Transportation in Market Planning

2011 Transportation in Market Planning

Dawn Clayton GEORGIA GWINNETT COLLEGE MARKETING 3000-05 11/30/2011

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Transportation in Market Planning Introduction: When coming to a decision on what topic to pursue for this paper, it became extremely easy after glancing through the index of our course textbook, Basic Marketing, by authors Perreault, Cannon, and McCarthy. The transportation section immediately became intriguing to me. This was because of my extensive work experiences in transportation and some of the issues faced during the completion of those duties. Previously, I believed that this area was not under the direction of Marketeers, but was contained within the duties of Production Operations Management or completely separated into a Logistics Department. While the day-to-day operations of this endeavor might be handled as I witnessed, I have learned that the key decisions on transportation methods create part of the market planning’s routine. Thus logistics concerns are vastly important to all members of management, especially marketing and marketeers.

These duties include investigating the correct mode to use for any given product, defining the advantages and disadvantages of each available option, and choosing the best of the lot is solely in the control of the Marketing Department. In this document I will explore these methods, the benefits and drawbacks of both traditional modes as well as the specialty options currently being employed in the global marketplace. The key to delivering a smooth running supply chain is cooperation in anticipating the needs of the future based upon historical data. This effort can be handled in a variety of ways, including internally, externally with limited or extensive assistance, or transferred to an outside overseer. Some of these third and fourth party logistics providers complete assembly and packaging tasks before sending the final product to the customer.

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Coupled with these methods are the communication efforts, real-time tracking, and customer service management needs which have been elevated to mandatory functions of transportation suppliers. This has been directly caused by the technology advances that have been made in the last twenty years and purchasers’ drive to have information immediately.

Greater explanations on each of these subjects will be addressed before the conclusion of this paper.

Logistic Modes: There are five basic modes of transportation. Rail, truck, water, air, and pipeline each offer different benefits, but also come with risks. Moving products by rail creates efficiency of fuel resources while delivering an average of 280 truckloads of freight on each journey (Lang, 2011). Inside Aaron B. Lang’s article, the safety rating of the railroad industry had an extremely low percentage of accidents in comparison of the large truck deployments. While the cost of running freight by rail is considered within the medium range, other competitive factors often influence the decision to select this option. The speed and reliability of this method can also be viewed as favorable factors. Some consider these areas to be average, but when coupled with the other positive aspects—fast, trustworthy service is helping develop a slight lead over the other modes. The capability and capacity of the railroad industry can circumvent the restrictions that transportation authorities have placed on workday and material limitations experienced in the truck or air traffic.

Flexibility of the railroad can be slightly misleading. Railroads crisscross this nation and several others, but the accessibility is somewhat limited depending on how the railcar is loaded.

If the car must be loaded at the site of the manufacturer then tracks must lead up to each location.

Beyond that, special loading and safety equipment must be available before proceeding with this Page | 2

operation. Both of these issues can lead to significant expense to all parties. To prevent this, cargo containers or trailers are transferred by truck to the closest railroad freight yard for continued loading and delivery efforts. The term used for the combining of efforts is called “intermodal transportation” (Lang, 2011). This allows for the control of safety and efficiencies of equipment to load the railcar to be in the hands of the experts of this field.

In looking at the truck mode, the first things that can be endorsed as benefits are the number of locations served and the general speed of delivery. Both of these are rated highly by our textbook’s authors, but trucking’s greatest efforts can be witnessed in the movements of small shipments over limited miles (Perreault, et al., 2011). Trucks have the capability and capacity of reaching businesses that are not reachable by the other means listed earlier. They have augmented their effectiveness by teaming up with rail, water, pipeline, and air transport (McCue, 2010).

This has become somewhat of a necessity because of the restrictions enacted by the various Department of Transportation Offices and the U.S. Department of Commerce on international concerns. Some of these difficulties include driver limits on downtime, length of driving, and length of workload duties covered during a shift and over the course of a week.

There are further restrictions on the types of cargo that can be carried by a particular driver that can delay delivery if that need cannot be filled by the trucking company (Campbell & Savelsbergh, 2004). Another financial burden to the trucking industry can be trailers traveling empty because there is not an opportunity to obtain a backhaul, i.e. wasting fuel, driver pay, etc.

When contemplating water transportation, the biggest returns can be seen in the relatively low cost while shipping a variety of goods. Water transportation can be conducted with river barges or across oceans on cargo ships opening up new customer bases that may not have existed

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to the producer previously. These gains become limited when addressing the slow delivery times and the constraints on schedules, weather conditions, and locations offered. It becomes the burden of the manufacturer to get the product to the dock in a manner that facilitates loading and unloading. Again, depending on the destination of the cargo, additional paperwork and other restrictions may need to be overcome before pursuing this option. This is sometimes handled by a vendor trained in the necessary documentation required by the intervening governing bodies.

