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2011

Dawn Clayton

GEORGIA GWINNETT COLLEGE

MARKETING 3000-05

11/30/2011

Transportation in Market Planning

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Transportation in Market Planning

Introduction:

When coming to a decision on what topic to pursue for this paper, it became extremely

easy after glancing through the index of our course textbook, Basic Marketing, by authors

Perreault, Cannon, and McCarthy. The transportation section immediately became intriguing to

me. This was because of my extensive work experiences in transportation and some of the issues

faced during the completion of those duties. Previously, I believed that this area was not under

the direction of Marketeers, but was contained within the duties of Production Operations

Management or completely separated into a Logistics Department. While the day-to-day

operations of this endeavor might be handled as I witnessed, I have learned that the key decisions

on transportation methods create part of the market planning’s routine. Thus logistics concerns

are vastly important to all members of management, especially marketing and marketeers.

These duties include investigating the correct mode to use for any given product, defining

the advantages and disadvantages of each available option, and choosing the best of the lot is

solely in the control of the Marketing Department. In this document I will explore these methods,

the benefits and drawbacks of both traditional modes as well as the specialty options currently

being employed in the global marketplace. The key to delivering a smooth running supply chain

is cooperation in anticipating the needs of the future based upon historical data. This effort can

be handled in a variety of ways, including internally, externally with limited or extensive

assistance, or transferred to an outside overseer. Some of these third and fourth party logistics

providers complete assembly and packaging tasks before sending the final product to the

customer.

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Coupled with these methods are the communication efforts, real-time tracking, and

customer service management needs which have been elevated to mandatory functions of

transportation suppliers. This has been directly caused by the technology advances that have

been made in the last twenty years and purchasers’ drive to have information immediately.

Greater explanations on each of these subjects will be addressed before the conclusion of this

paper.

Logistic Modes:

There are five basic modes of transportation. Rail, truck, water, air, and pipeline each

offer different benefits, but also come with risks. Moving products by rail creates efficiency of

fuel resources while delivering an average of 280 truckloads of freight on each journey (Lang,

2011). Inside Aaron B. Lang’s article, the safety rating of the railroad industry had an extremely

low percentage of accidents in comparison of the large truck deployments. While the cost of

running freight by rail is considered within the medium range, other competitive factors often

influence the decision to select this option. The speed and reliability of this method can also be

viewed as favorable factors. Some consider these areas to be average, but when coupled with the

other positive aspects—fast, trustworthy service is helping develop a slight lead over the other

modes. The capability and capacity of the railroad industry can circumvent the restrictions that

transportation authorities have placed on workday and material limitations experienced in the

truck or air traffic.

Flexibility of the railroad can be slightly misleading. Railroads crisscross this nation and

several others, but the accessibility is somewhat limited depending on how the railcar is loaded.

If the car must be loaded at the site of the manufacturer then tracks must lead up to each location.

Beyond that, special loading and safety equipment must be available before proceeding with this

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operation. Both of these issues can lead to significant expense to all parties. To prevent this,

cargo containers or trailers are transferred by truck to the closest railroad freight yard for

continued loading and delivery efforts. The term used for the combining of efforts is called

“intermodal transportation” (Lang, 2011). This allows for the control of safety and efficiencies of

equipment to load the railcar to be in the hands of the experts of this field.

In looking at the truck mode, the first things that can be endorsed as benefits are the

number of locations served and the general speed of delivery. Both of these are rated highly by

our textbook’s authors, but trucking’s greatest efforts can be witnessed in the movements of

small shipments over limited miles (Perreault, et al., 2011). Trucks have the capability and

capacity of reaching businesses that are not reachable by the other means listed earlier. They

have augmented their effectiveness by teaming up with rail, water, pipeline, and air transport

(McCue, 2010).

This has become somewhat of a necessity because of the restrictions enacted by the

various Department of Transportation Offices and the U.S. Department of Commerce on

international concerns. Some of these difficulties include driver limits on downtime, length of

driving, and length of workload duties covered during a shift and over the course of a week.

There are further restrictions on the types of cargo that can be carried by a particular driver that

can delay delivery if that need cannot be filled by the trucking company (Campbell &

Savelsbergh, 2004). Another financial burden to the trucking industry can be trailers traveling

empty because there is not an opportunity to obtain a backhaul, i.e. wasting fuel, driver pay, etc.

When contemplating water transportation, the biggest returns can be seen in the relatively

low cost while shipping a variety of goods. Water transportation can be conducted with river

barges or across oceans on cargo ships opening up new customer bases that may not have existed

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to the producer previously. These gains become limited when addressing the slow delivery times

and the constraints on schedules, weather conditions, and locations offered. It becomes the

burden of the manufacturer to get the product to the dock in a manner that facilitates loading and

unloading. Again, depending on the destination of the cargo, additional paperwork and other

restrictions may need to be overcome before pursuing this option. This is sometimes handled by

a vendor trained in the necessary documentation required by the intervening governing bodies.

