Physical Distribution

Loveleen Santosh

Objectives
y At the end of this unit, you should be able to
y Understand the meaning and main functions of physical

distribution y Know the differences between Distribution Management and Supply Chain Management y Explain the forces that affect physical distribution y Explain the Systems Approach to Physical Distribution

Introduction
y The manufacturers relationship with the suppliers that determine the

field in which the manufacturer has a competitive edge over the rivals and the benefits the customers can reap y Distribution covers a range of operations and activities depending on the relationship
y Ranges from co-ordination of supply to final consumers to movement of a

product within and outside the organization

y Distribution
y Encompasses all movements of the product y The operation which creates time, place and form utility through the

movement of goods and people from one place to another

y Distribution Management = Physical Distribution + Distribution

Channel y Physical Distribution aims at seven Rs the Right product, in Right quantity, in Right condition, at the Right time and Right place, for the Right customer at the Right cost

Physical Distribution - definition

y Charles A. Taff
y management of movement, inventory control, protection and storage of

raw materials and processed or finished goods to and from the production line
y American Management Association
y moving of finished products from one end of a production line to

customers
y Physical Distribution is concerned with a broad range of activities
y y y y y y y y y

Freight Transportation Warehousing Material Handling Protective Packaging Inventory Control Plant and Warehouse Site Selection Order Processing Market Forecasting Customer Service

Physical Distribution (contd)

y Business involves cost only until the product is in the hands of

the consumer
y To accomplish this transfer, two kinds of movement occur y Movement of goods to people y Movement of people to goods

y Structural elements of a physical distribution system are

y Transportation y Storage y Material handling y Information processing

Physical Distribution and Logistics

Physical Distribution Management of movement, inventory control, protection and storage of raw materials and of processed or finished goods to and from the production line Logistics Process of planning, implementing and controlling the efficient, cost-effective flow and storage of raw material, in-process inventory, finished goods and related information from point of origin to point of consumption for the purpose of confirming customer requirements Larger scope Creates time, place, form and possession utilities Deals with both inbound and outbound activities

Narrow scope than of logistics Concerned with creation of time and place utilities Deals with outbound activities only

Supply Chain Management (SCM)

y Supply Chain is the upstream and downstream linkages of

different processes and activities, so as to distribute the products, through channels, ultimately to the consumers y Supply Chain Management includes
y Management of flow of goods from supplier to final user y System-wide co-ordination of product and information flows y Development of relationships and integration of all activities

that provide customer value through distribution channel

Need for Physical Distribution

y Management Conflicts y Companies allotted sub-functions to all departments
y Production Department tries to minimize production cost through high output at a constant

rate, sending as much as possible to the depots y Sales Department tries to have stocks of products in high demand and does not want to face scarcity of stocks y Finance and control Department tries to reduce total cost and in the form of investment in stocks

y Rising Costs y Wages of transport and warehouse staff has been rising rapidly y Competition has increased drastically in the last few years y Consumers expect frequent deliveries from the supplier which in turn increases

the distribution costs y Trade has become internationalized goods has to move across greater distances and this increases the transportation costs
y Cost-reduction opportunities y Peter Drucker physical distribution as the last frontier of cost reduction y Skilled management and modern technology can reduce the cost of inventory

management, inventory processing and transportation

Need for Physical Distribution (contd)

y Physical Distribution as a tool to marketing
y Marketing management states that customers should be the core

consideration of every activity y Physical Distribution helps marketing management achieve this objective
y Ensures customer satisfaction through faster delivery of goods in the least

damaged form y Greater stock availability y Service in new geographical areas y Allows managers to evaluate distribution channels and their costs efficiently, thereby enabling discount sales and satisfy consumers

Need for Physical Distribution (contd)

y Customer Service
y Manufacturers have to gain competitive edge over others on the basis

of non-price factors like customer service y Customer Service has many facets
y In time delivery y After sales service y Regular feedback y Prompt complaint redressal

y Physical Distribution System can be set up to meet all these goals

y Time Constraints
y Increased competition has led to shorter product lifecycles and

consequently revolutionary changes in the consumer attitudes and loyalty concepts

Physical Distribution - Functions

y Transportation Management
y Transportation deals with movement of raw materials to the

plant and of semi-furnished products or finished product to the market y Efficient transportation planning and management is a prerequisite function of physical distribution y Five basic modes of transport
y Railroads
y y

