The Importance of Logistics Management - Example

Logistics Management Student’s Name: Instructor’s Name: Course Code: Date of Submission: Table of contents Executive summary 3 Design and operations of a distribution centre 9 Physical distribution within Australia 11 Conclusion 15 References 16 Executive summary Retailing has been evolving at a higher rate especially the initiation of internet as a tool for shopping has greatly impacted retail industry. Online retail in Australia and internationally has been incredibly growing for the last decade. Consumers are opting for online retail due to more benefits as compared to in-store retail in terms of low prices, wide range of products to choose and convenience. Some of the perceived risks related with online retailing include personal information disclosure, product and security risks. However, the retailers are recognizing these risks and they are on the efforts of reassuring their customers using any possible means. As customers are feeling the comfort of online retailing, it is also forecasted that they will combine both online and in-store retailing. There has been a slight decline of GDP over time with retail industry reflecting a slower growth as compared with other parts of the economy. This has been contributed by introduction of online retailing and the differences between Australian importers and foreign importers due to unbalanced charges imposed on them during importation. These differences has also impacted on in-store retailing since they incur more charges before the products reaches the customers as compared to online retailing. Logistics management will consider Australian customs, inspection and quarantine clearance for the purpose of instilling fairness and customer satisfaction. In order to address there is a need to develop a distribution centre to control the imports before distribution to retail industry in Australia. Introduction Retailing is an important stage in business as it acts as an intermediary between the customers and producers. Effective and efficient operation of retailers is essential to ensure that customers have an access of wide range selection of goods putting in consideration the best prices and a service that is consistence with the customer’s preferences. In addition to selling of goods, retail industry has other roles as a service industry. These include introducing new products to customers and assisting customers in assessing and comparing the prices of products. Retail industries also provide a variety of secondary services that include provision and arrangement of financial and after sale services in case the concerns of warranty arise (Aldridge & Harrison 2000). The retail business in Australia consists about 10% of the total population that is employed in this industry that happens to be one of the largest employers in Australia. This means that this industry has a considerable impact on the economic output with an observed generation of 4.2% of the GDP at the end of year 2010. On the other hand, there has been a slight decline of GDP over time with retail industry reflecting a slower growth as compared with other parts of the economy. This industry is very diverse with various sectors displaying different characteristics. The industry bulkiness consists of speciality and departmental stores such as electronics and electrical goods among others (Australian government 2007). One of the factors that have led to low barrier to Australian entry for retail is presence of major retailers from overseas that have come up with new business models to Australian market and increased choice and completion for consumers. Innovation in technology and ease of online business are also the main reasons that have led to lowering of the entry barriers with increased retailers’ competitive environment as retailers easily access suppliers all over the world. Online retail has contributed to a competitive pressure that has been felt by in-store retailers and this pressure varies according to the nature of goods that these retailers sell. The online impact on competition is not only reflected on retailers’ market share but the online retailers also affect the prices that the brick and mortar in-store retailers offer (Ghosh 1998). The key factors that make consumers prefer online shopping include lower prices, wide range of choice of goods and convenience. There is a need for understanding the task played by online retailing in this industry and other structural change drivers in the industry such as employment characteristics, globalisation and the cost of structures employed in domestic retail industry (Guttman et al. 1998). The purpose of this report is to assess the differences in online and in-store retailing in Australia in order to come up with a distribution centre to address the Australian retail industry. Order management and customer service Online retail, which is a compartment of electronic commerce, involves purchasing and selling of goods and services by use of internet between the retailers and customers. Online retail applies the pull operations concept where it will begin with an order that is customized. This means that it understands the likes of the customers first before getting the goods and services then the retailers is able to buy the goods according to the customers’ specifications and make delivery plans for them. The pull strategy call for promotion of products which is made easier through internet meaning that the online retailers will reach to their customers in an easy and faster way. On the other hand, in-store retailing is based on the push concept where it starts with the inventory on production where the inventory is then pushed to the customers. However, the push strategy will tend to overburden the in-store retailers as the wholesalers give them the bulk products to market thus requiring for more space for storage. In this case the in-store retailers contain goods already bought in