DISTRIBUTION
MANAGEMENT &
CHANNELS OF
DISTRIBUTION
S
Physical Distribution Management
Physical distribution involves the movement and storage of
finished goods from manufacturing plants to warehouses
to customers. Associated with outbound logistics
Physical distribution activities include such crucial decision
areas as
() Customer service,
(11) Inventory control,
(ii) Materials handling,
(Iv) Protective packaging
(v) Order processing,
(vi) Transportation,
(vil) Warehouse site selection and
(Vii) Ware-housing
Importance of Physical Distribution
Physical distribution activities represent a major portion
(almost 50%) of total marketing costs. Hence physical
distribution area has become a possible area for cost
reduction.
Another important reason for the increased attention on
physical distribution activities is the role they play in
providing customer service by creating.
[Link] utility
[Link] utility.
Components of the Physical Distribution System
[Link] service: Level
[Link]: How to ship productss?
[Link] control: Inventory maintained at each
location
[Link] Handling: Safe and efficient methods
[Link] Processing: How to handle orders?
[Link]: Where and their utilization?
U
Components of the Physical Distribution System
These components are:
Interrelated
Decision made in one area affects operations of
other
Balancing (trade-off) of each componentss
important to avoid over-stressing of a
components
This can be detrimental to overall functioning of
distribution system
Objectives of the Physical Distribution System
.Produce a satisfied level of customer service
Minimize the transportation and storage costs
To achieve the above objective, use of three basic
concepts are vital to effective logistics management
) Total cost approach,
() Avoidance of sub- optimization
(ii) Use of cost-trade offs.
Total-cost Approach: The premise that "all factors in
physically moving and storing products should be
considered as a whole and not individually" forms the
basis of total-costapproach.
Should include following functions:
Transporiation
Warehousing
Warehouse location
Inventory control systems
Maienal handling
Iniernal informaton flow
Customer service standards
Packing
Sub-optimisation : Sub-optimisation is a condition in
which the manager of each physical distribution function
attempts to minimize costs, but due to the impact of one
physical distribution task on the others, the results are less
than optimal.
Cost Trade-Offs This approach assumees that some
functional areas of the firm will experience cost increases
while others will have cost decreases. As a result the total
physical distribution cost will be minimised without
sacrificing the established level of customer service.
Custamer Sevice Levals
(cost ar lost salas)
Inventary Canrying Transportaton
Costs Costs
Producson Warehouslng Casta
Lol-quantity (Through-put cos,
Coshs not storage)
Crder Processng
and
Infomation Cosis
The cost trade-offs required in a physical distribution system.\
Customer Servico Levale
(oost af lost sales)
InvertoryCamying- Transportaton
Costs Costs
Warehousing Costs
Producton
(Through-put coasts,
Lot-quanty not ciorage)
Costs
Onder Procssing
Bnd
Infomabon Costa
Strategic use of physical distribution
Enables a firm to:
ensuring on-time
strengthen its competitive position by
delivery (strong differential advantage),
provide more customer satisfaction
reduce operating costs.
Strategic use of physical distribution (1)
The management of physical distribution can also affect a
firm's product Pplanning, pricing and distribution
channels.
Improve Customer Service A well-run logistics
system can improve the service a firm provides its
customers whether they are middlemen or ultimate
users/consumers.
Reduce Distribution Costs Avenues for Cost
reductions are ) eliminating unnecessary warehouses
and (i) reducing inventories.
Create Time and Place Utilities Storage, which is
part of warehousing createss time utility. Storage is
essential to correct imbalances in the timing of
production and consumption.
Strategic use of physical distribution (2)
Stabilise Prices: Careful management of warehouSing
and transportation can help stabilise prices for an
individual firm or for an entire industry.
Influence Channel Decisions: Decisions regarding
inventory management have a direct bearing on a
producer's selection of channels and the location of
middlemen.
Minimize Shipping Costs : Managers responsible for
shipping the finished products need to ensure that their
firms enjoy the fastest routes and the lowest rates for
whatever methods of transportation they use.