Question

write an essay in about 800 words on the topic, " how the use of direct shipment method by retailing companies to reduce inventory holding cost impacts logistics systems both from demand and supply side of logistics with examples."

Answer 1

The use of Direct Shipment method by retailing companies to reduce inventory cost impacts logistics both from demand side and supply side of logistics.

Direct Shipment Method means that manufacturers deliver the products directly to customers, without any intermediary. The products leave the factory and then lands directly at the consumer’s residence, without entering any other shipment facility or warehouse.

There are pros as well as cons of this method to both the supply side and the demand side of logistics, as discussed below:

Supply side of logistics

*The direct shipment method gives the control in the hands of manufacturer.

* The manufacturer needs to set up the whole channel including warehouse, logistics system, trucks, packaging and labelling staff, and delivery staff.

*The whole set up would be costly for the manufacturer. But once it is set, then it has its own benefits like shorter channel, therefore big profit margin for manufacturer.

* Main concern here in this method is that, the manufacturer has his expertise in only manufacturing, so he may not be efficient in his logistic system.

*They will have to take the service of some online platform in order to showcase their products to customers, from where consumers can choose the product and place order with the manufacturer.

*Exact status of products availability can be known.

*For lean manufacturers, it is like a boon to them.

* But this method also adds to the cost of manufacturer when he has to manage single orders, one parcel orders, as this becomes hectic and time consuming for the packaging and labelling staff and the delivery staff. With bulk orders, their time and effort gets saved.

Demand side of logistics

*Demand side of logistics are the consumers, who will benefit from direct shipment method in the sense that they will have to pay lower prices for the products due to shorter channel of supply.

*The consumers will also benefit from the on time fulfilment of their orders.

* But the consumers will have to suffer also due to poor packaging standards and low quality labelling as manufacturer does not have expertise in this area.

*Consumers will get the products directly at their home, without traveling here and there, searching for quality products with lower prices.

The Indirect shipment method involves various intermediaries in the logistic network, such as wholesaler, warehouses, distributor, shipment facilities, retailers etc. This increase the cost to consumers while decreasing the profits to manufacturers.

Thus, direct shipment method has its benefits as well as costs as compared to the indirect shipment method.

As can be seen in the modern era, e-commerce is the new heir of the retailing legacy, where people can see a variety of products from different manufactures in different regions, listed on a single website. Here, the manufacturers pay some fees the online website for showcasing their products, in turn manufacturers are given the leverage to manage their orders on their own. The retailing site only intimates the seller, whenever consumer makes an order. Then, the manufacturer makes all the arrangements for on time in full requirement delivery to the consumer. For Ex. Amazon, Flipkart. Through these websites, small manufacturers who does not have enough capital to open their own store or outlet, benefit a lot as they are now able to cater to the needs of larger customer base and fulfil their demands, while making handsome amount of profits.