Master of Business Administration MBA Semester 3

MK0010 Sales, Distribution and Supply Chain Management - 4 Credits Assignment Set 1 60 Marks Q.1 Mr. Suresh Jha is a sales manager of a reputed company. He wants to explain to new sales recruits about their responsibilities as sales personnel and also make them aware about the role of sales manager. Assume you are Suresh Jha and carry out this task. Answer: Sales Personnel are the people employed to sell the goods or services (mainly of an organisation). People who are responsible for the sales of either a single product or the entire range of an organization's products can be called sales personnel. Sales personnel normally report to a sales manager. The job of sales personnel involves a number of responsibilities. It is the income producing division of a business. The salesperson is responsible for: he company and it's products/services

He has multifarious activities, including setting goals and achieving them, building sales organizations and managing them. For example, in Eureka Forbes Pvt. Ltd. they called their sales force as sales champs (champions) as they are responsible for the direct marketing of companys products and revenue generation. Qualities of good sales personnel Sales people are the backbone of the organization because they have to face customer and interact with them. Some people say, salesmen are born salesmen, while others believe that training can help in making good salesmen. Irrespective of these opinions, good salesman has certain qualities and abilities as a result he is able to perform better than others. In this section, we will discuss qualities of a good sales person. Philip Kotler has identified two basic qualities of a good sales person namely, empathy and persuasion. Some of the qualities of a good sales person are as follows: Ability to estimate customer's needs and desires: He is alert and quickly determines what the customer wants and the best way to sell. Ambition: He likes to do a good job and is interested in getting ahead with companys goals and sales objectives. Appearance: Appearance means a lot today and the successful salesman is neat and organised. He presents himself well in person. Also, he keeps his desk books and manuals neat and ready for use. Business sense: He is quick to learn the strengths and weaknesses of the company and makes an effort to improvise on the companys strengths.

Courtesy: He reveals a sincere desire to help customers and treats them as guests even when he visits their places of business. Creativeness: Imagination, vision and the ability to create ideas make your man dynamic. Enthusiasm: A salesman must radiate enthusiasm during and after the sales call. Figure sense: He should have the mathematical ability to figure and fill up order form correctly and to make the necessary reports. Flexibility: A good salesman is able to adapt himself to a variety of customers. Each contact may require a adapting the sales talk, speech habits and even appearance. Friendliness: A salesman should be able to make people like him and he must like to meet people. Health: Good health generates energy and energy is needed to sell. Poor health prevents many salesmen from fulfilling their potentials. Integrity: A salesman must be trusted to do his job well. He cannot help but he successful when his customers trust him. Interest in his job: He likes selling and working for the company. Knowledge: In some business, sales person must also have a through knowledge of the highly specialized products or services his employer offers. In some cases, this knowledge can be gained only by years of experience. Loyalty: He must be able to impress upon his customers the idea that his company is the best in the business. Mental abilities: He has the intelligence to understand your products and those of your competitors. He must know how to use words, to understand and direct people and to remember names and faces. He should also be able to understand prospective customers and know how to act under varying conditions. Motivation: He must have more than just an interest in selling. They live in the present and not in the future. They do want power over others and prefer not to work under close supervision. Sales Manager: Role and Skills The sales manager is the most important person in a sales organization so, all activities are based on his functions and responsibilities. Following are some of the principal duties of a sales manager:

ibution expenses, etc.

Sales manager as sales coordinator The sales manager performs the function of a coordinator and ensures that the other departments in the company are well informed of sales activities so that they can produce what is required,

