained by the example of the packaged drinks below: This process starts
with the sourcing of the raw materials (plastic granules) by the
firms/suppliers and then selling it off to the plastic bottle manufacturers.
These bottle manufacturers then convert these granules to the plastic bottles
(of the desired form, shape, size, colour etc) as per the need of the customer.
The components manufacturers supply the other parts such as printed labels,
seals, and corrugated packing boxes/plastic packing sheets. The final product
manufacturers (companies which deal in packaged drinking water, soda, soft
drinks etc.) source these bottles, pack their produce in them and sell them to
the wholesalers/distributors who then sell them to the retailers as and when
the orders are received. These retail counters are available for the end
customer for purchasing the goods. The feedback about the product from the
customer and the faulty goods (if any) are brought back via reverse logistics
and are delivered at the appropriate place (final product
manufacturer/intermediary product manufacturer etc. as per the nature of the
fault).
From
the above example it is evident that the sequence of operations and the
companies which are engaged in delivering the products and the services to the
customer including procurement of raw material components, production of raw
materials and procurement of intermediate components, manufacturing of final
goods, delivery, and reverse logistics; constitutes the Logistics. When any
firm ignores the interests and the complexities of the other channel members
while planning its logistics, it leads to increased cost of the Logistics and longer
delivery time to the retailer point. This may ultimately reduce the demand of
the product due to non availability of the product.
Also Read:
👉👉Retail Management Notes
EVOLUTION OF DISTRIBUTION AND LOGISTICS MANAGEMENT
In
earlier times between 1950s to 1960s, the US manufacturers were employing a
range of option to reduce the cost of supplying the products from one place to
another. This was followed by the advanced techniques being used for managing
the inventory such as:
Ø
JIT (Just in Time Inventory)
Ø
TQM (Total Quality Management)
Ø
BPR (Business Process Reengineering
Ø
Increase in supply chain efficiencies
As
discussed in the earlier times, the customers had very little option to choose
from and they had to purchase what was being offered in the market. The reason
of this was that the number of manufacturers was comparatively very less. At
that time, there was the natural demand of the products and services or it can
be said that there was the pull for the products from the customers end. But
over the period of time with the growth of competition the customer got a wide
variety of option in terms of brands and designs. The companies now have to
strive hard in order to retain the customer and to keep him brand loyal. They
have to compromise in terms of price, offer timely schemes and offers etc. thus
pushing the products towards the customer end. And the most important parameter
is to make the goods available at the right place at the right time. And this
is possible only with the efficient and well planned supply chain.
ELEMENTS OF DISTRIBUTION AND LOGISTICS MANAGEMENT
Supply
Chain in itself is not limited to the transportation of the products. It
involves the whole process ranging from the ordering of the raw material to the
final delivery and then getting the feedback (as discussed above). Various
elements of the Supply Chain Management are discussed below:
1)
Customer
Analysis: The first and the foremost step is to determine what the need of
the customer is. the purchasing company has to get the requirements through
various sources before starting to plan the procurement and manufacturing
process.
2)
Demand
Forecast: The next step is to forecast the demand especially for those
goods which are supplied through Push Strategy. This helps the purchasing
company to allocate the funds for inventory and also plan for the storage space
and other parameters.
3)
Inventory
Planning: The next step is to plan for the appropriate level of inventory
for the goods so as to keep a proper balance between the Ordering Cost and the
Carrying Cost.
4)
Evaluate
Suppliers: The next step is to call for the quotations from various
suppliers and then decide which one of them is best suitable for procuring the
desired quality of raw material at appropriate cost.
5)
Logistics:
This step is to evaluate the possibility of having own logistics/having the
third party logistics or a mix of both. The types of vehicles with capacity
specifications are decided for every route.
6)
Purchase:
The order is them placed and the numbers of suppliers are selected keeping in
mind the risk of the stock outs. The companies generally avoid to have single
supplier because it may lead to monopoly type situation and the supplier may
start demanding his own terms and conditions when he feels the whole operations
of the purchasing company is dependent on him.
7)
Processing:
The next step is to schedule the work with respect to the delivery schedule.
The purchasing company has to continuously evaluate the quality of the
products, and keep the delivery in line with the promise made to the customers.
8)
Delivery:
The processed goods and dispatched in the vehicles as decided above according
to their route and the timings.
9)
Inventory
Analysis: The inventory is analyzed regularly so as to check the reorder
the some to avoid the condition of stock out.
