ewuzie, cajetan obinna last cajetan obinna...ii physical distribution and customer satisfaction in...

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Og i EWUZIE, CAJETAN OBINN PG/M.Sc./09/53941 gbonna Nkiru Digitally Signed by: Co DN : CN = Webmaster O= University of Niger OU = Innovation Centr FACULTY OF BUSINESS ADMINISTR DEPARTMENT OF MARKETING PHYSICAL DISTRIBUTION AND CU SATISFACTION IN NIGERIAN BOTTLIN NA ontent manager’s Name r’s name ria, Nsukka re RATION G USTOMER NG COMPANY

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Page 1: EWUZIE, CAJETAN OBINNA LAST CAJETAN OBINNA...ii PHYSICAL DISTRIBUTION AND CUSTOMER SATISFACTION IN NIGERIAN BOTTLING COMPANY PLC, ENUGU STATE BY EWUZIE, CAJETAN OBINNA PG/M.Sc./09/53941

Ogbonna Nkiru

i

EWUZIE, CAJETAN OBINNA

PG/M.Sc./09/53941

Ogbonna Nkiru

Digitally Signed by: Content manager’sDN : CN = Webmaster’s nameO= University of Nigeri

OU = Innovation Centre

FACULTY OF BUSINESS ADMINISTRATION

DEPARTMENT OF MARKETING

PHYSICAL DISTRIBUTION AND CUSTOMER

SATISFACTION IN NIGERIAN BOTTLING COMPANY

EWUZIE, CAJETAN OBINNA

: Content manager’s Name Webmaster’s name

O= University of Nigeria, Nsukka

OU = Innovation Centre

FACULTY OF BUSINESS ADMINISTRATION

MARKETING

PHYSICAL DISTRIBUTION AND CUSTOMER

BOTTLING COMPANY

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PHYSICAL DISTRIBUTION AND CUSTOMER SATISFACTION IN

NIGERIAN BOTTLING COMPANY PLC, ENUGU STATE

BY

EWUZIE, CAJETAN OBINNA

PG/M.Sc./09/53941

BEING A DISSERTATION PRESENTED TO THE DEPARTMENT OF MARKETING,

FACULTY OF BUSINESS ADMINISTRATION, UNIVERSITY OF NIGERIA, ENUGU

CAMPUS IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE

AWARD OF MASTER OF SCIENCE (M.Sc.) DEGREE IN MARKETING

SUPERVISOR: PROF. G.E. UGWUONAH

DECEMBER, 2014

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DECLARATION

I hereby declare that this M.Sc dissertation titled “Physical Distribution and Customer

Satisfaction in Nigeria Bottling Company Plc, Enugu State”, written by me, Ewuzie,

Cajetan Obinna, Reg. No. PG/M.Sc./09/53941 of Department of Marketing, Faculty of

Business Administration, University of Nigeria, Enugu Campus is original and has not

been submitted in part or wholly to this University or any other higher institution in this

country.

Ewuzie, Cajetan Obinna

PG/M.Sc/09/53941

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APPROVAL

We hereby approve the topic titled “physical Distribution and Customer Satisfaction in

Nigeria Bottling Company Plc, Enugu State”, by Ewuzie, Cajetan Obinna with Reg.

No. PG/M.Sc/09/53941 of Department of Marketing, University of Nigeria, Enugu

Campus as meeting the standard for M.Sc. degree in Marketing Department of this

University.

Prof. G. E. Ugwuonah Supervisor

Prof. G. E. Ugwuonah Head of Department

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DEDICATION

To my wife, Patience and children, Obinna (Jnr.), Adaobi and Chukwuemeka.

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ACKNWOLEDGMENTS

I am highly grateful to my supervisor, Prof. (Mrs.) G.E. Ugwuonah for her constructive

criticisms and untiring efforts at ensuring that the study meets set standard.

I sincerely appreciate the priceless contributions of my other lecturers at the University

of Nigeria, Enugu Campus who generously impacted knowledge and wisdom on me.

Among them are Professor Julius O. Onah, Professor (Mrs.) J. O. Nnabuko, Professor

L. C. Nwaizugbo, Dr. A.E. Ehikwe, Dr. S.C. Moguluwa and Mr. C. Obeta.

To my academic mentors, I remain grateful also. Among them are Professor Aham A.

Anyanwu of Imo State University, Professor S. E. Kalu of University of Port Harcourt

and Professor Nkamnebe of Nnamdi Azikiwe University.

Finally, I am highly indebted to my postgraduate colleagues; Paul, Nonso, Chioma and

Peter for the team spirit we worked with during the programme. I also acknowledge

the inputs of staff and customers of Nigerian Bottling Company Plc, Enugu State. You

were all helpful, cooperative and supportive.

To God be the glory.

Ewuzie (PG/M.Sc./2009/53941)

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TABLE OF CONTENTS

Title page - - - - - - i

Certification - - - - - - ii

Approval - - - - - - iii

Dedication - - - - - - iv

Acknowledgment - - - - - - v

Table of Contents - - - - - - vi

List of Tables - - - - - - ix

List of Figures - - - - - - xii

Abstract - - - - - - xiv

CHAPTER ONE: INTRODUCTION

1.1 Background of the study - - - - - - 1

1.2 Statement of the problem - - - - - - 4

1.3 Objectives of the study - - - - - - 5

1.4 Research questions - - - - - - 5

1.5 Research hypotheses - - - - - - - 6

1.6 Significance of the study - - - - - - 6

1.7 Scope of the study - - - - - - 7

1.8 Limitations of the study - - - - - - 7

1.9 Operational Definition of key terms - - - - 7

References

CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.0 Introduction - - - - - - 11

2.1 Conceptual Framework - - - - - - 11

2.1.1 Physical Distribution Concept - - - - - 12

2.1.2 Physical Distribution Systems Concept - - - - 12

2.1.3 Physical Distribution Service (Customer Service) Concept - - 14

2.1.4 Customer Satisfaction Concept - - - - - 16

2.1.5 Overall customer satisfaction Concept - - - - 17

2.2 Empirical Studies - - - - - - 18

2.3 Theoretical Discourse - - - - - - 21

2.3.1 Definition and Scope of Physical Distribution - - - 21

2.3.2 Role and Importance of Physical Distribution in Marketing Strategy 25

2.3.3 Physical Distribution Management Activities and their Interrelationship 28

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2.3.4 Objectives of Physical Distribution Management - - - 32

2.3.4.1 Total Cost Analysis and Cost Trade-offs Concepts - - - 33

2.3.5 Customer Service - - - - - - 34

2.3.6 Determining customer service requirements - - - - 35

2.3.7 The Importance and Measurement of Customer Service - - 38

2.3.8 Customer Satisfaction - - - - - - 40

2.3.8.1 Drivers of Customer Satisfaction - - - - - 41

2.3.8.2 Factors that Influence Customer’s Expectations - - - 42

2.3.8.3 Customer Satisfaction Index (CSI). - - - - 43

2.3.9 Physical Distribution Decisions - - - - - 45

2.3.9.1 Inventory Control - - - - - 47

2.3.9.1.1 Material Requirement Planning and Distribution Requirement Planning 49

2.3.9.1.2 Just-in-Time (JIT) and Stockless Distribution - - - 50

2.3.9.2 Transportation - - - - - 51

2.3.9.2.1 Third Party Logistics - - - - - 53

2.3.9.2.2 Selecting a Third Party Logistics (3pl) - - - - 54

2.3.9.3 Inventory Location & Warehousing - - - - - 55

2.3.9.3.1 The Distribution Centre (DC) Concept - - - - 55

2.3.9.4 Order Processing - - - - - 56

2.3.9.5 Materials Handling - - - - - 57

2.3.10 Designing and Managing Physical Distribution System - - 58

2.3.10.1 Cost-Benefits Trade Off of Services - - - - 61

2.3.11 Organizational Responsibility for PDM - - - - 61

2.3.12 Barriers to Effective Physical Distribution - - - - 62

2.3.13 Physical Distribution and Channels of Distribution Interface - 64

2.3.14 Distribution Channel Major Decision Areas - - - - 65

2.3.15 Channel Power and Control - - - - - - 65

2.3.16 Reverse Logistics and its Impact on Customer Service and Customer

Satisfaction - - - - - - 68

2.3.17 Analysis and Critique of Some Existing Literature. - - - 68

2.4 Summary - - - - - - 69

2.5 A Brief Profile of Nigerian Bottling Company Plc - - - 70

References

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CHAPTER THREE: RESEARCH METHODOLOGY

3.0 Introduction - - - - - - 77

3.1 Research Designs - - - - - - 77

3.2 Area of Study - - - - - - 77

3.3 Sources of Data - - - - - - 77

3.4 Population of Study - - - - - - 77

3.5 Pilot Study - - - - - - 78

3.6 Determination of Sample Size - - - - - 78

3.7 Sampling Techniques - - - - - - - 79

3.8 Validity of Instrument - - - - - - - 80

3.9 Reliability of Instrument - - - - - - 80

3.10 Method of Data Presentation and Analysis - - - - 81

References

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1 Introduction - - - - - - 83

4.2 Questionnaire Analysis - - - - - - 83

4.2.1 Questionnaire Administration - - - - - 83

4.3 Test of Hypotheses - - - - - - 113

4.4 Discussions of findings - - - - - - 121

4.5 Summary - - - - - - 124

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSIONS AND

RECOMMENDATIONS

5.1 Introduction - - - - - - 125

5.2 Summary of findings - - - - - - - 125

5.3 Conclusions - - - - - - 126

5.4 Recommendations - - - - - - 127

Bibliographies

Appendices

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LIST OF TABLES

Table 3.1 Commercial staff, distributors and retailers of NBC - - 77

Table 3.2 Sample proportion of NBC staff and bulk customers - - 80

Table 4.1 Questionnaire Administration - - - 83

Table 4.2 Sex Distribution of Respondents - - - 84

Table 4.3 Age Distribution of Respondents - - - 84

Table 4.4 Educational Qualification of Respondents - - 84

Table 4.5 Staff number of years with the company - - 85

Table 4.6 Staff Positions in the Company - - - 85

Table 4.7 Occupation of Respondents - - - - 86

Table 4.8 Business Categories of Customers - - - 86

Table 4.9 Frequency of products Supply to Customers - - 86

Table 4.10 Need to be supplied with NBC Products more frequently - 87

Table 4.11 Stock out Experienced by Customer - - - 88

Table 4.12 Frequency of Stock outs Experienced by Customers - 88

Table 4.13 Factors Responsible for Stock outs Experienced by Customers - - - 89

Table 4.14 Stock outs Experienced by NBC - - - 89

Table 4.15 Frequency of Stock outs Experienced by NBC - - 90

Table 4.16 Factors Responsible for Stock outs Experienced by NBC - 91

Table 4.17 Adequacy, Functionality and Coordination of NBC Distribution Trucks/Vans - - - 92

Table 4.18 Adequacy/Location of NBC Warehouses - - - 92

Table 4.19 Adequacy of NBC Inventory Size/Mix` - - - 93

Table 4.20 Reliability/Timeliness of NBC order Processing System - 94

Table 4.21 Availability of NBC different Product mix - - - 95

Table 4.22 Availability of Ordered Units - - - 95

Table 4.23 Percent Availability of all Orders - - - 96

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Table 4.24 Order Cycle Time Acceptability - - - 97

Table 4.25 Average Delivery Time Reliability - - - 98

Table 4.26 Order Cycle Time Consistency - - - 98

Table 4.27 In-transit Damage - - - 99

Table 4.28 Accuracy of Units Supplied - - - 100

Table 4.29 Accuracy of Quantity Delivered - - - 101

Table 4.30 Flexibility of NBC Order Policies - - - 102

Table 4.31 Expedite/Substitute Capacity of NBC - - - 103

Table 4.32 NBC Response to Special Request/ Unexpected Needs of Customers - - - 104

Table 4.33 Product Availability of NBC - - - 105

Table 4.34 Timeliness of NBC PDS - - - 105

Table 4.35 PDS Quality of NBC - - - 106

Table 4.36 PDS Flexibility of NBC - - - 107

Table 4.37 Physical Distribution Service of NBC (Consolidated Table) - 107

Table 4.38 PDS Activities of NBC (Consolidated Table) - - 108

Table 4.39 Customer Satisfaction with NBC Overall PDS - - 108

Table 4.40 Customers Comparison of NBC with Other Suppliers - - 109

Table 4.41 Customers Expression of Pleasure in Dealing with NBC - 109

Table 4.42 Customers Satisfaction (Consolidated Table) - - 109

Table 4.43 Importance Ranking of PDS Elements by the Staff - - 110

Table 4.44 Importance Ranking of PDS Elements by the Customers - 111

Table 4.45 Response on whether NBC Customers112 buy from NBC major Competitor - - - 112

Table 4.46 Performance Rating of NBC and its major Competitor - - 112

Table 4.47 Descriptive Statistics for PD Activities and PD Services - 114

Table 4.48 Pearson Correlations test result for hypothesis one - - 114

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Table 4.49 Descriptive Statistics for Product Availability & Customer

Satisfaction - - - 116

Table 4.50 Pearson Correlations Test Result for Hypothesis Two - 116

Table 4.51 Descriptive Statistics for Timeliness and Customer Satisfaction - 117

Table 4.52 Person Correlations Test Results for Hypothesis Three - 117

Table 4.53 Descriptive Statistics for PDS Quality and Customer Satisfaction - 119

Table 4.54 Pearson Correlations Test Result for Hypothesis Four - 119

Table 4.55 Descriptive Statistics for PDS Flexibility and Customer

Satisfaction - - - - - - - 120

Table 4.56 Pearson Correlations Test Result for Hypothesis Five - 120

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LIST OF FIGURES

Figure 2.1 Conceptual Customer Service/Satisfaction model - - 13

Figure 2.2 Conceptual Physical Distribution Activities model - - 15

Figure 2.3 Conceptual Physical Distribution Service/Customer Satisfaction model - - - - - 16

Figure 2.4 Physical Distributions or Logistics Configuration of an FMCG Company - - - - - 23

Figure 2.5 Elements of customer service - - - - - 35

Figure 2.6 A customer service model - - - - - 36

Figure 2.7 Conceptual model of service quality - - - - 37

Figure 2.8 Elements and measurement of Customer service - - 39

Figure 2.9 Inventory cost curves - - - - - 48

Figure2.10 Relationship Between service level and costs - - - 59

Figure 2.11 Setting customer service level - - - - - 60

Figure 2.12 Cost-Benefit trade-off of customer service - - - 61

Figure 2.13 Logistical and marketing channels interface - - - 64

Figure 4.1 Frequency of NBC products supply to customers - - 87

Figure 4.2 Need to be supplied with NBC products more frequently - 87

Figure 4.3 Stock outs experienced by customers - - - - 88

Figure 4.4 Factors responsible for stock outs experienced by customers- 89

Figure 4.5 Stock outs experienced by NBC - - - - 90

Figure 4.6 Factors responsible for Stock-out experienced by NBC - 91

Figure 4.7 Adequacy, functionality and coordination of NBC trucks/vans - - - - - 92

Figure 4.8 Adequacy/location of NBC warehouses - - - 93

Figure 4.9 Adequacy of NBC inventory size/mix - - - 93

Figure 4.10 Reliability/timeliness of NBC order processing system - 94

Figure 4.11 Availability of NBC different product mix - - - 95

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Figure 4.12 Availability of ordered units - - - - - 96

Figure 4.13 Percent availability of all orders - - - - 97

Figure 4.14 Order cycle time acceptability- - - - - 97

Figure 4.15 Reliability of average delivery time - - - - 98

Figure 4.16 Order cycle time consistency - - - - 99

Figure 4.17 In-Transit Damage - - - - - 99

Figure 4.18 Accuracy of units supplied - - - - - 100

Figure 4.19 Accuracy of quantity delivered - - - - 101

Figure 4.20 Flexibility of NBC order policies - - - - 102

Figure 4.21 Expedite/substitute capacity of NBC - - - - 103

Figure 4.22 NBC Response to special request/unexpected Needs of customers - - - - - 104

Figure 4.23 Competitive bench-marking of performance of NBC against its Major Competitor - - - - - 113

Figure 5.1 Conceptual market-driven customer service standard model (The Customer Service Mirror) - - - - 130

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ABSTRACT

The study investigated physical distribution and customer satisfaction in Nigerian Bottling Company (NBC) Plc in Enugu State. Companies in the Fast Moving Consumer Goods (FMCGs) sector, especially those in soft drink industry are facing increasingly fierce competition. As it becomes more difficult for the companies to compete on pure product level, creative ones are intensifying their physical distribution service activities to gain a competitive edge. 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.

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CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The growth of competition, the raising of customers’ expectations and the similarity of

basic products that are offered make physical distribution so important in determining

the final demand for a product. As it becomes more difficult for companies in fast

moving consumer goods (FMCG) sector, especially in soft drink industry, to compete

on pure product level, creative ones are looking elsewhere for a competitive edge. An

effective physical distribution system can give a company a significant competitive

advantage (Schewe and Hiam 1998: 366).

The physical distribution (or logistics) system is responsible for actual movement of

products in such a way as to accomplish the goal of providing time and place utility.

Physical distribution according to Armstrong and Kotler (2009: 343) involves planning,

implementing and controlling of the physical flow of materials, final goods and related

information from points of origin to points of consumption to meet customer

requirements at a profit. Logistics management is the planning, implementation and

control of the processes involved in the flow and storage of materials from the point of

origin (as raw materials) through the various value added stages to the point of

consumption (as finished goods) [The Council of Supply Chain Management

Professionals (CSCMP) (2011:2)]

Logistics and physical distribution are used interchangeably. In short, they involve

getting the right product in the right quantity to the right customer in the right place at

the right time in the right condition and at the right cost. These seven (7) rights of

customer service are indispensable in any physical distribution system. This calls for a

system approach to physical distribution management (PDM) – managing upstream,

and downstream value-added flows of materials, final goods and related information

among suppliers, the company, resellers, and final consumers.

The prestigious National Council of Physical Distribution Management (NCPDM)

USA in Coyle and Bardi (2000: 5) noted that physical distribution activities may

include, but are not limited to the following:

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� Transportation

� Warehousing and storage

� Inventory control

� Order processing

� Customer service levels

� Plant and warehouse site location

These activities are on their own of no importance to customers. However, the services

they provide- product availability, PDS timeliness, PDS quality and PDS flexibility- are

of utmost importance to customers. According to Wagner (2011: 15) it has been

estimated that logistics costs account for 30% of the cost of doing business. However,

the management challenge is to consider the two major objectives of PDM namely; (1)

achieving a high level of customer service and (2) keeping the total cost of physical

distribution as low as possible for a given customer service level. These objectives are

achieved through the application of Physical Distribution (PD) system concept.

The physical distribution (PD) system concept says that all transporting, storing and

product-handling activities of a business and a whole channel system should be

coordinated as one system that seeks to minimize the total cost of distribution for a

given customer service level, Perreault et al (2010:275). Both lower costs and better

service help to increase customer value and customer satisfaction.

Customer attraction and satisfaction is highly influenced by the seller’s physical-

distribution capabilities and decisions (Kotler 2006: 591). Effective logistics requires

proper management of the supply chain (Boone and Kurtz 2004: 450). Uncoordinated

PD is expensive. Effective logistics management can lower costs, provide better

customer service and customer satisfaction which translate into competitive advantage

and profit for the company.

Customer satisfaction is a fundamental marketing construct. Marketing scholars and

practitioners agree that customer satisfaction serves as a strong predictor of variables

such as repurchase intention, positive word-of-mouth and customer loyalty.

Gustatson and Johnson (2000:50) said that customer satisfaction is customer’s overall

evaluation of purchase and consumption experience with a product, service or provider.

Customer satisfaction represents a measure of company’s performance according to

customer’s needs (Hill et al 2003) in Ode et al 2011:26). According to Kotler et al

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(2007:144) customer satisfaction depends on a product’s or service’s perceived

performance in delivering value relative to the buyer’s expectations. They say a highly

satisfied customer generally stays loyal, buys more of the company’s products,

upgrades existing products, talks favourably about the company and its products, pays

less attention to competing brands and is less sensitive to price, offers product or

service ideas to the company and costs less to serve than new customers because

transactions are routine.

Measuring customer satisfaction with physical distribution service is a strategic activity

by organization seeking to ensure its existence in the competitive environment because

one key to customer repeat purchase is customer satisfaction with overall purchase and

consumption experience.

Procter and Gamble (P&G) is a good case in point. According to Berkowitz et al (2000:

444) beginning in the early 1990s, the company set out to meet the needs of consumers

more effectively by collaborating and partnering with its suppliers and retailers to

ensure that the right products reach store shelves at the right time and at a lower cost.

The effort was judged a success when, during an 18-month period in the late 1990s, P

& G’s retail customers recorded a $65 million (N10.27 Billion) savings in logistics

costs while customer service increased.

According to Organization for Economic Co-operation and Development (OECD)

Publication (2002:8) new strategic uses of logistics will continually alter the nature and

culture of operations in companies. The strategic advantage of logistics is likely to be

most pronounced in terms of improvements in coordination and planning resulting in

transport efficiency gains.

Physical distribution is not only a cost, it is also a potent tool in demand creation.

Companies can attract additional customers by offering better services or lower prices

through physical distribution. Companies lose customers when they fail to supply

goods on time.

The starting point for designing physical distribution is to study what the customers

want and what the competitors are offering in terms of physical distribution or

logistical customer service. Physical distribution objectives can then be set to guide the

planning. For example, coco-cola has the distribution objective that is summarized as

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follows “to put coke within an arm’s length of desire” (Robert Woodruff, late President

of Coco-cola in Schewe and Hiam 1998: 366).

From the above physical distribution objective, it can be seen that the strategic role of

physical distribution is well recognized by Nigerian Bottling Company (NBC). It

believes that an effective physical distribution can give a company a significant

competitive advantage. NBC needs a physical distribution system that provides

adequate level of customer service which will help deliver customer satisfaction better

than the competitors. It needs a physical distribution system that puts its products

within an arm’s length of desire. The achievement of the above feat is not without

challenges. How far has NBC achieved its PD objective?

It is against this background that this study seeks to examine the physical distribution

challenges and customer satisfaction and its implication in aiding NBC in Enugu state

gain competitive advantage over others in the industry.

1.2 Statement of the Problem

One major challenge facing companies is that of attracting and retaining customers in a

competitive environment. Companies can attract customers by offering better customer

service through physical distribution (PD) system that is sufficiently sensitive and

flexible to permit timely response to customer requirements and cost effective to ensure

profit. A company’s failure to provide desired level of customer service leads to

customer dissatisfaction and loss of customers. The strategic importance of an effective

and efficient PD system cannot be over-emphasized, especially in soft drink industry

where brand loyalty is not strong but availability and price play major roles in

determining the final demand for the products.

NBC is part of a globally operating manufacturing company (the Coca-Cola Company)

in the food and beverage processing industry that maintains production plants and sales

depot outlets nationwide, using at first 100% owned haulage trailers. In 2006 NBC

engaged third party logistics (3PL) providers (haulers) following review of its supply

chain activities in order to meet daily customer requirements to enable it succeed

against the many market challengers, followers and nichers who have price advantage

(Meritem Research 2008). In spite of the engagement of 3PL providers there are still

instances of stock outs and where NBC could not deliver on schedules due to break

down of delivery trucks. There is doubt on whether these challenges have not

significantly affected physical distribution service and customers’ level of satisfaction.

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Consequently, a holistic approach is required to physical distribution management of

NBC. It is necessary to know the level of importance customers attach to the different

elements of customer service and the performance of key competitor on these elements.

It is also vital to ascertain the effects of transportation, warehousing, order processing,

and inventory control on PD service and customer satisfaction.

This is what gave rise to the study which is to appraise the PD of NBC in the face of

stiff competitive environment that now characterizes the soft drink industry.

1.3 Objective of the Study

The main objective of the study is to evaluate the impact of performance of physical

distribution activities on PD service and indirectly on customer satisfaction.

The subjectives are:

1. To evaluate the relationship between performance of physical distribution

activities and perceived physical distribution service.

2. To ascertain the relationship between product availability and overall customer

satisfaction.

3. To determine the relationship between PDS timeliness and overall customer

satisfaction

4. To examine the relationship between PDS quality and overall customer

satisfaction

5. To identify the relationship between PDS flexibility and overall customer

satisfaction.

6. To ascertain the relative importance of each physical distribution service

variable to customers and compare the performance level of NBC with that of

its major competitor on the service variables.

1.4 Research Questions:

1. What is the relationship between performance of physical distribution activities

and perceived physical distribution service?

2. Is there any significant relationship between product availability and overall

customer satisfaction?

3. What is the relationship between PDS timeliness and overall customer

satisfaction?

4. Is there any relationship between PDS quality and overall customer satisfaction?

5. Is PDS flexibility related to overall customer satisfaction?

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6. How important are the various physical distribution service elements to

customers and how does NBC 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

The management team will appreciate the need for effective and efficient physical

distribution management. This will enable them to formulate effective PD policies in

line with the findings of this research which will invariably lead to effective and

efficient PD system that will reduce the operational costs and thus improve profit.

Higher profit will translate to improved product quality or reduced product price for

customers. This will lead to more profit or higher customer value for resellers and

consumers respectively.

The Nigerian economy and society at large will benefit from effective and efficient PD

system. Companies that adapt the findings will experience growth that will create

employment opportunities. Then more youths will be engaged and social crimes will be

reduced.

The study will serve as a guide for organizations who wish to improve their logistics. It

will remind both public and private organizations that logistics starts with materials

suppliers, goes through the organization then to the end users.

Students and future researchers in related studies will find the study a very useful

guide. Besides, the research findings can provide the basis for further studies.

