Chapter 6
Physical Distribution
Strategy
Prepared by:
Noraishah Binti Kamarolzaman
Channel Management 1
Learning Outcome
• To understand the basic concepts in physical
distribution.
• To describe the systems approach in understanding
physical distribution management.
• To study the components of physical distribution.
• To illustrate the importance of physical
distribution within the marketing channel
perspective.
Channel Management 2
Basic concepts of physical distribution
• An approach to manage the finished goods
inventory from manufacturing process to the final
consumers.
• It involves transportation, inventory management,
warehouse and storage, materials handling and
communication and flow of information.
• Physical distributors are the firms that involve in
all the activities in physical distribution.
Channel Management 3
Objective
Logistics
Definition: Planning, implementing, and
controlling the physical flows of materials
and final goods from points of origin to
points of use to meet customers’ needs at a
profit.
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Objective
Supply Chain Management
Definition: Logistical systems that
emphasize close cooperation and
comprehensive inter-organizational
management to integrate the logistical
operations of the different firms in the
channel.
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Objective
The Role of Logistics
Its Essence
The movement of the right amount of
the right products to the right place
at the right time
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Third-Party Logistics Providers
(3PLs)
Specialize in performing most or all of the
logistical tasks that manufacturers
or other channel members
would normally perform themselves
Provide service at lower cost than the
firms who hire third-party providers
Currently growing rapidly into
a major industry
Objective
Systems Concept
Transportation
Materials
Warehousing Handling
Interrelated
components
of a
system Order
Inventory
Control Processing
Packaging
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Continue
• Systems concept highlights that the components of
a system have to be managed with the
understanding that each component has an impact
on one another.
• It is a foundation for efficient physical distribution
management.
• How fast or slow a physical distribution manager
wants to transport the finished goods to the
customer will be based on the level of customer
service demands while keeping in mind the cost
implications.
Channel Management 9
Total Cost Approach
Basic components of
A logistics system
Total Cost
Systems Concept
Approach
Management views logistics
Management attempts
as a system of
to minimize the cost
Interrelated
of using the components
components
taken as a whole
Objective
Physical Distribution Components
1. Transportation
2. Materials Handling
3. Communication &
Information/Order Processing
4. Inventory
Management/Inventory
Control
5. Warehouse &
Storage/Warehousing
6. Packaging
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Transportation
• Most fundamental and necessary
component
• Accounts for the highest percentage of
the total cost of logistics
• Overriding issue facing the firm:
Choosing the optimum mode of
transportation to meet customer
service demands
Continue
• Factors that need to be considered are:
use own transportation or public transportation,
modes of transportation used by competitors, rates
available and selection of the modes of
transportation.
• Modes of transportation:
Land transportation, water transportation and air
transportation.
• Each modes of transportation have its own
advantages and disadvantages.
Channel Management 13
Third-Party Service Providers
Specialize in facilitate the transportation
requirements of manufacturers, wholesalers or
retailers.
Freight forwarders such as UPS, DHL, Federal
Express and Pos Malaysia
Currently growing rapidly into
a major industry
Channel Management 14
Materials Handling
Range of activities & equipment involved
in the placement & movement of products
in storage areas
Issues:
1. Minimizing the distances products are
moved within the warehouse during the
course of receiving, storage, & shipping
2. Choosing the kinds of mechanical
equipment that should be used
3. Making the best use of labor when
receiving, shipping, & handling products
Communication & Information/Order
Processing
• Order processing is one aspect of
physical distribution that requires
excellent flow of information.
• Its importance in logistics lies in its
relationship with order cycle time—the
time between when an order is placed &
when it is received by the customer.
Continue
• Issue:
Developing an efficient order processing system
If order processing is inefficient means
communication and information is not carried out
smoothly.
How to reduce error in order processing?
How to develop standards for different product types?
Channel Management 17
Inventory Management/Inventory
Control
• The firm’s attempt to hold the lowest level of
inventory that will still enable it to meet customer
demand
• Economic Order Quantity (EOQ) is the lowest total
cost (inventory carry cost + ordering costs)
Issue:
Keeping inventory at the lowest possible level while
concurrently placing orders for goods in large
quantities (how to balance inventory levels with order
sizes)
Continue
• 3 types of inventory which must be handled are:
Process stock-inventory in transit.
Cycle stock-when firms purchase an item in larger lots
than needed.
