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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.
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.
1. Creation of utilities:
The physical distribution function of a firm provides the place and time dimensions which
contribute a basic element of marketing mix. The major components of physical distribution are
transportation and warehousing.
Creation of or addition of utility is addition of value to a thing. It is transport system that creates
place utility making goods more useful by bringing them from the places where they are not
needed to the places where they are badly needed.
Warehousing system is known for creating time utility. By holding the goods from the time of
their production till their consumption thus avoiding gluts and shortages over a given period of
time. The outcome is the maximization of consumer satisfaction and profits to the firm.
2. Improved consumer services:
In general terms, ‘consumer service’ is the service provided to the customer from the time of
order placed till the product is delivered.

4. planning inventory operations to avoid stock-outs and gluts. An increased market share one of the major aims of any growth aspiring marketing unit can be possible. receiving and shipping costs 5 percent. transportation schedules and modes. A well designed physical distribution frame can decentralize its warehousing operations. sales representation. It is the ‘last frontier’ for cost economies and the economy’s dark continent. warehousing 25 percent. This is an ideal case indeed which is rate to a customer. inventory carrying costs 10 per cent. Improvement in customer service is possible when we talk of a service level. . dependability. Cut in distribution costs: The prices paid by the user consist of not only production costs but also delivery costs. There are tangible and intangible costs for which the customer is to bear the brunt. availability and convenience. product availability and the like. Therefore. Economy can be brought about in tangible and intangible costs by systematic planning of inventory levels. packing 6 percent. Customer service in physical distribution function consists of providing products at the time and location corresponding to the customer needs. There are definite ways in which an efficient physical distribution system can contribute towards this end. after-sale services. order processing and communication. warehousing location and operations. However. A customer service level is a measure of how well the customer service function is being performed. communication. high levels of customer satisfaction can be possible through a viable distribution system that takes into account the factors that affect customer service such as time.In fact. devise the combinations of efficient and economic means of transport to pen errata into the areas untapped so far. product range offering. it is much more than this and covers price. Increased market share: A new look and approach to physical distribution can contribute beyond the attainment of the twin objectives of improving consumer satisfaction and dealer profit margins. Customers would be cent-percent satisfied if a wide range of products were available at the right place and time in sufficient quantities to meet the needs and wants of all who were willing and able to buy. Experts have estimated that the physical distribution costs are in the range of 20 to 25 percent of the price. transportation accounts for 45 percent. material handling. It is the virgin land for cost control and cost reduction. 3. physical distribution system can be instrumental in slashing down these costs. If the total physical distribution costs are taken. administration 5 per cent and order processing 4 percent.

It is the best use of available transport and warehousing facilities that can bring about amicable and matching adjustment between the demand for and supply of goods thus preventing price fluctuations and distortions. For example. Price stabilization: Physical distribution can contribute considerably to the attainment of the situation of price stabilization. If the order processing system is efficient. The business is concerned with this function because it directly relates to how the customer is serviced and attaining the customer service goals. An additional approach might include that 95% of custom handbags be delivered to the customer within 96 hours of purchase. if the . Physical distributional components are capable of bringing about much desired price stabilization. it can also add to rebuilding the class of customers the greatest asset for any marketing organisation that is adaptive. As an example. the physical distribution system is then designed to attain these goals. such as transportation or inventory control. 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. then the business can avoid other costs in other functions. Once these customer service standards are set.These minute points are constructive in arresting the loss of consumer interest and loyalty. Among other things the customers expect price stability over a period and place. Functions of Physical Distribution The key functions within the physical distribution system are:  Customer service   The customer service function is a strategically designed standard for consumer satisfaction that the business intends to provide to its customers. Thus. 5. This is of particular importance in all the underdeveloped and developing economies where these components particularly transportation and warehousing have not reached the heights of sophistication and refinement. Order processing  Order processing is designed to take the customer orders and execute the specifics the customer has purchased.

Carrying primarily manufactured products (as opposed to bulk materials). This rate is known as a negotiated or contract rate. TRUCKING—FLEXIBLE AND GROWING The shipping method most favored by small business (and many large enterprises as well) is trucking. Transportation costs vary by mode of shipping. Trucks are particularly useful for shortdistance shipments. and other variables finalized in a contract between the two parties. contract rates allow a shipper and carrier to negotiate a rate for a particular service. Transportation costs are largely based on the rates charged by carriers. and they offer relatively fast. However. There are two basic types of transportation rates: class and commodity. small businesses are increasingly utilizing a third type of rate that has emerged in recent years. depreciation. But in 1977 the deregulation of transportation began with the removal of federal regulations for cargo air carriers not engaged in passenger transportation. many small business owners do not have the volume of shipping needed to take advantage of commodity rates. the business has to turn to premium transportation modes. Unfortunately. is the standard rate for every commodity moving between any two destinations. with the terms of the rate. The class rate. to meet the customer service standard set out. trucks offer fast. loss of demand for products. the consumer.handbag business has an error in the processing of a customer order. There are different types of inventory control systems that can be implemented. small businesses typically use air only for the movement of valuable or highly-perishable . which will increase the transportation cost. The deregulation movement has since expanded in ways that have fundamentally altered the transportation landscape for small business owners. such as next day air or overnight. as discussed below. frequent. large conglomerates and. consistent service for both large and small shipments. such as first in-first out (or FIFO) and flow through. which are methods for businesses to handle products. Popularized in the 1980s following transportation deregulation. ultimately.  Inventory control   Inventory control is a major role player in the distribution system of a business. much like its telephone and electrical utilities. AIR FREIGHT—FAST BUT EXPENSIVE Because of the relatively high cost of air transport. service. and economic delivery to more destinations in the country than any other mode. Cost include investment into current inventory. which is the higher of the two rates. since it is given by carriers to shippers as a reward for either regular use or large-quantity shipments. The commodity rate is sometimes called a special rate. Transportation and logistics The United States' transportation system has long been a governmentregulated industry.

