PHYSICAL DISTRIBUTION

SYSTEMS
 Physical distribution is the set of activities concerned
with efficient movement of finished goods from the end
of the production operation to the consumer.
 Physical distribution takes place within numerous
wholesaling and retailing distribution channels, and
includes such important decision areas as customer
service, inventory control, materials handling, protective
packaging, order procession, transportation, warehouse
site selection, and warehousing.
 Physical distribution is part of a larger process called
"distribution," which includes wholesale and retail
marketing, as well the physical movement of products.
 Physical distribution activities have recently received
increasing attention from business managers, including
small business owners. This is due in large part to the
fact that these functions often represent almost half of
the total marketing costs of a product. In fact, research
studies indicate that physical distribution costs
nationally amount to approximately 20 percent of the
country's total gross national product (GNP).
 These findings have led many small businesses to
expand their cost-cutting efforts beyond their historical
focus on production to encompass physical distribution
activities. The importance of physical distribution is
also based on its relevance to customer satisfaction.
 By storing goods in convenient locations for shipment
to wholesalers and retailers, and by creating fast,
reliable means of moving the goods, small business
owners can help assure continued success in a rapidly
changing, competitive global market.
 Form Utility

 Place Utility

 Time Utility

 Ownership/Possession Utility
1. Assorting: Building up different assortments or
putting them together, or combining them for
customer satisfaction (adding value).
2. Sorting: Grouping of heterogeneous supply into
relatively homogenous stock for the use by a
particular consumer.
3. Consolidation: Bringing similar stock together into
larger homogenous supply mainly for efficiency and
economies of scale of transport.
4. Allocation: Breaking down homogenous supply
into smaller lots.
Physical distribution can be viewed as a system of
components linked together for the efficient movement
of products. Small business owners can ask the
following questions in addressing these components:
 Customer service—What level of customer service
should be provided?
 Transportation—How will the products be shipped?
 Warehousing—Where will the goods be located? How
many warehouses should be utilized?
 Order processing—How should the orders be handled?
 Inventory control—How much inventory should be
maintained at each location?
 Protective packaging and materials handling—How can
efficient methods be developed for handling goods in
the factory, warehouse, and transport terminals?
 These components are interrelated: decisions made
in one area affect the relative efficiency of others.
 For example, a small business that provides
customized personal computers may transport
finished products by air rather than by truck, as
faster delivery times may allow lower inventory
costs, which would more than offset the higher cost
of air transport.
 Viewing physical distribution from a systems
perspective can be the key to providing a defined
level of customer service at the lowest possible cost.
 Customer service is a precisely-defined standard of customer
satisfaction which a small business owner intends to provide
for its customers.
 For example, a customer service standard for the above-
mentioned provider of customized computers might be that
60 percent of all PCS reach the customer within 48 hours of
ordering. It might further set a standard of delivering 90
percent of all of its units within 72 hours, and all 100 percent
of its units within 96 hours.
 A physical distribution system is then set up to reach this
goal at the lowest possible cost. In today's fast-paced,
technologically advanced business environment, such
systems often involve the use of specialized software that
allows the owner to track inventory while simultaneously
analyzing all the routes and transportation modes available to
determine the fastest, most cost-effective way to delivery
goods on time.
 The United States' transportation system has long
been a government-regulated industry, much like its
telephone and electrical utilities.
 But in 1977 the deregulation of transportation
began with the removal of federal regulations for
cargo air carriers not engaged in passenger
transportation.
 The deregulation movement has since expanded in
ways that have fundamentally altered the
transportation landscape for small business owners,
large conglomerates and, ultimately, the consumer.
 Transportation costs are largely based on the rates
charged by carriers. There are two basic types of
transportation rates: class and commodity.
 The class rate, which is the higher of the two rates, is the
