Physical distribution system

PHYSICAL DISTRIBUTION SYSTEM

Agenda

Physical distribution definiation Objective of physical distribution Distribution Channels characteristic Physical Distribution components Decision area Warehousing Functions Different mode of transport in India Transportation characteristics Trends in physical distribution Conclusion Case study

Physical Distribution

Definition

Activities concerned with efficient movement of products and raw materials from producers to consumers.It is the set of activity concerned with the physical flow of materials,components and finish goods producer to channel institution and consumer .

Distribution is one of the four aspects of marketing. A distributor is the middleman between the manufacturer and retailer.After a product is manufactured it is typically shipped (and usually sold) to a distributor. The distributor then sells the product to retailers or customers ….

Objectives

· To give an understanding of the institutional and physical aspects of channels of distribution in global marketing

· To describe the different channels of distribution and show their advantages and disadvantages and,

Distribution Channels Characterstic

To reconcile the needs of producers and consumers

To improve efficiency by reducing the number of transactions and creating bulk

To improve accessibility by lowering location and time gaps between producers and

consumers

Physical Distribution

Three components: Input, Processor and Output

Input: Order from the Customer Processor: Transportation Output: Delivery to the Customer

Physical Distribution decision area

Inventory Management

Match quantity produced with quantity demanded holding costs ordering costs stockout costs

When to reorder? How much to reorder? How much to keep as safety stock?

Key is accurate forecasting of demand order filling time

Physical distribution

time

Stock on hand

placeorder

receiveorder

order filling time

Zero safety stock model

Physical Distribution

Inventory Management (cont.)

time

Stock on hand

placeorder

receiveorder

If demand increases...stockout

safety stock

Physical Distribution

Inventory Management (cont.)

time

Stock on hand

placeorder

receiveorder

If order filling time increases...stockout

safety stock

Warehousing (Functions) Receipt:

unloading, inspection, accounting Storing:

Careful labeling, identification & a/cing Handling Display Order Handling Information Processing: depository of

information across the organisation

MODES OF TRANSPORT PASSENGER LINER – This is normally used for carrying passengers, mail and

some express cargo. It has a regular time table and only calls at major ports. CARGO LINER – This mainly used for carrying a variety of cargo and sometimes a

few passengers. TRAMP – This is essentially a cargo ship . It carry a full load of any type to a

certain specified destination where it unloads whole bulk BULK CARRIER – This is a ship which is specially built to carry a particular type of

cargo for e.g. a bulk carries for iron ore. TANKER – This is special bulk carrier which carries liquids and gases such as oil

or liquified natural gases.

CONTINUES

OBO SHIP – This is an oil-bulk-ore carrier which uses different holds to transport at one time a mixed bulk-cargo

Roll - on, Roll – off or Ro - Ro ship – This is highly specialized ship which allow loaded vehicles like truck, trailer , cars, etc. to be driven abroad through at the stern and sides.

CONTAINER SHIP – This is built to carry large standard sized containers.

LINERS – Liners follow mixed routes and timetables. It carry mixed cargo and belong to shipping conferences.

CONTINUES COASTAL SHIIPING – Sometimes goods are

transported around the coast rather then inland. These goods are carried by coastal ships.

FERRIES – These are small boats that carries passengers over very short distances.

DELIVERY VANS - Mostly wholesalers and large scale retailers make use of delivery vans for short distances for small consignments.

CHARACTERISTICS OF MOTOR TRANSPORT

WATER TRANSPORT – Water transport is cheaper than various modes of transport of land transport.

Advantages. 1.Transportation of water is cheaper means of

inland transport for heavy and bulky goods like logs, grain, and metals.

2.Building material can be carried in large quantities than by road or train.

3. Loading and unloading will be easy.

CONTINUES

DISADVANTAGES 1.Its speed is lower than road ,a ir ir rail transport. 2. It is not reliable. 3.It provide service to limited areas.

PIPELINES: ADVANTAGES. 1.liquids and gaseous goods are are transported

over long distances from the place of production to the refineries, and from their to consumers in their homes via pipelines.

CONTINUES2.Maintenance costs are low3.It is not affected by weathery conditions.4. There is less pollution of the environment

compared to vehicles.

DISADVANTAGES1.High initial capital cost is involved in installing the

whole system.2.It is rather limited in use, once built these pipes

can only be used for particular type of product for which it was originally installed.

