chapter 5 new product development, management, and strategy
TRANSCRIPT
Chapter 5
New Product Development,
Management, and Strategy
Chapter Outline
• Product Strategy in Business Marketing• Product Lines Defined• Business New Product Development• Organization of the New Product Effort• Product Life-Cycle Analysis• Determinants of the Product Mix• The Product Adoption–Diffusion Process• Product Portfolio Classification, Analysis, and
Strategy• Product Deletion Strategy• Marketing of Business Services• Important Characteristics of Business Services• Business Service Marketing—Challenges and
Opportunities
Product Lines Defined
• Proprietary or catalog: Standard products offered to many customers and usually inventoried in anticipation of sales orders. For example, the DoAll Company keeps a large inventory of model No. C916A Band Saws to ensure quick delivery to customers.
• Custom-built: Different variations of accessories and options to complement proprietary or catalog products offered. For example, the DoAll company fills a request from a major company for a custom, made-to-order saw with a larger motor size, larger table size, and automatic indexing.
• Custom-designed: Products designed for (and usually only for) a particular user. For example, DoAll designed a unique band saw with a custom-fixtured table and remote-control operation for U.S. Army to use to cut up live ammunition.
• Industrial services: Intangibles, i.e., maintenance, machine repair, consulting. For example, DoAll provides a saw and coolant specialist who makes courtesy inspections at customers’ plants to assist in using DoAll in product applications.
Custom Product Versus Proprietary Standard Line
Manufacturers
• Custom: BMW designs a windshield washer fluid container for their new model and sends part prints to a custom plastics component manufacturer. Manufacturer must build production equipment but BMW owns molding dies and rights to product. Supplier sales build relationship, work with customer on design, finalize terms of sale.
• Standard line: BMW picks a standard wheel bearing for its new model and orders it directly from manufacturer. Manufacturer sells same wheel bearing to others. Supplier sales build relationship, work with customer on application, finalize terms of sale.
Selling Strategy Varies by Type of Relationship
CustomerS1
S2
S5
S7S3
S6
S8S4S9
S25Customer purchases from many suppliers.
CustomerCustomer purchases from bid list of a few suppliers.
Customer
Customer purchases from one supplier for that product category.
S1
S1S2S3S4
Typical Organization Chart Showing Sales Reporting Relationships
President
VP Mfg.VP
Marketing VP Acct.
Sales Mgr. Marketing Mgr.
Product Development
Mgr.
Customer Service Mgr.
VP Engineering
Does R&D Believe in the
Marketing Concept?
• It may depend on how long ago researchers graduated from college. Within past five years, some technical schools have begun teaching importance of studying customer’s needs as a first step in design process—following tenets of TQM.
• Still, most technical departments aren’t known for their customer orientation.
Product Manager/Marketing Manager Role
Old View: Organize, coordinate, and control.
New View: Calculated chaos and controlled disorder
Communicate—Communicate—Communicate: Make things happen.
Questions:• What companies purchase
products from these producers?• What would a Product Manager
do to facilitate these transactions and relationships?
New Product Approaches
• Technology push: When perceived value of particular technology is great; firm has only a vague notion of possible applications, and usually not much more.
• Market pull: Primarily the result of marketing research methodologies of interviewing potential users about their needs, then developing solutions to those perceived market needs.
Phases of New Product Development
Idea and concept generation
Screening and evaluation
Business analysis
Product development
Product testing
Product commercialization and introduction
Marketing Activities at Each Phase
1. Idea and concept generation: involves the search for product ideas and concepts that meet company objectives
2. Screening and evaluation: involves analysis to determine which ideas submitted are pertinent and merit a more detailed study of potential feasibility and market acceptance
3. Business analysis: return-on-investment criteria are examined along with competition and the potential for market entry
4. Product development: involves taking the product from an idea generated during a brainstorming session to a state of readiness for product and market testing
5. Product testing: involves conducting commercial experiments necessary to verify earlier business judgements
6. Product commercialization and introduction: includes launching the new product through full-scale production and sales and committing the company's reputation and resources to the product's success
Organization of the New Product Effort
• Product manager:Product manager: Individuals responsible for four P’s Individuals responsible for four P’s marketing mix decisions for specific product line as it marketing mix decisions for specific product line as it travels through life cycle; travels through life cycle; responsibility often extends to often extends to new product development.new product development.
