Managing the 5 P’s In order to position logistics in its proper role in today’s business environment, logistics leaders will have to do a better Job of communicating, or marketing, logistics. The time for lamenting the lack of interest in logistics from senior management is over, and the time to become proactive is here. The logistics story will be understood when all logistics leaders begin to take the marketing initiative and the successes of the discipline are recognized.
Logistics executives are eager to be considered important players in the corporate game. They want to be involved in important ecisions, to do something meaningful for the company, and to be recognized by their peers as members of a winning team. However, it seems that sales, marketing, and manufacturing enjoy the focus of management attention. Why? Let us suggest that logistics executives have done a poor Job of marketing logistics within the organization. This concept of “marketing” logistics borrows from the traditional concept of marketing.
In other words, identify your customers, identify their needs, and combine the firm’s resources to meet those needs. However, the concept of logistics marketing goes a little further. The purpose of this paper is to introduce the concept of the 5 P’s and to provide the logistics executive with a framework for its implementation. The following discussion will focus on product, price, place, promotion, and people as elements of the logistics marketing mix. l A model showing the relationships among these five elements can be seen in Exhibit 1.
PRODUCT The logistics executive does not have the traditional “product” to market. The logistics product is service, which can be different depending on the customer group. The first step, then, in logistics marketing is to identify the customer. Research has shown that logistics executives have multiple customers, both internal and external to the firm, and that the needs of these customers can be different. 2 Internal customers, like marketing and manufacturing, might require superior logistics service on customer and plant deliveries.
Senior management, as an internal customer, might require lowest possible logistics cost so the impact on the firm’s bottom line can be minimized. 3 The logistics executive must clearly understand how logistics influences other functions such as marketing and manufacturing. Logistics cannot be managed in a vacuum and he logistics executive must make the effort to thoroughly understand and appreciate the challenges being faced by the other functions. The logistics needs of external customers are constantly growing and changing.
The logistics executive must be sensitive to this, along with being aware of what is driving these changes. Most external customers are not traditional consumers but individuals in other organizations who are having their performance measured on certain goals. Logistics service offerings to these industrial customers must include not only the goals and requirements of the providing firm but also the goals of the eceiving firm. logistics. Customers will no longer accept assembly line types of service offerings, or the “one size fits all” mentality.
They expect logistics to be able to develop and implement service bundles that specifically meet their needs. This Job shop mentality is what endears logistics to both internal and external customers. 4 Traditional logistics services would include order fill, on-time delivery, zero damage, and accurate invoicing. These are how firms competed with one another and gained competitive advantage. This is no longer the case. Today, these logistics services can be called “reliability” services. Customers expect 100 percent conformance at all times.
Doing them well will not gain a firm business but performing them poorly will cost a firm market share. For example, Nabisco Integrated Logistics measures case fill by product family on a monthly basis and calculates lost revenue when case fill falls below 100 percent. This helps communicate to upper management the impact of logistics service on the firm’s bottom line. It also helps Justify investments in logistics resources to improve basic logistics services. An evolving logistics product is what can be called “responsiveness” services.
These would include store-built pallets, customer pick-up options, and special material handling options. These go beyond the basic logistics product and can actually increase a firm’s market share if they are done well, as well as decrease market share if they are done poorly when compared to competitors. Procter & Gamble’s Product Supply Group has a “toolbox” that it uses to assess customer needs and includes prescriptive solution tools to develop responsiveness programs for customers. 5 These tailored logistics programs have helped Procter & Gamble differentiate itself in a competitive market.
Finally, the ultimate logistics product offering can be called “innovation” services. These involve integrating the logistics operations of the supplier and the customer into one coordinated logistics effort. Practices such as quick response logistics, continuous replenishment, vendor managed replenishment, and category management are examples of this product. Doing these well will provide the firm with a long term competitive advantage; doing them poorly will not usually affect competitive position. Becton Dickinson’s supply chain management concept is a good example of innovation.
The Supply Chain Services Division (SCSD) at BD establishes three levels of EDI integration with its major customers, where Level Ill is total seamless integration. 6 The most important characteristics of the logistics product offering are execution and dependability; these attributes blend into a reputation. A positive reputation for flawless execution and dependability will ingratiate logistics to both internal and external customers. Repeated success in these areas will allow customers to develop a positive attitude toward logistics and will give it the credibility it needs to sell new logistics programs.
Perfecting the basics and providing customers with Job shop logistics services in a dependable manner can be the best logistics marketing tools the logistics executive can implement. price of providing logistics service will have a direct impact on a product’s price and profitability. Also, the price of logistics investments will have an impact on the revenue and profitability of the firm. 7 Because of the importance of price in decision making, the logistics executive must understand logistics “price drivers. These cause changes in the cost of providing logistics service, thereby changing the price of ogistics service to the firm. Customer profile, product profile, and order profile are examples of logistics price drivers. Changes in these are usually not under the control of the logistics executive but require some type of logistics reaction. If logistics price increases because of a change in a logistics price driver, the logistics executive must be able to explain and Justify this increase to senior management. Some logistics price increases are the direct result of logistics investments.
