Distribution channels involve intermediaries that make products available to consumers. They include manufacturers, distributors, wholesalers and retailers. Physical distribution systems contain elements like warehousing, transportation, inventory control and order processing. Warehousing involves storage and redistribution of goods. Transportation choices affect costs and delivery. Inventory decisions balance risks of stockouts and carrying costs. Order processing prepares and fulfills customer orders.

1. DISTRIBUTION CHANNEL AND
PHYSICAL DISTRIBUTION

2. A distribution channel (also known as a
marketing channel) is a set of interdependent
organizations or intermediaries involved in the
process of making a product available for
consumption. A channel directs the flow of
products from producers to customers.

3. Distribution Channel
0- Level 1-level 2-level 3-level
ManufacturerManufacturer Manufacturer Manufacturer
Distributor
Wholesaler
Retailer
Retailer
Wholesaler
Retailer
ConsumerConsumerConsumer Consumer

4. PHYSICAL DISTRIBUTION
THE PROBLEM OF SUBOPTIMIZATION
Results when the managers of individual physical
distribution functions attempt to minimize costs, but the
impact of one task on the others leads to less than optimal
results.
CUSTOMER-SERVICE STANDARDS
State goals and define acceptable performance for the
quality of service that a firm expects to deliver to its
customers.
After these standards are defined, designers assemble other
physical distribution components to meet these standards.

5. PHYSICAL DISTRIBUTION
• A company’s physical distribution system
contains the following elements:
– Warehousing
– Transportation
– Inventory Control
– Order Processing

6. WAREHOUSING
• Storage warehouse—holds goods for moderate to long
periods in an attempt to balance supply and demand for
producers and purchasers.
• Distribution warehouse—assembles and redistributes
goods, keeping them moving as much as possible.
• Automated warehouse technology can cut distribution
costs and improve customer service.
• Warehouse locations are influenced by warehouse and
materials handling costs and delivery costs from
warehouses to customers.

7. WAREHOUSING
• Every company stores its goods while they wait to be
sold.
• A company must decide on (1) how many and (2)
what types of warehouses it needs and (3) where
they will be located.
• The company might own private warehouses or rent
space in public warehouses or both.

8. TRANSPORTATION
• The choice of transportation carriers affects (1) the
pricing of products, (2) delivery performance, (3)
condition of the goods when they arrive - all affect
customer satisfaction.
• In shipping goods, there are five transportation
modes: rail, water, truck, pipeline, and air.
– Rail; is the most cost-effective mode for shipping large
amounts products e.g. coal, farm and forest products over
long distances.
– Road; trucks are very flexible in their routing and time
scheduling. They can move goods door to door, saving

9. the need to transfer goods from truck to rail and back
again. They are efficient for short hauls of high-value
products. They can offer faster service.
– Water; the cost is very low for shipping bulky, low-
value, nonperishable products e.g. coal, oil, metallic
ores. It is the slowest mode and affected by the
weather.
– Air; costs higher than rail and truck but ideal when
speed is needed and distant markets have to be
reached. Products are perishables (fresh fish, cut
flowers), high-value, low-bulk items (technical
instruments, jewellery).

10. • In choosing a transportation mode, shippers
consider five criteria; (1) speed - door to door
delivery time, (2) meeting schedules on time, (3)
ability to handle various products, (4) number of
geographic points served, (5) cost per tone-mile.

11. Inventory
• Inventory decisions involve (1) when to order and (2) how
much to order.
• In deciding when to order, the company must think of the
risks of running out of stock and costs of carrying too much.
• In deciding how much to order, the company must think of
order-processing costs and inventory-carrying costs.
• Just-in-time logistic systems are used by some companies in
which the producers carry only small inventories only enough
for a few days of operations. Such systems result in savings in
inventory carrying and handling costs.

12. ORDER PROCESSING
• Orders can be submitted in many ways; by
mail, telephone, through salespeople, or via
computer.
• Order processing systems prepare invoices
and order information. The warehouse
receives instructions to pack and ship the
ordered items. And bills send out.