Pipeline activities have low logistical costs and do well with delivering on time. The deterrents to utilizing this mode are two-fold. First and foremost, you have to have a commodity that can travel through a pipeline especially built for that product. Currently oil and natural gas are the primary industries using this method in the United States, but water, slurry, and even CO2 are used throughout the world (Seevam, et al., 2008). Furthermore, finding many local locations that can offer speedy (end-site) delivery are difficult. The use of pipelines carries additional burdens of maintenance and safety concerns that can have an impact on local communities and environmental concerns (McAllister, 2009). Because of these historical issues, the likelihood of new products traveling by this method would probably be deemed cost prohibitive.

The perks of moving products by air are that arrival can be frequent and rapid. This can be accomplished through national carriers or by private fleets. The negative aspects of this choice are the high cost and the limit to the types of goods that can be shipped, at least commercially. FedEx, UPS, and DHL are some of the transportation businesses have devised ways to promote this choice by creating channel flows that optimize each plane’s capacities while centering distribution hubs in major cities with end-users receiving the product by truck.

This has also been promoted as a way to stay competitive in the global marketplaces (Stein & Reynolds, 2012).

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The specialty options available now have been driven by cost reductions demanded by manufacturing businesses. Third Party Logistics (3PL) have become the first line of defense in finding workable solutions. The marketing staff can hand off the review and request for optimal solutions to which these outside providers, specializing in individual needs for warehousing, sorting, and shipping can complete for them (McCue, 2010). Focusing on making supply chain decisions during the initial stage of planning prevents the last minute, costly scramble to satisfy the wants and needs of the customer (Resch & Klein, 2006). It also eliminates redundancies in research and the need to employ company paid transportation specialists. Resistance to changing the marketing strategy has been high on the part of the manufacturer. In the past most production companies have been unwilling to revisit packaging, storage, or quantity movements for cost savings, while expecting the movers to bring lean practices to the table (McCue, 2010).

Marketing Paths for the Future: Cooperation can be addressed on several different levels. First, the marketing department can place a higher priority for determining logistics methodology earlier in the planning process.

Logistics issues are not as glamorous as some of the other aspects of the marketing mix, such as advertising and promotion, but they are just as critical to the satisfaction of the end-customer and future transactions. Deciding on standardization of packaging and shipment requirements can significantly reduce the need in setting up multiple providers of transportation services (Kesch & Klein, 2006).

The second thing that should be looked at during market planning is the quantity requirements for the inventory levels are being projected and the use of backorders. Creating the right mix of inventory cuts holding costs and are part of the standard procedures for businesses.

Handled incorrectly, it can have a negative effect on business (Ellis, 2006). In “High-Wire Page | 5

Fulfillment� Debra Ellis contends that businesses’ pro-active, outgoing communication is essential to maintaining customer satisfaction. Management was also advised to review sales figures on a weekly basis and separating each product into the best fitting category. Items that should never be out of stock and support items that should have adequate amounts of inventory must be defined during yearly, monthly, and weekly marketing discussions (Wei & Wang, 2010). Regulating overstocks, trending items, back orders, substitutions, and liquidations must be monitored to prevent misallocation of production materials. This can be accomplished by utilizing extranets and promotion of Just-In-Time deliveries along with creating written policies and procedures for each issue (Perreault, et al., 2011; Stein & Reynolds, 2012).

Some of the decision of the mode of logistics will be driven by the category of business activities. For instance, a grocery or drug store chains would not be able to withstand the waits that could occur when utilizing water as the primary source of transit, nor could they employ air transport because the cost involved. While some goods are delivered via the producer to the distribution center or directly to the stores, most chain stores employ their own fleet of trucks.

They pick-up supplies, deliver them to distribution centers for repacking and reloading, so the products can be sent off to individual stores. In this case back-hauls of pallets, bins, corrugated, and other returns are common occurrences. So, the expense of riding empty does not happen often. This enables the business to enforce a tight control on inventories and the actions of their employees.

Other businesses do not need this level of control and opt to enlist a second party to transport their goods from the warehousing site to the customer with very little to any additional interaction with the product. Over 75% of the time businesses are opting for some kind of truck mode, while 10% of the time transactions are completed by rail despite the 55% cost reductions

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realized over the last 30 years (Perreault, et al., 2011; Lang, 2011). Ordering the pick-up of goods by a particular carrier can be at the designation of the manufacturer or the customer depending on how the freight charges are ultimately billed. The majority of the time, liability on the manufacturers’ part for goods technically ends the minute the load is signed for by the consignee. Regardless of this, the manufacturer will attempt to maintain the goodwill of the customer by making it right and settling up with the shipping provider afterwards. Occasionally, these companies will even lease drivers to satisfy the immediate man-hour needs. This may be a temporary solution to a driver shortage problem, but in my experience the results are not what the company was expecting.