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1.7 Scope of the Study

The study examines performance of physical distribution service activities (or logistics

activities) and its relationship to customer service and customer satisfaction. It looks at

the role and purpose of physical distribution service activities in terms of the

achievement of the customer service and customer satisfaction objectives.

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 Enugu 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 NBC.

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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

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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).

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REFERENCES

Armstrong, G. and Kotler, P. (2009), Marketing: An Introduction, 9th ed., New Jersy:

Pearson Prentice Hall.

Bertowitz, EN, Kerim, R.A., Hartley, S.W. and Rudelins, W. (2000), Marketing, 6th

Ed., USA: The McGraw Hill Companies Inc.

Boone, L.E. and Kurtz, D.L. (2004), Contemporary Marketing, 11th ed., USA:

Thomson, South Western.

Cravens, D.W. and Woodruff, R.B. (2001), Marketing, USA: Addison – Wesley

Publishing Company, Inc.

Coyle, J.J. and Bardi, E.J. (2000), The Management of Business Logistics, 2nd Ed.,

Minnesota: West Publishing Co.

Coyle J.J. Bardi, J.E., and Largely C.J. (2003), The Management of Business Logistics: A

Supply Chain Perspective, 7th Ed., Canada: South Western: Thomas Learning.

Mentzer, J.T, Games, R. and Krapfel, R.E. (2009), “Physical Distribution Service: A

Fundamental Marketing concept?”, Journal of the Academy of Marketing

Science, Volume 17, Number 1, Winter, 53-62.

Meritem Research (2008), www.securities.com/.../company-profile/...Nigeria Bottling

Company, Accessed 16 March, 2011 by 9.45pm, 8-10.

Morden, A.R. (1993), Elements of Marketing, 3rd Ed., London: DP Publishers Ltd.

OECD (2000), “Transport Logistics; shared solutions to common challenges, Journal

of Business Logistics, Volume 22, Number 1, Winter, 10-15.

Kotler P. (2006), Marketing Management: Analysis, Planning and Control, 5th Ed.,

New Jersey: Prentice Hall

Perreault, W.D., Cannon, J.P. and McCarthy E.J. (2010), Essentials of Marketing: A

Marketing Strategy Planning Approach, 12th Ed., New York: McGraw-

Hill/Irwin.

Rushton, A. Croucher, P. and Baker, P. (2006), The Handbook of Logistics and

Distribution Management, 3rd Ed., Great Britain: Kogan Page Limited.

Shewe, C.D and Hiam, A. (1998), The Portable MBA in Marketing, 2nd Ed., New

York: John Wiley & Sons Inc.

Wilson, R.M.S. and Gilligan, C. (1997), Strategic Marketing Management: Planning,

Implementation and Control, 2nd Ed., Oxford: Butterworth – Heinemann.

Wagner, S.M. (2011), “Supply Chain Risk Management” Journal of Business Logistics,

Volume 22, Number 1, May, 15-20.

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CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.0 Introduction

Distribution is one of the longest standing subjects of study in Marketing. Physical

distribution is one of the two arms of distribution while the other is channel of

distribution. Ironically, the concept of physical distribution as a component of overall

customer service remains ambiguous. One aspect of the more generic concept of

marketing customer service is the ability to provide time and place utility, termed

“physical distribution”. The importance of physical distribution in marketing as stated

earlier cannot be over emphasized. Generally speaking, all marketing effort which has

been put behind the product fails if the potential buyers do not find it on hand when

they are buying.

Unprecedented competition as a result of trends and changes in market structures,

technology and innovations, on one hand and the changes in customer needs and

expectations on the other hand, has created renewed interest in physical distribution

management.

This literature review seeks to re-establish the physical distribution construct and its

dimensions/indicators by integrating the existing knowledge of physical distribution

activities and its dimensions, customer service and customer satisfaction. The plan of

this review is to provide a detailed physical distribution management structure for

implementation within a company. In order to clarify the concept of physical

distribution, the review started with conceptual framework, and the definitions of

physical distribution. It proceeded to the role and importance, the management of

physical distribution activities, customer service and customer satisfaction and so forth.

2.1 Conceptual Framework

A conceptual framework is defined by Miles and Huberman (1994:18) as something

that explains either graphically or in narrative form, the main things to be studied-the

key factors, constructs or variables – and the presumed relationships among them. The

conceptual framework draws on theories, models and concepts of physical distribution,

firstly to show that physical distribution is a fundamental marketing concept and

secondly to give guide to the present study.

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2.1.1 Physical Distribution Concept

Physical distribution is responsible for actual movement of products in such a way as to

accomplish the goal of providing place and time utility.

Physical distribution provides place utility by moving goods from points of surplus to

points where demand exists and time utility by making goods available when they are

demanded. Place utility is primarily created through transportation and time utility is

created through proper inventory maintenance and the strategic location of goods and

services. Transportation may also play a role in time utility creation by quicker

movement of goods to a point of demand. Thus, quicker transportation can be a

substitute for warehousing. Therefore, physical distribution involves the integration of

two or more activities for the purpose of planning, implementing and controlling the

efficient flow of raw materials, in-process inventory and finished goods from point-of-

origin to point-of-consumption. These activities may include, but are not limited to;

transportation, warehousing and storage, inventory control, order processing, material

handling, distribution communication etc [National Council of physical Distribution

Management (NCPDM)].

2.1.2 Physical Distribution Systems Concept

The physical distribution (PD) systems concept says that all transporting, storing and

product handling activities of a business and a whole channel system should be

coordinated as one system that seeks to minimize the total cost of distribution for a

given customer service level, Perreault to et al (2010:275). This systems approach to

physical distribution management results in lower costs and better customer service

which help to increase customer value and customer satisfaction.

The study made use of the conceptual models of physical distribution activities and

customer service/ satisfaction which are shown below in figure 2.1 and 2.2. The

conceptual PDS/customer satisfaction model, figure 2.3 was developed for this study

based on the two models.

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FIGURE 2.1

Conceptual Customer Service/Satisfaction Model

Adopted from Mentzer et al (2009) pp. 59

Rakowski (1982) in Mentzer et al (2009) suggested three approaches to organizing the

area of customer service (physical distribution being considered a part of overall

customer service). These approaches were based on (1) time-phasing (2) operational

attributes and (3) functional areas. In the operational attributes approach, Rakowski

separated the more objective performance measures (speed, availability, accuracy,

consistency and product performance) from the more subjective customer expectation

and perception measures (convenience, flexibility, personalized attention, and

information). While the performance measures may be easily measured by a selling

firm, the customer’s expectations and perceptions are of critical importance.

Conceptually, in the Vendor Activity Domain, physical distribution service is a family

of activities with associated performance measures (figure 2.1).

In the customer Response Domain, physical distribution service is a multidimensional

construct with perceptual performance indicator(s) for each dimension.

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Figure 2.1: Shows physical distribution service with dimensions and indicators of each

dimension. The dimensions are:

1. Product availability: It is measured by its indicators, namely: (a) Percent units

filled, (b) percent order lines 100 percent filled, and (c) percent order 100

percent filled.

2. PDS timeliness: It is measured by its indicators, namely: (a) mean order cycle

time, (b) standard deviation of order cycle time, and (c) percent units received

in specified time period.

3. PDS quality: It is measured by its indicators, namely: (a) Percent units received

in acceptable conditions, (b) Percent units are correct units, and (c) percent units

are in correct quantity:

4. PDS flexibility: It is measured by its indicators, namely: (a) flexible order

policies (b) expedite and substitute capacity, and (c) timely response to

unexpected needs of customers. This fourth dimension is not shown in the

figure but it is being considered as critically important in modern physical

distribution service.

This involves a management culture which recognizes that customer will have special

needs and service breakdown will occur and that fast resolution can, in the final

analysis, cement customers’ loyalty (Zemke 2001).

2.1.3 Physical Distribution Service (Customer Service) Concept

The objective of physical distribution management (PDM) is the minimization of total

cost with the maximization of time and place utility in goods (Coyle and Bardi

2000:338).

Early work in the field was concerned with the realization of cost savings. But this cost

savings was unconstrained while physical distribution service levels provided an

inherent constraint upon physical distribution system. Physical distribution costs, i.e.,

transportation, warehousing, inventory, order processing, etc., are directly related to the

level of service provided. No reasonable cost reduction decision can be implemented

without consideration being given to the level of physical distribution service necessary

for a company to retain its competitive position in the market place. As the physical

distribution service matures, physical distribution service level is being viewed as a

variable that can differentiate the product in the market place and thereby improve upon

the product’s competitiveness. The physical distribution management teams are now

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being called upon to develop physical distribution service levels in light of its sales

effect and corresponding cost. Physical distribution service variable is made up of

dimensions viz: product availability, PDS timeliness, PDS quality and PDS flexibility.

Each of these dimensions, individually affects customer satisfaction.

Figure 2.2: Conceptual Model of Physical distribution Activities

Adopted from Rushton, Croucher, and Baker (2006) pp. 7

Rushton et al (2006:7) showed key components of physical distribution indicating the

activities and decisions. Customers, however, are barely interested in these underlying

activities and decisions. They are interested in the results. Specifically, customers are

concerned with the duration of the order cycle and its consistency, the efforts required

to place an order, and the time and psychic energy wasted in seeking order progress

reports when order cycle time is uncertain (Perreault and Russ 2004). These activities

such as transportation, warehousing, inventory control, order processing are, on their

own, of no relevance to the buyer. However, the quality and timeliness of their

performance is. The component indicators of physical distribution are, therefore only

those elements which measure how the product was supplied in terms of the customers’

time, place and indirectly form utility (Mentzer et al (2009).

Location of warehouses Number and size of distribution depots Type of storage Materials handling equipment

Storage, warehousing and

Design of system Control

Information and control

Packaging and

unitization

Unit load Protective packaging

Transport Inventory

Mode of transport type of delivery operation load planning route

What to stock Where to stock How much to stock

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The synthesis of the two conceptual models-customer service/satisfaction model and

physical distribution activities model into physical distribution service/overall customer

satisfaction model is depicted in figure 2.3 below.

Model Developed for the study

The model served as guides in our hypothesis formulation and subsequent data

collection. The model as structured in the figure above shows the relationships

hypothesized among three sets of variables-physical distribution activities, physical

distribution service and overall customer satisfaction.

The independent variable, physical distribution activities is expected to have significant

positive relationship with the dependent variable, physical distribution service as a

whole. The independent variables, physical distribution service variables – product

availability, PDS timeliness, PDS quality and PDS flexibility are individually expected

to have positive significant relationship with dependent variable overall customer

satisfaction.

2.1.4 Customer Satisfaction Concept

Customer satisfaction is an abstract concept and the actual manifestation of the state of

satisfaction will vary from person to person and products/service to product/service

because the state of satisfaction depends on a number of both psychological and

physiological variables which correlate with satisfaction behaviours such as customer

loyalty and product repurchase. (Chu, 2002:285).

Figure 2.3: Conceptual PDS / Overall Customer Satisfaction Model

+

+ + +

+

Product Availability

PDS Timeliness

PDS Flexibility

PDS Quality

Overall Customer Satisfaction

Perceived PDSPDSActivities

Transportation

Warehousing

Inventory Control

Order Processing

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Customer satisfaction is a person’s feelings of pleasure or disappointment resulting

from comparing a product’s perceived performance in relation to his or her expectation

(Rotler 2003:61). He pointed out that customers always estimate which offer will

deliver the most value because customers are value-maximizers within the bounds of

search costs, and limited knowledge, mobility and income. They form an expectation of

value and act on it. Whether or not the offer lives up to the value expectation affect

both satisfaction and repurchase probability. In accord with the above, Nadube

(2010:192), opined that costumer satisfaction can be defined as a measure of how

products and services supplied by a company meet or surpass expectations. Customer

satisfaction results from the realization of high levels of value from a company’s

products and services compared to those of the competitors (Lovelock and Wirtz,

2010:300). Kotler et al (2007:144) say that customer satisfaction depends on a

product’s or service’s perceived performance in delivering value relative to buyer’s

expectations. Thus, expectation and perception underpin the concept of customer

satisfaction (Kotler, 2003:61). Patterson, John and Spreng (1997) argue that satisfied

customers are perceived as indispensable means of creating sustainable advantages in a

competitive environment.

2.1.5 Overall customer satisfaction Concept

Alasiri and Cole (2001:88), say that customer satisfaction comprises a number of

different facts of the relationship with a customer. For example, it can refer to any or all

of the following:

- Satisfaction with the quality of a particular product or service

- Satisfaction with an ongoing business relationship

- Satisfaction with the price-performance ratio of a product or service

- Satisfaction because a product/service met or exceeded the customer’s

expectation

- Etc.

The achievement of customer satisfaction in all of the above areas leads to overall

customer satisfaction. Thus, overall customer satisfaction is a measure of customer

satisfaction in all aspects of the company business.

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2.2 Empirical Studies

The role of physical distribution service in the marketing mix has been the focus of

several studies over past years. Early in the twentieth century, Shaw (1915) in Mentzer

et al (2009:1) classified business activities into three great divisions. (1) The activities

of production which change the form of materials (2) The activities of distribution

which change the place and ownership of the commodities thus produced and (3) the

facilitating activities, which aid and supplement the operations of production and

distribution. According to Mentzer et al (2000:54) from 1960s to date, four distinct

categories of PDS research have emerged: (1) identification of elements of PDS (2)

determination of the cost effects of providing PDS (3) normative discussion of how

PDS should be measured and managed, and (4) empirical investigation of the impact of

various PDS packages on demand. Most of the works contained in these categories

have sensitized management to the cost implications of PDS and partially explored the

contribution PDS makes to the overall marketing mix. However, the indicators that best

measure its multiple dimensions, have not been developed. For this reason, this study

which falls under category three is an attempt in this direction. This study gives a brief

synopsis of some empirical studies of the relationship between elements of PDS and

attitudes, behavioral intent, sales and profits undertaken by several researchers.

A.C. Nelson Inc (Progressive Grocer 2000) found out that nearly half of all customers

faced with a stock out would prefer switching brands to shopping elsewhere or

returning at a later time.

Schary and Becker (2002) reported the effects of a regional beer strike in which stock

outs occurred in selected brands using brand share as the dependent variable. Stock outs

effects were judged to be more short-run than long run.

Walter and Grabner (2005) developed a model of consumer reaction to retail stock outs

and tested it with 1, 433 shoppers. Average stock out revenue losses and consumer

reactions were identified for single and multiple stock outs. In a follow-up study,

Walter and Lalonde (2005) found that upon first stock out 14% of consumers switched

stores and after a second stock out 40% switched stores. Correspondingly, 64%

switched brands after one stock out while only 25% did so following a second stock

out.

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Heskett et al (2003) found out that suppliers do not have accurate perceptions of the

PDS they and their competitors provide but customers do have accurate perceptions of

PDS received. Order cycle time variation is more important to customer satisfaction

than average order cycle time and improved PDS resulted in increased sales and profits

for certain companies.

Gilmour (1997) examined the service provided by the major suppliers in the scientific

instrument and supplies in Australia. Each respondent was shown a list of 17 customer

service elements and asked to rank order the five most important for this industry. The

average importance of each of the nine most mentioned elements was noted for all

customers, for all suppliers and for each of the five types of customer organizations.

The five most important customer service element for all customers were availability,

after sales service, delivery reliability, delivery time and technical competence of the

representatives. It was observed that there were some differences of ranking by

segments which indicate a possible benefit for applying different customer service

policies in different segments. There were also enormous differences between supplier

responses and customer responses to support need for this type of research.

Of ten (10) studies considered to establish the relative importance of physical

distribution (customer service) elements, six ranked various elements which affect the

purchase decision (PDS being one), three ranked just the elements of PDS and one

study ranked both (Mentzer, et al 2009:57).

All of the elements considered in the studies were listed and points were given each

based on where it was ranked in each study (each first place occurrence five points,

each second place four points and so on). The sum of these points provided the total

ranking of PDS elements within customer service in table 2.1 and the ranking of only

the PDS elements in Table 2.2

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TABLE 2.1

Importance of physical Distribution Service in Supplier

Evaluation and Purchase Decisions

Total Points

11 Delivery Reliability

10 General Physical Distribution Service

6 Delivery Time

5 Product Availability

32 Total Physical Distribution Service

31 Quality and Price

10 Sales Services and Policy

7 Technical Ability

4 Warranties

4 Facilities

Source: Mentzer et al (2009) pp. 57

TABLE 2.2

Importance of Individual Physical Distribution Elements

Total Points

13 Percent Lines Filled

12 Order Cycle Time

11 Order Cycle Variability

5 Accuracy in filling Orders

Source: Mentzer et al (2009) pp. 57

The results of table 2.1 suggest that across multiple products and industries, physical

distribution remains an important element in supplier evaluation, customer perception

and satisfaction, and the resulting purchase decision.

The results of table 2.2 suggest that the major dimensions of PDS are availability,

timeliness, and quality. Mentzer et al (2009) say that these dimensions can be

represented by the following indicators in-stock rate and percent orders, units and lines

filled for the availability dimension, consistent delivery, lead time, average time, order

cycle time reliability and maximum order cycle time for the timeliness dimension, and

maximum damage in transit and order-filling accuracy for the quality dimension. An

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equivalent vendor activity domain indicators for each dimension can be developed for

availability, percent unit filled, percent order lines 100% filled, and percent order 100%

filled, for timeliness; mean order cycle time, standard deviation of order cycle time and

percent units delivered in specified time period and for quality; percent items delivered

in acceptable condition, percent of units which are correct items and percent items are

in correct quantity.

The result of this review indicates that these PDS dimensions and indicators are some

what numerous across products and firms. The result also indicates that the conceptual

model may be reduced to reflect only the three major dimensions which have been

derived from the customer’s perceptive and which also have quantifiable performance

indicators (figure 2.1). Mentzer et al (2009) advise that in the interest of more accurate

measures and in the exploratory nature of the research, the items given above could be

used for both the physical and perceptual domains.

The academic significance of these studies to this research is as a support for the

overall importance of PDS in marketing mix and an excellent ranking of PDS factors.

There is also practical significance to these findings as well. The basic theme of the

PDS literature is that companies must manage their PDS performance by managing

their PDS activities. And this is the major thrust of this research and the remaining part

of the review will be devoted to physical distribution management.

2.3. Theoretical Discourse

The theories and concepts underlying the conceptual models are discussed throughout

the remaining part of this chapter. The discourse dwell majorly on theories and

concepts on performance of PD activities because it determines the level of PDS and

customer satisfaction. It starts off with definition of PD, goes on to role and importance

of PD in marketing strategy, PD management activities and their interrelationships.

2.3.1 Definition and Scope of Physical Distribution

The growth in the importance of physical distribution has witnessed a corresponding

growth in the number of associated names and definitions that are used. According to

Rushton et al (2009: 4) some of the different names that have been applied include:

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Physical distribution management

Logistics Management

Business Logistics Management

Marketing Logistics

Procurement and Supply

Supply Chain Management;

Distribution and Materials Management and there are several others.

There is no general name or definitive definition offered, because physical distribution

can and do differ dramatically from one industry, company or product to another. So

these many terms are used interchangeably in literature and in the business world.

According to Rushton et al (2006:4) Physical distribution or logistics is concerned with

physical and information flows and storage from raw material through to the final

distribution of the finished product. They explained that supply and materials

management represent the storage and flows into and through the production process,

while distribution represents the storage and flow from the final production point

through to the customer or end user. They noted that a major emphasis is now placed

on the importance of information as well as physical flows and storage, and an

additional and very relevant factor is that of reverse logistics – the flow of used

products and returnable packaging back through the system. Figure 2.4 illustrates these

different elements and flows.

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Figure 2.4: A Physical distribution or logistics configuration of an FMCG Company

showing the key Components, the major flows and some of the different logistics

terminologies.

Adopted from Rushton, Crouncher and Baker (2006) p. 5.

The question of the most appropriate definition of physical distribution or logistics is

always an interesting one. There are a multitude of definitions to be found in the

textbooks and on the internet. There is still confusion about the definition of physical

distribution or logistics. Some of the confusion can be traced to the fact that there are a

number of terms that are used by individuals or organizations when they refer to

logistics or PD as earlier mentioned.

Logistics management is the most widely accepted term and encompasses logistics not

only in the private business sector but also in the public/government and non-profit

sectors. In addition, service companies including banks, hospitals, restaurants, hotels

and so on have logistics challenges and issues and logistics management is an

appropriate form for the service industry.

Some of the definitions are:

Physical distribution or logistics is the term describing the integration of two or more

activities for the purpose of planning, implementing and controlling the efficient flow

of raw materials, in process inventory and finished goods from the point of origin to the

point of consumption. These activities may include, but are not limited to, customer

Key Transport Information Raw material

Components

Packaging items

Product sourcing

Imported

material

Production process Sub-assembly work-in-

Packaging Utilization

Finished goods inventory

warehouse

Depots Distribution

End

use

rs

Supply Materials management Distribution

Suppliers Logistics Customers

Supply side

Upstream

Inbound

Demand side

Down stream

Outbound

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service, demand forecasting, distribution communications, inventory control, material

handling, order processing, parts and service support, plant and warehouse site

selection, procurement, packaging, return goods handling, salvage and scrap disposal,

traffic and transportation and warehousing and storage (National Council of Physical

Distribution Management 2001:105).

Logistics is the management of all activities which facilitate movement and the

coordination of supply and demand in the creation of time and place utility”. (Hesket,

Glaskowskeyadlvie, 2000)

“Logistics is the art and science of managing and controlling the flow of goods, energy,

information and other resources”. (Wikipedia, 2006)

“Logistics management is the planning, implementation and control of the efficient,

effective, forward and reverse flow and storage of goods, services and related

information between the point of origin and point of consumption in order to meet

customer requirements” (Council of Logistics Management USA).

Logistics is the positioning of resource at the right time, in the right place, at the right

cost, at the right quality. (Chartered Institute of Logistics and Transport (UK) 2005).

Logistics involves the integration of information, transportation, inventory,

warehousing, materials handling and packaging (wikipedia.org). According to the

Council of Supply Chain Management Professionals (CSCMP 2009) logistics contains

the integrated planning, control, realization and monitoring of all internal and network

wide materials.

It is important to recognize that logistics owes its origin to the military who have long

recognized the importance of logistical activities for national defence. The logistics

concept began to appear in the business related literature in the 1960s under the label of

physical distribution which had a focus on the out bound side of the logistics system.

The business or commercial approach to logistics developed into inbound logistics

(materials management to support manufacturing or operations) and outbound logistics

(physical distribution of finished goods to support marketing during the 1970s and

1980s. In the 1990s the process was developed even further to encompass not only the

key functions within an organisation’s own boundaries, but also those functions outside

that also contribute to the provision of a product to a final customer. This is known as

supply or demand chain management. The supply chain concept recognizes that there

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may be several different organisations involved in getting a product to the market place.

Thus manufacturers and intermediaries within the supply chain should act together in

partnership to help create a logistics pipeline that enables an efficient and effective flow

of the right products through to the final customer.

According to Rushton et al (2006), a supply chain consists of three types of entities,

customers, a producer, and the producer’s suppliers. The extended supply chain

includes customers’ customers and suppliers’ suppliers. Supply chain management

oversees and optimizes the processes of acquiring inputs from suppliers (purchasing)

converting those inputs into a finished product (production), and delivering those

products – or outputs to customers (fulfillments). Coyle, Bardi and Langley (2003)

noted that supply chain management requires a collaborative, coordinated flow of

materials and goods through the logistics system of all the organisations in the network.

This study adopted the functional management perspective of PD or logistics as

contained in NCPDM definition. It highlights the scope of PD and enabled the

researcher examine how the various activities are managed for optimal performance of

the PD system. Optimal performance implies being cost effective while providing

adequate level of customer service.

2.3.2 Role and Importance of Physical Distribution in Marketing Strategy

Physical Distribution (PD) primarily is moving goods from origin to destination.

Marketing strategy planning is based on meeting customers’ needs better than the

competitors. It seeks to create a differential advantage within target segments by which

a distinct competitive position relative to other companies can be established and from

which profit flows. Delivering the right goods to the buyers at the right time and at the

lowest possible cost is an important aspect of every good marketing program.

According to Onah and Thomas (2004:381) the functions of physical distribution can

be classified into four major areas.

1. Location of distribution centres: these may be company owned centres, public

warehouses or centralized distribution centres where products are stored for a

longer periods.

2. Development and maintenance of an inventory control system.

3. Development and maintenance of an order-processing system and a customer

service department.

4. Determination of the best transportation method.

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Wilson and Gillingan (1997:5) said that the way in which a differential advantage

might be achieved and sustained is via the manipulation of the elements of the

marketing mix: product, price, promotion and place. Final price of products are affected

to a large extent by the PD activities. Companies selling products provide a discount

schedule for larger purchase quantities. Also transportation companies provide a price

discount schedule for shipping larger volumes. Efficient warehousing and

transportation systems can exploit these discounts and lower their operations costs and

final product price for their customers.

Product size, shape, weight, packaging and other physical dimensions affect the ability

of the logistics system to move and store products. These affect the transportation

company or modes that a company can use, equipment needed, damage rates, storage

ability and many other logistics aspects. These factors determine logistics costs and

affect the final price of the product.

Promotional effort to stimulate sales should consider logistics so that sufficient

inventory quantities will be available for distribution to the customers.

Physical distribution or logistics provides the means by which the product can reach the

customer or end user timely, in the appropriate condition and required location. Moving

and storing materials and goods throughout the distribution network require that PD

managers make decisions about facilities, inventory, transportation, communications

and materials handling and packaging. The PDM concepts recognize that these

activities must be integrated and coordinated to perform effectively and efficiently the

distribution function because their costs are interrelated. A company can achieve cost

or service differential advantage or both by emphasizing PD in the marketing strategy

planning.

