TOPIC 8
PHYSICAL DISTRIBUTION
Definition
Physical distribution is the group of activities associated with the supply of finished product from the production line to the consumers. The physical distribution considers many sales distribution channels, such as wholesale and retail, and includes critical decision areas like customer service, inventory, materials, packaging, order processing, and transportation and logistics. You often will hear these processes be referred to as distribution, which is used to describe the marketing and movement of products.
Accounting for nearly half of the entire marketing budget of products, the physical distribution process typically garnishes a lot of attention from business managers and owners. As a result, these activities are often the focus of process improvement and cost-saving initiatives in many companies.
Importance of Physical Distribution
The importance of physical distribution to a company can vary and is typically associated with the type of product and the necessity it has to customer satisfaction. Strategically staging products in locations to support order shipments and coming up with a rapid and consistent manner to move the product enables companies to be successful in dynamic markets.
Physical distribution is managed with a systems approach and considers key interrelated functions to provide efficient movement of products. The functions are interrelated because any time a decision is made in one area it has an effect on the others. For example, a business that is providing custom handbags would consider shipping finished products via air freight versus rail or truck in order to expedite shipment time. The importance of this decision would offset the cost of inventory control, which could be much more costly. Managing physical distribution from a systems approach can provide benefit in controlling costs and meeting customer service demands.
Functions of Physical Distribution
The key functions within the physical distribution system are:
- Customer service
- Order processing
- Inventory control
- Transportation and logistics
- Packaging and materials
- The customer service function is a strategically designed standard for consumer satisfaction that the business intends to provide to its customers. As an example, a customer satisfaction approach for the handbag business mentioned above may be that 75% of all custom handbags are delivered to the customer within 72 hours of ordering. An additional approach might include that 95% of custom handbags be delivered to the customer within 96 hours of purchase. Once these customer service standards are set, the physical distribution system is then designed to attain these goals.
- Order processing is designed to take the customer orders and execute the specifics the customer has purchased. The business is concerned with this function because it directly relates to how the customer is serviced and attaining the customer service goals. If the order processing system is efficient, then the business can avoid other costs in other functions, such as transportation or inventory control. For example, if the handbag business has an error in the processing of a customer order, the business has to turn to premium transportation modes, such as next day air or overnight, to meet the customer service standard set out, which will increase the transportation cost.
- Inventory control is a major role player in the distribution system of a business. Costs include investment into current inventory, loss of demand for products, and depreciation. There are different types of inventory control systems that can be implemented, such as first in-first out (or FIFO) and flow through, which are methods for businesses to handle products.
- First in-fir st out, or FIFO, is a method in which the new products coming into the warehouse replace existing products of the same SKU so that merchandise is cycled and does not expire or become old as more recent production is available. Flow through, on the other hand, is product that does not get processed in the warehouse. It is offloaded from an inbound trailer, pushed across the warehouse and onto outbound trailers for departure without being stored in the warehouse.
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The basic elements of specific functions that make up physical distribution include (i) Materials handling; (ii) inventory planning and control ; (iii) order processing ; (iv) transportation ; and (v) a communication system to integrate the physical distribution process.’
These components of Physical Distribution are explained below:
- Materials Handling:
It involves moving products in and out of a stock. It consists of routine tasks that can be performed through mechanisation and standardisation. Efficiency is increased through use of electronic data processing to control conveyor systems, order picking and other traffic flaws.
The modern mechanised handling services and protective packaging have improved the level of customer service and at the same time lowered physical distribution costs. Material handling and packaging services have also speeded up the order processing and movement of consignments.
- Inventory Planning And Control:
Inventory refers to the stock of products a firm has on hand and ready for sale to customers. Inventories are kept to meet market demands promptly. Inventory is the link interconnecting the customer’s orders and the company’s production activity.
Infact the entire physical distribution management rotates around the inventory management. Inventory management is the heart of the game of physical distribution.
Marketing managers undertake an inventory planning to develop adequate assortments of products for the target market and also try to control the costs involved in obtaining and maintaining inventory.
Marketing managers generally take three decisions while conducting inventory management, viz, (i) how can the track be kept, on a day-to- day basis of location, amount and the condition of the inventory? (ii) How can inventory information best be channelled to production managers or buyers for resale to help them schedule their activities? (iii) What inventory information can other departments in the organisation use to help them perform their functions efficiently?