• New product committee:New product committee: Part-time interdisciplinary Part-time interdisciplinary management group reviews new product proposals; management group reviews new product proposals; advantages outweigh disadvantages because committee advantages outweigh disadvantages because committee is most common form of organizational structure for is most common form of organizational structure for managing new products.managing new products.
• New product department:New product department: Specific department generates Specific department generates and evaluates new product ideas, directs and coordinates and evaluates new product ideas, directs and coordinates development work, and implements field testing and development work, and implements field testing and precommercialization of new product; allows for precommercialization of new product; allows for maximum effort in new product development, but at maximum effort in new product development, but at expense of major overhead costs.expense of major overhead costs.
• New product venture team:New product venture team: Task force representing Task force representing various departments responsible for new product various departments responsible for new product development and implementation; normally dissolved development and implementation; normally dissolved once new product is established in market.once new product is established in market.
Introduction Growth Maturity Decline
Product Life Cycle
As a strategy planning tool, a “PLC” diagram is a visual representation of a tendency (many nonbusiness systems tend to same shape, such as to show income and height). On one level, it is a reminder to planner of what is coming—if an inflection point is reached, you should know what is coming (even though you only have actual life cycle to that point). In business, PLC is often driven by experience curve, economies of scale, competitive attraction to market opportunities, rate of diffusion factors, and eventual market saturation. Planners must adjust for actual impact of these factors on a particular product.
(continued)
Introduction Growth Maturity Decline
Product Life Cycle
On another level, marketers continuously monitor and adjust their strategy and tactics as product’s cycle progresses. As a reference, they can refer to standard mix strategies for each PLC stage (usually represented in a table directly under PLC diagram on most texts). Marketer’s objective is to adjust strategy to changing life cycle situation to maximize the results. As maturity approaches, marketer often decides to attempt a PLC extension by (1) finding ways to increase current market’s usage, (2) finding totally new uses, (3) finding new target segments, (4) developing new distribution, or (5) perhaps a major product improvement and repositioning. (continued
)
Product Life Cycle
Actual PLC curves can be any shape—from product that doesn’t sell at all, to fad that grows fast but has short life, to seasonal product, etc. Company depends on its marketers to understand what factors determine success and to make appropriate strategic decisions. It is often tempting for new students to want to learn PLC superficially, but in real world many people depend on in-depth understanding.
Stages in Adoption Process
• Awareness: Buyer learns of new product or service, but lacks information.
• Interest: Buyer seeks out or requests additional information.
• Evaluation: Buyer (or member of buying team) considers/evaluates usefulness of product/service; consideration might be given to value-analysis project or make-buy situation.
• Trial: Buyer adopts product or service on limited basis.
• Adoption: If trial purchase worked, then buyer decides to make regular use of product/service.
Factors InfluencingRate of Adoption-Diffusion
• Diffusion: Spread of new product, innovation, or service throughout an industry over time.
• Diffusion speed varies among industries—fast in electronics, slow in domestic steel.
• As the marketer you must know, evaluate impact of, monitor, and where possible affect factors that influence adoption/diffusion rate.
BCG SBU Portfolio Business Strategy
Low
High
High Low
Industry attractiveness,Market share,
Cash generation
Businessstrength,Growth rate,Cash use
(continued)
BCG Business SBU Portfolio Strategy
Low
High
High Low
Industry attractiveness,Market share,
Cash generation
Nurture to feed cash to?
Use cash to make into star
Defend position
Fix or abandon
Businessstrength,Growth rate,Cash use
(continued)
BCG Business SBU Portfolio Strategy
(as might appear in your strategic planning documents)
Low
High
High LowMarket share
Cash generation
Growth rateCash use
Computers PrintersModemsTelephones Note: Size can indicate amount of
sales.(continued)
GE Strategic Planning Grid
Business strength axis
Self-defined as a function of: size, growth, share, profitability, image, position, people, and other factors of business strength or weakness
Self-defined as a function of: size, market growth, strength of competitors, industry profitability, technical strength, and positive acting market environmental factors.
