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Research on the Integration of Modern Logistics and Service Marketing SONG Xuqin1, XIANG Xin2 1. Shipping and Management Department, Guangzhou Maritime College, P.R. China, 510725; 2. School of Law, GuangDong University of Technology, P.R. China, 510090 [email protected] Abstract: In recent days, Modern Logistics has attracted more and more attention. This paper has discussed the conceptions of Modern Logistics and service marketing and analyzed the status quo of China’s enterprises on Modern Logistics. And then the author has provided an integrated model of Modern Logistics and service marketing and given some advice on this integration. Finally, the author argued that it is essential to integrate Modern Logistics and service marketing. Logistical enterprises of China should pay attention to the improvement of customer satisfaction and the quality of logistical service and then they will gain the competency of survival and development in recent competition. Keywords: Modern Logistics; Service marketing; Customer satisfaction 1 Introduction With the development of China’s economy, Chinese progressive manufacturing industry needs stronger logistics supports. The concept of modern logistics is a fast-paced, multi-faceted, value-added supply chain service for business-to-business (B2B) on a worldwide scale. However, the situation is expected to change and the logistics market is destined to grow much larger over the next 5-6 years. Chinese logistics firms are also beginning to see the need to outsource their supply chain activities to specialist third-party logistics whose services include warehousing and transportation, supply chain management, distribution and inventory management, etc. We can see from table 1 that the ratio of total logistics expenditure to GDP increased largely in the first half of 2006. Table 1 Ratio of Total Logistics Expenditure to GDP since 1991 in China(%) Year Transportation Storage expenses Management Total expenditure expenses expenses of logistics 1991 13.3 7.5 3.2 24.0 1992 12.7 7.2 3.1 23.0 1993 12.8 6.6 3.0 22.4 1994 11.6 6.8 3.1 21.5 1995 10.6 7.4 3.2 21.2 1996 10.7 7.2 3.2 21.1 1997 10.4 7.4 3.3 21.1 1998 10.3 6.7 3.2 20.2 1999 10.6 7.3 3.2 19.9 2000 10.1 6.0 3.2 19.3 2001 9.9 5.9 3.1 18.8 2002 10.0 6.0 2.9 18.9 2003 10.4 5.9 2.6 18.9 2004 10.6 5.6 2.6 18.8 2005 10.2 5.8 2.5 18.6 first half of 2006 10.2 5.8 2.4 18.4 Source from: http://okokok.com.cn/Abroad/Class126/Class108/200612/114013.html 360 We can get the material from the same website that in the first half of 2006, transport cost was RMB 932.9 billion, rising 12.9% compared to the 1st half of 2005, and its growth rate up 0.8 by 0.8%, which maintained almost the same as compared to the 1st half of 2005 with a proportion of 55.6% to the total expense. The storage cost was RMB 531.4 billion, rising 18.6% compared to the 1st half of 2005, and its growth rate ascending by 2.4%, the storage cost shared 31.7% of the total expense, ascending by 1.2% compared to the 1st half of 2005. Management cost RMB 214.4 billion, rising 13.2% compared to the 1st half of 2005, and its growth rate increased by 0.2%, moreover, it shared 12.8% of the total expense, but the proportion declined by 0.1% compare to the 1st half of 2005. So the development of modern logistics in China is prosperous and it can contribute to Chinese economic development. 2 Research on logistics Logistics includes integrated planning, control and monitoring of all internal and external business flows of goods and information. Logistics provide customer- and process-orientated solutions for departments, companies, corporate groups, networks and virtual organizations (Baumgarten, 2003) In most literatures, logistics means continue providing the right goods to the right places at the right time. Logistics can be defined as integrated planning, control and monitoring of all internal and external business flows of goods and information (Baumgarten, 2003). The role of logistics stretches over the entire value chain, from supplier to customer. Goods and information of satisfying quality must be available at the right time, at the right amount and at the right place (Bloech and Ihde, 1997). This implies that the assignment of logistics in a company is to minimize costs and maximize the internal service level for required goods and information. Simultaneously, buffer stocks and waiting times should be kept at a minimum and none value-adding activities should be avoided and reduced. Therefore, warehousing, transportation, handling, distribution, commissioning, packaging and order processing are basic activities in most logistics flows (Klaus and Krieger, 1998). These assignments derive from customer’s requirements along with product and value chain characteristics (Bloech and Ihde, 1997). Bloech and Ihde (1997) state that logistics services usually deals with systems containing flows of objects or information, which origins from decisions made by other functional operations. According to Bloech, Ihde (1997), Klaus, Krieger (1998) and Pfohl (2004b) logistics generally has an integrating function in organizations. That is, logistics interfaces between functions within a company. Logistics are seldom viewed as an upper management issue, but rather as a management tool for linking company activities together with each other as well as with customers and suppliers. Therefore, a number of researcher (Steinmüller, 1997; Pfohl, 1997, 2004a; Klaus and Krieger, 1998; Dieler, Jansen, Reising, 2002) stresses that depending on the importance of the link, logistics can be viewed as a core competence or as none vital support for other functions. As a consequence, companies that see parts of their logistics as none core competence may choose to outsource these activities. 3 Research on service marketing Service marketing is the stretch of marketing. The concept of service marketing borrows from the traditional concept of marketing. In other words, service marketing means identify your customers, identify their needs, and combine the firm's resources to meet those needs (Andraski and Novack, 1996). With the development of economy and improvement of people’s livelihood, service marketing made a great progress after 70s last century. The concept of service marketing is very different from the concept of marketing. The concept of service marketing is based on market and it performs activities around market requirements. But service marketing is based on service and its activities include design of products, production, advertisement, distribution and after service. The beginning of service marketing is the time that the products are sold. Service marketing pays much attention to innovation and differentiation. Modern logistics should 361 provide better service to customers and gain more competitive advantages. So service marketing is very important to logistics enterprise to develop. 