Logistics leverage.(Report)

Abstract

It is the purpose of this paper to position marketing and logistics relationships in a strategic context. The strategic position of both areas is used to draw conclusions for the future relationships of marketing and logistics and to suggest the need to focus on creating "logistics leverage." Logistics leverage--the ability to achieve marketing advantage through logistics superiority--is accomplished through the resolution of nine key issues. Once resolved, logistics can be exploited to obtain and maintain significant competitive advantage.

Introduction

Much recent attention in both business and research has been devoted to the importance of interfunctional coordination (Crittenden, 1992; Deshpande & Webster, 1989; Kahn & Mentzer, 1994; Lichtenthal & Wilson, 1992; O'Reilly, 1991; Ruekert & Walker, 1987; St. John, 1991; St. John & Hall, 1991). Two areas that have received particular scrutiny have been marketing and logistics (Granzin, 1980; Granzin & Bahn, 1989; Mentzer, 1993; Rinehart, Cooper & Wagenheim, 1989; Voorhees & Coppett, 1986; Voorhees, Teas, Allen & Dinkler, 1988). It is the objective of this paper is to examine the relationship between marketing and logistics within a strategic context. This examination is developed in four parts. In the first part, two catalysts to further integration of marketing and logistics are discussed. In the next part, the integration of marketing and logistics is projected into a strategic context. The third part introduces the concept of logistics leverage and the nine issues that must be resolved to accomplish it. Finally, conclusions for marketing and logistics managers and researchers are presented.

Marketing/Logistics Integration Catalysts

Although marketing and logistics often receive some degree of integration, two catalysts existing in the business environment are working to make logistics superiority, and its strategic integration with marketing, a necessity for many companies. Understanding these catalysts better positions how logistics can be deployed as a key strategic resource.

Time and Quality Based Competition

Time and quality based competition locus on eliminating waste in the form of time, effort, defective units, and inventory in manufacturing-distribution systems (Larsen & Lusch, 1990; Schonberger & El Ansary, 1984: Schultz, 1985). The most popular time and quality based concepts are just-in-time (JIT) and quick response (QR).

JIT has many facets and touches almost all aspects of a business enterprise (Bartholomew, 1984; Daugherty & Spencer, 1990; Frazier, Spekman & Oh, 1987; Jackson, 1983: Rosenberg & Campbell, 1985). As a result, purchasing, transportation, inventory, and manufacturing personnel all consider JIT to be indigenous to their performance (Yanacek, 1987). In reality, all these activities, plus marketing, are impacted by the adoption of a JIT system within which logistics becomes the focal point of implementation.

One of the effects of JIT is to direct logistics attention toward an overall procurement, manufacturing, operating, and marketing orientation of the business. Importantly, there are significant marketing benefits that can result from establishing JIT competency--for example, higher customer satisfaction from better quality products with zero defects, more consistent availability, and faster product delivery. Typically, such benefits are fully exploited only if logistics managers are more attuned to internal, supply-side systems and cost control, while integrating with marketing programs and customer requirements.

Quick Response (QR) systems are similar to JIT programs (i.e., the required integration of marketing, purchasing, transportation, inventory, and manufacturing), but differ by the fact that they deal with the distribution of finished products from manufacturers to wholesalers and retailers (Larsen & Lusch, 1990). Many of the principles of successful QR are similar to the logic that drives JIT. Because QR typically deals with finished product distribution, performance is an integral part of total customer service (Dumaine, 1989). However, the drivers that make most existing QR programs successful are inventory velocity and total cost reduction. Only a limited number of firms have begun to manage QR programs toward the goal of achieving competitive advantage (Daugherty & Spencer, 1990). The competitive impetus for such coordination of inventory velocity and cost control with customer satisfaction serves as a catalyst for marketing/logistics integration in finished goods channels.

More advanced forms of QR, however, focus primarily on customer satisfaction. Recently coined "Service Response Logistics" (Davis & Manrodt, 1991, 1993; Manrodt & Davis, 1992), these programs tend to position logistical competency as the core activity aimed at achieving customer satisfaction through inventory availability, timely delivery, less product failure, and, thus, less lost sales or returns/ complaints (Stalk, Evans & Shulman, 1992). The achievement of such customer satisfaction requires significant integration of logistical competency and marketing performance.