Since small businesses can be virtually paralyzed by transportation strikes or other disruptions in small shipment service. PIPELINES—SPECIALIZED TRANSPORTERS Pipelines are utilized to efficiently transport natural gas and oil products from mining sites to refineries and other destinations. small businesses often rely on freight forwarders who act as transportation intermediaries: these firms consolidate shipments from numerous customers to provide lower rates than are available without consolidation. mixed with water. operate in the Great Lakes. In addition. and moved as a suspension through the pipes. and others. . Barge lines are efficient transporters of bulky. on the other hand.products. business owners can utilize a given transportation mode in the section of the trip in which it is most cost efficient. goods that qualify for this treatment do represent a significant share of the small business market. the United States Postal Service. DHL International. Sea shipments are an important part of foreign trade. RAILROADS—LONG DISTANCE SHIPPING Railroads continue to present an efficient mode for the movement of bulky commodities over long distances. grain. and use other modes for other segments of the transport. Owners can sometimes offset the high cost of air transportation with reduced inventory-holding costs and the increased business that may accompany faster customer service.  Packaging and materials Suboptimization is a term that has been adopted for a common policy mistake. non-metallic minerals. Federal Express. These commodities include coal. lumber. Oceangoing ships. United Parcel Service. It refers to the practice of focusing on one component of a total and making changes intended to improve that one component and ignoring the effects on the other components. Barge lines typically do not serve small businesses. WATER CARRIERS—SLOW BUT INEXPENSIVE There are two basic types of water carriers: inland or barge lines. Overall costs are often significantly lower under this arrangement than with single-mode transport. Freight forwarding not only provides cost savings to small businesses. Under these arrangements. which is ground to a powder. and lumber and wood products. so-called slurry pipelines transport products such as coal. These include bus freight services. many owners choose to diversify to include numerous shippers. Additionally. chemicals. thus maintaining an established relationship with an alternate shipper should disruptions occur. The nature of the problem is most easily understood from examples. it provides entrepreneurial opportunities for start-up businesses as well. and in international commerce. and thus are of vital importance to small businesses seeking an international market share. INTERMODAL SERVICES Small business owners often take advantage of multi-mode deals offered by shipping companies. low-unit-value commodities such as grain. Of vital importance to small businesses are transporters specializing in small shipments. and oceangoing deep-water ships. and steel. However. gravel. transporting goods among port cities. sand.

The proper goal is maximization of net social benefit which means that the tradeoffs between air pollution and economic production must be taken into account. ultimately. TRANSPORTATION The United States' transportation system has long been a government-regulated industry. such as economic production.  An educational institution concerned about thefts of equipment might take steps to minimize theft which result in students not being able to use the equipment at all. The proper policy has to consider the tradeoffs between security and access for legitimate use. are held constant. such systems often involve the use of specialized software that allows the owner to track inventory while simultaneously analyzing all the routes and transportation modes available to determine the fastest. large conglomerates and. But in 1977 the deregulation of transportation began with the removal of federal regulations for cargo air carriers not engaged in passenger transportation. The deregulation movement has since expanded in ways that have fundamentally altered the transportation landscape for small business owners.  Minimization of air pollution may be a valid goal if all other variables. But minimization of air pollution without regard to what happens to production is not valid. For example.Examples of Suboptimization  If a firm focuses on minimization cost. This is clearly not optimal because it results in the same effect as if all the equipment were stolen. It might further set a standard of delivering 90 percent of all of its units within 72 hours. and all 100 percent of its units within 96 hours. and takes measures which not only reduce cost but also reduce revenues even more the profit of the firm is adversely affected. In today's fast-paced. most cost-effective way to delivery goods on time. a customer service standard for the above-mentioned provider of customized computers might be that 60 percent of all PCS reach the customer within 48 hours of ordering. . A physical distribution system is then set up to reach this goal at the lowest possible cost.  A government agency that promotes a program for its benefits but ignores its costs may make society worse off rather than better off. the consumer. much like its telephone and electrical utilities. technologically advanced business environment. a desirable aim if all other factors remain equal. Maximization of benefits without taking into account costs is not rational.   CUSTOMER SERVICE Customer service is a precisely-defined standard of customer satisfaction which a small business owner intends to provide for its customers.

