CHAPTER ONE

INTRODUCTION

1.1  Background of the Study

The role of logistics and distribution system as a marketing function

cannot be over-emphasized. As a marketing function, logistics and

distribution system aim at moving products from their point of

inception to their point of consumption. To this end, managing

logistics and distribution system according to Ogunsiji, (2010:96) is

viewed as the process of planning, implementing and controlling the

efficient flow and storage of raw materials in process, finished

goods, services, ideas and related information from point of origin to

point of consumption (including inbound, Outbound, internal and external movement for the purpose of conforming to customers’ requirements).

Additionally, Ghian et al (2004:1) stated that logistics deals with the planning and control of materials flows and related information in organizations both in the public and private sectors. Its mission is to get the right materials to the right place at the right time, while optimizing a given performance measure (minimizing total operating costs) and satisfying a given set of constraints.

Logistics and distribution system is employed by manufacturers and service providers to ensure an economic placement of their products and services at the reach of the target consumers. Logistics and distribution functions put the right product in the right place at the right time to meet demand requirements. More so, logistics and distribution manager should be able to assess and control logistics and distribution cost as well as determines the most efficient means of transporting, and storing products, which usually involves some forms of warehousing. Hence, logistics and distribution system entails transporting as well as materials

handling and packaging (Charles, 2008:68). In essence, logistics and distribution system is a complex activity as well as one of the most important aspects of any business. While production creates form utility, logistics and distribution enhance the form utility by creating time, place and possession utilities (Osuagwu, 2002:402).

According to James (1998:132) logistics and distribution system are as old as civilization. Even merchants in ancient times had to move goods and raw materials to their destination and engaged in storage and inventory control. Until the industrial resolution however, these activities were carried out inefficiently, goods usually were replenished slowly, and there were far fewer goods than in the era of mass production. The industrial Revolution ushered in mass production and by the late 19th century, the beginning of mass marketing goods and raw materials also were conveyed over greater distances. Nonetheless, until World War II logistics and distribution system were far less important than production and marketing. Logistics and distribution activities were carried out as separate, unrelated activities; transporting storage and inventory control. Donald et al (2000.73) observed that, the post war years witnessed an unprecedented explosion of consumer goods and brands, as a

result of modern mass marketing, the population increased and the increasing sophistication of the average consumer. The sheer volume and variety of goods enormously complicated their distribution and storage. A wholesaler of breakfast cereals for instance, no longer handles a few cereal brands, but dozens of them, and with the proliferation of supermarkets, was confronted with the problem of greater demand and continious products turnover. The cost of distribution escalated as well, further adding to the complexity of logistics and distribution management (Michael 2005: 1672).

Recently, computerization is performing certain function of logistics and distribution management, ranging form long range strategic planning to day to day logistics, inventory storing and market forecasting. Advanced distribution system may employ satellite tracking and routing of trucks, electronically tagged pallets or cargo containers and elaborate data monitoring and storage capabilities. Data collected from these activities are analyzed and presented for the purpose of identifying shortcomings and develop necessary

programmes for corrections and improvement (Tilanus et.al, 1997:

167).

Furthermore, most large organizations engage the activities of third party logistics. These outsourcing services received a great deal of attention during the 1990’s, as manufacturing companies sought to eliminate peripheral activities when they could do so at cost saving. Smaller companies, on the other hand, frequently lack the expertise or resources to perform their own distribution. Nevertheless, some distribution analyst criticized the outsourcing movement because the net cost savings may be less than anticipated and the quality of the logistics services may be hard for the manufacturer to control (Adediran, 1997: 157).

Logistics and distribution system cost are those cost associated with physical movement of goods, component parts, raw materials, finished goods. These goods have to be moved and stored before they have economic value. To this end, logistics and distribution manager should be able to articulate the possible cost associated with the logistics activities for efficient management of the system. The following costs are associated with logistics.

-         Transportation by common carriers, contract carriers or company owned equipment

-         Warehousing

-         Materials handling

-         Packaging

-         Inventory control, insurance, taxes , obsolescence and inventory capital costs

Rightly, the Nigeria cement industry, although it is an Oligopolistic market, its customers cannot be disassociated with the usual sophisticated behaviour towards product quality, price and availability consciousness. Consequently, managing logistics and distribution system in this industry is critical to organizational performance. However, all companies are concerned to search for ways to reduce costs. Since the industrial revolution, much of this search per cost saving has centered on the production area; labour saving technology, replacement, raw materials, effective production, planning etc, have all accounted for considerable managerial time, effort and expertise in order to reduce cost and improve output. All of this attention however has meant that increasingly the potential for further cost savings in these areas has become something

limited. If management is going to continue to look for cost-savings, therefore, it will have to look somewhere else (Lancaster et.al, 2001:301). The logistics and distribution system cost according to (Doylce, 1998:216) account for up to 20% of sales.

Additionally, the Nigerian cement industry, although an oligopolistic market, it customers however cannot be disassociated with the usual sophisticated behaviour in searching using and obtaining its product (cement). Hence effective management of logistics and distribution system becomes the utmost concern of companies in the industry as their customers consciously dispose certain attitude towards quality, availability and price. Consequently managing logistics and distribution system is of utmost concern since companies are sited at locations proximity to raw materials (limestone). Hence emphasis is not only on cost-savings but also in customer’s satisfaction via product availabilities at the right place and time, in the right quantity and at a reasonable price.

1.2  Statement of the Problem

The strategic role and importance of logistics and distribution system have been realized especially in the competitive environment

of marketing organizations driven by high levels of economic activities. Logistics and distribution system activities are concerned with the transformation and circulation of goods, materials supply, core distribution and transportation function as well as whole sale and retail movement of consumer goods, yet not excluding the related information flow. It is undoubtedly a value adding set of activities (Ogunsiji, 2010:96). Logistics and distribution system stand as a collective term for the range of activities involved in the movement of goods from point of production to its final destination point of sales and for consumption, of course meeting the mobility requirements of supply chain. Transportation management focuses on the transportation services such as trucking, rail freighting, air freighting, inland water ways, marine shipping, pipeline transshipment and warehousing services. Material management considers other activities related to the movement of materials in the manufacturing of commodities in all the stages of production along a supply chain (Bloomen et.al, 1994:36).