Physical Distribution Service Quality in Online Retailing - Case Study Example

Elle sport Student’s name Grade course Professor’s name University name 12th September, 2011 Abstract This paper focuses on the establishment of Elle’s efficient distribution system with the supplier as the firm which specializes in the sale of sports goods and accessory in Australia continues with its rapid growth. The paper will first focus on the background of the sportswear market in Australia and the factors which determine the nature of the market and its growth. This will be supported by literature review from peer reviewed articles. For the purpose of the current case study, the report will address the current situation of Elle by focusing on the principals of physical distribution management (PDM). By reviewing peer reviewed articles, the report will address the key issues that are not addressed in Elle’s case as supposed to be in the four principals of PDM: transportation, order processing, inventory and warehousing. List of figures Figure (i)…………………………………………………………alternative distribution channels Table of Contents List of figures 2 Table of Contents 3 1.0 Introduction 4 2.0 Discussion 4 2.1 Importance of distribution and functions 6 2.2 Functions of distribution channels 6 3.0 Physical distribution management 8 3.1 Transportation 10 3.2 Order processing 11 3.3 Inventory 12 3.4 Warehousing 13 Reference List 15 Grant D. & Xing Y. 2006. Developing a framework for measuring physical distribution service quality of multi-channel and “pure player” internet retailers. International Journal of Retail & Distribution Management, 34(5): 31-39. 15 Grant D. et al 2010. Physical distribution service quality in online retailing. International Journal of Physical Distribution & Logistics Management, 40(5): 78-89. 15 1.0 Introduction The retail sale of sports goods like shoes, apparel, accessories (like sunglasses and watches) has been on the rise in Australia in the recent past. Sports retailers can be classified into two: single brand retailer and multi brand retailer. This classification is based on whether the retailer sells specific goods for a specified sport or if the retailer sells a multiple of goods for any sports. As such, the retailers are expected to have individual consumers or huge number of consumers. The retailers of the sport goods make decisions on how to position their products so that they can be accessed by the intended consumers. Elle Sport is an example of such large retailers in Australia that has over 50 outlets. With the growing demand for is products, Elle is needs to establish an efficient distribution system from suppliers including Trento which suppliers women sport shoes on a weekly basis. In order to determine how the efficient distribution system with the supplier, the paper will focus on the four principals of physical distribution management: transportation, order processing, inventory and warehousing. 2.0 Discussion In any country, the retail market for sports is driven by such factors as government policies, individual consumers taste and the sourcing by large buyers like clubs (Greig 2008, p.337). In addition to these, the retail market for sports is also influenced by factors like country’s passion for specific games, level of involvement in sports, availability of infrastructure, countries climate and topography (Weller 2007, p.43). Due to sports contribution to the country’s economy, the government in many countries controls the sport sector and its entire development. The government does this be bringing the different communities together and help to avoid any difference that may exist among the communities. In Australia for instance, the government interest in sport arose as result of its team’s poor performance in Montreal Olympic Games held in 1976. As a result, the Australian Institute of Sports was formed in 1981 to with the roe of facilitating and training Australian sportsmen and women. Most countries now have sports federations which are aimed at promoting and facilitating sports in collaboration with the government. Commercialization and privatization of sports academies, teams and clubs have created a good market for sports goods (Wear 2008, p.199). The retail market for sport goods has been boosted by people’s passion, participation and willingness to pay for any good. There are certain sports that are dominant in different countries. As such, such sports have huge number of fans which create a good market for the sport accessories and goods. For instance, cricket is dominant in India, basketball in America and football in Germany (Wear 2008, p.201). Sports promotion determines how the sport is liked by the citizens since all games do not have the same level of promotion. As such, sports firms whether retailer of manufacturer need to explore the global market so that its products meet the demands of the consumers. For such firms to grow, they need to work in partnership with the government federations and event sponsorship so that they can have their goods approved for adhering with the international norms (Smith & Stewalt 2010, p.10). Of importance, would be for the sport firms to work with the consumer base which is comprised major of the young generation. The Australian government is looking forward to allowing foreign direct investment in sports retail market since the country is hosting a number of games (Weller & Webber 2009, p.107). As such, there is a possibility for many foreign retailers wishing to enter the market soon. This paper will discuss how Elle Sport can explore an effective distribution system with the suppliers so that it can fairly continue with its growth and get ready to fight the possible competition. 