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EFFECT OF PHYSICAL DISTRIBUTION ON ORGANIASATIONAL PERFORMANCE

(A STUDY OF AGRO MARKETING FIRMS IN LAGOS STATE)

CHAPTER ONE

INTRODUCTION

1.1      BACKGROUND TO THE STUDY

As competition in the 1990s intensified and markets becameglobal, so did the challenges associated with gettinga product and service to the right place at the right timeat the lowest cost. Organizations began to realize that it isnot enough to improve efficiencies within an organization,but their whole supplychain has to be made competitive (Tan, Lyman and Wisner 2002).

The understanding and practicing of physical distribution management has become an essential prerequisite for stayingcompetitive in the global race and for enhancing profitably,(Moberg, Cutler, Gross, and Speh 2002).Council of Logistics Management (CLM) definesphysical distribution management as “the systemic, strategic coordination of the traditional business functions and tactics across these businessesfunctions within a particular organization and acrossbusinesses within the supplychain for the purposes of improvingthe long-term performance of the individual organizationsand the supplychain as a whole”.

The goal of physical distribution system is to integrate bothinformation and material flows seamlesslyacross the supplychain as an effective competitive weapon (Childhouse and Towill 2003, Feldmann and Müller 2003).

The concept of physical distribution has received increasing attentionfrom academicians, consultants, and business managersalike (Tan, Lyman and Wisner 2002, Feldman and Müller 2003, Van 1998). Manyorganizations have begun to recognizethat physical distribution is the keyto building sustainable competitive edgefor their products and/or services in an increasinglycrowdedmarketplace (Jones 1998).

In the transportation and distribution (T&D) sector, as in many others, it is important to have a good performance in operations. In order to achieve high performance, it is necessary to know which operational factors are critical for success and which are less important. Only then can management focus attention on those factors that have a strong effect on performance.

Challenges exist in terms of identifying appropriate performance measures for theanalysis of supply chain (Arzu Akyuz, & Erman Erkan, 2010; Beamon, 1999). Researchers have thus farbeen content in limiting their choice of performance measures. Customer responsiveness has also beenrecognized as an important dimension of physical distribution management performance (Christy & Grout, 1994). In addition, Lee andBullington (1993) identify supply chain flexibility as an important measure of physical distribution management performance.

In order to capture the construct of performance measure, all the different dimensions ofphysical distribution management performance need to be considered simultaneously. In addition, it is recognized that since physical distribution has firmlevel implications and it becomes imperative to measure effects of physical distribution management performance on organizationalperformance measures (Green, McGaughey & Casey, 2006).

The purpose of this studyis therefore to empiricallytest the effect of physical distribution on organizational performance. Identifyingthe relationships among physical distribution practices, competitive advantage and organizational performance.

1.2    STATEMENT OF THE PROBLEM

Distribution firms have always researched for methods to minimize the cost and maximize flow of shipping each unit of commodity to and fro across the supply and demand nodes. Though, warehousing has smoothen out the fluctuations in demand and supply at market place yet major constraints are been faced in assigning supply and properly matching orders placed during redistribution to final retailers outlets. In recent times logistics firms are faced with greater problems of optimizing the whole system so as to develop strategies that minimizescost and maximizesflow.

Some of the constraints affecting effective physical distribution in Agro marketing firms are Setting geographical coverage area for each warehouse to avoid conflicting customer coverage; efficiently utilizing space, resources and capacity of warehouses that will be optimal to avoid diseconomies of scale from under-utilization of warehouses and allocation of the flow of products and balancing of routes from each salesman to retailers’ outlets.

This research study tends to address the above issues and challenges facing organizations as they strive to maximize effectiveness and efficiency of their distribution processes and activities.

1.3      AIM AND OBJECTIVES OF THE STUDY

The aim of this research project is to examine the effect of physical distribution on organizational performance in marketing firms. The objectives of this study include the followings;

i.        To ascertain the relationship between product availability and sales turnover.

ii.      To evaluate the correlation between product delivery flexibility and cost efficiency.

iii.    To determine the relationship between customer responsiveness time and reduced inventory cost.

iv.   To examine if warehousing has any influence on market share of agro marketing firms.

