COMMERCE PAPER No.7 : MARKETING MANAGEMENT MODULE No.19 : PHYSICAL DISTRIBUTION
Subject COMMERCE
Paper No and Title 7: Marketing Management
Module No and Title 19: Physical Distribution Decisions
Module Tag COM_P7_M19
COMMERCE PAPER No.7 : MARKETING MANAGEMENT MODULE No.19 : PHYSICAL DISTRIBUTION
1. Learning Outcomes
2. Introduction: Physical Distribution 3. Functions of Physical Distribution 4. Logistics
4.1 Importance of logistics Management 4.2 Types of Logistics
4.3 Objectives of Logistics Management 5. Supply Chain Management
6. Summary
COMMERCE PAPER No.7 : MARKETING MANAGEMENT MODULE No.19 : PHYSICAL DISTRIBUTION
1. Learning Outcomes
After studying this module, you shall be able to
Describe the concept of Physical Distribution.
Learn about the various functions of physical distribution
Describe the concept, importance and objectives of Logistics
Understand the concept of Supply Chain Management
COMMERCE PAPER No.7 : MARKETING MANAGEMENT MODULE No.19 : PHYSICAL DISTRIBUTION
2. Introduction
2.1 Physical Distribution
Physical distribution is the group of tasks connected with the supply of finished product from the place of production to the consumers. The physical distribution takes into account various sales distribution channels such as wholesale and retail, and engulfs significant decision areas which include providing services to customer, maintaining adequate inventory, procuring materials, packaging, managing order processing, and transportation and logistics. Physical distribution engulfs movement of goods from their origin (place of manufacturing) to their final destination (place of consumption).
Physical distribution activities include
Oder processing Warehousing Materials
handling Transportation Inventory
control
COMMERCE PAPER No.7 : MARKETING MANAGEMENT MODULE No.19 : PHYSICAL DISTRIBUTION
The marketers depend excessively on physical distribution for physically acquiring products where they need to be, when they need to be there, and at the lowest possible cost.
Charles a. Taff in 1978 defined physical distribution as “…management of movement, inventory control, protection and storage of raw materials and processed or finished goods to and from the production line.”
The National Council of Physical Distribution Management (NCPDM), has given the following definition of physical definition:
The aforementioned definition is inclusive in nature and explains not only the concept of physical distribution but also covers various functions of it. In nutshell, it can be said that physical distribution focuses on seven R’s – the right product, in the right quantity, in right condition, at the right time and right place, for the right consumer, at the right cost.
Physical distribution is sometimes used synonymously with Logistics and even confused with Supply Chain Management. Though seemed similar, but theoretically there is minor line of difference between them. Logistics involves receiving and processing orders, releasing goods from inventory, and transporting finished goods to the ultimate consumers while trying to achieve maximum customer satisfaction within the distribution channel. Supply Chain Management is a part of logistics and concerned with the supply of raw materials and finished products.
Physical distribution is a broad range of activities concerned with efficient movement of finished goods products from the end of the production line to the consumer…and in some cases includes movement of raw material from the source of supply to the beginning of the production line….these activities include freight transportation, warehousing, material handling, protective packaging, inventory control, plant and warehouse site selection, order processing, market forecasting and customer service.”
COMMERCE PAPER No.7 : MARKETING MANAGEMENT MODULE No.19 : PHYSICAL DISTRIBUTION
3. Functions of Physical Distribution
Physical distribution is essentially a determinant of the customer service level as an inefficient physical distribution may lead to loss of firm’s customers and markets. There are some products which seasonal in nature. In such cases, either production is continuous but demand is seasonal, or demand is continuous but production is seasonal. In all such cases, physical distribution acquires additional importance. The following are the functions of the physical distribution job:
1. Planning the total physical distribution system 2. In plant warehousing
3. Transportation 4. Field warehousing 5. Receiving
6. Handling
7. Secondary transportation: (secondary handling and sub-distribution of product)
A system is a set of components or activities that interact with each other. A car engine is a system;
if any part malfunctions, the performance of the whole engine suffers. In a distribution system, six interrelated activities affect customer service and the cost of providing it:
1. Customer service - The customer service function is a strategically crafted standard for consumer satisfaction which the business intends to furnish its customers. As an example, a customer satisfaction approach for the readymade garments business may be that 75% of all custom garments are delivered to the customer within three working days (72 hrs) of ordering. An additional approach might include that 95% of custom garments be delivered to the customer within four working days (96 hours) of purchase. After the establishment of customer service, the physical distribution system is then crafted to attain the set goals
COMMERCE PAPER No.7 : MARKETING MANAGEMENT MODULE No.19 : PHYSICAL DISTRIBUTION
Fig. 22.1 Physical Distribution System
2. Order processing and communication - Order processing is a function created to take the customer orders and its execution as per customer specifications. The business is concerned with this function as it directly relates to the service to be provided to the customer and thus attaining the customer service goals. The efficiency of the order processing system can save business from incurring heavy costs in other functions, such as transportation or inventory control. To illustrate, if the apparel business commits an error in the processing of a customer order, the business has to opt for premium transportation modes such as next day air etc. to meet the customer service standard set out, which will raise the transportation cost. Order processing represents a time element in delivery which is an essential ingredient of customer service. For this, many intermediaries focus on the movement of goods, and also good communication is critical for the development of a stable distribution system.
