INFORMATION SYSTEMS AND LOGISTICS In logistics, each exchange partners actions are characterised by : (i) Information Flows (ii)

Control from a distance (iii) Integrated system Systemising information deals with how information is moved through channel systems and how it relates to logistics management. Systemised information involves any rule based method used to arrange, co-ordinate, or share data between members of a distribution channel. Systemising information can occur both horizontally and vertically in the channel system. LOGISTICS In both vertical and horizontal marketing systems, systemised information contributes to the efficient flow of goods and services from the point-of-origin to the point-of-consumption. This process of regulation begins with customer service and extends to the procurement, handling and processing of resources aimed at delivering customer satisfaction. Logistics is a way of systemising information to facilitate the efficient and cost-effective flow of goods and services to produce customer satisfaction. Each member in the supply chain must be involved in logistics activities. Logistics flows may begin with the supplier/manufacturer relationships, but efficient logistics activities are needed throughout the marketing channel. Logistics management is defined as : The process of planning, implementing and controlling the efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods, and related information from point-of-origin to point-of-consumption for the purpose of conforming to customer requirements. Three universal themes in logistics management include : Information drives the flow of goods and services Control over marketing channels can be achieved (from a distance) on the basis of efficiency and cost containment in resource flows. In marketing channels, resources are recast through an integrated system of technology, information and communication. Effective logistics management can help a firm create strategic competitive advantages. Properly managed logistical services can add value to customers. Manufacturers, wholesalers and retailers often distinguish themselves by the effectiveness with which they provide bundles of services. These services include billing, forecasting demand, handling returns, inventory management, special packaging, transportation, and warehousing and storage functions. Measuring logistics performance One common performance measure is profitability. However, isolating the costs and returns associated with the flow of goods and services from the point-of-origin to the point-of-consumption is extremely difficult. Different channel members bear different costs, depending upon the functions they perform and the services they provide. Another performance measure is the service quality index (SQI), a composite measure of a firms service capabilities, consisting of on-time performance, transit time, rates, cost of damaged goods and the like. The SQI offers a way to account for the cost/revenue trade-off when logistics performance is measured.

Customer responsiveness is an effective way of evaluating logistics performance. Customer responsiveness reflects a channel members ability to adapt to its partners changing needs. It captures customers perceptions of the logistics quality provided by a supplying firm. Four procedures help customers identify logistics needs : (i) External Audits : An external audit identifies the service variables that the firms customers value most. They can involve surveys or personal interviews with the firms current customers. Customers can be allowed to provide information freely. This provides greater assurance that no critical service attribute is left out. Customers should then evaluate how well the major vendors in the market address each service available. (ii) Internal Audits : An internal audit is a comprehensive evaluation of how well firms believe their current logistics practices satisfy important service variables. Internal audits identify gaps between a firms current logistics practices and its customers service quality expectations. Customer perceptions evaluations : This involves obtaining specific feedback on customer service quality. Competitive advantage evaluations : Here a firm evaluates itself in the light of its competitors.

(iii) (iv)

LOGISTICS AND CHANNEL MANAGEMENT Logistics systems are frequently described in terms of delivering the right product to the right place at the right time in the right condition for the right cost. Goals of channel systems include : Securing greater market coverage Deliver customer service Ensure the right product characteristics Achieve cost containment Attaining Market Coverage The right place is where the product needs to be to satisfy customer expectations. Logistics provides firms with an opportunity to capture market share by matching product availability with market demand. Delivering Customer Service Firms can earn a strategic advantage by developing strong personal relationships with other channel members. Such firms will be better positioned to deliver the right product at the right time. Ensuring the Right Product Characteristics Bringing products to customers in the right condition and in the right amount are critical logistics functions. Todays products are extremely customised to meet the exchange partners needs. Customisation is sometimes accomplished through modifying productive packaging or actual product specifications. Achieving Cost Containment The right cost is a market-derived assessment. Customers eventually determine how much they are willing to pay to have a channel function performed. Yet, costs are not equally distributed throughout the supply chain. The notion of who will bear the costs of performing logistics functions

