The Effects Of Physical Distribution On Sales Of Consumable Goods

Project and Seminar Material for Marketing

Abstract

The study investigated the effects of physical distribution on sales of consumable goods in Lagos State, using UAC Nigeria Plc as the case study. Previous studies commonly focused on the activities of physical distribution service (PDS) without effectively integrating them into the marketing mix. This study offers an integrative framework for presenting PDS activities as a means of achieving higher levels of customer service (PD service) and ultimately customer satisfaction using conceptual customer service/satisfaction model. The main objective of the study is to evaluate the relationship between performance of physical distribution activities and PD service and ultimately evaluate the relationship between PD service and customer satisfaction. Understanding the relationships among the physical distribution variables and the relative importance of each of these variables to overall customer satisfaction will enhance marketer’s ability to develop strategies that are more effective and improve performance goals. The study adopted the survey research design. Two hundred (200) persons comprising of commercial staff, distributors and major retailers randomly selected from a sampling frame of four hundred (400) participated in the study. The instrument used for data collection was structured questionnaire in a 5-point Likert scale. Cronbach alpha was used to determine the reliability of the two sets of questionnaire for the staff and customers of the company which gave values of 0.76 and 0.82 for staff and customers respectively. Frequency, percentage, means, standard deviation and Pearson correlation were used for data analysis. The study found out among others that there is a significant relationship between performance of physical distribution service activities (transportation, warehousing, inventory control and order processing) and physical distribution service (product availability, PDS timeliness, PDS quality, PDS flexibility). And it was also found out that Physical distribution service has significant relationship with overall customer satisfaction. The study then concludes that as performance of physical distribution service activities becomes more effective and efficient in the industry, it would lead to improvement of physical distribution service which will in turn transcend to overall customer satisfaction. It was recommended among others that companies should ensure effective and efficient performance of physical distribution service activities as it will lead to better physical distribution service which will finally lead to customer satisfaction and translate into competitive advantage for the company, perhaps using the “conceptual market-driven customer service standards model (The Customer Service Mirror)” developed in this study to set service standards.

Chapter One

1.0 Introduction

1.1 Background of the Study

Manufacturing firms are increasingly becoming aware, that the production of goods is meaningless without its availability to the consumers at the right time.

During the past few years, fast technological development, growing globalization of market and higher customer requirement have driven and transformed organisations from their traditional view of physical distribution to the embrace of a more broadened concept of the subject.

Organizations now see logistic (physical distribution) management as the only route to the achievement of organisation goals, profitability, growth as well as effective marketing.

Thus, UAC Nigeria Plc. a manufacturer of consumer goods has been at the fore front of the orchestration crusade of logistic as the only solution to sustained consumer satisfaction through product availability. Right from its inception, the organisation has always seen physical distribution as the key to meeting customer requirement hence its achievement of an edge over its competitors and consumer acceptance and patronage of its products.

Products are of no use and possession utility is not possible until time and place utilities have been provided, and most often, selling a product is much easier than making it available to the consumers.

The movement and availability of the right products at the right quantity and at the right time is core-marketing decision/planning that requires laudable and workable strategies. This is because, physical distribution creates time and place utility and consumers satisfaction are basically defined by the two marketing variables, which are place and frequency of availability.

Thus, logistic (physical distribution) concept has been broadened from the earlier myopic concept limiting its scope to transportation (trucks) and warehousing. Today, the modern manager has a more complete view of physical distribution which encompass planning, implementing and controlling the physical flow of materials, final goods and related information from points of origin to points of consumption to meet customer requirement at a profit.
Physical distribution has been defined and discussed more elaborately by many marketing experts.

Physical distribution is one of the most important marketing activities because, physical distribution always involve cost and the most costly function of marketing which include movement of goods, receiving and shipping, warehousing, inventory, carrying cost and including insurance”.

Physical distribution (logistics) “is the task that involved planning, implementing and controlling the physical flow of materials, final goods and related information from points of origin to the points of consumption to meet consumers requirements at a profit”

Here, he laid credence on the indispensability of physical distribution activities in any organisation life because without physical distribution, goods will remain at the point of its production without yielding and profit/benefits.
The physical storage and transportation of goods or physical process of making service available.

The holding base or “buffer” stocks via distribution warehousing and goods in transit to smoothen the relationship between production and demand from intermediaries.

Stock held by intermediaries within the channel of distribution
Customer ordering procedure
Warehouse picking and order collection system
Distribution control system”

Mordern above highlighted the broadened scope of physical distribution, which integrates the total marketing strategy, and validates it importance in the achievement of organisation’s objectives.

