Physical Distribution

Recapitulation
Once the company has reviewed its channel alternatives and decided on the best channel design, it must
implement and manage the chosen channel. Channel management calls for selecting, managing, and motivating
individual channel members and evaluating their performance over time.

Producers vary in their ability to attract qualified marketing intermediaries. Some producers have no trouble
signing up channel members. For example, when Toyota first introduced its Lexus line in the United States, it had no
trouble attracting new dealers. In fact, it had to turn down many would-be resellers. In some cases, the promise of
exclusive or selective distribution for a desirable product will draw plenty of applicants.
Once selected, channel members must be continuously managed and motivated to do their best. The company
must sell not only through the intermediaries but to and with them. Most companies see their intermediaries as
first-line customers and partners. They practice strong partner relationship management (PRM) to forge long-term
partnerships with channel members. This creates a marketing system that meets the needs of both the
company and its partners.

The producer must regularly check channel member performance against standards such as sales quotas, average
inventory levels, customer delivery time, treatment of damaged and lost goods, cooperation in company promotion
and training programs, and services to the customer. The company should recognize and reward intermediaries
who are performing well and adding good value for consumers. Those who are performing poorly should be
assisted or, as a last resort, replaced. A company may periodically "prequalify" its intermediaries and prune the
weaker ones.
 Learning Outcome
Learning Outcome Programme Outcome

Able to understand the concept of PO1. Apply knowledge of

physical distribution and logistics management theories and
practices to solve business
problems.

Able to explain the five most PO2 : Foster Analytical and

important physical distribution Critical Thinking Ability
activities.
• Tesco introduced its Fresh & Easy gourmet mini-supermarkets into California
after much research that included spending time with U.S. families and
videotaping the contents of their refrigerators.
• Fresh & Easy’s 200 or so stores were roughly 10,000 square feet, about one-
fifth the size of a standard U.S. supermarket but much bigger than a
convenience store, with a focus on fresh-food offerings.
• Yet, after five unprofitable years and more than $1.6 billion in losses, Tesco
decided to exit the market in 2013.
• A host of problems plagued the retailer. Its
U.S. customers were unaccustomed to British-
style ready meals, self-service cash registers,
and unorthodox store layouts.
• Other complaints were that the product range
was too narrow, there was no bakery and an
underwhelming flower department, and the
stores were physically too cold.
• The United States was not the only trouble
spot for Tesco.
• The company had exited Japan the preceding year
and was finding trouble in Central and Eastern
Europe. While it focused on geographical expansion,
its core supermarket business in the United
Kingdom was neglected.
• Stores weren’t properly staffed, fresh food was not
properly maintained, and new private-label
products were not introduced.
• The attempt to add non-grocery items like clothing
and electronics proved difficult in a recession, and
entry into new areas like banking and telephony
was a distraction.
• After enduring six consecutive quarters of same-
store sales declines in its home market, Tesco
announced a $1.7 billion program to refresh its UK
stores and a pull-back of its global ambitions.
Definition of Physical Distribution:
• Philip Kotler has defined physical distribution
as, “Physical distribution involves planning,
implementing and controlling the physical
flow of materials and final goods from the
point of origin of use to meet consumer needs
at a profit.”
Objectives of Physical Distribution

Physical distribution has two broad objectives

viz.
• consumer satisfaction
• profit maximisation
 Apart from these two broad objectives,
physical distribution has other objectives as follows

• To make available the right goods in right quantity at

right time and right place at least cost.

• To achieve minimum inventory level and speedier

transportation.

• To establish price of products by effective management

of physical distribution activities.

• To gain competitive advantage over rivals by

performing customer service more effectively
 Importance of Physical Distribution
System
1. Creating Time and Place Utility

2. Helps in Reducing Distribution Cost

3. Helps in Stabilisation of Price

4. Improved Consumer Services

 Components of Physical Distribution
(1) Order Processing

• Order processing is the starting point of any

distribution activity. Order processing includes
activities like receiving the order, handling the
order, granting credit, invoicing, dispatching,
collecting bills, etc.

• Each customer expects that the order placed by

him is implemented without delay, and as per the
specifications of the order.
(2) Storage and Warehousing

• Storage means making proper arrangements

for retaining the goods in proper condition till
they are demanded by customers.

• There are many products which are seasonally

produced but are used throughout the year,
they can be stored and later released.
(3) Inventory Control

• Inventory control refers to efficient control of

goods stored in warehouses. Maintaining
adequate level of inventory is very essential for
smooth flow of business.

• Inventory acts as a bridge between the orders of

customers and production. They are the reservoir
of the goods held in anticipation of sales.

• Therefore, it needs to be properly managed and

controlled. Neither to small nor too large
inventory should be maintained.
(4) Material Handling

• Material handling includes all those activities

which are associated in moving products
when it leaves the manufacturing plant but
before it is loaded on the transport.