CONTINUES

ROAD TRANSPORT ADVANTAGES: 1. Flexibility. 2. Timetables. 3. Economy. 4. Motorways. 5. vehicles. 6. Suitability. 7. Containerization.

CONTINUES

DISADVANTAGES 1. Bulk 2.Congestion and delays 3. Social costs.

RAIL TRANSPORT: ADVANTAGES. 1.Cheap 2.Speed 3.Bulk commodities 4. Containerization.

CONTINUES

DISADVANTAGES. 1.Transshipment 2.Delays. 3.Short journeys. 4.Timetables. 5. Changing outputs 6.High capital costs.

SEA TRANSPORT: ADVANTAGES. 1. Cheap

CONTINUES

2. Bulk 3.Flexibility. 4. Facilities. 5. Short notice. 6. containerization. DISADVANTAGES. 1.Slow speed. 2.Documentation. 3. Other costs.

CONTINUES

AIR TRANSPORT: ADVANTAGES. 1. Aircrafts are now built larger to carry more

goods. 2. Aircrafts are now available at short notice. 3. Mail , newspapers, medicine and perishable

goods can be transported quickly by air 4. Risks involved by transporting by air are less

the insurance charges are low. 5. Documents used in air transport are are less

complicated when compared to sea transport. 6. Aeroplanes can take the shortest route.

CONTINUES DISADVANTAGES. 1. Airfreight transport is very expensive because

of high capital investment and maintenance costs.

2. Aircrafts have limited cargo capacity, bulky goods cannot be sent.

3. Bad weather may restrict flights.

Trends in physical distribution

Increase in road and decline in rail transport.

Growth in light goods vehicles Growth in heavy goods vehicles Growth in air and sea transport Growth in just in time produaction Changing role of distribution centers Restrictions on driver hours

Conclusion Along with price and promotion decisions, a decision has to be

made on the distribution system. There are two components to this - the physical (order processing storage/warehousing and transport) and the institutional aspects. The latter involves the choice of agents, distributors, wholesalers, retailers, direct sales or sales forces. Again, each has its own advantages and disadvantages.

However, it is in the channel of distribution that the international marketer can encounter many risks and dangers. These involve many transaction costs both apparent and hidden. Risks include loss in transit, destruction, negligence, non-payment and so on. So careful choice and evaluation of channel partner is a necessity.

CASE STUDY MAXWELL CORPORATION-DISTRIBUTION SYSTEM

The president of Maxwell Corporation was considering whether the company should up its own distribution system or to outsource the entire distribution and logistics function to a third party service provider. The company had set up a manufacturing plant in vizag where a wide range of orthopedic equipments viz., crutches, wheel chairs, walkers back braces, heating pads, elastic bandage, canes, knee braces, shoulder braces and so forth were manufactured. Presently, the finished goods warehouse was located at Vizag itself and the product were sent to all major towns in India as a point to point dispatch. The company was supplying these equipments directly to retail stores at all these locations. Marketing activity was headed by a general manager-marketing based at Vishakhapatnam who was supported by a sales team comprising of sales officers. The company was not resorting to advertisement and publicity though the products of the company were fairly well known. It was felt that all these customer wanted quick responses to their orders as the products catered to emergency patient.

But, these retail outlets carried only very limited inventories. This was due to the fact that most of the products came in a variety of styles, shapes and sizes and the requirements was more customer driven. Keeping even a moderate inventory of all types was not economically viable and lead to dead stock in long run. The company was looking at various option which included the following:

Setting up of hub and spoke type of a distribution network wherein it was proposed to set up a stock point or mother warehouse in each zone viz., East, West, North and South and respective retail outlets were to be fed from the warehouse located in that zone.

Setting up of a central warehouse anywhere in Central India and feeding retail outlets from this location.

Changing the distribution channel from the present numerous retail outlet system to a more efficient system.

Outsourcing the entire distribution and logistics to a third party wherein the entire activity of transportation and distribution till the ultimate retail outlet would be taken care of by this service provider and company could focus more on activities of marketing and sales.

Question for discussion 1.What in your opinion is of immediate importance for

Maxwell Corporation and why ? 2.What should be the distribution channel for Maxwell

and outline the advantages for having such a type of a set up ? 3.What type of a marketing and sales set up would you recommend for Maxwell Corporation ?