Safety stock-stock that kept to meet unanticipated
customer demands or delays of delivery from suppliers.
• JIT seek to minimize inventory through frequent deliveries
and low average order sizes – Quick response inventory
systems using EDI.
• Efficient consumer response (ECR) focuses on inventory
replenishment and promotional practices through joint
planning between manufacturers and distributors.
Channel Management 19
Warehouse & Storage/Warehousing
The holding of products until they are ready
to be sold or transferred to specific destination
Issues:
1. The location of warehouse facilities
2. The number of warehousing units & size of
the units
3. The types of warehouse to use
(public/private/distribution centre)
4. The question of ownership
Packaging
• Packaging & its associated costs can affect the other
components of the system
• Effective packaging can help control inventory
carry costs and help logistics efficiency
• For the safe transport of goods.
Issue:
Using packaging to make a significant difference in
the effectiveness & efficiency of the logistics system
What types of package is required?
Objective
The Output of a Logistics System
Customer service is the collection of activities
performed in filling orders and keeping
customers happy or creating in the customer’s
mind the perception of an organization that is
easy to do business with.
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Logistics Service Standards
1. Time from order receipt to order shipment
2. Order size & assortment constraints
3. Percentage of items out of stock
4. Percentage of orders filled accurately
5. Percentage of orders filled within a given
number of days from receipt of the order
6. Percentage of orders filled
7. Percentage of customer orders that arrive in good
condition
8. Order cycle time
9. Ease & flexibility of order placement
(9 Standards developed by Heskett, Galskowsky, & Ivie)
Key Elements of Customer Service
LaLonde Classification of Customer
Service:
1. Product availability
2. Order cycle time
3. Distribution system flexibility
4. Distribution system information
5. Distribution system malfunction
6. Post-sale product support
Objective
Logistics Management
Logistics Channel
Management Management
Concerned The administration
specifically of all the major
with product channel flows
flow
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Objective
Key Interface Areas between
8 Logistics & Channel Management
Interface 1
Defining of logistics service standards
Interface 2
Making sure the logistics program meets
channel members’ service standards
Interface 3
Selling the logistics program
Interface 4
Monitoring the results of the logistics
program
©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Defining Logistics Service Standards
The higher the service standards,
the higher the costs.
Key issue for Channel Manager:
Determining precisely the types and levels
of logistics service desired by channel
members
Evaluating the Logistics Program
If included as a major component of the
manufacturer’s overall approach for supporting
channel member needs, the logistics program may be
the key feature of a strategic alliance.
Key issue for Channel Manager:
Ensuring that the program the experts prepare
is what the channel members want.
Selling the Logistics Program
1. Minimize out-of-stock occurrences.
2. Reduce channel member inventory requirements.
3. Strengthen the manufacturer-channel member
relationship.
Key issue for Manufacturers:
Extending superior logistics capabilities to help
channel members improve their logistics
and marketing capabilities.
Monitoring the Logistics System
Logistics systems must be continually
monitored, both in terms of how successfully
they are performing for the manufacturer
and how well they are meeting changing
channel member needs.
Key issue for Channel Manager:
Continually monitoring the channel members’
reactions to logistics programs.
Past Semester Questions
• Inventory management is critical for physical
distribution managers, in order to minimize the
inventory costs. Using relevant examples, describe the
following:
i. Process stocks (5 marks)
ii. Cycle stocks (5 marks)
iii. Safety stocks (5 marks) (June 2018)
• Discuss any three (3) factors to consider in warehousing
decisions (15 marks, Jan 2018)
• Elaborate how Just-in-Time (JIT) inventory
management systems increase the efficiency of physical
distribution management (5 marks, Dec 2016)
Continue
• Discuss any two (2) major areas of interface between
channel management and logistics management (5
maks, June 2016)
• Systematic logistics is believed to be desirable for
effective and efficient movement of products and
materials. Discuss any four (4) components of logistcs
sytem in line with the total cost approach for a more
cost-effective logistics management. Provide
examples to support your answer (20 marks, June
2016)
Continue
• With examples, explain the differences between
channel strategy and logistics management (7 marks,
DEC 2014)
• Illustrate the important of physical distribution within
the marketing channel perspective (10 marks, JUN
2013)
• Describe five (5) activities involved in physical
distribution management (15 marks, JAN 2012).
Channel Management 33
Thank You
Channel Management 34