- Purchasing /Order Processing:
Order-processing and inventory control are related to each other. Order processing is considered as the key to customer service and satisfaction. It includes receiving, recording, filling, and assembling of products for dispatch. The amount of time required from the dates of receipt of an order up to the date of dispatch of goods must be reasonable and as short as possible.
It comprises in undertaking the processes that are needed to make certain orders processed quickly, accurately, and efficiently. The marketing manager has to decide about these along with such issues as what is the most efficient way to bill customers; how cans the paper work may be minimized? And how can the physical function of assembling orders more efficiently?
- Transportation:
It is an essential element of physical distribution. It involves integrating the advantages of each transportation method by adopting containers and physical handling producers to permit transfers among different types of carriers.
For example, to place containers in railway flat cars and then load the containers on motor vehicles is called “piggy back” and if the containers are off loaded to water carriers, it is called “flash back.” Exchange of containers between air and truck carriers are referred to as “Air truck” or “birdy back”.
The marketing manager has to decide to (i) what mode or combination of modes of transportation (rail, truck, pipeline, water ways or air) should be used to transport products to warehouses and from there to customers? (ii) Should the transportation cost be reduced and the desired levels of customer service still maintained.
- Information flow/Communications:
It is a process of passing information and understanding from one person to another. This includes the information system which should link producers, intermediaries, and customers. Computers, memory systems, display equipment and other communication technology facilitate the flow of information among other members in the channel.
A manager to be successful must develop an effective system of communication. So that he may issue instructions, receive the reactions of the subordinates, and guide and motivate them.
- Organisational Structure:
The person in charge of the physical distribution should co-ordinate all Activities into an effective system to provide the desired customer service in the most efficient manner. Examples of organizational consideration are: (i) How can the five elements of physical distribution best be coordinated so that a team effort results? How can compartmentalization thinking be avoided? (ii) If a central head is established to direct all physical distribution activities, to whom should he report—The Head of the Marketing or The Chief Executive Officer?
Importance of physical distribution
- Facilitate supply chain
- Buyer supplier relationship
- Sources of employment
- Contribute to GDP
- It’s an after sale service
- MODES TRANSPORT
Transportation plays a major role in the economy. It increases the production efficiency and it links to the logistics system. Vehicle should have some characteristics which are used for easy transport of goods and services.
Transportation is generally of two types. They are public transport and transport for non generic-use. Public transport is nothing but which is used for meeting the needs of all sectors of the people for transportation of goods and services. Transport non-generic will be for the plant operations here the transportation means may be by the non-transport enterprises.
Coming to the different types of transport which are usage generally are:
1. Rail:
Advantages:
- Ability of loading and unloading goods and services is more.
- Frequency of delivering the goods over long distances is more.
- Climatic conditions have no effect
- No traffic or congestion easy movement of the vehicle.
Disadvantages:
- Capital and initial investments are more.
- High material usage for the construction and even the fuel consumption
- The above are some of the advantages and disadvantages of using the rail.
- Road:
Advantages:
- High flexibity and ability to move the vehicles fastly.
- Uses different routes to reach the destination quickly.
- Does door to door service
- High safety for the cargo.
- Chance to select the carrier which is suitable for carrying the goods.
Disadvantages:
- It mostly depends on climatic conditions.
- High cost for long distances.
- Productivity is low.
- Some of the advantages and disadvantages are discussed above.
- Air:
Advantages:
- Highest speed
- Even delivers goods to remote places.
- High reliability
Disadvantages:
- Highest cost of transportation.
- Even adverse weather conditions effect the transportation.
- Material and fuel consumption is costly.
- Water:
Advantages:
- It is economical mode for transporting heavy loads and even cargo.
- It is the safest mode which provides convenience to the people without accidents.
- Cost of construction and maintenance is very low.
- It even provides international transport
Disadvantages:
- It is highly affected by the weather conditions.
- It requires large initial investment
- It is a slow process.
FACTORS TO BE CONSINDERRD IN SELECTING TRANSPORTATION MODE.
