Chapter 3
Demand Management and
Customer Service
1
Learning Objectives
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Understand the critical importance of
outbound-to-customer logistics systems.
Appreciate the growing need for effective
demand management.
Know the types of forecasts that may be
needed, and understand how collaboration
among trading partners will help the overall
forecasting and demand management
process.
Chapter 3
Management of Business Logistics, 7th Ed.
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Learning Objectives
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Identify the key steps in the order fulfillment
process, and understand how effective order
management can create value for a firm and
its customers.
Realize the meaning of customer service, and
understand its importance to logistics and
supply chain management.
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Management of Business Logistics, 7th Ed.
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Learning Objectives

Understand the difference between logistics
and marketing channels, and understand that
goods may reach their intended customer via
a number of alternative channels of
distribution.
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Management of Business Logistics, 7th Ed.
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Logistics Profile:
Dreyer’s
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Instituted scan-based trading.
Manufacturer (Dreyer’s) is paid based on
what is actually scanned at the checkout
counter.
Customer takeaway drives manufacturing
and delivery.
Freed resources for use elsewhere.
Win-win partnership arrangement.
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Management of Business Logistics, 7th Ed.
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Outbound-to-Customer Logistics
Systems
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To increase levels of customer service,
significant emphasis is placed on outboundto-customer logistics systems.
These systems refer to the set of processes,
systems, and capabilities that enhance the
firm’s ability to serve its customers.
This topic also is of historical interest in the
study of physical distribution, logistics, and
supply chain management.
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Management of Business Logistics, 7th Ed.
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Inbound-to-Operations Logistics
Systems
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These systems refer to the set of processes
that precede and facilitate value-adding
activities such as manufacturing, assembly,
and so on.
This topic also is of historical interest in the
study of the supply chain and includes
materials management and physical supply.
The study of inbound-to-operations logistics
systems will be presented in the next chapter.
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Management of Business Logistics, 7th Ed.
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Demand Management
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Defined as “focused efforts to estimate and
manage customers’ demand, with the
intention of using this information to shape
operating decisions.”3
Recent practice has been just the opposite,
with the manufacturer determining the what,
where, when, and how many of the sale.
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Management of Business Logistics, 7th Ed.
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Demand Management
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It is this disconnect between manufacturing
and the demand at the point of consumption
that attracts attention to demand
management.
Any attention paid to demand management
will likely result in benefits flowing through
the supply chain.
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Management of Business Logistics, 7th Ed.
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On the Line:
Ingram Micro
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Took leadership in creating a demand chain
among its supply chain partners.
$22 billion sales of 200,000 products from
1,500 manufacturers to 140,000 resellers in
130 countries.
Ingram Micro is using a demand chain,
rather than a supply chain, to focus on
meeting consumer demand.
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Management of Business Logistics, 7th Ed.
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On the Line:
Ingram Micro
Chapter 3
Management of Business Logistics, 7th Ed.
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Demand Management Objectives
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Gathering and analyzing knowledge about
consumers, their problems, and their unmet
needs.
Identifying partners to perform the functions
needed in the demand chain.
Moving the functions that need to be done to
the channel member that can perform them
most effectively and efficiently.
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Management of Business Logistics, 7th Ed.
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Demand Management Objectives
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Sharing with other supply chain members
knowledge about consumers and customers,
available technology, and logistics challenges
and opportunities.
Developing products and services that solve
customers’ problems.
Developing and executing the best logistics,
transportation, and distribution methods to
deliver products and services to consumers in
the desired format.
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Management of Business Logistics, 7th Ed.
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Demand Management:
Related Issues
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Lack of communication between departments
results in little or no coordinated response to
demand information.
Too much emphasis is often placed on
forecasts of demand with little attention paid
to collaborative efforts and strategic and
operational plans that need to be developed
from the forecasts.
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Management of Business Logistics, 7th Ed.
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Demand Management:
Related Issues
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Demand information is often used more for
tactical and operations purposes than for
strategic purposes.
Primary emphasis should be on using demand
information to create likely scenarios of the
future as they relate to product supply
alternatives.
Resulting business successes will be a
outcome of the better match of demand to
product availability.
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Management of Business Logistics, 7th Ed.
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Traditional Forecasting:
Demand Forecasting
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A major component of demand management
is forecasting the amount of product that will
be purchased by consumers or end users.
In the integrated supply chain all other
demand will be derived from the primary
demand.
A key objective is to anticipate and respond
to primary demand as it occurs in the
marketplace.
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Management of Business Logistics, 7th Ed.
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Figure 3-1
Supply-Demand Misalignment
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Management of Business Logistics, 7th Ed.
