Logistics and Its Function in Marketing

1. Logistics and Its Function in Marketing

An important function of the supply chain is logistics, which includes all the activities involved in the flow of products from manufacturers to consumers. Logistics is the planning, organizing, and controlling of the movement of raw materials and ultimately finished goods from manufacturers to final consumers.

EXAMPLE

The logistics involved in getting orange juice to consumers include activities like packing and transporting. It is critical that there is a coordinated effort between all channel members involved in that process. The functions or purpose of logistics is explored next.

Getting products from manufacturers to final consumers requires the coordinated efforts of all channel members. These efforts require an understanding of key activities that need to occur as products flow through the marketing channel. The major functions of logistics include warehousing, inventory management, and transportation.

Warehousing is the stocking, maintaining, and controlling of products while they await the next step in their journey to the final consumer. Warehousing requires receiving and storing new stock, picking, and packing ordered items, and shipping products off to their next destination. Depending on the product, warehousing may also involve maintaining control of the warehouse’s temperature to ensure that perishable goods or food that needs to be held at a certain temperature doesn’t spoil.

Inventory management is a function that involves identifying the type of inventory and how much a company has on hand at any given time. Managing inventory is a critical logistics function because it ensures that there is not too much or too little on hand.

terms to know

Logistics

The planning, organizing, and controlling of the movement of raw materials and ultimately finished goods from manufacturers to final consumers.

Warehousing

The stocking, maintaining, and controlling of products while they await the next step in their journey to the final consumer.

Inventory Management

A function that involves identifying the type of inventory and how much a company has on hand at any given time.

1a. Transportation of Inventory

Transportation is the physical movement of products by either road, water, or air. Companies must determine which method or methods of transportation make the most sense given the nature of the product, the location of the target market, and the costs associated with each method. Transportation also involves all the activities such as the generation of shipping documents, the calculation of delivery time, and the need for additional resources like technology or special equipment. For example, an ice cream manufacturer would need to ensure that the transportation methods it selects to distribute its products are temperature controlled to maintain the integrity and safety of the products.

IN CONTEXT

There are three factors that companies must consider in selecting a mode of transportation. First is the product itself. Products that are hazardous, perishable, or problematic to handle may impact transportation methods. Location is a second factor that can impact the mode of transportation. Companies must consider shipping origin, which is the location where the product is shipping from. They must also consider the shipping destination or the location where the product must land. A company transporting products from China to the United States, for example, needs to select transportation methods that allow it to move products over large bodies of water. The third factor impacting transportation methods is any special consideration related to time or urgency. Companies need to consider how quickly they need products moved from origin to destination. There are a variety of transportation methods available, including trucking, rail, water carriers, air carriers, or some combination of these.

Different modes of transportation are important to know, along with their relative speed of delivery, cost, and accessibility. Accessibility means how readily available or convenient the mode of transportation is. For example, trucking is an accessible mode of transportation because of the strong road infrastructure in the United States. Let us compare the different modes of transportation based on these characteristics.

key concept

Trucking or road transportation makes the most sense for companies transporting between destinations connected by land. It is highly accessible, meaning that trucking is readily available to companies looking for a low-cost mode of transportation. “Truck transportation is ideal for industries that require quick, small shipments directly to a business, warehouse or consumer’s door and is equipped to handle possible delays. The top three commodities in trans-border truck shipping are computers and computer parts, electrical machinery and vehicles and motor parts. Other industries that rely on truck freight include grocery and retail, eCommerce, construction and agriculture” (Downes, 2020). “According to Report Linker, from $15.65 billion in 2022, the global freight and logistics market increased to $16.52 billion in 2023 with a 5.5% CAGR (compound annual growth rate)” (Overvest, 2024).

Rail is a second mode of transportation that is best suited for moving goods in cases where the speed of delivery is not urgent and low transportation costs are important. Similar to rail, water carriers offer an even slower mode of transportation at an even lower cost than rail, making it a popular mode for moving consumer goods from China to the United States.

did you know

“The top three commodities being motor vehicles and parts, mineral fuels and plastics. Rail transport is ideal for companies who require fast, scheduled ground freight” (Downes, 2020). “In a typical year, freight railroads haul around 1.6 billion tons of raw materials and finished goods. Redesigned railcars have helped increase average tonnage. In 2022, the average freight train carried 4,089 tons, up from 2,923 tons in 2000” (Association of American Railroads, 2024). ​

Water carriers are also a significant method of transportation. Ocean transport accounts for over 90% of the transport for global economies.

key concept

"The United States alone relies on water transportation for almost 70% of all international merchandise trade. Whenever your business requires transport for heavy, cumbersome loads—or country to country shipping—ship transportation is usually the way to go. Compared to air transportation, ships are capable of carrying immensely heavier loads for a fraction of the cost. It is the preferred transportation for large items shipped in bulk, such as metals, agriculture products, building supplies and others that cannot be reasonably accommodated by plane" (Downes, 2020).​

Air carriers are rapidly increasing in popularity for e-business that need fast delivery. “It is often the best choice if you want fast, uncompromising delivery. Air transport is accessible across most of the world and is ideal for shipments that need to be moved quickly across long distances, including overseas. Air transportation also has a vast scope compared to rail and ship freight, as it is an ever-expanding industry with several thousand airports and landing strips in operation across the globe” (Downes, 2020). “As Zipdo reveals, the global air cargo traffic on the other hand, is expected to carry over 230.5 million tons by 2037. With constant development in airports and innovation regarding air cargo, this number is expected to double or even triple by the coming years” (Overvest, 2024).

