CHAPTER ONE
INTRODUCTION
Distribution is a key element of marketing mix that
ensures the movement of products or services from the point of production to
the ultimate consumption. Essentially, it is often said that production remains
incomplete until the goods or services concerned reach the final consumer.
Kotler (2006) sees distribution channels as
"set of interdependent organizations involved in the process of making a
product or services available for use or consumption".
Distribution activities of marketers are critical
as the most innovative product or attractive product at an attractive price and
right promotion is worthless of the product does move from the point of
production to the final consumers when they are needed. Therefore, a product
distribution is getting the product to market and arranging for its sale and
the transfer of title from producer to final consumers.
Distribution activities include inventory location
and warehousing, material handling. Inventory control order processing and
transportation. All these activities can only be carried out by few
manufacturers which employ the services of middlemen activities are geared
toward facilitating the movement of goods from the manufacturer to the
consumers.
The physical distribution function is relevant, not
only after goods have been produced, but even before the production and ready
for market. For proper planning of schedules and channels of distribution. To
optimize in physical distribution, the component activities must be seen and
performed as an integrated set of decisions which must start with a
consideration of the market or target consumer. Thus, the marketing approach to
physical distribution is based on the
realization that the relationships between the relevant activities are systemic
and therefore, decisions on the others. it is also required that costs are
minimized over all activities simultaneously rather than an individual
activities. This is because the cost are interdependent, and cost decisions in
one area affect costs in other areas.
At this juncture, management should determine what
method and route will be use to get the product delivered. This means
establishing strategies for the products distributions, channels and physical
distribution. Distribution management must therefore, make key decisions with
regard to the type of intermediaries to use, how to motivate them to perform
their various activities effectively and efficiently and also make sure that
all the intensity of distribution to employ are readily available.
1.1 Background of the study
The problem of eratic supply of petroleum products
resulting in price differentials in different parts of Nigeria is not a new
phenomena. Before 1973, the pump price of petroleum products for petroleum
products had exceeded the supply from refineries and other sources. This led to
higher process. In order to abolish differentiated pricing, the federal
government in October 1973 in the exercise of the power of section 5 (1) of the
petroleum Decree 51 of 1969 ordered the prices of petroleum products to be uniform
throughout the country. The situation before this order was such that the pump
prices of petrol and other products were determined by the government in
consultation with the oil companies.
The basic prices were uniform but the pump prices
varied form state to state these differences were influenced by transport
costs, haulage changes, state purchase taxes and duties.
However, in order to achieve the uniformity desired
in petroleum products across all the states in the federation, the federal
government had to forgo and large portion of the income that usually accrued to
it from excise duties. The major aims of uniform pricing were as follows:
i.
To reduce the
burden of fuel costs
ii.
To prevent
industrialists from using price differentials as an excuse for refusing to
establish in the hunter land.
iii.
To assist the
government in the execution of development projects through reduced cost.
The proposed uniform pricing policy and the
resultant price equalization find encountered serious management problem including
the springing up of illegal markets for petroleum products and the increased
incidence of sporadic shortages of petroleum products. These problems are
largely marketing in nature which defy solutions by successive regimes in
Nigeria.
In this research project, the problem of supply of
these petroleum products would be analyzed in detail and solutions to it
through recommendations would be forwarded.
Source: Marketing in Nigeria '2nd Edition".
(Secondary source of collecting data).
1.2 Statement of the problem
The strategic importance of NNPC in the supply and
marketing of petroleum products in Nigeria cannot be over emphasized. With the
3 major refineries sited in Kaduna, Warri and Port Harcourt working at full
capacity, NNPC will be well positioned to meet the demand of motorist and
industrialist. However, persistent acute shortages of petroleum product
spanning almost over a long period of time with little period of stability
poses the question as to whether NNPC has the capacity to sustain the supply of
petroleum product to match the rising demand in Nigeria. Recent studies in PPMC
clearly revealed that the activities of economic saboteurs and profiteers
continue to affect the activities of the company in serving its statutory
functions in the country. The consequences of eratic supply of petroleum on the
people of Nigeria cannot be quantified. Despite the unofficial price hyke due
to artificial scarcity of the product, its cyclical effect on living standard
of Nigerians cannot be quantified.
