After products are produced and priced, they must be distributed to the marketplace. All organizations perform a distribution function. The distribution function is vital to the economic well-being of society because it provides the goods and services desired by the consumer. Economists often describe the value of distribution in terms of ownership, place, and time utility. The marketer contributes to the product’s value by getting it to the right place at the time the consumer wants to buy it and by providing the mechanism for transferring ownership. Firms that do not perform the distribution function effectively usually fail.
Distribution also provides employment opportunities. Salespeople, warehouse managers, truck drivers, stevedores, and forklift operators are all involved in distribution. Others service the products provided through a distribution network. Most people involved in distribution are classified as service personnel: Their role is to provide service to some other sector of the economy. DEFINITION OF KEY TERMS. Physical distribution Is the actual movement of goods and services from the producer to the user. Physical distribution covers a broad range of activities.
These tasks include customer service, transportation, inventory control, materials handling, order processing, and warehousing. Distribution channels Define as paths that goods and services and title to them follow from producer to consumer. Distribution channels are composed of marketing intermediaries, the persons or firms that operate between the producer and the consumer or industrial user. The two main categories of marketing intermediaries are wholesalers and retailers. Marketing intermediaries Channel members operating between the producer and the consumer or industrial purchaser. Wholesaling intermediaries
Channel members selling primarily to retailers, other wholesalers, or industrial users. Retailers Channel members selling goods and services to individuals for their own use rather than for resale. STATEMENT OF THE ISSUE THE ROLE OF THE PHYSICAL DISTRIBUTION FUNCTION. Physical distribution is an important part of distribution strategy. Because its objective is to maximize the level of customer service, marketers must consider total costs. The various elements in physical distribution include customer service standards, transportation, warehousing, materials handling, inventory control, and order processing.
Physical distribution is important for two reasons. First, physical distribution activities account for, on average, one fifth the cost of a manufactured goods. In the past, businesses focused on improving the efficiency of production to lower product costs. In recent years, however, managers have begun to realize that reducing the costs of physical distribution activities is another key to improving productivity and gaining significant competitive advantages. Physical distribution is also important because customer satisfaction, to a large extent, depends on reliable movements of goods and service.
The study of physical distribution should include all factors involved in moving goods rather than concentrating on individual aspects of the process. Because the objective of physical distribution is to provide a specified level of customer service at the lowest possible overall costs, total costs should be considered. Sub optimization can occur if individual rather than total costs are considered. Physical distribution costs are often interrelated; a change in one element may affect other elements. Low inventory levels may reduce warehousing costs, but they can result in increases in transportation and order-processing costs.
The interrelationship of these costs should be emphasized in any physical distribution strategy. DISCUSION TRANSPORTATION The form of transportation used to ship products depends primarily on the kind of product, the distance, and the cost. The physical distribution manager has a number of companies and modes of transportation from which to choose. Transportation Companies. Transportation companies are classified into four basic types: common carriers, contract carriers, private carriers, and freight forwarders. A common carrier offers to perform services within a particular line of business for the general public.
One example is a truck line operating in an area where general merchandise is handled. Contract carriers transport goods for hire by individual contract or agreement. They do not offer to perform services for the general public; instead, they usually offer services that meet the special needs of their customers. Contract carriers are most frequently engaged in business as owner/operator motor carriers. Usually they solicit large shipments from a particular shipper to a particular recipient. Private carriers transport their own property or deliver their services in their own vehicles.
Amoco has its own fleet of oceangoing crude oil carriers. Freight forwarders differ from the other carriers in that they do not own any of the equipment used in intercity carriage of freight. They are common carriers that lease or contract bulk space from other carriers such as the airlines and railroads and resell this space to small-volume shippers. Modes of Transportation. The five major modes of transportation are railroads, trucks, water carriers, pipelines, and air freight. The cost of using each mode is usually related to the speed at which it operates.
Faster modes typically cost more than slower ones; hence, compares speed, reliable delivery, shipment frequency, location availability, handling flexibility, and cost associated with the five modes of transportation. WAREHOUSING Warehousing is the physical distribution activity that involves the storage of products. The two types of warehouses are storage and distribution. A storage warehouse keeps products for relatively long periods of time and is used most often for products that are seasonal in supply or demand, such as farm products. . A distribution warehouse is used to gather and redistribute products.
Distribution warehouses try to keep products for as short a time as possible. They are mainly used by manufacturers that have several small customers in various, distant locations or by firms that have several suppliers in one area. For example, Coca Cola set up distribution warehouses for deliverymen that place these products in various retail outlets. MATERIALS HANDLING AND PROTECTIVE PACKAGING The physical distribution activity of moving items within plants, warehouses, transportation terminals, and stores is referred to as materials handling.
Equipment used to handle goods includes forklift trucks, conveyor belts, and trucks. Unitization and containerization have improved materials handling in many firms. Unitization combining as many packages as possible into one load that can be handled by a forklift truck is sometimes done with steel bands or shrink packaging. Containerization putting packages, usually made up of several unitized loads, into a form that is relatively easy to transfer has significantly reduced transportation costs for many products by cutting materials handling time, theft, insurance costs, damage, and scheduling problems.
Containerization significantly improved handling for rail, steamships and trucking. INVENTORY CONTROL Inventory control deals with the management of inventory costs such as storage facilities, insurance, taxes, and handling costs. Holding inventory is expensive, To reduce inventory costs, many firms use computerized inventory control management systems. Watteau, a food-service wholesaler, installed on-line inventory control systems in its distribution centers to increase the efficiency of warehousing and transportation and to provide retail customers with information that helps them make buying decisions.
Another approach to controlling inventory is the just-in-time (JIT) inventory system. ORDER PROCESSING The physical distribution activity of order processing concerns the actual preparation of an order for shipment. It also includes the receipt of orders. Order processing is closely linked to the firm’s customer service standard Order processing and the other physical distribution activities performed by channel members ensure that customers receive goods and services at the right time and in the right place.
CONCLUSION Physical distribution is important due to several factors. Warehouse costs have increased signi?cantly due to increases in labor and material costs. Transportation in a World of variable energy costs has become more expensive. The goal of the physical distribution function is to produce a specified level of customer service while minimizing the costs involved in physically moving and storing the product from its production point to its ultimate purchase.