when it is required and whether the same can be produced with the existing facilities or it requires changes and so on. The sales manager also carries out coordinating work with the distribution network. Sales manager as controller Sales manager should act as per the objectives set by the organization and exercise control over his staff so that they may look for advice and may give their best efforts to bring results. He should analyze present condition of the firm, make plans for future and find ways to achieve those plans. Generating profits Sales department is responsible for the sales of the products at the best available prices in the given circumstances. Salesperson produce volume sales as per targets, and he sell the product at a price which may generate profit for the company. After all it is positive financial results that add position and power to the sales manager and bring credit to the sales department. Sales manager skills A sales manager should possess following skills: Active listening: Giving full attention to what other people are saying, taking time to understand the points being made, asking questions as appropriate, and not interrupting at inappropriate times. Speaking: Talking to others to convey information effectively. Mathematics: Using mathematics to solve problems. Time management: Managing one's own time and the time of others. Service orientation: Actively looking for ways to help people. Persuasion: Persuading others to change their minds or behavior. Social perceptiveness: Being aware of others' reactions and understanding why they react as they do. Reading comprehension: Understanding written sentences and paragraphs in work related documents. Monitoring: Monitoring/Assessing performance of self, other individuals, or organizations to make improvements or take corrective action. Negotiation: Bringing others together and trying to reconcile differences. Q.2 Explain these terms with examples: Sales forecasting, Sales budget, sales quotas and sales territories. Answer: Sales Forecasting: Sales forecasting, according to Cundiff and Still, is an estimate of sales during a specified future period which is tied to a proposed marketing plan and which assumes a particular set of uncontrollable and competitive forces. Methods of sales forecasting The various methods of sales forecasting are: Survey method: The survey method is based on the opinion of buyers and consumers. It is useful with respect to industrial products but not as far as consumer goods are concerned. According to this method, a company first of all selects potential buyers/consumers. It then collects their opinions for forecasting. Expert opinion: According to this method, a company invites the opinions of executives and consultants who are acknowledged experts in studying sales trends. On the basis of their opinions, it forecasts future sales. This estimate is also made on the basis of past performance.

However, the method suffers from the drawback of not taking into consideration changes in the future business environment. Market studies method: This method is commonly used by marketers for consumer goods. It is also known as the Market Test Method. A market test provides data about consumers and the marketing mix. Some people use this method as a market experiment method. According to this method, market experiments are conducted on changing consumer behaviour, prices, advertising expenditure, etc. Sales force opinion method: This method estimates the buyer's intentions from experienced personnel in the sales force. They can easily forecast for their respective territories. Territorywise forecasts are consolidated at the branch level and the branch level forecasts are consolidated at thecorporate level. This method can be used only when the firm has competent high-caliber sales personnel. Statistical methods: Statistical methods are considered to be superior techniques of sales forecasting because their reliability is higher than that of other techniques. Some commonly used statistical methods are given below: Trend method: This method provides a rough trend of the forecast on the basis of past experience. It does not, however, take into account the changing environment. It is a simple method for business forecasting on the basis of past performance. Graphical method: According to this method, sales data are plotted on graph paper and a graph is drawn for a number of years. This is a simple and inexpensive method

Time series method: This method is used for long periods duly taking into account cyclical changes, seasonal variations and irregular fluctuations. A time series may be defined as a collection of magnitudes belonging to different time periods, of some variable or composite variables, such as production of steel, per capita income, gross national product, price of tobacco, or index of industrial production. Ya-uin-chou The Time Series Method shows the future trends of sales. Regression analysis: This branch of statistical theory is popularly used on the principles of sciences. It helps determine the relationship among various variables. According to Ya-uin-chou, Regression analysis attempts at establishing the nature of the relationship between variables,

that is, to study the functional relationship between the variables and thereby provide a mechanism for prediction, or forecasting. Sales Budget A sales budget is a financial plan depicting how resources should best be allocated to achieve the forecasted sales. The purpose of sales budgeting is to plan for and control the expenditure of resources (money, material, people and facilities) necessary to achieve the desired sales objectives. Sales forecast and sales budget are therefore intimately related as much as that if the sales budget is inadequate, the sales forecast will not be achieved or if the sales forecast is increased the sales budget must be increased accordingly. Sales budget by relating sales obtained and resources deployed also acts as a means for evaluating sales planning and sales effort.

