Business logistics depends upon effective controls and measurements. For control purposes, too, there is an overwhelming difference in usefulness between the two types of data. Single-entry data show only the results of what happened with no explanations,; there is very little chance that one can learn from the past data in order to promote the recurrence of desirable events or to avoid the recurrence of undesirable events. Single-entry data can still be useful, but for those who wish to steer things toward a better state, they are far less useful than data that may indicate how the system may be steered toward a better state. Double-entry data are intended to satisfy such needs by showing the causal relationship between the event that happened and the reason why it happened.
The main performance metrics are inventory related metrics, transportation metrics and warehousing metrics. Also, the main indicators of measurements can include time, cost, complexity and risks concerns. Counteracting turbulence, both in the short run as well as the long run, is at least partially related to logistics decisions. Among many aspects of logistics, a few are particularly important in this respect. Inventory controls and financing, distribution efficiency, risk absorption through sourcing and partnering, and value added warehousing are all key aspects of counter-turbulence logistics. Measurements relate to all of these logistics issues and connect them to economic turbulence. Maintaining an overall high level of sensitivity enables the firm to be proactive enough to reduce the risks of turbulent market conditions. Stroh, (2005) analyzed a large set of data in order to determine the impact of 1976 stagflation on consumers. He identified seven factors that will change the customers’ purchase behaviors. The firm can utilize these findings to implement close inventory control and identify logistic needs. If these needs are known early, the firm can be more proactive and, hence, improve its chances to survive and prosper in volatile economic conditions:
- shopping and budgeting, which is concerned with comparison shopping, bargain hunting, and managing money more carefully;
- car and car repair, which includes three highly related variables: driving less, putting off car repairs, and attaching high value to fuel economy in cars.
In inventory related metrics, potential problems always arise from investments in stocks that do not produce justifiable returns. As consumers’ moods and economic conditions change, there will be an accumulation of slow-moving stocks that is, in essence, a very costly proposition for the firm. There should be an on-going policy of reducing any pools of slow-moving stocks that may occur as economic conditions change or turbulence becomes more acute Extreme sensitivity to changing customer needs and its resultant economic benefits to the firm cannot materialize unless proper distribution efficiency is exercised (Baudin, 2005).
Such analysis requires the development of different cost information, with cost classifications normally supplied by accounting statements. But generating relevant cost information from accounting statements, though conceptually simple, is actually quite complicated. First, the problem of discerning the costs of different activities is not easy. Second, the allocation of costs among functions and other control units involves subjective judgments. Accountants classify expenditures on a natural basis. Hence, costs may be assigned to advertising, personal selling, transportation, warehousing, and sales promotion. The real purpose of these expenditures, however, is to achieve other objectives, such as sales, market position, image, and reputation. Therefore, accounting information is required not only on expenditures by natural classifications, but also on the performance of various functions engaged in managing business cost centers. The difficulties of calculating functional costs are their joint or common nature, the problems of spreading overhead, and the determination of what activities are associated with what results. Even when costs have been grouped by functions such as advertising, credit, and rent, the matter is complicated by allocating them to salesmen, products, market segments, and customers (Simchi-Levi et al 2008).
Despite the limitations or difficulties of allocation and the current format of accounting data, distribution cost analysis is a useful device for conducting a marketing audit. It (1) establishes the standards used to assess policy objectives and methods of operation; (2) determines the expenses incurred in various types of marketing activities; (3) traces the reasons for changes in costs over a period of time; (4) develops standard costs; (5) evaluates various marketing techniques and operations; (6) determines the profit or loss and investment relationships; The act of determining functional costs is itself very useful for marketing control, for functional classifications reflect the organization and operation of business and the responsibilities for various expenditures. Moreover, attempts to allocate costs to specific units, such as products, territories, or orders, force management to think about the effort and expenses involved in the numerous marketing activities. Trying to determine what portion of the costs a territory, salesman, or product actually accounts for becomes a useful analytical and control exercise. In addition, estimates of profitability and the effectiveness of various aspects of the marketing mix point out profitable areas of marketing activity (Naylor, 2002).
Transportation metrics help companies to evaluate risks and transportation costs. Thus the problem of distribution cost analysis is largely one of assigning cost. It is relatively easy to assign costs to such functions as total advertising or selling, and more difficult to assign them to divisional advertising or selling. It is even more difficult to assign costs to such specific control units as specific customer groups, order size, or particular salesmen and advertisements. The more general the control segments become, the more the cost can be tied directly to them. But for control purposes, it is necessary to develop specific control segments. Management has to settle for fewer costs that are directly related to a unit, and must rely on allocation methods. Herein lies the dilemma of balancing the generality of control units and more assignable costs with specificity of control units and less assignable costs. Advocates of a full cost approach argue that eventually all costs must be absorbed before profit can be determined (Baudin, 2005). But here operating management is arbitrarily charged with costs that it cannot control. Profitability of a control unit, therefore, depends on the whims of allocation.With increasing pressures on companies to improve marketing efficiency and the growing complexity and diversity of marketing operations, there will be increasing use of distribution cost analysis. Although the idea behind such analysis is quite clear, the precision of the data leaves much to be desired. As better analytical tools become available, and as new techniques for studying marketing costs yield more pertinent and adequate information, the precision of distribution cost estimates, and hence control, will be sharpened. This can be accomplished if marketing and accounting executives meld their efforts and employ computer technology (Naylor, 2002).
