Physical distribution System

Physical distribution refers to the management of all activities which facilitate movement and coordination of supply and demand in the creation of time and place utility in goods.It is the set of activity concerned with the physical flow of materials, components and finish goods from producer to channel institution and finally to consumer.Physical distribution can be used strategically to strengthen a firm’s market position

Distribution Channels Characteristic

1. To reconcile the needs of producers and consumers.2. To improve efficiency by reducing the number of transactions and creating bulk.3. To improve accessibility by lowering location and time gaps between producers and consumers.4. Create time and place utilities — storage creates time utility, and transporting the goods to where they are desired creates place utility.5. Stabilize prices by storing products or moving them to other markets.

Physical distribution component

Three components:

Input, Processor and Output•Input: Order from the Customer•Processor: Transportation, packaging, warehousing•Output: Delivery to the Customer

Distribution System Intensity

IntensiveDistribution

IntensiveDistribution Maximum market coverage.

Exclusive Distribution

Exclusive Distribution

Severely limiting the number of intermediaries to a single provider in a territory

SelectiveDistribution

SelectiveDistribution Limiting coverage to a few outlets

Distribution system for consumer goods

Distribution system for business good and services

Activities of Physical distribution system

PHYSICALDISTRIBUTION

SYSTEM

LOCATIONWAREHOUSI

NG

MATERIALHANDLING

PACKING &PACKAGING

INVENTORYCONTROL

ORDERPROCESSING

TRANSPORTATION

CUSTOMERSERVICES

RECORDSMAINTENANCE

Allocation of Physical Distribution Expenditures

Transportation-Management must decide on both the mode of transportation and the particular carriers .-The leading modes of transportation are railroads, trucks, pipelines, water vessels, and airplanes.-Using two or more modes of transportation to move freight is termed intermodal transportation; this approach is intended to seize the advantages of multiple forms of transportation.

Modes of transportation:Railways

Railways are preferred way transportation for bulk cargo like coal, cement, mineral & ores, agricultural products, machineries etcBenefits of rail transport are:1.Freight rates are lower.2.Goods are kept in sealed wagon/boxes, so minimum chances of breakage.3.Railways receipt are authentic documents and are acceptable for negotiation purpose by banks.4.Minimum barriers/check post and so much time is not lost in hold ups.

Road transport

The main advantages of transportation of goods through motor vehicles(road) are:1.Speedy.2.Warehouse to warehouse delivery possible.3.Minimum breakages, damages to goods.

Airways

Benefits:1.Fastest mode of transportation.2.Suitable for goods which are perishable in nature.3.Major mode of transportation in case of international consignment.Waterways

Benefits:

1.Economically suitable for bulk transportation.2.Suitable for international transportation.3.Cost effective than air-transport system.

WarehousingA warehouse is a location with proper facilities where shipments are received from a factory or production centre, broken down, reassembled and shipped to the customer as per requirement.Facilities offered by warehouses:1.Temporary storage facilities.2.Proper stacking of goods.3.To provide sales promotional services.4.Easy to deliver goods after the storing period.5.Provides safety to the products when not in transit.

Material handling-Selecting the proper equipment to physically handle products, including the warehouse building itself, is the materials handling subsystem of physical distribution management

-Equipment that is well matched to the task can minimize losses from breakage, spoilage, and theft

-Efficient equipment can reduce handling costs as well as time required for handling

Aspect of material handlingTwo most important aspect of material handling are:

Unitizing: process of combining individual materials into large loads for easy handling

Containerization: process of combining several unitized loads into a single, well-protected load

Packing and PackagingFunctions:

1.Identify the product.2.Contain and protect the product.3.Contribute to handling efficiency.4.Enhancing of the shelf life of the product.The following are the main decision areas in packaging:

1.Package material.2.Package aesthetics.3.Package size and convenience.

Inventory Control-The goal of inventory control is to satisfy the order-fulfillment expectations of customers while minimizing both the investment and fluctuations in inventories.Inventory decisions involve (1) when to order and (2) how much to order.-In deciding when to order, the company must think of the risks of running out of stock and costs of carrying too much.-In deciding how much to order, the company must think of order-processing costs and inventory-carrying costs.-Just-in-Time:

-JIT combines inventory control, purchasing, and production scheduling-Applying JIT, a firm buys in small quantities that arrive just in time for production and then it produces in quantities just in time for sale.Benefits:

-Dramatic cost savings-Shortened and more flexible and reliable production and delivery schedules-Quick responses to quality problems

Market-Response Systems:-The central promise is that those who intend to consume a product should activate a process to produce and deliver replacement items-In this way, a product is pulled through a channel on the basis of demand.

Economic order quantity (EOQ)Economic order quantity (EOQ)It is the volume at which inventory-carrying costs plus order-processing costs are at a minimum.

As order size increases, inventory-carrying costs go up and order-processing costs go down.The actual order quantity is often higher than EOQ.This trade-off provides a desired level of customer service while at the same time lowering inventory costs.

Order processingIt is a set of procedures for receiving, handling, and filling orders promptly and accurately

-Electronic data interchange (EDI):

-Between customer and supplier orders, invoices, and other business functions are transmitted by computer

-Originally, EDI required a direct computer link between supplier and customer, now it is being conducted via the Internet

-EDI can trim the cost of order processing significantly, which in turn may reduce purchase prices