Digital logistics is defined as identifying, coordinating, and assessing transport needs through digital means. “In order to keep up with the rise of technology advancements, businesses adapt technology into their operations, especially in production and logistics. Globe News Wire reports that, based on Skyquest, if this behavior continues, the digital logistics market may reach up to 77.52 billion by the year 2030. Starting from 2022 to 2030, it is also predicted that there will be an accumulation of 17.54% CAGR. Moreover, the development of AI and widespread use of the internet are the two main factors to accelerate this growth” (Overvest, 2024).

IN CONTEXT

For some companies, more than one mode of transportation is needed. Multimodal transportation involves companies using two or more types of transportation to move goods from origin to destination. For example, Apple may use air to ship iPhones to European airports but then trucks to continue the journey of getting iPhones to warehouses or distribution centers and retailers. “This is typically used with rail and ship transport, which often require trucks to carry shipments from the railway or port. Intermodal transportation is ideal for shipments that are not of immediate value that have to travel a long distance. In most cases, products remain inside the same shipping container throughout the entire process. In other cases, however, your products might be transferred from one shipping container to another” (Downes, 2020). ​

term to know

Digital Logistics

Identifying, coordinating, and assessing transport needs through digital means.

1b. Logistics Information Management

For a supply chain to be effective, manufacturers, suppliers, channel members, and customers need useful logistical information that can help them make informed decisions. Logistics information management is the recording and reporting of useful information that channel members can analyze and validate during the process of moving products. Channel members use a system to access and manage logistics information in real time. This information allows members to develop demand forecasts, where they predict what and how much consumers will demand in the future, which in turn helps them to make decisions about how much raw materials and other supplies they need to meet consumer demand.

term to know

Logistics Information Management

The recording and reporting of useful information that channel members can analyze and validate during the process of moving products.

1c. Integrated Logistics Management

Integrated logistics management means that every element of logistics works cohesively to ensure that products flow from manufacturer to final consumer in an efficient and effective way. Companies must first begin by defining the objectives of logistics management.

EXAMPLE

In the procurement and distribution of agricultural products, the supply chain might collectively set objectives that everyone along the chain commits to. They may, for example, set objectives to minimize costs, meet delivery times 95 percent of the time, and communicate openly and honestly about product availability and product flow in a consistent and systematic way. Or they may strive cohesively to manage inventory more effectively to reduce the possibility of shortage or surplus. Whatever objectives they set for the supply chain, each member strives to integrate its activities and information with the activities and information of other members to ensure cohesive and synergistic handling of products for the ultimate purpose of meeting the wants and needs of the consumer.

A third-party logistics provider (3PL) is a company contracted by a channel member to handle one or more of the functional logistics areas. 3PL providers can be warehouses, distribution centers, or fulfillment centers that have expertise in managing certain logistical activities.

The advantages of working with 3PL providers are that logistics is their core competency, it is less expensive to outsource, and they offer flexibility. Owning warehouses and trucking systems requires a great deal of capital. Companies would much rather work with a 3PL provider than assume the financial risk of owning and operating their own transportation and warehousing systems.

Imagine if pet food maker Purina had to purchase its own warehousing and trucking business to store and move its goods all over the United States. It would be very costly and require a large capital commitment. In addition, 3PL providers offer the advantage of strategic location. They often market themselves as being in precisely the right zones that a supply chain needs to reach targeted consumers.

The downside of using 3PL providers is the loss of control. Manufacturers are turning over logistics responsibilities to other companies, who assume control of communication and interaction with suppliers. To combat this, manufacturers should continuously analyze performance metrics and communicate with 3PL providers. Manufacturers must systematically evaluate channel member performance to ensure that each member is meeting standards. Failure to evaluate performance can lead to inefficiencies in the channel and a decline in customer-perceived value.

big idea

The qualities of an effective channel relationship include collaboration, transparency, and cohesion. When members work together toward a common goal of delivering value to the consumer, the channel is more effective. Companies like L’Oréal and Procter & Gamble must work harmoniously to build mutually beneficial relationships with their distribution network because it is critical to meeting the needs of their consumers. Failure to do so could be detrimental to channel members if customer value declines because of conflict.

In addition to managing relationships, manufacturers must also find ways to reinforce channel member performance. Manufacturers can provide incentives, such as bonuses and other types of rewards, when channel members meet the manufacturer’s goals.

terms to know

Integrated Logistics Management

When every element of logistics works cohesively to ensure that products flow from manufacturer to final consumer in an efficient and effective way.

Third-Party Logistics Provider (3PL)

A company contracted by a channel member to handle one or more of the functional logistics areas.

REFERENCES

American Association of Railroads. (2024). Freight Rail Data. Retrieved from www.aar.org/data-center/#:~:text=In%20a%20typical%20year%2C%20freight,from%202%2C923%20tons%20in%202000

Downes, D. (2020). Types of Transportation in Logistics: Which Is Right for You? Retrieved from www.purolatorinternational.com/types-of-transportation-in-logistics/

Overvest, M. (2024). Logistics Statistics 2024 — 21 Key Figures. Retrieved from procurementtactics.com/logistics-statistics/