Many times, logistics service improvements require investments in logistics resources. This will have a direct impact on internal customers. Logistics executives must be able to quantify the value of these logistics investments. This value might be in the form of a change in either logistics service or price. Various methods can be used to quantify logistics investments. Nabisco calculates the effects on Business Unit Contribution (BUC) of inventory reductions along with the resulting increase in sales necessary to have a similar bottom line impact.
P&G has developed a Reinvestment Ratio that it uses to help Justify investments in logistics service improvements. 8 Regardless of the method, the logistics executive needs to be able to relate changes in the price of ogistics service to changes in the firm’s bottom line. External customers are also sensitive to the price of logistics service. However, research has shown that logistics executives do not believe that external customers react to changes in logistics costs. 9 The price of logistics service, though, does affect the price the customer pays for a firm’s product.
Quantity discount structures, driven by logistics cost structures, have an impact on the final price the customer pays. The price of logistics service, then, is of critical importance to all logistics customers. The logistics executive needs a thorough understanding of the role logistics price plays in decisions made by customers and must understand the drivers of logistics price. PROMOTION As the saying goes, logistics is like the power company: when all goes right, no one calls to give praise; when failure occurs, everyone calls to complain.
Because of this, logistics executives have traditionally avoided promoting, or communicating, the capabilities of logistics to their customer groups. Successful logistics marketing programs must make customers aware of the strengths of logistics and its potential contributions to the bottom line. Two types of logistics promotion efforts have been found to be successful. The first type identifies general areas of logistics expertise to both internal and external customers. Both Unisys and Becton Dickinson have that is made available to customers.
These brochures are patterned after the traditional sales brochure. However, rather than extolling the firm’s products, these brochures highlight the core competencies of these logistics organizations. Since both of these logistics organizations sell their logistics services to various business units within their respective firms, the use of these brochures has heightened the wareness of logistics as a complement to their business unit’s products. The second type of promotional effort identifies specific logistics initiatives and shows their bottom line impacts on the customer group(s) affected.
Nabisco has done this effectively through its development of a strategic logistics plan. The logistics department should have a plan that is in alignment with the objectives of the firm and a plan that can be used as a guide for the entire logistics organization. Important to the development of this plan is including customer (internal and external) input into its development. By doing so, logistics is directly or indirectly requesting the opportunity to help someone outside of logistics to be successful.
Helping other departments or individuals achieve success should always be a logistics goal as this will surely promote cooperation and communication. Several common characteristics of effective logistics promotion should be highlighted. First, the timing of logistics promotional efforts is important. There is a time to sell/promote ideas that is more than likely to result in a positive reaction. Conversely, even a good idea will be turned away if the timing isn’t right. Second, reate the opportunity to sell/promote logistics by making logistics visible to other departments.
This can be done by making the initial contact with another department or by attending company/industry functions. In other words, be visible and be a spokesperson for your team-let others know what logistics is all about. Finally, be proactive. The methods employed by Unisys, Becton Dickinson, and Nabisco all focus on proactive logistics solutions and investments rather than on reactive ones. These firms have grasped the opportunity to tell their customers that logistics can add value for them and help them achieve their goals.
Additionally, these firms have been able to meet or exceed the promises they have made to their customers in a consistent manner. This can very well be the most effective promotional technique for the logistics executive: flawless execution. PLACE In the traditional 4 P’s of the marketing mix, place refers to logistics. In the context of logistics marketing, however, place takes on another meaning. The role of place in the 5 P’s is to facilitate the transaction between the logistics organization and its customers. In other words, the logistics organization should be easy to do business with.
This “hassle free” service has four dimensions. First, the logistics organization must make its backroom operations invisible to the customer. Customers dont care how things get done but what gets done. They are more concerned with the output than the process. 10 Sometimes it seems easier to explain to the customer how the unnecessarily exposes customers to information about the logistics process that is not relevant to them. Bringing the customer into the “backroom” operations processes of logistics complicates the transaction and sometimes shifts part of the burden of failure onto the customer.
Second, make information easily accessible to the customer. Successful logistics organizations manage three flows between themselves and their customers: product, information, and cash. 11 Information can be about product availability or cash flows. Regardless of the nature of the request, the logistics organization needs to provide the information effortlessly and immediately as part of its service mission. Some firms, like Nabisco, have developed the single point of contact concept. 2 This means that an individual, or a team, is responsible for managing the logistics relationship with a specific number of ustomers. This involves not only responding to information requests but also implementing innovative logistics solutions for the customer to increase the perception of logistics value. When customers call with a question, they don’t get transferred around throughout the organization in an attempt to find someone with the information or ability to respond. The customer representative “owns” the customer question and is responsible for satisfying the request.