Coyle et al (2003: 33) explain

Good logistics is business power …. because it helps build competitive

advantage. At the end of the day if you cannot get your products to your

customers, you will not stay in business very long. This is not to say that you do

not need quality products and effective marketing. Both are obviously very

important, but they must be combined with effective and efficient logistics

systems for long run success and financial viability.

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It can be inferred from the above explanation that poor logistics systems can destroy an

otherwise good product. Though logistics provides place and time utility, it is also a

prerequisite for possession utility to be realized.

According to Srinivasa and Saurabh (2009:5) over the last few decades the role of

logistics management has undergone a paradigm shift. It is widely recognized as an

extremely important aspect of the overall business strategy.

PD or logistics activities are very expensive. But PDM seeks to minimize the costs of

distribution while providing adequate level of customer service. PDM ensures that costs

and customer satisfaction are optimized. There is no point in making large savings in

the cost of distribution if, in the long run, sales are lost because of customer

dissatisfaction. Similarly, it does not make economic sense to provide a level of service

that is not really required by the customer and leads to erosion of profits. The

cost/service balance is a basic challenge that faces PD managers.

It is therefore possible for companies to compete on the basis of providing a product

either at the lowest possible cost so that the customer will buy it because it is the least

expensive or at the highest possible value to the customer, if it is exactly where and

how the customer wants it. Some companies may try to use both strategies because

there are many products that are not sold on the basis of their brand name alone but also

on the basis of availability or price, like soft drinks. A company may compete as a

service leader where it is trying to gain an advantage over its competitors by providing

a number of key service elements to differentiate itself for a value advantage, this might

include the provision of specially tailored service or the use of several different

channels of distribution so that the product is available in the market place in a number

of different ways. Or a company may compete as a cost leader where it is trying to

utilize its resources so that it offers the product at the lowest possible cost, thus gaining

a cost advantage. For a cost advantage, this will include a number of different means of

cost minimization, such as maintaining very low levels of inventory and ensuring that

all manufacturing and distribution assets are kept at a high utilization. A company may

also compete as cost and service leader where it develops differently configured

logistics structures to cater for the variety of service offerings that it needs to provide

for its different segments.

As noted in European Logistics Association (ELA) Survey (2004): “One-size-fits-all

policies will rarely work when applied to modern, diverse service offerings …. Leading

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companies are segmenting their supply chains according to service and cost needs of

the customer”.

How PD functions are performed affects the other three Ps especially price. This can

also make or break the marketing strategy.

2.3.3 Physical Distribution Management Activities and their Interrelationship

Business logistics management covers the planning, organizing, and controlling of such

activities as transportation, inventory maintenance, facility location, order processing,

purchasing, warehousing, materials handling, packaging, customers service standards

and product scheduling. It provides the basic decision making tools and concepts used

for finding cost reduction and strategic opportunities.

Moving and storing materials throughout the supply chain require that managers make

decisions about facilities, inventory, transportation, order processing, communications,

and materials handling and packaging. Physical distribution management concept

recognizes that these activities must be integrated and coordinated as a system to

perform properly the distribution function because they are interrelated and

interdependent. Instead of each activity operating independently, the group of activities

should be managed as a system because their costs are interrelated. Attempting to hold

individual costs down may cause the total cost to skyrocket.

The activities are interrelated in the following ways:

1. Transportation: It is responsible for the physical movement or flow of

materials and goods in the supply chain. The logistics or PD manger is

responsible for selecting the modes of transportation used in moving the raw

materials and finished goods or for developing private transportation as an

alternative. We shall see how these decisions are made in relation to other

activities.

2. Warehousing: Warehousing involves storage and inventory management. A

relationship exists between transportation and level of inventory and the number

of warehousing required. If a company uses a relatively slow means of

transport, it will usually have to keep higher inventory levels and will usually

have more warehousing space for this inventory.

3. Packaging: The packaging of a product is broadly determined for product

promotion and product protection. The protection function is particularly

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pertinent to physical distribution. In addition to protection, when designing

packaging for logistics purposes, packages should be easy to handle, convenient

to store, readily identifiable, secure and of a shape that makes best use of space.

The type of transportation selected affects packaging requirements both for

moving the finished products to the market and for the inbound materials. For

example, rail or water transportation requires additional packaging expenditures

because of greater possibility of damage. In analyzing trade-offs for proposed

changes in transportation modes, PD manager must examine how the change

will influence packaging costs.

4. Materials Handling: Materials handling is concerned with the movement of

goods into a warehouse, the placement of goods in a warehouse and the

movement of goods from storage to order picking areas and eventually to dock

areas for transportation out of the warehouse. Materials handling is usually

concerned with mechanical equipment for short distance movement. Such

equipment includes conveyors, forklifts trucks, overhead cranes and containers.

Packaging or container must be compatible with materials handling designs and

materials handling designs must be coordinated so that the company may find it

economical to use the same forklift trucks in the plants and in the warehouse.

5. Order Processing: Order processing consists of activities involved with

completing customer orders. A company might examine improvement

obtainable by using telephone calls and more computer equipment for

processing to reduce order cycle time. This might allow the firm to use much

cheaper transportation and still gets the goods to the customer within the

stipulated time (Coyle et al 2003:50).

6. Forecasting: Demand forecasting is used to estimate what the future

requirements for a product might be so that it is possible to meet customer

demand as closely as possible. Forecasting thus helps the inventory holding

decision process to find answers to questions about what to stock, how much to

stock and what facilities are required (Rushton et al 2006:213). They said all

mistakes in forecasting end up as an inventory problem – whether too much or

too little.

7. Production Scheduling: Production schedule involves the determination of

units necessary to ensure adequate market coverage. Once a forecast is

developed, and the current inventory on hand and usage rate are assessed, the

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production manager can determine his production schedule; the number of units

necessary to ensure adequate market coverage and plan his inventory and

transportations.

8. Customer Service Level: Customer service level refers specifically to a firm’s

standards for performance in speed and reliability in making products available

to customers. Coyle et al (2003: 24) noted that customer service has three

recognized levels from a supply chain and logistics perspective viz the

minimum level is reliable, on time delivery, and accurately filled orders. They

explained that the basic level of service is necessary to retain customers and in

order to increase sales with customers it is necessary to be responsive to their

specified needs and requests. Hence the second level which may entail

scheduled deliveries, advanced shipment notices and so on. To sustain and grow

market share, they said the third and highest level of customer service is

required, namely adding value to important customers which may include

services like vendor – managed inventory, collaborative planning, forecasting

and decision making. Informed decisions about inventory, transportation and

warehousing ensure product availability and enhance customer service.

9. Inventory Management: Inventory consists of raw materials and parts, work-

in-progress, and finished goods located at production site and at various points

in the distribution channel. Many problems can occur with inventories including

stock-outs, incorrect inventory mix and excess inventory.

Inventory problems usually involve too much or not enough items in stock. Too

much stock leads to excess expenses in carrying inventory and too little stock

reduces customer service and creates customer dissatisfaction. Adequate levels

of inventory are carried to reduce delays in producing and distributing products,

provide flexibility in production scheduling and ordering materials, parts and

finished goods. Inventory is also carried to have available products when and

where buyers want to purchase them and also to take advantage of economies of

scale in purchasing bulk quantities.

10. Communication: Communication plays a critical role in the physical

distribution system considering the many organisations, individuals and

functions involved in moving raw materials and finished goods from suppliers

to producers and from producers to end-users respectively. Information

processing equipment such as telecommunication and computers are being used

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to speed up information flow through the distribution network and to monitor

various aspects of physical distribution flows such as inventory levels, shipping

status, scheduling and so on. A critical function of the communication flows in

the channel of distribution is order processing, whereby the customer’s purchase

order is transmitted by paper or electronically. Technology has made electronic

order entry possible. Electronic order entry uses an electronic device to record

and transmit a customer’s order to the distribution location where the order will

be filled faster and more accurately than paper. Recently, internet facilitated

resources such as extranets and e-mail are being used for on-line, real time

transmission and processing. Also the old systems - paper, electronic data

interchange (EDI), phone and fax are being used for order processing. Order

processing function usually involves checking customer’s credit, transferring

information to sales records, shipping areas, and preparing shipping documents.

Many of these functions occur simultaneously through the effective use of

available information technologies and lead to considerable reductions in the

times needed to accomplish these activities and consequently increase customer

service level and customer satisfaction. Information can sometimes improve

service levels and lower costs at the same time because better information flows

make it easier to coordinate activities, improve efficiency and add value for the

customer (Perreault, Cannon and McCarthy 2010: 275)

11. Plant and Warehouse Site Location: Plant and warehouse site location is

very vital to physical distribution. Transportation cost is usually a very

important factor in deciding on a location. Coyle et al (2003:52) pointed out that

a location change could alter place and time relationships between plants and

markets. They explained that such changes could affect transportation rates and

services, customer service, inventory requirements and possibly other areas.

Consequently, the PD manager is quite concerned about location decisions.

12. Procurement: Procurement also known as purchasing and supply, is among the

key links in the supply chain and as such can have a significant influence on the

overall success of an organization. The rationale for this influence is that

transportation cost relates directly to the geographic location or distance of raw

materials purchased for a company’s production needs.

Rushton et al (2006: 236) pointed out that ensuring that there are sufficient

supplies of raw materials at the right price, of the required quantity, in the right

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place and at the right time is obviously crucial to any manufacturing plant. The

quantities purchased would affect the logistics costs in terms of transportation

and inventory costs.

13. Other Activities: Other activities such as parts and services support, return

goods handling, salvage support and scrape disposal are integrated in the

logistics system and managed to ensure high customer service. These areas are

affected by transportation and storage decisions.

2.3.4 Objectives of Physical Distribution Management

The two major objectives of physical distribution management are:

1. Achieving a high level of customer service and

2. Keeping the total cost of physical distribution as low as possible given customer

service objectives (Cravens and Woodruff 2002: 926).

For most companies, the main objectives of physical distribution are to decrease costs

while increasing customer service. In the real world, however, few distribution systems

manage to achieve these goals. This is because the large inventories and rapid

transportations essential to high levels of customer service drive up costs, and reduced

inventories and slower, cheaper transportation methods that will decrease costs result in

low levels of customer services and cause customer dissatisfaction. According to

Armstrong and Kotler (2009:344) the goal of marketing logistics should be to provide a

targeted level of customer service at the least cost.

The level of service is important because it ensures that channel members, including the

ultimate consumer will be satisfied. But as the service level is improved, the cost of

distribution increases. Thus, physical distribution decisions involve a trade-off between

minimizing total distribution costs and maintaining a satisfactory level of service

(Schewe and Hiam 1998: 371). Costs of providing service are minimized most

effectively through the total cost approach, which evaluates the costs of the system as a

whole rather than as a collection of separate activities (Pride and Ferrelll 2001:419).

They explained that cost trade-offs must often be used to offset higher costs in one area

of distribution with lower costs in another area. Cost trade-offs are strategic decisions

to combine and recombine resources for greatest cost effectiveness.

A company’s failure to provide the desired level of service may mean the loss of

customers. The starting point for setting physical distribution objectives is to study

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what the customers want and what competitors are offering. Customers require a

variety of services. At the most basic level, they need fair prices, acceptable product

quality, and dependable deliveries (Guelzo 2001:32). He said further that customers

seeking a higher level of customer service may also want sizeable inventories, efficient

order processing, availability of emergency shipments, progress reports, postsales

services, prompt replacement of defective items and warranties.

A company has to research on the relative importance of these services to customers. It

must also look at competitors’ service standards in setting its own. It must match those

standards at least when the costs of providing the services can be balanced by the sales

generated. But going a step further can provide a competitive advantage (Schewe and

Hiams 1998:371). The higher costs of providing more services must be studied

carefully because the overall objective is to maximize profits not sales, he concluded.

Finally, the company has to establish the physical distribution objectives to guide its

planning. For instance, Coco-cola wants to “put coke within an arm’s length of desire”.

The company should go further and define standards for each service factor. Services

are provided most effectively when service standards are developed and stated in terms

that are specific, measurable and appropriate for the product e.g. 98 percent of all

orders filled within forty eight hours (Pride and Ferrell 2001: 399). Standards should be

communicated clearly to both customers and employees and rigorously enforced.

2.3.4.1 Total Cost Analysis and Cost Trade-offs Concepts

The concept of total cost analysis is that a firm should identify and evaluate all costs

that will be impacted by any logistics system design.

Two important and related concepts to systems approach of physical distribution

concept are total cost analysis and cost trade-offs concepts.

The effect of a change in PD system is usually measured by some criterion such as cost

and the emphasis is upon the total cost of the system. We maximize product by

reducing the total cost of the system through cost-to-cost trade offs. When a change is

made in one part of the system it usually affects other variables. If the initial change

represents an increased cost then we may be trading-off against decreased costs in other

variables or vice versa so that overall costs are reduced.

Profit maximization is a vital concern and is usually the most important objective for

overall efficiency of any company. Physical distribution has to contribute to the overall

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profitability of the company without undermining the customer service standards. This

is achieved by cost minimization through total cost analysis and costs trade-offs for a

given or improved level of customer service.

Logistics costs can be grouped into two categories:

1. Transportation based, and (2) inventory based (Bowerson et al 2001). These costs

interact, creating opportunity for cost-to-cost trade-offs. Thus, selected increased

expenditure for transportation services may significantly reduce inventory

expenditures. A trade-off is positive if inventory associated costs are reduced by a

greater amount than transportation cost was increased. For instance, with the use of air

transportation, the total cost of transportation is greater, but all costs associated with

inventory and warehousing are significantly reduced.

The overall objective of any service policy should be to improve customer service just

to the point at which increased sales will be negated by increased distribution costs

(Pride and Ferrell 2001: 399).

2.3.5 Customer Service

Customer service is generally seen as a product component hence forms part of the total

offer to the customer. Kotler (2000: 374) defines service as any activity that has value

to a buyer. Services are intangible, perishable and often have to be consumed at the

point of production, hence are more often seen as a component of the physical

distribution element in marketing because these services are delivered at the point of

exchange transaction with the customer or consumer. The constituents of what forms

service elements are numerous but companies determine which elements are relevant to

their own businesses. There is a general agreement on the following customer service

elements as most highly rated among companies.

Product availability

Order cycle time/reliability

Order/delivery frequency

Back order procedures

Return goods policy

Extension or adjustment could be made on the list to suit the unique customer service

requirements of companies by determining which elements are relevant to their own

business environment.

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In order to facilitate a comprehensive overview of customer service, the National

Council of logistics management categorized customer service elements into three

levels namely;

1. Pre-transaction elements

2. Transaction elements

3. Post-transaction elements

Pre-transaction elements are the services the customers expect to benefit from even

before the actual transaction while the post-transaction elements are those the

customers also expect to benefit from after the transaction as shown in figure 2.5

Figure 2.5: Elements of Customer Service

Source: Rushton et al (2006)

2.3.6 Determining customer service requirements

A starting point is to know what happens in that industry. However, Ward (1989:413)

in Nwaizugbo and Nnabuko (2010: 95.96), advised that differentiating one’s service

level to the customer away from the normal level supplied by the industry can affect the

financial return achieved by the business. He says the change may be relatively small or

it can be quite dramatic and has very far reaching implications for the competitors.

This shows that it is not the industry practice, but the customers themselves that should

be the basis for determining the service requirement.

CUSTOMER SERVICE

Pre-Transaction elements 1. Written customer service

policy. 2. Single order contact point 3. Method of ordering 4. Order size constraints 5. Organizational structure 6. System flexibility

7. Technical services.

Transaction element s 1. Stock out level 2. Ability to back order 3. Order Cycle time 4. Delivery time 5. Delivery reliability 6. Delivery of complete

order 7. System Accuracy 8. Transshipment 9. Order conveniences 10. Product substitution.

Post-transaction elements 1. Installation warranty,

alterations, repairs part 2. Product tracking 3. Customer claims

complaints 4. Product packaging 5. Temporary replacement of

product during repairs.

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El-Ansary and Stern (1990) suggest that the determination of customer needs and

requirements should be the starting point for formulation of channel strategy.

La- Londe (1985) in Nwaizugbo and Nnabuko (2010:96) provides a six-step customer

service model that will help to operate a customer-driven distribution system as shown

in figure 2.6.

Figure 2.6: A Customer Service Model

1. Customer Service Audit

2. Establish Customer Service Standard

3. Test Cost Sensitivity of Standard

4. Implement Standard

5. Development Reporting System

6. performance Evaluation

Source: Nwaizugbo and Nnabuko (2010)

The figure shows that any meaningful customer service oriented physical distribution

system must start with identifying the customer needs through a customer service audit.

The service standard is established based on the customer needs followed by the

analysis of its cost implication. At the implementation stage the aim is to achieve the

highest service standard at the minimum cost. Then performance evaluation and

periodic review of standards and programmes are made with a view to updating the

system.

However, it is not easy to assess and determine accurately the desired level of customer

service. According to Parasuraman, et al (1995: 46) there could be a gap between

various levels of consumer services perception, management perception of customer

expectation and also customer expected service.

Therefore, they suggested that a gap analysis was necessary in order to identify the

causes of service quality short fall. They designed a conceptual model of service quality

that highlights the various areas of possible shortfalls.

Periodic Review of Standards and Programmes

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The model shows five possible areas a gap can occur. The areas are

Gap 1: Management perception of customer expectations and customers

expected service.

Gap 2: Management perception of customer expectations and service quality

specifications.

Gap 3: Service quality specifications and service delivery.

Gap 4: service delivery and external communications to customers.

Gap 5: Consumers perceived service and the consumers expected service.

Parasuraman et al went on to suggest that these gaps are interrelated to the extent that it

may not be possible to close one if others are not closed. The model provides a good

approach to the analyses and identification of the customer’s expected service level as

shown in figure 2.7.

Figure 2.7: Conceptual Model of Service Quality.

Gap 3

Source: Parasuraman, A. Zeithaml, V. A. and Berry L. L. A. (1985) “Conceptual

Model of Service quality and its implications for future research”, Journal of

Marketing. 1,149:44

Work-of mouth communication Personal needs Past Experience

Expected Service

Perceived Service

Service Delivery

External communications

to customers

Service Quality Specifications

Management perceptions of

customer Expectation

CUSTOMER

PROVIDER

Gap 4

Gap 3

Gap 1

Gap 2

Gap 5

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According to Anyanwu and Nwokah (2008:49) perceptions are always considered

relative to expectations because expectations are dynamic evaluations which may also

shift over time from person to person and from culture to culture. They stated that what

is considered as quality service or what satisfies customers today may be different

tomorrow. Hence, discussion on quality and satisfaction is based on customers

perceptions of the service not predetermined objective criteria of what is or should be.

2.3.7 The Importance and Measurement of Customer Service

The importance of customer service is very often affected by substitutability of

products. If a product is one that is similar to other products, then consumers may be

willing to substitute a competitive product if a stock out occurs. Therefore, customer

service is more important for highly substitutable products than situations where

customers may be willing to wait or back order a particular product. This means that

the more substitutable a product is, the higher the level of customer service that is

required. Products in soft drink industry are highly substitutable that higher level of

customer service is required.

The growth of competition, the raising of customers’ expectations and the similarity of

basic products that are offered make customer service so important in determining the

final demand for a product. Customer service only represents a small percentage of the

cost of a product. Thus, true to pareto 80/20 rule, it is estimated that product surround

(augmented product) or logistics elements represent about 80 percent of the impact of

the product but only represent 20 percent of the cost (Coyle et al 2003:34).

No matter how attractive the product may be, it is essential that the customer service

elements are satisfactory. And logistics plays a crucial role in providing good customer

service which is captured in the definition of PD or logistics as positioning of resources

in the right place, at the right time, at the right quality, at the right cost. The definition

is explained into what is called the seven “rights” of customer service. These are the

right product in the right quantity to the right customer in the right place at the right

time in right condition and at the right cost. All of these different aspects are key

requisites of a good customer service offering. Each of them is essential to ensure a

product achieves its expected sales in the various markets where it is made available.

All of these elements are affected by the standard and quality of the logistics operations

that are integral part of getting a product to market. Hence, these elements can provide

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the basis for identifying the different aspects of logistics that should form part of any

customer service offering. Also, these elements should become the basis of the key

measurements that are used to monitor operational success or failure of logistics.

According to Coyle et al (2003: 101) the four traditional dimensions of customer

service from a logistics perspective, time, dependability, convenience, and

communication, are essential considerations in developing a sound and effective

customer service program.

Time is usually order fulfillment cycle time.

Dependability involves guaranteed fixed delivery times of accurate, undamaged orders.

Communication entails ease of order taking, and queries response while convenience or

flexibility involves the ability to recognize and respond to a customer’s changing needs.

They recommended these dimensions of customer service to be used as the underlying

basis for establishing standards of performance for customer service in the logistics

areas. They expanded the four elements in a format that are used by companies in

developing customer service policy and performance measurement standards. The

format is shown in figure 2.8 below.

Figure 2.8: Elements and measurement of customer service

Element Brief Description Typical

Measurement

(Units)

Product

availability

The most common measure of customer

service. Usually defined as percent in stock

(target performance level) in some base unit

(i.e order, product, dollars).

% availability in base

units

Order cycle

time

Elapsed time from order placement to order

receipt. Usually measured in time units and

variation from standard or target order cycle.

Note: frequently, product availability and order

cycle time are combined into one standard. For

example, “95 percent of orders delivered

within 10 days”

Speed and

consistency

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Distribution

system

flexibility

Ability of system to respond to special and/or

unexpected needs of customer. Includes

expedite and substitute capability

Response time to

special requests

Distribution

system

information

Ability of firm’s information system to

respond in timely and accurate manner to

customers’ requests for information

Speed, accuracy and

message detail of

response

Distribution

system

malfunction

Efficiency of procedures and time required to

recover from distribution system malfunction

(i.e., errors in billing, shipping, damage,

claims)

Response and

recovery time

requirements

Postsale

product

support

Efficiency in providing product support after

delivery, including technical information,

spare parts, or equipment modification, as

appropriate

Response time,

quality of response

Adopted from Coyle, Bardi and Langley (2003)

Though service is hard to measure, it is readily apparent to everyone. The

empowerment of front line employees to use their best judgement to make on-the-spot

decisions greatly facilitates high quality performance.

Service breakdown will occur occasionally in spite of the established standards and

empowerments. Customer service leaders when confronted with breakdowns or

unexpected situations, typically exhibit what has been referred to as an ability to make

brilliant recoveries (Hart, Heskett and Sasser 1990: 148-156). A brilliant recovery is a

resolution to a service breakdown in which the service provider takes extraordinary

efforts to meet customers’ requirements. A brilliant or “immaculate” recovery involves

a management culture which recognizes that service breakdowns will occur and that

fast resolution can, in the final analysis cement customer’s loyalty (Zemke 2001).

2.3.8 Customer Satisfaction

Customer satisfaction construct occupies a significant position in marketing literature.

Marketing scholars and practitioners agree that customer satisfaction serves as a strong

predictor of variables such as repurchase intention, positive word-of mouth and

customer loyalty.

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Customer’s satisfaction research is mainly influenced by the “disconfirmation

paradigm” This paradigm explains the concept of customer satisfaction. It states that

a customer’s feeling of satisfaction is a result of comparison process between

perceived performance and expectation .A customer will be satisfied when the

outcome of the service or product meets his or her expectations(confirming).If the

product or service performance is more than his expectations, the customer is very

satisfied and delighted (positively disconfirming). Contrarily, when the perceived or

expected service or product performance is below or less than his expectations, we can

strongly say that the customer will be dissatisfied (negatively disconfirming).

Although most scholars agree on the disconfirmation paradigm , the nature of

satisfaction remains ambiguous .On one hand , satisfaction clearly arises from a

cognitive process comparing perceived performance against some comparison

standard while on the other hand , the feeling of satisfaction essentially represents an

affective state of the mind .Consequently , some satisfaction scales tap the cognitive

dimension of satisfaction, while others capture its affective dimension (Andreas and

Wolfgang 2002:107-118).The above mentioned facts lead to the broad definition of

customer satisfaction which incorporates both the cognitive and affective process and

few other definitions.

Customer satisfaction is defined as “An emotional response to the use of a product or a

service: and it is also a complex human process, which involves cognitive and affective

process, as well as other psychological and physiological influences” (Chu, 2002:285).

Kotler et al (2007:144) say that customer satisfaction depends on a product’s or a

service’s perceived performance in delivering value relative to the buyer’s

expectations. If the performance of the product or service does not correspond to the

customer’s expectations, the buyer is dissatisfied. If performance matches expectations,

the buyer is satisfied. If the performance exceeds expectations, the buyer is highly

satisfied or delighted. “Customer satisfaction is customers’ overall evaluation of the

purchase and consumption experience with a product, service or provider” (Johnsson

and Gustafson, 2000: 50).

2.3.8.1 Drivers of Customer Satisfaction

Many scholars have come up with many factors as to what should be the major drivers

of customer satisfaction. Drivers of customer satisfaction are those factors which

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influence people’s level of satisfaction. Some of the key drivers to customer

satisfaction are:

� Perceived value (Pv)

� Quality

� Customer’s Expectation.

Perceived Value: This is the perceived level of product quality relative to the price

paid by the customers. PV is the rating of the price paid for the quality perceived and a

rating of the quality perceived for the price paid. PV structure provides an opportunity

for comparison of the firms according to their Price –Value ratio. It means the measure

of quality relative to the price paid .Although price (value for money ) is often very

important to the customers first purchase, it usually have a smaller impact on

satisfaction for repeat purchases.

Quality: Customer satisfaction is a measure of the quality of a product or service.

Quality may be defined as customers satisfaction with the quality of the goods or

services purchased and used. Quality can also be defined as “The totality of features

and characteristics of a product or service that bears on its ability to satisfy stated or

implied needs. (Kotler et al 2007: 146). The perceived quality should have a direct

effect on satisfaction. As a psychological phenomenon, satisfaction is a function of a

customers quality experience with a product or service .. This quality experience

consists of two primary components :i) the degree to which a product or service

provides key customer requirements, (customisation) ii) how reliable these

requirements are delivered (reliability). The greater the perceived quality is the greater

the customer satisfaction.

