chapter 2 human resource planning & strategy · more working capital is tied ... the process of...

Ibrahim Sameer (MBA - Specialized in Finance, B.Com – Specialized in Accounting & Marketing)

THE IMPORTANCE OF THE PLACE ELEMENT

What is Place?


The "place" element of the marketing mix does not

only relate to the actual location where a buyer can

obtain a product; it is also concerned with the entire

process of distribution management.


From the marketing point of view, there is a sequence

which is important and it goes like this in most

companies:

CHANNELS OF DISTRIBUTION

CHANNELS OF DISTRIBUTION Direct Channels

Direct distribution means that the manufacturer

delivers the product straight to the buyer –the

product goes directly from the producer to the

consumer without the use of a specific intermediary.

CHANNELS OF DISTRIBUTION Indirect Channels

Indirect distribution means that delivery is made

through an intermediary of some kind. The

intermediary is a "link in the chain". There may be

multiple links in the chain with many intermediaries

before the buyer, or user, comes into contact with the

product.

CHANNELS OF DISTRIBUTION The following table highlights a variety of factors

influencing choice between direct and more indirect

channels of distribution.

CHANNELS OF DISTRIBUTION Following are the advantages & disadvantages of using

different intermediaries.


Advantages of Using a Wholesaler

The manufacturer is new to the market and prefers to

rely on the wholesaler's contacts

The manufacturer cannot carry out certain functions

e.g. warehousing



The manufacturer would not find it cost-effective to

send a salesperson to a number of small retailers (one

large order from the wholesaler is preferable to many

small, retail orders)



Administration costs (e.g. postage, typing) are reduced

by using wholesalers because the number of accounts

is reduced (also, less of the manufacturer's salesmen

are required).


Disadvantages of Using a Wholesaler

The manufacturer loses control over where their

products are finally sold.

Call frequency is dependent on the wholesaler.


Disadvantages of Using a Wholesaler

The wholesaler sells other competing lines and

therefore the manufacturer has no control over what

products the wholesaler generally pushes.

In certain cases, the manufacturer has no control over

price.

CHANNELS OF DISTRIBUTION Advantages of Direct Sales to Retailers

Manufacturers have greater control over where their

product is sold.


It is useful where technical service or a large flow of

information is required. To use a wholesaler would

increase the number of communication channels and

this could lead to a distortion of facts.


Greater control is maintained over prices, call

frequency and in-store merchandising; in-store

promotions are most easily organised.

CHANNELS OF DISTRIBUTION Disadvantages of Direct Sales to Retailers

There is an increase in costs of sales, administration

and distribution.

Some customers continually place small orders which

are hardly economic; roughly 20 per cent of customers

provide 80 per cent of the turnover.

CHANNELS OF DISTRIBUTION Disadvantages of Direct Sales to Retailers

More working capital is tied up.

There are more bad debts.

DISTRIBUTION STRATEGIES Intensive

Intensive distribution aims to achieve the widest

coverage of outlets and is sought by suppliers of high-

volume, low-value products that are in mass demand.

DISTRIBUTION STRATEGIES This strategy is usually adopted for fast-moving

consumer goods.

They are in high demand all year round and the aim

should be to gain distribution in every available

outlet possible.

DISTRIBUTION STRATEGIES

Exclusive

Exclusive distribution is where distributors/stockists

are granted exclusive rights in specified areas.


It is applied where the product is expensive and

infrequently purchased, and so the motor car

distributive networks exemplify this type of

distribution.


For example, with top-of-the-range cars like BMW or

Mercedes, distribution should be matched to areas of

population that can afford luxury goods.

DISTRIBUTION STRATEGIES Selective

Selective distribution can be adopted when the

product is fairly expensive and bought occasionally but

not top of the range.

DISTRIBUTION STRATEGIES This strategy is used by consumer-durable

manufacturers.

The product is not placed in all potential outlets, thus

selected dealers can specialise and afford after-sales

backup and support.

PHYSICAL DISTRIBUTION MANAGEMENT (PDM)

Physical distribution management (PDM) is often

referred to as logistics.