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Table 3-1 How Demand Management
Supports Business Strategy
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Management of Business Logistics, 7th Ed.
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Traditional Forecasting
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An example of integrating forecasting with
production is illustrated by Figure 3-2.
Long-term (more than three years), midrange
(one to three years), and short-term
forecasting are each important contributors to
the forecasting process.
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Management of Business Logistics, 7th Ed.
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Figure 3-2 Integration of Sales
Forecasting and Production
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Management of Business Logistics, 7th Ed.
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Collaborative Planning,
Forecasting, and Replenishment
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CDFR is recognized as a breakthrough
business model for planning, forecasting, and
replenishment.
Uses available Internet-based technologies to
collaborate from operational planning through
execution.
Developed by Wal-Mart and Warner-Lambert
in 1995.
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Management of Business Logistics, 7th Ed.
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Collaborative Planning,
Forecasting, and Replenishment
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The CDFR model is illustrated in Figure 3-3.
Emphasizes a sharing of consumer
purchasing data among and between supply
chain partners.
Creates a direct link between the consumer
and the supply chain.
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Management of Business Logistics, 7th Ed.
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Figure 3-3
CPFR Business Model
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Management of Business Logistics, 7th Ed.
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Collaborative Planning,
Forecasting, and Replenishment
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The plan and the forecast are entered by
suppliers and buyers into an Internet
accessible system.
Within established parameters, any of the
participating partners is empowered to
change the forecast.
Only a few CPFR initiatives have been made
public, but results are impressive.
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Management of Business Logistics, 7th Ed.
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Supply Chain Technology:
Midwest Pharmaceuticals
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Using a statistically advanced demandmanagement system the company discovered
that in one of its five 3,000 product families,
72% of the products were in the mature
phase and 14% were in decline.
Management modified and improved its
product investment strategy.
In essence, demand management helped
make the company more profitable and
effective.
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Management of Business Logistics, 7th Ed.
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Order Fulfillment and Order
Management
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Collaborative planning improves the
quality of the demand signal for the
entire supply chain through a constant
exchange of information from one end
to the other.
Goes beyond the traditional practice.
Examine the three critical elements of
collaborative planning in Figure 3-4.
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Management of Business Logistics, 7th Ed.
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Figure 3-4
Collaborative Planning
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Order Fulfillment and Order
Management
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Order fulfillment activities differ as a
supply chain matures through
transactional to interactive to
interdependent levels.
Examine the four key stages of order
fulfillment in Figure 3-5.
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Management of Business Logistics, 7th Ed.
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Figure 3-5
Stages of Order Fulfillment
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Order Fulfillment and Order
Management
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Order-management systems represent
the principal means by which buyers
and sellers communicate information
relating to individual product orders and
is key to operational efficiency and
customer satisfaction.
Examine the characteristics of ordermanagement functions in Figure 3-6.
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Management of Business Logistics, 7th Ed.
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Figure 3-6
Order-Management Functions
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Order Fulfillment and Order
Management
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The order cycle traditionally includes
only those activities that occur from the
time an order is placed to the time it is
received by the customer.
Examine the four principal activities of
the order cycle in Figure 3-7.
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Management of Business Logistics, 7th Ed.
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Figure 3-7
Major Components of the Order Cycle
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Order Fulfillment and Order
Management
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Order placement methods seem to be
changing to accommodate new technologies.
Examine order placement trends in Figure 3-8.
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Management of Business Logistics, 7th Ed.
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Figure 3-8
Order-Placement Trends
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Order Fulfillment and Order
Management: Other Issues
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Order processing
Order preparation
Order shipment
Length and variability of the order cycle
 Examine the order cycle time analysis in
Figure 3-9 and order cycle length and
variability in Figure 3-10.
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Management of Business Logistics, 7th Ed.
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Figure 3-9
Example of Order Cycle Time Analysis
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Figure 3-10
Order Cycle Length and Variability
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Management of Business Logistics, 7th Ed.
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Order Fulfillment and Order
Management: E-Commerce
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Success is just as much about designing and
implementing the basic principles of logistics
and supply chain management as it is about
marketing the latest technologies.
According to Richer and Kalatora10, some of
the critical decisions are related to
the evaluation of multiple fulfillment
planning strategies.
What are the reasonable alternative
fulfillment strategies?
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Management of Business Logistics, 7th Ed.
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Five Alternative Fulfillment
Strategies for E-Commerce
1.
2.
3.
4.
5.
Distributed delivery centers
Partner fulfillment operations
Dedicated Fulfillment centers
Third-party fulfillment centers
Build to order
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Management of Business Logistics, 7th Ed.