is a major consideration in channels management. RELATIONSHIP LOGISTICS MODEL The RLM has five components : (i) Systemised Information Systemised information involves the communication of the firm, market and industry data between exchange partners. This information promotes the efficient flow of information from the origin to the destination. Relationship logistics requires that channel members attain high levels of coordination with one another. This coordination is achieved through information exchange. (ii) Logistics Inputs Logistics inputs are human and capital investments in the flow of goods and services through the marketing channel. Depending upon the logistics activities performed, these inputs differ among channel members. Relationship logistics requires that each channel member commits to the resources agreed upon at the beginning of the exchange relationship. Natural Resources Human Resources Financial Resources (iii) Logistics Goals Logistics goals are objectives that guide the logistics activities. When a relationship logistics orientation prevails, channel members share complementary or collective goals in areas like market coverage and customer satisfaction. Outcomes that are perceived as equitable by all channel members are then more likely to be achieved. (iv) Logistics Mediators Logistics mediators are the activities that channel members must perform to ensure smooth, efficient and cost-effective flow of goods and services through marketing channels. Logistics mediators are necessary to transform raw materials into finished goods. These activities directly shape the nature of exchange relationships between channel members. Inventory Management Transportation Warehousing and Material Building Purchasing Packaging (v) Logistics Outputs Logistics outputs are outcomes competitive advantage, efficiencies, and customer satisfaction that result directly from channel members performance in logistics systems. In relationship logistics, outcomes should be fair for each channel member. Competitive Advantage Efficiency Customer Satisfaction SUPPLY CHAIN MANAGEMENT The components of the RLM do not operate in isolation from one another. Rather, they are systematically organised to produce value at each level of logistics system, with the end goal of simultaneously maximising logistics output and minimising logistics inputs. In this system, known as Supply Chain Management, each logistics mediator is performed by the channel member most likely to minimise costs while delivering customer satisfaction. The overriding goal of supply chain

management is to foster cooperative exchange relationships to create the greatest net value for customers. The notion of supply chain management rests on channel integration. Channel Integration involves systemising information to reduce suppliers and retailers inventory needs. All channel members benefit from channel integration as follows : Manufacturers are usually more certain about the resource inputs they need because their production schedules can operate in real time, the actual time at which a sale occurs within a channel. Wholesalers can reduce their handling and transportation costs. Retailers only have to replace goods as they are sold, thereby reducing the need for retaillevel inventories. Supply chain management can reduce stock-outs, i.e., running out of merchandise for which there is customer demand ultimately increasing customer satisfaction. Supply chain management focuses attention on the need to develop relational (i.e. ongoing) rather than transactional (i.e. one time) exchange in logistical systems. Effective supply chain management tends to forge cooperative efforts outside the traditional boundaries of channel settings. These cooperative efforts might include market research, product engineering, and total system designs. For supply chain management to foster better retailer-vendor and retailermanufacturer relationships, partnerships must address matters extending beyond the distribution and handling of inventories. Hesitation to adopt supply chain management may result from : The high initial investment required Lack of training aids for channel members Relative inattention to planning and decision support systems Supply Chain Management and Fluid Performance Distribution fluidity describes the extent to which a product offering passes through the logistics systems without encountering obstacles. One implication of the RLM is that each logistics functions mediates (impacts) the fluidity with which logistical systems operate. Accordingly, each logistics mediator is critical to the extent that it may impede the flow of goods and services. Unfortunately, channel members have little control over conditions affecting distribution fluidity. Barring natural disasters, distribution fluidity can be best achieved through a comprehensive integration of channel functions. Sell-one-Make-one (SOMO) is a distribution fluidity programme which relies on established relationships between distributors and retailers. The success of SOMO is attributed to : Inventory visibility Management of all Product Flows Flexible Distribution Just-in-Time Manufacturing Interfunctional Cohesion LOGISTICS INPUTS Logistical functions cannot be separated from the channel members who perform those functions. Logistics inputs the human and capital investments in the flow of goods and services through the marketing channel involve three major category of resources : natural, human and financial.

Natural resources include : land, facilities, equipment, and raw materials used in the initial processing or the subsequent assembly of parts or products. Natural resources represent a major investment in inbound logistics for the producer. Human resources are labour units involved in the production, distribution, and/or marketing of raw materials, in-process inventory, or finished goods. The concept of human resources inputs captures the skills, knowledge, and physical energy that individual channel designates who interact in logistics systems bring to the channel. Financial resources are a critical logistical input. Undercapitalised firms are prone to logistical failures because they are unable to invest in new technologies that yield long-term savings. Financial resources sometimes provide an incentive for strategic partnering agreements in logistical functions. LOGISTICS MEDIATORS Logistics mediators are the activities that impact the flow of goods and services through distribution channels. These activities can be grouped into : Inventory management Transportation Warehousing Purchasing Packaging Inventory Management Inventory, often called stock, is a tangible asset capable of being mined, converted or created. It may take different forms, depending upon its location in the distribution system. In the resource market, inventory may be stockpiles in mines or extraction sites. For manufacturers, inventory may assume the form of raw, in-process, or finished materials. At the wholesale level, it is the parts and /or products stored in a warehouse or currently in-transit. To retailers, merchandise on racks or shelves is called inventory. Finally, to consumers, retail stock represents an opportunity for product choice or to build domestic inventories. Intense competition at each channel level has heightened the importance of making products available when and where customers want them. The costs of providing customer choice are high; however, the costs of failing to provide such service, resulting in a stock-out, can be much higher. Inventory carrying costs are the costs associated with holding an inventory. These costs, which are capital investments, may include interest on the investment, insurance, product loss or damage, and storage. Every dollar invested in inventory represents opportunity costs to the firm. Inventory management involves minimising inventory carrying costs while maintaining sufficient stock to satisfy all customer needs. Excessive inventory can lead to high investment costs. Because demand is uncertain, channel members must estimate customer demand to arrive at optimal inventory levels. Channel members often use industry benchmarks or estimates based on historical sales data to establish inventory levels. These estimates are often flawed. Inventory managers have traditionally relied upon a basic tenet of cost containment : Economic Order Quantity (EOQ). The EOQ is the order size that minimises the investment in inventory storage and order processing costs. Inventory carrying costs rise proportionately with inventory levels. At the same time, as order size increases, average ordering costs decrease proportionately.