3. Inventory management – Inventory levels also affect the customer satisfaction. So, inventory management deals with stabilizing the cost of maintaining additional products on hand against the risk of not stocking those items when the customer demands (i.e. the cost of lost sales). This task has become more complex as firms have gradually lowered inventory levels. The difficult task in this situation is to organize the rest of the logistics system to adapt the lack of inventory so that customer service does not deteriorate.
However, the fact remains that inventory management is still critical for serving customers in many markets. In order to handle such a situation, the companies have started following the just-in-time (JIT) logistics system. With the help of this system, now new stock arrives at factory or retail outlet exactly when needed, rather than being stored in the inventory until being used.
Physical Contribution
System
Customer Service
Orders Processing
Inventory
Control Warehousing Transportation Material Handling
COMMERCE PAPER No.7 : MARKETING MANAGEMENT MODULE No.19 : PHYSICAL DISTRIBUTION
nearly 20% of the firm's total physical distribution costs. There exist a difference between storage and warehousing. Storage implies simply holding and preserving products for a period of time. In contrast, warehousing implies addition of functions such as accumulating, allocating, assorting, and readying goods for re-shipping to other locations. The chief intent in managing the warehousing function is to furnish the desired level of customer service at the lowest total physical distribution cost. Warehouses are used to store inventory.
Warehouses can be private or public.
Private warehouses are owned or leased by producers or middlemen to handle their own inventories and physical distribution functions.Public warehouses are owned and operated by independent bodies who rent space and provide materials handling, transportation and other services for a fee to customers.
5. Transportation – .
It creates place utility of goods. Transportation in marketing becomes vital as the goods are not used exactly where they are produced and needs to be transported miles away for selling. The major transportation modes, or mechanisms of moving freight, include:
The management of warehouses makes decisions
On site selection
Number of distribution centers in the system
Layout Methods of
receiving
Storing
Retrieving goods
Transport is the means to carry goods from one place to another
COMMERCE PAPER No.7 : MARKETING MANAGEMENT MODULE No.19 : PHYSICAL DISTRIBUTION
railroads, motor carriers, airlines, pipelines, and water carriers. Transportation costs usually account for the largest share of all physical distribution costs, often exceeding one- third of the total physical distribution cost. The selection criteria to compare transportation modes is based on speed of delivery, relative cost, reliability of delivery, range of t transporting capabilities, ability to reach geographically distributed markets, etc.
i. Roadways - the oldest system. There are different categories of road transport. To deliver any product to the remote area, road transportation is the best mode.
.
ii. Railways - Railways are regarded as the non-costlier means of transport. It covers long distances and carries heavier types of goods. The advantages of railways are:
Advantages
•It is more flexible than any other mode of transportation.
•It is less costly then railways or airways.
•It has got wider coverage.
•Motor transport has minimum handling in loading and unloading operations.
Disadvantages
•It is unsuitable for very long distance.
•It cannot carry bulky goods.
•It moves at a less speed than the railways and airways.
COMMERCE PAPER No.7 : MARKETING MANAGEMENT MODULE No.19 : PHYSICAL DISTRIBUTION
iii. Waterways - It is the cheapest mode of transportation. It was used for transportation of bulky goods and low grade goods in the older days. But now it is used for all kinds of goods. Advantages of this medium are:
Advantages
• It is a cheaper mode of transportation for heavy goods.
• It is suitable for bulky goods.
• It is convenient for long distance travel
Disadvantages
• Railways have fixed
routes and it cannot make door to door delivery.
• It is costly for short distance.
• It is inconvenient for remote areas
Advantages
• It is the cheapest mode of transportation.
• It is carries bulky goods.
• It is safer to transport glassware, scientific instrument and chemicals
Disadvantages
• It has got very low speed.
• It serves limited areas.
COMMERCE PAPER No.7 : MARKETING MANAGEMENT MODULE No.19 : PHYSICAL DISTRIBUTION
iv. Airways - The airway transport passenger’s mail and also goods. It is helpful in times of emergency like flood, earthquakes and war. Its advantages are:
v. Pipelines - For the transportation of gas and liquid commodities like, crude oil, petroleum, etc. pipeline are used.
6. Distribution inventory - Distribution inventory includes all finished goods inventory at any point in the distribution system. In cost terms, it is the second most significant item in distribution, accounting for about 25% to 30% of the cost of distribution. Inventories create time value by placing the product close to the customer. Distribution centers storing inventory are large, single story automated warehouses designed primarily for optimizing efficiency in order processing and merchandise handling. Products moved through distribution centers generally are stored only for short periods of time.
7. Materials handling - Materials handling is the movement and storage of goods inside the distribution center. The type of materials handling equipment used affects the efficiency and cost of operating the distribution center. Proper material handling helps in – decreasing the damage, maintaining the quality of storage, facilitating order processing and moving the right goods at the right time making them available to the right customers. Materials handling exhibits the tradeoff between the capital cost and the operating cost and a capital cost.