10)
Feedback
and Reverse Logistics: The process of the feedback from the front end for
the improvements in the product/service is delivered to the decision maker in
the purchasing company so that necessary action can be taken. Moreover the
goods which are not acceptable/are returned by the customer are brought back at
the manufacturing location/disposed in between as applicable.
NEED OF DISTRIBUTION AND LOGISTICS MANAGEMENT
The
problems faced by most of the companies in the absence of the supply chain
were:
a)
Process
Delays: Due to absence of real time information, the companies were facing
the problems such as the production was not completed on time, and the product
was not made available at the required service point (such as retail store) on
time. This sometimes forced the customer to shift the brand which used to
create huge loss for the companies.
b)
Expensive
Inventories: The companies had to invest huge sum of money on the
maintenance of inventories and then bear the carrying cost of the inventories
both at the front end and the back end.
c)
Absence
of coordination among partners: Due to delay in the supply chain and the exchange
of information, the information from the purchasing company to the retail point
and the feedback from the retail point to the purchasing company used to be
much delayed. Due to this the companies were not able to encashed the
opportunities available in the market.
d)
Excessive
Uncertainties: The customer (wholesaler/distributor) was not clear whether
he will receive his order on time and also whether he will receive or not. Also
he was not clear whether the purchasing company has received his order and
whether it’s processing has started or not. But with the advent of Information
Technology in Supply Chain he immediately gets the acceptance of the order
online. And he can track the manufacturing and the dispatch status order of his
order online.
e)
Poor demand
forecast: The companies which use the push strategy were not able to gauge
the actual demand of the product and they kept on producing the products as per
their pre set planning. And by the time they used to get the information from
the front end, they had already compiled the excessive inventories in stock.
Due to this they were not able to respond to the market fluctuations.
f)
Poor
quality: The quality of the products used to suffer due to excessive
inventories compiled and the lack of customization.
g)
Volume
changes: This is the general tendency of the customer to change the
quantity of the product or service previously ordered at any point of time.
Alternately they can unexpectedly demand more quantity of the product or
service than previously ordered. Customers may also change the mix of items in
an order and cause an efficient throughout the supply chain. This used to be a
problem. Due to longer processing/delivery times, the orders which were already
under production/in transit could not be reduced and hence the purchasing
company had to bear the extra cost of inventory/cost of bringing back goods.
This lead to Bull Whip effect which means distortion of demand information
within the supply chain, with different stages having very different estimates
of what demand looks like. The result is a loss of supply chain coordination.
SIGNIFICANCE OF DISTRIBUTION AND LOGISTICS MANAGEMENT
The companies
have various long term and value enhancing benefits from this supply chain
management. The retailers are in the direct contact with the customers and this
supply chain is very important for them and if successfully implemented it can
create huge beneficial opportunities for them. These are discussed below:
1)
Timely
replenishment of stock: The properly managed supply chain helps to deliver
the stock to the retailer’s point on time and in proper orders. This saves the
huge losses caused due to under stocking and the loss of customers is saved.
2)
Quick
response to Market: The supply chain helps the purchasing company to
quickly respond to the inputs/feedback received from the market. If it wants to
launch any new product as per the need of the market or make modifications in
the existing product and place it in the market quickly, it is possible.
3)
Efficient
Inventory Management: The current trends in the SCM which helps to track
the inventory online and also to check the locations wise details of fast and
slow moving goods helps the purchasing company to adjust the quantity of next
time deliveries at that location for a product whose sale is very less. This
helps to save the accumulation of excessive inventory of that product at that
location and saves on the huge spoilage costs.
4)
Cost
Benefits: The SCM does not help to reduce the raw material costs. Rather it
helps to reduce the overall costs of operations by making the planned
deliveries and controlling the quantities delivered.
5)
Globalization:
With the help of efficient supply chain the cross border trade has becomes
possible. Retailers manufacture their goods at one location and then transport
it to other countries and make it available in the same condition.
6)
Reduction
of Bullwhip Effect: The reduction in the inventories due to coordinated
planning and sharing of information helps to reduce the bullwhip effect and
adds to the profits of the purchasing company.
7)
Manage
the competition: It helps the purchasing company to manage the competition
by timely responding to the actions of the competitors. This is possible due to
the timely availability of the vital information of the market.
8)
Other
Benefits: Various other benefits which are an after effect of the above
mentioned parameters are as follows:
Ø
Improve in the overall operations of the
purchasing company.
