Marketing and physical distribution
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HOW the high-service demands of a perishable product were reconciled with complete nation-wide coverage economically was explained in a paper given by Mr. M. H. F. Prince, general distribution manager, T. Wall and Sons (Ice Cream) Ltd., at a conference organized by the British Institute of Management in London recently.
Besides requring sophisticated and expensive storage and transport facilities, arradditional complication of ice cream distribution was the high summer-to-winter ratio which could double during a heat-wave, he said. Therefore the burden of expensive distribution facilities was intensified through highly variable utilization.
Another problem was the disposition of facilities. Normally consumer goods distribution centred on major population areas. But ice cream, with a significant proportion sold to those engaged in "pleasureactivities, needed to be tactically placed to serve consumers at the seaside or rural beauty spots..
Careful planning
To handle this type of distribution, an organization needed careful planning; while built on a firm strategic base of fixed facilities, it had to be flexible tactically to react to violently changing sale patterns. The implication was an organization with responsibility well delegated both for sales and for profits, and with geographical units with sales, distribution and administrative functions well integrated.
In elaborating on alternative methods of organization, Mr. Prince explained the effect of a different selling technique. Originally experiments had been made with telephone selling—there was the attraction of better maintaining the product's quality. In contrast an inevitable feature of van-selling, when a range of products was involved, was the risk of damage both through temperature and handling when some wares went out twice. Van capacity, too, was increasingly becoming a problem as the range of products increased, while the firm was parti cularly anxious that customers visited at the end of the day should be offered the full range.
Therefore it was first established that there was no adverse effect on sales, costs broke even and the increase in van productivity at least paid for the phone and extra staff costs. Subsequently it was discovered that the initiative which pre-ordering gave could be used to provide greater economics and flexibility in van routeing.
The work of the phone sales teams was
vital, Mr. Prince explained, showing how the distribution team was not divorced in any way from sales effort. It was part of it and, for instance, the van men undertook merchandising activities.
The principal objective for distribution managers was the balance between sales and cost and not only in the static sense of
selling a sales plan for a budgeted cost. They were expected to be alert to the opportunity of profit from extra sales with only marginal addition to cost. Hence their cost budget, although it acted as a discipline, was not an inhibiting constraint.
Its new shape of organization had enabled Wall to replan its distribution network com pletely, gradually reducing the number of depot installations from 112 to under 50 despite handling a substantially greater volume of sales from year to year.
Passing from organization to operation Mr. Prince said that distribution was the "big spender"—the danger was in it becom
ing the -big waster". High-cost distribution and wide variation in sales opportunity
caused through changes in the weather placed the firm in a classical risk-taking situation. It was a question of backing the right horses at reasonable odds.
After the examination of weather patterns and other seasonal factors, Mr. Prince said
the underlying problems for economic ex
ploitation of the extra profit opportunity were threefold: To find a way of stretching fixed resources to handle steadier and more
prolonged variations and to determine whether above this they should have reserves; to find a way of smoothing violent short-lived •tariations by stock strategy
close to, or at, the point of sale; and to arrange mobility or transfer of reserves to reduce the total requirement and exploit the likely unevenness of activity.
Once these possibilities had been explored, Mr. Prince explained, within reasonable limits the maximum distribution potential for any set of facilities could be declared. In practice it was found that as understanding of the mechanism grew, the expression of risks versus costs could be more sophisticated and wasteful levels of cover could be consciously reduced. In effect the policy of insurance remained in force but the premium was reduced.
Small unit strategy
All its strategy was based on one small unit—the customer, i.e. each shop, cinema, kiosk, cafe. etc. From an examination of annual sales the required number of sales deliveries in an ideal situation was obtained. A number of adjustments were then made which effectively doubled the original planned frequency. From this two critical figures emerged as the basis of service planning —call-frequency for normal sales and target-drop value.
From this call schedules were compiled, basic journeys set up and van and staff establishments calculated. Also, Mr. Prince added, customers were individually informed by a marked calendar of their call days for the following year.
