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

Intensive
Intensive
Distribution
Maximum market coverage.
Distribution

Severely limiting the number of

Exclusive
Exclusive intermediaries to a single
Distribution
Distribution provider in a territory

Selective
Selective
Distribution Limiting coverage to a few outlets
Distribution
Distribution system for consumer
goods
Distribution system for business good
and services
Activities of Physical distribution system

RECORDS WAREHOUSI
MAINTENANCE LOCATION NG

PHYSICAL
CUSTOMER DISTRIBUTION MATERIAL
SERVICES SYSTEM HANDLING

TRANSPORTATI ORDER INVENTORY PACKING &

ON PROCESSING CONTROL PACKAGING
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 etc
Benefits 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.
 Warehousing
A 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 handling
Two 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 Packaging
Functions:
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)
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 processing
It 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