Customers Expectation: Customers expectation is a measure of the customer’s

anticipation of the quality of a company’s products or services. Expectation represents

both prior consumption experience, which includes some non-experiential information

like advertising, word-of-mouth, and a forecast of the company’s ability to deliver

quality in the future.

2.3.8.2 Factors that Influence Customer’s Expectations

Recognition of the factors that influence customer’s expectations will help

products/service providers to provide services or products that meet customer’s

expectations. When consuming a product or service, consumers are likely to be

satisfied according to the levels of their needs fulfillment. Based on the Maslows

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hierarchy of needs, some researchers have classified the needs into satisfiers and

dissatisfiers (Herzberg 1970) or lower-order and higher-order needs (Wolf, 1970) cited

in pignier (2005:35). Depending on the classification of the needs , many theories of

needs satisfaction arose , such as Wolfs needs gratification theory that assumes that

satisfaction /dissatisfaction will ensue from lower-order needs if theses are not

fulfilled and that once they are unconditionally fulfilled, satisfaction/dissatisfaction

will ensue from higher-order needs fulfillment. In addition, Parasuranman et al

(1995:25) outlined four key factors that shape customers expectations

1. Word-Of-Mouth: The first factor which potentially determines customer’s

expectation is the word of mouth he or she has heard from other customers.

2. Personal needs: The second factor that influences customer’s expectation is the

customer’s personal needs. These are customers’ physical, moral and mental

situations or state.

3. Prior experience: The customer’s prior experience towards the use or

consumption of a particular product or services often influences his

expectations.

4. Advertisement/external communication: Customers expectations are also

influenced by external communications. This communications contain all direct

and indirect messages sent from supplying organisations to the customer.

2.3.8.3 Customer Satisfaction Index (CSI).

Measuring customer satisfaction is a positive step by organisations seeking to ensure

its existence in the competitive environment .This is because one key to customer

retention is customer satisfaction. According to Kotler et al (2007:145), a highly

satisfied customer generally stays loyal longer, buys more of the company’s products,

upgrades existing products, talks favourably about the company and its products ,

pays less attention to competing brands and is less sensitive to price, offers product

or service ideas to the company, and costs less to serve than new customers because

transactions are routine.

Customer satisfaction represents a measure of company’s performance according to

customers needs (Hill et al 2003 as cited by Ode et al 2011:26). Therefore, the measure

of customer’s satisfaction provides a service quality measurement done by the use of an

economic indicator called the Customer Satisfaction Index (CSI).

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Customer satisfaction index is all about the measurement of the different attributes that

are believed to contribute to customer’s satisfaction. It is a more direct measure for

service quality evaluation on the basis of the user/consumer perceptions on service

aspects expressed in terms of importance rates, compared with the user/consumer

expectations expressed in terms of satisfaction rates. Since different attributes can

contribute differently to the overall customer satisfaction, the individual attributes are

weighted to reflect this reality. The concept of customer satisfaction was introduced in

the field of market research as a measure of perceived service quality. In this field

many customer satisfaction techniques have been developed among these include the

best known and widely applied technique the SERVQUAL method proposed by

Parasuraman et al (1988). The SERVQUAL method introduced the concept of

customer satisfaction as a function of customer expectation (what the customers expect

from the service or product) and perceptions (what the customer receives).The method

was developed to assess customer’s perceptions of service quality in retail and service

organisations. In the method, five service quality determinants and twenty two items for

measuring service quality are defined.

The Service Quality Determinants are:

Reliability: Ability to perform the promised service accurately and dependably

Responsiveness: Willingness to help customers and provide prompt services

Assurance: Knowledge and courtesy of employees as well as their ability to convey

trust and confidence.

Empathy. Individual care and attention which a company provides to its customers.

Tangibles: Physical facilities, equipment and appearance of personnel-communication

materials

22 SERVQUAL Attributes (Service Quality Attributes)

Reliability

Providing service as promised

Dependability in handling customer’s service problems

Performing service right the first time

Providing service at the promised time

Maintaining error free record

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Responsiveness

Keeping customers informed as to when services will be performed

Prompt services to customers

Willingness to help customers

Readiness to respond to customer’s requests.

Assurance

Employees who instil confidence in customers

Making customers feel safe in their transactions

Employees who are consistently courteous

Employees who have the knowledge to answer customers questions

Empathy

Giving Customers individual attention

Employees who deal with customers in a caring fashion

Having the customers best interest at heart

Employees who understand the needs of their customers.

Convenient business hour

Tangibles

Modern equipments

Visually appealing facilities

Employees who have a neat , professional appearance

Visually appealing materials associated with the service.

Source: Kotler et al 2007.413-414

SERVQUAL provides an index that is calculated through the difference between

perceptions and expectation rates expressed for the items, weighted as a function of the

five service quality dimensions embedding the items. Studies have shown that

reliability is the most important dimensions followed by the process factors

(responsiveness, assurance and empathy) and tangibles the least. All these factors are

distinguished by their influences on meeting expectations.

2.3.9 Physical Distribution Decisions

According to Onah and Thomas (2004:381) a PD-system is composed of three major

components.

i. A set of fixed facilities at which goods are produced or inventories are stored

ii. A set of inventories of goods

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iii. A transportation network connecting the fixed facilities to one another as well as

to the customer receiving points.

Kotler (2001: 555), stated that the four major decisions to be made with regard to

market logistics are:

1. How should orders be handled? (order processing);

2. Where should stocks be located? (Warehousing);

3. How much stock should be held? (Inventory); and

4. How should goods be shipped (Transportation).

Stanton (2000:356), stated that an effective physical distribution system is built around

five parts or subsystems and there is much interaction and interdependence among

them. Consequently, each part must be carefully coordinated with the others to ensure

higher customer service level.

These subsystems are:

1. Inventory control

2. Transportation

3. Inventory locations and warehousing

4. Order processing and

5. Materials handling

These subsystems correspond to Kotler’s four major decision areas except that

materials handling is added which is justified by emphasizing the special role of

packaging in making transportation decisions.

The major decision areas or PD subsystems constitute the total PD costs. According to

Kotler (2000:591) the main elements of total physical distribution costs are:

1. Transportation (46 percent), warehousing (26 percent), inventory carrying (10

percent), receiving and shipping (6 percent), administration (4 percent) and order

processing (3 percent). Management has become concerned about the total cost of

physical distribution which amounts to 13.6 percent of sales for manufacturing and

25.6% for reseller companies (Lalonde and Zinser 1990). Marketing practitioners and

theorists believe that substantial savings can be effected in the physical distribution area

which has been described as “the last frontier for cost economies” (Parker 1962: 15-

21).

The need for coordination of PD decisions is based on high costs involved and the

substantial cost saving potentials they have and their tremendous effects on customer

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service and customer satisfaction. Physical distribution decisions, when uncoordinated

result in high costs and customer dissatisfaction. Hence, the need to use modern

decision tools such as inventory control models, transportation models etc for

coordinating inventory levels, transportation, plant, warehouse and store locations.

Besides, there should be policies guiding physical distribution decisions. Ehikwe

(2002:77) observes that the formulation and implementation of policies facilitate the

accomplishment of the goals and objectives of an organization. The PD decision areas

are examined as follows:

2.3.9.1 Inventory Control

A key activity in any PD system is maintaining control over the size and composition

of the inventories. Inventory represents a sizeable investment for many organisations.

The goal of inventory control is to minimize both the investment and the fluctuations in

inventories which militate against filling customer’s orders promptly and accurately.

According to Morden (1993: 181), inventory is held for three main reasons, the first is

the achievement of marketing objectives for customer service; the second aim is the

protection of production processes from variations in demand, so that production levels

may be stabilized despite demand fluctuations around the planning norm or forecast.

The third aim is to permit the manufacture or supply of items in economic quantities.

Inventory size is determined by balancing market demand and costs. Market demands

on inventory are anticipated through sales forecasts. Inventory costs include:

a. acquisition costs; that is the cost of making or buying the products to put in

inventory and

b. Carrying or holding costs – warehousing, interest on investment, losses due to

spoilage and pilferage, inventory taxes and so on. Inventory size is also determined

to a large extent by the desired level of customer service. That is, what percentage

of orders does the company expect to fill promptly from inventory on hand?

Inadequate inventory causes stock-out. Stock-out conditions result in lost sales, loss

of customer goodwill and often loss of customers. Nevertheless, to be able to fill

100 percent of the orders promptly may require an excessively large and costly

inventory. Related to the size question (how much stock to be held?) is the need to

establish the optimum quantity to re-order (make or buy), when it is time to

replenish inventory stocks. The size of replenishment orders affects inventory level

to be maintained at various stocking points (Sharma 2007: 606). He says large order

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quantities may reduce the frequency of orders to be placed to procure inventory

items and reduce the total ordering cost but this decision will increase the cycle

stock inventories and cost of carrying inventories. Any decision on replenishment

order size, he advised, should provide economical trade-off between relevant

inventory costs, viz ordering, carrying and shortage costs. This is stated in terms of

economic order quantity (EOQ).

EOQ is the optimal replenishment order size of inventory item or items which achieve

the optimum total inventory cost during the given period of time.

This is determined by the equation

Q * (EOQ) = 2DCo = 2 x Annual demand x ordering cost

Cc Carrying cost

EOQ is also determined graphically as shown in figure 2.9. Inventory Cost Curves.

Figure 2.9 shows inventory carrying cost curve rising, the larger the size of order and it

also shows the cost of ordering falling, the larger the order size. If the two costs are

summed into a total inventory curve, the optimum order size is given by this curve’s

lowest point, the answer to the question how much to order is given by the point Q*

Figure 2.9: Inventory Cost Curve

Adopted from Wilson and Gilligan (1997)

N

Co

st p

er u

nit

0

Ordering costs per unit

Total inventory cost per unit

Inventory carrying costs per unit

Q* Order quantity (units)

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The EOQ minimizes the supplier’s stock holding and order processing costs as shown

in figure 2.9

The reorder point is given by rate of usage per day multiplied by lead time ie

The reorder point (in units)

= rate of usage (units per day) x lead time (days) + safety stocks (in units)

Besides EOQ model, there are other inventory control models such as Materials

Requirement Planning (MRP), Distribution Requirement Planning (DRP) and Just-in-

Time (JIT) inventory Models. The JIT inventory model may be stockless. The

operations of these models are discussed below.

2.3.9.1.1 Material Requirement Planning and Distribution Requirement Planning

MRP and DRP systems are developed as sophisticated computerized planning tools that

aim to make the necessary materials or inventory available when needed. Materials

requirement planning is an inventory control technique for determining dependent

demand for manufacturing supply (Coyle et al 2003: 26). It is a computerized system

for forecasting materials requirement based on a company’s master production schedule

and bill of material for each product. MRP is a principle of production scheduling

which is based on the premise that if one knows what product needs to be produced,

then one should also know how many constituent parts are required in order to make

the product. If we need more than one, which is usually the case, then we would simply

multiply the various requirements for one product by the number required. This

represents our bill of requirements and orders could be placed with suppliers for the

required quantities and delivery times agreed. The master production schedule is a list

of all the products or services to be supplied within a specific period of time. The

schedule is made up of forecast demand and actual known demand i.e. customers’

orders. The schedule also lists the required output from the system and when the goods

and services are required through the use of a “due dates”. Hence the content of the

schedule will dictate the contents of the bill of requirements.

DRP systems operate by breaking down the flow of material from the source of supply

through the distribution network of depots and transportation modes. DRP uses

forecasts demand from master production schedule as inputs for the planning. It is done

on a time-phased basis to ensure that the required goods “flow” through the system and

are available as and when required at the right time, place and condition.

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2.3.9.1.2 Just-in-Time (JIT) and Stockless Distribution

Just-in-time is an inventory supply system that operates with very low inventories and

requires fast, on-time delivery. Physical distribution is increasingly carried out now on

a just-in-time (JIT) basis. Just-in-time model is based on the concept of carrying out

operational and supply activities only as and when required, according to the pull of

demand from the customer. With JIT system, activities are scheduled so that each stage

in the value generating process delivers exactly the quantity and quality required to

allow the next stage to proceed to the eventual satisfaction of the current level of

customer demand. Consequently, there should be minimal stocks and work-in-progress

held throughout the production, supply and physical distribution system.

Morden (1993:185) opines that JIT requires the precise scheduling of raw materials and

subassembly purchasing, production or supply planning, manufacturing, physical

distribution and delivery to the customer. He explains that orders will only be

manufactured or supplied once they have been received. And the only finished goods

stocks will be those in transit to the customer or the minimum safety stock required by

distributors to avoid short term stock-out. He says the basic philosophy underlying JIT

is that:

a. Materials or components should be delivered to the factory just in time to be

used;

b. production or processing should be completed just in time for the goods to be

sold or delivered to the customer;

c. Physical distribution systems should be sufficiently sensitive and flexible to

permit a just in time response to meeting customer demand, minimizing

inventory levels held throughout the channel of distribution but avoiding the

incidence of stock-out.

The implementation of JIT philosophy ensures that inventory levels and the working

capital they represent are significantly reduced. Stock outs are avoided by organizing

suppliers, manufacturers and distributors on a teamwork or partnership basis to make

deliveries as and when required to meet the current level of customer demand while

keeping minimal or even zero stock in the process. Suppliers, manufacturers and

distributors will have to guarantee the quality they are required to deliver through

systems of Total Quality Management (TQM) because there is no room for faulty

products or ineffective physical distribution through late delivery, damaged goods or

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loss of freshness since there may be no buffer or safety stock to prevent a stock-out

occurring.

2.3.9.2 Transportation

The transportation system is the physical link connecting a company’s customers, raw

materials suppliers, plants, warehouses and channel members, all of which represent the

fixed points in a logistics supply chain. The fixed points in the logistics system are

where some activities temporarily halt the flow of goods in the logistics pipeline.

Consequently, the transportation carriers used to connect these facilities affect not only

the transportation cost but also the operating costs of the facilities and the prices paid

by the ultimate users of the products.

The transportation carrier a company utilizes to perform the link service is a decisive

factor in determining the efficiency of operating the supply chain facility and partially

determines the company’s competitive edge and product demand in a given market area

(Coyle et al 2003: 338). They also posited that the transport methods dependability and

the degree of safe delivery also affect the inventory levels held at a facility, the

utilization of materials handling equipment and labour, and the time and cost of

communicating with the carrier to determine shipment status or to seek reparation for

goods damaged in transit. Hence, as with any logistics activity decision, vendor price

(carrier rate) is not the only selection criterion the company considers. Thus

management must decide on both the particular carriers and the form of transportation

to use.

Morden (1993: 186) states that the choice of transportation modes is a function of some

variables which include the following:

- customer service objectives for place and frequency of availability

- volume and distance

- product life

- containment type

There are various transportation modes available and each has specific advantages

within the context of the contribution of the PD system to meeting customer service

objectives. Kotler (2006) identified six transportation modes which are:

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• Air

• Rail

• Road

• Water

• Pipeline

• Multiple mode

He also stated that every mode has unique advantages and disadvantages.

Air is cost effective over long distances for low volume, high unit value items requiring

rapid delivery. Rail is cost effective over intermediate to long distances for high volume

loads of low or high unit value. Road is cost effective over short to intermediate

distances for a wide variety of unit load type and has the critical advantage of flexibility

and reliability because it is not dependent on fixed routes like rail or air. Water is cost

effective for low unit value, high volume loads not requiring rapid delivery like coal,

iron ore, steel and so on. Pipeline transportation is not suitable for general commodity

transportation. Its use is restricted to the movement of liquid petroleum products and it

is best suited for them.

The choice or usage of any mode varies according to company’s needs and factors to be

considered. For example, if a company wants quick delivery to customer, it has to put

many things into consideration – the destination, the volume or weight of the product,

availability of air port, time factors and carrier costs. The company chooses air if these

considerations meet set criteria otherwise it chooses road. In some cases, a combination

of different modes is used. For example, petroleum is transportated to the depot through

pipeline and from there trucks (road) pick up the loads to the various filling stations.

Also products can be loaded on trucks at the seller’s warehouse and driven to rail road

where the truck’s trailers are carried on rail road flat cars (piggyback). The product

need not be handled again until they are unloaded at the buyer’s receiving stations. This

combination of services provides more flexibility than rail road alone can offer, results

in lower freight costs than trucks alone and less handling of the goods. The loaded

trailers can as well be carried on barges or ships (fishyback). Then at the other end of

the water trip, the trailers are trucked to the receiving station. A company may

outsource part or all the transportation activities to third party logistics providers.

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2.3.9.2.1 Third Party Logistics

Third party logistics is an arrangement in which a firm with long and varied supply

chains outsources its logistical operations to one or more specialist firms, the third party

logistics providers.

Third party logistics provider (3PL or TPL) is a firm that provides service to its

customers of outsourced (or “third party”) logistics services for part or all of their

supply chain management functions.

They specialize in integrated operation, warehousing and transportation services that

can be selected and customized to customer’s needs based on market conditions and the

demands and delivery service requirements for their products and materials.

In business, third party logistics has a wide meaning which can be applied to any

service contract that involves storing or shipping things. A 3PL services may be a

single service such as transportation or ware house storage or it can be a system-wide

bundle of services capable of managing the entire supply chain. Then the provider is

called third party supply chain management provider (3PSCM) or supply chain

management service provider (SCMSP)

Hertz and Alfreds (2003) described four categories of 3PL providers:

1. Standard 3pl provider: This is the most basic form of a 3pl provider. They

perform activities such as pick and pack ware housing and distribution- the most

basic functions of logistics.

2. Service developer: This type of 3pl provider offers their customers advanced

value-added services such as; tracking and tracing, cross docking, specific

packaging, or providing a unique security system. Hertz and Alfredsson pointed

out that a solid IT foundation and a focus on economies of scale and scope will

enable this type of 3pl provider to perform this type of task.

3. The customer adapter: This type of 3pl provider comes in at the request of the

customers and takes over complete control of the company’s logistics activities.

The 3pl provider improves the logistics dramatically, but does not develop a

new one. The customer base is usually small.

4. The customer developer: This is the highest level that a 3pl provider can attain

with respect to its processes and activities. This occurs when the 3pl provider

integrates itself with the customers and takes over their entire logistics

functions. The provider usually has few customers but perform extensive and

detailed tasks for them.

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However, Murray (2011) identifies three types of Third Party Logistics Company that

operate today.

Viz:-

1. Asset Based

2. Management Based

3. Integrated Providers.

Asset based third party logistics companies make use of their own trucks, ware houses

and personnel to operate their business.

Management based companies provide the technological and managerial functions to

operate the logistics functions of their clients but do so using the assets of other

companies and do not necessarily own any assets.

Integrated providers can either be asset based or management based companies that

supplement their services with whatever services are needed by their clients.

2.3.9.2.2 Selecting a Third Party Logistics (3pl)

Decision to use a third party logistics depends on different factors and varies from

business to business. The decision to outsource certain business functions will depend

on the company’s plans, future objectives, product lines, expansion, acquisitions and so

forth.

Once a decision has been made to outsource certain functions, then a company will

begin a search for the right 3pl that fits all their requirements at the best possible price.

The company should send out the request for information (RFI) or request for quotation

(RFQ). The RFI must include a thorough description of the areas to be outsourced.

Murray (2011) pointed out that this should usually include;

• The scope of the contract, including locations, facilities, departments.

• Information on volumes involved; number of deliveries, warehouse sizes, number

of items, etc.

• The logistics tasks that are to be performed, e.g. warehousing, transportation, etc.

• The level of performance required.

After the bids have been received by a company from the prospective 3PL, an

evaluation would take place where a multi-discipline team will review each bid based

on the pre-defined set of criteria. Usually top two or three companies are selected. The

3pl that is finally selected after site visits; face to face interview should be able to fulfill

all the logistics requirements.

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3. Inventory Location & Warehousing

Warehouses provide the physical space for storing inventories. According to Craven

and Woodruff (2001: 419) warehousing does the following:

- Achieves production and transportation economies

- Enables quantity purchase discounts

- Maintains a source of supply

- Supports customer service policies

- Hedges against changing market conditions

- Overcomes time and space differentials that exist between producers and

consumers.

According to Lambert and Stock (2000:182), warehousing helps accomplish the

development of an effective physical distribution system.

Warehousing and inventories are closely interrelated because one requires the other. A

company must make decisions regarding the size, location, handling and transportation

of inventories. Decision making in these four areas are interrelated. For example,

decisions on the number and locations of inventory sites influence decisions on

inventory size and transportation methods.

Effective PD system requires sound warehouse management. Warehouse management

involves a number of important decisions, including ownership, number, size, stocking

and location. That is what type, organisation, how many, what size, what products and

where. These basic warehouse decisions are made in a trade-off framework. According

to Boone and Kurtz (2004: 458) two categories of costs influence warehouse decisions:

1. Warehousing and material handling costs and

2. Delivery cost from warehouses to customers.

The total cost, including the service impact on lost sales, is the criterion used to make

the decisions. For example, having many warehouses increases services provided to the

customer because the product is located closer to the customer. However, the trade-off

is higher warehousing, inventory and transportation costs. The total cost will be the

determining factor. Another important decision is on whether the company should own

private (or lease) warehouses or use public warehouses. Many companies combine

public and private warehouses because of market conditions. The company will also

decide on whether to centralize or decentralize warehousing. This implies deciding on

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how many warehouses to use. A centralized inventory can be smaller in total size, can

be better controlled and is more responsive to unusual requests. That means efficiency

is increased. On the other hand, centralizing the stock often means higher total

transportation charges and slower delivery to some segments of the markets.

Decentralizing the inventory presents the other side of the coin on each of these points.

Surprisingly, according to Coyle et al (2003: 288) modern practice – decreasing a

system’s number of warehouses is becoming the preferred way to meet the same needs.

They pointed out that warehouse building and operating costs are great and that in

reducing the number of warehouses, a company can eliminate those unproductive

facilities that incur wasteful costs. Combining the utilization of fewer warehouses with

a reliable transportation system can improve customer service and lower transportation

costs through consolidation opportunities.

Closely related to how many warehouses should be in the network is the question of

where or location of the warehouses. A company must examine location in a trade off

perspective such as high service facilities near markets or raw materials mixing close to

suppliers. The company must choose the one that must achieve desired level of

customer service at the least possible logistics costs.

2.3.9.3.1 The Distribution Centre (DC) Concept

The establishment of one or more distribution centres may be an effective inventory

location strategy. Such centres are planned around markets rather than transportation

facilities. This will usually consist of a number of DCs on a regional or area basis and

the use of large primary (hire haul) vehicles to service these, with smaller vehicles

delivering the orders to customers (Rushton et al 2006: 137).

These depots or DCs might be Central, Regional (RDC), National (NDC) or local DCs

which will hold stock to a great extent from factories to help provide good customer

service. The basic idea is to develop under one roof an efficient, fully integrated system

for the flow of products – taking orders, filling them, and delivering them to customers.

The use of distribution centres has lowered distribution costs by reducing the number of

warehouses, cutting excessive inventories and eliminating stock-out conditions. Storage

and delivering time have been cut as a result thus buttressing the adage that companies

are in business to sell goods, not to store them.

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2.3.9.4 Order Processing

Order Processing is a set of procedures for handling and filling orders. Decisions on

order processing should specify

- the minimum size of order;

- conditions of sales and purchase;

- the system to be used to process orders;

Decisions on these areas are interdependent since the time taken to process an order

will depend on the order processing system in use, which then determines the costs of

order processing, which in turn, dictates the minimum size of order which an be

economically handled.

Stanton (2000: 360) stated that the decisions should include provisions for billing,

granting credits, preparing invoices and collecting of past-due accounts. “Consumer ill-

will can result if a company makes mistakes or is slow in filling orders”, he warned.

Order processing subsystem is an extremely important part of the PD system and is also

one of the most important components of the company’s overall management

information system. There is the need to coordinate order processing activities and

decisions in a way that both present and potential customers will have a positive view

of consistent and predictable order cycle length and acceptable response time. By

starting the process with an understanding of customer needs, companies can design

order-management systems that will be viewed as superior to those of competitors. A

company’s order-management capabilities will contribute toward producing a

competitive advantage (Coyle et al 2003: 87).

One of the modern methods used for order processing is the Electronic Point-of-Sales

Systems (EPOS) which link ordering systems with automatic stock control and stock

re-ordering systems. A further development is Electronic Funds Transfer at the Point-

of-sales (EFTPOS) which simultaneously debits the buyer’s bank account.

2.3.9.5 Materials Handling

This function is concerned with various aspects of handling products and materials

throughout the distribution system. The physical handling of goods involves inventory,

warehousing and transportation activities throughout the distribution network. For

instance, consider the number of times a crate of coke is handled as it is moved from

point of production to a refrigerator in a restaurant. From the production line it is placed

in a crate of several bottles of coke. The crate is fastened with other crates on a pallet,

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loaded by a forklift on to a trailer and trucked to a distributor’s warehousing, unloaded

and packed. After remaining in the distributor’s inventory for some time, it is picked

for loading and transport to the restaurant where the crate is unloaded and several

bottles put in the refrigerator. These simple tasks highlight the many handling tasks

involved in the physical distribution of goods.

Two important developments are making substantial contributions to materials

handling–unitization and containerization. Unitization is a cargo handling system in

which as many packages as possible are stacked onto one load or pallet and held in

place by straps or plastic sheeting. Containerization is a cargo handling system in which

several unitized loads are combined in a container specially designed for efficient

handling. The containers are then transported unopened from the time they leave the

shipper until they reach their destination. Therefore, decisions must be made about

warehouse building, equipment and packaging. The warehouse should accommodate

the use of forklift trucks, cranes, conveyor belts and other mechanized equipment to

move merchandise.