Included in measures taken to trap marginal sales, was the stretching of vehicle running up to maximum permitted hours and into the weekends. At the same time journeys were modified to include supplementary deliveries and to minimize mileage.
A pool of reserve vehicles was held close to likely pressure points. This disposition changed as the summer advanced, more resources being moved gradually to holiday areas.
As manpower became scarce part-time staff were asked to increase towards a full day and sales representatives were tempor arily redeployed in depot activities. Also, and perhaps most important Mr. Prince emphasized, was trying to ensure that every planned call as advised to customers was carried out as scheduled. Customers' confidence that this call would be honoured relieved the depot of pressure by requests which were merely worried "stakings of claim".
Using this planning method as a base the firm had been able to reduce substantially its regular van fleet. And by studying the effects of above-average weather on drop values and stock levels, the reserve component had been reduced without taking undue risks.
Turning to control, Mr. Prince said that strategy was considered in a company context and was done by a small management group of which the general distribution manager was a member. Plans were worked out for five years ahead and the outline of distribution requirements was plotted alongside the marketing strategy.
Detailed plans
Each year the long-range plan was updated and detailed plans were made for the following year's operation. At this stage the precise level of risks and facilities were assessed and passed to the operating distribution managers at depots.
Detailed operation plans were drawn up inside this framework and virtually all distribution work had been reviewed by work study and standards compiled. The final plans were agreed at all levels of management and these were incorporated in the individual managers' objectives for the year. Control indices were worked out and agreed.
Once under way Mr. Prince said that they worked under a system of weekly controls based on physical factors and monthly controls based on money. The distribution manager knew weekly how he had performed against sales targets and how he had expanded his physical resources against plan and against standard.
Costs were split between controllable and non-controllable, covering some 40 items of significance. Useful individual monthly depot costs had been difficult to develop particularly as regards producing information quickly enough for remedial action to be taken. For example vehicle repairs invoices tended to be submitted very late. They had, however, solved many of these problems and had got, at least, a lively working document.
Indices used and checked against planned levels included: drop value, sales per van day, van days used, miles per call, work performance—van, depot and clerical, calls per van day and cost per £1,000 /sales. Progress of the indices was checked and formed one of the bases of budgeting.
With a basis of sound data it was possible then to work towards further improvments and two areas were particularly important. Mr. Prince said that internally performance planning had been introduced recently so that managers could attack areas of weakness or those which offered opportunities in their own specific location and these improvement objectives were being incorporated into budgets. Externally the firm's interests and those of its trade customers were being drawn closer together to mutual advantage.
Mr. Prince concluded his paper with some comments on how it all worked out with people. Sales and distribution staff were detached from a company's main centres and small matters of irritation, misunderstanding and friction could become exaggerated.
In introducing the present organization much time had been spent discussing the certainty that friction would occur and how it should be dealt with. It was his firm's view that some friction was healthy and could expose areas of unclear policy. The field staff had accepted that if disputes arose they must be fought both on the basis of facts and inside the confines of company policy.
The most heartening aspects had been the response to changes in technique and operation. Many staff had changed jobs and new ones together with new methods, had been adopted with critical enthusiasm.
Risks taken
Expensive distribution facilities had been moulded to provide enhanced opportunity rather than becoming a constraining burden. Risks were consciously taken so that the point at which there might be a failure to keep up with demand was that at which profit would diminish rather than grow. Distribution was therefore truly integrated with marketing.
Although Mr. Prince admitted their measurement was crude in many areas, the danger had to be avoided of having too much information too refined to be of use.
In general the environment had to be understood and the economic systems of the company treated as a whole. In distribution each action, whether adding or subtracting sales opportunity or expense, had to be judged against the continuing objectives of the company and not in isolation. Distribution whatever the changes, Mr. Prince insisted, had to be maintained in a healthy condition without becoming a lumbering giant.