Realigning warehouse and distribution centers can have a positive impact on the business as a whole. This has been the case of several traditional trucking firms that were centered in the Midwest United States. To survive the loss of the established car maker driven businesses and the shifting demands of new customers, these logistics firms had to adapt to the new environment or close their doors (McCue, 2011). Several of these have teamed up with the water modes and are finding ways to contribute to the quality control initiatives of the manufacturing process earlier in the supply chain on a global level. The example given was of U.S. firms wanting to know exactly where their supplies were in China before they reached the boat. Logistics control is beginning earlier in the supply process allowing importers greater cost savings and standardization of excellence (McCue, 2010).

The options of third and fourth party logistics have gained a strong foothold in providing solutions for business inventory management and delivery needs. The daily operations are in the control of third party providers; while the control of the overall plan is in the hands of the hiring company. In contrast, the entire operation is farmed out in the case of fourth party logistics; the

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consignee oversees the activities of the distribution center with no interaction from the originator. These companies specialize in providing add-on features that traditional transportation companies do not offer (Larson & Gammelgaard, 2001; McCue, 2010). These specialists can provide services including assembly and repackaging activities and smaller, mixed shipments that will satisfy the consumer needs while adhering to documented space constraints. Regardless of the ‘nuts and bolts’ of logistics are assembled, education and technology are playing a vital role in the daily routine for all personnel involved in these activities.

Education and Technology: It has also been suggested that making an effort to track statistical measures could create greater efficiencies in entry level logistics management’s productivity. While most businesses surveyed utilized Microsoft Excel, there were a number of them that used the statistical programs Lotus 123, SAS, and SPSS (Parker, et al., 2001). This study compiled and contrasted the products employed in the field against the ones taught at institutions of higher learning. They found a disconnection in the skill level of graduates and the needs of the industry. While the undergraduate courses in statistics teaches sections on descriptive statistics, probability distribution, estimation, and hypothesis testing; quality and productivity were virtually excluded (Parker, et al., 2011).

Quality and productivity analysis were not part of the learning opportunities within the BUSA 3000 (upper level) statistics class at Georgia Gwinnett College. As stated in Parker and company’s paper, proposals to alter the college curriculum to include these facets would result in either deficiencies of learning objectives for other business majors or a shifting of course offerings (drop one to add this specialty) could have a similar result. According to that Page | 8

document’s conclusion the third choice is even more distasteful. Businesses would have to train entry level management in industry statistical standards by accepting academic shortcomings on this topic (Parker, et al., 2001). The final solution may actually be the best one offered and that is for a true partnership between the educational providers and logistics providers to convene and formulate a plan of action.

Throughout all of these options, technology has played an enormous impact on the information in the transportation status of the products’ travels to the customer site. These include pick-up and delivery estimations as well as real-time location within the supply chain.

Previously, manufacturers had to contact the logistics provider with the hope that they would have received an update from the handler. With the introduction of mobile phones, global positioning systems (GPS), and other computer software programs that can compile ongoing data into a readable format, customers of logistics have become fixated with having an immediate answer to their inquiry (Stein & Reynolds, 2012).

Furthermore, 3PLs have embraced the tracking technologies as a way to enhance transparency and eliminate delays or damage to products (Kesch & Klein, 2006; Wei & Wang, 2010). This has driven traditional logistics companies to offer special customer service personnel that provide this information. Quite a few companies have developed web-based programs that can be accessed from a computer or smart phone (Stair & Reynolds, 2012). These self-serving tracking programs essentially allow the client to do what the customer relations management staff would have accomplished during a status up-date call. Regardless of the delivery of the information, establishing trust between the clients, supply chain, and consumers through transparency is a must to ensure a competitive advantage (Larson & Gammelgaard, 2001; Sicoli, 2012).

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Conclusions: As I draw this paper to an end, I am stuck once again of the importance of the importance of market planning in the logistics methodology of any business. The findings on mode choices, rail, truck, water, air, and pipeline, must be clearly documented by the marketeer. These rules of the intended association must be communicated to the staff burdened with completing the daily tasks involved with getting the goods to the customers. A straight-forward plan will prevent costly, late minute movement solutions that cannot be recovered from the end-user. Furthermore, the options available can be as varied (and/or as complicated) as needed, with the control of actions left up to the outcomes of the marketing’s negotiation table—in house, 3PL, etc.

Although the truck mode enjoys the greatest share of the market, changes must be implemented to prevent devastating design flaws during tough economic times. Also, the railroad industry has the potential to gain a renewed following due to the drastic cost reductions over the last thirty years and commendable safety numbers. Intermodal transportation appears to be the key to sustainability on the physical aspect of logistics.

Going forward, education and technology will continue to play a major factor in the successes and failures of businesses in general. Even small changes in one area can have a profound rippling effect on the rest of the marketing plan of a particular company. Proper training of marketeers, management, and support personnel can give the business the tools needed for the future. Mobile applications and GPS are just a few of the numerous technology changes that have inundated the logistics field. While Innovators and leaders quickly determined that action was needed—and followed through. There are still quite a few companies that are struggling with developing the proper enterprise platform to assist in completing logistics tasks in the global marketplace. It is the marketing department’s duty to aid in these efforts.

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