Logistics Management at Online Retailing Company - Case Study Example

Logistics Management Student’s Name Course Tutor’s Name Date: Executive Summary This report is targeted to members of a consortium that have joined forces to invest in an Online Retailing Company (ORC). The report takes an advisory tone as it describes how the retailing company can design its logistics operations in order to ensure that customers’ needs and requirements are met effectively and efficiently, and that the company realises its profit objectives. The report recognizes the important role that demand management plays in relation to enhancing customer service, and for that reason advises ORC to start by understanding the needs of its target customers. From the customers’ needs, ORC will then pick the product line(s) that will enhance its probability of meeting its profit objectives. The use of information technology systems has also been identified as a way that ORC can use to streamline information flow among itself, the suppliers and the customers. In relation to customer service, this report advises ORC to be timely, dependable, efficient in communication, and convenient to customers by adequately addressing their needs. The report notes that demand management and customer services are an essential component in customer relationship management. In ‘distribution centre packaging and materials handling’, these report advices ORC to: use packaging in a manner that will balance the logistics-related objectives to the marketing and environment-related objectives; and adopt a materials handling system that can efficiently manage or handle all its three identified product lines. In regard to physical distribution of products within Australia, the report advises ORC to choose its distribution sites based on considerations such as the sales patterns of its products, the transport infrastructure in different areas, availability of skilled labour, and the business environment therein. In conclusion, the report ends by noting that ORC needs to manage its logistics well in order to win the trust of its customers, hence assuring it of profitability in both the short and long-term. Table of Contents Executive Summary 1 ‘Demand management and customer service’ 4 ‘Distribution centre packaging and materials handling’ 6 Physical distribution within Australia 8 Conclusion 10 Introduction The new online retailing company featured in the case study will no doubt need to engage in logistics management in order to ensure that its supply chain is managed in a manner that will ensure that all consumer demands are met effectively and efficiently. Traditionally, logistics is defined as “the process of planning, implementing, and controlling the efficient flow and storage of goods, services and related information as they travel from point of origin to point of consumption” (Arshinder, Kanda & Deshmukh, 2011, p. 48). As would be expected from such a process, there are complexities and uncertainties in the decision-making processes affecting the logistics operations. The complexities and uncertainties arise from the different requirements posed by diverse customers, thus requiring input from diverse resources. Additionally, Arshinder et al. (2011, p. 48) note that dealing with diverse customers and supply partners often results in a high rate of unexpected changes, thus posing even more challenges to logistics management. In the case study, it is evident that the featured online retail company is set to acquire products from overseas locations in Asia, and this too, will probably increase its level of complexities. As Arshinder et al (2011, p. 48 ) observe, geographically scattered networks of manufacturers, retailers, and consumers lead to more complex coordination processes especially for the retailer who shoulders most of the burden related to creating value for the customer. As an advisory report to members of the consortium that will invest in the online retailing company, this report will address how the investors can design the ‘order management and customer service’ functions in the new business; ‘distribution centre packaging and materials handling’; and ‘physical distribution within Australia’. The report argues that like other retail businesses operating in Australia, the online retail business featured in the case study needs to present its potential customers with the right products, in the right quantities, and at the right time, place and price for it to succeed. ‘Demand management and customer service’ The report recognises that demand management is vital for the online retail business since it will enable it to forecast and regulate product acquisitions, while customer service will serve to relate well with buyers while gauging their satisfaction with the products or services provided by the company. For the new online retail company (hereunder ORC) to successfully manage its demand, it will first need to understand the needs of its target customers. Specifically, ORC must be willing to identify what the customers’ needs are, and put in place measures that will ensure that such needs are met. Before delving into the intricate details of demand management and customer service, it must be noted that demand management specifically refers to “the creation across the supply chain and its markets of a coordinated flow of demand” (Mentzer, Moon, Estampe & Margolis 2007, p. 68). From this seemingly simple definition by Mentzer et al. (2007), it is evident that the traditional marketing functions create demands in a market, but business organisations usually have the prerogative to assess the profitability of demands presented in different product or service categories. As would be expected, business organisations then increase their marketing efforts in products or services that have greater profit potential. Similarly, ORC will need to engage in demand management in order to establish just which of the many retail products it will concentrate its marketing efforts on. Having identified ‘car accessories and tools’, ‘leisure products for boating, camping and fishing, and ‘electrical household appliances’ as the main product lines where Australia’s online retailing is growing, ORC can use demand management to forecast the profitability of each of the identified product lines. Other inclusions that ORC should consider using especially for purposes of enhancing demand management include the use of information technology systems for purposes of streamlining communication between the retailer, the suppliers and the customers. As suggested by McLaren, Head and Yuan (2002, p. 351), technologies such as e-mail, fax, and extensible mark-up language messages are just some of the