Selling with physical distribution service: How logistics services affect product demand

Abstract

The idea o f physical distribution management is mysterious to many executives; actually the concept is not complicated. It is the reduction o f costs o f procurement, storage, distribution, and the like while maintaining or increasing revenue. Two critical variables are involved: service given and costs o f providing that service. The central problem is to determine how much should be spent to generate the best profit performance; an optimal relationship must be found between the costs of operating a physical distribution system and the revenue created. The starting point must be a general model of the functional relationship between customer service and demand. This article discusses the basic characteristics o f such a model in relation to customer response to three key aspects of physical distribution service: order cycle length, cycle consistency, and preparation.