The key to satisfy customer needs requires the organizations to be functionally interdependent. In spite of the realization that cooperation is essential by logistics and marketing manager, the marketers often criticize logistics department for minimizing the cost and thus having no concern for customer needs. On the other hand logistics department accuses marketers of meeting the sales target at any cost. Therefore it is essential that organizations identify area of agreement and potential conflict. This can be done by assisting in measurement of performance and hence reward cooperation and a spirit of interdependence that actively discourages insular behavior.
Relation between Logistics and Marketing
An organization is able to distinguish itself from its competitors by offering a total service with logistics forming an essential part of the total value chain.
The most prominent components of interaction between logistics and marketing include
- Pricing: Since the costs involved in bringing the product from its warehouse to the selling counter is included in the pricing, the right strategy in logistics can increase or decrease the price
- Product Design: If the product is bulky, a special warehouse will be needed. Example – If apples have to be transported a cold storage is required
- Customer Service: Customer if doesn’t get the product at the right time, he may switch to some other brand. Thus marketers and logistics people work together to ensure delivery of the product according to customer needs
- Market and Sales Forecasts: Forecasting can only be done after logistics department provides the planning and in detail supply chain activities on paper to the marketing team
- Location and Number of Warehouses: Though this is a question that logistics has to answer but it entirely depends on the marketing team because they know the demand and supply
- Inventory guidelines: Inventory policies have an important bearing on operational costs and the extent to which desired levels of customer service are achieved. Under this component the policy should be developed jointly
- Processing of orders: Orders can only be fulfilled once the logistics team has made sure the product is available for selling at the right place and right time
- Distribution Channels: The level of logistics resources required is greatly affected by the decisions to deliver direct to the customer or through intermediaries. Example – If the marketing team thinks they want to use more money on advertising and less on the commissions given to the channel partners, logistics group might have to cut down on the supply chain to meet the requirements of the company.
The fundamental dimensions of customer service are Availability, performance and reliability
Definitions
- Availability: Availability is the capacity to have inventory when it is desired by a customer. The three measures to check availability are stock out frequency, fill rate and order shipment
- Stock out frequency: Stock out frequency is a measure of how many times demand for a specific product exceeds availability. Stock out frequency is a starting point in measuring inventory availability
- Fill Rate: Fill rate measures the magnitude or impact of stock out over time. If a customer orders 50 units and only 47 units are available, the order fill rate is 94 per cent (i.e., 47/50)
- Order shipped complete: order shipped complete is a measure of times that a firm has the entire inventory ordered by a customer. Order shipped complete establishes the potential times that customers will receive perfect orders
- Base stock: determined by forecast variance requirements and held to support basic availability
- Safety stock: To cover demand that exceeds forecasted volumes and to accommodate unexpected operational eventualities. Safety stock exists to accommodate forecasted and cushion delivery delays during base stock replenishment
- Operational performance speed: Performance cycle speed is the elapsed time from when an order is placed until shipment arrival viewed from customer’s perspective. Typically, faster the planned performance, the lower the level of inventory investment required by customers
- Consistency: Consistency refers to a firm’s ability to perform at the expected delivery time over a large number of performance cycles
- Flexibility: Operational flexibility refers to a firm’s ability to handle extraordinary customer service requests such as product modification or customizations for specific markets or customers, new product introduction. A firm’s overall logistical competency depends on the capability to “Go an extra yard’’
- Malfunction/Recovery: During service failures, capability to have contingency plans and to anticipate the service breakdowns and have recovery
- Reliability: Logistics quality is all about reliability. Ability to comply to levels of planned inventory availability and operational performance is key to provide reliable service