Marketing control is not a precise activity. It cannot match the precision achieved by physical control of a production line. Measurement of inputs and outputs, relating them and deriving acceptable yardsticks for comparisons, determining marketing costs, allocation of expenses, setting of standards, and separating joint costs raise many control problems. Despite the difficulty of controlling marketing factors precisely, standards must be established to assure intelligence about marketing inputs and outputs, costs and results. Marketing management must evaluate the productivity of an operation and realign and adjust various elements of the mix in order to gain more effective performance. Management can then assess the situation and adopt standards for the job, taking into consideration such variations as sales territories, socioeconomic factors in different geographic regions, and the degree of development of the salesman. Standards should be reviewed regularly. Through doing this, new factors come to light and inequities can be reduced. Realistic standards measure a man’s performance against the job. If based on the lowest common denominator, they discourage performance. If set too high, they also become unrealistic and meaningless, and discourage performance. It is neither the development of the standard, nor the observance of a discrepancy from it, that is the focus, but the problem of what to do about the gap. Proper realignment and adjustment assures effective control (Murphy and Wood, 2005).
The efficacy of logistics control depends on both the availability of relevant marketing intelligence and management power to adjust parts of the marketing program and objectives. Given the trend to conglomerates, national and international distribution, increasingly keen competition, and a profit squeeze, control activities become central in managing marketing systems.Control systems must monitor present activities, assess current states, and foresee future barriers and prepare to overcome them. Thus marketing control is intertwined with planning. Without plans there is nothing to control; without control, plans probably will not be realized.A marketing control system has two major components: a monitoring process and an adjustment process. While the former related to checking, evaluating and ascertaining, the latter refers to adjustments and alterations (Chase and Jacobs, 2003). The system also has external and internal dimensions. External refers to control activities within the total channel system. Internal refers to standards and criteria for judging marketing performance as it related to internal marketing objectives. A major means of monitoring marketing activity is the marketing audit. Comprehensive audits evaluate objectives, the resources utilized, the marketing programs, and the organizational structure. They operate at both the horizontal and vertical levels.Both budgets and marketing cost analysis are effective control tools. However, several significant problems complicate the control process in marketing. They include the difficulties of measuring marketing inputs and outputs, allocating marketing costs, and developing adequate marketing standards. Many companies are surfeited with marketing data but have relatively little marketing intelligence. Their task is to convert the data into marketing information, which then furnishes the basis for the marketing intelligence required for keener decisions. A marketing data system generates unrelated and unorganized data. These include facts, opinions, motives, observations, and experiences that may throw light on markets and marketing activity. Not all these data are necessarily factual or useful, however. Translating marketing information into intelligence requires three related general functions: surveillance, assessment, and prediction. Surveillance refers to the ways in which marketing activities are placed under closer scrutiny. This activity consists of observing the reports of marketing occurrences, discerning patterns and deviations from standards, and trying to make sense out of them. Surveillance serves two ends: it indicates likely trends and changes in the marketplace and then suggests what must be known and done to meet the changes. Assessment attempts to evaluate more specific knowledge of particular opportunities, or competitors’ capabilities and vulnerabilities (Christopher, 2005).
Knowledge of strengths and weaknesses of specific competitors supplies the basis for developing one’s own marketing strategies and programs. Predictions provide a dimension of futurity that makes intelligence relevant for planned decisions. Companies also have area intelligence, which is concerned more with localized details and shorter-run aspects of the marketing-activities programs. It is of particular value to marketing personnel in specialized or functional areas, since they deal directly with operations but lack policymaking responsibility. For example, area intelligence guides the actual recruitment, selection, training, and direction of salesmen; the determination of specific prices and advertising programs; and the specification of product qualities.
References
Baudin, M. 2005, Lean Logistics: The Nuts And Bolts Of Delivering Materials And Goods. Productivity Press.
Chase R.B., Jacobs R.F. 2003, Operations Management for Competitive Advantage with Student-CD, Hill/Irwin; 10 edn.
Christopher, M. 2005, Logistics & Supply Chain Management: creating value-adding networks. FT Press; 3 edition.
Murphy, P. R. Wood, D. 2005, Contemporary Logistics. Prentice Hall; 9 edition.
Naylor J. 2002, Introduction to Operations Management, 2nd Edition Pearson Education.
Stroh, M. B. A 2005, Practical Guide to Transportation and Logistics. Logistics Network Inc. 2006.
Simchi-Levi, D., Kaminsky, Ph., Simchi-Levi, E. 2008, Designing and Managing the Supply Chain. McGraw-Hill/Irwin; Bk&CD-Rom edition.