It is the fastest means of transport.
It is safer for goods to be transported by the airways.
It is more suitable for perishable and
expensive goods
It is the costliest mode of transportation.
It cannot serve all the area.
It has got limited carrying capacity
Adv an tag es D is adv an ta ges
COMMERCE PAPER No.7 : MARKETING MANAGEMENT MODULE No.19 : PHYSICAL DISTRIBUTION
goods are securely transported to the customer. Goods moving in a distribution system must be contained, protected, and identified. Under distribution system, there exist 3 levels of packaging which includes primary package, shipping container, and unit load. In addition, it should be taken care of that goods must fit into the dimension of the storage spaces and the transportation vehicles.
4. Logistics
Logistics implies managing the flow of resources from the point of inception to the point of destination in order to fulfill certain requirements of customers or corporations. The resources organized in logistics can engulf physical items such as food, materials, equipment and liquids as well as abstract items such as information, particles and energy. The logistics of physical items usually engulfs the amalgamation of information flow, handling of material, production, packaging, inventory, transportation, warehousing and often security.
Logistics is the . . .
4.1 Importance of Logistics
Logistics is significant for business firms as it crafts value for customers, suppliers of the firm, and value for the firm’s stakeholders. In logistics value is defined in terms of time and
place. Products and services have little or no value unless they are provided to thecustomers when (time) and where (place) they wish to consume them. Around the globe logistics have become immensely significant value-adding process for a no. of reasons.
4.2 Types of Logistics
Logistics can be categorizes into:
“process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.“
Council of Logistics Management
COMMERCE PAPER No.7 : MARKETING MANAGEMENT MODULE No.19 : PHYSICAL DISTRIBUTION
4.3 Objectives of Logistics Management
1. Customer service - The goal of an organization is to provide its customers an outstanding service which can be achieved with the ability of organization to handle its transportation and logistics needs in an efficient manner that enhances the logistic firm’s reputation in the industry.
2. Industry awareness - A logistics firm must earn a reputation in the industry for quality service to gain an edge in the competitive industry by becoming knowledgeable in the details of transporting and warehousing of a specific product/business.
3. Constant improvement - The continuous improvement system TQM (total quality management) can be used to constantly seek ways to reduce costs, eliminate inefficiencies and improve customer service.
Business Logistics –
• Business logistics is that component of the supply chain process which is associated with planning, implementing and controlling the efficient flow and storage of goods and services from point of origin to point of use or consumption.
Military Logistics –
• The design and merging of all aspects of support for the operational capability of the military forces and their equipments to ensure readiness, reliability, and efficiency.
Event Logistics –
• Event logistics is a group of network of activities, facilities and personnel that are required to organize, schedule and deploy the resources for an event to take place.
Service Logistics –
• Service logistics is related with the acquisition, scheduling, and management of the facilities personnel and material so as to support and sustain a service operation.
Logistics management is a process of planning, executing, and controlling the efficient, effective, flow and storage of goods and services, and related information from point of origin
to point of consumption for the purpose of conforming to customer requirement.
COMMERCE PAPER No.7 : MARKETING MANAGEMENT MODULE No.19 : PHYSICAL DISTRIBUTION
company. Efficient management of operations can lead to a reduction in of the transport and warehousing costs and may result in increase in profits of the company.
5. Supply Chain Management
A supply chain consists of various stages which take part in conversion of raw material into final products and its delivery to end consumers. It not only encompasses suppliers and manufacturers, but also the distributors, transporters, retailers and customers. In every organization it includes several important functions i.e. order management, planning, shop floor operations etc.
A supply chain comprises of numerous stages which are undertaken during the conversion of raw material into final products and also its delivery to end consumer. Supply chain is the approach to regulate the flow of material, information and finances.
The supply chain begins with the need of the customers with its next destination as a retail outlet/store. Retail outlet stocks up the items, supplied to them by distributors, in form of inventories or on their shelves in the stores. The distributors get supply from warehouses. The manufacturers procure raw materials, semi-processed goods and various operation from different suppliers. Different processes and operation are performed at each stage. These stages interact in the form of inflow and outflow of material, information and funds. For examples, the retailers provide pricing and availability information to the end consumers. They provide valuable information on demands/sales, make orders and transfer funds to distributors. Similar transaction of material, fund and information takes place at every stage of supply chain.
Supply chain management engulfs the planning and management of all activities and all logistics management activities. Significantly it also engulfs coordination and collaboration with channel partners which can be supplier, intermediaries, third party service providers and customers. In essence, supply chain management amalgamates supply and demand management within and
across firms.
6. Summary
Physical distribution is sometimes used synonymously with Logistics and even confused with Supply Chain Management. Though seemed similar, but theoretically there is minor line of differentiation between them.
The business firms seek the help of an efficient distribution system in order to assure their customers a good service level.
The specified task for business logistics is to get the right goods or services to the right place, at the right time, and in the desired condition, while making the greatest contribution to the firm.
A supply chain consists of various stages which take part in conversion of raw material into final products and its delivery to end consumers. It includes suppliers, manufacturers, distributors, transporters, retailers and customers.