1.4      RELEVANT RESEARCH QUESTIONS

In order to achieve the purpose of this research study, the study will attempt to provide answers to the following research questions in order to arrive at a logical conclusion.

i.                    Does any relationship exist between product availability and sales turnover?

ii.                  Is there correlation between product delivery flexibility and cost efficiency?

iii.                Is there any significant relationship between customer responsiveness time and reduced inventory cost?

iv.               Does warehousing have any influence on market share of agro marketing firms?

1.5      RELEVANT RESEARCHHYPOTHESES

The following tentative statements can be related to the work study and they will be tested later.

HYPOTHESIS ONE

Ho:      There do not exist any significant relationship between product availability and sales turnover.

HYPOTHESIS TWO

Ho:      There is no correlation between product delivery flexibility and cost efficiency.

1.6      SCOPE OF STUDY

The premise on which this study is based is the effect of physical distribution on organizational performance in agro marketing firms. The study is limited to organizational performance with respect to physical distribution. The scope of the study will cover five (5) agro marketing firms at Agege area of Lagos State.  The companies are also limited to companies dealing in poultry products.

These firms are:

FIRM                                                              ADDRESS

1.     Poultry Support Service Ltd        309, Old Abeokuta Expressway, Abattior,

Lagos.

2.     Soleace & Moxie Inv. Ltd.                        309, Old Abeokuta Expressway, Abattior,

Lagos.

3.     Solution Feeds Ltd.                        305, Old Abeokuta Expressway, Oko-Oba,

Lagos.

4.     Sabina Pad Ent. Nig. Ltd.              311 Old Abeokuta Expressway, Oko-Oba,

Lagos.

5.     Cervi – Plus.                                     Abibatu Mogaji Market, Old Oko-Oba Road,

Oko-Oba, Lagos.                           

1.7      SIGNIFICANCE OF STUDY

The study is relevant to managers of agro marketing firms to expose them to systematic means of distributing their products for greater performance.

This study is also of paramount importance to academicians and practitioners as the proposed framework is expectedto uncover many neglected relationships that are of interest to managers. In addition, specific patterns of physical distribution practices would also be revealed which would further encourage managers to implement this technique andpossibly improve both physical distribution management and organization performance.

Finally, the study is a contribution to knowledge which could serve as a springboard for students, businessmen and managers who are interested in pursuing a career in the field of physical distribution.

1.8      DEFINITION OF TERMS

Physical Distribution: Handling, moving, and storage of goods from the point of origin to the point of consumption or use, via various channels of distribution.

Postponement: The practice of moving forward one or more operations or activities(making, sourcing and delivering) to a much later point in the supplychain.

Physical Distributor: The provider of services who has entered into a physical distribution agreement with the principal and accordingly has agreed to undertake physical distribution.

Wholesalers:Makes marketing systems more efficient by buying a variety of products, in fairly large quantities, and selling these items on to other businesses that require relatively small quantities of a variety of goods.

Agricultural Marketing: This involves on-farm and off-farm activities from the production to the commercialization of agricultural products, such as post-harvest handling, processing, marketing and related commercial activities.

Agricultural marketing firms:consist of interdependent sets of enterprises, institutions, activities, and relationships that collectively develop and deliver material inputs to the farming sector, produce primary commodities, and subsequently handle, process, transport, market, and distribute food and other agro-based products to consumers.

Acquisition Performance: This is perceived performance indicator that measures performance of organisations based on new customers generated, increase in sales growth and market share of such organisations.

Retention Performance: This is perceived performance indicator that measures performance of organisations based on customer retention ability of such organisations.

Organizational Performance: refers to how well an organizationachieves its market-oriented goals as well as its financialgoals.

Agro Marketing:An integrative force that matches production to customer needs and satisfaction in the agricultural sector.

Delivery: The moment in which the goods, after the agreed work has been carried out by the physical distributor, are made available to the principal or entitled party.

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