IT applications available for use in logistics management. To realise its objective of online retailing, ORC will have to create online retail platforms that may include electronic procurement marketplaces, portals or hubs in order to facilitate the purchase of its products. As suggested by McLaren et al (2002, p. 351), demand management can also be more effective if the organisation collaborates with other players in the supply chain to plan, forecast and replenish products. Customer service on the other hand refers to the activity, the performance measure, or the philosophy that underscores the importance of business organisations satisfying customer needs and requirements in a timely and satisfactory manner (Coyle, Langley and Gibson, 2008, p. 269). In essence, ORC should strive to address all customer service’s four dimensions as identified by Coyle et al. (2008, p. 269), including time (short order times), dependability (consistent, safe and complete deliveries), communication (efficient communication between the retailer and the end buyers), and convenience (availability of products at a price, location, condition, and quantity that is convenient for the customer). Notably, demand management and customer service are vital components in Customer Relationship Management (CRM), which is a concept that has been used to improve how a business relates with its customers, for purposes of improving its profitability (Coyle et al. 2008, p. 270). As such, ORC will need to use both demand management and customer service in order to enhance its CRM outcomes and hence increase its profitability potential. ‘Distribution centre packaging and materials handling’ As indicated by Jahre and Hatteland (2003, p. 123), “the role of packaging in distribution is increasing in importance” especially since the quality and/or form of the product when being received by a customer depends on how adequate or inadequate the package is towards preserving the integrity of its contents. With increased environment awareness among Australian consumers, ORC may need to consider the use of packaging materials that will not only be environment friendly, but materials that will not contradict its marketing objectives especially in relation to branding its products. Additionally, the materials used in packaging will need to be ‘tough’ enough to protect the content product. Jahre and Hatteland (2003, p. 124) observe the need to develop environment-friendly packages was in the past associated with trade-offs between “marketing, logistics, and the environment”. Citing Pendergast and Pitt (1996, p. 69) however, Jahre and Hatteland (2003, p. 124) point out that “making a sales package more environmentally friendly does not necessarily make it more difficult to protect or handle the product, or make the sales packages less appealing to consumers”. In logistics, it has been argued that it is the package (rather than its contents – the product) that is of more concern (Ballou, 1987, p. 84). As such, at the logistical level ORC will need to consider how well it will package its products in order to ensure that: they are well protected; there is good flow of information (e.g. by including bar codes, Radio Frequency Identification (RFDI), or batch numbers on the package); the efficiency of volume or weight indications on the package is enhanced; packages are adjusted to the size of the products; packages can be handled efficiently; and all other value-enhancing functions are optimally used in the company. ORC may for example need to use the services of logistics service providers and become accustomed with logistics-related terminology such as Global Trade Item Number (GTIN), Global Returnable Asset Identifier (GRAI), Global Individual Asset Identifier (GIAI), and Global Location Number (GLN) among others. Notably, ORC will need to involve other players in the supply chain in some of its decisions (even if only to inform them) because as Pereira (2009, p. 373) indicates, the different players in the supply chain need to work as a team if successful logistics management is to be attained. Pereira (2009, p. 373) further observes that “delayed, scarce or distorted information can create serious problems in the supply chain” hence the need to share business information with other players in the supply chain in a controlled manner. Materials handling is also assuming a growing important role among consumers since they are becoming more aware of the need to purchase products that are attained in ethical conditions and in a sustainable manner (Jahre & Hatteland 2003, p. 123). Gupta and Dutta (1994, p. 68) defines material handling as a term that “refers to the movement of parts, tools, materials and equipment in a facility”. In other words, material handling takes place inside the factory where the different aspects and parts are brought together to form the final product ready for delivery to the consumer. Materials handling is an important aspect of flexible manufacturing systems, and would also be applicable for retailers, especially those who may need to import and pack products anew in line with the size and quantity likes and preferences of their target market. As such, ORC may need to consider how to integrate materials handling in its processes as it conceptualises the logistics of the new online retail stores. Since ORC has already settled on car accessories, household appliances and ‘leisure products for boating, camping and fishing’ as indicated in the case study, its materials handling processes will need to have the capacity to provide the logistics depending on each product category, its usability, and how it will be sold. For example, car accessories may contain solid parts that can be transported linearly without causing them any damage. Leisure products for ‘fishing, camping and boating’ as indicated in the case study may however be more fragile hence requiring more subtle materials handling devices. Notably however, materials handling devices can be used to handle basic motions for all product categories, depending on how the products are packaged. Considering the diversity in handling requirements in the three chosen product lines, it would be advisable for ORC to adopt a materials handling process that can efficiently manage all the three. This is because having different materials handling processes for the different product categories would not only present the business with extra costs, but would also involve deployment of more manpower and perhaps even machinery. Physical distribution within Australia As an online store, ORC is at an advantage in that unlike brick-and-mortar stores, it can customise its distribution within Australia depending on the demand for