This problem continue to persist despite various
measures by the government over the years. Some Nigerians believes that this
problem continue to defy solutions due to active collaboration of NNPC in
diversion of the product and selective approach to distribution and other
corrupt activities leading to missing of trucks in transits. These are problems
that are not substantiated by empirical evidences.
In this research project, an attempt is made to
prove into the supply strategy of NNPC with the sole aim of identifying factors
of forces that militate against the steady supply of petroleum product and its
consequences on living standard of people within Kaduna North Local Government
Area.
The choice of this locality for this study was
born-out of realization that despite the numerous distribution outlets within
this area, shortages of the products created untold hardship to people due to
long queues in filling stations.
1.3 Objectives of the study
The objective of the research is to examine
petroleum supply strategy of NNPC and its implication on the standard of
living.
i.
To determine
the most effective distribution and supply strategy that will ensure adequate
supply of petroleum product.
ii.
To examine
the factors responsible for the deregulation of the oil sector.
iii.
To determine
the factors responsible for the shortage and supply of petroleum products.
iv.
To identify
the factors responsible for the increase in demand for petroleum products.
v.
To proffer
adequate solutions to the problems identified by the study.
1.4 Significance of the study
This research project has theoretical and practical
significance in the following ways.
First and foremost, it contains adequate literature
on distribution and logistic management that relates to oil industry in general
and NNPC in particular. This broad based literature provides sufficient
materials not only for general public but future researchers who may face the
challenges of inadequate literature on petroleum distribution and marketing in
Nigeria.
In addition, this study generates further interest
amongst future researchers as the challenges, dilemmas and contradictions
within the supply networks cannot be resolved through a single research
endeavour such as this.
The need for further studies is thus stimulated in
this research project.
1.5 Research questions
i. What are the
factors responsible for the shortage and supply of petroleum products?
ii. What are the
benefit of allowing market mechanism as a major determinant of the product?
iii.
What are the
factors responsible for the deregulation of the oil sector?
iv.
What are the
techniques of resolving conflict?
v. How can
costumers achieve satisfaction through effective supply strategy?
vi.
What are the
factors responsible for the shortage and supply of petroleum products?
1.6 Scope of the Study
This research project is exclusively on supply and
marketing strategy of NNPC in relation to its channel of distribution
consisting of major, independent marketers and other channel members that have
a stake in the petroleum business within Kaduna metropolitan areas.
It also covers the transporters, filling stations,
depots and other strategic reserve sections that have direct bearing on the
supply and marketing of petroleum and allied products within the area of this
research.
1.7 Definition of terms
-
Product: This is anything that can be offered to the market for attention,
acquisition, use or consumption that might satisfy a need at a profit.
-
Petrol: Is a liquid obtained from petroleum, used as fuel in cars, engines
e.t.c.
-
Petroleum: Mineral oil that is found under the ground or the sea and is used to
produce petrol/gas, paratin, diesel, oil etc.
-
Objective: This supply means desired outcome.
-
Strategy: Is a broad plan of action by which an organisation intend to reach it
desired or stated goals.
-
Marketing: Human activity directed at satisfying needs and wants through exchange
process.
-
Marketing Mix: Is the particular blend of the controllable marketing variables that
the firm uses to achieve its objective.
-
Product Mix: Is a set of all product offered for sale by a company.
-
Product line: Is a group of product within a product mix that are closely related
either by function or physical characteristics.
-
Distribution: Is an activities that involved the flow of goods and services from the
manufacturers or producers to the ultimate consumers.
-
Physical distribution: This consist of all the activities concerned with
moving the right quantity of the right product to the right place at the right
time.
-
Distribution channel: Is a set of all the firms and individuals that
assist in transferring the title of a particular goods or service as it moves
from the producer to the consumer.
-
Distribution structure: Is the available arrangement of a particular
industry to get products from the producer to the consumers.
-
Wholesaler: Independent trader who sells goods and services at wholesale to business
organization for the purpose of resale or use in producing other goods or
services.
-
Retailer: Independent trader operating outlet selling at retail to ultimate
consumer for personal use.
-
Customer: A person who usually frequent a certain place of business.