High
Medium
Low
High Medium Low
High Medium Low
Industry attractiveness axis
(continued)
Coca-Cola* as a part of the cola market
*Coca-Cola does not sell directly to consumers
Business strength axis
High
Medium
Low
High Medium Low
High Medium Low
Problem #1: SBUs Can Be Repositioned by Redefining Axes
Industry attractiveness axis
(continued)
Business strength axis
High
Medium
Low
High Medium Low
High Medium Low
Problem #1: SBUs Can Be Repositioned by Redefining Axes
Coca-Cola as a part of the soft drink market
Industry attractiveness axis
(continued)
Business strength axis
High
Medium
Low
High Medium Low
High Medium Low
Problem #1: SBUs Can Be Repositioned by Redefining Axes
Coca-Cola as a part of the all types of drinks market
Industry attractiveness axis
(continued)
Bottom line: SBU market share and market strength change as market is redefined; also possible that industry attractiveness changes.
Note: Coca-Cola slides are for the purpose of demonstrating the concept of SBU position shifting as axes are redefined; they do not represent actual strategic position of Coca-Cola.
Problem #1: SBUs Can Be Repositioned by Redefining Axes
Problem #2: Doing What the Grid Position Indicates• When portfolio models were first introduced,
marketers did what the grid position indicated rather than using them as a tool to help visualize company’s mix of SBUs, interrelationships, relative strengths, etc.
• If a larger percentage of business is in products in which company is not strong, margins are low, and market is not attractive, they may still be providing important coverage of fixed overhead. Don’t automatically get rid of “dog”-quadrant products.
• Bottom line: Two-factor portfolio models are not decision models; they are tools to help marketers with their thinking. Even with multiple-factor computer decision support systems, the decision is still the marketer’s.
Important Characteristics of Business Services
• Intangibility: Freight forwarding, consulting, repair, etc. can seldom be tried out/tested in advance of purchase; instead, buyers must view advertising copy, listen to sales presentation, or consult current users to gain insight into expected performance.
• Heterogeneity: A service is an experience and thus cannot be duplicated; difficult to standardize and thus output quality may vary.
• Perishability and fluctuating demand: Services cannot be stored and markets fluctuate by day, week, or season; idle service capacity is business that is lost forever—no inventory buffer.
• Simultaneity: Production and consumption of services are inseparable; this typically puts marketer in very close contact with customer, requiring them to be highly professional.
Chapter 6
Price, Planning, and Strategy
Chapter Outline
• Business Pricing: An Overview• Major Factors Influencing Price Strategy• Pricing Methods• Demand Assessment and Strategy• Life-Cycle Costing• Price-Leadership Strategy• Competitive Bidding in the Business Market• Leasing in the Business Market• Pricing Discount Strategies
Different Companies, Different Pricing Objectives
Company Objective
Alcoa 20% ROI
American Can Maintain market share
General Foods 33% gross margin
National Steel Match the market
U.S. Steel 8% ROI after taxes
DuPont Target ROI, cost-plus
(continued)
• Take three different products and produce them by exactly the same process in three different companies.
• Because companies use different pricing calculations (1) product prices will most likely vary by company and (2) price difference usually will not be consistent.
• Obviously, this is true if marketers use different strategic markups, but it also true of estimated cost (or even cost in production).
• For example: One cost element would be fixed cost. How does each company determine how much fixed cost should be allocated to each product?
• Moral: Competitors’ prices may be very different from yours. Study their historical patterns of bidding.
Different Companies, Different Pricing Objectives
Major Factors Influencing Price Decision
• Internal factors– Company
objectives– Marketing mix
value– Costs– Impact on
other products– Product
differentiation
• External factors– Buyers– Demand– Economic
considerations– Ethical
considerations– Competition– Suppliers– Government/legal
Pricing Methods
• Marginal pricing (contribution pricing): Attempts to maximize profits by producing number of units at which marginal cost is just less than or equal to marginal revenue.
• Economic value to the customer: A higher price will be paid by buyers who perceive a greater value or benefit to them than what they would receive from buying a competitive product.
• Break-even analysis: The point at which a firm’s revenue will equal its total fixed and variable costs at a given price.