2.1 Importance of distribution and functions Intermediaries play a very crucial role in ensuring that goods are conveyed from the manufacturer to the end user. This is achievable by developing an effective distribution channel. Weller and Webber (2009, p.115) define a distribution channel as a distribution channel as a set of organizations which are interdependent and whose role is to ensure that goods are made available to the end users. On the other hand, channel intermediaries refer to individuals or firms like wholesalers, agents, brokers and retailers who assists to ensure that finished goods are delivered to the consumers from the manufacturer. Elle sports in this case is a channel intermediary playing the role of a retailer who supply sports goods to the end users from different manufacturers. 2.2 Functions of distribution channels The role performed by distribution channel in ensuring goods from the producer are easily transported to the consumer is very vital. Each individual in the channel has a key role to play in the distribution process. The functions played by each individual cannot be underestimated even though different types of organizations perform different roles depending on the type of channel used. To begin with, channels provide ownership, time and place utility (Weller & Webber 2009, p.121). The channels ensure that products are delivered at a specific time, in a specified place and in the right amount as may be required by the consumers. Elle sports plays this role by ensuring that it supply goods manufactured by Nike, Puma, Trento, Adidas and any manufacturer are available to consumers across Australia in the right quantities. Another function of the distribution channel is to provide logistical measures which ensure that there is efficiency in the physical transportation of goods fro the producer to the user. This efficiency is achieved by ensuring there are reduced costs in transactions needed when goods from different manufacturers are moved to many users across the business area. This is achieved when the wholesalers and retailers buy bulk goods from the manufacturer and break them into small quantities that can be sold to the consumers. In addition, retailers create assortments by providing many products in one location in order to provide the consumer with an opportunity to buy many products at one location. Efficiency is also ensured by the intermediaries when the store and transport goods to the consumers when needed. Elle sports is an example of such retailers which transports and store sport goods that are manufacture abroad on behalf of the end users of these goods. There many different distribution channels that a firm may use as illustrated in the figure (i) below. Fig (i) alternative distribution channels Sources: http://office.microsoft.com/en-us/templates/channel-diagram-TC001145730.aspx 3.0 Physical distribution management When goods are manufactured, they are expected to flow in a distribution channel until they reach the end user. Each entity that participates in the distribution channel has a key role to play and must establish a good relationship with the other intermediaries. When a distribution network is ready, the intermediaries must ensure that goods are efficiently delivered to the end users in the right place and time. Physical distribution management is the process that ensures that all factors are considered when goods are to be delivered in the right place and at the right time. The major role of any business is ensuring that its customers are satisfied so that the company can in the long run make profit. The market analysis has been very sophisticated thus call for managers to make crucial decisions regarding the physical distribution process. In order to optimize cost and customer satisfaction, business logistical techniques need to be applied in physical distribution management (Smith & Stewalt 2010, p.10). There is no need to save for the sake of physical distribution and later reduce sales since customer satisfaction has not been realized. This is the problem that is currently facing Trento. Trento has been not been able to supply shoes to Elle within 10 days after an order is made. There is a serious problem with the management of this company since it has only 5 personnel who work for order processing despite the company having 15 local and 20 oversees suppliers. Likewise, it is not economically sensible to provide the customers with a level service which the do not need and in turn loose huge profits. The major dilemma that thus faces the physical distribution managers today is the cost/service balance. Today, many companies have reviewed their stock holding policies. Many companies do not hold stock and they ensure that the stock is maintained a possible minimum level. This is because the held stock does not earn any profit to the company. Many customers today have opted to go for lean manufacturing or just-in-time manufacturing something that has raised a major logistical issue to PDM (Weller & Webber 2009, p.191). As such, business is changing gradually whereby the retailers want to maintain low stock while the supplier has to ensure that supplies run all the time so that customers can get satisfaction all the time (Grant et al 2010, p.85). Since PDM process starts from the time of receipt