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Physical Distribution

Physical Distribution or Place P is concerned with movement goods and services

from manufacture to the place of consumption to the right customers at the right
time with right quality and quantity.


(PD) Physical
Distribution or Channel
Logistic Management

Alternative Evaluation of
Selection of
Channels, channel members
Inventory Evaluation appraisal 
Transportation Warehousing members in the
Management Selection of Counselling 
Appropriate Rewarding or
Channel that Repremanding
meets objective

Supply Chain

Operations or Logistics
connected with movement of Outbound Logistics
Inbound Logistics
goods from stores into Movement of “FG” from place
(Purchase, Receipt) stocking
production line on to finished of Manufacture or warehouse
of Raw Material , Components
goods warehouses (infactory, to trademembers or turther
from suppliers into factory
field warehouse or C&F on to consumers
Materials Agents) Marketing
Managemen Logistics
Distribution cost is second only to the material cost. Raw Material is the largest
cost. DC is the most neglected area of management i.e. this was the most
inefficient and unproductive area of operation. Following are the reasons:

1. Poor Infrastructure in terms of roads and warehouses

2. Lack of organized third party logistic firms (evolved only 10yrs ago)
3. Rural markets are unconnected to the main market by roads
4. Refrigerated transportation and warehousing systems are non-existent
5. Lack of electricity or Insufficient electricity

However in the last decade, most of the Indian manufacturing companies has
substantially increased their bottom line thanks to use of the following:
1. information technology,
2. SCM techniques like SAP, ERP, etc.
3. Use of modern inventory management techniques mostly electronic data
interchange (EDI) and Inventory Management
4. Introduction concepts of Carrying and Forwarding agents (C&F) in place of
national distribution houses (such as Voltas, Godrej, etc.)

This has helped in substantially increase in profits. Due to this most of the Indian
companies are able to keep their balance sheets healthy and clean. Not only with
respect to non-moving and slow moving stock and debtors but also in the debt to
equity ratios. Today most of the companies have repaid most of their high interest
debts resulting in < 1 debt to equity ration. This is a indication of a very healthy
Balance Sheet

Typically in most engineering and product companies material 40% to 60% of the
Total Selling price.

Logistic Management is concerned with physical movement of goods from the place
of manufacture to the place of consumption. Therefore three important activities
are inventory management, warehousing and Transportation.

Physical Distribution – Importance

• Ensures physical flow of product
• Confers place and time utility on products
• Helps build clientele
• Where production locations and markets are distanced, Physical Distribution
becomes crucial
• A promising area of cost reduction. Physical Distribution costs are high and
second only to materials – a neglected are of cost control.
Component Functions of PD/logistics
• Planning the overall PD system
• In-plant warehousing
• Transportation
• Field Warehousing
• Receiving
• Handling
• Secondary Transportation, Secondary Handling and Sub-Distribution
• Inventory Management at each level in chain
• Order Processing / Execution
• Accounting / Record Keeping
• Communication

Designing a physical distribution system 5-steps

• Articulate distribution objectives, specify the minimum desirable service level

in product delivery
• Find out what customers want in product delivery
• Find out what competitors do
• Keep the costs of the system as low as possible, without sacrificing the
guaranteed minimum service level
• Keep the system sufficiently flexible


Transportation Management Requirement (Transportation)
• Assessment of transportation requirement
• Choosing the mix of transportation modes
• Decide the routing
• Develop Operational Plans
• Implement/Review
• Control Transportation Costs

Role and Importance of Warehousing (Warehousing)

• Like transportation, warehousing too vests the product with time and place
• In some commodities, warehousing vests the product with form utility as well
• A certain level of storage in inescapable in marketing of most products.
Storage needed in large scale for seasonal products
• Sub-distribution realities also necessitate extra storage
• Storage reduces the need for instant transportation which is difficult and
• Storage is a competitive advantage, since better storage leads to better
servicing of channel and consumer
• Storage also helps in balancing demand and supply and in stabilizing prices
• In some products storage by itself acts as a stimulant of demand

Elements of Inventory Costs (Inventory Management)

• Interest on capital tied up in the inventory
• Warehouse rent
• Staff Salaries
• Insurance, Rates and Taxes
• Stationery
• Postage & Communication Charges
• Administrative Overheads
• Costs of Handling, Unloading and Stacking
• Loss of Damages and deterioration on storage
• Cost of order processing/record keeping/accounting
• Optimum inventory is a compromise between cost and service