standard rate for every commodity moving between any
two destinations.
 The commodity rate is sometimes called a special rate,
since it is given by carriers to shippers as a reward for
either regular use or large-quantity shipments.
 Unfortunately, many small business owners do not
have the volume of shipping needed to take advantage
of commodity rates.
 However, small businesses are increasingly utilizing
a third type of rate that has emerged in recent years.
This rate is known as a negotiated or contract rate.
 Popularized in the 1980s following transportation
deregulation, contract rates allow a shipper and
carrier to negotiate a rate for a particular service,
with the terms of the rate, service, and other
variables finalized in a contract between the two
parties.
 Transportation costs vary by mode of shipping, as
discussed below.
 The shipping method most favoured by small
business (and many large enterprises as well) is
trucking.
 Carrying primarily manufactured products (as
opposed to bulk materials), trucks offer fast,
frequent, and economic delivery to more
destinations in the country than any other mode.
 Trucks are particularly useful for short-distance
shipments, and they offer relatively fast, consistent
service for both large and small shipments.
 Because of the relatively high cost of air transport,
small businesses typically use air only for the
movement of valuable or highly-perishable
products.
 However, goods that qualify for this treatment do
represent a significant share of the small business
market.
 Owners can sometimes offset the high cost of air
transportation with reduced inventory-holding costs
and the increased business that may accompany
faster customer service.
 There are two basic types of water carriers: inland
or barge lines, and oceangoing deep-water ships.
 Barge lines are efficient transporters of bulky, low-
unit-value commodities such as grain, gravel,
lumber, sand, and steel. Barge lines typically do not
serve small businesses.
 Oceangoing ships, on the other hand, operate in the
Great Lakes, transporting goods among port cities,
and in international commerce. Sea shipments are an
important part of foreign trade, and thus are of vital
importance to small businesses seeking an
international market share.
 Railroads continue to present an efficient mode for
the movement of bulky commodities over long
distances.
 These commodities include coal, chemicals, grain,
non-metallic minerals, and lumber and wood
products.
 Pipelines are utilized to efficiently transport natural
gas and oil products from mining sites to refineries
and other destinations.
 In addition, so-called slurry pipelines transport
products such as coal, which is ground to a powder,
mixed with water, and moved as a suspension
through the pipes.
 Small business owners often take advantage of
multi-mode deals offered by shipping companies.
 Under these arrangements, business owners can
utilize a given transportation mode in the section of
the trip in which it is most cost efficient, and use
other modes for other segments of the transport.
 Overall costs are often significantly lower under this
arrangement than with single-mode transport.
 Of vital importance to small businesses are transporters
specializing in small shipments. These include bus freight
services, United Parcel Service, Federal Express, DHL
International, the United States Postal Service, and others.
 Since small businesses can be virtually paralyzed by
transportation strikes or other disruptions in small shipment
service, many owners choose to diversify to include
numerous shippers, thus maintaining an established
relationship with an alternate shipper should disruptions
occur.
 Additionally, small businesses often rely on freight
forwarders who act as transportation intermediaries: these
firms consolidate shipments from numerous customers to
provide lower rates than are available without consolidation.
 Freight forwarding not only provides cost savings to small
businesses, it provides entrepreneurial opportunities for start-
up businesses as well.
 Small business owners who require warehousing
facilities must decide whether to maintain their own
strategically located depot(s), or resort to holding their
goods in public warehouses.
 And those entrepreneurs who go with non-public
warehousing must further decide between storage or
distribution facilities. A storage warehouse holds
products for moderate to long-term periods in an
attempt to balance supply and demand for producers and
purchasers. They are most often used by small
businesses whose products' supply and demand are
seasonal.
 On the other hand, a distribution warehouse assembles
and redistributes products quickly, keeping them on the
move as much as possible. Many distribution
warehouses physically store goods for fewer than 24
 In contrast to the older, multi-story structures that dot
cities around the country, modern warehouses are long,