Proper equipment and package can minimize losses from breakage, spoilage and theft.

Efficient equipment and effective package can reduce handling costs as well as the time

required for handling thus increasing customer service and customer satisfaction.

2.3.10 Designing and Managing Physical Distribution System

Physical distribution system design begins with the objectives and levels of customer

service a company determines as appropriate for the market. Then to implement the PD

systems, PD manager coordinates and integrates its various components.

A company has to determine which aspects of customer service are important to

patronage and the levels of service to establish. Often these decisions are based on

considerations of several factors including past experiences, customer feedback,

competition and costs (Craven and Woodruff 2001: 427). They advised that

management must balance both the costs and benefits of customer service.

Quantifying the benefit side of customer service is more difficult. For instance, how

much is one percent improvement in the distribution system likely to increase future

sales is hard to determine. Thus, a typical approach to setting standards is to rely

majorly on judgment, experience and competition. For example, management of coca-

cola may decide that accurate order taking and undamaged delivery are far more

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important than convenience of ordering system. Once this is established, over time, a

company may adjust service levels based on experience, customer feedback,

competition and costs. The various components of PD system that must be integrated

are interrelated and have some trade-off relationships.

A major approach to balancing the costs side is to identify two or three of the major

contributors to distribution costs and then attempt to design a system that minimizes the

total of these costs for specified customer service objectives (Cravens and Woodruff,

2001: 429). This is illustrated in figure 2.10.

Figure 2.10: Relationship between Service Level and Costs

Adopted from Wilson and Gilligan (1997)

If we define level of customer service as being dependent on costs of quicker

transportation and faster order processing as well as inventory carrying cost, this will be

seen to increase as the level of customer service increases. But the loss of profit due to

lost sales (whether due to stock-outs, slow transportation, inefficient order processing

etc) reduces as the level of customer service increases. A total cost curve was derived to

identify the optimal level of customer service to offer; that is at the lowest point of the

total cost curve.

Cravens and Woodruff acknowledged that this approach is not a perfect solution but it

lowers distribution costs. They suggested that using this approach as a base over time

that further refinements could be made. According to Wilson and Gilligan (1997:506),

N

Co

st

100%

Transportation, order processing and inventory carrying costs.

Total cost

Cost of lost sales

0 Level of customer service

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the approach is helpful to a point but it risks being introspective in linking service level

purely to costs rather than to customers’ requirements. A better approach to distribution

planning is given by Doyle (1994: 330) involving the following sequence of steps:

1. Identifying the dimensions of service which customers value.

2. Weigh the service dimensions by their relative importance

3. Obtain customers’ evaluations of the enterprise and its competitors along the

dimensions specified in 2.

4. Estimate the effect on revenue of changes in the level of service.

5. Estimate the costs of providing different service levels

If one pursues this approach it is possible to derive the graph shown in figure 2.11.

Figure 2.11: Setting Customer Service Levels

Adopted from Wilson and Gilligan (1997)

Figure 2.11 shows that it is more profitable to offer a level of service (defined in terms

of ordered items being in stock) of 93 percent rather than 99 percent which is currently

being offered. However, Wilson and Gilligan (1997:507) noted that in planning the

level of service, it is important to recognize that different market segments may warrant

different levels of service, that some customers may be willing to pay high prices in

order to receive premium service; while others will accord a high priority to low price

and be willing to accept lower levels of service as a consequence.

2.3.10.1 Cost-Benefits Trade Off of Services

There is a consensus in the literature that optimum services are achieved at a point

where maximum satisfaction from services is achieved at lowest cost, and theoretically,

this is achieved where the marginal cost of providing services is equal to marginal

Maximum profit

contribution

Distribution costs

Profit curve

Revenue from service

In

crea

se i

n

cost

N

0 Service level 93 99 %

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satisfaction gained through improved service which can be measured in terms of

increase in total sales as shown in figure 2.12.

Figure 2.12: Cost-Benefits Trade-off of Customer Service

a

b

Cost for improvedservices

Sales gainedfrom improvedServices.

Present

ServicesProvided

ServicesOptimum

Overall serviceperformance

20

22

24

26

28

30

32

34

36

38

Figure 10: Cost Benefit Trade-off of Providing Service.

60% 70% 80% 90%

Source: Nwaizugbo and Nnabuko (2010)

Figure 2.12 shows the level of increase in sales gained through improved services and

also the cost of providing services. It can be seen that before point YX, a gap existed

between line ‘a’ and line ‘b’ which shows marginal gains. It can also be seen that

improving services has also improved the overall service performance from 75% to

85%. The graph shows how responsive sales can be to improved service level. It

becomes an evaluation criterion for managers as to the total amount to spend on

services and the expected satisfaction of the customers. It provides the cost benefit

implications of customer service delivery.

2.3.11 Organizational Responsibility for PDM

Different business functions participate in physical distribution. Most heavily involved

are manufacturing, transportation, purchasing and marketing. Who is or should be

responsible for physical distribution management becomes an issue. In some companies

the responsibility is assigned to a single department such as transportation, marketing

or manufacturing and in others coordinating committees are formed to manage physical

distribution.

Y

X

b

Optimum Services

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Some of the considerations for assigning responsibility for PDM include management

priorities, functions most heavily involved, needs for integration and coordination, and

step-by-step approach. That is to say that management may emphasize marketing and

assign PDM responsibility to it. And there is also some logic in assigning the

responsibility to the business function that accounts for the largest portion of

distribution costs or selecting the organizational approach that promises the greatest

opportunity for integration and coordination. Some experts recommend starting by

integrating traffic and warehousing followed in the next stage by integrating order

processing and finished goods inventory. The goal of the third stage according to

Lalonde (1990:21) should be to integrate all physical distribution activities. A

company’s choice of what to include in each stage depends on its physical distribution

situation.

Kotler (2006: 599) said that decisions on warehousing, inventory, and transportation

require the greatest coordination and a growing number of companies have set up a

permanent committee composed of managers responsible for different physical

distribution activities who meet periodically to develop policies for improving overall

distribution efficiency.

Experts agree that location of the physical distribution department within the company

is a secondary concern but the most important thing is that the company coordinates its

physical distribution and marketing activities in order to create high customer

satisfaction at a reasonable cost.

2.3.12 Barriers to Effective Physical Distribution

Many problems may be responsible for the physical distribution not functioning

effectively. The major problems fall into the categories of customer service levels,

order processing, inventory management, warehousing operations and transportation

and delivery operations (Lambert and Stock 1990: 470).

If products are not available when and where customers want them, their complaints

often indicate distribution malfunctions. Errors such as filling customer’s orders

incorrectly are costly to both the company and its customers. Errors, delays and

incomplete information on orders cause distribution problems. Many problems can

occur with inventories including stock-outs, incorrect inventory mix and excess

inventory. Inventory problems involve too much or not enough items in stock. Too

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much stock lead to excess expenses in carrying inventory and too little creates customer

dissatisfaction. Warehousing operations problems include damaging products when

stocking and loading, incorrectly filling customer’s orders, theft and incurring

excessive costs in performing warehouse functions. Transportation and delivery

operations problems may occur when goods are transported from producer to ultimate

consumer. Problem may occur because of delay, damage, theft and high transport cost.

Legal provisions such as those made on dual distribution, restricted sales territories,

exclusive dealing, and tying contracts can be a barrier to effective physical distribution

system. What the laws permit can affect the products and the choice of channel

members to be used. Laws also limit the choice of the distribution structure, whether it

will be intensive, selective or exclusive.

The state of the economy can also pose a barrier. El-Ruphia (2000), in a paper titled

“Effective Distribution of Locally Produced Items in Nigeria” believes that the

achievement of effective and efficient physical distribution system is hampered by the

unfavourable economic conditions emanating from over dependence on foreign and

imported goods. Local industries are unable to procure raw materials to continue full

production. Thus the industries are pre-occupied with production problems and have

little or no time for organisation and management of physical distribution. Generally,

there is poor service to the customers in the attempt to maximize profits.

El-Ruphia (2000) also pointed out that the inefficiency in the physical distribution of

goods and services in Nigeria is as a result of lack of clear-cut policy on physical

distribution channels. He further noted that the majority of middlemen in our society

are untrained and consist mainly of men and women who because of their financial

position and or their connections are assigned distributorship of products. Consequent

upon this lack of marketing training, they, by all means, detest competition. They prefer

monopoly status and strive for sole distributorship of products in a large area, if

possible.

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2.3.13 Physical Distribution and Channels of Distribution Interface

The aforementioned two arms of distribution are also known as the logistical channel

and the marketing channel. The two channels are highly related. The logistical channel

refers to the means by which products flow physically from where they are available to

where they are needed. The marketing channel refers to the means by which necessary

transactional elements are managed such as customer orders, billing, accounts

receivable and so on. These two channels are illustrated in figure 2.13.

Figure 2.13: Logistical and Marketing Channels

A marketing channel or channel of distribution consists of one or more companies or

individuals who participate in the flow of goods, services, information and finances

from the producer to the final user or consumer. It encompasses a variety of

intermediary firms, including those that are classified as wholesalers or retailers. This

makes coordination of channel activities inevitable. According to Boone and Johnson

(1990:226) channel coordination can be effected through the use of contractual

agreements. That is, independent firms at different levels can coordinate their activities

on a contractual basis to obtain systematic economies and market impact that could not

Logistical Channel Marketing channel

Supplier

Transportation

Manufacturer

Transportation

Distribution

center

Transportation

Retail

Store

E-Procurement

National account

sales

Wholesale/

Distributor

Retail customer

Consumer

Adopted from Coyle, Bardi and Langley (2003)

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be achieved through individual action. These firms form vertical marketing systems

(VMS) to achieve the benefits of coordination. Uncoordinated marketing channel can

mar logistical channel performance. Hence, knowledge of distribution channel

operations and decisions are critical to the success of logistical channel achievement of

marketing strategy and overall marketing objectives.

2.3.14 Distribution Channel Major Decision Areas

The distribution channel major decision areas are:

1. Formulating channel strategy,

2. Designing the channel structure,

3. Selecting the channel members

4. Motivating the channel members

5. Coordinating channel strategy with marketing mix and

6. Evaluating channel member performance.

Channel strategy looks at set of rules that would help a company achieve its channel

objectives of finding the most appropriate way of making its products available. The

strategy employed must be such that enhances realization of the overall marketing

objectives of the company. As such the channel (or place) strategy must be integrated

or consistent with the company’s product, promotion and pricing strategies. The design

of effective and efficient channel structure that will meet the company’s distribution

objectives is determined by market, product and producer factors. And the product

factors in turn determine the level of distribution intensity – intensive, selective or

exclusive - to use. Channel members selection is based on set criteria in the company

policy. Motivation of channel members includes all actions taken by a company to

secure channel members’ cooperation in helping to achieve the distribution objectives.

Then the channel strategy is coordinated with the other marketing mix variables.

Finally, channel members’ performance is continually evaluated and some degree of

control exercised over them based on theory of channel power and control.

2.3.15 Channel Power and Control

Behavioural research in channels of distribution has brought significant insights into

the process of inter firm influence. The power of channel member A, defined as the

“ability of A to control the decision variables in the marketing strategy of another

member of a given channel at a different level of distribution’, has been said to be a

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function of A’s bases of power and B’s dependence on A (El-Ansary and Stern

1990:47). This pioneering work of El-Ansary and Stern led to a model of channel

member power. Their model viewed power as a function of;

1. The extent to which the two members in a channel are dependent on each other

for satisfaction of their goals and

2. The relative bases (or sources) of each member’s powers.

Several researchers have found a significant relationship between the dependence of

channel member B on channel member A and perceptions of the power of channel

member A. They suggested that power is a type of relation in which one party A may

utilize some “force” to overcome the resistance of another party B in order to alter B’s

behaivour in accordance with the desire of A. The force that A applies on B is

suggested to accrue from the bases of power that A owns or controls. Gaski and Nevin

(2001) found that the exercise of power bases produced a more intense reaction than the

mere presence of power bases. Bases of power may be transformed into influence

strategies A uses to affect the behaviour and/or decisions of B. The use of influence

strategy by A to alter the behaviour of B does not guarantee that the desired

behavioural change would occur. Factors that affect B’s resistance may include B’s

dependence on A. The dependence of B on A is defined here as the extent to which B

relies on A for obtaining its goals and objectives. When B has a large stake in a

relationship (ie a significant proportion of sales and profits accrue from the

relationship), B is more dependent and is more likely to be tolerant of demands made

by A (Bucklin 1990).

Furthermore, when rewards achieved in a relationship are greater than those expected

in another relationship, or when few feasible alternative relationships offering

comparable rewards are available, B is more dependent on A and is more tolerant of the

demands of A (Anderson and Narus 2000). A channel member who is more tolerant of

demands made by a channel partner is less resistant to those demands and, hence, more

willing to respond to demands. As a result B is more motivated to maintain the

relationship (i.e is more dependent on A).

Channel control is accomplished by the exercise of power. Consequently, identifying

the determinants of power has been an important research objective and the outcome

has increased our understanding of vertical power relationship in distribution channel

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as in Vertical Marketing System (VMS). Nigerian Bottling Company (NBC) channel

arrangement is a Vertical Marketing System

A VMS is a marketing channel in which a single channel member coordinates or

manages channel activities to achieve efficient, low-cost distribution aimed at

satisfying target market customers (Pride and Ferrell 2001: 305). They pointed out that

because efforts of individual channel members are combined in a VMS, marketing

activities can be coordinated for maximum effectiveness and economy without

duplication of services. Bonoma and Johnson (1990) also stated that in a unilateral

power system, the powerful member designs marketing strategies and operations in

such a way that it can reduce the costs of operations and maximize profits.

Participation in a VMS is a behavioural relationship because of acknowledged

dependence (Bowersox and Cooper 1992: 104). They explained that in order to

participate in a behavioural channel system, each channel member must be willing to

accept a role. For the channel to function as a VMS, typically one of the member firms

emerges and takes on the role as a leader and controls other firms in the channel

system. The leader usually has the greatest relative power and his primary roles are to

resolve conflicts, motivate channel members, plan, coordinate and implement channel

programmes. In a nutshell, he provides direction and stability for the channel system.

The goal of leadership is to contribute to a better level of performance for either the

leader or overall channel (Frazier and Sheth 2001). Leadership position is based on

power advantage and it also depends upon the tolerance of other channel members. A

firm’s tolerance for being controlled is based on its relative position and the expectation

of enjoying higher level performance. According to Bucklin (1990) tolerance is directly

related to the firm’s dependence upon other channel members and the degree to which

performance can be improved. VMS functions as integrated combination of two or

more independent enterprises and is classified as corporate, contractual and alliance.

They are also sometimes administered on the basis of formal cohesive devices over and

above acknowledged dependence (Bowersox and Cooper 1992: 105). With the VMS,

some degree of implicit or explicit relationship exists among the firms in the channel

and firms in the channel have considerable opportunity to coordinate their activities

(Coyle et al 2003: 107). They observed that as channel members begin to collaborate

effectively on matters relating to logistics, efficient, low-cost distribution and higher

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customer service are achieved which result in customer satisfaction and profitability for

the company.

2.3.16 Reverse Logistics and its Impact on Customer Service and Customer

Satisfaction

Reverse logistics is a process of reclaiming recyclable and reusable materials, returns,

and reworks from point of consumption or use for repair, remanufacturing or disposal

(Berkowitz et al 2000: 460). The benefits of reverse logistics are the reduced amount of

waste in the physical environment and lower operating costs for the companies.

NBC emphasizes the benefits of reverse logistics and recycles over 90 percent of its

returned empty bottles and crates. By recycling over 90 percent of its returned empty

bottles from consumed drinks, NBC has kept the demand for silica and various silicates

(bottle raw materials) low, thereby holding down costs of production and costs to

consumers which increases customer service and customer satisfaction.

Also, solid waste management costs and the negative environmental impact of used

bottles in landfills are reduced.

2.3.17 Analysis and Critique of Some Existing Literature.

National council of physical distribution management (NCPDM) USA in Coyle and

Bardi (2000:5) included customer service as part of PDS activities. Clearly, the

objective of performance of PDS activities is to provide PDS- place and time utility

which is a part of overall generic marketing customer service. Therefore, customer

service is not one of the PDS activities but it is the reason for the performance of all

PDS activities. Hence the study makes a distinction between PDS activities and PDS as

depicted in the conceptual PDS/customer satisfaction model figure 2.3 developed for

the study.

Cravens and Woodruff (2001:429) and Doyle (1994: 330) provided different

approaches for setting customer service standards as shown in figures 2.10 and 2.11

respectively. Cravens and Woodruff advised us to identify two or three of the major

contributors to distribution costs and design a system that minimizes the total of these

costs to determine the customer service level. Doyle asked us to determine distribution

costs, revenue from service and profit to set the level of customer service. Both

approaches are helpful in minimizing costs of distribution. However, they are

introspective in linking service level purely to costs rather than customers’ service

requirements and competitors’ service offerings. Besides, profit is not the only

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objective for customer service. Market share gain or sustainability is also one of the

objectives and it may be a major objective in some cases. These approaches cannot be

used to determine customer service standard as a competitive tool in a competitive

environment. Hence, a conceptual market-driven customer service standard model was

developed in this study.

2.4 Summary

The chapter examined physical distribution or logistics management and its relationship

to customer service and customer satisfaction. Related literatures to physical

distribution (PD) or logistics from text books, journals, periodicals and the internet

were reviewed. The various definitions which different authors, writers and

practitioners have given to PD or logistics and its importance in moving materials, final

goods and related information from point of origin to points of consumption were

thoroughly examined.

The study utilized conceptual model of customer service/satisfaction and a conceptual

model of PD activities which shows the key components of PD as transportation,

warehousing and storage, inventory control, order processing, plant and warehouse site

location, production scheduling, etc.

There is a general consensus that these activities should be integrated, coordinated,

managed effectively and efficiently as a system for high customer service level.

Furthermore, there is a general agreement among the scholars that the more we increase

these activities, the higher the customer service level which the activities aim at

achieving and the higher the cost incurred in providing the services and that is

conversely true.

Therefore, the challenge for a manager is to achieve a high customer service level and

at the same time keep the total cost of physical distribution as low as possible for a

given customer service objectives. Cost of providing service is minimized most

effectively through total cost approach which evaluates the cost of the system as a

whole rather than as a collection of separate activities. A company’s failure to provide

the desired level of service will lead to customer dissatisfaction and loss of customers.

Consequently, the models, concepts and theories such as PD configuration of FMCC,

key components of PD, inventory models, customer services level, PDM, total cost, JIT

concepts and PD and channel power theories governing the management of the various

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PD activities in order to achieve the desired level of service and customer satisfaction at

least cost were identified and examined.

Unfortunately, all these studies treated physical distribution as mere routine activities

and in isolation of customer satisfaction. There is a compelling need to fill this gap and

the researcher hopes to do so by an integrative study which links PD and customer

satisfaction through customer service. This association with customer satisfaction will

help reposition PD as a very potent competitive tool for achieving organizational

objectives.

2.5 A Brief Profile of Nigerian Bottling Company Plc

An inquiry into the profile of NBC revealed the origin of its products. Dr. John Styth

Pemberton, a pharmacist first initiated the plans for the world’s best soft drink. He

successfully formulated Coke in the year 1886 in the town of Atlanta Georgia in the

United States of America (USA).

Dr. Pemberton’s Partner and book-keeper, Mr. Frank M. Robinson designed the

distinguishing trade mark and named it Coco-Cola. Following this remarkable feat

achieved by Dr. Pemberton and the advertising and other marketing activities by Mr.

Robinson, many countries in every part of the globe who have heard of this wonderful

drink began to have a vicious desire to taste coke.

Consequently, the Nigerian Bottling Company (NBC) Plc was incorporated in Nigeria.

Nigerian Bottling Company, the largest bottler of non-alcoholic beverage in Nigeria,

has its operations dated back to 22nd November, 1951 when it was incorporated as a

subsidiary of A.G Leventis Group and given the franchise to bottle and sell Coca-cola

products in Nigeria. (Meritern Research, 2008).

The company offers carbonated and non-carbonated soft drinks, fruit drinks and juices,

bottled water and energy drinks. It bottles various brand name products, including

Coca-cola, Fanta, Sprite, Schweppes, Eva water and Five-alive.

NBC currently operates 13 bottling plants with over 80 depots and over 250,000 sales

outlets and staff strength of over 6,000 employees across the country.

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Major challenges facing NBC include unfair competition from smuggled cheaper

foreign products, product adulteration and dilapidating infrastructure with particular

reference to power and transport (Meritem Research, 2008)

The company was using its own logistics system until in 2006 when it included a third

party logistics provider in its distribution system. “Since production started, NBC has

remained the largest bottler of non-alcoholic beverages in the country in terms of sales

volume with about 1.8 billion bottles sold per year, making Nigeria its second largest

market in Africa” (Meritem Research Report 2008).

These challenges justify the need for this study on physical distribution challenges of

NBC in order to find ways of improving customer service and customer satisfaction at

least cost which will make NBC more competitive.

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CHAPTER THREE

RESEARCH METHODOLOGY

3.0 Introduction

This chapter highlights the research methodology that was adopted for the study. It

forms the pillar of the study as it identifies the painstaking steps which were followed.

3.1 Research Design

Research design is a kind of blue print that guides the researcher in making

investigation and analysis (Onwumere 2005). The researcher adopted a descriptive

survey research design for this study. Osuala (2005) defined descriptive survey as the

in-depth description of a specific individual, group or company as it exists in its natural

setting.

3.2 Area of Study

The area selected for the study is Enugu State, Nigeria. Enugu State was chosen for

convenience and it was the capital of former Eastern Region of Nigeria and represents

the states in south east in many respects.

3.3 Sources of Data

The necessary data and information for this study were gathered from primary and

secondary sources.

Primary sources involved the generation of the primary data through structured

questions in the questionnaire administered to the respondents.

Secondary sources included textbooks, periodicals, internet and journals of marketing

where information that constituted the theoretical framework of the study were

obtained.

3.4 Population of Study

The study population was made up of commercial staff, distributors and retailers of

NBC products in Enugu State. Data regarding the various physical distribution

activities of NBC were obtained from samples drawn from a sampling frame made up

as indicated in the table below;

Table 3.1: commercial staff, distributors and retailers of NBC

Commercial Staff Bulk Customers

Total Senior Junior Distributors Retailers

14 32 101 253 400

Source: Field survey, 2012.

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3.5 Pilot Study

A test-retest method was used in the pilot study to determine the reliability of the

questionnaire. Thirty (30) copies of questionnaire which contained ten (10) structured

questions were administered to a sample of the population which comprised fifteen (15)

staff and fifteen (15) customers of the company.

The respondents completed and returned the questionnaire. The analysis of the

responses indicated a positive response rate of 76% and negative response rate of 24%.

The positive response rate was derived by the summation of the “Strongly Agreed” and

“Agreed”, divided by the expected total responses; i.e

SA + A x 100 = 228 x 100 = 76%

300 1 300 1

The negative response rate was derived by the summation of “Undecided”, “Disagree”

and “Strongly Disagree” divided by the expected total response; ie

UD + D +SD x 100 = 72 x 100 = 24%.

300 1 300 1

Another thirty (30) copies of the same questionnaire were administered to the same

thirty (30) respondents for the second time. The positive response rate increased to 78%

and the negative response rate dropped to 22%.

The positive response rates of 76% and 78% for the test-retest results respectively

attested to the reliability to the research instrument.

3.6 Determination of Sample Size

The study recognizes that the size of the sample is an important factor that affects the

accuracy of the survey study. Onodugo et al (2010:69) noted that the larger the size of

the sample, the smaller the sample error and more representative the finding to the

entire population. However, if a larger sample than what is necessary is used, resources

are wasted and if it is too small the objective of the analysis may not be achieved.

Hence, the size of the sample according to Jarboe (1996: 87) will be based upon pre-

specified level of accuracy required to accomplish the research objectives.

The level of accuracy of the study was set at 95% confidence interval or maximum

allowable error of 5%. Then applying Taro Yamane’s formular for finite population in

Onodugo et al (2010: 69) thus:

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n = N/[1 + N(e)2]

Where n = Sample size

N = the finite population

e = Level of significance (or limit of tolerable error)

I = Unity (is a constant)

With N = 400

e = 0.05

∴n = 400

1+400 (0.05)2

= 400

1+ 400(0.0025)

= 400

1 + 1

= 400

2

n = 200

Thus a total number of 200 respondents were given the questionnaire.

3.7 Sampling Techniques.

The population of study is made up of 400 NBC staff and bulk customers which was

stratified into senior staff, junior staff, distributors and retailers. The sample size for

each stratum or category was estimated using Bowley’s proportional allocation

statistical technique stated as follows:

nh = nNh

N

Where

nh = the number of units allocated to each stratum

Nh = the number of units in each stratum

n = the total sample size

N = the total population.

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Thus

Proportion of senior staff to be sampled

nh = 200 x 14 = 7

400

Proportion of junior staff to be sampled

nh = 200 x 32 = 16

400

Proportion of distributors to be sampled

nh = 200 x 101 = 51

400

Proportion of retailers to be sampled

nh = 200 x 253 = 126

400

These sample proportions are shown in the table below

Table 3.2: Sample proportions of NBC Staff and Bulk Customers

Staff Bulk Customers

Total Senior Junior Distributors Retailers

7 16 51 126 200

Source: Field survey, 2012.

3.8 Validity of Instrument

Okwandu (2004; 99) stated that validity is concerned with whether a measuring

instrument measures the theoretical construct rather than reflecting some other

phenomenon.

Research supervisors and renowned marketing professionals approved the content of

the questionnaire. The instrument was constructed and sent to them for scrutiny with

regard to simplicity of language and relevance of purpose. Later, the necessary

corrections were effected and the instrument was approved.