The table above is self explanatory and points out to both the favourable and unfavourable variance. The analysis of the factors causing variance enables the sales manager to quickly spot potential problem areas or better plan for unexpected outcomes such as higher than budget sales. Sales Quotas Quotas are guides for what needs to be done and a means of evaluating how well they have been done. A sales quota refers to an expected routine assignment to sales units, such as territory, districts and branches, etc. Sales quotas are also assigned to individual salespeople over a particular time period and are used to plan, control and evaluate the selling activities of a company. Sales control is facilitated by setting quotas to use in appraising the performances of sales force. They are tactical in nature and are thus derived from the sales force strategic objectives. Types of sales quotas A sales organization can set many types of quotas. The most common quotas are shown in the Figure.

Sales volume quotas

Sales volume quotas include sales in rupees or product unit objectives for a specific period of time. For example, New East India Ltd. calculates sales in rupees whereas Bajaj Motors calculates sales as number of cars sold. Sales targets are set for the year for sales force so their aim is to sell throughout the year to achieve the total sales objective. The yearly total volume quota is then set for shorter time periods, such as three months, six months and nine months .The sales volume quotas can be set in the following areas:

Table below is an example of M/s South India Ltd. shows sales volume quotas for Bangalore territory. Table : Sales Volume Quota of M/s South India Ltd for Bangalore

Profit quotas Profit quotas are particularly useful in multi product companies where different products contribute to varying levels of profits. It creates opportunities for the salesperson to make optimum use of time. Table example shows a situation in which a salesperson optimally balances his time between high and low profit yielding products.

Expense quotas Expense quotas are related to selling costs within reasonable limits. Some companies set quotas for expenses linked to different levels of sales attained by their sales force. Salespeople may receive an expense budget that is a percentage of the territorys sales volume. The salesperson must spend only this amount as expenditure. Activity quotas

These quotas set objectives for job-related duties useful for attaining salespeoples performance targets. Activity quotas are required to make the sales force perform other activities which have long-term implications on the goodwill of the firm. A sales organization must set a target level of performance for salespersons.

Sales Territory A sales territory comprises of a group of customers or a geographical area assigned to a sales unit. The territory may or may not have geographic boundaries. A sales territory represents a group of customer accounts, an industry, a market or a specific geographical area. Territory management includes the market potential, number of customer accounts, the firms experience and market share in the territory, the capability of the salesperson assigned and the frequency of sales calls made. The Figure below outlines the activities of territory management.

A company can develop and use sales territories for various reasons. Some of the reasons are as follows: s responsibility

Q.3 What are the different ways through which sales force of an organisation can be compensated? Mention their merits and demerits. Answers: Various Modes of Compensating the Sales Force are as under: Salary A straight salary payroll is set amount of money based upon hour or days worked. Deductions for provident fund, income taxes and other fringe benefits are fixed and the work of accounting is reduced. The security of salary is a strong factor in lowering turnover in a salesforce. Applicability of salary method

This method is commonly used by: -tech industries

Straight commission Paying a commission is a variable expense rather than a fixed one. A straight commission pay plan has many advantages. Straight commission is adopted by the performance-oriented firm that pay sales person for their achievement. In this each person is paid a percentage of their sales. It is desirable for a company suffering from a severe cash shortage since the commission need not be paid until proceeds are received from a sale. Flexible commission rates can be a strong incentive and many organizations are successful because the sales force enjoys a liberal commission schedule. For example, sales agents working for various insurance companies are paid commission on the basis of policies received. 3.7.3 Target commission A straight commission is paid on sales volume. On a fixed commission base, a fixed percentage of sales volume is paid to the sales force. Other plans call for increase in rate as volume increases. A fixed rate commission is easy to figure and administer. If the rate is 2 per cent, it stays at that percentage whether the salesperson sells goods worth Rs. 40,000 or Rs. 4,00,000. A progressive commission rate accomplishes a major objective of most companies: it provides a constant incentive to the sales force to do better. The following example explains this:

If a salespersons quota is Rs. 80,000, he would earn Rs. 2,000 if he achieved that target exactly a composite rate of 2.5 per cent. For example, Smith Kline Beecham is using this method in their worldwide selling. Bonus Paying bonus is a method that a company adopts to reward special contribution and as an incentive to superior performance. Sales research has indicated that more than 50 per cent companies paying bonuses pay them annually, one-fourth pay quarterly and the balance pay halfyearly to earn bonuses, salespeople must work wholeheartedly for the entire year. Fringe benefits Fringe benefits have become a fascinating subject and an item of considerable expense to organizations. The costs of fringes can be as high as 30 per cent of direct compensation expense

depending on what benefits are offered and whether a portion of the expense is shared with the employee. Salary plus commission Companies may also pay employees and others a combination of salary as well as commissions. This plan is called combination or mixed plan. Apart from the salaries paid, the employees may be eligible for a fixed percentage of commission upon achievement of fixed target of sales or profits or performance objectives. Now-a-days, most of the corporate sectors follow this practice. This is also termed as variable component of compensation. Profit sharing Profit sharing is again a novel concept now-a-days. This can be paid through payment of cash or through ESOPS. The structuring of wages may be done in such a way that, it attracts competitiveness and improved productivity. Profit sharing can also be in the form of deferred compensation at the time of retirement. At the time of retirement the employees may be paid a lump sum or retiral benefits. Q.4 a) What is direct marketing and relationship marketing? Give examples. Answers: Relationship Marketing The term relationship marketing was first coined in America in the early 1980s. Although it has no single, agreed meaning, most definitions have common factors defined in the dictionary of marketing terms of American Marketing Association (1995), Relationship Marketing is marketing with the conscious aim to develop and manage a long-term and/or trusting relationship with customers, distributors, suppliers, or other parties in the marketing environment. The building and management of relationship with customers has always been a key approach to marketing practices and some companies habitually market on a relationship basis without consciously calling it that. However, use of the term relationship marketing suggests that deliberate efforts are being made to retain customers, provide effective communication with them and use different approaches to marketing that are:

guided by highly technical analysis of customer purchasing and profitability. The building of a good personal relationship with the customer is usually integral to small business management and the example of the owner of a small corner shop is often used to illustrate the essence of relationship marketing. The small shopkeeper has direct knowledge of all regular customers and becomes familiar with their needs and their likes and dislikes. This enables the shopkeeper to provide services tailored to individual needs, planned on the basis of known customer requirements. Over time, a bond of loyalty is likely to develop between shopkeeper and regular customer. The three types of customers identified are: Lost-for-Good Customers: The lost-for-good customer makes a series of purchases over time, faces high costs in switching to a new supplier, and views the commitment to a particular supplier as relatively permanent. The buyer adopts this position because switching costs are high. For example, airlines are unlikely to change lightly the type of aircraft which they purchase.

Even at a more mundane level, an organization will have some reluctance in changing its office automation systems because of the costs and disruption that ensues. Always-a-share Customer: At the other end of the customer behaviour spectrum, lies the always-a-share customer who purchases regularly, has little loyalty to a particular supplier, and can switch easily from one vendor to another. Both parties recognize such relationships as shortterm. For example, if an Indian firm wishes to send a package by courier to England, it is unlikely to attach any special importance as to which courier operator it last used, but instead obtain quotations from a number of equally acceptable operators. Table 4.1 summarises the typical characteristics of customers at the end point of the account behaviour spectrum: lost-forgood and always-a-share customers.

Intermediate Type: Most of the customers belong to this category. Wide range of factors like the characteristics of the product, category, the customers pattern of product usage and the actions of the customer and the supplier affect the relationships. Such relationships are more applicable for organizational buyers than consumer products, where regular buying is a norm. Direct Marketing Direct marketing is nothing but getting the message through, directly. The Direct Marketing Association (USA) defined it as an interactive system of marketing which uses one or more advertising media to affect a measurable response and/or transaction at any location. In the above definition, we identify some key words, which differentiate Direct Marketing (DM) from other marketing communications disciplines. These key words are: Interactive: One-to-one communication or interaction between the marketer and the prospect/customer. One or more advertising media: A combination of media used to synergize. Often more effective than any single medium. Measurable response: Possible to measure response quite accurately. Transaction at any location: May take place by phone, at a kiosk, by mail or by personal visit. Direct marketing, direct mail, mail order, directs response advertising: Many relate Direct Marketing to a medium (Direct Mail) or a technique (Direct Response Advertising) or a channel of distribution (Mail Order). In fact DM is all the three, and much more.