Management of Logistics

The process of physical distribution management

involves the following steps:

find out customer service needs

find out the present performance of our company and

of competitors


determine the costs and benefits of improving our

performance levels, so as to maximise profits

establish specific objectives for logistics performance

plan, implement and control the logistics system.

Nature of business logistics and its contribution to the performance of the

marketing firm.

Marketing logistics is a term that has developed from

the military use of the term “logistics”. From a military

point of view logistics was a range of activities that

made sure supplies were in the right place at the

right time in the right condition and delivered to

the right people.


marketing firm.

In a marketing context the term has a very similar

meaning except we are now using it in a commercial

context rather than a military one.


marketing firm.

From a marketing standpoint the subject of

distribution management is divided into two

separate, but interrelated parts, these are channels of

distribution and physical distribution

management (logistics).


marketing firm.

With the growing finesse of marketing analysis has

come a more mindfulness of the costs of logistics.

Firms must aim to provide customer satisfaction

in order to make money, and to achieve this,

goods must be in the right place at the right time.


marketing firm.

There is an equilibrium that must be achieved

between the costs of logistics and customer

satisfaction. Greater levels of service usually mean

higher costs and the balance is the task of logistics

management.


marketing firm.

Modern management theory and practice takes a

holistic approach to logistics management and

today this managerial function is often referred to as

‘total business logistics’ with the emphasis on the word

‘total’. It is intended to be a complete physical

distribution system, which employs a total cost

approach.

Integrated nature of logistics

In order to be truly effectual all of the functions within

the logistics function must be fully integrated, which is

what is at the heart of “Total Business Logistics”. It is

no use having one part of the system optimised if

other parts are not.

For example it is little use having materials handling

optimised if the company is out of stock of key items.


Some parts of the system may have to operate sub

optimally for the system as a whole to provide

maximum efficiency. Customer service is the end point

of business logistics and it is the achievement of

service levels in line with marketing objectives that

should drive the total system.


Because the functions making up logistics

management are often complex and highly specialised,

they need to be managed by professional people. To

illustrate this, the use of forklift trucks, cranes,

gantries and lifts can be very dangerous business.


Such equipment forms the tools of materials handling.

The incorrect operation of such machinery can result

in serious injury and damage or even death.


Business logistics management integrates these

functions, making sure each element is used to best

effect towards a single, well-defined goal. This is

known as the systems approach to logistics

management.


A good grasp of the two main premises is important.

1. The achievement of an effectual system is the

outcome of hard work and dedication to purpose by all

concerned.


The overall service aim can be achieved, even though it

may appear as if some individual elements of the

system are not working to maximum efficiency. It is

the total final output of the system that is important

and the criterion by which the effectiveness of the

system as a whole should be evaluated.


2. The best service cannot be provided at the lowest

cost, since costs increase with the level of service

offered. When the level of service that should be

offered to customers has been decided, the company

must then search ways of keeping costs to a minimum

without putting at risk the agreed service targets.

Component part in Integrated system

Order processing

This is the first stage of the logistical process, and an

effective order-processing department has a direct

influence on lead times.


Orders come from the sales team via the sales

department, arriving only rarely on an ad hoc basis,

most companies preferring to build up regular supply

routes with an efficient supplier, which remain stable

over a period of time.


Contracts are frequently set up and regular repeat

orders are made throughout the duration of the

contract.


Inventory

This is a critical area of PDM, since customer

satisfaction depends on the company not running out

of stock and being able to deliver orders. An optimum

stock level must be operated, whereby stock-out

situations do not happen.


However, stock levels should not be too high as this is

costly to maintain. Techniques for ascertaining

optimum stock levels are examined later.


Warehousing

Many firms dispatch goods direct to the customer from

their own on-site warehouse. However, if a firm sells

goods which are taken off regularly, but in small

quantities, strategically located warehouses around

the country may be used.


Large retail chains use this type of system, in which

goods are transported in bulk from manufacturer to

retail warehouse, where stocks are stored before being

distributed to individual stores belonging to the retail

chain.