• Target return on investment pricing: An annual ROI target (i.e., ROI of 20% over cost). Typically done by a mix of individual product markups over cost that average the target ROI.
• Cost-plus pricing: A version of target ROI pricing in which all products are marked up by the same percentage.
Zero-Based Pricing
• Zero-based pricing (ZBP): Actually not a pricing method as much as it is the accounting of the method to the customer, and the resulting requirement to maintain consistency.
• With ZBP, buyers do not accept that an increase in price of one cost element will necessarily justify a price increase. Supplier is required to show actual cost of every element (from base zero)—perhaps other elements have gone down in cost; perhaps supplier has allowed some controllable costs to increase and should not pass those along to customer; perhaps supplier’s profit margin is already too high.
Pricing Across Product Life Cycle(Life-Cycle Costing)
• Introduction phase:– Price skimming: Introductory price set
relatively high, thereby attracting buyers at top of product’s demand curve.
– Market penetration pricing: Low price is used as an entering wedge.
• Growth phase• Maturity phase• Decline stage
Price-Leadership Strategy
• Price-leadership strategy: One or a very few firms initiate price changes, with most or all the other firms in the industry following suit.
• When price leadership prevails, price competition does not exist. The burden of making critical pricing decisions is placed on leading firm(s) and other simply follow the leader.
Competitive Bidding
• Competitive bidding: Buyer sends inquiries (requests for quotations or RFQs) to firms able to produce in conformity with requested requirements.
• Requests for proposals (RFPs) involve the same process, but here buyer is signaling that everything is preliminary and that a future RFQ will be sent once specifics are determined from the best proposals.
Pricing Decision A
To: Marketing Manager (you)Fr: Field SalesRe: New price for XYZ Company
Part #45367 Rev. C
As you know, Therese Garcia, our buyer, is under a lot of pressure to reduce purchasing costs by 10%. The current
price of the above referenced product is $10.00. The projected quantity is 1,000,000 units/year. What price can we offer her for next year?
(continued)
Pricing Decision A
Assignment A:
You call up the part number on your computer and note that the price and quantity are correct. The cost system states that the direct cost is $5.00/unit, and the overhead is $2.00/unit. The marketing information system suggests weak competitive activity with no other internal or external factors to be considered. Make a price decision and formally respond to the field salesperson.
To: Marketing Manager (you)Fr: Manufacturing ManagerRe: New cost for XYZ Company Part #45367 Rev. C
Because of strict cost controls and production improvements, the cost will be reduced from $5.00/unit to $4.95/unit.
Pricing Decision B
(continued)
Pricing Decision B
Assignment B:
Calculate the annual cost savings and send manufacturing a note of congratulations and appreciation. Also, decide how much of this savings (if any) to pass on to the customer.
Pricing Decision C
To: Marketing Manager (you)Fr: Field SalesRe: Customer need—
XYZ Company Part #45367 Rev. C
XYZ is still plating each of our parts received to protect them from rust. It is a messy job and it costs them $1.00/unit. XYZ is requesting that we put this issue at the head of our value analysis projects.
(continued)
Pricing Decision C
Assignment C:
Compose an e-mail to R&D requesting assistance and provide priority and spending guidelines.
Pricing Decision D
To: Marketing Manager (you)Fr: R&D ManagerRe: Rust resistance, XYZ Company
Part #45367 Rev. C
Good news! We have just invented a rust preventative material additive that will meet XYZ’s requirements. We can add it when we produce the part, and it will increase our cost by only $.01/unit; therefore, the cost will now be $4.96/unit.
(continued)
Pricing Decision D
Assignment D:
Calculate the savings based on alternative prices such as $11.00/unit, $10.51/unit, and $10.01/unit. Develop and justify a final price and proposal for XYZ.
Leasing in the Business Market
• Advantages to buyer– No down payment– No risk of ownership
• Advantages to seller– Increased sales– Ongoing business relationship with
lessee– Residual value retained
Ten Don’ts of Successful Selling
1. Don’t discuss with customers the price your company charges others.
2. Don’t attend meetings with competitors at which pricing is discussed (not even professional association meetings).
3. Don’t give lower prices to your company’s own subsidiaries.
4. Don’t enter into gentlepersons’ understandings with competitors on prices, terms of sale, discounts, market share, intent to bid, or customer terminations.