Third Party Logistics (Outsourcing Logistics)

Indian Logistics Industry is huge, 10% of GDP, 5.8L Crore spent only 12-15% is
organized logistic market. There is huge need for building 3rd Party Logistics
• Volvo-GM out sources marketing logistics typing up with FedEx. Dealers when
requires spares in an emergency call FedEx on a toll free no and FedEx
supplies parts by air the same night either at dealers shop or at roadside at
the breakdown site. A central warehouse was set up and some of traditional
regional warehouses are, closed and therefore reduces overall inventory
costs by 15%
• In India AFL, Elbee, Gati, DHL, Overnight Express, Safe Express and Blue Dart
are some of the Air express companies collaborating with manufacturers for

Marketing Channel Management (Functions Performed)

• Facilitate selling by being physically to customers
• Provide distribution efficiency by bridging the manufacturer with the user,
efficiently and economically
• Break the bulk and cater to the tiny requirements of buyer
• Assemble products into assortments to meet buyers needs; match ‘segments
of supply’ with ‘segments of demand’
• Look after a part of physical distribution/marketing logistics/subdistribution
o Reselling
o Retransport
o Handling
o Accounting
o Providing warehouse space
o Storing the stocks
o Bearing risks
o Transforming static stocks intooperational stocks, thereby aiding the
sales process

Metrichanne Rural Direct Sales

l Channel Marketing Manager
Lakme Big Bazaar
TElephon Contracts Hotel,
C&FAgents C&F Agent HULNet Beauty
Channel Airlines
Parlor Food Bazaar

Redistributio Super
n Stockist Stockist

Retailer Sub Stockist

Consumers Retailers



These notes are incomplete… Need to take

rest of the notes from Gaurav or

Channel Objectives Channel Design

Castrol India – Location convenience Vast network of outlets backed by CFA’s
choice of product and strong reach; stockists/warehouses/delivery facility,
Speed delay; Fill orders from outlets in 1800 SKU’s variety , packsizes. Multi-tier
24hrs. design
Reliance textiles(VIMAL) – Create Exclusive showrooms 200nos. in all cities
exclusive image for VIMAL. Cater to and jumbo showrooms in metros. Outlet
urban markets, as per position. Build communicates
barriers to competition
Archies gift greetings. Proximity to Outlets close to upper echelons of
customers, convert low involvement society, the TMS. Go for exclusive
purchase into High IP, Make purchase an shops/shop-in-shops; Trendy interior
enjoyable experience design and peppy ambience. Wide range
of appealing merchandise
BBLIL (premerger with HLL) - Strong Embrace all types of shops, super
choice of brand, place and time utility. markets, grocery stores and kirana
Fresh stocks to consumer always shops. A 3-tier channel with CFA
(Carrying and Forwarding Agent), RS
(Redistribtion Stockis) and R (Retailer).
Provide for proper inventory/dely
backup. At each level minimize distance
bet issuing and receiving points
Philips (Appliance, Pers care) – Cover Have a 3-tier channel of CFA’s,
Markets intensively and extensively; distributors and retailers (2200
After sales service integral part of Retailers). Authorised Philips Service
channels. Build barrier to competitors Cetners (100 APSC’s) and
CRC’s (Consumer response centers).
60engineers liaise with APSC’s . Motivate
channel with guaranteed 30% ROI to
APSC’s. Make all strong dealers Philips
Louis Phillipe Promote as a complete and Go for exclusive show rooms, ensure full
premium wardrobe line, with shirts line at all outlets. Go for multi brand
trousers, ties, socks, belts, blazers, etc. outlets and for shop-in-shop in super
Cover the TMS (well to do agents) stores like Akbar Alis whire special areas
adequately are provided as shop in shops.
Maintain an edge over competition by
competing on quality, service, image
and value
ITC Tobacco division ensure easy • Go for CFA’s and wholesalers who
availability of cigarettes distribute, resell to retailers(8000)
Build brands through advertising • Go for different types of retailers,
branded, traditional and non
• Have branded retailers and
franchisee retailers who sell only ITC
cigarettes and not other brands

Value Creation Efficient Internal

Ability Operations (Order to cash
Quality, Feature, cycle mgmt)
Application and
Benefit PROFI Cost Reduction (Michael

