Chapter–by–chapter aids: Chapter 11
Instructor’s Manual to Accompany Essentials of Marketing IV–11-3
intermediary who holds inventory and meets the demands of local customers on a just–in–time
basis.
Air freight may make it feasible for a firm to provide just–in–time delivery in international
markets for some products that are of high value relative to their size and weight (i.e.,
electronic components), but customers who have very high expectations concerning customer
service levels often will prefer to work with suppliers who have facilities in the same country –
have had an important impact–often in ways that both improve customer service and cut costs
at the same time. This question encourages students to go back and rethink the discussion of
even for those items where it doesn’t have a direct effect, it often can make problems less
serious (or, at least not so long–lasting) because it speeds up the whole order cycle process.
11–10. The total cost approach requires a look at the whole physical distribution effort – not just at
individual functions such as transporting or storing, with a view to minimizing the costs of the
individual functions. Traditionally, these various functions have been handled by separate
departments – or have been the responsibilities of separate managers. Looking at several
down while attempting to improve service levels and thereby improving the whole marketing
mix. Going even further, the marketing manager may be interested in a total profit approach
that includes evaluating various service levels. Then, after the “best” strategy has been
11–11. Exhibit 11-5 provides a concise summary of the key points here. For more detail, see section
“Which Transporting Alternative Is Best?”
11–12. One reason is that there may be transportation economies in shipping large orders directly to a
wholesaler, rather than shipping many smaller orders to local retailers (or other types of
customers). As a related matter, long–distance shipping not only takes longer but may also
may not be possible if a long–distance shipment direct from the producer is required. One
result is that the retailer is less likely to “stock out” – which might mean lost business for the
11–13. Airfreight is opening new markets, especially for lightweight, high value, perishable products.
Note that perishable here includes non–food items that have time value (such as fashions,
weekly magazines, etc.). Airfreight is changing packaging requirements for some products –
since less handling minimizes the chance of damage. Airfreight is creating new channels for
example, airfreight has made it possible to bring fresh flowers from areas where they grow all
year round to areas where there are harsh winters. This has made flowers so popular in many
of these areas that they are now available in grocery stores and from other mass
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Part IV
IV–11-4 Perreault, Cannon, & McCarthy
11–14. Most suitable is usually interpreted as the lowest cost in the absence of any time requirement.
The suggested answers assume a lowest–cost criterion consistent with the type of product.
a. Boat to Los Angeles and then truck to store. Note: some students will argue that crabs
are perishable and that airfreight might be the method of choice – to reduce the risk of
accomplishing the same outcome.
b. U.S. mail (parcel post) or United Parcel Service (UPS), depending on rates.
nearby. On the other hand, students located near large urban areas will most likely find that the
nearest major storage facilities are right downtown in the inner city. The discussion in the text
11–16. Use a public warehouse if needs for storage fluctuate during the year, or if needs are too small
to justify a private warehouse. For example, antifreeze manufacturers build up inventories in
many cities throughout the country in anticipation of a strong seasonal demand. They attempt
11–17. The distribution center concept is especially important for items having a high turnover. For the
many slower–moving items that have been the “bread and butter” of the conventional merchant
wholesalers, much storage still may be necessary. A small grocery wholesaler may buy in
carloads, for example, as this is the minimum economic lot to handle; but if he does not expect
warehouse to his retailers. These quantities should be contrasted with the volume and variety
an industrial supply wholesaler sells to its customers – one screwdriver, three paintbrushes,
etc., per order. Here, the traditional storing of a wide assortment provides a real service and
11–18. Storing is the basic object of a warehouse, while breaking–bulk and minimum storage is the
object in a distribution center. A warehouse would be geared for efficient storage, perhaps with
facilities to maximize vertical storage. A distribution center would be more concerned with
11–19. The logistics issues faced by Internet retailers and traditional retailers have some similarities
and some differences. Both types of retailers need to consider the level of customer service
they wish to offer their customers. Both face the same trade–offs between costs and level of
service. Both should also consider inbound logistics decisions and how these choices interact
with decisions about storage, inventory planning, and distribution centers. An Internet retailer
does not need to consider inventory planning at bricks–and–mortar stores, but it has the added
dimension of deciding how to get goods to individual customers. UPS offers different levels of
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter–by–chapter aids: Chapter 11
service—from overnight air freight to slower (and less costly) ground transportation. The
Internet retailer must decide what level of service to offer and how much to charge customers
for each option.