Ø
Increase in the Return on Investment thus
leading to higher profits.
Ø
Greater customer loyalty.
Ø
Benefits to the overall economic development of
the country.
Various factors affecting the site selection
Selection of specific site: Once the
trading area is shortlisted, the retailer needs to check the sites/shops
available in that particular area. He needs to consider various operational
factors such as the possibility of storage and expansion, the nature of the
adjacent stores; the cost/rent of each site before deciding which site is to be
finalized.
1)
Types of
Goods: While short listing from
the various opportunities available for the store location, the retailer needs
to consider the types of merchandise he is going to sell as the main deciding
factor. Broadly classified, the goods are of the three types are discussed
below:
Convenience
Goods are the impulse goods bought frequently or which are the basic
necessities and are planned once; and they need not to be re planned every time
the need arises. This product type is purchased by a wide range of customers.
The retailers selling such goods have to ensure that they are present in the
area where there is high flow of the traffic (of their target segment). The
location and the nearby areas have the possibility of large displays of the
products related matter so as to induce the customer to do impulse purchase.
Basically these locations have to be very easily accessible.
Shopping
Goods are the goods which are purchased infrequently. They are high involvement
planned purchases. The customers are willing to travel a particular distance to
visit these stores in order to fulfill their needs. The retailers have to
ensure that there is sufficient parking facility for the customers and they
spend quality time in their stores. They need to position their store in such a
location where the target customer base feels comfortable to visit.
Specialty
Goods are bought occasionally and have the specific customer base who buys
those particular goods/brands only. For these stores, even the standalone
locations are suitable wherein there is no other store nearby. The stores
selling such goods are very few and hence customers are willing to visit these
stores no matter wherever they are located.
But
the main factor to consider here is that since these are premium products, the
customers would like to compare the physical products and the prices of the
complementary products before making the purchase. Therefore in those cases
where the complementary goods are available in the same city/area, the
retailers will like to locate their store near the competitors so that
customers can make the quick decisions and they can convince the customers in
the same visit. Because customer once gone for evaluation to the other store in
some other location has very rare chances of coming back
Most
of these goods are promoted by the retailer using ‘window dressing’. It means
displaying the product in the show window of the retail outlet with the face of
the product visible from the street. It creates the long lasting first
impression. It also attracts the passersby as well as prospects and invites
them to enter the store. Mostly the retailers display their premium/newly
launched/well known products in the glass at the front of the store and the
products are visible from the road outside very clearly. These displays:
Ø
Remind the consumers about their needs.
Ø
Lure them to come inside the store.
Ø
And to explore the products available.
Ø
Which finally attract them to buy the product?
Such
types of the retailers choose the busy square of the road to attract the
customers.
2)
Population:
The population is the main determining factor for selecting the store. As
mentioned in the trading area analysis above, the retailer needs to consider
whether the majority of his target customers live in the surrounding areas, or
pass by that area or regularly shop from that particular area which he is going
to locate his store. The local demographics need to be checked and the profile
of the population of that area needs to be studied. This also helps to forecast
the possible sales and the scope of expansion in future.
3)
Easy
Accessibility: Accessibility affects the number of vehicles and pedestrians
that pass by the store i.e. the traffic flow. When the traffic is greater, more
consumes are likely to stop in and shop at the store. Traffic counts are
particularly important for retailers offering merchandise and as most of the
services are bought on impulse, than other wise.
The
accessibility of the location is the most determining factor in selecting the
site. It means connectivity with the site for customers and suppliers. As
discussed earlier that the retailers need to ensure that the sufficient number
of people pass by that area i.e. the store is located in the area with
sufficient traffic. But traffic cannot be confused with the target customers.
Only having sufficient traffic does not mean that the store will have
sufficient sales, as all of them cannot be the target customers.
4)
Legal and
future considerations: The retailer needs to check with the local
authorities regarding the restrictions and the future plans of the area where
he is purchasing/getting the location on lease. He needs to check the
advertisement rules (whether the hoardings/signage boards in and around the
location are allowed, whether he can use lighting boards, the height of the
displays allowed, etc.) and then he needs to match those specifications with
the requirements of his store. Moreover he needs to check the future plans such
as construction of over/under bridge, road leveling etc. which may affect his
visibility/traffic flow to the store, and ultimately the sales; and about the
various types of licensing requirements for operating the store in that area.