The combined effect of time and quality based systems has been to emphasize the need for marketing/logistics integration as a competitive advantage. While both JIT and QR thrive on interorganizational and interfunctional coordination, such arrangements must be driven by a desire to reduce cost, improve asset utilization, and more effectively service customers. Attention to service response logistics suggests that some significant breakthroughs that capitalize on the strategic impact of marketing/logistics integration are developing.

Efficiency and Effectiveness

Logistics, by its nature, is quantitative in the measurement of efficiency--delivery time, the number of short orders, inventory, and similar operational activities can be readily measured. As a result, logistics practice and research has been more operationally oriented and tended to focus more on economic or efficiency measures of performance. The absolute magnitude of logistics cost has directed many firms to control the expense side of logistics; that is, to manage the process to achieve a level of efficiency.

Although there has been considerable research in the logistics area concerning how logistics impacts customer service (for a review, see Mentzer, Gomes & Krapfel, 1989), no accepted protocol for measuring customer responsiveness to logistics service levels exists. Further, the traditional focus of logistics research on economic (efficiency) issues rather than behavioral issues has not brought the attention of behavioral researchers in marketing to bear on this problem. Although much research in marketing has been devoted to the behavioral implications of service quality and customer satisfaction/dissatisfaction (for a review, see Zeithaml, Berry & Parasuraman, 1993), little such research has addressed the behavioral implications of changes in logistics service quality as part of overall marketing strategy (Mentzer, Bienstock & Kahn, 1993).

However, cost control (efficiency) without recognition of customer service requirements (effectiveness) will doom any aspect of a marketing effort to failure. Logistics is no exception. The need for a clearly defined linkage between logistics performance, marketing strategy, and their behavioral consequences provides the second, and perhaps most important, catalyst for the implementation of logistics as a strategic marketing tool.

Summary

Current developments in the business environment and the marketing literature suggest these catalysts are having an impact. There are increasing examples of firms such as Wal-Mart, Target, and Kmart establishing alliances with manufacturers to jointly reduce costs and leverage performance. Further, the recent interest in the marketing literature with relationship marketing (Anderson & Weitz, 1992; Anderson & Narus, 1990; Dant & Schul, 1992; Dwyer, Schurr & Oh, 1987; Frazier, Spekman & O'Neal, 1988; Heide & John, 1992; Larsen & Lusch, 1990) suggests progress in examining the strategic management of logistics issues in building relationships with customers. Results of such alliances and research scrutiny suggest that issues of efficiency and effectiveness measurement can be jointly resolved and that logistical performance can be integrated into mainstream marketing strategy and research. The reality of such catalysts and the potential to be gained from them argue strongly for in-depth examination of logistical effectiveness in overall marketing strategy and a searching consideration of the key role that logistics plays in creating customer satisfaction.

The Marketing/Logistics Strategic Linkage

In Porter's (1985) value chain, one of the four support activities (procurement) involves logistics and all of the five primary activities involve logistics (inbound logistics, operations, and outbound logistics), marketing (marketing activities), or both (service). It is interesting to note how these functions are so important and inextricably linked in the value chain and suggests that increased focus be placed on effectively coordinating their interaction.

The foundation of future marketing and logistics integration is strategic. With this goal in mind, Figure 1 utilizes the competitive advantage framework of Day and Wensley (1988) to develop the dimensions of the relationship and position the strategic importance of integrated marketing/logistics.

[FIGURE 1 OMITTED]

The focus of logistics has been and will primarily continue to be upon cost drivers, i.e. skills and resources that generate efficiency. The integration of marketing and logistics is necessary to bring the logistics sources of advantage into the realm of effectiveness, or drivers of differentiation. This will only occur and result in positional advantages if the leverage logistics can bring to marketing is realized. This leverage can only be realized by recognizing and exploring, both within the practitioner and academic communities, the strategic linkage between marketing and logistics wherein logistics skills and resources are translated into effective drivers of differentiation. Where this integration is accomplished, strategic positioning of the marketing/logistics integrated firm as cost efficient and customer effective will result. It will be incumbent upon marketing to emphasize these superior performance outcomes to achieve sustainable competitive advantage.

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