one-story buildings located in suburban and semi-rural
settings where land costs are substantially less.
 These facilities are often located so that their users have
easy access to major highways or other transportation
options. Single-story construction eliminates the need
for installing and maintaining freight elevators, and for
accommodating floor load limits.
 Furthermore, the internal flow of stock runs a straight
course rather than up and down multiple levels. The
efficient movement of goods involves entry on one side
of the building, central storage, and departure out the
other end.
 Computer technology for automating warehouses is
dropping in price, and thus is increasingly available
for small business applications.
 Sophisticated software translates orders into bar
codes and determines the most efficient inventory
picking sequence. Order information is keyboarded
only once, while labels, bills, and shipping
documents are generated automatically.
 Information reaches hand-held scanners, which
warehouse staff members use to fill orders. The
advantages of automation include low inventory
error rates and high processing speeds.
 Inventory control can be a major component of a
small business physical distribution system. Costs
include funds invested in inventory, depreciation,
and possible obsolescence of the goods. Experts
agree that small business inventory costs have
dropped dramatically due to deregulation of the
transportation industry.
 Inventory control analysts have developed a number
of techniques which can help small businesses
control inventory effectively. The most basic is the
Economic Order Quantity (EOQ) model.
 This involves a trade-off between the two
fundamental components of an inventory control
cost: inventory-carrying cost (which increases with
the addition of more inventory), and order-
processing cost (which decreases as the quantity
ordered increases).
 These two cost items are traded off in determining
the optimal warehouse inventory quantity to
maintain for each product.
 The EOQ point is the one at which total cost is
minimized. By maintaining product inventories as
close to the EOQ point as possible, small business
owners can minimize their inventory costs.
 The small business owner is concerned with order
processing—another physical distribution function
—because it directly affects the ability to meet the
customer service standards defined by the owner. If
the order processing system is efficient, the owner
can avoid the costs of premium transportation or
high inventory levels.
 Order processing varies by industry, but often
consists of four major activities: a credit check;
recording of the sale, such as crediting a sales
representative's commission account; making the
appropriate accounting entries; and locating the
item, shipping, and adjusting inventory records.
 Technological innovations, such as increased use of
the Universal Product Code, are contributing to
greater efficiency in order processing.
 Bar code systems give small businesses the ability
to route customer orders efficiently and reduce the
need for manual handling.
 The coded information includes all the data
necessary to generate customer invoices, thus
eliminating the need for repeated keypunching.
 Another technological innovation affecting order
processing is Electronic Data Interchange. EDI
allows computers at two different locations to
exchange business documents in machine-readable
format, employing strictly-defined industry
standards.
 Purchase orders, invoices, remittance slips, and the
like are exchanged electronically, thereby
eliminating duplication of data entry, dramatic
reductions in data entry errors, and increased speed
in procurement cycles.
 Another important component of a small business
physical distribution system is material handling.
This comprises all of the activities associated with
moving products within a production facility,
warehouse, and transportation terminals.
 One important innovation is known as unitizing—
combining as many packages as possible into one
load, preferably on a pallet. Unitizing is
accomplished with steel bands or shrink wrapping to
hold the unit in place.
 Advantages of this material handling methodology
include reduced labour, rapid movement, and
minimized damage and pilferage.
 A second innovation is containerization—the
combining of several unitized loads into one box.
Containers that are presented in this manner are
often unloaded in fewer than 24 hours, whereas the
task could otherwise take days or weeks.
 This speed allows small export businesses adequate
delivery schedules in competitive international
markets.
 In-transit damage is also reduced because individual
packages are not handled en route to the purchaser.
Physical distribution / marketing logistics form a
pivotal part of the marketing task.
 It is physical distribution that confers place-utility