5)
Competition
and Saturation: The competition can actually increase the sales or
alternately decrease it to the minimum extent on the basis of the merchandise
sold and the nature of competition.
Thus stores also
facilitate multi-purpose shopping and help customers purchase all their needs
at one location i.e. one-ship-shopping. For example: the shopping centers and
shopping malls.
6)
Location
Cost: Generally when a retailer decides the location, the basic land cost
(in case of purchasing the location) or the basic lease cost (in case of taking
the location on rent) is considered. But once the location is finalized, there
are various hidden factors which are imposed from time to time and make the overall
planning ineffective. These factors need to be considered:
Ø
Charges of the security, maintenance, and use of
basic amenities in the building where the store is located.
Ø
Charges for the usage and maintenance of common
facilities in the building (Escalator, Centralized cooling units, Stairs,
Parking etc.)
Ø
Average cost of power used.
Ø
Compulsory membership in the associations
required.
Ø
Various of taxes such as property tax are to be
paid by the owner of the retail, etc.
All these factors help the retailer to
determine what is the average cost of the location (including rent) that he has
to bear and he is in a position to decide whether the locations is profitable
for him or not.
7)
Parking
facilities: The retailer needs to ensure that there is sufficient parking
facility available for the visitors to his store. It is generally seen that
sometimes customer wants to shop at a particular store for buying the
merchandise, but he doesn’t find the parking space in front of a shop and he
moves ahead. Very good merchandize mix and excellent display will be of no use
if the location doesn’t have sufficient parking facility.
8)
Owner’s
terms of occupancy: Some owners of the retail mall/market place
restrictions on type of retailers those are leased space in the shopping centre
and are restricted to compete with other retailers from the same location. In
these types of locations such as Malls/markets, the better locations always
cost more. For example in a strip shopping centre, the better locations are
closest to the supermarket.
9)
Multiple
locations of the same retail chain: Retail chains such as Big Bazar, More,
Subhiksha must consider the area being served by one store and the next store
should be at such a location that the areas do not overlap. These retail chains
with their multiple stores attempt to achieve promotion and equal distribution
economies of scale for all the multiple locations. But in doing so, sometimes
the locations are chosen so close to each other that they eat away the sales of
each other and this is known as cannibalization.
10)
Types of
Lease (in case of rented site): In the case of the site on rent, the
retailer needs to check whether the type of lease offered by the owner suits
his business operations. Various types of lease options available are mentioned
below:
Ø
Fixed
Percentage Rate: The retailer pays a fixed percentage of the sales as rent
per month.
Ø
Fixed
Rate Lease: The retailer pays fixed amount per month over the entire
duration of the lease.
Ø
Graduated
Lease: The rent starts with a particular amount and then it increase at a
predefined rate over the time period.
11)
Conditions
of the surroundings: The retailer needs to check the conditions such as
environment, noise, traffic flow, etc. and considers that it suits his
merchandise mix. Some products need the locations with a particular temperature
limits and if not available, they need to be kept in artificial conditions
which is not cost effective for the retailer (in certain cases). In certain
other cases, the noise in the area doesn’t suit the shopping experience of the
customers as the customers prefer calm environment for making their purchase
decisions. Hence the retailer should keep all these factors in mind. The
dimensions of the site (size, shape) should also be such that it suit the
desired store format.
Other factors which are considered with
reference to the surroundings are:
Ø
Availability of the fire and police protection
in the area.
Ø
Availability of adequate sanitation facilities.
Ø
Protection from rain/water.
Ø
Restrictions on Sunday sales etc.
12)
Other personal
factors: Some retailers consider the distance of the store from their
residence and other personal considerations while selecting the location. They
need to consider their health and check whether the location fits in their
health constraints. They need certain time for their personal self, their
family and accordingly they decide the location.
13)
Conclusion:
While deciding the location for a retail store, the retailer needs to take
proper time and research the area with patience. Even if the retailer has to
change his schedule and push back the date of the store’s opening, he must do
so. It is better to wait to find the perfect store location than just settling
for the first place that comes along. The wrong location choice creates havoc
to the business and the investments. After choosing location if the retailer
comes to know that various parameters are influencing his sales and he is
suffering on the profitability, then nothing can be done. Hence he needs to
keep all the factors (technical, marketing, finance, human resources,
operations, customers behavior, area related etc.) in mind while finalizing the
store location. In addition legal issues need to be considered while selecting
a site.