CHAPTER 9

Physical Distribution
What is Physical Distribution?

 Physical distribution is that marketing function

which facilitates the movement of goods from the
manufacturer to the location of the ultimate users.
 A Physical Distribution System

Supplies Warehouses
THE
Parts FIR Wholesalers
M
Raw Materials Retailers

CONSUMER
S
Supply Chain Management

 Physical distribution, in combination with

marketing channels comprise the total system
perspective of distribution called supply chain
management.
 SUPPLY CHAIN MANAGEMENT
SUPPLY CHAIN
MANAGEMENT

PHYSICAL
MARKETING
DISTRIBUTIO
CHANNELS
N

ORDER INVENTORY WARE- MATERIALS TRANSPOR

PROCESSING CONTROL HOUSE HANDLING TATION
THE OBJECTIVES OF PHYSICAL DISTRIBUTION
when physical distribution activities are well-managed, some concerns come into
fore and provide opportunities for the firm to compete effectively.

These opportunities are as follows:

1. Improve customer service
2. Reduce distribution costs
3. Create time and place utilities
4. Stabilize prices
5. Influence channel decisions
6. Control shipping costs
Improve customer service

 When customers are satisfied with the services provided by

the firm through an effective physical distribution system,
they are motivated to patronize the firm. When competing
products are undifferentiated, the firm with the best physical
distribution system will have a competitive edge. Appliance
dealers carrying similar products with, sometimes, similar
brands, realize that one of their major competitive tools is
fast delivery.
Reduce distribution costs
 When the physical distribution system is effective,
costs reduction is possible. The economic order
quantity and the just- in- time inventory concepts, for
example, are design to minimize costs. Yet, this are
only two of the many ways of reducing costs.
Create time and place utilities

 Producers are, sometimes, confronted by difficulties that

may derail actions to achieve profit goals. These occur when
production and consumption are in imbalanced which
consists of two types:

a) Year- round consumption vs. seasonal production; and

b) Year- round production vs. seasonal consumption
 Stabilize prices

 There are times when the market is flooded with an

over supply of a certain product. The effect is a drastic
decrease in the price of the product.
Influence channel decisions
 Has to decide which channels to tap in the
distribution of its products or services.
 An effective physical distribution will
make it easier for management to identify
and select the right channel.
Control Shipping Goals

 There may be a flow of products but it will

not be smooth and one result could be “loose
control” over shipping costs.
 An effective physical distribution eliminates
this problem.
Elements of an Efficient Physical Distribution

1.Inventory planning and control

2.Transportation
3.Warehousing
4.Order processing
5.Materials handling
 Inventory planning and control

 Maintaining an inventory of stocks is a requirement of physical

distribution. Too much inventory, however, is a drain on the
financial resources of the firm. This is an addition to the cost of
keeping the inventory.
 The foregoing puts a pressure on the management of physical
distribution to maintain a balance between market needs and
costs.
 Further increases in inventory may not bring proportionate
increase in profits.
 Economists refer to this as “the law of diminishing returns”
A widely used inventory control technique is the Economic Order
Quantity (EOQ) mode. It can be used to determine what quantity to
order so as to minimize total inventory costs. The EOQ formula is as
follows:

Q= square root of 2TS/CI

Where Q = EOQ
T = total units disposed per year
S = restocking (or ordering) cost
C = cost per unit
I = annual carrying cost
Example

 If the cost per unit of a product is Php30.00,

the total units disposed per year is
Php50,000.00, restocking cost is Php300 per
order, and the annual carrying cost
(warehouse cost, and other costs.) is 15% of
the inventory value, find the EOQ.
Q= square root of 2TS/CI
Q= square root of 2 (50,000)(300)/
(30)(.15)= 2,581 units.
Transportation

 The shipping of products to costumers is on one the most important activities in physical
distribution.

FORMS OF TRANSPORTATION. Forms of transportation may be used in transporting

goods. They are the following:
1. railroads
2. trucks
3. water vessels
4. pipelines
5. airplanes
 Railroads – are less costly as a means of transportation. They
can carry more in terms of volume.
 Trucks – constitute the most reliable means of transporting
goods between two points inland.
 Water vessels – provide a very important means of
transportation especially in an archipelago like the Philippines.
 Pipelines – are specialized means of transporting liquid
products like oil from their sources to markets.
 Airplanes – constitute the fastest means of delivering good.
They are, therefore, used in shipping perishables like food,
newspapers, and flowers.
 Special Transport Agencies

 Delivering small quantities of goods pose a problem of

economy to the shipper.

The post office is one of the most economical ways of

sending packages to costumers. It covers every town in the
country.

 Delivery, however, takes longer in areas not specified as

key distributio centers.
 where speed and reliability is cocerned, parcel
service companies fit the reqirement. They deliver
packages within 24 hours in specific areas and
within 48 hours in some areas.
 Freight forwarders are also tranport agencies
involved in the economical distribution of goods.
 WAREHOUSING

Is an important component of physical distribution. Due to

some reasons, most products are not delivered to the
costumers righ after they come out of the production line.

the places where they are kept are called warehouses and the
activity done is called warehousing.
TYPES OF WAREOUSING

1.PRIVATE WAREHOSING
2.PUBLIC WAREHOUSING
PRIVATE WAREHOUSES
 are those owned or leased by the company.
The following conditions justify the use of private warehouses.
1. wen the firm isable to adapt to a rapidly changing market or product
conditions.
2. when the firm has special storage and handling requirmens; and
3. when the firm has relatively constant high volume of goods moving
into large metropolitan areas.
PUBLIC WAREHOUSES
 are those operated by professional
warehouses which provide storage and
related physical distribution facilities on a
rental basis to other firms. They may also
provide servies such as reshipping, filling
orders, financing, display of products and
coordinating shipments.
Number and Location of Warehousing
Facilities
 decisions must also be made on the number and the location of warehousing facilities.
More warehouses would bring the products nearer the market, but warehousing costs will
increase. Ultimately, decisions would involve trade-offs between many variables like:
1. warehousing costs
2. tansportation costs
3. change in inventory carrying costs
4. obsolescence costs
5. value of alternative facility use
6. production or supply
7. value of cost concessions
 8. communicating and data processing costs
 9. channels of distribution
 10. customer service costs
 THANK YOU