of order to the moment when goods are delivered to the customers, the process does not involve transportation alone. In addition to transportation, PDM also entails order processing, production planning material control and warehousing (Grant & Xing 2006, p.32). Also these principal components of physical distribution management need to be managed at a level affordable to the company and finally the requirements of the customers are met. 3.1 Transportation When a company manufactures goods, these goods pass in the hands of intermediaries for them to flow to the consumers. By using these channels, a company is in a position to market itself to al people in the neighborhood (Weller & Webber 2009, p.122). Companies give incentives to the intermediaries as the market and sell its goods. In the long run, the prices of goods may rise resulting to the prices of the products rising. Which channel is used, physical distribution of the goods will have to take its course. In this case, two important factors have to be considered in physical distribution: amount of time taken for the good to reach the consumer and the cost incurred when the product is being delivered to the consumer (Weller & Webber 2009, p.122). Weller & Webber (2009, p.123) acknowledge that the manufacturer does not want the consumer to stay fro along time waiting for the product t reach him. Therefore, this calls for the use of the fastest possible means to deliver the goods. The factor of cost arises when a firm tries to use the fastest possible means to deliver the goods to the consumer; normally fats methods are associated with high delivery costs. The issues raised in the case can be addressed b using minimum service level. It has been ascertained that a firm cannot just reduce the amount of time taken deliver a product to the end user and make the delivery process easy. This would be associated with high delivery costs. In order to avoid this, it is worth to come up with the minimum service that will satisfy the customer (Grant & Xing 2006, p.37). With the case of Elle sports, the minimum service would be for instance to set the goods to be delivered by the supplier within a specified period of time. For instance, Trento which is one of the suppliers which supplier women sport shoes to Elle on weekly basis. A minimum level can be set at three days if the current one week period is considered to be late to the consumers. This implies that the shoes have to be delivered within the three days. Thus, irrespective of the distribution channels used, Trento has to ensure that its goods reach the Elle stores in a period not longer than the three days. If a company sets its minimum level to high, there are risks of loosing many customers. Today, business is competitive to the extent that a company can loose customers in a short period of time. For instance, if Trento delivers its shoes to Elle in 7 days and Nike delivers the same quality of shoes in 3 days, Trento faces the risk of loosing business to its competitor. The minimum level of service is determined by the competitors; people will not wait for a firm that takes a whole week to deliver goods while there is a firm that would only take a day to deliver the same goods. 3.2 Order processing This is the first stage in the physical distribution management process. The effectiveness of this process has an influence on the time taken for goods to arrive to the destination (Voordijk 2010, p.470). Many companies ensure that there is a stable supply route over a long period of time as long as the supplier remains efficient. Normally, a contract is drawn at the initial stage and repeat suppliers are made at regular intervals for the period varied for a contract. This in logistical terms would be referred to partnership sourcing instead of ordering (Grant & Xing 2006, p.33). This is a form of contract that between the buyer and the supplier for the later to supply goods with no need for negotiating for a new contract whenever a new order is placed. This is the current scenario facing Elle sports and its women shoes supplier Trento. Trento’s order processing department has proved to be inefficient since it has been unable to supply shoes to Elle within the 10 days as requested and instead the fastest it can deliver is between 10-15 days. It is clear that Trento’s order processing department is slow since it is not computerized. With the rising levels of technology, Trento is lying behind innovation and it may face the risking of loosing business; already two of its clients have already withdrawn. Elle’s customers are on the other hand increasing at a high rate and if Trento will not be in a position to deliver shoes within 10 days, Elle will definitely disappoint its customers leading to loosing business. Since the order processing department is a crucial department that determines the speed by which goods flow along the physical distribution chain, it needs to be well staffed and computerized (Grant & Xing 2006, p.34). With only 5 personnel serving 15 local and 20 oversees supplier, this department is understaffed and will not perform its duties effectively. The suppliers order processing systems need to be quick and accurate. Other departments within the company need to be informed as soon as an order is placed and customer needs to quickly confirm the order receipt and the exact time when goods are to be delivered. Office efficiency plays a key role in creating a good image for the company even before it starts its operations. With a computerized order processing system, stock levels and delivery schedules get updated in an automatic manner thus providing the management with accurate sales position (Grant & Xing 2006, p.34). Accuracy is very essential since it would help to shorten the order processing cycle. 