DISCUSSION OF COMPUTER-AIDED PROBLEM 11: TOTAL DISTRIBUTION COST
A company that makes plastic blanks for credit cards is considering two different distribution systems –
airfreight and railroad. Classroom discussion will soon turn to weighing the balance between the bottom
line (“Total Cost–PD”) and the customer service level that might result from these decisions.
Answers to Computer–Aided Problem 11:
a. The initial spreadsheet shows an advantage of $34,000 in Total Cost–PD for the Airfreight option,
even though the unit shipping cost is much higher:
P L U S – Spreadsheet
Airfreight
Railroad
Selling Price
40.00
*
40.00
*
Expected Sales Quantity
20000
*
20000
*
Inventory Carrying Cost Percent
5.00
*
10.00
*
Unit Shipping Cost
7.50
*
2.00
*
Number of Warehouses
0
*
4
*
Cost Per Warehouse
0.00
*
26000.00
*
Total Cost–Transport
150000.00
40000.00
Total Cost–Inventory
40000.00
80000.00
Total Cost–Warehouse
0.00
104000.00
Total Cost–PD
190000.00
224000.00
Total Revenue
800000.00
800000.00
b. It is the inventory carrying cost and paying for warehouse space that makes the Total Cost for
Railroad more than the Airfreight option. If the firm can save money on the warehouses, that’s still not
P L U S – Spreadsheet
Airfreight
Railroad
Selling Price
40.00
*
40.00
*
Expected Sales Quantity
20000
*
20000
*
Inventory Carrying Cost Percent
5.00
*
10.00
*
Unit Shipping Cost
7.50
*
2.00
*
Number of Warehouses
0
*
4
*
Cost Per Warehouse
0.00
*
20000.00
*
Total Cost–Transport
150000.00
40000.00
Total Cost–Inventory
40000.00
80000.00
Total Cost–Warehouse
0.00
80000.00
Total Cost–PD
190000.00
200000.00
Total Revenue
800000.00
800000.00
c. But if interest rates are also lower, the Total Cost–PD for the Railroad option becomes slightly
Part IV
Chapter–by–chapter aids: Chapter 11
have a social responsibility to see that suppliers in less–developed nations pay a fair wage and provide
healthy working conditions. What do you think? Should U.S. firms be required to monitor the employment
practices of suppliers in their supply chains? Should all suppliers be held to Western legal or moral
standards? What solutions or compromises might be offered?
If you plan to discuss this situation in class, be aware in advance that it may turn out to be a very
emotional topic—perhaps because of the displacement of local jobs and income rather than the “remote”
sweatshop conditions. This is not the way the question is framed in the text, but as many businesses
have turned to low–cost overseas suppliers, more factories in the U.S. have been shuttered and
employees fired. In certain areas of the country, a large number of students may have family members or
friends who have been impacted by the loss of local jobs to overseas suppliers. Over time, those
The sweatshop issue has been around for some time. Sweatshops, typically located in developing
countries, have been criticized for poor working conditions and low wages. They are most common
among suppliers of clothing, but more recently, tech firms have been accused of having suppliers that
utilize sweatshop labor. Protests, often by college student groups (see
www.studentsagainstsweatshops.org), bring negative publicity to companies that are not out in front of
this issue. Many firms have tried to avoid negative publicity or improve their image by conducting audits.
CHAPTER 11 – COMMENTS ON USE OF CREATING MARKETING PLANS
QUESTION WITH THIS CHAPTER
The Marketing Plan Coach software on the text website includes a sample marketing plan for Hillside
Veterinary Clinic. Look through the “Marketing Strategy” section. To provide veterinary care to pets,
help patients?
b. With respect to the retail pet products that Hillside sells, what level of customer service should
customers expect?
c. What issues are involved in storage of pet supplies?
HVC must make some key decisions with respect to the level of customer service it chooses to offer.
These tie into the logistics decisions the clinic must make. With medical supplies, HVC must determine
which items to maintain on hand and which can be obtained from a supplier quickly enough to provide
adequate care to patients. Many medical supplies are likely to be used very infrequently, so stocking
them at the clinic may involve significant costs. Some supplies, like medicines, are also likely to be
perishable. So these decisions are important. They point to the value of having a supplier that can quickly
Part IV