Page 391 - Introduction to Business

CHAPTER 10 Developing the Promotion and Distribution Mixes 365

reduced. This means that the shipper will incur a lower cost for transporting goods.
Routes are often established to ensure that larger customers get better service.
The size of the shipment is an important logistics decision. Customers prefer
smaller shipments because they do not want to invest heavily in storage facilities.
On the other hand, shippers prefer larger shipments because they can take advan-
tage of the quantity discounts offered by common carriers. If a shipper has its own
trucks, it prefers to ship them full because it is probably going to incur much the
same costs (fuel, drivers’ pay) regardless of how full the truck is. Another advantage
to the shipper of large shipments is that they may help to reduce the size of the
warehousing space required.
Many companies are plagued with what is commonly called the small-order small-order problem The problem of a
problem, that is, when a high percentage of orders shipped are made up of only a shipment that contains only a few
pieces or lightweight pieces
few pieces or lightweight pieces. What can shippers do about this problem? One
possibility is to delay shipments until customer requirements in a particular geo-
graphic area become large enough to fill a truck or railroad car. Another possibility
is to eliminate all paperwork from small orders by having customers telephone in
their orders. Another alternative is to charge more for small orders. All of these
alternatives, however, adversely affect customer service, which may hurt sales.

Storage. Companies need warehouses to store products until they can be
released to customers. They can either own private warehouses that they have pur- private warehouses Warehouses owned
chased or built or rent space in public warehouses. Owning a warehouse has some (purchased or constructed) by a firm
major advantages. The warehouse will be configured to allow for the most cost- public warehouses Warehouses not
owned by the company that leases
efficient storage and handling of the company’s products. The company will con- space in them
trol the entire storage operation, assuring careful handling. There are tax advan-
tages associated with private warehouses. The owner gains a sense of pride and can
make a favorable impression on customers. The downsides of a private warehouse
include the initial investment, land and construction, and the loss of flexibility,
what to do if the present location is no longer appropriate.
There are several benefits of using public warehouses. No initial investment
for land and construction is needed. The user gains flexibility; space can be
rented in warehouses that have locations that can best serve customers, and
peak and off-season fluctuations in space requirements can be accommodated.
Public warehouses often provide a wide variety of services, such as combining
orders, providing special packages, and storing different types of products con-
tained in barrels, drums, rolls, and cylinders. There is little risk that public ware-
houses will become obsolete, since they need to be kept up-to-date so that users
can be obtained and retained. A bonded warehouse can be used by companies bonded warehouse A public warehouse
to obtain financing. In a bonded warehouse arrangement, the user’s inventory, that leases space to users to store
products that the user offers as
which is used as collateral to obtain a loan, is sequestered in a specific location
collateral for loans
and the bonded warehouse assures the lender that the level of inventory is stored
at the facility.
Managing inventory levels at storage sites is a primary logistics responsibility.
Most companies today are trying to reduce their levels of inventory or eliminate
inventory altogether to reduce or eliminate costs associated with the inventories,
which can be substantial unless controlled. In order to improve warehousing
productivity, the following are recommended:
Emphasize the effective use of cubic space, not only square-footage space.
Locate fast-moving items close to the shipping dock.
Locate products requiring similar handling close to one another.
Group smaller shipments into larger shipments.

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