4 Integration of modern logistics and service marketing The logistics and service marketing integration activities typically involve the sharing of very timely and very sensitive demand and sales data, inventory data, customer data and shipment status data. Data sharing often involves a firm giving direct access to its computerized data bases to its supply chain partners. Marketing focuses on demand creation through product, price, and promotion mixes whereas logistics typically is more operationally focused on demand satisfaction, namely, getting the right product to the right place at the right time. Klaus and Krieger (1998) points out that logistics services are special in nature and they have characteristics, which separates them from tangible products. A misconception is that services must be immaterial and none value adding. As an action a service is just as immaterial as an action in a production process. The result from a service can however be just as material as the result from a production process, but in contradiction to the production process the result must not be material. Moreover, services are most often value adding, for example logistics services can be value adding in the way that they reduce costs for the buyer, or lead to better service and higher customer loyalty for the buyer’s customers. In most logistics firms, logistics and marketing are often separate and distinct from one another with functional managers tending not to collaborate or coordinate activities (Flint and Mentzer 2000; Johnson and Borger 1977; Murphy and Poist 1996; Stock 1990). Figure 1 pointed out the model of the integration of logistics and service marketing and we can see that after the integration the functions include customer service, package service, distribution channel, ·information flow, service tracking and survey of satisfaction. These functions are more sensitive to customers’ feelings. Modern logistics ·transportation ·storage ·handling ·warehousing ·delivery ·package ·order processing Integration ·customer service ·package service ·distribution channel ·information flow ·service tracking ·survey of satisfaction Service marketing ·price ·promotion ·combination of product ·market survey · process of service assembling ·participants Source from: Casanovas, A. & Cuatrecasas, Ll. Logística Empresarial. Ed. Gestion, Barcelona. 2001. Figure 1 The functions of Modern logistics and service marketing Participants are the most important element of the modern logistics. The logistics executive has the responsibility to develop a culture for stellar performance from the individuals in the organization. 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 individuals 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. 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. Successful logistics organizations realize that customers decide how important logistics is to the firm. A Council of Logistics Management study finds 362 that the value of the logistics function is significantly enhanced through “the capability to integrate product, information, and cash flows for decision-making purposes that link both internal and external processes”. Activities of modern logistics Activities of service marketing Competitive advantages External environment Figure 2 The integrated model of modern logistics and service marketing To sum up, the integrated model of modern logistics and service marketing can be described as figure 2. If a logistical enterprise want to gain more competitive advantages to get better performance, integrated model is important. Logistics and service marketing are not two separated parts, and they have close relation between each other. In practice, logistical firms should perform the integrated activities during the operations. 5 Conclusions Logistics and Marketing have intertwined histories as business disciplines (Zinn, 2000). Logisticians and marketers must work together effectively to leverage service operations for competitive advantage (Bartels 1983; Bowersox, Mentzer, and Speh 1995; Felton 1959; Mentzer, Gomes, and Krapfel, 1989). 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 (Andraski and Novack, 1996). Customer requirements will drive the service, or product, offerings from logistics. Customers seem to be sensitive in their requirements and hence there is a possibility to segment the logistical market and to use logistic services in order to achieve competitive advantage. So managers of logistics enterprises should pay more attention to the importance of integrating marketing and logistics activities both marketing and logistics functions play an important role in creating satisfied customers. Because both marketing and logistics functions play an important role in creating satisfied customers. To the extent that improved integration leads better customer service, reduced costs, more satisfied customers, or increased profits, the findings of this research can help managers enhance their performance. 363 This paper sets up an integrated process model of logistics and service marketing. The differentiation based on market segments and customer demands analysis and elaborates the design of logistics service differentiation and the total cost service analysis. Business is becoming more aware of the importance of customer service in customer satisfaction and retention. Customer service must be positioned as something that ultimately depends on successful management of both organizational and final consumer relationships across the supply chain. Unfortunately, traditional marketing curriculums study the delivery of customer service as a static and isolated event rather than as a function of the total business enterprise. Following suggestions for more integrative curriculums, the authors develop a course that positions customer service as an outcome of the total system and uses concepts from various research streams to promote successful delivery of customer service. Specific suggestions for course content and pedagogy are presented. The integration of logistics and service marketing is a key to effective supply-chains. References [1] Bowersox, Donald, J., David J.Closs. Logistical Management: The Integrated Supply Chain Process. McGr & w-Hill Inc. 1998 [2] Gimenez, C., Ventura, E.. Logistics-production, Logistics-marketing and External Integration: Their Impact on Performance. Universitat Pomepu Fabra and Universitat Pompeu Fabra. November 18, 2003: 1-20 [3] Casanovas, A., Cuatrecasas, L.. Logística Empresarial. Ed. Gestion Barcelona. 2001 [4] Fisk, R.P., Grove, S.J.,John,J.. Interactive Services Marketing. Thomson Learning Press.2000. [5] Andraski, J.C., Novack, R.A.. 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