Physical Distribution Management Overview

CHAPTER 1

PHYSICAL DISTRIBUTION
MANAGEMENT:AN OVERVIEW

OBJECTIVES
• i-To utilize the available human and material
resources to the maximum extent at
industry/regional/national level
• ii-To minimize the in fructuous expenditure of
resource and infrastructure facilities are provided
on a liberal scale
• iiiExploit those areas of industrial development
which have hitherto been considered
inaccessible,making availability of new methods
and resources

Important Logistic requirement
of modern Industrial Enterprise
• i-Sufficient Land for an Industrial Plant
,considering future expansion,residence for
workers staff/Executives
• ii-Enough availability of Water for Industrial Plant
as well for Workers/Staff during initial and regular
phases.
• Iii-Sufficient Electric supply during
construction/operation stage as well as
maintenance of the plant,colony and supporting
staff population.

of modern industrial
enterprise(contd.)
• ivFull movement and storage infrastructure for
• a-Construction Equipment,Machinery and
Materials
• bMain Plant machinery /equipment
• cRaw materials,spare parts and maintenance
equipment.
• dFinished Products and by products
• eMovement of Personnel

of Modern Industrial
enterprise(contd.)
• vCommunication Links by
telephone,telex,teleprinter etc for the supply of
equipments/raw materials and distribution of
finished products.
• vi-Streamlined government and financial
institutional procedure for speedy issuances of
various licenses.
• vii-Maintenance of Law and order.
• viii-Sufficient supply of Labor,technical/non-
technical staff,skilled
/unskilled,managerial/supervisory staff

MANAGEMENT A
DEFINATION
• The term Management implies as a function or a
process with an objective of to get things done and
includes the sub functions of
planning,organizing,staffing,coordinating,
• controlling,budgeting,reviewing etc.It is also
viewed as a process of motivating others to work
and influencing others or exercising authority over
others in order to achieve objectives.

IMPORTANT OF LOGISTICS
MANAGEMENT
• Logistic management is a field of management
which primarily deals with the coordination of
resources in an organization.these resources may
be in the form of men,money,materials,machines
and time and requires most efficient use of
existing organization resources.many projects in
developing countries do not succeed due to lack of
attention in coordination logistic function.As such
there are delays in completion of projects.

IMPORTANT OF LOGISTIC
MANAGEMENT(CONTD.)
• Logistic management involves the co-ordination
of many functions of the procurement of raw
material,their handling and storage,the handling
and storage of finished products and
distribution.The problem becomes increasingly
complex as the volume of business grows and
distance between the procurement
center,production center and market consumption
of a product increases.

IMPORTANCE OF LOGISTIC
MANAGEMENT(contd.)
• As the economy of a country develops
,there is increasing geographical
specialization of the means of production
and hence there is a need for better logistics
management following the increasing
temporal and spatial separation of
production and market centers.It is
imperative that greater attention is paid to
logistic aspect of management.

IMPORTANCE OF LOGISTIC
MANAGEMENT(contd.)
• Logistic management approach is a systematic
approach.It is neither production oriented nor
market oriented.Logistic management would
investigate a problem and resolve the conflict on
the basis of costs and benefits to the organization
as a whole.
• Logistic management does away with the
ambiguity in the definition of the responsibilities
of individuals,units and departments in an
organization.

BUSINESS LOGISTICS-
PHYSICAL DISTRIBUTION
• Physical distribution management is specifically
concerned with the flow of goods through the
economic system.In the business firm,the
logistician is concerned with the inbound
movement of goods to supply the production
processes of the firm.In this setting,the firm is the
customer and anticipates a certain level of
distribution services from the suppliers.The firm is
a supplier of finished/semi-finished goods and the
Logistician must provide a level of distribution
service to the firm,s Customers.

TOUR OF MATERIAL
• i-Transportation-Transportation is an essential
/important component of physical distribution and
the expenditure is also a very significant
component of physical distribution.
• ii-Inventory control-The total costs on inventory
must be minimized in order to control the total
costs,and maintains a minimal inventory level
consistent with the needs of production and sales.

TOUR OF MATERIAL(contd.)
• iii-Packaging-It is essential that latest
techniques and materials of packaging be
known and used.The physical distribution
has to work with sales and manufacturing
departments in order to develop and use
proper packaging and packaging material so
as to make it cheap and yet carry it safely
enough to the customer without damage.

TOUR OF MATERIAL(contd.)
• iv-Warehousing-The optimal location of a
warehouse /s having regard to minimal
transportation costs,customer service,level of
inventories and company warehouse versus public
warehouses are the issues to be decided.
• v-Material handling-The benefits of material
handling are not only confined to the manufacturer
but to the consignee as well.Along with marketing
department c,the movement of goods can be
arranged so as to avoid damage.

TOUR OF MATERIAL (contd.)
• vi-Location analysis-The plant location decision
must be arrived considering various factors such
as market area,existing transportation
facilities/rates, and warehousing.
• vii-Order processing-Order processing is closely
related to sales and production and the physical
distribution department has to be careful about the
need of interdepartmental coordination.credit
check,paper processing,retrieval from
warehouse,assembling and packing,dispatch by
transporter ,Inventory levels and its information to
production planning are the important functions.