Transportation

This is usually the greatest cost in distribution, and is

calculated according to numbers of units or weight.

However, it must not be thought that management of

the transportation function is easy, since costs must be

carefully controlled and type of transport chosen,

which must be kept under review.


Many companies have dedicated transport managers,

illustrating the importance of the PDM function.


Inventory management (stockholding)

Inventory gives cover against what may happen

tomorrow. Inventory is kept to increase profitability

with the support of manufacturing and marketing.


Manufacturing support comes through two types of

inventory that of the materials for production, and

that of spare and repair parts for maintaining

production equipment. Marketing support is provided

through an inventory of the finished products, and of

spare and repair parts which support the products.

Importance of Logistics

Logistics is important to the marketing function at the

strategic, tactical and operational levels. Marketing

has many definitions, one, which relates to the process

of getting the right goods to the right place at the right

time. This is a simplistic definition, but it does

encapsulate the importance of time and place.


It has been said earlier that it is the mission of the

marketing orientated firm to produce goods and/or

services that satisfy the needs and wants of specifically

defined target markets more efficiently and effectively

than competitors. From this point of view logistics is

to do with policy and is a long term strategic decision.


The output of a physical distribution system

The level of customer service is the key output from

any system of physical distribution and this is a

competitive benefit that can be offered to customers to

keep existing business or to attract new business.


A strategic decision for management relates to the

level of service offered to customers. The level of

service offered should be at least comparable to that of

major competitors. The level of service is often

perceived as the time it takes to deliver a customer’s

order, or how many orders can be met from stock.


How this service level is delivered to customers and by

what means is a tactical level decision. The day to day

operations regarding transport deliver and materials

handling is of course an operational decision.

Technical assistance, training and after-sales service

may also be involved.


The two most fundamental areas are reliability and

frequency of delivery and the ability to meet orders

quickly from stock.


Elasticity of service

The cost of providing service is measured in time and

money, especially in industrial markets where service

can often take precedence over price when potential

customers are deciding on a supplier.


Companies operating JIT manufacturing are

particularly conscious of this fact. Marketing firms

wishing to raise their service levels can face

diminishing returns.


For a company to offer 100 per cent service provision,

every eventuality would have to be covered, which is

costly. Maximum customer satisfaction and minimum

distribution costs are not compatible and there has to

be some compromise in other areas. This depends on

the degree of service sensitivity or service elasticity in

the particular market.


The logistics function plays a crucial role in delivering

utility and satisfaction to customers at the strategic,

tactical and operational levels. It is a long-term

strategic tool, which can be used to gain a competitive

advantage.


It delivers a level of service and time and place utility

to customers. Because of this, it must ultimately come

under the influence of senior marketing staff.

Past Paper Review December 2007 / Q8

(a) Explain the nature of business logistics and its contribution to the

performance of the marketing firm. (10 marks)

(b) Briefly give the rationale for the need of business logistics systems to be

‘fully integrated’. (4 marks)

(c) List and briefly explain the component parts of such an integrated system.

(4 marks)

(d) Discuss the importance of logistics to the achievement of marketing

operational, tactical and strategic goals. (7 marks) (Total 25 marks)

Past Paper Review

December 2007 / Q8 (answer)

(a) refer slides 31 - 36

(b) refer slides 37 - 44

(c) refer slides 45 - 55

(d) refer slides 56 - 66


“Logistics is the area in which purchasing and

marketing overlap.” (Jim Blythe, 2005).

Discuss the above statement in the context of a totally

integrated business logistics system and explain the

contribution that logistics can make to the marketing

performance of a firm. (25 marks)

Past Paper Review

June 2010 / Q8

(a) Define the term ‘logistics management’. (5 marks)

(b) “Logistics management must be part of the

strategic marketing plan if logistics is to play its full

part in achieving marketing orientation within the

firm.” Discuss this viewpoint in detail. (20 marks)


(a) Explain the term ‘total business logistics’ and outline

the activities that take place within each of the main

elements of such a distribution system. (10 marks)