Direct Response Advertising in any medium, including mail, is that which offers a measurable response and/or transaction at any location. It is any advertising used to sell directly to customers. Direct Mail is a medium through which a pre-defined and pre-determined number of selected consumers are addressed through mail. Using computers, letters are easily personalized to make the maximum impact on the person receiving it. This medium becomes very effective in respect of selectivity of consumers, timings and the ability of the customer to respond using coupons or pre-paid reply envelopes. Mail Order is a method of selling that relies on Direct Response Advertising to affect a measurable response and/or transaction by mail, telephone or other interactive media. Mail Order usually means the sale of products or services to a customer or to industrial users by means of catalog or Direct Response Advertising. b) Give a short note on value chain analysis. Answer: The value chain, is a concept from business management that stresses on Competitive Advantage: Creating and Sustaining Superior Performance. Firm Level A value chain is a chain of activities for a firm operating in a specific industry. The business unit is the appropriate level for construction of a value chain, not the divisional level or corporate level. Products pass through all activities of the chain in order, and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of the independent activity's value. It is important not to mix the concept of the value chain with the costs occurring throughout the activities. A diamond cutter, as a profession, can be used to illustrate the difference of cost and the value chain. The cutting activity may have a low cost, but the activity adds much of the value to the end product, since a rough diamond is significantly less valuable than a cut diamond. Typically, the described value chain and the documentation of processes, assessment and auditing of adherence to the process routines are at the core of the quality certification of the business, e.g. ISO 9001. Requirements of value chain Coordination and collaboration; Investment in information technology; Changes in organizational processes; Committed leadership; Flexible jobs and adaptable, capable employees; A supportive organizational culture and attitudes; Flintstone Example: Without the dinosaur, Fred couldn't complete his daily tasks quickly. This was because the dinosaurs had more strength than poor Freddy, therefore, making the process more efficient, which added value to the final result. Activities

The value chain categorizes the generic value-adding activities of an organization. The "primary activities" include: inbound logistics, operations (production), outbound logistics, marketing and sales (demand), and services (maintenance). The "support activities" include: administrative infrastructure management, human resource management, technology (R&D), and procurement. The costs and value drivers are identified for each value activity. Industry Level An industry value chain is a physical representation of the various processes that are involved in producing goods (and services), starting with raw materials and ending with the delivered product (also known as the supply chain). It is based on the notion of value-added at the link (read: stage of production) level. The sum total of link-level value-added yields total value. The French Physiocrat's Tableau conomique is one of the earliest examples of a value chain. Wasilly Leontief's Input-Output tables, published in the 1950s, provide estimates of the relative importance of each individual link in industry-level value-chains for the U.S. economy.

Significance The value chain framework quickly made its way to the forefront of management thought as a powerful analysis tool for strategic planning. The simpler concept of value streams, a crossfunctional process which was developed over the next decade, had some success in the early 1990s. The value-chain concept has been extended beyond individual firms. It can apply to whole supply chains and distribution networks. The delivery of a mix of products and services to the end customer will mobilize different economic factors, each managing its own value chain. The industry wide synchronized interactions of those local value chains create an extended value chain, sometimes global in extent. Porter terms this larger interconnected system of value chains the "value system." A value system includes the value chains of a firm's supplier (and their suppliers all the way back), the firm itself, the firm distribution channels, and the firm's buyers (and presumably extended to the buyers of their products, and so on).