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Customer Service:
The Logistics/Marketing Interface
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Customer service is often the key link
between logistics and marketing.
Examine the traditional logistics- marketing
interface in Figure 3-11.
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Management of Business Logistics, 7th Ed.
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Figure 3-11 The Traditional
Logistics/Marketing Interface
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Management of Business Logistics, 7th Ed.
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Customer Service:
The Logistics/Marketing Interface
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A new vision of the interface is represented
by National Semiconductor, whose reengineering of the supply chain reduced
overall logistics cost.
Required a more dynamic, proactive approach
that recognized the value-added role of
logistics supply chains in creating and
sustaining competitive advantage and
providing win-win outcomes.
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Management of Business Logistics, 7th Ed.
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Customer Service:
The Logistics/Marketing Interface
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Becton Dickinson’s commitment resulted in
the creation of a Supply Chain Services
operating division of the company.
This new perspective emphasizing valueadded is providing the basis for other
companies – such as Sears, Proctor &
Gamble, Nabisco, Hershey, and Dell Computer
– to improve both efficiency and
effectiveness.
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Management of Business Logistics, 7th Ed.
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Customer Service:
The Logistics/Marketing Interface
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Defining customer service
 In terms of levels of product
 In terms of types of customer
support/service
 In terms of levels of involvement
 In terms of complexity of customer service
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Management of Business Logistics, 7th Ed.
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Customer Service:
The Logistics/Marketing Interface
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Elements of Customer Service
 Time
 Dependability
 Cycle time
 Safe delivery
 Correct orders
 Communications
 Convenience
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Management of Business Logistics, 7th Ed.
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Table 3-2 Customer Service Elements for
the Food Industry
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Figure 3-12 Example of the
Frequency Distribution of Lead Time
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Management of Business Logistics, 7th Ed.
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Customer Service:
Performance Measures
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Traditional
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% availability in base units
Speed and consistency
Response time to special
requests
Speed, accuracy, and
message detail of response
Response and recovery time
requirements
Response time, quality of
response
Chapter 3
New
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Orders received on
time
Orders received
complete
Orders received
damage free
Orders filled accurately
Orders billed
accurately
Management of Business Logistics, 7th Ed.
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Table 3-3 Elements and Measurement of
Customer Service
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Management of Business Logistics, 7th Ed.
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Customer Service:
Implementation of Standards
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Set standards at realistic levels.
Quality levels set below 100% can be
problematic.
Consult customers on policies and standards.
Communicate standards to customers.
Measure, monitor, and
control customer service
standards.
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Management of Business Logistics, 7th Ed.
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Customer Service: Overview
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If the basics of customer service are not in
place, nothing else matters.
Customers may define service differently.
All customer accounts are not the same.
Relationships are not one dimensional.
Partnerships and added value can “lock up”
customers.
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Management of Business Logistics, 7th Ed.
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Figure 3-13
Customer Service Issues
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Management of Business Logistics, 7th Ed.
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Stockouts
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Four possible outcomes from a
stockout
 Customers wait
 Back orders
 Lost sales
 Lost customers
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Management of Business Logistics, 7th Ed.
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Expected Costs of Stockouts
Event
Probability
Costs
Expected
Costs
Back Order
70%
$ 6.00
$ 4.20
Lost Sale
20%
$20.00
$ 4.00
Lost
Customer
10%
$200.00
$ 20.00
Estimated
cost per
stockout
100%
---
$ 28.20
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Management of Business Logistics, 7th Ed.
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Channels of Distribution
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One or more companies or individuals who
participate in the flow of goods and services
from the producer to the final user or
consumer.
Wide variety of firms comprise these
channels.
Examine Figures 3-14 & 3-15.
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Management of Business Logistics, 7th Ed.
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Figure 3-14
Distribution Channel Separation
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Management of Business Logistics, 7th Ed.
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Figure 3-15
Examples of Channels of Distribution for the
Food Products Manufacturing Industry
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Management of Business Logistics, 7th Ed.
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Growth and Importance of
Channels of Distribution
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Retail channels
showing dramatic
growth.
Mass merchandisers
such as Wal-Mart,
Kmart, Sears, and
Target squeezing
smaller retailers .
Chapter 3
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Nature of logistics
changing to
accommodate
customized systems.
Successful retailers
base efficiency on
logistics systems.
Management of Business Logistics, 7th Ed.
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Chapter 3:
Summary and Review Questions
Students should review their
knowledge of the chapter by
checking out the Summary and Study
Questions for Chapter 3.
This is the last slide for Chapter 3
60
End of Chapter 3 Slides
Demand Management
and Customer Service
61