1.1.1 Historical Background of UAC Foods

UAC food is one of the divisions of UAC Nigeria Plc. UAC of Nigeria Started operations in Nigeria as the Royal Niger Company during the colonial era. However it metamorphosed through series of names from United Africa Company of Nigeria in 1950 to United Africa Company Limited in 1973 and United Africa Company Nigeria Plc. in 1991.
The company since 1973 has been 60% owned by Nigerian shareholders and 40% owned by Unilever (An Anglo-Dutch Conglomerate). Its activities range from manufacturing, technical services, trading to Agro industrial activities.

UAC Foods is one of the manufacturing divisions of the company, which began operation in 1940 under the name West Africa Cold Storage Company Limited. However, it’s operation then up to the 50s was importation of perishable foods such as ice-cream frozen meat, fish fruits and vegetables Ice cream manufacturing started in 1961 at Ijora and was registered under the name WALLS. This was followed by slaughtering, meat processing and baking of snacks in 1962.

After the indigenization decree of 1973, the company dropped its name West Africa cold storage and adopted foods division of UAC Foods of Nigeria limited. In 1986, the divisions name was again changed to UAC Foods and fast foods activities of former Kingsway division with the Popular MR. BIGGS and KINGSWAY RENDEZVOUS fast Food Outlets.

UAC Foods has four factories located in different parts of the country (at Strategic areas) these are: Ojoto Factory (Lagos), which basically is a bakery factory for the production of snacks, fast foods such as sausage rolls, meat-pie, etc. Maya factory (oyo), which engages in meat products e.g. Satis, Ham, Bacom and also has facilities for slaughtering. Onitsha factory (Anambra) for ice-cream production viz impulse and bulk” Take Homes” lines under the Brand name WALLS.

1.2 Statement of General Problem

Before The advent of powered vehicles, transportation activities were slow and limited. The movement of goods was reduced to what a person can carry. People lived where the goods were, on self-sufficient farms and traded their surpluses in nearby market.

But as time progressed, there were changes overtime in production of commodities, thus a more reliable and faster means of making goods available to consumers was sought by manufacturers.

Upon much search, the marketer now discovered that the only means achieving-these utilities is by adopting the “systems” perspective, which means integrating the series of physical distribution activities. This trend tried to down turn the traditional concept of physical distribution which see it as starting from the plant, rather, modern marketers prefer the market logistic thinking which starts from the market place and move backward to the plant (KOTLER 1996:410).

More emphasis was laid on physical distribution because customer service and satisfaction has become a cornerstone of marketing strategy in businesses and distribution an important customer service element and a source of winning and keeping customers.

Again, logistic is a major cost element, and improved physical distribution management necessary as a result of the explosion in product variety and evolution of information technology, which have created opportunities for major gains in distribution efficiency. The increased use of computer system for ordering, inventory control and handling and transportation routing and scheduling has stressed the need for value added flows of materials, final goods and related information through coordination of forecasting and planning, hence effective physical distribution becomes pertinent in the achievement of organisation objective through consumer satisfaction..

1.3 Objective of the Study

The main objective of the study is to evaluate the the effects of physical distribution on sales of consumable goods.

The specific objectives are:

To evaluate the relationship between performance of physical distribution activities and perceived physical distribution service.
To ascertain the relationship between product availability and overall customer satisfaction.
To determine the relationship between PDS timeliness and overall customer satisfaction
To examine the relationship between PDS quality and overall customer
satisfaction
To identify the relationship between PDS flexibility and overall customer satisfaction.
To ascertain the relative importance of each physical distribution service variable to customers and compare the performance level of UAC with that of its major competitor on the service variables.

1.4 Research Questions:

What is the relationship between performance of physical distribution activities and perceived physical distribution service?
Is there any significant relationship between product availability and overall customer satisfaction?
What is the relationship between PDS timeliness and overall customer satisfaction?
Is there any relationship between PDS quality and overall customer satisfaction?
Is PDS flexibility related to overall customer satisfaction?
How important are the various physical distribution service elements to customers and how does UAC performance on the service elements compare to that of its major competitor?

1.5 Research Hypotheses

H01 There is no significant relationship between performance of physical distribution activities and perceived physical distribution service.
H02 There is no significant relationship between product availability and overall customer satisfaction,
H03 There is no significant relationship between PDS timeliness and overall customer satisfaction
H04 There is no significant relationship between PDS quality and overall customer satisfaction
H05 There is no significant relationship between PDS flexibility and overall customer satisfaction

1.6 Significance of the Study

This research work is meant for the partial fulfillment of the requirement for the award of Higher National Diploma in Business Administration and Management Studies.

It also attempts to all the concept of physical distribution management to effective marketing especially in consumer goods market as it includes an overview of logistic activities (system approach) needed to excel in today’s business world. It also highlights the importance of logistics and its impact on effective marketing.

