Physical Distribution
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Transcript Physical Distribution
Physical Distribution
PRINCIPLES OF MARKETING
DISTRIBUTION—CHAPTER 27
Example
Jeans manufacturers use a large quantity of denim
fabric
A combination of ship, train, and truck bring the
denim from factory in India to the U.S.
Trucks carry the finished jeans to the retail stores
Activities of Physical Distribution
Definition: The physical movement of goods in the
distribution channel
Needed to move raw materials to factories
Finished goods from factories to warehouses
Finished goods from warehouses to retail stores
Examples: Pepsi truck, Frito-Lay truck
Aka Logistics—a general term for the handling of
details of any complex activity
Physical Distribution Steps
Order processing*
Transporting goods*
Storing goods in warehouses*
Stock handling
Inventory control
*Covered in this slide show
Components of Physical Distribution
1—Products to be shipped
Raw materials
Manufactured goods used to make other manufactured goods
Finished goods from warehouses to retailer
Freight, cargo, items, and goods describe all types of products
Merchandise refers to finished consumer goods
A group of products may be shipped to fill an order or
shipment
Components of Physical Distribution
2—Channel Members
The businesses that need to distribute their products
Usually own the products they distribute
Aka suppliers because they supply products to the next step in
the supply chain
Aka vendors because they vend(sell) products to the next step
in the supply chain
Suppliers are responsible for making sure that their
products are shipped in the most efficient,
economical way; they may have their own
transportation vehicles; others hire transportation
Transportation Companies
Transportation is the process of physically moving
products from buyer to seller
Trucks
Trains
Planes
Ships
The process of transporting products is often referred to
as shipping, even when ships are not involved
Own the vehicles and provide the service of
transportation
Aka carriers
Warehouses
Definition: a building for storing large quantities of
products
Products in a warehouse are said to be in
inventory; often called inventory
Usually the products are waiting to be moved to the
right PLACE at the right time
Transported from warehouse to the next segment of
the supply chain
Modes of Transportation
Trucks
Planes
Advantages
Can deliver door to door
Flexible to deliver at a
specific place and time
Can be modified to carry a
specific type of cargo
Advantages
Speed
Often used for high-value, lowweight items
Perishable goods
Saves on inventory costs
Disadvantages
Traffic may cause delays
Bad weather
Maintenance problems
Disadvantages
Most expensive mode
Bad weather may cause delays
Usually requires another mode
of transportation from the
airport
Ships
Advantages
Large quantities of goods can be moved great distances at a low per
item cost
The U.S. has huge ports where imports arrive
Can be modified to suit cargo (i.e. tankers)
Barges can towed or pushed
Disadvantages
Ship delivery is very slow
Delivered to a port and then transported by another mode
Security programs are used to eliminate import fraud and terrorism
Aka freighters haul large containers (8 ft X 8 ft X 40 ft)
of products which is easier than many small boxes
Pipelines
Carry large amounts of liquid or gas products to their
destinations through tubes
Products move slowly but continuously
Safe from damage or theft
Not subject to delivery delays
Limited number of products that can be carried
Building a pipeline is expensive, but costs to operate
are small
Leaks do not often occur; but can cause great
environmental damage
Distribution of Services and Ideas
Services
“Transported” by individuals, through their performance of the
service
Ideas
Carried by media to their target market
Radio stations, television channels. Internet Web sites,
newspapers, magazines, outdoor billboards, and other types of
communication
Target market is aka audience
The Distribution Process
Buyer contacts supplier
The two will negotiate the terms of sale
Definition: the conditions governing the sale
Includes: discounts, transportation arrangements, date of
delivery, who pays for the transportation costs, when payment
is due and other specific conditions of the sale
Purchase Order (PO)—a document authorizing
the purchase and delivery of certain goods at specific
prices and times
The Distribution Process, con’t.