and in international commerce. non-metallic minerals. since it is given by carriers to shippers as a reward for either regular use or large-quantity shipments. contract rates allow a shipper and carrier to negotiate a rate for a particular service. grain. service. However. Unfortunately. sand. Transportation costs vary by mode of shipping. Owners can sometimes offset the high cost of air transportation with reduced inventory-holding costs and the increased business that may accompany faster customer service. is the standard rate for every commodity moving between any two destinations. Barge lines typically do not serve small businesses. and other variables finalized in a contract between the two parties. In addition. and thus are of vital importance to small businesses seeking an international market share. and economic delivery to more destinations in the country than any other mode. However. frequent. These commodities include coal. The commodity rate is sometimes called a special rate. lumber. AIR FREIGHT—FAST BUT EXPENSIVE Because of the relatively high cost of air transport. trucks offer fast. Oceangoing ships. so-called slurry pipelines transport products such . many small business owners do not have the volume of shipping needed to take advantage of commodity rates. The class rate. RAILROADS—LONG DISTANCE SHIPPING Railroads continue to present an efficient mode for the movement of bulky commodities over long distances. Popularized in the 1980s following transportation deregulation. Trucks are particularly useful for shortdistance shipments. PIPELINES—SPECIALIZED TRANSPORTERS Pipelines are utilized to efficiently transport natural gas and oil products from mining sites to refineries and other destinations. goods that qualify for this treatment do represent a significant share of the small business market. as discussed below. and oceangoing deep-water ships. low-unit-value commodities such as grain. consistent service for both large and small shipments. TRUCKING—FLEXIBLE AND GROWING The shipping method most favored by small business (and many large enterprises as well) is trucking.Transportation costs are largely based on the rates charged by carriers. with the terms of the rate. Barge lines are efficient transporters of bulky. This rate is known as a negotiated or contract rate. which is the higher of the two rates. chemicals. Carrying primarily manufactured products (as opposed to bulk materials). There are two basic types of transportation rates: class and commodity. Sea shipments are an important part of foreign trade. small businesses are increasingly utilizing a third type of rate that has emerged in recent years. small businesses typically use air only for the movement of valuable or highly-perishable products. and they offer relatively fast. gravel. on the other hand. operate in the Great Lakes. transporting goods among port cities. WATER CARRIERS—SLOW BUT INEXPENSIVE There are two basic types of water carriers: inland or barge lines. and steel. and lumber and wood products.

keeping them on the move as much as possible. INTERMODAL SERVICES Small business owners often take advantage of multi-mode deals offered by shipping companies. modern warehouses are long.as coal. while labels. or resort to holding their goods in public warehouses. and moved as a suspension through the pipes. Single-story construction eliminates the need for installing and maintaining freight elevators. and for accommodating floor load limits. A storage warehouse holds products for moderate to long-term periods in an attempt to balance supply and demand for producers and purchasers. In contrast to the older. the internal flow of stock runs a straight course rather than up and down multiple levels. On the other hand. many owners choose to diversify to include numerous shippers. Of vital importance to small businesses are transporters specializing in small shipments. And those entrepreneurs who go with non-public warehousing must further decide between storage or distribution facilities. and shipping documents are generated automatically. They are most often used by small businesses whose products' supply and demand are seasonal. These facilities are often located so that their users have easy access to major highways or other transportation options. The efficient movement of goods involves entry on one side of the building. Under these arrangements. Many distribution warehouses physically store goods for fewer than 24 hours before shipping them on to customers. . the United States Postal Service. Since small businesses can be virtually paralyzed by transportation strikes or other disruptions in small shipment service. DHL International. Federal Express. United Parcel Service. which is ground to a powder. it provides entrepreneurial opportunities for start-up businesses as well. a distribution warehouse assembles and redistributes products quickly. thus maintaining an established relationship with an alternate shipper should disruptions occur. Overall costs are often significantly lower under this arrangement than with single-mode transport. Sophisticated software translates orders into bar codes and determines the most efficient inventory picking sequence. and others. small businesses often rely on freight forwarders who act as transportation intermediaries: these firms consolidate shipments from numerous customers to provide lower rates than are available without consolidation. Order information is keyboarded only once. central storage. Freight forwarding not only provides cost savings to small businesses. multi-story structures that dot cities around the country. and departure out the other end. mixed with water. Additionally. WAREHOUSING Small business owners who require warehousing facilities must decide whether to maintain their own strategically located depot(s). and thus is increasingly available for small business applications. Furthermore. These include bus freight services. and use other modes for other segments of the transport. business owners can utilize a given transportation mode in the section of the trip in which it is most cost efficient. one-story buildings located in suburban and semi-rural settings where land costs are substantially less. bills. Computer technology for automating warehouses is dropping in price.

html#ixzz3wWShhEwG .Information reaches hand-held scanners. The advantages of automation include low inventory error rates and high processing speeds. which warehouse staff members use to fill orders.com/small/Op-Qu/PhysicalDistribution.referenceforbusiness. Read more: http://www.