TRANSACTION COSTS IN THE INTERACTION OF LOGISTICS AND MARKETING IN THE PROCUREMENT

Transcription

1 TRANSACTION COSTS IN THE INTERACTION OF LOGISTICS AND MARKETING IN THE PROCUREMENT Polina A. Nechaeva, Kazan Federal University Natalia V. Andrianova, Kazan Federal University Dufer S. Sadriev, Kazan Federal University ABSTRACT The individual solutions in the field of logistics and marketing may not be the same, and even confront each other to some extent that should be considered during the coordination enterprise marketing and logistics services. Supply is one of company main activities in any industry, so the provision of an efficient interaction between logistics and marketing services in the procurement is of particular importance. Taking into account the current development of logistics and marketing within the cross-functional interaction improvement it should be noted that the transaction costs make an integral part of this interaction in procurement activities. Having analyzed the types of procurement activities and having distinguished the responsibilities of logistics and marketing, the article specifies the types of transaction costs arising during the operation of these services and which are responsible for their size. On the basis of logistics and marketing service influence differentiation, the ways of transaction cost optimization are developed, which may lead to the decrease of an enterprise overall logistic costs: 1. The reduction of information search transaction costs through the use of an e-procurement system. 2. The reduction of transaction and coordination costs, registration and paper document drawing up costs through the introduction of electronic documents, which will facilitate the coordination according to conflict parameters, will allow eliminating the repetition of the same operations. 3. The reduction of transaction costs at electronic procurements. The conclusion of contracts with suppliers for a long time, the provision of supplier guarantees to a company will allow to reduce this type of costs. The transaction costs study at the enterprises revealed that the efficiency of supply activity improvement will contribute to the process of these costs management at the separation of logistic and marketing service functions. The ways of transaction costs optimization are developed, taking into account the relationship of marketing and logistics in the following aspects: 1. tracks and defines the appeared demand and logistics provides the physical promotion of demanded supply commodities; 2. poses the problem of the system approach to the organization of product distribution, and logistics studies the methods of technical and technological integration of all product distribution participants. Key Words: Transaction Costs,,, Optimization of Transaction Costs 215

2 INTRODUCTION For years the relationship and the interaction of marketing and logistics is discussed in scientific literature. These fields of science are deeply integrated, while carrying out their own specific functions. Individual solutions in the field of logistics and marketing may not be the same, and even confront each other to some extent. This should be considered at the coordination of enterprise marketing and logistics services. The absence of cooperative relations between company departments, their separateness, and their autonomy of operation leads to the loss of customers (Andrianova N.V., 2014, p. 784). According to the views of many scientists marketing prepares the conditions for the successful operation of a company at the market, and logistics brings goods and services to consumers physically. An effective management of an enterprise is impossible without a coherent toolbox of marketing and logistics management. However, logistics and marketing have their own specific tools, technologies, so management shall be treated in a differentiated way. There is some consistency in logistic and marketing solutions. So before the development of the product distribution process, you must make a decision about the production of products or its purchase with a subsequent resale which makes the part of marketing competence. Let's represent the distribution of marketing and logistics functions in the industrial and economic activities of enterprises and organizations in Table 1 (Christopher M., Peck H., 2003, p.152). Supply is one of company main activities in any industry, so the provision of an efficient interaction between logistics and marketing services is particularly important in procurement. 216

3 Table 1 DISTRIBUTION OF MARKETING AND LOGISTICS FUNCTIONS IN THE PRODUCTION ACTIVITIES OF A COMPANY Item Function Operation Responsibility Market analysis Study performance Analysis of goods Service analysis Analysis of potential consumers Analysis of competitors 2 Search for suppliers Evaluation of suppliers Selection of material resource sources Selection of suppliers 3 Delivery of material resources 4 Production process 5 Product sale 6 Manufactured product delivery Determination of transportation means Selection of transport means Route selection Development of new products Supply planning The distribution of material resources The movement of material resources in production Search for new markets Search for distribution channels Analysis of markets and distribution channels Evaluation and selection of markets Evaluation and selection of distribution channels Determination of transportation means Transport vehicle selection Traffic route selection On the basis of marketing and logistics relation analysis, the scheme of their interaction was developed in the areas of procurement and distribution (Fig. 1). In addition to the functional interaction, the interaction of marketing and logistic complex is represented according to their main components. Knowing the elements of the marketing complex "4P" and similar logistic complex "7R" they revealed that the logistics and marketing complexes are related by product, placement and costs (Christopher M. and Supply Chain Management, 2016, p. 310; Harrison A., Remko Van Hoek, 2008, p.343). Taking into account the current development of logistics and marketing in order to improve the cross-functional interaction it should be noted that the transaction costs in procurement activities are an integral part of this interaction. It is impossible to determine the principles of logistics system operation without them, which business processes take place in it, and the principles of their management. 217