3.3 Inventory This PDM principal also mean stock management and is an important area in the distribution process since its impacts on customer services and satisfaction are felt at different levels (Grant et al 2010, p.79). The optimum stock level is determined by the nature of the market in which a firm is operating. Elle is faced by such a scenario whereby its market is growing rapidly but the supplier is not able to meet its requirements. Many firms do not wish to run out of stock but when the stock is out especially on regular basis, the firm looses its market share to more efficient companies (Grant et al 2010, p.80). The techniques for determining the optimum stock levels are determined by the re-order point. If stock is carried at a low levels which are below the re-order point, the stock will definitely out; on the other hand, high stock is not necessary and may be expensive to maintain (Grant & Xing 2006, p.36). Opportunity costs are created by stock arising from different limited company resources competing (Voordijk 2010, p.458). If a firm has a marketing strategy which calls for maintaining high stocks, this should call for creating a profit that covers the costs incurred in carrying extra costs. In most cases, a firm is forced to maintain high stock depending in the prevalent market situation; in this case the company will be forced to reduce all other costs that are associated with the physical distribution process (Grant & Xing 2006, p.35). This is one of the options that Elle may apply in its current market situation. If Trento’s products are the most preferred by the customers and yet Trento can supply the shoes within 10 days; then Elle can opt to order higher stocks. The PDM costs that will be incurred when ordering higher stocks will be covered by the high profits that are made from the many customers. Elle will not afford to loose its customers by introducing substitute shoes if the customers are settled for Trento products. 3.4 Warehousing This is an important principal in PDM since it determines how goods are close to the consumers. Sometimes, it is difficult to transport bulky goods like for the case of Elle. Such bulky goods are transported by rail which may take a long time to reach the customers. The European Union markets are viewed as home markets and many companies therefore operate their onsite warehouses in which goods are releases directly to the consumers. If a firm markets its goods regularly to its consumers, the warehouses need to be logically and strategically located all over the country (Voordijk 2010, p.459). This best solution to addressing the needs of the customers would be to transport goods in bulks from the producers to warehouses close the consumers ready for distribution to the end users (Grant & Xing 2006, p.38). Logistical services experts provide transportation and warehousing services for large retail chains. Elle can utilize the services of logistical experts so that it can ensure that all its over 50 outlets are always supplied with the right goods and on the right time. This would help to reduce the amount of time wasted during the PDM process as wells as reducing the costs incurred since logistics experts are specialized in this field. When a firm increases the number of warehouses or hire the services of logistic experts, the services offered are expected to increase while at the same time the costs will increase (Voordijk 2010, p.461). This therefore calls for establishment for an optimum strategy that will help to determine the desired level of services. In order to determine this optimum strategy, a firm should consider these factors: order sizes, lead time, customers’ location and the frequencies of delivery. Therefore, since Elle has many customers around Australia, it should consider having many warehouses so as to ensure that goods are easily distributed to its customers. This is a wise decision since orders made by Elle need to be delivered on a regular basis and in large quantities. Reference List Grant D. & Xing Y. 2006. Developing a framework for measuring physical distribution service quality of multi-channel and “pure player” internet retailers. International Journal of Retail & Distribution Management, 34(5): 31-39. Grant D. et al 2010. Physical distribution service quality in online retailing. International Journal of Physical Distribution & Logistics Management, 40(5): 78-89. Greig A. 2008. Technological Change and Innovation in the Clothing Industry: The Role of Retailing, Labour and Industry, 2(3): 330–53. Smith A. & Stewalt B. 2010. The special features of sport: A critical revisit. Sport management review, 13(7): 1-13. Voordijk H. 2010. Physical distribution costs in construction supply chains: a systems approach. International Journal of Logistics Systems and Management, 7(4): 456-471. Wear A. 2008. Innovation and community strength in provincial Victoria. Australasian Journal of Regional Studies, 14(2): 195-209. Weller S. & Webber M. 2009. Re-employment after Retrenchment: Evidence from the TCF Industry Study, Australian Economic Review, 32(2):105–29. Weller S. A. 2007. Fashion as Viscous Knowledge: Fashion's Role in Shaping Trans- National Garment Production, Journal of Economic Geography, 7(1): 39–66. Read More