This also requires the logistics executive to delegate decision-making authority to the logistics team to reduce the time it takes to satisfy a customer request. Third, make it easy for your customer to find you. Some of this concept was covered in the Promotion section. Federal Express and UPS have excelled at this concept by placing their self-service parcel boxes by the entrances to grocery stores. A customer desiring an overnight delivery does not have to expend energy trying to find a carrier willing to perform the service. This is how the logistics organization must function.
It must be visible to its customers and it must be easy to contact. If you facilitate the transaction for your customer, your customer will continue to come back. Finally, it is nevitable that logistics service will periodically fail. Nothing is perfect. This does not mean that the logistics organization should lower its service goals below 100 percent conformance. What it does mean is that the successful logistics organization will identify where possible failures will occur and develop plans to recover from these failures. This concept is called “Service Recovery. 13 The logistics organization must make every effort to make logistics failures seem insignificant to customers. In other words, the customer must have a comfort level that logistics failures will be remedied n a satisfactory manner. In many instances, logistics organizations focus all of their resources on conforming to customer requirements and become very good at doing this. The problem occurs when something goes wrong; the logistics organization has spent little or no time preparing recovery plans to make the inevitable failure seem insignificant.
Because of this lack of preparation, the failure becomes significant very quickly. The longer it takes the logistics organization to remedy the failure, the larger the failure becomes and the more dissatisfied the customer. All attempts must be ade to make customer satisfaction the focus of the logistics organization. PEOPLE evident by its central position in the model shown in Exhibit 1 . Without effective people, the other four P’s are meaningless. The logistics executive has the responsibility to develop a culture for stellar performance from the individuals in the organization.
This can be done in several ways. First, help develop an enthusiasm for the business. People will strive harder to accomplish goals that excite them. The logistics executive must develop the organization to understand that logistics upports a business; knowledge of this business will allow the logistics organization to perform its service more effectively. Second, develop a commitment to bring ideas to fruition; delegate responsibility and authority to the people in the logistics organization to make things happen. The logistics executive must encourage results from the organization.
This also requires that individuals “own” programs and the successes and failures that they might bring. Third, the logistics executive must develop a team environment within the organization. The concept of “team” has received a high level of publicity over the ast several years. However, many teams end up as glorified groups or committees. A true team environment exists when individual successes can be celebrated by the team and individual failures shared by the team. Important to the implementation of teams is the concept of process.
Logistics processes must be identified and documented with individuals owning pieces of these processes. True process ownership is a basic requirement for a successful team environment. Fourth, the logistics executive must believe in the “pressure up” concept versus the “pressure down” concept. In other words, the logistics executive must provide the tmosphere for individuals to ask for help, to communicate their frustrations, to raise issues with management, and to have inputs to plans. This pressure goes up through the organization until a resolution/remedy/positive action is taken.
The burden of making critical decisions and providing appropriate information, then, rests with the logistics executive. Finally, the logistics executive needs to be a leader. For some executives this will never happen because their focus is not on their team members. People will perform for managers because they have to; they will perform for leaders because they want o. This means that the logistics leader must embrace the four concepts identified in this section, plus more. The logistics leader must not be hypocritical. Leaders set practice by example and people will tend more to follow by example.
The logistics leader must not be afraid to delegate decision-making authority and responsibility. In many cases, this means that the logistics leader needs to become a “coach” and not a manager in the traditional sense. The logistics leader understands that success comes from the performance of the team, and not from the performance of the individual. The people aspect of the logistics marketing mix, then, becomes most important to the successful implementation of logistics practices and to the successful marketing of logistics capabilities and accomplishments.
The concept of the marketing mix is not new. However, applied to the marketing of logistics it takes on a different perspective. The product as well as the customers are different for the logistics organization than for the firm as a whole. Logistics service outputs are intangible and can be difficult to sell. Logistics customers are not consumers in the traditional sense but individuals internal to the firm as well as ndividuals in other organizations. This means that these customers Judge logistics performance on how it helps them achieve their goals.
This makes it extremely important that the logistics organization be close to its customers, understand their needs, and help them be successful. Helping logistics customers be successful is not a one-time event. The logistics organization must understand what it does best for its customers and perform these services flawlessly and tirelessly. A single success story does not sell logistics; repeated successes, without failure, is what sells. Developing a reputation for ogistics service excellence is what leads to a positive customer attitude.
Customers with a positive attitude towards the logistics organization will do the selling for logistics; they will communicate to others the capabilities of logistics; they will also tolerate occasional failures and treat them as the exceptions. The focus, then, of the 5 P’s of logistics marketing is to create and manage attitudes. This includes not only the attitude of customers toward the logistics organization but also the attitude of the individuals within the logistics organization. Positive attitudes can take a long time to evelop but can be destroyed quickly.
Effective logistics marketing embraces this fragility and uses it as the basis to drive the logistics organization to excellence in the minds of its customers.