The research work will be beneficial to UAC Nig. Limited and other firms in the Fast Food Industry because consumers are the cornerstones of survival in the market place and availability of goods increases the satisfaction consumers derive from product consumption/utilization.

Finally, as a contribution to knowledge, there may be relevance of this research work to theory development by providing some basis for further thinking, deep learning and constructive actions on the subject matter.

1.7 Scope of the Study

The research work encompasses the entire of physical distribution activities in consumer goods market using UAC Nig. Plc. as a focal point.

It went further to appraise the extent or embrace of physical distribution activities by UAC Nig. Plc and evaluate its effect on the achievement of the organisations’ objectives.

In carrying out research of this nature, certain constraining factors are obvious; the research encountered some problems, which limited the capacity of the study. In looking at the relationship between physical distribution service (PDS) activities and the achievement of customer service objectives, the study concentrated on PDS activities and physical distribution service components (product availability, PDS timeliness, PDS quality and PDS flexibility) of the overall marketing customer services in the entire supply chain.

1.8 Limitation of the Study

Some factors affected the execution of this study which included the following;

The nonchalant attitude of principal respondents to supply the necessary information, probably due to company policy, hampered the carrying out of this study to some extent. The use of internet for gathering some relevant information from the company website became the last resort.

The area of coverage is Lagos State in the South East of Nigeria and generalization of the findings in areas with different value system in terms of product availability, PDS timeliness, PDS quality and PDS flexibility of service would be inaccurate.

1.9 Operational Definition of Key Terms

The following terms have been used as defined below.

Commercial Staff:

They are those staff that have interface with the customers such as driver-salesmen, staff in warehousing, order processing, inventory control and materials handling sections.

Competitive Benchmarking:

Is a process of determining how each competitor performs on key service components and company’s own performance and then comparing company’s performances to that of the competitor’s on the most important service elements. It shows opportunities for improving services.

Customers:

Buyers of products and services (Berkowitz, Kerin, Harlley and Rudelius 2000). Operationally, the customers are the distributors and retailers that buy directly from UAC.

Customer Satisfaction:

Is giving customers what they need when they need it. (Wilson and Gilligan, 1997). Operationally, it is when perceived performance in service delivery meets customer’s expectations.

Customer Service:

The ability of a logistics system to satisfy users in terms of time, dependability, communications and conveniences (Berkowitz, Kerin, Harlley and Rudelius 2000). Operationally, it is the physical distribution service (PDS) components (namely: product availability, PDS timeliness, PDS quality and PDS flexibility) of the overall marketing customer service.

Customer Service Level:

Refers specifically to a firm’s standards for performance in speed, and reliability in making products available to customers. (Wilson and Gilligan, 1997)

Customers Service Offering:

What organization offers in terms of customer service (Wilson and Gilligan, 1997). Operationally, the level of importance a company attaches to the different elements of customer service. (Morden, 1993)

Customer Service Requirement:

What the customers expect in terms of customer service. Operationally, the level of importance customers attach to the different elements of customer service. (Morden, 1993)

PDS Flexibility:

Is the ability of the physical distribution system to respond to special order and/or unexpected needs of customers (Coyle et al 2003: 101). Operationally, PDS flexibility is the response time to special request/unexpected needs of customers. PDS Quality of the physical distribution service depends on the incidence of in-transit damage, shipment of incorrect items and incorrect shipment quantity. Quality dimensions include accuracy in filling orders, physical conditions of goods and consistency (Mentzer et al 2009: 53).

Physical Distribution Challenges:

These are the tasks of effective and efficient management of PD activities – transportation, inventory, warehousing, order processing, materials handling, customer service etc in the supply chain to ensure customer satisfaction. (Cravens and Woodruff, 2001)

Product Availability:

Is the proportion of units, order line, or orders completely filled (Mentzer et al 2009: 53).

Supply Chain:

Is the complete set of firms, facilities and logistics activities that are involved in procuring materials, transforming them into intermediate or finished products and distributing them to customers. (Coyle, Bardi, and Langley, 2003). Operationally, supply chain comprises vendors that supply raw materials, producers who convert the materials into products, warehouses that store, distribution centres that deliver to the retailers and retailers who bring the product to the ultimate users.

PDS Timelines:

Is the Order cycle performance of the entire distribution system linking buyers and sellers. Operationally, it is the time elapsed between placing and receiving an order. Timeliness encompasses the duration of one order cycle for a single customer as well as central tendency and variability across multiple order cycles for one or more customers (Mentzer et al 2009: 53).