- Cost of Service:
The cost of transportation adds to the cost of the goods so it should always be kept in mind. Rail transport is comparatively a cheaper mode of transport for carrying heavy and bulky traffic over long distances. Motor transport is best suited and economical to carry small traffic over short distances. Motor transport saves packing and handling costs.
Water transport is the cheapest mode of transport. It is suitable to carry only heavy and bulky goods over long distances where time is not an important factor. Air transport is the most costly means of transport but is particularly suited for carrying perishable, light and valuable goods which require quick delivery.
- Speed of Transport:
Air transport is the quickest mode of transport but it is costliest of all. Motor transport is quicker than railways over short distances. However, the speed of railways over long distances is more than that of other modes of transport except air transport and is most suitable for long distances. Water transport is very slow and thus unsuitable where time is an important factor.
- Flexibility:
Railways, water and air transport are inflexible modes of transport. They operate services on fixed routes and at preplanned time schedules. The goods have to be carried to the stations, ports and airports and then taken from there. Motor transport provides the most flexible service because it is not tied to fixed routes or time schedules. It can operate at any time and can reach the business premises for loading and unloading.
- Reliability/Regularity of Service:
Railway service is more certain, uniform and regular as compared to any other mode of transport. It is not much affected by weather conditions. On the other hand, motor transport, ocean transport and air transport are affected by bad weather such as heavy rains, snow, fog, storms etc.
- Safety:
Safety and security of goods in transit also influence the choice of a suitable means of transport. Motor transport may be preferred to railway transport because losses are generally less in motor transport. Water transport exposes the goods to the perils of sea and, hence from safety point of view, sea transport is thought of as a last resort.
- Nature of Commodity:
Rail transport is most suitable for carrying cheap, bulk and heavy goods. Perishable goods which require quick de livery may be carried through motor transport or air transport keeping in mind the cost and distance.
- Availability
- Other Considerations:
A number of special services such as warehousing, packing, loading and unloading are also taken into consideration while deciding about a mode of transport. From the above discussion it is clear that each mode of transport is suited for a particular type of traffic.
The rail transport is particularly suited for carrying heavy and bulky goods over long distances. Motor transport is suitable for carrying small consignments over short distances. Air transport is suited to light and precious articles which are to be delivered quickly. Ocean transport is appropriate for carrying heavy bulky goods over long distances at the cheapest possible cost
DOCUMENTS USED TO FACILITATETRANSPORTATION OF GOODS
- Air way bill: This is the consignment note used for carriage of goods by air. It is basically a receipt for goods for dispatch and is prima facie evidence of the conditions of carriage.
- Bill of lading: This is a receipt for goods shipped on board a vessel, signed by the person who contracts to carry them and stating the conditions in which the goods were delivered to (and received by) the ship.
- Packing list: This is a document that sets out details of the packing of the goods. The documents are required by customs authorities to enable them to make spot checks or more thorough checks on the contents of any particularly content.
- Bill of Entry : A declaration by an importer or exporter of the exact nature, precise quantity and value of goods that have landed or are being shipped out. Prepared by a qualified customs clerk or broker, it is examined by customs authorities for its accuracy and conformity with the tariff and regulations. See also customs entry.
- Consignment note:
This is a document prepared by a consignor (Supplier) and countersigned by the carrier as a proof of receipt of consignment for delivery at the destination. This document evidences the receipt of the goods an attribute which shows the truthfulness of the actual delivery of the consignment from the consignor to the consignee. The document is generally used as an alternative to bill of lading (especially in inland transport), it is generally neither a contract of carriage nor a negotiable instrument.
- Goods receipt note (GRN):
This is a document used to record the inward entry of any goods received at the premises of the organization. The document normally consist of the details of Quantity Received, Quantity Rejected and Quantity Accepted, Supplier name and Purchase order number. The practice of preparing GRNs is important as it promotes proper inventory control and restricts the unwanted, unauthorized entry of goods in the organization. The GRN preparation is a part of effective Inventory Control Management.
- Advice note:
This is a note sent to a customer (Buyer) by a supplier of goods to advise him that an order has been fulfilled. The advice note may either accompany the goods or be sent separately. Also an advice note notifies the buyer that goods have been dispatched or are ready for collection. Copies of the advice note may be sent to relevant departments e.g. purchasing and stores