Competitor Centeredness
Low High
Customer Low Self Centered Competitor
Centerednes Company Centered
s Company
High Customer Market
Centered Oriented
Company Company
Competitive Strategist
The purpose of CS is to build a competitive advantage for the following: CA is
also called as Competitive Edge and Differential Advantage. CA can be a
really called a CA only when it is a SDA (Sustainable Differential Advantage).
CA is an advantage gained over rivals in delivery value to the customers
higher than rivals. Value can be delivered in 2 ways:
a. Offering pdt at a lower price (quality is same)
b. Offering higher quality product that justifies a higher price (preferred
The first method is good only when you reduce the prices (like value pricing
method). Simple price reduction methods may lead to promotion war, ego
war, destruction wars, etc. Second method is preferred very few competitors
will not fight on increasing the quality of the product. That is why we need to
differentiate ourselves and get away from the competition.

From profit triangle above it is very clear, profit will be higher –

• higher the firms value creation ability
• more efficient company internal operations (all 9 – activities of Michael
• higher value creation and cost reduction compared to rivals (i.e
absolute value creation, absolute cost reduction has no meaning
unless both are higher than rivals do)
Therefore the firm should be triple centered (company, customers and
competitor centered)

There are two types of competitors: 1. Healthy Competitors 2. Disruptive


Reasons for Competitions Desirability

• Competition helps in sharing in mkt and pdt development cost
• Competition will make every firm to be innovative increase quality and
reduce the cost.
• Competition makes you never suffer you from arrogance, greed and
• Competition will make firms look for small and unattractive segments
• Competitors can unite and negotiate with Govt, trade union etc for
common good of industry
Healthy competitors - how do they play
• By rules
• Do not disrupt others or topple them. They live and let other live
• They set desirable prices compared to the cost
• Aim at desirable levels of market share
• They want to beat them at innovation

Disruptive competition – How do they play

• They do not play by rules

• They set undesirabley low prices
• They want to grow by toppling their competition (by setting suicidal

Firms can select from four alternative competitive position

Market Leader Positions
Market Challenger Position
Market Follower Position
Market Nicher Position

Typically the hypothetical competitive industry structure is as below:

• One mkt leader usually dominant player minimum twice the mkt share
of the nearest challenger with a mkt share of 40% of the mkt
• One or two mkt challenger together accounting the share of 30%
• Three or Four mkt follower together accounting the share of 20%
• Four or Five Mkt nicher together accounting the share of 10%

Who is a Mkt Leader and Strategies to remain 1

Mkt leader is a winner firm with dominant share of the mkt with leadership in
all the areas in the market.
Leads in prices
Cost Leader (Lowest Cost in the industry)
Leads in distribution coverage with the largest shelf space
Leads in promotional spent with the largest share of the voice (advertising
Leads in Technology with new pdt launches
Examples: Maruti Udyog (Cars), Hero Honda (Bike), Amul (Butter), Maggie
Market Challenger
It is a runner-up firm who strives hard aggressively to increase its Market
Share by toppling the apple cart of others (by taking shares from others).

Examples: Maruti Udyog took mkt share from Hindustan Motors when they
entered india
Canon – Xerox.

Market Follower
They are runner-up firms who believes in defending its mkt share and does
not want to increate it at the expense of others.
Examples: Cars in Hatch back segment

Market Nichers
A Niche is a small segment in a broad market. A Mkt Nicher is a small player
in a large mkt who selects and enters into a small niche which is ignored by
other players in the market

Example: Rolex in watchers, Harley Davidson in Bikes

Market Leader Strategies

• Everybody is wanting to attack the leader. Leaders are always
• Expand the total market – It is leaders responsibility to expand the
total mkt and does it in three ways:
o Find new users – Non users are virgin mkt or explored of
exploited. Colgate trying to covert Datton to Toothpaste users.
People who are aware but can’t afford the firm will develop low
price fighter brand and also offer new pack sizes that are
o Find new uses – Nestles milk maid is an excellent example
extended into dairy whitener, further extended into dahi maker,
and now into mithai maker. Nylon was first introduced as a fiber
for parachute making for defence and not its used for nylon tires,
fishing net, etc…
o Increase the usage rate by the current users
• Defend the current mkt share thru offensive and defensive strategies
• Increase the mkt share even if the mkts are stagnant by taking shares
from the rival