4 Figure 1 INTERACTION OF MARKETING AND LOGISTIC UNITS The development of transaction costs theory as an integral scientific concept is primarily related to the work of such researchers as R. Coase (Coase Ronald H., 1937, p. 386), D. North, J. Wallace (Wallis J.J., 198), P. Milgrom, J. Roberts (Milgrom P., 1992), K. Dahlman (Dahlman Carl J., 1979, p. 141), O. Williamson (Williamson O.E., 1985, p. 278), G. Stigler (Stigler, George, 1961, p. 213), M. Jensen, W. Meckling (Jensen M.C., Meckling W.H., 1973, p. 125) and others. However, the existing definitions do not characterize the transaction costs from the standpoint of modern logistics development and does not take into account the principles inherent to its functional area - "supply logistics". Therefore, it is urgent to clarify and summarize the definition of this concept. The transaction costs in the supply logistics are the costs (explicit and implicit) arising from the interaction between any versions of counterparties, aimed at material flow management and related with them by information and financial flows through the coordination, the integration, and the optimization of the logistic system in order to achieve corporate goals (Shutova P.A., 2009, p. 45). 218

5 METHODS The theoretical and methodological basis are the concepts and methods developed by domestic and foreign scholars on the issue of information reflection, the assessment and the management of transaction costs, the results of fundamental and applied research. The data of specialized scientific publications, the information published in domestic and foreign scientific literature and periodicals in the field of economics and logistics, the statistical data of Federal State Statistics Service, the materials of scientific-practical conferences, the information placed on the Internet sites, the primary information collected by the author at the industrial enterprises of Russia were used during the study. RESULTS AND DISCUSSION After the analysis of procurement activity types and after the differentiation of logistics and marketing responsibility fields (Figure 2), let's determine the types of transaction costs arising from the operation of these services which are responsible for their value: 1. The costs of information search (marketing responsibility). They arise when there is not enough information to select an appropriate option from the available alternatives, and there is a need to spend resources for the search of missing alternatives. In supply logistics this is the cost of time and resources for data obtaining and processing concerning supply item prices, the items of supply available at the market, suppliers logistic intermediaries, as well as the losses associated with the incompleteness and the imperfection of the acquired information. 2. The costs of electronic procurement (responsibility for marketing) are the costs on an enterprise interaction with suppliers within e-procurement system. These costs are made up of personnel time costs to implement e-procurement, the expenses for communication services, the cost of e- procurement system implementation support and subscriber's fees. 3. Coordination costs (responsibility for marketing and logistics) are the costs arising from the accordance of enterprise operations with counterparties after the conclusion of agreements on controversial issues in the supply logistics arising in a working order, as well as between the groups of companies belonging to the same holding. 4. Registration and paper document drawing up costs (responsibility for marketing and logistics) - the time and material costs associated with registration and the drawing up of paper documents during the interaction of counterparties. A large number of transactions in supply logistics is associated with the registration and the drawing up of numerous papers. Considering an isolated case of a document drawing up (e.g., an extract from the pass to a company parking), spent transaction costs may have little value for an enterprise, but in the aggregate the level of registration costs and paperwork may reach very high values. After the analysis of transaction cost types arising from the operation of the logistic and marketing services, it should be noted that the effective interaction of these services may lead to an optimal level of transaction costs, which in its turn will result in the overall costs reduction of an enterprise. Over the past decade the increase in logistics costs of many western companies is considerable for such logistic functions as transportation, order processing, information and computer support, as well as logistic administration. 219

6 Thus, the share of the logistics component in the cost of domestic products may reach 60%. In Europe, the cost of everything related to the delivery, storage and warehousing make 15% on the average. The reasons of such a contrast are increased prices because of transportation and storage costs and the delivery terms failure which became a typical phenomenon in the relations between a Russian supplier and a Russian consumer (Tomino T., Hong P., Park Y.W., 2011, p. 204). According to practice, the purchase of material resources, the cost of material purchase by most industrial companies in modern conditions account for an overwhelming share of production cost. Depending on the industry, they range from 40 to 60%. In this regard the consideration of transaction costs optimization is a relevant one in supply activity. Figure 2 ACTIVITIES WITH TRANSACTION COSTS. THE RESPONSIBILITY OF LOGISTIC AND MARKETING SERVICES Knowing the value of the transaction costs in the procurement for each type and separating the impact sphere of logistics and marketing services, you can work out the ways to optimize transaction costs, which will result subsequently to the reduction of overall logistic costs of an enterprise (Table 2). 220