and time-utility to a product by making it available

to the user at the right place and at the right time
thereby it maximizes the chance to sell the product
and strengthen the company’s competitive position.
 If any product made in any place could be
consumed in its entirely at the very place of
production and at the very time of production, there
would be no need for physical distribution of that
product. But such products are very rare.
 In practice, almost every product gets consumed at
places and times that are different fro those of their
manufacture. They have to be carried to places of
consumption; they have to be stored; and they have
to be distributed.
 Where Production Locations and Markets are
distanced, Physical Distribution becomes more
crucial. In some cases, production locations are
totally dictated by considerations like proximity to
sources of raw material.
 As a result, the points of production might be far
away from the markets for the product. In some
cases, huge production capacities get established at
a given location on consideration of technology and
economies of scale.
 In all such cases, the product has to be marketed
over an extended territory; it has to be transported
over long distances, stored for a considerable length
of time and sold.
 There are products, which are impacted by the
seasonality factor- either production is continuous
but demand is seasonal, or demand is continuous but
production is seasonal.
 Here too, physical distribution becomes particularly
crucial. It has to perform the balancing act between
production and consumption.
 There are products, which are impacted by the
seasonality factor- either production is continuous
but demand is seasonal, or demand is continuous but
production is seasonal. Here too, physical
distribution becomes particularly crucial. It has to
perform the balancing act between production and
consumption.
 It is physical distribution that determines the
customer service level to a large extent.
 As a result, it serves as a vital tool in building
clientele / market for the product.
 And conversely, ineffective physical distribution
leads to loss of customers and markets.
 Physical distribution is a fertile area for cost
savings.
 Over the years, in most businesses, physical
distribution costs have grown into a sizeable chunk
of the total costs and now ranks second among all
cost elements, next only to material costs.
 And surprisingly, it has remained one of the
neglected areas of cost control.
 Product distribution (or place) is one of the four
elements of the marketing mix. An organization or set
of organizations (go-betweens) involved in the process
of making a product or service available for use or
consumption by a consumer or business user. The other
three parts of the marketing mix are product, pricing,
and promotion.
 It is defined as a chain of intermediaries, each passing
the product down the chain to the next organization,
before it finally reaches the consumer or end-user. This
process is known as the 'distribution chain' or the
'channel.'
 Each of the elements in these chains will have their own
specific needs, which the producer must take into
A number of alternate 'channels' of distribution may be
available:
* Distributor, who sells to retailers,
* Retailer (also called dealer or reseller), who sells to end
customers 
* Advertisement typically used for consumption goods
 Distribution channels may not be restricted to physical
products moving from producer to consumer in certain
sectors, since both direct and indirect channels may be
used.
 Hotels, for example, may sell their services (typically
rooms) directly or through travel agents, tour operators,
airlines, tourist boards, centralized reservation systems,
etc. process of transfer the products or services from
Producer to Customer or end user.
 There have also been some innovations in the
distribution of services. For example, there has been an
increase in franchising and in rental services - the latter
offering anything from televisions through tools.
 There has also been some evidence of service
integration, with services linking together, particularly
in the travel and tourism sectors. For example, links
now exist between airlines, hotels and car rental
services.
 In addition, there has been a significant increase in retail
outlets for the service sector. Outlets such as estate
agencies and building society offices are crowding out
traditional grocers from major shopping areas.
 
 The channel decision is very important. In theory at least,
there is a form of trade-off: the cost of using intermediaries
to achieve wider distribution is supposedly lower.
 Indeed, most consumer goods manufacturers could never
justify the cost of selling direct to their consumers, except by
mail order.
 Many suppliers seem to assume that once their product has
been sold into the channel, into the beginning of the
distribution chain, their job is finished. Yet that distribution
chain is merely assuming a part of the supplier's
responsibility; and, if they have any aspirations to be market-
oriented, their job should really be extended to managing all
the processes involved in that chain, until the product or
service arrives with the end-user.
 This may involve a number of decisions on the part of the
supplier:
They study the customer buying behavior. This will inform
the distribution type that will be required. There are
three major types:
A. Intensive distribution - Where the majority of resellers
stock the 'product' (with convenience products, for
example, and particularly the brand leaders in consumer
goods markets) price competition may be evident.
B. Selective distribution - This is the normal pattern (in
both consumer and industrial markets) where 'suitable'
resellers stock the product.
C. Exclusive distribution - Only specially selected
resellers or authorized dealers (typically only one per
geographical area) are allowed to sell the 'product'.
This include;
 The value of the product i.e. high or low

