Physical Distribution has to do with the ways in which
companies store, handle and move goods for availability
to customers at the right time and place.
Last week we looked at the various channels of
distribution; this week we will look at the actual moving of
goods to market.
The main elements of the physical distribution mix
involves planning, implementing, and controlling the
physical flow of materials and final goods from points of
origin to points of use to meet the needs of customers at
The major physical distribution cost is
transportation, followed by inventory, warehousing, order
processing, and customer service.
Management of most companies are concerned about
the total cost of physical distribution. Large savings can
be gained in the physical distribution area.
Physical distribution is more than just a cost – it is a
potent tool in demand creation. Customers are attracted
by better service and lower prices that are achieved
through better physical distribution. However, companies
can lose customers when they fail to supply goods on
Many companies state their objective is getting the right
goods to the right place at the right time for the least
Unfortunately, no physical distribution system can both
maximize customer service and minimize distribution
Maximizing customer service implies large inventories,
best transportation mode and many warehouses – and
this means higher costs.
The starting point for designing the system is to study
what customers want and what competitors are offering.
A company will want to offer at least the same level of
service as its competitors.
Appliance manufactures must offer a sufficient service center to
satisfy customer service. So the questions for any company are:
How should orders be handled (order processing)?
Where should stocks be located (warehousing)?
How much stock should be kept on hand (inventory)?
How should goods be shipped (transportation)?
Physical distribution begins with a customer placing an
order. The order department prepares invoices and
sends them to various departments. Items out of stock
are backordered. Shipped items are accompanied by
shipping and billing documents, with copies going to
Both the company and its customers benefit when the
order processing steps are carried out quickly and
Every company must store its good while they wait to be
sold. A storage function is needed because production
and consumption cycles rarely match.
For instance, lawnmowers must be produced all year long and
stored up for sale in the spring and summer.
A company must decide on the best number of stocking
locations. The more stocking locations the more quickly
goods can be delivered to customers.
However, more locations mean higher warehousing costs.
Companies try to find a balance between warehousing costs and
Companies may use storage warehouses or distribution
Storage warehouses store goods for moderate to long periods.
Distribution centers are designed to move goods rather than just
store them. They are large and highly automated warehouses
designed to receive goods from various plants and suppliers,
take orders, fill them efficiently, and deliver goods to customers
as quickly as possible.
Inventory levels also affect customer satisfaction.
Marketers would like their companies to carry enough
stock to fill all customer orders right away.
However, it costs too much for a company to carry that
much inventory. Inventory costs rise at an increasing rate
as the customer service level approaches 100 percent.
To justify large inventories, management needs to know
whether sales and profits will increase accordingly.
Inventory decisions involve knowing both when to order
and how much to order.
Marketers need to take an interest in their company’s
The choice of transportation affects the pricing of the
products, delivery performance, and condition of the
goods when they arrive.
All of these affect customer satisfaction.
Warehousing, inventory, and transportation decisions require a great deal of
Coordination. Many companies coordinate its physical distribution and marketing
decisions and activities in order to create high market
satisfaction at a reasonable const.