(b) Discuss the contribution of ‘total business logistics’ to

the achievement of marketing goals at the operational,

tactical and strategic levels. Use examples to illustrate the

key points. (15 marks)

Past Paper Review

June 2008 / Q8

Evaluate the proposition that logistics management

must be part of the strategic marketing plan if logistics

is to play its full part in achieving marketing

orientation within the firm. (25 marks)

Past Paper Review

June 2009 / Q2

Discuss the statement that, if business logistics is to

play its full part in helping to achieve marketing

orientation within the firm then logistics must be an

integral part of the strategic marketing plan. (25

marks)

Past Paper Review

Answers

Refer slides 31 - 66


(a) “Distribution is not simply an adjunct [add-on] to marketing; it has a full place in the

marketing mix and can be an essential component of marketing strategy.” (Lancaster and

Reynolds, 2006). Discuss the validity of this statement. (13 marks)

(b) The following distribution strategies result in different degrees of market exposure:

(i) Intensive distribution

(ii) Exclusive distribution

(iii) Selective distribution

Using examples, explain the main principles involved in each of these channels of

distribution strategies. (12 marks)

Past Paper Review

December 2010 / Q1 Answer

(a) point that you should explain over here are:

firm’s distribution arrangements generally tend to be

long term in nature

channel arrangements are fixed in the short to

medium term.

Past Paper Review


Few companies can change their channel policy with

the same ease that they can change other marketing

mix variables such as advertising or pricing.

Changes are made to channel policy, especially with

the development of online distribution channels

Past Paper Review


Marketing firms need to constantly monitor changes

in the distributive environment, especially the retail

environment, so that they are aware of subtle changes

and long term trends.

(b) refer slides 21 - 27

Past Paper Review June 2011 / Q6

(a) Explain why the marketing function of physical distribution

management (PDM) has grown significantly in importance with

organisations over the past thirty years. Give reasons for your

answer. (13 marks)

(b) Discuss the concept of service delivery in relation to channel

management and maintaining channel harmony. Give examples

to support your answer. (12 marks) (Total 25 marks)

Past Paper Review

June 2011 / Q6 - Answer

(a) important point you should includes are:

Definition of what physical distribution is and its role

within the marketing mix and in particular how it

relates to other mix elements e.g. channels, processes,

price etc

Past Paper Review

Business has become more complex and more

sophisticated over the last thirty years and in

particular in many industries it has become more

international even global and certainly more

competitive.

Past Paper Review

physical distribution has developed as a key strategic

business function as management seek to keep costs

under control, keep stock to a minimum, employ just

in time management techniques.

Past Paper Review

physical distribution function to specialist „logistic

management‟ firms and use customer service which

includes delivery, stability, reliability and speed and a

key competitive tool.

Past Paper Review

Physical distribution once described by the

management “guru” Peter Drucker as the “economy‟s

dark continent” has itself developed into a multi-

billion pound industry embracing new techniques

such as containerisation and new technology such as

computerised tracking of consignments and other

Internet applications often referred to as „e-logistics‟.

Past Paper Review (b)

Refer slides 45 – 55

In addition to that you have to highlight the following point as

well

The need for continuity in managing channel members and that

conflict should be avoided which thus relates to developing

harmonious long-term relationships. This can be done through

the use of personal selling and key account management.

Past Paper Review

business to business customers and potential

customers are similar to end users in that they are

heterogeneous rather than homogeneous in nature

and can be placed into groups of similar needs and

wants when it relates to managing suppliers,

wholesalers and retailers.

Past Paper Review

Channel conflict can be caused by not treating

channel members equally. The fact that fair treatment

of channel members is of utmost importance if the

channel is to remain effective and if harmony is lost,

then business will suffer and be lost. Therefore

managers should be working towards developing

distribution channels.

Past Paper Review

June 2012 / Q7

(a) Explain the function of the Decision Making Unit

(DMU) in an organisation. (5 marks)

(b) Identify five roles of people within the DMU and

explain the involvement of each in making purchasing

decisions. (10 marks) (Total 15 marks)

chapter 2 human resource planning & strategy · more working capital is tied ... the process of...

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