bulk and stored for the customers to make selection of their products if what satisfies the customer is available (Lummus et al. 2003). The fulfillment of the order in online retail effective as compared to in-store since online retail provides the customers with the goods or products they order at the right time and in addition, it is able to meet services the customer services related to the products. This shows that they contain the goods and services based on the customers’ request. In in-store retail, there will be a need to put a variety of products for customers to make choices. This calls for more space and labor as there is no specific information on customers’ request. The processing of orders in online retail is accurate and efficient as the customer’s order receipt, checking of credit standing of the customer, issuance of the shipment and billing and inventory records updating will be performed in a very short time using the internet. This is performed with the achievement of maximum service to the customer and lower costs. In-store retailing will have to physically involve the customer in order to accomplish the above tasks that require more time (Carter & Ellram 1998). The aim of the logistic system is to maximize the company’s profit but not mainly to increase sales. In-store retailers will end up selling their goods and services at higher prices as compared to online retailers. Low prices on online retail with corresponding higher prices in in-store retailers can be described in terms of rent, location, staffing and inventory. The location of an online retail is worldwide and its operation can be done using a single room through use of internet for networking. This calls for low cost on operation. On the other hand, an in-store retail will require stores and warehouses to keep their goods as they are not bought according to customers requests. This increases the cost of operation through increased rent for larger spaces as compared to online spaces. The online retailers do not require stocking the products as they bring them on request as the process involves direct shipment from the retailers to the customer. This means that there is no risk of being stuck on the products that are outdated and capital is not tied up in inventory. In in-store retailing, the capital is tied up on on-hand inventory and at the same time, retailers are at the risk of selling their goods at low prices as some of them become outdated in the stores. Online retail requires less team for the management of the internet to keep the site updated and operational while in-store requires more staff to serve the customers in different stores and departments. This includes a large team consisting of security, sales people, managers and handlers of inventory. Online retailers are also located everywhere through the internet with no boundaries thus allowing a good traffic of international and local customers at little expenses. This in turn will allow them to sell goods at lower prices (Hoffman et al., 1995). In-store retailers require physical locations that call for more investments with a corresponding increase in expenditure. The competition brought about by online retailers has resulted to reduction of prices in in-store retail in order to maintain the support of customers. This in turn has led to making of large sales for in-store retailers with continuing falling in their prices. This is evidenced by Harvey Norman Company where its chairman Gerry observes sale of a very large number of electronics with continued falling in their prices. He describes the condition as an extremely difficult one for in-store retailers as much of what they are selling currently is resulting to very little turnover. The logistic system of these in-store retail system acts in a way that there is maximization of the services to the customers with a corresponding costs of distribution. In this way, the objective of the in-store logistics in in-store retail has not been met as it is seen to maximize sales with a corresponding decrease in profits (Alba et al. 1997). However, online retailers can be said to be the cause of low profits with increased sales in in-store retailers that is contributed by certain factors. Comparing Harvey Norman Company with an online company providing the same goods, the online company does not require a lot of space to store their products since the company provides them according to the request of the customers. In addition, the company employs cheaper online means for dealing with the customers leading to reduced expenses on basis of staffing and revenues. These conditions make the company comfortable in providing services to their customers at lowers prices and increased profit. Online retailers are able to weigh their benefits of higher level provision of customer services against the costs. This means that online companies have achieved the goals or the objectives of the logistic system through maximum services to their customers with increased cost of distribution and a significant increase in their profits (News.com.au 2011). The customers’ choice of product also favors the online retailers. The online stores contain large varieties of the products required by customers without a need for a large physical space. This gives these customers more opportunities to select the best products. In addition, some of online retailers have a set up for customization of products according to the customers’ needs. Online internet is also believed to have the latest fashions of products that are in contrast to in-store retail that may contain out of date stock (Guttman et al. 1998). Design and operations of a distribution centre Logistics management in the design of the distribution centre will consider Australian customs, inspection and quarantine clearance. The body in charge of tax collection, charges on custom and other duties imposed on the products that pass through the ports into the distribution