3.9 Reliability of Instrument

Reliability concerns the extent to which a measure is accurate and consistent (Okwandu

2004:98). A reliability test was carried out to test the consistency of the questionnaire.

It is vital to do this because when scales are chosen in any study, the researcher needs

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to ensure that they are reliable, and that they have internal consistency. Internal

consistency refers to how well the scales measure the underlying constructs.

The popular and commonly used method to assess consistency is Cronbach alpha. Hair

et al (2007) have provided rules of thumb for interpreting alpha values. They mentioned

an alpha value of .70 or higher as an appropriate range to measure the reliability. Alpha

Cronbach was used to assess the reliability of the questionnaire for this research. The

result from the analysis of the questionnaire reliability by using SPSS software for the

foremost 30 sampled questionnaire for both the staff and customers of the company

under study shows that the factor scales are internally consistent, with the Cronbach

alpha greater than .70. The alpha values show the probability that the same result would

be achieved given the same background if the questionnaire is re-administered (See

appendix 5 for the reliability table).

3.10 Method of Data Presentation and Analysis

Descriptive Statistics – frequencies and percentages, pie chart and bar charts were used

to present and analyse the data. Pearson correlation coefficient was used to test the

hypotheses. The statistical package for Social Sciences (SPSSWIN) Version 17.0 which

according to Ugwuonah (2005:51) has an SPSSWIN menu that gives summaries of data

blocks which provide useful information in report writing was used to generate the

descriptive and inferential statistics.

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REFERENCES

Hair, J.F, Bush, R.P. and Ortinan, D.J. (2007), Marketing Research: In a Digital

Information Environment, New Jersey: Prentice Hall.

Jarboe, G.R. (1996), The Marketing Research Project Manual, USA: West Publishing

Company.

Okwandu, G .A. (2004), Research Methods in Business and Social Sciences, Owerri;

Civincs Publishers.

Onodugo, V.A, Ugwuonah, G.E. and Ebinne, E.S. (2010), Social Science Research:

Principles, Methods and Applications, 1st Ed., Uwani Nigeria: El’Demak

Osuala, O. C. (2005), Research Methods in Management Sciences, Owerri: Avan

Global Publications.

Ugwuonah, G.E (2005), Data Analysis and interpretation: A computer Based

Approach, Uwani-Enugu: Cheston Ltd.

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CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.1 Introduction

This chapter deals with the presentation, analysis, tests and interpretations of the

various data obtained from responses to questions in the questionnaire that was

administered to the respondents. It started off by showing the administration of the

questionnaire, and giving an overview of the demographic profiles of the respondents.

Finally, the core data on physical distribution activities and services were presented,

analyzed, tested and interpreted. The data presentation in the tables and figures are so

self-explanatory that only statistical inferences were often made from them.

4.2 Questionnaire Analysis

4.2.1 Questionnaire Administration

Table 4.1 below shows that two hundred (200) copies of the questionnaire were

distributed to staff and customers of NBC. The staff received (23) twenty three copies

which they completed and returned totally while the customers completed and returned

(170) copies out of (177) copies distributed to them. This gives a response rate of

96.5%.

Table 4.1: Questionnaire Administration

Respondents Administered Returned Not

returned

Valid

%

Cumulative

%

Staff: Junior 16 (100%) 16 (100%) - 8 8

Senior 7(100%) 7(100%) - 4 12

Customers: Retailers 126 (100%) 121 (96%) 5 (4%) 63 75

Distributors 51 (100%) 49 (96%) 2 (4%) 25 100

Total 200 (100%) 193(96.5%) 7 (3.5% 100

Source: Field Survey, 2014.

4.2.2 Sex Distribution

The table below shows that 106 (55%) of the respondents are male while 87 (45%) are

female.

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Table 4.2: Sex Distribution of Respondent

Sex Frequency Percent Valid Percent Cumulative Percent

Male 106 55 55 55

Female 87 45 45 100

Total 193 100 100

Source: Field Survey, 2014.

4.2.3 Age Distribution of Respondents

Table 4.3 illustrates the age distribution of the respondents. From the table we can see

that we have more respondents within the ages of 41-50 years.

Table 4.3: Age Distribution of Respondent

Age Frequency Percent Valid Percent Cumulative Percent

30 years below 19 10 10 10

31-40 years 49 25 25 35

41-50 years 78 40 40 75

51years above 47 25 25 100

Total 193 100 100

Source: Field Survey, 2014.

4.2.4 Educational Qualification of Respondents

The educational qualification of respondents are presented in the table below. It shows

that 137 (71%) of the respondents have National Diploma and below while 56 (29%) of

the respondents have either HND/B.Sc, Masters Degree or Ph.D and above.

Table 4.4: Educational Qualification of Respondents

Qualification Frequency Percent Valid Percent Cumulative Percent

ND and below 137 71 71 71

HND/B.Sc 32 17 17 88

Masters 29 10 10 98

Ph.D and above 4 2 2 100

Total 193 100 100

Source: Field Survey, 2014.

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4.2.5 Staff Number of Years with the Company

Table 4.5 below shows that 13 (56%) of the staff have spent from 0-10 years while 10

(44%) of the staff have spent more than 10 years with the company.

Table 4.5: Staff Number of Years with the Company

Years Frequency Percent Valid Percent Cumulative Percent

0 - 5 4 17 17 17

6 - 10 9 39 39 56

11 - 15 7 31 31 87

16 and above 3 13 13 100

Total 23 100 100

Source: Field Survey, 2014.

4.2.6: Staff Positions in the Company

The table below depicts the various positions occupied by the staff respondents. The

three distinct positions showed 16 (70%) of the staff respondents are below supervisory

level while the remaining 7 (30%) of the staff sampled are either supervisors or

managers in the company. With a higher percentage of staff respondents below

supervisory level, free flow of unbiased information due to their innocence was

achieved and this aided the achievement of the objectives of this study.

Table 4.6: Staff Positions in the Company

Positions Frequency Percent Valid Percent Cumulative Percent

Below Superior 16 70 70 70

Supervisor 4 17 17 87

Manager/above 3 13 13 100

Total 23 100 100

Source: Field Survey, 2014.

4.2.7 Occupation of Respondents

Table 4.7 below shows the occupation of the respondents. From the table we can infer

that 100 (52%) of the respondents are either employees or farmers while 93 (48%) of

the respondents are full business persons. The even distribution of respondents

facilitated the balance of opinions on the subject of study.

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Table 4.7: Occupation of Respondents

Occupation Frequency Percent Valid Percent Cumulative Percent

Civil/Public Servant 25 13 13 13

Private Sector Employee 33 17 17 30

Farmer 42 22 22 52

Business Person 93 48 48 100

Total 193 100 100

Source: Field Survey, 2014.

4.2.8 Business Categories of Customers

Table 4.8 shows the two distinct categories of customers with 49(29%) as

distributors/wholesalers and 121 (71%) as retailers.

Table 4.8: Business Categories of Customers.

Business Categories Frequency Percent

Distributor/Wholesaler 49 29

Retailer 121 71

Total 170 100

Source: Field Survey, 2014.

4.2.9 Frequency of product Supply to Customers

Table 4.9 and figure 4.1 show the frequency of product supply to customers. We can

see from the table that 59 (34%) of the customers are supplied products twice or once

per week while the remaining 111 (66%) receive products twice or once a month.

Table 4.9: Frequency of Product Supply to Customers.

Frequency Percent Cumulative Percent

Twice a week 21 12 12

Weekly 38 22 34

Every two weeks 93 55 89

Monthly 18 11 100

Total 170 100

Source: Field Survey, 2014.

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Figure 4.1: Frequency of Product Supply to Customer.

4.2.10 Need to be Supplied with NBC Products more Frequently

Table 4.10 and Figure 4.2 show that 51 (30%) customers want to be supplied with NBC

products more frequently than the case now while 119 (70%) customers are contented

with the number of times they are supplied with NBC products.

Table 4.10: Need to be supplied with NBC Products More Frequently.

Responses Frequency Percent

Yes 51 30

No 119 70

Total 170 100

Source: Field Survey, 2014.

Figure 4.2 Need to be supplied with NBC Products More Frequently.

21

38

93

18Twice a week

Weekly

Every two week

Monthly

51

119

Yes

No

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4.2.11 Stock-out Experienced by Customers

Table 4.11 and figure 4.3 show that 61 (36%) customers indicated that they had

experienced stock-outs while 109 (64%) customers said they had not experienced any

stock-out.

Table 4.11: Stock-out Experienced by Customers.

Responses Frequency Percent

Yes 61 36

No 109 64

Total 170 100

Source: Field Survey, 2014.

Figure 4.3: Stock outs Experienced by Customers.

4.2.12 Frequency of Stock outs Experienced by Customers

Table 4.12 illustrates the frequency of stock-outs experienced by the customers. None

of the 61 customers that experienced stock-outs had them very often or often but 34

(56%) of the customers experienced it rarely and 27 (44%) of the customers that

experienced stock-outs admitted that they had it very rarely.

Table 4.12: Frequency of Stock outs Experienced by Customers.

Responses Frequency Percent Cumulative Percent

Very often 0 0 0

Often 0 0 0

Rarely 34 56 56

Very rarely 27 44 100

Total 61 100

Source: Field Survey, 2014.

61

109

Yes

No

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4.2.13 Factors Responsible for Stock

Table 4.13 and figure 4.4 show that 40 (66%) customers out of the 61 customers that

experienced the stock outs accepted that the stock

remaining 21 (34%) customers blamed the company for the stock

Table 4.13: Factors Responsible for Stock

Responses

Company related factors

Customer related factors

Total

Source: Field Survey, 2014.

Figure 4.4: Factors Responsible for

4.2.14 Stock outs Experience

Table 4.14 and figure 4.5 indicate that 19 (83%) of the sampled staff admitted that the

company had experienced stock

occurrence.

Table 4.14: Stock outs Experienced

Responses

Yes

No

Total

Source: Field Survey, 2014.

40

89

Factors Responsible for Stock outs Experienced by Customers.

show that 40 (66%) customers out of the 61 customers that

outs accepted that the stock-outs were their own faults while the

21 (34%) customers blamed the company for the stock-outs.

Responsible for Stock outs Experienced by Customers.

Frequency Percent

21 34

40 66

61 100

Survey, 2014.

Factors Responsible for Stock outs Experienced by Customers.

Experienced by NBC

indicate that 19 (83%) of the sampled staff admitted that the

company had experienced stock-outs while 4 (17%) of them did not admit such

Stock outs Experienced by NBC.

Frequency Percent

19 83

4 17

23 100

Field Survey, 2014.

21

Company related factors

Customers related factors

show that 40 (66%) customers out of the 61 customers that

outs were their own faults while the

indicate that 19 (83%) of the sampled staff admitted that the

outs while 4 (17%) of them did not admit such

Percent

100

Company related factors

Customers related factors

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Figure 4.5: Stock outs Experienced by NBC.

4.2.15 Frequency of Stock outs Experienced by NBC

Out of the 19 staff respondents that admitted stock outs experienced by the company 10

(53%) said it occurred rarely while the remaining 9 (47%) said it occurred very rarely

as indicated in table 4.15 and figure 4.15 below.

Table 4.15: Frequency of Stock outs Experienced by NBC.

Responses Frequency Percent Cumulative Percent

Very often 0 0 0

Often 0 0 0

rarely 10 53 53

Very rarely 9 47 100

Total 19 100

Source: Field Survey, 2014.

4.2.16 Factors Responsible for Stock outs Experienced by NBC

Each of the 19 staff who admitted stock outs indicated more than one factor as the

cause of the stock-out, 18 (95%) of them mentioned raw material, 14 (74 %) indicated

power supply, 15 (79%) blamed transportation and 2 (11%) also mentioned other

factors like strike and turn-around maintenance as shown in table 4.16 and Figure 4.6

below.

83

170

20

40

60

80

100

Yes No

Percent

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Table 4.16: Factors Responsible for Stock outs Experienced by NBC.

Responses Frequency Percent

Raw Material 18 95

Power supply 14 74

Transportation 15 79

Others 2 11

Source: Field Survey, 2014.

Figure 4.6: Factors Responsible for Stock outs Experienced by NBC.

4.2.17. Analysis of Questions Related to Research Question # 1 (Section B)

Research Question #1: What is the relationship between physical distribution

activities and physical distribution service?

Analysis of questions #1-4 in the questionnaire yielded tables 4.17, 4.18, 4.19 and 4.20

on physical distribution activities, related to objective # 1 and hypothesis # 1

(Independent Variable). Analysis of questions #5-16 yielded tables 4.21 to 4.32 on

physical distribution service (Dependent Variable).

18

1415

2

Raw Material Power supply Transportation Others

Frequency

Frequency

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Table 4.17: (Q.no1) NBC Distribution Trucks/Vans are Adequate, Functional and well

coordinated. (Transportation)

Responses Frequency

Strongly agree

Agree

Undecided

Disagree

Strongly disagree

Total

Source: Field Survey, 2014.

Figure 4.7: Agreement/Disagreement that NBC Distribution Trucks/Vans are

Adequate, Functional and well Coordinated. (Transportation)

The table and figure show that out of 193 respondents, 14

agreed that NBC distribution trucks/vans are adequate, functional and well coordinated

while the remaining 48 (24%) were either undecided, disagreed or strongly disagreed.

Table 4.18: (Q.no2) NBC Warehouses are Adequate and Strategically Located.

(Warehousing)

Responses Frequency

Strongly agree

Agree

Undecided

Disagree

Strongly disagree

Total

Source: Field Survey, 2014.

522

92

NBC Distribution Trucks/Vans are Adequate, Functional and well

. (Transportation)

Frequency Percent Cumulative percent

59 31 31

86 45 76

5 2 78

22 11 89

21 11 100

193 100

Field Survey, 2014.

Agreement/Disagreement that NBC Distribution Trucks/Vans are

Adequate, Functional and well Coordinated. (Transportation)

and figure show that out of 193 respondents, 145 (76%) strongly agreed or

agreed that NBC distribution trucks/vans are adequate, functional and well coordinated

%) were either undecided, disagreed or strongly disagreed.

NBC Warehouses are Adequate and Strategically Located.

Frequency Percent Cumulative percent

87 45 45

71 37 82

6 3 85

18 9 94

11 6 100

193 100

Field Survey, 2014.

59

86

21 0

Strong agrer

Agree

Undecided

Disagree

Strong disagree

NBC Distribution Trucks/Vans are Adequate, Functional and well

Cumulative percent

Agreement/Disagreement that NBC Distribution Trucks/Vans are

%) strongly agreed or

agreed that NBC distribution trucks/vans are adequate, functional and well coordinated

%) were either undecided, disagreed or strongly disagreed.

NBC Warehouses are Adequate and Strategically Located.

Cumulative percent

Strong disagree

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Figure 4.8: Agreement/disagreement that NBC Warehouses are Adequate and

Strategically Located. (Warehousing)

158 (82%) out of 193 (100%) of the respondents gave favourable response that NBC

warehouses are adequate, and

undecided disagreed or strongly disagreed.

Table 4.19: (Q.no.3) NBC Maintains Adequate Inventory Size and mix. (Inventory

Control)

Responses Frequency

Strongly agree

Agree

Undecided

Disagree

Strongly disagree

Total

Source: Field Survey, 2014.

Figure 4.9: Agreement/disagreement that NBC Maintains Adequate Inventory Size and

mix. (Inventory Control)

0

50

StronglyAgree

Undecided

4537

64

79

3

21

26

93

Agreement/disagreement that NBC Warehouses are Adequate and

Strategically Located. (Warehousing)

158 (82%) out of 193 (100%) of the respondents gave favourable response that NBC

warehouses are adequate, and strategically located, while 35(18%) were either

undecided disagreed or strongly disagreed.

Table 4.19: (Q.no.3) NBC Maintains Adequate Inventory Size and mix. (Inventory

Frequency Percent Cumulative percent

64 33 33

79 41 74

3 2 75

21 11 87

26 13 100

193 100

Field Survey, 2014.

Agreement/disagreement that NBC Maintains Adequate Inventory Size and

Percent

UndecidedDisagree

Strongly disagree

3 96

Percent

Percent

Strongly agree

Agree

Undecided

Disagree

Strongly disagree

Agreement/disagreement that NBC Warehouses are Adequate and

158 (82%) out of 193 (100%) of the respondents gave favourable response that NBC

, while 35(18%) were either

Table 4.19: (Q.no.3) NBC Maintains Adequate Inventory Size and mix. (Inventory

Agreement/disagreement that NBC Maintains Adequate Inventory Size and

Percent

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Out of the 193 respondents, 143 (74%) agreed or strongly agreed that NBC maintains

adequate inventory size and mix while 50 (26%) were either undecided, disagreed or

strongly disagreed.

Table 4.20: (Q.no.4) NBC has Reliable, Computerized, Online, Real Time Order

Processing System. (Order Processing)

Responses Frequency Percent Cumulative percent

Strongly agree 56 29 29

Agree 88 45 74

Undecided 7 4 78

Disagree 25 13 91

Strongly disagree 17 9 100

Total 193 100

Source: Field Survey, 2014.

Figure 4.10: Agreement/disagreement that NBC has Reliable, Computerized, Online,

Real Time Order Processing System. (Order Processing)

Out of 193 respondents, 144 (75%) gave favourable response that NBC has reliable,

computerized, online, real time order processing system while 49 (25%) were either

undecided or gave unfavourable response.

29

45

413 9

0

20

40

60

Strongly agree Agree Undecide Disagree Strongly disagree

Percent

Percent

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Table 4.21: (Q.no.5) The Assorted Products (Mix) are always in Stock. (

availability)

Responses Frequency

Strongly agree

Agree

Undecided

Disagree

Strongly disagree

Total

Source: Field Survey, 2014.

Figure 4.11: Agreement/disagreement that The Assorted Products (Mix) are always in

Stock. (Product availability)

Seventy nine percent (79%) of the respondents were in favour of the statement that the

assorted products are always in stock

percent (21%) were either undecided or against it.

Table 4.22: (Q.no.6) The Units Ordere

Responses Frequency

Strongly agree

Agree

Undecided

Disagree

Strongly disagree

Total

Source: Field Survey, 2014.

66

321

95

The Assorted Products (Mix) are always in Stock. (

Frequency Percent Cumulative percent

87 45 45

66 34 79

3 2 81

21 11 92

16 8 100

193 100

Field Survey, 2014.

/disagreement that The Assorted Products (Mix) are always in

vailability)

Seventy nine percent (79%) of the respondents were in favour of the statement that the

assorted products are always in stock at NBC warehouses/depots while twenty one

percent (21%) were either undecided or against it.

The Units Ordered are (100%) Supplied (Product availability)

Frequency Percent Cumulative percent

61 32 32

82 42 74

2 1 75

23 12 87

25 13 100

193 100

Field Survey, 2014.

87

16

Strongly agree

Agree

Undecided

Disagree

Strongly disagree

The Assorted Products (Mix) are always in Stock. (Product

Cumulative percent

/disagreement that The Assorted Products (Mix) are always in

Seventy nine percent (79%) of the respondents were in favour of the statement that the

at NBC warehouses/depots while twenty one

(Product availability)

Strongly agree

Undecided

Strongly disagree

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Figure 4.12: Agreement/disagreement that The Units Ordered are (100%) Supplied

(Product availability)

Seventy four percent (74%) of the respondents strongly agreed that the units ordered

are (100%) supplied by NBC while twenty six percent (26%) were either undecided,

disagreed or strongly disagreed.

Table 4.23: (Q.no.7) All Orders are (100%) Supplied (Product availability)

Responses Frequency Percent Cumulative percent

Strongly agree 58 30 30

Agree 81 42 72

Undecided 2 1 73

Disagree 23 12 85

Strongly disagree 29 15 100

Total 193 100

Source: Field Survey, 2014.

32

42

1

12 13

0

5

10

15

20

25

30

35

40

45

Strongly agree Agree Undecided Disagree Strongly

disagree

Percent

Percent

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97

Figure 4.13: Agreement/disagreement that All Orders are (100%) Supplied (Product

availability)

Seventy two percent (72%) of the respondents accepted that all orders are (100%)

supplied at NBC while twenty eight percent (28%) did not accept.

Table 4.24: (Q.no.8) Order Cycle Time is Right (PDS Timeliness)

Responses Frequency Percent Cumulative percent

Strongly agree 87 45 45

Agree 64 33 78

Undecided 4 2 80

Disagree 29 15 95

Strongly disagree 9 5 100

Total 193 100

Source: Field Survey, 2014.

Figure 4.14: Agreement/disagreement that Order Cycle Time is Right(PDS

Timeliness)

Seventy eight percent (78%) of the respondents were in favour that NBC order cycle

time is right while twenty two percent (22%) were undecided or against the statement.

58

81

2

23

29Strongly agree

Agree

Undecided

Disagree

Strongly agree

8764

429

90

50

100

Strongly

agree

Agre Undecided Disagree Strongly

disagree

Frequency

Frequency

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Table 4.25: (Q.no.9) The Average Delivery Time is Reliable. (PDS Timeliness)

Responses Frequency Percent Cumulative percent

Strongly agree 76 39 39

Agree 82 42 81

Undecided 5 3 84

Disagree 23 12 96

Strongly disagree 7 4 100

Total 193 100

Source: Field Survey, 2014

Figure 4.15: Extent of agreement/ disagreement that the Average Delivery Time is

Reliable (PDS Timeliness)

Eighty one percent (81%) of the respondents accepted that NBC average delivery time

is reliable while Nineteen (19%) did not.

Table 4.26: (Q.no.10) The Percent Units Delivered in Specified Time Period is

Consistent (PDS Timeliness)

Responses Frequency Percent Cumulative percent

Strongly agree 75 39 39

Agree 77 40 79

Undecided 6 3 82

Disagree 26 13 95

Strongly disagree 9 5 100

Total 193 100

Source: Field Survey, 2014

76

82

5

237 Strongly agree

Agree

Undecided

Diagree

Strongly disagree

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Figure 4.16: Extent of agreement/disagreement that the Percent Units Delivered in

Specified Time Period is Consistent

Seventy nine percent (79%) of the respondents strongly agreed or agreed that the

percent units delivered in specified time is consist

(21%) were either undecided, disagreed or strongly disagreed.

Table 4.27: (Q.no11) The Percent Units Received in Acceptable Condition is Right

(PDS Quality)

Responses Frequency

Strongly agree

Agree

Undecided

Disagree

Strongly disagree

Total

Source: Field Survey, 2014.

Figure 4.17: Agreement/disagreement that the Percent Units

condition is right (PDS Quality)

75 77

0

50

100

Strongly

agree

Agree Undecided

71

4

25

20

99

Extent of agreement/disagreement that the Percent Units Delivered in

Specified Time Period is Consistent (PDS Timeliness)

Seventy nine percent (79%) of the respondents strongly agreed or agreed that the

percent units delivered in specified time is consistent at NBC, while twenty one percent

(21%) were either undecided, disagreed or strongly disagreed.

The Percent Units Received in Acceptable Condition is Right

Frequency Percent Cumulative percent

73 38 38

71 37 75

4 2 77

25 13 90

20 10 100

193 100

Field Survey, 2014.

: Agreement/disagreement that the Percent Units Received in

(PDS Quality)

626 9

Undecided Disagree Strongly

disagree

Frequency

Frequency

73 Strongly agree

Agree

Undecided

Disagree

Strongly

Extent of agreement/disagreement that the Percent Units Delivered in

Seventy nine percent (79%) of the respondents strongly agreed or agreed that the

ent at NBC, while twenty one percent

The Percent Units Received in Acceptable Condition is Right

ed in acceptable

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100

Seventy five percent (75%) of the respondents accepted that percent units received in

acceptable condition is right whereas twenty five percent (25%) did not.

Table 4.28: (Q.no.12) The Units that are supplied (100%) are Correct Units (PDS

Quality)

Responses Frequency Percent Cumulative percent

Strongly agree 43 22 22

Agree 78 40 62

Undecided 3 2 64

Disagree 44 23 87

Strongly disagree 25 13 100

Total 193 100

Source: Field Survey, 2014.

Figure 4.18: Extent of agreement/disagreement that the Units that are supplied (100%)

are Correct Units (PDS Quality)

Sixty two percent (62%) of the respondent strongly agreed or disagreed that the units

that are supplied by NBC are (100%) correct units whereas thirty eight percent (38%)

either disagreed, strongly disagreed or were undecided.

43

78

3

44

25

0

10

20

30

40

50

60

70

80

90

Strongly agree Agree Undecided Disagree Strongly

disagree

Frequency

Frequency

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Table 4.29: (Q.no.13) The Units that are delivered (100%) are in Correct Quantity

(PDS Quality)

Responses Frequency Percent Cumulative percent

Strongly agree 51 26 26

Agree 72 37 63

Undecided 7 4 67

Disagree 25 13 80

Strongly disagree 38 20 100

Total 193 100

Source: Field Survey, 2014.

Figure 4.19: Extent of agreement /disagreement that the Units that are delivered

(100%) are in Correct Quantity (PDS Quality)

Sixty three percent (63%) of the respondents accepted that the units that are delivered

(100%) are in correct quantity while thirty seven percent (37%) did not as indicated in

the table above.

26

37

4

13

20Strongly agree

Agree

Undecided

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Table 4.30: (Q.no.14) NBC Order Polices are Flexible enough to Pe

Response to Changing Market Demands. (

Responses Frequency

Strongly agree

Agree

Undecided

Disagree

Strongly disagree

Total

Source: Field Survey, 2014.

Figure 4.20: Extent of agreement /disagreement that NBC Order Polices are Flexible

enough to Permit Timely Response to Changing Market Demands (

The table shows that fifty two percent (52%) of the respondents accepted that

order policies are flexible enough to permit timely response to changing market

demands whereas forty eight percent (48%) did not.