Pipeline activities have low logistical costs and do well with delivering on time. The

deterrents to utilizing this mode are two-fold. First and foremost, you have to have a commodity

that can travel through a pipeline especially built for that product. Currently oil and natural gas

are the primary industries using this method in the United States, but water, slurry, and even CO2

are used throughout the world (Seevam, et al., 2008). Furthermore, finding many local locations

that can offer speedy (end-site) delivery are difficult. The use of pipelines carries additional

burdens of maintenance and safety concerns that can have an impact on local communities and

environmental concerns (McAllister, 2009). Because of these historical issues, the likelihood of

new products traveling by this method would probably be deemed cost prohibitive.

The perks of moving products by air are that arrival can be frequent and rapid. This can

be accomplished through national carriers or by private fleets. The negative aspects of this

choice are the high cost and the limit to the types of goods that can be shipped, at least

commercially. FedEx, UPS, and DHL are some of the transportation businesses have devised

ways to promote this choice by creating channel flows that optimize each plane’s capacities

while centering distribution hubs in major cities with end-users receiving the product by truck.

This has also been promoted as a way to stay competitive in the global marketplaces (Stein &

Reynolds, 2012).

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The specialty options available now have been driven by cost reductions demanded by

manufacturing businesses. Third Party Logistics (3PL) have become the first line of defense in

finding workable solutions. The marketing staff can hand off the review and request for optimal

solutions to which these outside providers, specializing in individual needs for warehousing,

sorting, and shipping can complete for them (McCue, 2010). Focusing on making supply chain

decisions during the initial stage of planning prevents the last minute, costly scramble to satisfy

the wants and needs of the customer (Resch & Klein, 2006). It also eliminates redundancies in

research and the need to employ company paid transportation specialists. Resistance to changing

the marketing strategy has been high on the part of the manufacturer. In the past most production

companies have been unwilling to revisit packaging, storage, or quantity movements for cost

savings, while expecting the movers to bring lean practices to the table (McCue, 2010).

Marketing Paths for the Future:

Cooperation can be addressed on several different levels. First, the marketing department

can place a higher priority for determining logistics methodology earlier in the planning process.

Logistics issues are not as glamorous as some of the other aspects of the marketing mix, such as

advertising and promotion, but they are just as critical to the satisfaction of the end-customer and

future transactions. Deciding on standardization of packaging and shipment requirements can

significantly reduce the need in setting up multiple providers of transportation services (Kesch &

Klein, 2006).

The second thing that should be looked at during market planning is the quantity

requirements for the inventory levels are being projected and the use of backorders. Creating the

right mix of inventory cuts holding costs and are part of the standard procedures for businesses.

Handled incorrectly, it can have a negative effect on business (Ellis, 2006). In “High-Wire

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Fulfillment” Debra Ellis contends that businesses’ pro-active, outgoing communication is

essential to maintaining customer satisfaction. Management was also advised to review sales

figures on a weekly basis and separating each product into the best fitting category. Items that

should never be out of stock and support items that should have adequate amounts of inventory

must be defined during yearly, monthly, and weekly marketing discussions (Wei & Wang,

2010). Regulating overstocks, trending items, back orders, substitutions, and liquidations must be

monitored to prevent misallocation of production materials. This can be accomplished by

utilizing extranets and promotion of Just-In-Time deliveries along with creating written policies

and procedures for each issue (Perreault, et al., 2011; Stein & Reynolds, 2012).

Some of the decision of the mode of logistics will be driven by the category of business

activities. For instance, a grocery or drug store chains would not be able to withstand the waits

that could occur when utilizing water as the primary source of transit, nor could they employ air

transport because the cost involved. While some goods are delivered via the producer to the

distribution center or directly to the stores, most chain stores employ their own fleet of trucks.

They pick-up supplies, deliver them to distribution centers for repacking and reloading, so the

products can be sent off to individual stores. In this case back-hauls of pallets, bins, corrugated,

and other returns are common occurrences. So, the expense of riding empty does not happen

often. This enables the business to enforce a tight control on inventories and the actions of their

employees.

Other businesses do not need this level of control and opt to enlist a second party to

transport their goods from the warehousing site to the customer with very little to any additional

interaction with the product. Over 75% of the time businesses are opting for some kind of truck

mode, while 10% of the time transactions are completed by rail despite the 55% cost reductions

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realized over the last 30 years (Perreault, et al., 2011; Lang, 2011). Ordering the pick-up of

goods by a particular carrier can be at the designation of the manufacturer or the customer

depending on how the freight charges are ultimately billed. The majority of the time, liability on

the manufacturers’ part for goods technically ends the minute the load is signed for by the

consignee. Regardless of this, the manufacturer will attempt to maintain the goodwill of the

customer by making it right and settling up with the shipping provider afterwards. Occasionally,

these companies will even lease drivers to satisfy the immediate man-hour needs. This may be a

temporary solution to a driver shortage problem, but in my experience the results are not what

the company was expecting.

