Page 415 - Foundations of Marketing

382 Part 5 | Distribution Decisions

Warehousing and Inventory
Management
Warehousing and inventory
management efforts are
expensive but are important
elements in providing customer
satisfaction.

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Order handling involves several tasks. Once an order is entered, it is transmitted to a ware-
house to verify product availability, and to the credit department to set terms and prices, and
to check the customer’s credit rating. If the credit department approves the purchase, ware-
house personnel assemble the order. In many warehouses this step is carried out by automated
machines. If the requested product is not in stock, a production order is sent to the factory, or
the customer is offered a substitute.
When the order has been assembled and packed for shipment, the warehouse schedules
delivery with a carrier. If the customer pays for rush service, overnight delivery by a mail
carrier is used. The customer is then sent an invoice, inventory records are adjusted, and the
order is delivered.
Whether a company uses a manual or an electronic order-processing system depends on
which method provides the greater speed and accuracy within cost limits. Manual process-
ing suffi ces for small-volume orders and can be more fl exible in certain situations. Most
companies, however, use electronic data interchange (EDI) , which uses computer technol-
ogy to integrate order processing with production, inventory, accounting, and transportation.
Within the supply chain, EDI functions as an information system that links marketing channel
members and outsourcing fi rms together. It reduces paperwork for all members of the sup-
ply chain and allows them to share information on invoices, orders, payments, inquiries, and
scheduling. Many companies encourage suppliers to adopt EDI to reduce distribution costs
and cycle times.

Inventory Management
electronic data interchange
(EDI) A computerized means
of integrating order processing Inventory management involves developing and maintaining adequate assortments of prod-
with production, inventory, ucts to meet customers’ needs. It is a key component of any effective physical distribution
accounting, and transportation system. Inventory decisions have a major impact on physical distribution costs and the level
of customer service provided. When too few products are carried in inventory, the result is
inventory management
Developing and maintaining stockouts, or shortages of products. Stockouts can result in customer dissatisfaction that leads
adequate assortments of to lower sales, even loss of customers and brand switching. When a firm maintains too many
products to meet customers’ products (especially too many low-turnover products) in inventory, costs increase, as do risks
needs of product obsolescence, pilferage, and damage. The objective of inventory management

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