0

10

20

30

40

50

60

70

Strongly

agree

Agree

33

68

102

Table 4.30: (Q.no.14) NBC Order Polices are Flexible enough to Permit Timely

Response to Changing Market Demands. (PDS Flexibility)

Frequency Percent Cumulative percent

33 17 17

68 35 52

7 4 56

64 33 89

21 11 100

193 100

Survey, 2014.

Extent of agreement /disagreement that NBC Order Polices are Flexible

enough to Permit Timely Response to Changing Market Demands (PDS Flexibility)

The table shows that fifty two percent (52%) of the respondents accepted that

order policies are flexible enough to permit timely response to changing market

demands whereas forty eight percent (48%) did not.

Agree Undecided Disagree Strongly

disagree

68

7

64

21

Frequency

rmit Timely

Cumulative percent

Extent of agreement /disagreement that NBC Order Polices are Flexible

Flexibility)

The table shows that fifty two percent (52%) of the respondents accepted that NBC

order policies are flexible enough to permit timely response to changing market

Frequency

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Table 4.31: (Q.no.15) NBC has Expedite and Substitute Capacity to Respond to

Special Customer Request (PDS

Responses Frequency

Strongly agree

Agree

Undecided

Disagree

Strongly disagree

Total

Source: Field Survey, 2014.

Figure 4.21: Extent of Agreement that NBC has Expedite and Substitute Capacity to

Respond to Special Customer Request (

The table shows that sixty two percent (62%) of the respondents are convinced that

NBC has expedite and substitute capacity to respo

thirty eight percent (38%) are not convinced.

10

43

29

103

NBC has Expedite and Substitute Capacity to Respond to

PDS Flexibility)

Frequency Percent Cumulative percent

46 24 24

73 38 62

10 5 67

43 22 89

29 11 100

193 100

Field Survey, 2014.

Extent of Agreement that NBC has Expedite and Substitute Capacity to

Respond to Special Customer Request (PS Flexibility)

The table shows that sixty two percent (62%) of the respondents are convinced that

NBC has expedite and substitute capacity to respond to special customer requests but

thirty eight percent (38%) are not convinced.

24

73

Strongly agree

Agree

Undecided

Disagree

Strongly disagree

NBC has Expedite and Substitute Capacity to Respond to

Extent of Agreement that NBC has Expedite and Substitute Capacity to

The table shows that sixty two percent (62%) of the respondents are convinced that

customer requests but

Strongly agree

Strongly disagree

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Table 4.32: (Q.no.16) NBC Responds Timely to Special Requests or Unexpected

Needs of Customers (PDS Flexibility)

Responses Frequency Percent Cumulative percent

Strongly agree 62 32 32

Agree 57 30 62

Undecided 8 4 66

Disagree 42 22 88

Strongly disagree 24 12 100

Total 193 100

Source: Field Survey, 2014.

Of the 193 respondents, 119 (62%) accepted that NBC responds timely to special

requests or unexpected needs of customers while 74 (38%) did not accept as shown in

the table above.

Figure 4.22: Extent of agreement/disagreement that NBC Responds Timely to Special

Requests or Unexpected Needs of Customers (PDS Flexibility)

4.2.18 Analysis of Questions Related to Research Question #2

Research Question #2: Is there any significant relationship between product

availability and customer satisfaction?

To provide answer to this research question, responses to questions #5, 6 and 7 on

product availability in the questionnaire as shown in table 4.21, table 4.22 and table

4.23 which are related to objective #2 and hypothesis #2 were consolidated to yield

table 4.33.

0

10

20

30

40

50

60

70

Strongly Agree Agree Undecided Disagree Strongly

disagree

Frequency

Frequency

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Table 4.33: Consolidated Response to Qs 5, 6 & 7 Attached to #2 Objective, Research

Question and Hypothesis- Independent Variable (Product Availability)

Response Table 4.21 Table 4.22 Table 4.23 Total % Response

Strongly agree 87 61 58 206 36

Agree 66 82 81 229 39

Undecided 3 2 2 7 1

Disagree 21 23 23 67 12

Strongly Disagree 16 25 29 70 12

Total 193 193 193 579 100

Source: Field Survey, 2014.

The three (3) indicators or factors of product availability as shown in tale 4.21, table

4.22 and table 4.23 have been reduced to one factor- product availability which is a

dimension of physical distribution service to now serve as independent variable to #2

hypothesis.

4.2.19 Analysis of Questions Related to Research Question #3

Research question #3: What is the relationship between PDS timeliness and overall

customer satisfaction?

Responses to questions #8, 9 and 10 on PDS timeliness in the questionnaire which have

been analysed in table 4.24, table 4.25 and table 4.26 that are related to # 3 research

question, objective and hypothesis were consolidated to yield table 4.34.

Table 4.34: Consolidated Responses to Qs 8, 9 & 10 Attached to #3 Objective,

Research Question and Hypothesis- Independent Variable. (PDS Timeliness)

Response Table 4.24 Table 4.25 Table 4.26 Total % Response

Strongly agree 87 76 75 238 41

Agree 64 82 77 223 39

Undecided 4 5 6 15 3

Disagree 29 23 26 78 13

Strongly agree 9 7 9 25 4

Total 193 193 193 579 100

Source: Field Survey, 2014.

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The three indicators (factors) of PDS timeliness as shown in table 4.24, table 4.25 and

table 4.26 earlier have been reduced to one factor PDS Timeliness to serve as

Independent Variable to # 3 hypothesis.

4.2.10 Analysis of Questions Related to Research Question #4

Research Question # 4: Is there any relationship between PDS quality and overall

customer satisfaction?

Responses to questions # 11, 12 1nd 13 on PDS quality in the questionnaire which had

been analyzed in table 4.27, table 4.28 and table 4.29 that are related to #4 research

question, objective and hypothesis were consolidated to yield table 4.35.

Table 4.35: Consolidated Responses to Qs 11, 12 & 13 Attached to #4 Objective,

Research Question and Hypothesis- Independent Variable. (PDS Quality)

Response Table 4.27 Table 4.28 Table 4.29 Total % Response

Strongly agree 73 43 51 167 29

Agree 71 78 72 221 38

Undecided 4 3 7 14 3

Disagree 25 44 25 94 16

Strongly agree 20 25 38 83 14

Total 193 193 193 579 100

Source: Field Survey, 2014.

The three factors of quality as shown in table 4.27, table 4.28 and table 4.29 earlier

have been reduced to one factor- PDS quality to serve as Independent Variable to #4

hypothesis.

4.2.11 Analysis of Questions Related to Research Question #5

Research Question #5: Is PDS flexibility related to overall customer satisfaction?

Responses to questions #14, 15 and 16 on PDS flexibility in the questionnaire which

had been analyzed in table 4.30, table 4.31 and table 4.32 that are related to #5

objective, research question and hypothesis were consolidated to yield table 4.36.

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Table 4.36: Consolidated Response to Qs 14, 15 & 16 Attached to #5 Objective,

Research Question and Hypothesis- Independent Variable (PDS Flexibility)

Response Table 4.30 Table 4.31 Table 4.32 Total % Response

Strongly agree 33 46 62 141 24

Agree 68 73 57 198 34

Undecided 7 10 8 25 4

Disagree 64 43 42 149 26

Strongly agree 21 21 24 66 12

Total 193 193 193 579 100

Source: Field Survey, 2014.

The three factors or indicators of PDS flexibility as shown in table 4.30 table 4.31 and

table 4.32 earlier have been reduced to one factor PDS flexibility to serve as

independent variable to #5 hypothesis.

Table 4.37: Combined Consolidated Responses in Tables 4.33, 4.34, 4.35 and 4.36

Attached to #1 Objective, Research Question and Hypothesis- Dependent Variable

(Perceived Physical Distribution Service)

Response Product

Availability

PDS

Timeliness

PDS

Quality

PDS

Flexibility

Total % Responses

Strongly agree 206 238 167 141 752 32

Agree 229 223 221 198 871 38

Undecided 7 15 14 25 61 3

Disagree 67 78 94 149 388 17

Strongly agree 70 25 83 66 244 10

Total 579 579 579 579 2316 100

Source: Field Survey, 2014.

The four (4) dimensions of physical distribution service- product availability, PDS

timeliness, PDS quality and PDS flexibility were brought together to serve as

Dependent Variable for Hypothesis 1.

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Table 4.38: Consolidated Responses to Qs 1, 2, 3 & 4 Attached to # 1 Objective,

Research Question and Hypothesis- Independent Variable. (PD Activities)

Responses Transportation Ware

housing

Inventory

Control

Order

Processing

Total %

Response

Strongly Agree 59 87 64 56 266 34

Agree 86 71 79 88 324 42

Undecided 5 6 3 7 21 3

Disagree 22 18 21 25 86 11

Strongly Agree 21 11 26 17 75 10

Total 193 193 193 193 772 100

Source: Field Survey, 2014.

Responses to the questions on the four (4) major dimensions of physical distribution

activities namely transportation, warehousing, inventory control and order processing

were brought together to serve as Independent Variable for hypothesis 1.

Analysis of Qs # 17, 18 and 19 on overall customer satisfaction with NBC physical

distribution service, attached to objectives, research questions and hypotheses # 2 to # 5

yielded tables 4.39, 4.40 and 4.41.

Table 4.39: (Q.no.17) I am very satisfied with NBC Marketing Activities.

Response Frequency Percent Cumulative percent

Strongly agree 46 24 24

Agree 72 37 61

Undecided 8 4 65

Disagree 48 25 90

Strongly disagree 19 10 100

Total 193 100

Source: Field Survey, 2014.

Of the 193 respondents, 118 (61%) agreed that they are satisfied with NBC marketing

activities while 75 (39%) did not agree.

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Table 4.40: (Q.no.18) I wish more of my Suppliers were like NBC

Response Frequency Percent Cumulative percent

Strongly agree 64 33 33

Agree 87 45 78

Undecided 4 2 80

Disagree 29 15 95

Strongly disagree 9 5 100

Total 193 100

Source: Field Survey, 2014.

Out of 193 respondents, 151 (78%) agreed that they would wish more of their suppliers

were like NBC while 42 (22%) could not wish that as shown in the table.

Table 4.41: (Q.no.19) It is a pleasure dealing with NBC

Response Frequency Percent Cumulative percent

Strongly agree 77 40 40

Agree 75 39 79

Undecided 6 3 82

Disagree 26 13 95

Strongly disagree 9 5 100

Total 193 100

Source: Field Survey, 2014.

Seventy nine percent (79%) of the respondents basically agreed that it is a pleasure

dealing with NBC while 41 (21%) did not agree as shown in the table.

Table 4.42: Consolidated responses to Qs 17, 18 and 19 attached to #2 to #5

Objectives, Research Questions and Hypotheses- Dependent Variable-Overall

Customer Satisfaction

Response Table 4.39 Table 4.40 Table 4.41 Total % Response

Strongly agree 46 64 77 187 32

Agree 72 87 75 234 41

Undecided 8 4 6 18 3

Disagree 48 29 26 103 18

Strongly

disagree

19 9 9 37 6

Total 193 193 193 579 100

Source: Field Survey, 2014.

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Responses to the three questions on satisfaction which were analysed in tables 4.39,

table 4.40 and table 4.41 were consolidated to yield table 4.42. Dependent Variable

(Overall Customer Satisfaction).

Generally, satisfaction questions yielded a high number of positive responses from

respondents. There was a slight difference in figures for those who strongly agreed and

those who agreed and they are more than 72% of the respondents. We can therefore

conclude that customers are generally quite satisfied with NBC physical distribution

service.

4.2.12. Analysis of Questions Related to Research question #6

Research Question #6: How important are the various physical distribution service

elements to customer and how does NBC performance on these elements compare to

that of its major competitor?

Analysis of questions #20 and 22 in the questionnaire yielded tables 4.43, 4.44 and 4.46

on importance rankings and performance of NBC and its major competitor related to

research question #6.

Table 4.43: (Q.no.20) Importance Ranking of the Four (4) Physical Distribution

Service (PDS) Elements by the Staff.

PDS Elements Importance Total

Score

Mean % Ranking

VI

4

I

3

SWI

2

NSI

1

Product Availability 17 6 0 0 86 3.7 92.5 1

PDS Timeliness 3 2 16 2 52 2.3 57.5 3

PDS Quality 3 15 5 0 67 2.9 62.5 2

PDS Flexibility 0 0 2 21 25 1.1 27.5 4

Source: Field Survey, 2014.

Rating Scale:

Very Important (VI) = 4

Important (I) = 3

Some what Important (SWI) = 2

Not so Important (NSI) = 1

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Out of a total of 23 staff respondents, 17 respondents representing 74% ranked Product

Availability as the most important physical distribution service (PDS) element for soft

drink industry, 3 respondents representing 13% ranked PDS timeliness as the most

important and 3(13%) others ranked PDS quality as the most important.

Generally, using the mean scores the staff ranked Product Availability as the most

important, ranked PDS Quality- second, PDS Timeliness- third and PDS Flexibility-

fourth.

Table 4.44: (Q.no.20) Importance Ranking of the Four (4) Physical Distribution

Service (PDS) Elements by the Customers.

PDS Elements Importance Total Score Mean % Ranking

VI

4

I

3

SWI

2

NSI

1

Product Availability 98 70 2 0 606 3.6 90 1

PDS Timeliness 72 97 1 0 581 3.4 85 2

PDS Quality 0 0 22 148 192 1.1 28 4

PDS Flexibility 0 3 145 22 312 1.8 45 3

Source: Field Survey, 2014.

Rating Scale:

Very Important (VI) = 4

Important (I) = 3

Some what Important (SWI) = 2

Not so Important (NSI) = 1

Out of a total of 170 customer respondents, 98 respondents representing 58% ranked

Product Availability as the most important PDS element, 72(42%) respondents ranked

PDS timeliness as the most important. When the mean values for the PDS elements

rankings were used the results of the PDS elements rankings were Product Availability-

first. PDS Timeliness- second, PDS Flexibility- third and PDS Quality- fourth.

It was noted that there were enough differences between company rankings and

customer rankings which supports the need for this type of research. Hence, NBC

physical distribution service should be customer-driven.

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Table 4.45: (Q.no.21) Response on whether NBC Customers Buy from NBC Major

Competitor in Soft Drink Industry in Enugu State.

Responses Frequency Percent Cumulative percent

Yes 149 88 88

No 21 12 100

Total 170 100

Source: Field Survey, 2014.

Out of 170 customer respondents, 149 (88%) also buy from NBC major competitor,

hence the need for a differential advantage through physical distribution service.

Table 4.46: (Q.no.22) Performance Rating of NBC and the Major Competitor on

the Four (4) PD Service Elements by Customers.

Major Competitor PD Service

Elements

NBC

% Mean Total P

1

F

2

G

3

E

4

E

4

G

3

F

2

P

1

Total Mean %

83 3.3 560 0 21 78 71 Product

Availability

87 79 4 0 593 3.5 88

80 3.2 542 1 26 83 60 PDS

Timeliness

80 87 3 0 587 3.5 88

83 3.3 561 1 11 98 61 PDS Quality 69 99 1 0 575 3.4 85

73 2.9 496 2 40 98 30 PDS

Flexibility

50 87 27 6 521 3.1 78

80 3.2 2159 4 196 1071 888 Total 1144 1056 70 6 2276 3.4 85

Source: Field Survey, 2014.

Rating Scales:-

Excellent (E) = 4

Good (G) = 3

Fair (F) = 2

Poor (P) = 1

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Customer

Availability

Timeliness

Quality

Flexibility

NBC M ajor Competitor

Importance to Customers P erfo rm an ce

NSI SWI I VI P F G E

PDS

Elements

Figure 4.23: Competitive benchmarking showing opportunities for improving service

when comparisons are made with customer requirements and the performance of key

competitor

Table 4.46 and figure 4.23 show the performance rating of NBC and its major

competitor on the four (4) physical distribution service elements. The figure which was

plotted from table 4.44 and table 4.46 also shows how important the service elements

are to the customers. NBC performed better than the major competitor in all the service

dimensions listed.

However, there are opportunities for improvement especially of the PDS Flexibility

aspect of the service dimensions which NBC scored the least, but ranked third by the

customers as shown in table 4.44.

4.3 Test of Hypotheses

The various hypotheses for this study were tested with the aid of the SPSS 17.0

statistical software. The following steps were taken;

i. Restatement of the hypotheses in the null and alternate forms

ii. Reference to the data for analysis

iii. The decision rule

iv. Taking the decision.

4.3.1 Test of Hypotheses One

Restatement of the hypothesis in the null and alternate forms

H01: There is no significant relationship between performance of physical

distribution activities and perceived physical distribution service

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Ha1: There is significant relationship between performance of physical distribution

activities and perceived physical distribution service

The data presented in table 4.38 physical distribution activities and table 4.37 perceived

physical distribution service were used to test this hypothesis.

Table 4.47: Descriptive Statistics for data presented in tables 4.38 and 4.37

Mean Std. Deviation

N

Performance of Physical Distribution

Activities 1.7785 1.24085 772

Perceived physical distribution service 1.9041 1.40820 772

Table 4.48: Pearson correlations test result for hypothesis one

Performance of

Physical Distribution

Activities

Perceived Physical

Distribution Services

Performance

of Physical

Distribution

Activities

Pearson

Correlation 1 .977(**)

Sig. (2-tailed) .000

N 772 772

Perceived

Physical

Distribution

Service

Pearson

Correlation .977(**) 1

Sig. (2-tailed) .000

N 772 772

** Correlation is significant at the 0.01 level (2-tailed).

Table 4.47 shows the descriptive statistics of the relationship between performance of

physical distribution activities and perceived physical distribution service, with a mean

response of 1.7785 and std. deviation of 1.24085 for physical distribution activities and

a mean response of 1.9041 and std. deviation of 1.40820 for perceived physical

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distribution service. By careful observation of standard deviation values, it can be said

that there is about the same variability of data points amongst the dependent and

independent variables.

Table 4.48 is the Pearson correlation coefficient matrix of the relationship between

performance of physical distribution activities and perceived physical distribution

service, showing the correlation coefficient, significant values and the number of cases.

The correlation coefficient shows 0.977**. This value indicates that correlation is

significant at 0.05 level (2tailed) and implies that there is a positive relationship

between performance of physical distribution activities and perceived physical

distribution service (r = .977).

The Decision Rule;

If the significant/probability value (PV) <0.05 = Reject H0

If the significant/probability value (PV) >0.05 = Accept H0

Decision

The computed correlations coefficient is greater than the table value of r = .195 with

770 degrees of freedom (df. = n-2) at alpha level for a two-tailed test (r = .977, p<

.05). This result indicates that there is a positive relationship between performance of

physical distribution activities and perceived physical distribution service. The

significant/probability value (PV) = 0.000<0.05. Therefore, the researcher rejects the

null hypothesis and concludes that there is a significant relationship between

performance of physical distribution activities and perceived physical distribution

service. The double (**) in table 4.48 shows that the correlation coefficient is even

significant at 0.01 level of significance.

4.3.2 Test of Hypothesis Two

Restatement of the hypothesis in the null and alternate forms

H02: There is no significant relationship between product availability and overall

customer satisfaction.

Ha2: There is significant relationship between product availability and overall

customer satisfaction.

The data presented in table 4.33 Product Availability and table 4.42 overall customer

satisfaction were used to test this hypothesis

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Table 4.49: Descriptive Statistics for data presented on tables 4.33 and 4.42

Mean Std. Deviation N

Product Availability 2.2556 1.25624 579

Overall Customer Satisfaction 2.3282 1.29656 579

Table 4.50: Pearson Correlations Test Result for Hypothesis Two

Product Availability

Overall Customer

Satisfaction

Product

Availability

Pearson

Correlation 1 .958(**)

Sig. (2-tailed) .000

N 579 579

Overall Customer

Satisfaction

Pearson

Correlation .958(**) 1

Sig. (2-tailed) .000

N 579 579

** Correlation is significant at the 0.01 level (2-tailed).

Table 4.49 shows the descriptive statistics of the relationship between product

availability and overall customer satisfaction, with a mean response of 2.2556 and std.

deviation of 1.25624 for product availability and a mean response of 2.3282 and std.

deviation of 1.29656 for overall customer satisfaction. By careful observation of

standard deviation values, it can be said that there is about the same variability of data

points amongst the dependent and independent variables.

Table 4.50 is the Pearson correlation coefficient matrix of the relationship between

product availability and overall customer satisfaction, showing the correlation

coefficient, significant values and the number of cases. The correlation coefficient

shows 0.958. This value indicates that correlation is significant at 0.05 level (2tailed)

and implies that there is a positive relationship product availability and overall

customer satisfaction (r = .958).

The Decision Rule;

If the significant/probability value (PV) <0.05 = Reject H0

If the significant/probability value (PV) >0.05 = Accept H0

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Decision

The computed correlations coefficient is greater than the table value of r = .195 with

577 degrees of freedom (df. = n-2) at alpha level for a two-tailed test (r = .958, p<

.05). This result indicates that there is a positive relationship between product

availability and overall customer satisfaction. The significant /probability value (PV) =

0.000<0.05. Therefore, the researcher rejects the null hypothesis and concludes that

there is a significant relationship between product availability and overall customer

satisfaction. The double (**) in table 4.48 shows that the correlation coefficient is even

significant at 0.01 level of significance.

4.3.3 Test of Hypothesis three

Restatement of the hypothesis in the null and alternate forms

H03: There is no significant relationship between PDS timeliness and overall

customer satisfaction.

Ha3: There is significant relationship between PDS timeliness and overall customer

satisfaction.

The data presented in table 4.34 PDS Timeliness and table 4.42 Overall Customer

Satisfaction were used to test this hypothesis.

Table 4.51: Descriptive Statistics for data presented in tables 4.34 and 4.42

Mean Std. Deviation N

PDS Timeliness 2.0069 1.15867 579

Overall Customer

Satisfaction 2.3282 1.29656 579

Table 4.52: Pearson Correlations Test Result for Hypothesis Three

PDS Timeliness

Overall Customer

Satisfaction

PDS Timeliness Pearson

Correlation 1 .883(**)

Sig. (2-tailed) .000

N 579 579

Overall Customer

Satisfaction

Pearson

Correlation .883(**) 1

Sig. (2-tailed) .000

N 579 579

** Correlation is significant at the 0.01 level (2-tailed).

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Table 4.51 shows the descriptive statistics of the relationship between PDS timeliness

and overall customer satisfaction, with a mean response of 2.0069 and std. deviation of

1.15867 for PDS timeliness and a mean response of 2.3282 and std. deviation of

1.29656 for overall customer satisfaction. By careful observation of standard deviation

values, it can be said that there is about the same variability of data points amongst the

dependent and independent variables.

Table 4.52 is the Pearson correlation coefficient matrix of the relationship between

PDS timeliness and overall customer satisfaction, showing the correlation coefficient,

significant values and the number of cases. The correlation coefficient shows 0.883.

This value indicates that correlation is significant at 0.05 level (2tailed) and implies that

there is a positive relationship between PDS timeliness and overall customer

satisfaction (r = .883).

The Decision Rule;

If the significant/probability value (PV) <0.05 = Reject H0

If the significant/probability value (PV) >0.05 = Accept Ho

Decision

The computed correlations coefficient is greater than the table value of r = .195 with

577 degrees of freedom (df. = n-2) at alpha level for a two-tailed test (r = .883, p<

.05). This result indicates that there is a positive relationship between timeliness and

customer satisfaction. The significant /probability value (PV) = 0.000<0.05. Therefore,

the researcher rejects the null hypothesis and concludes that there is a significant

relationship between PDS Timeliness and overall customer satisfaction. The double

(**) in table 4.48 shows that the correlation coefficient is even significant at 0.01 level

of significance.

4.3.4 Test of Hypothesis four

Restatement of the hypothesis in the null and alternate forms

H04: There is no significant relationship between PDS quality and overall customer

satisfaction.

Ha4: There is significant relationship between PDS quality and overall customer

satisfaction.

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The data presented in table 4.35 PDS Quality and table 4.42 Overall Customer

Satisfaction were used to test this hypothesis.

Table 4.53:Descriptive Statistics for Data Presented in Tables 4.35 and 4.42

Mean Std. Deviation N

PDS Quality 2.4905 1.41952 579

Overall Customer satisfaction 2.3282 1.29656 579

Table 4.54: Pearson Correlation Test Result for Hypothesis Four

** Correlation is significant at the 0.01 level (2-tailed).

Table 4.54 shows the descriptive statistics of the relationship between PDS quality and

overall customer satisfaction, with a mean response of 2.4905 and std. deviation of

1.41952 for PDS quality and a mean response of 2.3282 and std. deviation of 1.29656

for overall customer satisfaction. By careful observation of standard deviation values, it

can be said that there is about the same variability of data points amongst the dependent

and independent variables.

Table 4.54 is the Pearson correlation coefficient matrix of the relationship between

PDS quality and overall customer satisfaction, showing the correlation coefficient,

significant values and the number of cases. The correlation coefficient shows 0.790.

This value indicates that correlation is significant at 0.05 level (2tailed) and implies that

there is a positive relationship between PDS quality and overall customer satisfaction

(r = .790).

The Decision Rule;

If the significant/probability value (PV) <0.05 = Reject H0

If the significant/probability value (PV) >0.05 = Accept H0

Quality Customer Satisfaction

PDS Quality Pearson Correlation 1 .790(**)

Sig. (2-tailed) .000

N 579 579

Overall Customer

Satisfaction

Pearson Correlation .790(**) 1

Sig. (2-tailed) .000

N 579 579

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Decision

The computed correlations coefficient is greater than the table value of r = .195 with

577 degrees of freedom (df. = n-2) at alpha level for a two-tailed test (r = .790, p<

.05). This result indicates that there is a positive relationship between PDS quality and

overall customer satisfaction. The significant /probability value (PV) = 0.000<0.05.