Efficient mode for movement of bulky commodities over long distances Commodities include coal, chemicals, grain, non-metallic minerals and wood products

Physical Distribution Functions (contd)

y Air Freight

Expensive small businesses typically use air only for the movement of valuable or highly-perishable products y Owners offset the high cost of air transportation with reduced inventory-holding costs and the increased business that may accompany faster customer service y Trucking y Most favored by small businesses and many large enterprises as well y Trucks offer fast, frequent and economic delivery to more destinations in the country than any other mode y Trucks are useful for short-distance shipments of manufactured products y Pipelines y Utilized to efficiently transport natural gas and oil products from mining sites to refineries and other destinations y Luxury pipelines transport products such as coal which is ground to a powder, mixed with water and moved as a suspension through pipes
y

Physical Distribution Functions (contd)

y Water carriers
y

Two basic types of water carriers o Inland or barge lines

Efficient transporters of bulky, low-unit-value commodities such as grain, gravel, lumber, sand and steel Do not serve small businesses

o Oceangoing deep-water ships

Transport goods among port cities Important part of foreign trade and of vital importance to small businesses seeking an international market share
y Intermodal Services

Small business owners take advantage of multi-mode deals offered by shipping companies y Business owners can utilize a given transportation mode in the section of the trip in which it is most cost efficient and use other modes for other segments of the transport y Overall costs are often significantly lower under this arrangement than with single-mode transport
y

Physical Distribution Functions (contd)

y Physical distribution managers must consider the following

while making transportation decisions

y Cost y Dependability y Possibility of loss and damage associated with the mode of transport

y Physical distribution manager should have knowledge of y Various modes of transport y Services and routing offered by each mode y Privileges granted by carriers on certain kinds of shipment y Rates charged by various carriers y Negotiation ways of various carriers y Bottlenecks in transportation through various channels

Physical Distribution Functions (contd)

y Inventory Control
y Inventory control deals with the determination of optimal

producers for procuring stocks of commodities to meet future demand y Decision concerning when and how much to order is a matter of balancing various conflict cost functions
y If too high an inventory level is maintained then they would have to bear a

very high inventory carrying cost and also a high risk of obsolesce y If too low an inventory is maintained, then it would result in high restocking and production cost

y Inventory control guides a firm on factors such as y How much to order? y When to order? y How to control stock-outs at lowest cost?

Physical Distribution Functions (contd)

y Warehousing
y Refers to storing products while they wait to be sold y Organizations use either warehouses or distribution centers to

process their products

y Choice is made in regard to the transportation cost, amount of customer

service and level of inventories

y If a company chooses to use warehouses, they have two options y Private warehouse y Offers greater flexibility in design to meet the storage and handling need y Provides more control over the activities carried on in the warehouse y Public warehouse y Requires no fixed investment by the firm y Offers location flexibility and ability to increase the warehouse space to cover peak requirements y Manufacturers often opt for distribution centers to store and

distribute goods
y Distribution center is a large, highly automated warehouse, designed to

receive goods from various plants and suppliers

Physical Distribution Functions (contd)

y Industrial Packaging
y Packaging cost is a part of the total cost of production y Container manufacturers, carriers, trade associations and government agencies are continuously working for improvements in packaging techniques y Physical distribution department has to work in co-operation with

sales and manufacturing department and deliver the products in best quality and condition in consumer hands
y Material Handling
y Efficient and careful material handling methods in factory and

distribution warehouses can contribute much to customer satisfaction y Proper material handling helps
y Decrease the damage y Maintain the quality of storage y Facilitate order processing y Move right goods at right time to make them available to right customers

Physical Distribution Functions (contd)

y Material-handling function of physical distribution helps to reduce the

number of staff required for managing inventory and the dangers of obsolescence
y Further reduces the maintenance cost

y Need for material handling is present at various stages of production

and distribution
y Cost of such activities can represent up to 50 per cent of total production

cost
y Physical distribution aims at reducing this cost through development

of material handling techniques

y Order Processing
y Effective order processing should begin with transmission of orders

information, continue uninterruptedly through stock checking, accuracy checking, credit checking, back ordering, transcripting and billing to move on to order-filling y Responsibility of physical distribution manager to see that sluggishness does not occur

Conclusion
y Now you should be able to
y Understand the meaning and main functions of physical

distribution y Know the differences between Distribution Management and Supply Chain Management y Explain the forces that affect physical distribution