BHS Chapter 11


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BHS Chapter 11

  1. 1.   Belinda Heiden Scott MGT - 205
  2. 2.  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.
  3. 3.  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 a profit.  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.
  4. 4.  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 time. continued
  5. 5.  Many companies state their objective is getting the right goods to the right place at the right time for the least cost.  Unfortunately, no physical distribution system can both maximize customer service and minimize distribution costs.  Maximizing customer service implies large inventories, best transportation mode and many warehouses – and this means higher costs.
  6. 6.  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)? continued
  7. 7.  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 various departments.  Both the company and its customers benefit when the order processing steps are carried out quickly and accurately.
  8. 8.  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 customer satisfaction.
  9. 9.  Companies may use storage warehouses or distribution centers.  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. continued
  10. 10.  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.
  11. 11.  Marketers need to take an interest in their company’s transportation decisions.  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. TransportationInventoryWarehousing 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.