Therefore, the researcher rejects the null hypothesis and concludes that there is a

significant relationship between PDS quality and overall customer satisfaction. The

double (**) in table 4.48 shows that the correlation coefficient is even significant at

0.01 level of significance

4.3.5 Test of Hypothesis five

Restatement of the hypothesis in the null and alternate forms

H05: There is no significant relationship between PDS flexibility and overall

customer satisfaction.

Ha5: There is significant relationship between PDS flexibility and overall customer

satisfaction.

The data presented in table 4.36 PDS Flexibility and table 4.42 Overall Customer

Satisfaction were used to test this hypothesis

Table 4.55: Descriptive Statistics for Data Presented in Tables 4.36 and 4.42

Mean Std. Deviation N

PDS Flexibility 2.6580 1.38472 579

Overall Customer Satisfaction 2.3282 1.29656 579

Table 4.56: Pearson Correlations Test Result for Hypothesis Five

PDS

Flexibility

Overall Customer

Satisfaction

PDS Flexibility Pearson Correlation 1 .784(**)

Sig. (2-tailed) .000

N 579 579

Overall customer

satisfaction

Pearson Correlation .784(**) 1

Sig. (2-tailed) .000

N 579 579

** Correlation is significant at the 0.01 level (2-tailed).

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Table 4.55 shows the descriptive statistics of the relationship between PDS flexibility

and overall customer satisfaction, with a mean response of 2.6580 and std. deviation of

1.38472 for PDS flexibility and a mean response of 2.3282 and std. deviation of

1.29656 for overall customer satisfaction. By careful observation of standard deviation

values, it can be said that there is about the same variability of data points amongst the

dependent and independent variables.

Table 4.56 is the Pearson correlation coefficient matrix of the relationship between

PDS flexibility and overall customer satisfaction, showing the correlation coefficient,

significant values and the number of cases. The correlation coefficient shows 0.784.

This value indicates that correlation is significant at 0.05 level (2tailed) and implies that

there is a positive relationship between PDS flexibility and overall customer

satisfaction (r = .784).

The Decision Rule;

If the significant/probability value (PV) <0.05 = Reject H0

If the significant/probability value (PV) >0.05 = Accept H0

Decision

The computed correlations coefficient is greater than the table value of r = .195 with

579 degrees of freedom (df. = n-2) at alpha level for a two-tailed test (r = .784, p<

.05). This result indicates that there is a positive relationship between PDS flexibility

and overall customer satisfaction. The significant /probability value (PV) = 0.000<0.05.

Therefore, the researcher rejects the null hypothesis and concludes that there is a

significant relationship between PDS Flexibility and overall customer satisfaction. The

double (**) in table 4.48 shows that the correlation coefficient is even significant at

0.01 level of significance.

4.4 Discussion of Findings

This section discusses the main findings of the research and makes comparisons with

findings of previous researches. The section began with a brief discussion of the overall

findings before going on to discuss the main findings based on the objectives of the

study.

As suggested from the overall findings, most customers are satisfied with PDS of NBC

and they are happy to be in business with NBC and wished more of their suppliers were

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like NBC. Generally, NBC product availability, PDS timeliness, PDS flexibility and

PDS quality are better than those of the key competitor. However, there are

opportunities for improvement especially on the PDS flexibility it scored the least

mark.

Objective 1: To evaluate the relationship between performance of physical distribution

activities and perceived physical distribution service.

The finding that there is significant relationship between performance of PD activities

and perceived PD service supports the theoretical framework of Mentzer et al (2009:60)

that there should be relationships between PD activities performed and perception of

PD benefits received. The strength of this relationship (r = .977) indicates the extent of

impact effective and efficient performance of PD activities can make on perceived PD

service and overall customer satisfaction.

Objective 2: To ascertain the relationship between product availability and overall

customer satisfaction

The finding that there is significant relationship between product availability and

overall customer satisfaction supports the marketing theory, which says that customer

service expectations compared to perceived customer service performance affect

satisfaction. The strength of the relationship (r = .958) shows the extent of the impact

product availability, which was measured in terms of in-stock rate and percent orders,

units and lines filled will make on overall customer satisfaction. This relationship will

greatly affect intention to buy.

Objective 3: To determine the relationship between PDS timeliness and overall

customer satisfaction.

The finding that there is a significant relationship between PDS timelines and overall

customer satisfaction supports Johnson and Gustatson (2000:50) finding that customer

satisfaction is customer’s overall evaluation of the purchase and consumption

experience with a product, service or provider.

The strength of this relationship (r = .883) which PDS timelines, measured in terms of

order cycle time, average delivery time and consistent delivery, has with overall

customer satisfaction will immensely influence purchase decisions.

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Objective 4: To examine the relationship between PDS quality and overall customer

satisfaction.

The finding that there is significant relationship between PD service quality and overall

customer satisfaction also supports Johnson and Gustatson (2000:50) who found out

that customer satisfaction is customers’ over all evaluation of the purchase and

consumption experience with a product, service or provider.

The strength of relationship (r = .790) PD service quality measured in terms of

minimum damage in transit, and order filling accuracy has with overall customer

satisfaction indicates the extent of impact it makes on overall customer satisfaction.

Objective 5: To identify the relationship between PDS flexibility and overall customer

satisfaction.

The finding that there is significant relationship between PDS flexibility and overall

customer satisfaction supports substantially Manders (2009:1) finding that physical

distribution flexibility has a significant positive impact on customer satisfaction.

Manders’ study took place in Netherlands with manufacturing companies producing

technical products as units of analysis hence the need to confirm the study finding in

Nigeria using company in Fast Moving Consumer Goods (FMCGs) sector. The

Strength of relationship (r = .784) PD service flexibility measured in terms of flexible

order policies, expedite and substitute capacity, and meeting customers’ special needs,

has with overall customer satisfaction indicates the degree of impact it can make on

customer satisfaction.

Objective 6. To ascertain the relative importance of each physical distribution service

variable and benchmark the performance level.

The finding that the relative importance of PD service elements as ranked by customers

in this order;

Product availability 1st

PDS timeliness 2nd

PDS flexibility 3rd

PDS quality. 4th

This indicates the importance ratings or relative degree of importance customers attach

to the various PDS elements.

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This finding agrees with the finding of Mentzer et al (2009:57) which identifies the

relative importance of PD service elements to purchase decision as;

Availability 1st

Timeliness 2nd

Quality 3rd

The only difference is that the present study considered four (4) PDS elements and the

fourth element PDS flexibility displaced “Quality” in order of importance to customers.

The impact of each PDS element on customer satisfaction and purchase decision

depends on its relative importance to the customer.

The result of mapping the relative importance of PD service elements to customers

against the service performances of NBC and its key competitor indicates that

balancing a responsiveness to customer service requirements on one hand with direct

competitor service offerings comparison on the other hand is a logical basis for setting

customer service standards in a competitive environment.

4.5 Summary

The findings of the study show that effective and efficient performance of PD activities

will lead to better PD service which will invariably result in overall customer

satisfaction and customer loyalty. These findings collaborate with existing literature.

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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 and major retailers of Nigerian Bottling

Company (NBC) Plc in Enugu 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;

1. 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.

2. Product availability- in-stock rate and percent orders, units and lines filled-

significantly affect overall customer satisfaction.

3. PDS timeliness- order cycle time, average delivery time and consistent delivery-

have significant effect on overall customer satisfaction.

4. PDS quality- minimum damage in-transit, and order filling accuracy

significantly affect overall customer satisfaction.

5. PDS flexibility- flexible policies, expedite and substitute capacity and meeting

customers’ special needs-have significant effect on overall customer

satisfaction.

6. 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

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ranking was product availability, PDS timeliness, PDS quality and PDS

flexibility.

7. NBC performed better than the major competitor in all the PD service elements

examined.

8. 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.

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

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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

1. 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.

2. 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.

3. 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.

4. 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.

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.

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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.

A conceptual model of Market-driven Customer Service Standards (The

Customer Service Mirror)

The customer service mirror is a conceptual model of market-driven customer service

standards that identifies customer service requirements and major competitor’s service

offerings so that a company can adjust its service offerings to exceed those of the major

competitor based on the customers’ evaluation of the company and its major

competitor’s service offerings. The rationale is that in a competitive business

environment with increasing rational buyers, a company can only win by creating and

delivering superior value. It is based on the understanding that consumers take buying

decisions in a comparison context where a firm’s total product is compared to the

competitor’s total product and one that offers superior value to the customer is selected.

Customer service level is a tool that can differentiate the company’s product and

consequently increase sales and profits.

The provision of shorter order cycle times, less product damage, fewer stock-out

situations and substitute capacity than that of competitors is a definite marketing edge

for the company. However, these benefits must be weighed against the cost associated

with the increased service. Naturally, if the marginal benefits are less than the marginal

costs of the increased service, then the company will be in a better position without the

increased service. Interestingly, this situation is avoided by increasing service at

constant cost or even at lower cost through innovations in technology, total cost

analysis and costs trade-offs. The real challenge is that the company has to provide

better customer service than competitors at a cost that does not place the company at a

price disadvantage.

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This approach to setting customer service standards is called a mirror concept because

it is based on objective evaluation of the company’s service offerings by the customers

as the company is too close to itself to be really objective. We need objectivity in

setting customer service standards, and in exactly the same way as we need a mirror in

which to see our faces. The company’s mirrors are the customers. This approach will

reduce the gaps in service quality,

Assumptions

1. A better customer service leads to higher overall customer satisfaction and more

sales.

2. Customer service can be improved at constant cost or even at lower cost

through innovations.

3. At constant cost/price, more sales lead to higher profit.

4. Continuous customer service improvement is still desirable even if it does not

lead to increased sales, at least for market share and profit sustainability.

Steps

1. Determine customer service requirements and major competitor’s service

offerings.

2. Obtain customers’ evaluation of the company and its major competitor’s service

offerings.

3. Determine the relative importance of customer service elements to customers.

4. Set customer service standards above major competitor’s standards.

5. Ensure continuous service improvements through innovations that lead to costs

minimization.

6. Carry out periodic competitive benchmarking and review (i.e. customers’

evaluation of relative importance of service dimensions and performance of the

company and its major competitor on the dimensions).

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Figure 5.1: A conceptual model of Market-driven Customer Service Standards.

0

60

70

80

2

95 85 75 65

80

70

60 a

b

c

a2

b2

c2

d

0 70 % B

%

A

Key

Co

mpet

ito

r’s

Off

erin

gs

Sales

%

%

Customers Service Requirements

Company’s Service Standards

Triangle A02B is a reflection of triangle A01B.

In triangle A01B, customers expect at least 70% service level. For this customer service

requirement, there are three possible positions for the key competitor i.e position ‘a’

where he has not met the customer requirement, position ‘b’ where he has met it and

position ‘c’ where he has exceeded it. The company takes a mirror image of the

competitor’s standards to set its service standards above those of the competitor and

watches the impact on its sales. The challenge for the company is to exceed the key

competitor’s service offering at any position the competitor is. In triangle A02B, a2, b2,

c2 represent corresponding response positions of the company. It is a generic strategy

for leaders, challengers, followers and nichers based on their capability and competitive

advantage.

100

75

O1

e2

a2

b2

c2

d2

e2

a

b

c

Maximum service

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Market challengers, followers and nichers go for segments where they can beat market

leaders service offerings and enjoy better market shares.

The position ‘d2’ shows that improvement in customer service may not necessarily

increase sales but at least it can sustain sales, and the company must not always wait

until the key competitor makes the first move. Therefore, maximum service is achieved

at a point where increase in service is not accompanied by increase in sales as shown at

point “d2”. At this point service is not a criterion for purchase by customers. Emphasis

will have to shift to the product life cycle management. Any further increase in service

may be accompanied by a fall in sales as shown at point ‘e2’.

Please, note that in triangle A01B, if we equate customer service requirement to sales of

the key competitor because of its effect on decision to purchase, then the diagonal 0102

represents the direct relationship between customer service offerings and sales of both

the key competitor and the company.

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138

APPENDIX 1

Tables for Data Analysis

H01 Independent Variable

Table 4.38: Consolidated Responses to Qs 1, 2, 3 & 4 Attached to # 1 Objective,

Research Question and Hypothesis- Independent Variable. (PD Activities)

Responses Transportation Ware

housing

Inventor

y

Control

Order

Processing

Total %

Response

Strongly Agree 59 87 64 56 266 34

Agree 86 71 79 88 324 42

Undecided 5 6 3 7 21 3

Disagree 22 18 21 25 86 11

Strongly Agree 21 11 26 17 75 10

Total 193 193 193 193 772 100

H01 Independent Variable

H01 Dependent Variable

Table 4.37: Combined Consolidated Response in Tables 4.33, 4.34, 4.35 and 4.36

Attached to #1 Objective, Research Question and Hypothesis- Dependent Variable

(Physical Distribution Service)

Response Product

Availability

PDS

Timeliness

PDS

Quality

PDS

Flexibility

Total %

Responses

Strongly agree 206 238 167 141 752 32

Agree 229 223 221 198 871 38

Undecided 7 15 14 25 61 3

Disagree 67 78 94 149 388 7

Strongly agree 70 25 83 66 244 10

Total 579 579 579 579 2316 100

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Table 4.33: Consolidated Response to Qs 5, 6 & 7 Attached to #2 Objective,

Research Question and Hypothesis- Independent Variable. (Availability)

Response Table 4.21 Table 4.22 Table 4.23 Total % Response

Strongly agree 87 61 58 206 36

Agree 66 82 81 229 39

Undecided 3 2 2 7 1

Disagree 21 23 23 67 12

Strongly Disagree 16 25 29 70 12

Total 193 193 193 579 100

H03 Independent Variable

Table 4.34: Consolidated Response to Qs 8, 9 & 10 Attached to #3 Objective,

Research Question and Hypothesis- Independent Variable. (Timeliness)

Response Table 4.24 Table 4.25 Table 4.26 Total %

Response

Strongly agree 87 76 75 238 41

Agree 64 82 77 223 39

Undecided 4 5 6 15 3

Disagree 29 23 26 78 14

Strongly agree 9 7 9 25 4

Total 193 193 193 579 100

H04 Independent Variable

Table 4.35: Consolidated Response to Qs 11, 12 & 13 Attached to #4 Objective,

Research Question and Hypothesis- Independent Variable. (Quality)

Response Table 4.27 Table 4.28 Table 4.29 Total % Response

Strongly agree 73 43 51 167 29

Agree 71 78 72 221 38

Undecided 4 3 7 14 3

Disagree 25 24 25 94 16

Strongly agree 20 25 38 83 14

Total 193 193 193 579 100

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H05 Independent Variable

Table 4.36: Consolidated Response to Qs 14, 15 & 16 Attached to #5 Objective,

Research Question and Hypothesis- Independent Variable. (Flexibility)

Response Table 4.30 Table 4.31 Table 4.32 Total % Response

Strongly agree 33 46 62 141 24

Agree 68 73 57 198 34

Undecided 7 10 8 25 4

Disagree 64 43 42 149 26

Strongly agree 21 21 24 66 12

Total 193 193 193 579 100

H02 - H05 Dependent Variable

Table 4.42: Consolidated response to Qs 17, 18 and 19 attached to #2 to #5

Objectives, Research Questions and Hypothesis- Dependent Variable-Customer

Satisfaction

Response Table 4.39 Table 4.40 Table 4.41 Total %

Response

Strongly agree 46 64 77 187 32

Agree 72 87 75 234 56

Undecided 8 4 6 18 3

Disagree 48 29 26 103 18

Strongly disagree 19 9 9 37 6

Total 193 193 193 579 100

Rating Scales:-

Strongly agree - 5

Agree - 4

Undecided - 3

Disagree - 2

Strongly agree - 1

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APPENDIX 2

QUESTIONNAIRE FOR THE STAFF OF THE ORGANISATION.

Department of Marketing Faculty of Business Administration University of Nigeria Enugu Campus Enugu State. 7th October, 2013.

Dear Sir,

QUESTIONNAIRE FOR COMPLETION

I am a postgraduate student in the above named University, carrying out a research

work on “Physical Distribution and customer satisfaction” as part of the requirements

for the Award of Master of Science Degree in Marketing.

Please assist me by completing the attached questionnaire. I assure you that all

information given will be used for academic purpose only and will be treated with

utmost confidentiality.

Thank you for your assistance

Yours faithfully,

EWUZIE, CAJETAN .O

PG/M.Sc/09/53941

(Researcher)

INSTRUCTION:

Please tick (√ ) where necessary on the option which you consider most appropriate

SECTION A: BIODATA

1. Gender? Male [ ] Female [ ]

2. Age? 30years & below [ ] 31-40 [ ]

41-50 [ ] 51 & above [ ]

3. Educational Qualification?

National Diploma & below [ ] HND/ B.Sc. [ ]

Masters [ ] Ph.D. & above [ ]\

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4. Number of years with the organization? 0-5 years [ ]

6-10 years [ ] 11-15 years [ ] 16 years/above [ ]

5. Grade level ?

Below Supervisor [ ] Supervisor [ ] Manager and above [ ]

SECTION B:

Please indicate your level of agreement or disagreement with the following statements

about Physical Distribution System with regard to what is obtainable in Nigeria

Bottling Company (NBC) Plc by ticking (√) in the appropriate box.

S/N Physical Distribution

Activities

Strongly

Agree

Agree Undecided Disagree Strongly

Disagree

1 NBC distribution trucks/vans

are adequate, functional and

well coordinated.

2 NBC warehouses are

adequate and strategically

located.

3 NBC maintains adequate

inventory size and mix.

4 NBC has computerized,

online, real time order

processing system.

Physical Distribution

Service Elements.

Product availability

5 The assorted products (mix)

are always in stock.

6 The units ordered are (100%)

supplied.

7 All orders are (100%)

supplied.

PDS timeliness

8 The time it takes NBC to

supply from receipt of order

is right.

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9 The average delivery time is

reliable.

10 The percent units delivered in

specified time period is

consistent.

PDS quality

11 The percent units received in

acceptable condition is right.

12 The units that are supplied

(100%) are correct units.

13 The units that are delivered

(100%) are in correct

quantity.

PDS flexibility

14 NBC order policies are

flexible enough to permit

timely response to changing

market demands.

15 NBC has expedite and

substitute capacity to respond

to special customer requests.

16 NBC responds timely to

special requests or

unexpected needs of

customers.

Overall customer

Satisfaction

17 I am very satisfied with NBC

marketing activities.

18 I wish more of my suppliers

were like NBC.

19 It is a pleasure dealing with

NBC.

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20. How would you rank the importance of these physical distribution service

elements to you? Please rank each physical distribution element from 1 to 4

with 4 being the most important and 1 being the least important. There should

be no ties; rank each element with a different number.

S/N Physical Distribution

Service Elements

Ranking

1 Product availability

2 PDS timeliness

3 PDS quality

4 PDS flexibility

21. Companies at times experience excess stock or stock-outs. Does your company

experience this? (a) Yes [ ] (b)No [ ]

22. If your answer is “yes” how often does your company experience it?

(a) Very often [ ] (b) often [ ] (c) Rarely [ ]

(d) Very rarely [ ]

23. What factors were responsible for the stock-outs?

(a) Raw material [ ] (b) Power supply [ ]

(c) Transportation [ ] (d) Others [ ]

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APPENDIX 3

QUESTIONNAIRE FOR DISTRIBUTORS AND RETAILERS.

Department of Marketing Faculty of Business Administration University of Nigeria Enugu Campus Enugu State. 7th October, 2013.

Dear Sir,

QUESTIONNAIRE FOR COMPLETION

I am a postgraduate student in the above named University, carrying out a research

work on “Physical Distribution and customer satisfaction” as part of the requirements

for the Award of Master of Science Degree in Marketing.

Please assist me by completing the attached questionnaire. I assure you that all

information given will be used for academic purpose only and will be treated with

utmost confidentiality.

Thank you for your assistance

Yours faithfully,

EWUZIE, CAJETAN O.

PG/M.Sc/09/53941

(Researcher)

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146

INSTRUCTION:

Please tick (√ ) where necessary on the option which you consider most

appropriate

SECTION A: BIODATA

1. Sex? Male [ ] Female [ ]

2. Age? 30years & below [ ] 31-40 [ ]

41-50 [ ] 51 & above [ ]

3. Educational Qualification?

National Diploma & below [ ] HND/ B.Sc. [ ]

Masters [ ] Ph.D. & above [ ]

4. Occupation:? Farmer & Business [ ]

Civil/ Public Servant [ ] Unemployed [ ]

SECTION B:

Please indicate your level of agreement or disagreement with the following statements

about Physical Distribution System with regard to what is obtainable in Nigerian

Bottling company (NBC) Plc by ticking (√) in the appropriate box.

S/N Physical Distribution

Activities

Strongly

Agree

Agree Undecided Disagree Strongly

Disagree

1 NBC distribution trucks/vans

are adequate, functional and

well coordinated.

2 NBC warehouses are adequate

and strategically located.

3 NBC maintains adequate

inventory size and mix.

4 NBC has computerized, online,

real time order processing

system.

Physical Distribution Service

Elements.

Product availability

5 The assorted products (mix) are

always in stock.

6 The units ordered are (100%)

supplied.

7 All orders are (100%) supplied.

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PDS timeliness

8 The time it takes NBC to

supply from receipt of order is

right.

9 The average delivery time is

reliable.

10 The percent units delivered in

specified time period is

consistent.

PDS quality

11 The percent units received in

acceptable condition is right.

12 The units that are supplied

(100%) are correct units.

13 The units that are delivered

(100%) are in correct quantity.

PDS flexibility

14 NBC order policies are flexible

enough to permit timely

response to changing market

demands.

15 NBC has expedite and

substitute capacity to respond to

special customer requests.

16 NBC responds timely to special

requests or unexpected needs of

customers.

Overall Customer

Satisfaction

17 I am very satisfied with NBC

overall physical distribution

service.

18 I wish more of my suppliers

were like NBC.

19 It is a pleasure dealing with

NBC.

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20. How would you rank the importance of these physical distribution service

elements to you? Please rank each physical distribution element from 1 to 4

with 4 being the most important and 1 being the least important. There can be

no ties; rank each element with a different number.

S/N Physical Distribution

Service Elements

Ranking

1 Product availability

2 PDS timeliness

3 PDS quality

4 PDS flexibility

21. NBC major competitor in Enugu state is 7up Bottling Company:

Do you buy from this company? (a) Yes [ ] (b) No [ ]

22. How would you rate the performances of NBC and this major competitor on

these physical distribution service elements based on your experience or

information? Please thick the appropriate box.

Major Competitor

Physical

Distribution

Service Elements

NBC

Poor Fair Good Excellent Excellent Good Fair Poor

Product availability

PDS timeliness

PDS quality

PDS flexibility

23. Which of these business categories do you belong?

(a) Distribution/ wholesaler [ ]

(b) Retailer [ ]

24. How often are you supplied with NBC products?

(a) Twice a week [ ] (b) Weekly [ ]

(c) Every two week [ ] (d) monthly [ ]

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25. Would you like to be supplied with NBC product more frequently?

(a) Yes [ ] (b) No [ ]

26. Have you been asked for any of NBC products but you did not have it to sell?

(a) Yes [ ] (b) No [ ]

27. If your answer is “yes” how often do you experience stock-outs?

(a) Very often [ ] (b) often [ ] (c) Rarely [ ]

(d) Very rarely [ ]

28. What factors were responsible for the stock-outs?

(a) Company factors [ ] (b) Customer factors [ ]

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APPENDIX 4

PILOT STUDY REPORT (Customers)

Questions Responses

S/N Physical Distribution Activities SA

5

A

4

UD

3

D

2

S D

1

1 NBC distribution trucks/vans are adequate, functional and well coordinated.

7 3 1 3 1

2 NBC warehouses are adequate and strategically located.

8 2 1 4 -

Physical Distribution Service

Elements.

Product availability

3 The assorted products (mix) are always in stock.

9 3 - 2 1

4 All orders are (100%) supplied. 6 5 - 3 1

PDS Timeliness

5 The time it takes NBC to supply from receipt of order is right.

5 7 2 1 -

PDS Quality

6 The percent units received in acceptable condition is right.

8 5 - 2 -

PDS Flexibility

7 NBC order policies are flexible enough to permit timely response to changing market demands.

5 6 2 1 1

8 NBC has expedite and substitute capacity to respond to special customer requests.

4 5 1 3 2

Customer Satisfaction

9 I am very satisfied with NBC overall physical distribution service.

8 4 - 3 -

10 It is a pleasure dealing with NBC 7 6 1 1 -

Source: Field Survey 2013

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PILOT STUDY REPORT (Staff)

Questions Responses

S/N Physical Distribution Activities SA

5

A

4

UD

3

D

2

S D

1

1 NBC distribution trucks/vans are adequate, functional and well coordinated.

8 4 - 3 -

2 NBC warehouses are adequate and strategically located.

9 5 - 1 -

Physical Distribution Service

Elements.

Product availability

3 The assorted products (mix) are always in stock.

9 4 - 2 -

4 All orders are (100%) supplied. 5 6 - 4 -

PDS Timeliness

5 The time it takes NBC to supply from receipt of order is right.

6 8 1 - -

PDS Quality

6 The percent units received in acceptable condition is right.

8 4 1 2 -

PDS Flexibility

7 NBC order policies are flexible enough to permit timely response to changing market demands.

4 5 - 3 3

8 NBC has expedite and substitute capacity to respond to special customer requests.

3 5 1 2 4

Customer Satisfaction

9 I am very satisfied with NBC overall physical distribution service.

9 3 - 3 -

10 It is a pleasure dealing with NBC 8 5 1 1 -

Source: Field Survey 2013

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APPENDIX 5

Reliability Test for the Instruments

Reliability Statitics for staff

Cronbach’s Alpha N of items

.762 10

Reliability Statistics for Customers

Cronbach’s Alpha N of items

.815 10