centre. Quarantine inspection and clearance will be responsible for inspecting any product imported so that safety and health of the consumers maintained (Taniguchi et al. 2003). The design and operations of a distribution centre will consider equity and also the creation of a balanced playing field among the in-store, online and foreign retailers. The logistics involved in design and operation will consider the movement of products in the following processes; the procurement, inward transportation, receivership, storage or warehousing, control of stock, order picking, outward distribution, physical distribution and communication. The procurement or the purchase of goods will be done in bulk form the suitable suppliers in collection centers in China and Hong Kong. This is done online in order to with the main upstream activities within Australia. The traffic or the inward transport will involve movement of these goods from the suppliers abroad to the main distribution center. The application of logistics in this process is to ensure best operations in transportation, design of the route, ensuring all that safety and legal requirements are adhered to and ensure timely, low cost deliveries. Receiving will ensure that materials delivery order will match, receipt acknowledging and unloading from delivery vehicles (Anderson et al. 1997). The Sydney distribution centre will require warehouses where the received goods will be stored before they are directly distributed to the customers according to their specifications. These warehouses will also make sure that the goods are in right conditions and are packaged according to the customers’ specifications. This process will be different from the in-store retailing as the goods ordered for in-store are not customer specific but needs redistribution to the sales shops for customers’ selection. Control of stock will consider the customer services and order timing and sizes to make sure that customer’s requests are accomplished with ease. On the other hand, in-store retail stock control of the materials available in the store and the organization’s overall investments in form of products available in the store (Cohen 1995). Order picking assists in removal of materials from the warehouse. According to the online customer’s specifications, the material the material is identified and checked then moved to the area of departure for deliveries loading. However, in-store retailing will involve supplying of material in bulk to the display shops for customers to make selection. The logistics activities are very spread in the in-store retail as the goods are moved from the warehouses to the nearby stores then to the stores meant for display to the customers. It may also include various alternatives and involvement of the third parties. Outward transport will involve delivering of the materials to the customers as he or she had requested online. In case of in-store retailing, the delivery would entail what the customer has chosen in the material display shop. Outward transporting includes the physical distribution that connects the retailer to the downstream activities. The logistics work may not be completed the moment the materials have been delivered to the customers. Some of the materials may be returned back as they may be not in accordance to the customer’s request. The original delivery to the customer is the forward logistics while the return of the materials to the company is the reserves logistics. Logistic management will also be applied in the communication, as the physical distribution of the products must be accompanied with the flow information. This will link the entire supply chain from the collection centers in China and Hong Kong giving information on customer’s specification, products, schedules, levels of service and cost among others by use of internet. In addition to this, there are certain issues that need to be addressed in order to make this Australian company equally compete with other foreign online companies. There should be consideration on the Australian taxing system for businesses. Lack of equity in the issue of the GST as the foreign importers are enjoying less than $A 1000 or no GST charges while Australians are facing more charges. This will negatively impact trade on the Australian side in terms of revenues and increase in prices on goods imported by Australian nationals. There should be an establishment of a user pay principle on all commercial and personal imports for the imports to earn charges on the grounds of the actual processing cost. This promotes equity and a healthy competitive economy. There should be consideration of safety issues for Australians importations which does not contain approvals on safety as demanded by the Australian law on retail (Ring & Tigert 2001). Physical distribution within Australia Physical distribution will be possible by use of the current Australian channels. These channels are responsible for inspection and clearing of goods before they pass through the port from other countries. Through a transportation system, it will be possible to make calculation on the quantity and value of goods that are moved into the country (Taniguchi et al. 2003). Physical distribution involves all activities for delivering goods to customers that includes the outward transport. This process is works together with marketing and it is a very important link in the operation of downstream activities. There is a need for companies to decide for the most effective way of handling, storing and movement of goods and services to ensure their availability to while observing the right mixture, right place and time. The effectiveness of the logistics impacts both the satisfaction of the customers and the company’s costs. The physical distribution involves the machinery for movement of goods and the storage. In addition, it entails the process of planning, implementing, scheming the flowing of materials that is physical, control