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1.1 Background of the Study
The growth of competition, the raising of customers’ expectations and the similarity of basic products that are offered make physical distribution so important in determining the final demand for a product. As it becomes more difficult for companies in fast moving consumer goods (FMCG) sector, especially in soft drink industry, to compete on pure product level, creative ones are looking elsewhere for a competitive edge. An effective physical distribution system can give a company a significant competitive advantage (Schewe and Hiam 1998: 366).
The physical distribution (or logistics) system is responsible for actual movement of products in such a way as to accomplish the goal of providing time and place utility. Physical distribution according to Armstrong and Kotler (2009: 343) involves planning, implementing and controlling of the physical flow of materials, final goods and related information from points of origin to points of consumption to meet customer requirements at a profit. Logistics management is the planning, implementation and control of the processes involved in the flow and storage of materials from the point of origin (as raw materials) through the various value added stages to the point of consumption (as finished goods) [The Council of Supply Chain Management Professionals (CSCMP) (2011:2)]
Logistics and physical distribution are used interchangeably. In short, they involve getting the right product in the right quantity to the right customer in the right place at the right time in the right condition and at the right cost. These seven (7) rights of customer service are indispensable in any physical distribution system. This calls for a system approach to physical distribution management (PDM) – managing upstream, and downstream value-added flows of materials, final goods and related information among suppliers, the company, resellers, and final consumers.
The prestigious National Council of Physical Distribution Management (NCPDM) USA in Coyle and Bardi (2000: 5) noted that physical distribution activities may include, but are not limited to the following:
Ø Warehousing and storage
Ø Inventory control
Ø Order processing
Ø Customer service levels
Ø Plant and warehouse site location
These activities are on their own of no importance to customers. However, the services they provide- product availability, PDS timeliness, PDS quality and PDS flexibility- are of utmost importance to customers. According to Wagner (2011: 15) it has been estimated that logistics costs account for 30% of the cost of doing business. However, the management challenge is to consider the two major objectives of PDM namely; (1) achieving a high level of customer service and (2) keeping the total cost of physical distribution as low as possible for a given customer service level. These objectives are achieved through the application of Physical Distribution (PD) system concept.
The physical distribution (PD) system concept says that all transporting, storing and product-handling activities of a business and a whole channel system should be coordinated as one system that seeks to minimize the total cost of distribution for a given customer service level, Perreault et al (2010:275). Both lower costs and better service help to increase customer value and customer satisfaction.
Customer attraction and satisfaction is highly influenced by the seller’s physical-distribution capabilities and decisions (Kotler 2006: 591). Effective logistics requires proper management of the supply chain (Boone and Kurtz 2004: 450). Uncoordinated PD is expensive. Effective logistics management can lower costs, provide better customer service and customer satisfaction which translate into competitive advantage and profit for the company.
Customer satisfaction is a fundamental marketing construct. Marketing scholars and practitioners agree that customer satisfaction serves as a strong predictor of variables such as repurchase intention, positive word-of-mouth and customer loyalty.
Gustatson and Johnson (2000:50) said that customer satisfaction is customer’s overall evaluation of purchase and consumption experience with a product, service or provider. Customer satisfaction represents a measure of company’s performance according to customer’s needs (Hill et al 2003) in Ode et al 2011:26). According to Kotler et al
(2007:144) customer satisfaction depends on a product’s or service’s perceived performance in delivering value relative to the buyer’s expectations. They say a highly satisfied customer generally stays loyal, buys more of the company’s products, upgrades existing products, talks favourably about the company and its products, pays less attention to competing brands and is less sensitive to price, offers product or service ideas to the company and costs less to serve than new customers because transactions are routine.
Measuring customer satisfaction with physical distribution service is a strategic activity by organization seeking to ensure its existence in the competitive environment because one key to customer repeat purchase is customer satisfaction with overall purchase and consumption experience.
Procter and Gamble (P&G) is a good case in point. According to Berkowitz et al (2000:
444) beginning in the early 1990s, the company set out to meet the needs of consumers more effectively by collaborating and partnering with its suppliers and retailers to ensure that the right products reach store shelves at the right time and at a lower cost. The effort was judged a success when, during an 18-month period in the late 1990s, P & G’s retail customers recorded a $65 million (N10.27 Billion) savings in logistics costs while customer service increased.
According to Organization for Economic Co-operation and Development (OECD) Publication (2002:8) new strategic uses of logistics will continually alter the nature and culture of operations in companies. The strategic advantage of logistics is likely to be most pronounced in terms of improvements in coordination and planning resulting in transport efficiency gains.
Physical distribution is not only a cost, it is also a potent tool in demand creation. Companies can attract additional customers by offering better services or lower prices through physical distribution. Companies lose customers when they fail to supply goods on time.
The starting point for designing physical distribution is to study what the customers want and what the competitors are offering in terms of physical distribution or logistical customer service. Physical distribution objectives can then be set to guide the planning. For example, coco-cola has the distribution objective that is summarized as
follows “to put coke within an arm’s length of desire” (Robert Woodruff, late President of Coco-cola in Schewe and Hiam 1998: 366).
From the above physical distribution objective, it can be seen that the strategic role of physical distribution is well recognized by Nigerian Bottling Company (NBC). It believes that an effective physical distribution can give a company a significant competitive advantage. NBC needs a physical distribution system that provides adequate level of customer service which will help deliver customer satisfaction better than the competitors. It needs a physical distribution system that puts its products within an arm’s length of desire. The achievement of the above feat is not without challenges. How far has NBC achieved its PD objective?
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