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Basics of Marketing - Kotler Philip

The objectives of commodity circulation

Many companies set the goal of commodity circulation to ensure the delivery of the right products to the right places at the right time with the lowest possible costs. Unfortunately, none of the commodity circulation systems is able to simultaneously provide the maximum service for customers and to minimize the cost of distribution of goods. The maximum service for customers implies the maintenance of large inventories, an impeccable transportation system and the availability of a variety of warehouses. But all this contributes to the growth of distribution costs. Orientation to reduce costs implies a cheap transportation system, maintenance of small inventory and a small number of warehouses.

The costs of commodity circulation are often related to each other in an inversely proportional relationship.

• The manager of the expeditionary transport service prefers in all possible cases to ship the goods by rail, and not by plane. This reduces the transport costs of the firm. However, because of the slower speed of railways, working capital turns out to be associated longer, customer payments are delayed, and, in addition, such delivery can force customers to buy from competitors offering shorter terms.

• To minimize costs, the shipping department uses cheap containers. And this leads to numerous damage to the goods in transit and causes consumers' discontent.

• The manager of the commodity stock service prefers to have small inventories in order to reduce the costs of their maintenance. However, in this case there are frequent cases of lack of goods in stock, the number of outstanding orders increases, the amount of clerical work increases, it becomes necessary to produce unplanned shipments of goods and use the expensive means of accelerated delivery. Taking into account that the activity on the organization of commodity circulation involves large trade-offs, a systematic approach to the adoption of such decisions is necessary.

The starting point for the creation of the system of commodity circulation is the study of the needs of customers and proposals of competitors. Consumers are interested in: 1) timely delivery of the goods, 2) the supplier's readiness to satisfy the urgent needs of the customer, 3) careful handling of the goods during loading and unloading operations, 4) the supplier's readiness to take back defective goods and quickly replace them, 5) Material stocks for the sake of the client.

The firm needs to study the comparative value of these services in the eyes of customers. For example, for customers photocopying equipment of great importance have the terms of service repair. Therefore, Xerox Corporation has developed standards for the provision of service and repair services, under which it undertakes to "bring the failed device to working condition anywhere in the continental United States within three hours of receiving the application for services." In the maintenance department of the corporation there are 12 thousand specialists in repair and supply of spare parts.

When developing their own standards for maintenance, the firm must take into account the standards of competitors. As a rule, it will want to provide customers with at least the same level of service as its competitors offer. However, the main goal is to maximize profits, not sales. Therefore, the firm should think about what costs will entail the organization of services at a high level. Some firms offer a more modest service, but at low prices. Others - a greater volume of services than competitors, but charge for them a price with a premium to cover higher costs.

Whatever it was, the firm must formulate the objectives of its product distribution system, which can guide the planning process. For example, the Coca-Cola Corporation seeks to "bring Coca-Cola closer than the elongated hand of your desire." Sometimes firms go even further, developing standards for each component of the service system. One of the manufacturers of electrical household goods has established the following service standards: 1) to fulfill at least 95% of the requests received from dealers for delivery of the goods within seven days, 2) to fulfill the orders of dealers with an accuracy of 99%, 3) to respond within three hours to requests Dealers about the status of fulfillment of their orders, 4) to ensure that the amount of goods damaged in transit does not exceed 1%.

Having developed a set of goals of commodity circulation, the company proceeds to the formation of such a system of commodity circulation, which will ensure achievement of these goals with minimal costs. At the same time, it is necessary to take decisions on the following main issues:

I. How should I work with customers? (Order processing)

2. Where should inventory be kept? (Storage)

3. What stock should always be at hand? (Inventories)

4. How should I ship the goods? (transportation)

Now we will consider all these four aspects and their importance from the point of view of marketing.