Inventory managers seek a trade-off point the point at which the sum of inventory-carrying and order processing costs is lowest. Tools used to provide channel members a more accurate picture of customer demand and order delivery times are : electronic data interchange, just-in-time manufacturing, and quick response logistics. (i) Electronic Data Interchange (EDI) EDI is a technology for facilitating information exchange between channel members. EDI involves the paperless transmission of information between manufacturers, suppliers and retailers. These paperless transmissions include sales data, purchase orders, shipment tracking data, and product return information. The use of EDI shifts inventory management goals away from an individual firm perspective and toward a supply chain perspective. When inventory systems fail to work properly, trading partners suffer up and down the supply chain. Because goods become available just as needed, potential conflicts between channel members over inventory carrying costs can be easily eliminated through EDI. (ii) Just-in-Time (JIT) Manufacturing Here, production schedules are aligned with actual point-of-transaction activities, usually at the retail level. By operating on real time transmissions of sales and other logistics data between channel parties operating at different levels in distribution systems, JIT eliminates the need for excess inventory. JIT also eliminates the need for safety stocks, the reserve stock on hand to meet unanticipated demand. For this reason, it incurs high opportunity costs. JIT manufacturing requires openness and trust between producers, suppliers and retailers. (iii) Quick Response (QR) Logistics Quick response inventory systems use EDI applications to automatically replenish stock as it is sold. These technology track each Stock Keeping Unit sold and instantaneously transmits this information to suppliers and manufacturers. QR systems also build customer satisfaction by reducing stock-outs. A high level of commitment must exist between the channel members throughout a logistics pipeline for QR to operate. Transporting The physical movement of goods from one location to any other destination is called Transportation. Transportation accounts for a substantial portion of logistics costs for most firms. Since nearly all materials and finished goods spend times in transit or in warehouses, effective transportation management reduces costs associated with idle inventories. Several uncontrollable factors affect the transportation functions on-time performance. Weather, government regulation, and fuel availability and cost affect channel members choice of channel modes. The types of decisions channel members make when selecting a mode of transportation include : (i) Product decisions A products physical attributes determine its transportability. (ii) Location decisions Where products are to be sold affects how they are transported.

(iii) Purchasing decisions Order quantities, delivery frequencies, and availability impact the when, where, and how of transportation. Some products are extremely costly to ship overnight, specially when distribution routes cross international borders. (iv) Pricing decisions Transportation costs affect the selling price of the product. Trends influencing how goods and services are transported (i) From a relationship logistics perspective, the most important trend is the increase in working transportation partnerships. Specialisation of transportation services has afforded many transportation firms the opportunity to develop long-term relationships to better service the customer. The focus is less on transportation modes and more on cost-effective delivery. Intermodal transportation occurs when more than one transportation mode is used to haul a shipment. (ii) Another trend in transportation is the use of third party logistics firms. Because of the incraesed complexity of transportation options, the transportation function is now a highly specialised skill that can frequently be handles more proficiently outside the firm. Companies can then focus more attention on improving manufacturing processes, product development, or other marketing functions.