7 Table 2 TRANSACTION COST OPTIMIZATION MEASURES Transaction cost type 1. Transaction costs of information search 2. Transaction costs of coordination 3. Transaction costs of paper document registration and processing 4. Transaction costs at e-procurement Transaction cost optimization ТC IS extremum ТC Coord. min ТC R min ТC E-p min Events When you have a lot of information about suppliers at the market with the optimum costs of information search, it is possible to find a large number of suppliers, which will lead to the increase of a more favorable contract conclusion probability with suppliers (for example with reduced prices for supply items) The introduction of an electronic paperwork will reduce the transaction costs of coordination. The introduction of electronic paperwork will allow free some staff. This measure will reduce the registration and paper document processing transaction costs. The conclusion of contracts with suppliers for a long time, the provision of guarantees by a supplier for a company will reduce this type of costs. The process of transaction costs control taking into account a clear separation of logistic and marketing service functions helps improve the efficiency of supply activities. CONCLUSIONS It was found that the relationship of marketing and logistics is traced in the following aspects: 1. tracks and defines the demand and logistics provides the physical advancement of demanded supply items quantity; 2. poses the problem of a system approach to the organization of product distribution, and logistics studies the methods of technical and technological integration among all product distribution participants. At that the assertion about the paramount role of marketing or logistic in procurement system will be a wrong one (Trevor S.H., Jamison M.D., Faizul, H. Nikhil A.P., 2008, p. 506). In our opinion, on the one hand, the logistic activity is subject to the marketing strategy at a company, and, on the other hand, the marketing complex is functionally dependent on logistics. The accordance of logistic and marketing activities will reach an optimum level of transaction costs which will allow increasing the efficiency of an enterprise. SUMMARY The management of transaction costs in procurement taking into account a clear division of logistics and marketing interaction spheres reaches the level of the priority issues during the organization of an enterprise effective activity. In modern economy due to the increasing complexity of economic relations at the interaction of logistics and marketing the transaction costs will take higher values. The assessment, accounting and optimization of transaction cost 221

8 values with a clear division of logistics and marketing responsibility will enable managers to make proper decisions during the management of common enterprise costs. The reduction of overall costs will influence the activity of an enterprise as a whole positively. ACKNOWLEDGEMENTS The work is performed according to the Russian Government Program of Competitive Growth of Kazan Federal University. REFERENCES Andrianova N.V. (2014). Creation of model of optimizing the choice of effective distribution channels of finished products under risk and uncertainty, taking into account the environment of the enterprise. Life Science Journal, 11(8), (ISSN: / doi: ). Christopher M., Peck H. (2003). Financial Times Pearson Education (2nd Edition) Christopher M. (2016). and Supply Chain Management Financial Times Pearson Education (5th Edition) Coase Ronald H. (1937). The Nature of the Firm. Economica, Dahlman Carl J. (1979). The Problem of Externality. Journal of Law and Economics, Harrison A., Remko Van Hoek (2008). Management and Strategy: Competing Through The Supply Chain. Financial Times Pearson Education (3rd Edition). 343 p. Jensen M.C., Meckling W.H. 1973). Theory of the firm: managerial behavior, agency costs, and ownership structure Journal of Financial Economics, 3(5), Milgrom P., Roberts J. (1992). Economics, Organization and Management, USA Prentice: Hall, Inc. Shutova P.A.(2009). The concept of "transaction costs" in logistics. Economic analysis: theory and practice, 31 (60), Stigler, George (1961). The Economic of Information. Journal of Political Economy, 69(3), Tomino T., Hong P., Park Y.W. (2011). An effective integration of manufacturing and marketing system for long production cycle: a case study of Toyota Motor Company. International Journal of Systems and Management. 9(2), Trevor S.H., Jamison M.D., Faizul, H. Nikhil A.P. (2008). A framework for an integrated distribution system optimization model. International Journal of Systems and Management, 4(5), Wallis J.J., North D.C. (1986). Measuring the transactional sector in American economy, Long-term factors in American economic growth Ed. By S. Engerman. Chicago, Williamson O.E. (1985). Reflections on the new institutional economics. Journal of Institutional and Theoretical Economics, 141(1),