The PO has a number that identifies the order
PO becomes a sales contract between the buyer and seller
Contract is a legal written agreement
Both the seller and the buyer sign the contract and both
keep a copy
When a supplier receives the PO, they sign to validate the
contract
The supplier sends confirmation back to the ordering
company that the order has been received and will be
filled
The buyer agrees by means of the PO to pay the agreedupon price for the goods
Order Processing
Definition: receiving and filling orders
Once the PO is received, pick tickets are created
Pick ticket—a list of the items requested for one order
Includes a description of the item, its location in the warehouse, and the bar code
Orders are picked by the warehouse staff
Bar codes are scanned on each item into the computer for inventory control
Picked items are moved to the packing area
Forklifts or conveyor belts move the items
Finished orders are packed for shipping, sealed, and labeled with
the shipping address
When the products are received at the buyers location, receiving
employees scan the bar codes to verify the contents of cartons
Inventories are automatically updated, and the needed goods can be
immediately unpacked and used
Computerized Order Processing
Computer linkages enable automated order
processing with a regular supplier
Buyer’s computer keeps track of the number of goods
in inventory
When inventory goes below a certain number, the
computer sends a message to the supplying
company’s computer
Supplier’s computer notifies the warehouse to pick,
pack, and send the goods
Distribution Plans
Physical distribution is the third largest expense for most
businesses involved with goods (only materials and labor
are larger)
Definition: a plan for moving goods in the best way
Considers costs, timing, delivery details, and other factors like types
of transportation
Warehousing and transportation specialists know the best ways to
maximize the flow of goods
They are good at negotiating with transportation
Calculations of shipping costs are made with the ton-
mile
Definition: the movement of one ton of goods one mile
This must be balanced with the speed of receiving the goods
International Distribution
Increasing for several reasons
Fewer global trade barriers such as tariffs and quotas
Internet makes worldwide business easier to transact
Parts for many products are made in other countries
Makes planning more complicated
U.S. and foreign import and export laws must be followed
Regulations may differ in each country
Language barriers must be overcome
Negotiations may be delicate in different cultures
Distances are must larger
Foreign destinations may have limited transportation options
Many parts of the world have no refrigeration, and dirt roads
Streamlining Distribution
Managers are looking to make distribution more cost-
effective
Definition: the benefits outweigh the expense
Combine modes of transportation economically
Rail, air and highway used based on the locations of the beginning and
end of the channel
Fill Transportation Vehicles
Economies of scale—reductions in the cost per item as a result of
producing or transporting large numbers of items at one time
Producing and shipping large numbers of items in a load, lowers the
cost of shipping each item
Combine shipments by consolidated shipping
Putting the orders of two or more companies in a truckload, train car,
or shipping container
Each company lowers its transportation costs
Streamlining Distribution, con’t.
Keep track of shipments
Satellite shipment tracking—dispatchers at the shipping office know
exactly where the trucks are at all times.
Receiving companies know exactly when their shipments will arrive
Warehouse employees stay busy with other tasks until a truck is
pulling into the unloading dock
Hire outside experts
Outsourcing—hiring an outside company to do specific work
Outside experts can save a company money as they can get deliveries
faster and more accurate
The company can have fewer workers and no transportation vehicles
Streamlining Distribution, con’t.
Keep warehouses efficient
Computerized tracking equipment can mean smaller
warehouses and more efficient inventory
Bar codes, advanced scanners and specialized computer
systems, promotes almost full automation
Received goods can be electronically identified, sorted, routed,
and shipped in an uninterrupted flow
Channel Management and Physical Distribution
Choose the right shipping mode considering cost,
perishability of goods, transportation time, and security
Warehouse storage—build or lease
Inventory Control—limit large quantities of inventory in
storage to increase profits and save money
Includes: identifying purchase amounts, tracking inventory, handling
damaged inventory, and using inventory control systems
Risk—redesign the supply chain, understand foreign trade
issues, implement computerized inventory control
systems
Ethical Considerations in Channel Management
Channel member relationships should not restrict
competition among companies at the same supplychain level
Makers of a certain product should not unite to set
wholesale prices for the product because it restricts
competition
Retailers of a certain product cannot unite to sell the
product for the same price
The Federal Trade Commission Web site has more
information about legal and ethical issues