Realigning warehouse and distribution centers can have a positive impact on the business

as a whole. This has been the case of several traditional trucking firms that were centered in the

Midwest United States. To survive the loss of the established car maker driven businesses and

the shifting demands of new customers, these logistics firms had to adapt to the new environment

or close their doors (McCue, 2011). Several of these have teamed up with the water modes and

are finding ways to contribute to the quality control initiatives of the manufacturing process

earlier in the supply chain on a global level. The example given was of U.S. firms wanting to

know exactly where their supplies were in China before they reached the boat. Logistics control

is beginning earlier in the supply process allowing importers greater cost savings and

standardization of excellence (McCue, 2010).

The options of third and fourth party logistics have gained a strong foothold in providing

solutions for business inventory management and delivery needs. The daily operations are in the

control of third party providers; while the control of the overall plan is in the hands of the hiring

company. In contrast, the entire operation is farmed out in the case of fourth party logistics; the

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consignee oversees the activities of the distribution center with no interaction from the

originator. These companies specialize in providing add-on features that traditional

transportation companies do not offer (Larson & Gammelgaard, 2001; McCue, 2010). These

specialists can provide services including assembly and repackaging activities and smaller,

mixed shipments that will satisfy the consumer needs while adhering to documented space

constraints. Regardless of the ‘nuts and bolts’ of logistics are assembled, education and

technology are playing a vital role in the daily routine for all personnel involved in these

activities.

Education and Technology:

It has also been suggested that making an effort to track statistical measures could create

greater efficiencies in entry level logistics management’s productivity. While most businesses

surveyed utilized Microsoft Excel, there were a number of them that used the statistical programs

Lotus 123, SAS, and SPSS (Parker, et al., 2001). This study compiled and contrasted the

products employed in the field against the ones taught at institutions of higher learning. They

found a disconnection in the skill level of graduates and the needs of the industry. While the

undergraduate courses in statistics teaches sections on descriptive statistics, probability

distribution, estimation, and hypothesis testing; quality and productivity were virtually excluded

(Parker, et al., 2011).

Quality and productivity analysis were not part of the learning opportunities within the

BUSA 3000 (upper level) statistics class at Georgia Gwinnett College. As stated in Parker and

company’s paper, proposals to alter the college curriculum to include these facets would result in

either deficiencies of learning objectives for other business majors or a shifting of course

offerings (drop one to add this specialty) could have a similar result. According to that

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document’s conclusion the third choice is even more distasteful. Businesses would have to train

entry level management in industry statistical standards by accepting academic shortcomings on

this topic (Parker, et al., 2001). The final solution may actually be the best one offered and that is

for a true partnership between the educational providers and logistics providers to convene and

formulate a plan of action.

Throughout all of these options, technology has played an enormous impact on the

information in the transportation status of the products’ travels to the customer site. These

include pick-up and delivery estimations as well as real-time location within the supply chain.

Previously, manufacturers had to contact the logistics provider with the hope that they would

have received an update from the handler. With the introduction of mobile phones, global

positioning systems (GPS), and other computer software programs that can compile ongoing data

into a readable format, customers of logistics have become fixated with having an immediate

answer to their inquiry (Stein & Reynolds, 2012).

Furthermore, 3PLs have embraced the tracking technologies as a way to enhance

transparency and eliminate delays or damage to products (Kesch & Klein, 2006; Wei & Wang,

2010). This has driven traditional logistics companies to offer special customer service personnel

that provide this information. Quite a few companies have developed web-based programs that

can be accessed from a computer or smart phone (Stair & Reynolds, 2012). These self-serving

tracking programs essentially allow the client to do what the customer relations management

staff would have accomplished during a status up-date call. Regardless of the delivery of the

information, establishing trust between the clients, supply chain, and consumers through

transparency is a must to ensure a competitive advantage (Larson & Gammelgaard, 2001; Sicoli,

2012).

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Conclusions:

As I draw this paper to an end, I am stuck once again of the importance of the importance

of market planning in the logistics methodology of any business. The findings on mode choices,

rail, truck, water, air, and pipeline, must be clearly documented by the marketeer. These rules of

the intended association must be communicated to the staff burdened with completing the daily

tasks involved with getting the goods to the customers. A straight-forward plan will prevent

costly, late minute movement solutions that cannot be recovered from the end-user. Furthermore,

the options available can be as varied (and/or as complicated) as needed, with the control of

actions left up to the outcomes of the marketing’s negotiation table—in house, 3PL, etc.

Although the truck mode enjoys the greatest share of the market, changes must be implemented

to prevent devastating design flaws during tough economic times. Also, the railroad industry has

the potential to gain a renewed following due to the drastic cost reductions over the last thirty

years and commendable safety numbers. Intermodal transportation appears to be the key to

sustainability on the physical aspect of logistics.

Going forward, education and technology will continue to play a major factor in the

successes and failures of businesses in general. Even small changes in one area can have a

profound rippling effect on the rest of the marketing plan of a particular company. Proper

training of marketeers, management, and support personnel can give the business the tools

needed for the future. Mobile applications and GPS are just a few of the numerous technology

changes that have inundated the logistics field. While Innovators and leaders quickly determined

that action was needed—and followed through. There are still quite a few companies that are

struggling with developing the proper enterprise platform to assist in completing logistics tasks

in the global marketplace. It is the marketing department’s duty to aid in these efforts.

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