5. Don’t use one product as bait for selling another. 6. Don’t require a customer to buy a product only from you. 7. Don’t forget that individual states and other countries
have antitrust laws. 8. Don’t disparage a competitor’s product without proof. 9. Don’t require reciprocal purchases.10. Don’t hesitate to consult your company’s lawyer if you are
unsure.
Chapter 7
Business Marketing Channel Participants
Chapter Outline
• Functions of the Channel Intermediary• The Nature of Channel Decisions• Direct Channels• Indirect Channels• Combining Direct and Indirect Channels• Channel Cooperation• Channel Conflict• Channel Width
Business Marketing Channel Members
• Channel members: A set of independent companies that form cooperative buyer-seller relationships involving transactions (such as raw material, components, process materials, and finished goods for resale), all leading to getting a particular product line to the final user.
• It is important that each channel member see its competition not as the other companies that make its particular materials, but as the alternative channels that can supply equivalent finished products to the final user.
• Cooperation, coordination, and strategically acting in the best interests of the channel are key. If the channel loses business to a competitive source of supply, then all channel members lose.
Business Marketing Distribution
Channel Members• Where a producer has alternative channels of
distribution available, the marketer’s challenge is to:– Select the channel (or combination of channels)
that provides best coverage, provides best service to target segments, and meets revenue objectives of the organization.
– Remember that title-taking intermediaries (i.e., distributors) are customers of the producer, not just providers of a distribution service.
(continued)
• A distribution channel’s differential advantages can be difficult for competitors to copy and, done correctly, can form a sustainable differential advantage.
• The study of distribution channels involves relationships between channel member companies. Don’t confuse this with physical distribution, which involves the actual flow of materials.
Business Marketing Distribution Channel Members
Functions of the Channel Intermediary
• Buying: An intermediary buys products for resale to other intermediaries or to final business users.
• Selling: An intermediary with a capable sales force supported by established warehouse distribution centers, which is already serving other product needs of a wide user customer base, would be a valuable channel addition.
• Storing: An inventory commitment is composed of products to satisfy customer purchase requirements in a timely manner.
• Transporting: A vast array of transportation alternatives are available for intermediaries to use to manage the physical flow of the product to the business user.
(continued)
• Sorting: Most intermediaries buy in large quantities and then sort (breaking of bulk) shipments into smaller lots (often in combinations) for resale to business users.
• Financing: Intermediaries may invest in inventory, sell and deliver merchandise to business user, and provide credit terms, then finance the exchange process.
• Risk taking: Because of obsolescence and deterioration, risk is inherent in the ownership of inventory; additional risk comes from uncollectable customer accounts.
• Providing market information: Importance of continuous and accurate flow of market information concerning final user needs, pricing conditions, competitive conditions, and user satisfaction is critical to the success of the channel.
Functions of the Channel Intermediary
Images courtesy of Rockwell Automation
Direct Distribution Channel
• Example: As a first-tier component supplier to automotive OEMs, Rockwell Automation Inc. may contract to supply BMW USA’s annual usage of wheel bearings. The requirement may include several sizes, each in 50,000 to 100,000 quantities. This Rockwell would sell direct. A Rockwell salesperson would call on BMW to review its requirements, coordinate purchase transactions, and maintain the relationship.
Indirect Distribution Channels
• Example: Rockwell also produces similar wheel bearings that are used in automotive repair shops and to repair industrial material handling equipment. Individually these quantities are too small to be attractive but in total the quantities are quite high. In this case, Rockwell sells through a distributor, such as W.R. Grainger.
Rockwell Automation Inc.
Direct distribution
Indirect distribution
BMW
(car image courtesy of BMW USA)
(continued)
Rockwell Automation Inc.
Both BMW and Grainger would be important customers of Rockwell, probably purchasing millions of dollars worth of bearings each year.