• This activity has been in existence since very

long period of time, and now it has developed
as a system.
(5) Transportation

• Transportation as a component of physical

distribution is concerned with the movement of
goods from the warehouse to customer
destination.

• It includes loading and unloading of goods and

their movement from one place to another. In
doing so it provides time and place utility.

• Transport accounts for a major portion of the

distribution cost and of the total price of the
product.
Contd…
Different modes of transportation are there like
Road transport, railways, Airways, Water
transport and pipeline from which a choice has to
be made.

Each has its own share of merits and demerits.

Normally a combination of different mode is
chosen and integrated in a sequential order to
move the product economically and faster
Choice of a particular mode of transportation
depends upon various factors like cost of the
transport, availability of the mode of transport,
speed, reliability, frequency, safety and
suitability of the mode to move the product.

i. Road Transport
ii. Railways
iii. Water Transport
iv. Air Transport
v. Pipelines
 Logistics
• a broader term as compared to physical
distribution

• involves all the activities ranging from raw

material procurement stage to the delivery of
the finished product to the customers,
including packaging of the product, order
processing, inventory management,
warehousing and transportation.

9/30/2020 BBA 310 SDM 18

 Logistics
“the process of planning, implementing and
controlling the efficient cost effective flow and
storage of raw materials, in-process inventory,
finished goods and related, you know,
information from the point-of-origin to the
point-of-consumption after the purpose of
confirming to customer requirements.”
- The Council of Logistics Management

9/30/2020 BBA 310 SDM 19

• Alibaba The brainchild of Jack Ma, Alibaba
began in 1999 and has grown through the
years to become the world’s largest online
marketplace, allowing people and businesses
to buy and sell any type of product—from Fuji
apples to Boeing 737s.
• Its numbers are staggering. The $15 billion
company has 500 million registered users on
nine platforms in 220 countries and regions
and enjoys about 80 percent of the Chinese e-
commerce market.
• On Singles’ Day on November 11, 2012—a local
twist on Valentine’s Day and China’s biggest
online shopping day—Taoboa (a consumer-to-
consumer marketplace) and Tmall (a business-to-
consumer marketplace), Alibaba’s two main
platforms, topped $5.75 billion in sales from 400
million unique visitors in 24 hours.
• More than 10 million of the 16 million parcels
delivered in China each day originate from
Taobao and Tmall, so logistics providers are
crucial (there are no UPS or FedEx counterparts).
• A cross -between Amazon.com, eBay, Rackspace,
and PayPal, Alibaba makes money primarily from
commissions and from advertising by buyers and
sellers exchanging goods.
• To establish customer trust, the company set up
TrustPass, in which users pay Alibaba a fee to hire
a third party that verifies them.
• Users must have five people vouch for them and
provide a list of all their certificates/business
licenses.
• Anyone who has done business with a user is
encouraged to comment, in the same way buyers
comment on sellers in Amazon.com’s or eBay’s
marketplac
• Harley-Davidson Given that Harley-Davidson sells more
than $1 billion worth of parts and accessories and
general merchandise to its loyal followers—generating
roughly one-quarter of its annual revenue—an online
venture to reach even more customers was an obvious
next step.
• The company needed to be careful, however, to avoid
the wrath of its 850 dealers who benefit from high
margins on their sales.
• Its solution was to prompt online customers to select a
participating Harley dealer from which to purchase,
ensuring that the dealer remains the focal point of the
customer experience.
• Dealers, in turn, agreed to a number of standards, such
as checking for orders twice a day and shipping
promptly. In-store pickup is also an option, and some
products are available only in-store.
• Dunkin’ Donuts An early mobile marketer,
Dunkin’ Donuts has refined its DD Perks
program as part of its corporate goal to lead in
digital mobility in the QSR (Quick Serve
Restaurant) industry.
• The DD program was integrated into the
company’s unified point-of-sales and mobile
app to reward loyal customers and encourage
them to visit more often and spend more on
each visit.
• The mobile app received 3.5 million downloads
in the first year alone. By constructing a
purchase history and profile for customers,
Dunkin’ Donuts can offer more customized and
geographically targeted offers that change as
customers go from market to market.
• The app includes a store locator feature and lets
customers pay for drinks and meals with a bar
code scanned at the point of sale.
• The company also uses Twitter to run quick, fun
promotions and sweepstakes for its on-the-go
customers.
 Summary
• Physical distribution consists of activities designed to move products from
producers to ultimate users. Its five major functions are inventory
management, order processing, warehousing, materials handling, and
transportation. These interrelated functions are integrated into the
marketing effort.
• Physical distribution has two broad objectives viz. consumer satisfaction
and profit maximization. Apart from these, there are other objectives too
• The importance of physical distribution becomes significant when the
manufacturers and market are geographically far from each other. The
following points highlight the importance of physical distribu on −
 Execute physical flow of product from the manufacture to the customers.
 Grant time and place for the product
 Build customer for the product
 Cost reduction
 Fulfill the demand of the product in the market so that business takes
place