of final goods the information that is related to the process from the original point of the goods to the consumption point to ensure that the customer’s requests are met at a profit. This process generally involves obtaining for the right customer the right product in the right time and place. The management of logistics involves managing all the above operations in order to come up with a cost effective and efficient physical distribution. A higher percentage of the total logistics cost on retail are encountered in the process of distribution (Novich 1980). Market logistics in Australia addresses the product movement to the customers from retailer also known as outbound distribution or outward logistics and movement of products to the retailer from supplier known as inward logistics or outbound distribution. In- store also involves movement of goods and services within the organization by delivering to internal customers from the internal suppliers which is referred to as management of materials. In-store retail follows a series of stores or organizations forming a supply chain. The activities that move material towards the store are referred to as upstream activities while those transferring the materials outwards from the store as the downstream activities. In-store retail gets materials in bulk from tiers of suppliers and distributes them into tiers of customers (Childerley 1980). In-store activities Upstream activities downstream activities On the other hand, online retail mostly involves direct trade between the retailer and the customers or from the wholesaler to customer directly where the wholesaler acts as a retailer. Online activities Upstream activities downstream activities Logistics management on physical distribution is aimed in achievement of several purposes. The most important is the satisfaction of the customer that serves as a pillar for marketing strategy where distribution will be acting as an essential element in customer service. Secondly, logistics is also a major element of the cost in many retail businesses. Improvements in the efficiency of physical distribution lead a remarkable savings on cost for the customers and retailers. Finally, advancement of information technology such as online retail has lead to creation of systems that are advanced in processing of the order, control of inventory, scheduling and transportation routing (Bharat 1999). There must be a great interest in making decision in transportation marketing. t since the choice made on transportation carriers have an effect on product pricing, performance of deliver and the products conditions as they get into their point of delivery. All these factors have a direct effect of on the satisfaction of the economy. There are various modes of transportation employed for physical distribution in Australia for shipment of goods to the warehouses, dealers and the customers. These modes include rail, truck, air and pipeline. Railroads provide one of the cost effective transportation mode for shipment of bulk products mostly over long distances. Goods and services will be shipped from the ports to the company’s warehouses by use of railroad. Some of the products will require speed due to their nature or the customer’s requirement. Airfreight will be used to transport low bulk high-value goods to the warehouses. Airfreight will also be effective in reduction of the levels of inventory and the packaging costs. Trucks will be the most applicable way of transportation of goods to specific customers within Australia. Their efficiency is contributed by their routing flexibility, scheduling of time and offering of faster services within Australia. Transportation of goods from the collection system to the customers place will involve combination of all modes of transportation that includes air, water, railroad and truck. Choice of any mode for transportation must put into consideration the cost, speed, availability, flexibility, dependability and other factors. This will increase the profits; it will prevent passing or transferring high costs to the customers (Jones 2001). Conclusion Logistics is very essential in management of the flow of goods and products from the suppliers to the customers as it is essential in customer satisfaction and is a major element of cost in majority of retail businesses. Retailing is an important stage in business as it acts as an intermediary between the customers and producers. Technological advances have made online retail a new format in retailing as it is quickly developing since it was introduced. Online popularity in Australia is attributed to low prices, wide range of choosing goods and services and its convenience. As today’s society if focused on saving time and money, online serves the two factors well as it reduces time for shopping and provides goods and services at lower prices as compared to in-store retailing. The choice of variety of products through website navigation without leaving your home to visit various multiple stores has also contributed much on online retailing. Although there are many benefits of online retailing, some of the aspects may be seen to negatively affect the customers such as personal information disclosure, product and security risks. Local retailing in Australia is experiencing unfair competition with foreign importers as the local retailers are subjected to higher charges on importation of products while foreign retailers are exempted some charges or these charges are reduced. These charges includes GST where foreign importers are enjoying less than $A 1000 or none while Australians are facing more charges. On the other hand, in-store retailers in Australia experience high charges due to more expenses incurred such as payment of rent in display of products in multiple stores with addition to other charges. This has led to increase in the prices of their products as compared to online retailing. 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