Capturing the value generated along the chain is the new approach taken by many management strategists. For example, a manufacturer might require its parts suppliers to be located nearby its assembly plant to minimize the cost of transportation. By exploiting the upstream and downstream information flowing along the value chain, the firms may try to bypass the intermediaries creating new business models, or in other ways create improvements in its value system. Value chain analysis has also been successfully used in large Petrochemical Plant Maintenance Organizations to show how Work Selection, Work Planning, Work Scheduling and finally Work Execution can (when considered as elements of chains) help drive Lean approaches to Maintenance. The Maintenance Value Chain approach is particularly successful when used as a tool for helping Change Management as it is seen as more user friendly than other business process tools. Value chain analysis has also been employed in the development sector as a means of identifying poverty reduction strategies by upgrading along the value chain. Although commonly associated with export-oriented trade, development practitioners have begun to highlight the importance of developing national and intra-regional chains in addition to international ones. SCOR: The Supply-Chain Council, a global trade consortium in operation with over 700 member companies, governmental, academic, and consulting groups participating in the last 10 years, manages the Supply-Chain Operations Reference (SCOR), the de facto universal reference model for Supply Chain including Planning, Procurement, Manufacturing, Order Management, Logistics, Returns, and Retail; Product and Service Design including Design Planning, Research, Prototyping, Integration, Launch and Revision, and Sales including CRM, Service Support, Sales, and Contract Management which are congruent to the Porter framework. The SCOR framework has been adopted by hundreds of companies as well as national entities as a standard for business excellence, and the US DOD has adopted the newly-launched Design-Chain Operations Reference (DCOR) framework for product design as a standard to use for managing their development processes. In addition to process elements, these reference frameworks also maintain a vast database of standard process metrics aligned to the Porter model, as well as a large and constantly researched database of prescriptive universal best practices for process execution. Q.5 a) Explain the meaning of distribution channels. What are its objectives? Answers: Distribution Channel and its Objectives Channel of distribution is a path traced in the direct or indirect transfer of the title to a product as it moves from a producer to ultimate consumers or industrial users. EW Cundiff and RS Still The course taken in the transfer of the title to a commodity constitutes its channel of distribution. It is the route taken by the title to a product in its passage from its first owner, an

agricultural producer, or a manufacturer, as the case may be, to the last owner, the ultimate consumer or the business user. Beckman and Others A channel of distribution or marketing channel is a structure of intra-company organisation, units and intra-company agents and dealers, wholesalers and retailers through which a commodity product or service is marketed. American Marketing Association The various objectives of channel of distribution are:

stimulate channel members to put greater selling efforts

ervices available readily, regularly, equitably and in a fresh form. b) Differentiate between pull strategy and push strategy of supply chain. Answer: The business terms push and pull originated in the logistic and supply chain management, but are also widely used in marketing. A push-pull-system in business describes the movement of a product or information between two subjects. On markets the consumers usually "pulls" the goods or information they demand for their needs, while the offerers or suppliers "pushes" them toward the consumers. In logistic chains or supply chains the stages are operating normally both in push- and pull-manner. Push production is based on forecast demand and pull production is based on actual or consumed demand. The interface between these stages is called the push-pull boundary or decoupling point. Push strategy Another meaning of the push strategy in marketing can be found in the communication between seller and buyer. In dependence of the used medium, the communication can be either interactive or non-interactive. For example, if the seller makes his promotion by television or radio, it's not possible for the buyer to interact with. On the other hand, if the communication is made by phone or internet, the buyer has possibilities to interact with the seller. In the first case information is just "pushed" toward the buyer, while in the second case it is possible for the buyer to demand the needed information according to his requirements. Applied to that portion of the supply chain where demand uncertainty is relatively small Production & distribution decisions are based on long term forecasts

Based on past orders received from retailers warehouse (may lead to Bullwhip effect) Inability to meet changing demand patterns Large and variable production batches Unacceptable service levels Excessive inventories due to the need for large safety stocks less expenditure on advertising than pull strategy Pull strategy In a marketing "pull" system the consumer requests the product and "pulls" it through the delivery channel. An example of this is the car manufacturing company Ford Australia. Ford Australia only produces cars when they have been ordered by the customers.