Warehousing Warehousing involves the physical storage or stock-keeping of raw materials, product components, and/or finished goods. Channel members efforts to minimise physical inventories have not lessened the importance of warehousing. Warehousing has three basic functions : Movement Storage Information transfer (i) Movement Movement facilitates the flow of goods and services through receiving, transferring, and assorting activities aimed at fulfilling customers orders. The movement function starts with the receipt of the customer order. It involves the physical unloading of raw materials or products and the transfer of those materials to storage and transportation areas. During this process, goods are regrouped into assortments or lots, that meet customers specific needs. Finally, the goods are packed and prepared for shipping to the customers designated locations. The movement function is the initial stage in the materials handling process. Materials handling involves the physical management of raw materials, component products, and finished goods in warehouses or manufacturing plants. It represents transaction costs to the firm. These costs may be in the form of lost or damaged goods, production delays, and customer dissatisfaction. Materials handling, however, does not provide any tangible value to the product itself. Therefore, the goal in the movement function is to minimise materials handling, travel distances, and goods-in-process.

(ii) Storage Storage involves the stock-keeping of raw materials and products. Storage is classified into temporary and semi-permanent categories. Temporary storage accounts for the vast majority of stock-keeping in warehouses or distribution centres. Temporary storage includes just enough material or product to ensure inventory replenishment as needed. Temporary storage is the inventory cost-reduction goal for just-in-time manufacturing and quiack response retailing. However, some materials or products may require extra lead times. In these cases, semipermanent storage is necessary. Semi-permanent storage provides a buffer or safety stock to ensure that ample materials or products are available to meet customer demand. Semi-permanent storage may be used because of the following : There may be seasonal or erratic demand for the materials or products. Some materials or products may have long conditioning processes. In case of forward buying. Forward buying, or hedging, denotes the advance purchase of materials or products before they are actually needed to take advantage of the lowest market costs. Forward buying may be risky because of market price fluctuations. In forward buying, channel members must weigh the costs of carrying inventory against the potential costs of market price increases. (iii) Information Transfer Timely and accurate information facilitates smooth materials handling. There are many types of information that impact materials handling, including : inventory levels and locations, customer locations, shipment costs, and facility space utilisation. Challenges present by warehousing functions to logistics managers : Logistics managers must decide the location and number of warehousing facilities that are required to meet customer needs. The warehousing function has shifted from its traditional focus on storing products to a facilitating focus. Thus, warehousing is an intermediary link between inventory management and transporting. Purchasing Purchaisng involves forcasting materials or product demand, selecting suppliers (sourcing), and processing orders. Parties from both sides of the exchange relationship are involved in purchasing tasks. Forecasting demand for a product is a complex process of evaluating macro and micro market cues to determine what materials or goods will be needed at which times. This means production schedules, materials handling, inventory levels, and transportation mediators must be synchronised. The process of synchronising these mediators to optimise purchasing levels is called Materials Requirements Planning (MRP). MRP forces the purchase decision makers to manage the entire supply chain. The emerging trend in the selection of suppliers or sourcing is to select a few key suppliers that can best meet a channel members needs. The tend to build fewer, stronger relationships with suppliers influences the means by which products and services are procured. As a logistics mediator, purchasing has two simultaneous goals : Minimising transaction (i.e. administrative) and product costs while maximising the

transaction and product quality. Packaging Packaging refers to the materials used to encase materials or products while in storage or transit. It is concerned with protecting the product. Packaging can optimise logistics efficiency and effectiveness by : Reducing the weight and space requirements for materials handling and transit Ensuring product quality in route through the logistics system Selling the product In marketing, packaging is also concerned with promotion. Packaging influences a buyers perception of the product through brand identification, colours, texture, and other material and visual cues. Packaging can initiate changes in the buyers behaviour as well. Other roles packaging performs in the distribution channel include : Containment Products need to be contained before they can be transported from one location to the other. Protection Packaging has to be customised to minimise product damage or loss, particularly when goods are fragile or require special temperature and handling. Apportionment This involves preparation of lots of goods for customer convenience in order to be available in the sizes they want. Unitisation Unitization allows packaging to be broken down into secondary and tertiary packages. Communication Packaging symbols and other data inform buyers of the contents, product attributes, weights, storage sizes, perishability and handling instructions. Other information is aimed at inventory management. Machine-readable bar codes are becoming a norm in packaging. Using bar code scanners, channel members can quickly record inbound shipments, fulfill order requirements, and prepare outbound shipments. Packaging is also becoming important in the light of growing environmental responsibility. Logistics Outputs There are three primary outputs in the logistics system : (i) Competitive Advantage A channel members logistics performance can differentiate it in the marketplace, providing an advantage over other competitors. (ii) Efficiency in providing products This involves efficiency in providing products when and where they are needed. Several components of logistics that foster place and time utility are : Reducing the time between order receipt and shipment Limiting lot sizes and assortment of orders

(iii)

Reducing stock-outs Ensuring exact materials and product fulfillment through accurate information flows Reducing order cycle times the time between order placement and receipt of materials or products. Providing and effective and efficient mechanism for buyers to place orders. A Satisfied Customer