BMW
Internet Direct Distribution Channel
(Website image courtesy of www.grainger.com)
Grainger uses the Internet for direct transactions with thousands of repair and maintenance users. Browse its on-line catalog at www.grainger.com
(continued)
Internet Direct Distribution Channel
• At some point, Rockwell may decide that software technology exists to allow it to sell to small users directly over the Internet. Rockwell may then stop using the distributor, or alternatively use it for additional intensive distribution.
• It is not unusual for industrial Internet buyers to be required to use company credit cards (such as American Express). That removes the necessity for a company like Rockwell to assess credit and set up an account for a small dollar purchase. Still, a company like Grainger has an advantage in direct Internet sales that Rockwell does not. What is it?
Grainger’s advantage is one-stop shopping, which means convenience for the customer.
• Grainger is the nation's leading business-to-business distributor of maintenance, repair, and operating (MRO) supplies and related information. Its customers have access to over 560,000 products available to them through on-line ordering, phone ordering, and stopping by branch locations.
• Rockwell Automation Inc. may agree that Grainger will be its exclusive distributor in the state of South Carolina.
• That is, of course, except for BMW’s South Carolina assembly plant, which Rockwell will supply directly.
Manufacturer’s Representatives
• In the previous example of Rockwell Automation selling bearings through an exclusive distributor in South Carolina, it may have been because research indicated hundreds of small users.
• If research had suggested several additional medium-sized users, Rockwell may have gone with a manufacturer’s representative, who would sell its bearings plus complementary products from other manufacturers in return for a commission on sales. The hundreds of very small users may have been covered by several nonexclusive distributors.
• At some point, sales from the medium-sized users may grow to the point that manufacturer’s representative’s commissions exceed cost of supporting a direct Rockwell field salesperson.
• If a direct Rockwell field salesperson does take over the territory, at some point their commissions from their largest account may grow to the point that the company finds it logical to make the account into a house account to be handled by headquarters.
• As you might guess, distributors, manufacturer’s representatives, and direct field salespersons are not very happy about house accounts.
Channel Transaction Facilitators
• Do not take title or carry inventory, but rather provide services such as storage, transportation, or arranging of sales.
• Independent warehouses, carriers, and manufacturer’s representatives fall into this category.
• Can be very important to the success of the channel.
Channel Conflict
Channel conflict may result when channel members have mutually exclusive values, interests, or goals. Manufacturers may want control of distribution channels for better execution of their marketing strategies, whereas intermediaries may not see the manufacturer-determined strategies as in their best interest.
Problem Areas in Manufacturer-Intermediary Relationship
• Service and technical assistance• House accounts• Inventory levels• Marketing information and feedback• Training and support services• Other product lines carried• Other manufacturer-supplied channels
competing with intermediary• Prices and discounts
Channel Conflict Revisited
• Whether between channel members or between channel members and channel transaction facilitators, potential conflict is reduced by:– Relationship building and team management– Team-building efforts– Clear and complete contracts
Conflict Resolution (A)
• As the senior (manufacturer’s) marketer involved, resolve the following:– The manufacturer’s rep who sells your products
to IBM has been so successful that her commissions (7.5% of gross sales) now exceed your company president’s compensation.
– It is not clear in the contract whether commissions would end if the relationship ends.
Conflict Resolution (B)
• As the senior (manufacturer’s) marketer involved, resolve the following:– Your company is a $200 million (annual)
manufacturer of electric motors.– You have an exclusive distribution agreement
with a multibillion dollar distributor with many distribution centers and sales branches throughout the U.S. and Canada.
– Your distributor is in the process of dictating to you the prices it will pay, the inventory it will carry, and the service it will provide to customers.
Types of Channel Width
• Intensive distribution: Gain access to as many resellers as possible within a particular geographic area.
• Selective distribution: Distribute product to limited number of resellers in a particular geographic region; highly chosen based on distinctive capabilities and high-quality service.
• Exclusive distribution: Only one channel member can sell a manufacturer’s products in a given geographic area.
Chapter 8
Physical Distribution Management and Strategy
Chapter Outline
• The Nature of Physical Distribution• Supply Chain Management• Traffic Management• Functions of Traffic Management• Deregulation• Customer Service in Physical Distribution• Warehousing• Inventory Control
Physical Distribution
• Physical distribution: The process of planning, implementing, and controlling efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer's requirements.
