Managing Product Movement Tutorial
Managing Product Movement
In addition to enlisting the assistance of retailers and wholesalers to make products available to customers, marketers also face additional concerns when trying to meet their distribution objectives. In this section we examine the tasks that must be carried out in order to physically move products to customers. In some cases the marketer will take on the responsibility of carrying out some functions, while other tasks may be assigned to distribution service providers. Whether handled by the marketer or contracted to others, these functions are crucial to having a cost-effective and efficient distribution system.
In this part of the Principles of Marketing Tutorials we explore the movement of product by first examining how physical distribution decisions often involve analyzing the trade-off between the service level the marketer offers to customers versus the costs associated with providing these services.
Next we provide an in-depth examination of three major tasks that the marketer or distribution service providers may need to carryout in order to ship products to customers. These tasks include:
- Ordering and Inventory Management
- Product Storage
It is worth noting that while most physical distribution is concerned with moving tangible products, some of the issues covered here are also applicable to intangible products, such as services and to digital products.
Trade-off Analysis: Service-Level vs. Cost
The distribution activities we discuss in this part of the Principles of Marketing tutorial are important elements in the marketer’s overall customer service package. As we discussed in the Managing Customers tutorial, marketers strive to deliver an optimal level of service to their customers. However, "optimal" does not always translate into providing the "best" service options to customers. The service-level marketers’ offer for their distribution activities, like the service-level offered by other company-related activities that impact customers (e.g., customer help desk), is determined using trade-off analysis.
With service-level trade-off analysis, the marketer compares the number and quality of distribution features (e.g., speed of delivery, ease of placing orders, order tracking, etc.) they would like to offer versus the cost of providing the features. For instance, when it comes to transportation options (e.g., truck, railroad, air, etc.), trade-off analysis may show that choosing the fastest method for delivery may not make economic sense since options for fast delivery often are very expensive compared to slower methods. While the customer may appreciate having their order arrive quickly, the marketer may find fast delivery to be an expensive proposition that significantly reduces their profit margin.
Since most distribution activities are non-revenue producing (i.e., are used to support the selling of a product but do not actually create a sale) and, thus, represent a cost to the marketer, it should be understood that the marketer’s distribution system choice may not be the overall best available in terms of getting the product into customer’s hand as fast as possible. Rather, the marketer’s choice for what is optimal will be determined by analyzing distribution features and costs and evaluating how these fit within the marketer’s overall objectives (e.g., financial objectives, product positioning, etc.).
Order Entry and Processing
The marketer must have a system allowing customers to easily place orders. This system can be as simple as a consumer walking to the counter of small food stand to purchase a few vegetables or as complicated as automated computer systems where an electronic order is triggered from a retailer to a manufacturer each time a consumer purchases a product at the retailer’s store. In either case, the order processing system must be able to meet the purchasing needs of the customer.
In some cases, an efficient ordering system can be turned into a competitive advantage. Firms such as Amazon.com, turned their order handing system into a product feature with the patented "1-click" ordering option that streamlines online ordering by reducing the number of clicks needed to make purchases.
Ordering and Inventory Management
Having products available when customers want to make purchases may seem like a relatively straightforward process. All a seller needs to do is make sure there is product (i.e., inventory) in their possession and ready for the customer to purchase. Unfortunately, being prepared for customer purchasing is not always easy.
Having the right product available when the customer is ready to buy requires a highly coordinated effort involving order entry and processing systems, forecasting techniques, customer knowledge, strong channel relationships and efficiency at physically handling products.
Inventory management is often an exercise in predicting how customers will respond in the future. By predicting purchase behavior the marketer can respond by making sure the right amount of product is available. For most large-scale resellers effective inventory forecasting requires the use of sophisticated statistical tools that look at many variables, such as past purchase history, amount of promotional effort that triggers an increase in customer ordering, and other market criteria to determine how much of the product will be needed to meet customer demand.
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