Chapter Five

Summary of Findings, Conclusion and Recommendations

5.1. Introduction

The study examined the effect of effective and efficient performance of physical distribution activities- transportation, warehousing, inventory control and order processing on PD service performance or outcome measured in terms of product availability, PDS timeliness, PDS quality and PDS flexibility and how these service elements in turn impact on overall customer satisfaction. The researcher surveyed a cross section of commercial staff, distributors of United Africa Company of Nigeria (UAC) Plc in Lagos state.

The findings will assist companies especially those in Fast Moving Consumer Goods (FMCGs) sector gain competitive advantage as it becomes more difficult for them to compete on pure product level.

5.2 Summary of Findings

The study made the following findings;

PDS activities-transportation, warehousing, inventory control and order processing-performance affect PD service-in-stock rate and percent orders, units, lines filled, order cycle time, average delivery time, consistent delivery, damage in-transit, order filling accuracy, order policies, capacity to meet and actually meeting customers’ special needs.
Product availability- in-stock rate and percent orders, units and lines filled significantly affect overall customer satisfaction.
PDS timeliness- order cycle time, average delivery time and consistent delivery have significant effect on overall customer satisfaction.
PDS quality- minimum damage in-transit, and order filling accuracy significantly affect overall customer satisfaction.
PDS flexibility- flexible policies, expedite and substitute capacity and meeting customers’ special needs-have significant effect on overall customer satisfaction.
The PDS elements relative importance to purchase decision ranking by customers in descending order of importance were product availability, PDS timeliness, PDS flexibility and PDS quality while the staff of the company ranking was product availability, PDS timeliness, PDS quality and PDS flexibility.
UAC performed better than the major competitor in all the PD service elements examined.
Determination of customer service requirements and competitor’s service offerings was found to be a more logical basis for setting customer service level in a competitive environment.

5.3 Conclusion

Effective and efficient performance of physical distribution activities will lead to better physical distribution service which will in turn transcend to overall customer satisfaction. The resulting customer satisfaction will positively influence customer purchase decision and translate into competitive advantage and profit for the company.

5.4 Implication of Findings

The findings have theoretical and managerial implications.

The outcomes of this study reveal that physical distribution activities must be considered in a broad perspective to the situation, the strategy and the goal that must be obtained. Therefore, a model based approach should be used where all the key dimensions of PD activities that are important for that situation can be compared together with perceptions of PD service performance instead of considering key dimensions of PD activities separately which is also not the case in practice where different PD activities participate together and more often in trade-off relationship.

The managerial and practical implication of the finding is the need for coordination of PD activities as one system for effective and efficient performance. Ineffective and inefficient performance of PD activities leads to low level of PD service in terms of product availability, PDS timeliness, PD service quality and PD service flexibility. This low level of customer service will lead to undesirable conditions like inadequate inventory and stock outs, long order cycle time, inconsistent and unreliable delivery, high damage in-transit and inability to respond to customer changing needs.

All these unpalatable conditions will result in customer dissatisfaction, lost sales, loss of customers’ goodwill, often loss of customers, and decreased profit for the company. Also, company’s failure to determine the relative importance of these PD service elements to customers and examine competitors’ service standards will lead it to spending more and doing better on less important services while spending less and performing worse than the competitor on more important services. This will never translate to competitive advantage for the company. Rather, it results in weakness for the company.

5.4 Recommendations

Physical distribution activities- transportation, warehousing, inventory control, order processing etcetera -should be managed effectively and efficiently using innovative methods like 3-pL providers, local distribution centers, Just-in-Time (JIT), stockless distribution, computerized on-line, real time order processing system and total cost concept.
Customer perceptions of the physical distribution service performance should be measured periodically to ensure that the management of PD activities leads to the desired results in terms of product availability, PDS timeliness, PDS flexibility and PDS quality.
Customer satisfaction with product availability, PDS timeliness, PDS flexibility, PDS quality and their relative importance to purchase decision should be measured periodically for necessary feedback and control.
Determination of customer service requirements and competitors service offerings should be used as a more logical basis for setting customer service level in a competitive environment.

5.5 Contribution to Knowledge

This is seemingly the first empirical study in which a comprehensive model of conceptual customer service/satisfaction was tested to show the significant relationship effective and efficient performance of physical distribution activities has with perception of physical distribution service performance and how this perception is related to customer satisfaction. Based on these findings, the relative importance of the PD service elements to customers was established and the performance of the company and its key competitor on these service elements compared. Consequently, a model of market-driven customer service standards was developed.

5.6 Suggestions for Further Studies.

This research was carried out as a descriptive survey study of a company in the Fast Moving Consumer Goods (FMCGs) sector.

Further research can be done to test this model in manufacturing firms that produce and sell technical products.

Further research can be carried out taking the supply chain comprising the customers, the producer and the producer’s suppliers as the units of analysis instead of the firms.

Project Material Download