Applied to that portion of the supply chain where demand uncertainty is high Production and distribution are demand driven No inventory, response to specific orders Point of sale (POS) data comes in handy when shared with supply chain partners Decrease in lead time Difficult to implement With a push-based supply chain, products are pushed through the channel, from the production side up to the retailer. The manufacturer sets production at a level in accord with historical ordering patterns from retailers. It takes longer for a push-based supply chain to respond to changes in demand, which can result in overstocking or bottlenecks and delays (the bullwhip effect), unacceptable service levels and product obsolescence. In a pull-based supply chain, procurement, production and distribution are demand-driven rather than to forecast. However, a pull strategy does not always require make-to-order production. Toyota Motors Manufacturing is frequently used as an example of pull production, yet do not typically produce to order. They follow the "supermarket model" where limited inventory is kept on hand and is replenished as it is consumed. In Toyota's case, Kanban cards are used to signal the need to replenish inventory. A supply chain is almost always a combination of both push and pull, where the interface between the push-based stages and the pull-based stages is sometimes known as the pushpull

boundary. However, because of the subtle difference between pull production and make-to-order production a more accurate name for this may be the decoupling point. An example of this would be Dell's build to order supply chain. Inventory levels of individual components are determined by forecasting general demand, but final assembly is in response to a specific customer request. The decoupling point would then be at the beginning of the assembly line. Q.6 . Discuss the importance of logistics and its role in economy of a country. Answers: Logistics is not a new area of marketing management. It has been around since the beginning of civilisation. It describes the entire process of materials and products moving into, through and out of the company. The actual work of logistics is supportive in nature. It involves the integration of transportation, inventory, warehousing, materials handling, packaging and information technology. Logistics helps the inflow of materials into the manufacturing process. It also helps in the distribution of products to consumers through various marketing channels. Hence, logistical support is a must for marketing and manufacturing operations, and materials handling cannot be avoided in the performance of logistics. Logistical management includes the design and administration of systems to control the flow of material, work-in-process and finished inventory to support business unit strategy. The transportation system is the physical link connecting a company with the customers, raw material suppliers, plants, ware houses and distribution channel members. Its interesting to note that all these elements of logistic system are fixed points, transportation is the connecting medium. (A fixed point is that point in a logistic system where some activities temporarily halt the flow of goods). The better is the performance and efficiency of transportation system the better will be organisational performance in terms of cost and customers satisfaction. Knowledge of logistics and transportation is fundamental to the operations of any business. Transportation adds value to the goods by providing time and place utility, by ensuring availability of items when they are needed, & where they are needed. For most companies there is a geographical spread between the source and market of goods produced because of economies of scale and mass production, specialization of labour, infrastructural facilities, transportation is the connecting link. Its explains the following.

ation

Importance in an economy. Logistics is in important component of GDP

Logistics plays a key role in the economy in two significant ways. First, logistics is one of the major expenditures for businesses, thereby affecting and being affected by other economic activities. In the United States, for example, logistics contributed approximately 10.3 percent of GDI in 1996. U.S. industry spent approximately $451 billion on transportation of freight and about $311 billion on warehousing, storage and carrying inventory. These and other logistics expenses added up to about $797 billion. Second, logistics supports the movement and flow of many economic transactions; it is an important activity in facilitating the sale of virtually all goods and services. To understand this role from a systems perspective, consider that if goods do not arrive on time, customers cannot buy them. If goods do not arrive in the proper place, or in the proper condition, no sale can be made. Thus, all economic activity throughout the supply chain will suffer. One of the fundamental ways that logistics adds value is by creating utility. From an economic standpoint, utility represents the value or usefulness that an item or service has in fulfilling a want or need. There are four types of utility: form, possession, lime, and place. The later two, time and place utility, are intimately supported by logistics. While form and possession utility are not specifically related to logistics, neither would be possible without getting the right items needed for consumption or production to the right place at the right time and in the right condition at the right cost. These ''five rights of logistics" credited to K. Grosvenor Plowman, are the essence of the two utilities provided by logistics: time and place utility.

Master of Business Administration MBA Semester 3

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