CHAPTER 1

An Overview of Logistics
and Distribution
Management
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LEARNING OBJECTIVES
To understand the economic impacts of logistics and
distribution management
To learn what logistics and distribution management are
To learn about the increased importance of distribution
management and logistics
To understand the systems and total cost approaches to
logistics and distribution management.

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LEARNING OBJECTIVES
To expose you to logistical relationships within the
firm
To learn about marketing channels
To provide a brief overview of activities in the
logistics channel
To familiarize you with logistics careers

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DISTRIBUTION MANAGEMENT:
WHAT IT IS

Distribution Management definition:

Distribution Management involves the collaboration in the supply
chain which can influence customer service value.
It deals with the strategic and structural design levels of the supply
chain, and is about the integration at strategic management level
of the outbound theoretical constructs of the supply chain.

Source: www.cscmp.org
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LOGISTICS: WHAT IT IS

Council of Logistics Management definition:

Logistics is that part of the supply chain process that plans,
implements, and controls the efficient, effective forward and
reverse flow and storage of goods, services, and related
information between the point of origin and the point of
consumption in order to meet customers requirements.

Source: www.cscmp.org
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ECONOMIC IMPACT OF DISTRIBUTION AND

LOGISTICS MANAGEMENT
CONCEPT OF ECONOMIC UTILITY
The value or usefulness of a product in fulfilling
customer needs or wants.

THE FOUR GENERAL TYPE OF ECONOMIC

UTILITY ARE:
1. Possession utility
2. Form utility
3. Place utility
4. Time utility

POSSESSION UTILITY
Possession utility refers to the value or usefulness
that comes from a customer being able to take
possession of a product.
Possession utility can be influenced by the payment
terms associated with a product.
Debit card, credit card facilitate possession utility by
allowing the customer to purchase products without
having to produce cash.

FORM UTILITY
form utility refers to a products being in a form
that (a) can be used by the customer and (b) is of
value to the customer.
Form utility has generally been associated with
production and manufacturing, logistics and
distribution can contribute to form utility.
For example, to achieve production economies a
soft drink company may produce thousands of case
of soft drinks. (economy of scale).
Allocations can break the thousands of soft drinks.

PLACE UTILITY
Place utility refers to having products available
where they are needed by customers; products are
moved from points of lesser value to points of
greater value.
Example: soft drinks are moved from point of
production to point of consumption

TIME UTILITY
Time utility refers to having products available
when they are needed by customers.
Its important to recognize that different products
have different sensitivities to time, three-day late
delivery of perishable items likely has more serious
consequences than three-day late delivery of nonperishable items.

TABLE 1-1: THE COST OF THE BUSINESS

LOGISTICS SYSTEM IN RELATION TO A COUNTRYS
GROSS DOMESTIC PRODUCT (GDP)

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THE INCREASED IMPORTANCE OF LOGISTICS AND

DISTRIBUTION MANAGEMENT
A Reduction in Economic Regulation
Changes in Consumer Behavior
Technological Advances
The Growing Power of Retailers
Globalization of Trade

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THE SYSTEMS AND TOTAL COST

APPROACHES TO LOGISTICS
Systems Approach indicates that a companys
objectives can be realized by recognizing the mutual
interdependence of the major functional areas of the firm
such as marketing, production, finance and logistics.
Interdependence of company and logistics goals

Interdependence of functional areas

Stock-keeping units (SKUs)

Interdependence of logistics activities or

Intrafunctional logistics

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THE SYSTEMS AND TOTAL COST

APPROACHES TO LOGISTICS
Business logistics is made up of:
Materials management movement and storage of
materials into a firm
Physical distribution storage of finished products and
movement to the customer.

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FIGURE 1-1: CONTROL OVER THE FLOW OF

INBOUND AND OUTBOUND MOVEMENTS

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FIGURE 1-2
The Utilization of
Logistics Service as
a Major Selling
Point

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THE SYSTEMS AND TOTAL COST

APPROACHES TO LOGISTICS

Total Cost Approach

Cost trade-offs: changes to one activity

cause some costs to increase and
others to decrease

Total Logistics Concept: to find the

lowest total cost that supports an
organizations customer service
requirements
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LOGISTICAL RELATIONSHIPS WITHIN THE FIRM

Finance
Production

Marketing

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LOGISTICAL RELATIONSHIPS WITHIN THE FIRM

Marketing

Place Decisions
Price Decisions

Product Decisions

Landed costs

Stockouts

Promotion Decisions

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MARKETING CHANNELS
set

of institutions necessary to transfer the title

to goods and to move goods from the point of
production to the point of consumption and, as
such, which consists of all the institutions and all
the marketing activities in the marketing
process.

Source: American Marketing Association Dictionary, www.marketingpower.com

Channel members

Manufacturers
Wholesalers
Retailers

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MARKETING CHANNELS
Ownership channel
Covers movement of the title to the goods
Negotiations channel
Buy and sell agreements are reached
Financing channel
Payments for goods
Promotions channel
Promoting a new or existing product
Logistics channel
Moving and storing product throughout the channel
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CHANNEL INTERMEDIARIES/ FACILITATORS

Ownership

channel

Banks, finance companies

Negotiations

Brokers

Financing

channel

Banks, insurance companies, finance companies

Promotions

channel

Advertising agencies, public relations agencies

Logistics

channel

channel

Freight forwarders
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ACTIVITIES IN THE LOGISTICAL CHANNEL

Customer service
Facility location
decisions
Inventory management
Order management
Procurement
Transportation
management

Demand forecasting
International logistics
Materials handling
Packaging
Reverse logistics
Warehousing
management

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RESPONSIBILITIES OF LOGISTICS MANAGERS

A

specialist
Freight rates
Warehouse layouts
Inventory analysis
Production
Purchasing
Transportation law

generalist

Understands functional
relationships
Relates logistics to
other firm operations,
suppliers, customers
Controls large
expenditures

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LOGISTICS CAREERS
Most business organizations are potential
employers
Logistician highlighted as one on the 50 best
careers for the year 2010

Source: U.S. News & World Report

Career paths for the two most recent CEOs of WalMart included assignments in logistics and
distribution.

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LOGISTICS PROFESSIONALISM
Professional Organizations Dedicated to Advancing the
Professional Knowledge of their members:

APICS The Association for Operations Management (www.apics.org)

American Society of Transportation and Logistics (AST&L)
(www.astl.org)

Council of Supply Chain Management Professionals (www.cscmp.org)

Delta Nu Alpha (DNA) (www.deltanualpha.org)
International Society of Logistics (SOLE) (www.sole.org)
Supply Chain & Logistics Association Canada (SCL) (www.sclcanada.org)
The Chartered Institute of Logistics and Transport in the UK CILT
(UK) (www.ciltuk.org.uk)
Warehousing Education and Research Council (WERC) (www.werc.org)
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KEY TERMS
Sorting

function
Stock-keeping
units (SKUs)
Stockouts
Sustainable
products

Systems

approach
Tailored logistics
Time utility
Total cost approach

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ECONOMIC IMPACTS OF LOGISTICS AND

DISTRIBUTION MANAGEMENT
Macroeconomic Impacts
Economic Utility

Possession utility
Form utility
Place utility
Time utility

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