specific products as indicated in the orders placed by customers on the online platform. As indicated in the case study, ORC will first set its operations in Sydney, before expanding to Brisbane and Melbourne. The short-term physical distribution strategy as implied in the case study (i.e. locating the distribution strategy in Sydney in the meantime) is founded on wise business sense in that the consortium of investors would want the regions that generate the most demand before deciding where the distribution centres will be. This then means that although the ultimate intention is to have distribution centres in Melbourne and Brisbane in addition to the existing Sydney location, the locations may change especially if the two cities do not generate enough demand to warrant setting distribution centres in them. However, before dismissing them entirely as unviable locations for the distributions centres, ORC will need to consider the proximity of the two cities to the target markets as well as their centrality. Some of the considerations that ORC will need to make in future as it mulls over the various cities and/or regions viable for setting up distribution centres include: The sales pattern of its products as suggested by Jahre and Hatteland (2003, p. 131). For example, car accessories may sell well in all cities, but the same case cannot be said about leisure items used for fishing etc; as such, the distribution centres will need to cater for the sales patterns and ensure that customers’ needs are satisfied. ORC will also need to consider what is important to its customers while setting up the distribution centres. If the customers value speed, reliability or predictability, ORC may need to locate its distribution centres closer to the target markets. The transport infrastructure of the different locations under consideration, and their linkages to other locations in Australia as suggested by Held (2003, p. 32). One cannot overstate the importance of transport infrastructure in site selection. Depending on the volumes that ORC will ship from Singapore and distribute to its Australian customers, it is advisable that the distributions centres be set up in locations where transportation is adequate and dependable. Depending on the types of jobs that will be generated by the distribution centres, ORC may also want to consider the skills levels of the population in target areas. According to Held (2003, p. 32), adequate supply of quality employees is a consideration that every company seeking to set up a distribution centre should think about. The business environment in the target regions is also an important consideration (Held 2003, p. 36). Ideally, the business environment should have competitive tax regimes that would impose extra costs on the business (i.e. beyond the acceptable levels), and the regulations should also be business-friendly. The site’s accessibility to vendors. Overall Choomrit (2005, p. 237) notes that the main goal of selecting an appropriate distribution centre is related to the company’s desire to provide optimal customer service to its customers while minimising the costs associated with taxes, transport, labour and real estate. Ideally, ORC should follow similar guidelines in order to ensure that its distribution centres in Australia compliment the company’s effort to enhance customer satisfaction hence increasing profitability. Conclusion With the case study having indicated that members of the consortium have identified that Australians are attracted to online shopping because of the wider product choices, lower prices and convenience, ORC must manage its logistics in a manner that will save costs, avail a wider range of product choices to the customers, and ensure that they (customers) are able to purchase products of their choice at the right price, at the right quantity, and within a specified time. In other words, ORC must ensure that its imported products are priced, packaged, distributed and promoted to the right customers. As indicated in this report, pricing and promotion are functions of demand management, while packaging is a function of the distribution centre. Distribution on the other hand is a logistical function that ensures that the distribution centres make business sense in enhancing profit-making rather than being a cause of loss-making. As a young business, ORC will need to gain the trust of its customers by keeping time (short order times), being dependable (consistent, safe and complete deliveries), communicating effectively with the customers and enhancing customers’ convenience by availing products at a price, location, condition and quantities that are satisfactory to the consumer needs. Gaining the trust of its customers through the identified practices will however need it to manage its logistics effectively in order to ensure that costs are minimised, that goods are packed in the right sizes and labelled appropriately for ORC’s information needs as well as its branding requirements, and that customers’ orders are met within specific time limits. References Arshinder, K, Kanda, A & Deshmukh, S G 2011, ‘A review on supply chain coordination: coordination mechanisms, managing uncertainty and research directions’, pp. 39-84, viewed September 16, 2012, Ballou, R H 1987, basic business logistics: Transportation, materials management, physical distribution, Prentice Hall, New Jersey. Choomrit, N 2005, ‘Location decision in distribution centres’, 232-242, viewed September 17, 2012, Coyle, J J, Langley, J & Gibson B 2008, Supply chain management: A logistics perspective, 8th edition, Cengage Learning, London. Gupta, T & Dutta, S 1994, ‘Analysing materials handling needs in concurrent/simultaneous engineering’, International Journal of Operations & productions Management, Vol. 14, no. 9, pp. 68-82. Held, JR 2003, ‘Distribution centre site selection’, Economic Development Journal, Summer, pp. 31-36. Jahre, M & Hatteland, C J 2004, ‘Packages and physical distribution: implications for integration and standardisation’, International Journal of Physical Distribution & Logistics Management, vol. 34, no. 2, pp. 123-139. McLaren, T, Head, M, & Yuan, Y 2002, ‘Supply chain collaboration alternatives: Understanding the expected costs and benefits’, Internet Research: Electronic Networking Applications and Policy, vol. 12, no. 4, pp. 348-364. Mentzer, J T, Moon, M A, Estampe, D & Margolis, G 2007, ‘Demand management’, In JT Mentzer, MB Mathews, & TP Stank (eds.), Handbook of global supply chain management, Sage Publications, Thousand Oaks, CA . Pereira, J V 2009, ‘The new supply chain’s frontier: Information management’, International Journal of Information Management, vol. 29, pp. 372-379. Read More