Page 414 - Foundations of Marketing

Marketing Channels and Supply-Chain Management | Chapter 13 381

Figure 13.5 Proportional Cost of Each Physical Distribution Function as a
Percentage of Total Distribution Costs

6%
3%

24%
Customer service/
order entry
Administration
45%
22% Transportation
Warehousing
Inventory carrying

Source: From Davis Database, 2005. Reprinted by permission of Establish Inc./Herbert W. Davis and Company.

Although physical distribution managers try to minimize the costs associated with order
processing, inventory management, materials handling, warehousing, and transportation,
decreasing the costs in one area often raises them in another. Figure 13.5 shows the percent-
age of total costs that physical distribution functions represent. A total-cost approach to physi-
cal distribution that takes into account all these different functions enables managers to view
physical distribution as a system and shifts the emphasis from lowering the costs of individual
activities to minimizing overall costs.
Physical distribution managers must be sensitive to the issue of cost trade-offs. Trade-offs
are strategic decisions to combine (and recombine) resources for greatest cost-effectiveness.
The goal is not always to fi nd the lowest cost. Higher costs in one functional area of a distri-
bution system may be necessary to achieve lower costs in another. When distribution manag-
ers regard the system as a network of integrated functions, trade-offs become useful tools in
implementing a unifi ed, cost-effective distribution strategy.
Another important goal of physical distribution involves cycle time , the time needed to
complete a process. Firms should aim to find ways to reduce cycle time while maintaining or
reducing costs and maintaining or improving customer service. In the rest of this section, we
take a closer look at a variety of physical distribution activities, including order processing,
inventory management, materials handling, warehousing, and transportation.

Order Processing

Order processing is the receipt and transmission of sales order information. Although man-
agement sometimes overlooks the importance of these activities, efficient order processing
facilitates product flow. Computerized order processing provides a platform for information
management, allowing all supply-chain members to increase their productivity. When carried
out quickly and accurately, order processing contributes to customer satisfaction, decreased
costs and cycle time, and increased profits.
Order processing entails three main tasks: order entry, order handling, and order deliv-
ery. Order entry begins when customers or salespeople place purchase orders via telephone, cycle time The time needed to
regular mail, e-mail, or a website. Electronic ordering has become the most common. It is less complete a process
time consuming than a paper-based ordering system and reduces costs. In some companies, order processing The receipt
sales representatives receive and enter orders personally and also handle complaints, prepare and transmission of sales order
progress reports, and forward sales order information. information

Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.