• Why is it important to learn about physical distribution? • Physical distribution cost can represent 20% or more of
the selling price of a product.
• It is an integrated part of the entire company system—problems in other areas impact distribution and vice versa.
• From customer’s perspective, supplier’s physical distribution function gets the right products to them, at the right place, at the right time. These are basic customer rights (along with right price and right condition).
Logistics Management
• Logistics involves more than physical distribution. In the science of logistics, the flow of materials is efficiently managed inbound-through and outbound of an organization.
• Two primary product flows:– Physical supply (materials management): Flows
that provide raw materials, components, and supplies to the production process.
– Physical distribution management: Flows that deliver the completed product to customers and channel intermediaries.
Supplier
Manufacturer Customer
Materials manageme
nt
Physical distribution
management
Logistics Management
Supply chain management: An integrated philosophy to manage the multidirectional flow of materials and information through an entire channel, from the first raw material supplier to the ultimate user of the finished product.
Supply Chain Management
Study Area Map
Supply chain management (a series of connected logistics flows)
Logistics management
Materials management Physical distribution
Incoming transportation Traffic managementReceiving ShippingPurchasing Customer serviceIncoming warehousing Finished goodsInventory control
Functions of Traffic Management
• Mode and carrier selection• Routing• Claims processing• Operation of private transportation
Many of the imported goods you purchase were shipped in 20-foot or
40-foot steel containers
Large cranes loaded the containers on a ship.
(Image courtesy of the Port of Charleston))
Larger container ships can hold 4,000 to 6,000 containers.
(Image courtesy of Maersk Sealand)
After unloading from the ship, the containers can be loaded onto a flatbed
rail car for additional intermodal shipping.
(Image courtesy of CSX Corp.)
Alternatively, a container can be attached to a set of wheels for
motor transport (as an 18-wheeler trailer).
Intermodal container motor carrier
(Image courtesy of Maersk Sealand)
Rail freight carrier Barge/river freight carrier
(Image courtesy of CSX Corp.)
PipelineAir freight carrier
Container stack train Jumbo jet air freight
Major Advantages by Transportation Mode
• Motor– Speed of
delivery– Diversity of
equipment– Flexibility– Frequency of
movement– Transfer of
goods to other carriers
– Convenient to both shipper and receiver
• Rail– Mass movement of
goods– Low unit cost of
movement– Dependability– Long-haul moving– Wide coverage to
major markets and suppliers
– Many auxillary services (i.e., switching)
– Transfer of goods to other carriers
– Specialized equipment
• Water– Very low unit
cost of movement
– Movement of low-unit-value commodities
– Long-haul movement
– Mass movement of bulk commodities
(continued)
• Pipeline– Lowest unit
cost of movement
– Mass movement of liquid or gas products
– Long-haul moving
– Large capacity
– Most dependable mode
• Air– Frequent
service to major markets
– Large capability
– Overnight service
– Most rapid speed of any carrier
• Intermodal– Cost savings– Lower loss
and damage claims due to containerization
– Service extended to more shippers and receivers
– Reduced handling and storage costs
Major Advantages by Transportation Mode
Controllable Elements in a Logistics System
• Customer service• Logistics communications• Warehousing• Packaging• Production planning• Order processing• Transportation• Inventory control• Materials Handling• Plant and warehouse location
Major Categories of Service Complaints
• Traffic and transportation– Damaged merchandise– Carrier did not meet
standard transit time– Merchandise delivered
prior to date promised– Carrier failed to follow
customer routing– Carrier did not comply
with specific instructions
– Errors present on bill of lading
– Condition or type of transport equipment not satisfactory
• Warehousing and packaging– Merchandise delivered late– Problem with containers in
packaging plants– Special promotion
merchandise not specified in delivery
– Errors in warehouse release forms
– Incorrect types and quantities of merchandise shipped
– Papers not mailed promptly to headquarters
– Field warehouse delivered damaged merchandise
(continued)
• Inventory control– Stockouts– Contaminated
products received
– Product identification errors
– Poor merchandise shipped
• Sales order service– Delayed shipments– Invoice, sales
coding, or brokerage errors
– Special instructions ignored
– No notification of late shipments
Major Categories of Service Complaints