 Technicalities of the products

 Degree of sustainability

 Product Bulk

 Product Perish ability

 Degree of market concentration

 Seasonality of the product

 High customer service level means the customer
readily get the product when he highly need it.
 Low customer service level means setting a time
frame for customers to acquire the products.
 Depending on the profit objectives the company will
select the necessary distribution channel.
 It is difficult enough to motivate direct employees to
provide the necessary sales and service support.
Motivating the owners and employees of the
independent organizations in a distribution chain
requires even greater effort.
 There are many devices for achieving such motivation.
Perhaps the most usual is `incentive': the supplier offers
a better margin, to tempt the owners in the channel to
push the product rather than its competitors; or a
compensation is offered to the distributors' sales
personnel, so that they are tempted to push the product.
 Julian Dent defines this incentive as a Channel Value
Proposition or business case, with which the supplier
sells the channel member on the commercial merits of
doing business together. He describes this as selling
business models not products.
 In much the same way that the organization's own
sales, distribution activities need to be monitored
and managed, so will those of the distribution chain.
 In practice, many organizations use a mix of
different channels; in particular, they may
complement a direct sales force, calling on the
larger accounts, with agents, covering the smaller
customers and prospects.
 These channels show marketing strategies of an
organisation. Effective management of distribution
channel requires making and implementing decision
in these areas.
CHOICE OF TRANSPORT MODE
 Mode of transport (or means of transport or transport
mode or transport modality or form of transport) is a
term used to distinguish substantially different ways
to perform transport. The most dominant modes of
transport are aviation, rail transport, road transport
and water transport, but other modes also exist,
including pipelines, cable transport, space transport
and off-road transport. Human-powered transport
and animal-powered transport is sometimes regarded
as their own mode, but these normally also fall into
the other categories. All modes are suitable for
transporting goods, and most are suitable for
transporting people.
 The choice of the transport mode is a fundamental
part of distribution management which should be
analysed carefully because of the impact upon a
company's operational efficiency.
 Failure to identify the most appropriate transport
mode may incur higher costs than are necessary and
may provide a lower customer service level than is
potentially possible.
 The decision upon the choice of the transport mode
is extremely complex because of the vast volume of
choice available together with the numerous
methods of examination and evaluation of each
choice.
 Each mode of transport has a fundamentally
different technological solution and some require a
separate environment.
 Each mode has its own infrastructure, vehicles,
operations and often has different regulations.
Transport using more than one mode can be
described as intermodal.
 A fixed-wing aircraft, commonly called airplane, is a
heavier-than-air craft where movement of the air in
relation to the wings is used to generate lift. The term is
used to distinguish from rotary-wing aircraft, where the
movement of the lift surfaces relative to the air
generates lift. A gyroplane is both fixed-wing and
rotary-wing. Fixed-wing aircraft range from small
trainers and recreational aircraft to large airliners and
military cargo aircraft.
 Two things necessary for aircraft are air flow over the
wings for lift and an area for landing. The majority of
aircraft also need an airport with the infrastructure to
receive maintenance, restocking, refuelling and for the
loading and unloading of crew, cargo and passengers.
While the vast majority of aircraft land and take off on
land, some are capable of take off and landing on ice,
snow and calm water.
 The aircraft is the second fastest method of
transport, after the rocket. Commercial jets can
reach up to 875 kilometres per hour (544 mph),
single-engine aircraft 175 kilometres per hour (109
mph).
 Aviation is able to quickly transport people and
limited amounts of cargo over longer distances, but
incur high costs and energy use; for short distances
or in inaccessible places helicopters can be used.[1]
WHO estimates that up to 500,000 people are on
planes at any time.
 Rail transport is where a train runs along a set of
two parallel steel rails, known as a railway or
railroad.
 The rails are anchored perpendicular to ties (or
sleepers) of timber, concrete or steel, to maintain a
consistent distance apart, or gauge.
 The rails and perpendicular beams are placed on a
foundation made of concrete, or compressed earth
and gravel in a bed of ballast. Alternative methods
include monorail and maglev.
 A train consists of one or more connected vehicles
that run on the rails. Propulsion is commonly
provided by a locomotive, that hauls a series of
unpowered cars, that can carry passengers or freight.
The locomotive can be powered by steam, diesel or
by electricity supplied by trackside systems.
Alternatively, some or all the cars can be powered,
known as a multiple unit. Also, a train can be
powered by horses, cables, gravity, pneumatics and
gas turbines. Railed vehicles move with much less
friction than rubber tires on paved roads, making
trains more energy efficient, though not as efficient
as ships.
 Intercity trains are long-haul services connecting
cities; modern high-speed rail is capable of speeds
up to 350 km/h (220 mph), but this requires
specially built track. Regional and commuter trains
feed cities from suburbs and surrounding areas,
while intra-urban transport is performed by high-
capacity tramways and rapid transits, often making
up the backbone of a city's public transport.
 Freight trains traditionally used box cars, requiring
manual loading and unloading of the cargo. Since
the 1960s, container trains have become the
dominant solution for general freight, while large
quantities of bulk are transported by dedicated
trains.
 A road is an identifiable route, way or path between
two or more places. Roads are typically smoothed,
paved, or otherwise prepared to allow easy travel;
though they need not be, and historically many
roads were simply recognizable routes without any
formal construction or maintenance.[6] In urban areas
, roads may pass through a city or village and be
named as streets, serving a dual function as urban
space easement and route.
 The most common road vehicle is the automobile; a
wheeled passenger vehicle that carries its own
motor. Other users of roads include buses, trucks,
motorcycles, bicycles and pedestrians. As of 2002,
there were 590 million automobiles worldwide.
 Automobiles offer high flexibility and with low
capacity, but are deemed with high energy and area
use, and the main source of noise and air pollution
in cities; buses allow for more efficient travel at the
cost of reduced flexibility. Road transport by truck
is often the initial and final stage of freight
transport.
 Water transport is the process of transport a
watercraft, such as a barge, boat, ship or sailboat,
makes over a body of water, such as a sea, ocean,
lake, canal or river.
 The need for buoyancy unites watercraft, and makes
the hull a dominant aspect of its construction,
maintenance and appearance.
 In the 1800s the first steam ships were developed,
using a steam engine to drive a paddle wheel or
propeller to move the ship.
 The steam was produced using wood or coal. Now most
ships have an engine using a slightly refined type of
petroleum called bunker fuel. Some ships, such as
submarines, use nuclear power to produce the steam.
Recreational or educational craft still use wind power,
while some smaller craft use internal combustion engines
to drive one or more propellers, or in the case of jet
boats, an inboard water jet. In shallow draft areas,
hovercraft are propelled by large pusher-prop fans.
 Although slow, modern sea transport is a highly effective
method of transporting large quantities of non-perishable
goods. Commercial vessels, nearly 35,000 in number,
carried 7.4 billion tons of cargo in 2007. Transport by
water is significantly less costly than air transport for
transcontinental shipping; short sea shipping and ferries
remain viable in coastal areas.
 Pipeline transport sends goods through a pipe, most
commonly liquid and gases are sent, but
pneumatic tubes can also send solid capsules using
compressed air. For liquids/gases, any chemically
stable liquid or gas can be sent through a pipeline.
Short-distance systems exist for sewage, slurry,
water and beer, while long-distance networks are
used for petroleum and natural gas.
 Cable transport is a broad mode where vehicles are
pulled by cables instead of an internal power source. It
is most commonly used at steep gradient. Typical
solutions include aerial tramway, elevators, escalator
and ski lifts; some of these are also categorized as
conveyor transport.
 Space transport is transport out of Earth's atmosphere
into outer space by means of a spacecraft. While large
amounts of research have gone into technology, it is
rarely used except to put satellites into orbit, and
conduct scientific experiments. However, man has
landed on the moon, and probes have been sent to all the
planets of the Solar System.
Components of a mode of transport
A transport mode is a combination of the following:
 Traffic infrastructure: traffic routes, networks, nodes

(stations, bus terminals, airport terminals), etc.

 Vehicles and containers: trucks, wagons, ships,

aircraft and trains.

 A stationary or mobile workforce

 Propulsion system and power supply (traction)

 Operations: driving, management, traffic signals,

railway signalling, air traffic control, etc.

THANKS