Production &Marketing interface
vs. physical distribution
• Production activities
• i-Production scheduling
• ii-quality control
• Production-Physical Distribution interface
• iPlant location & Design
• iiPurchasing
• iiiProduct scheduling

Production & Marketing interface
vs. Physical distribution
(contd.)
• Physical distribution activities
• itransportation
• iiMaterial handling
• Marketing activities
• iiiInventory control
• iMarket research
• iiPromotion
• iii--Pricing

Production & Marketing interface
vs. physical distribution(contd.)
• Marketing-Physical Distribution
interface
• i-Fixing Customer service levels
• iiOrder processing
• iiiPackaging
• ivFixing channels of distribution.

Neglect of Physical Distribution
function
• In India,the subject of physical distribution
management has been neglected by
Industry,business and Government , with
consequent heavy losses in Production,the
occurrence of scarcities and distortions in
the distribution of goods and services,delays
in Project schedules and uneven distribution
of goods and services.

Neglect of physical distribution
function(contd.)
• Examples
• i-For projects requiring substantial
investments ,a serious and detailed study of
the storage and distribution of the Product is
required.Project execution takes several
years since through study of market areas
and directions of movement are not
considered.

Neglect of physical distribution
function(contd.)
• ii-The top executive of a Firm are unable to
forecast accurately the future destinations of the
finished products and movement of raw materials
from the supply centers to the processing center.
• iii-Only technical/economic feasibility reports of
project identify the sources of raw materials.Their
movement/storage are rarely planned at the time
of construction of the project.

Neglect of Physical distribution
function(contd.)
• iv-The delay in moving Construction
material/Machinery, raw materials usually delays
the commissioning of the project.A better physical
distribution in advance avoids these delays and
ensures smooth running of the Plant.
• v-Lack of attention to the movement of
intermediate products such as effluents,slag etc
damage the environment and loss of
production.This leads to pollution of rivers and
open land and thus are losses to Society.

function(contd.)
• vi-Requirement of Spares/other maintenance
material is normally overlooked at the
commissioning stage.
• vii-The relative location of a Plant,the Suppliers
depots and the Customer market largely determine
the transit time for raw material's,Spare parts and
finished products.Transit time concept is generally
paid much less attention.

Neglect of physical Distribution
function(contd.)
• ix-Existing bottlenecks in Transportation are
generally ignored.this ignorance affects planning
for production
schedule,Inventories,Warehousing,Order
processing.
• x-Serious traffic jams and Security requirements
/Procedures are no considered.
• xi-Shortages,Delays and deficiencies are

Customer service- Oriented
approach
• Past
• 1-Manufacturer is the king.
• 2-Shortages/deficits are part of the operation.
• 3-Manufacturer decides what is to be
produced,how much and when.
• 4-In sellers market Manufacturer does not worry
about selling.
• 5-There is general scarcity of goods

Customer Service-Oriented
approach(contd.)
• 6-Whatever the manufacturer produces gets
sold/has to be sold.
• 7-The Manufacturer does not have to worry about
Customer demand.
• 8-Customer is always indebted to Manufacturer.
• 9-This has been general condition in developing
countries as regards to Consumer
products,Consumer durables,Industrial products

approach(contd.)
• Now
• 1-Economy takes an upswing.
• 2-Additional manufacturing facilities and
additional mobilization of resources.
• 3-More goods and Services are produced.
• 4-Customer can choose from amongst the
various goods and services.

approach(contd.)
• 5-Customer choice is exercised in respect of
quality as well as quantity and at desired
time.
• 6-The Buyer,s market prevails because
there is a surplus availability of goods and
services.

Requirements in changed market
conditions
• 1-With the change in market condition,the
manufacturer,s goals have also changed.
• 2-The Firm has now to determine the Customer,s
needs.
• 3-Manufacturer has to device ways and means of
satisfying customer.
• 4-While doing so ,he has to meet the desired level
of Profit.
• 5-Hence a Firm can ill afford to neglect the
Customer wants.
• 6-Firms must ascertain and introduce certain

Factors which influenced role of
Business Logistics.
• 1-The development of Mass Communication
media
• #-The manufacturer directlyindirectly deals with
Customer
• #-Thus manufacturer becomes conscious of the
need of customer as regard to Product
requirementavailability
• #-Thus the customer cultivates a selective demand
and discriminates between various brand names on
the basis of quality,service level etc.

Business Logistics(contd.)
• 2-Alternate mode of Transport
• #-This has facilitated more reliable transportation
of goods.
• #-Depends on factors such as
speed,safety,simplicity,cost etc.
• #-Hence Goods have to be made available in
desired format desired placedesired time.
• #-Hence manufacturer attempts to satisfy
customer by selecting right mode of transport,so
that he can tackle rival manufacturer.

Business Logistics.(contd.)
• 3-Rise in standard of living
• #-Economy is developing at a rapid space.
• #-Rise in the standardquality of living of masses
co0vering market of wider areas.
• #-Consumption of goodsservices increases.
• #-A small increase in per capita income brings a
substantial increase in volumes.
• #-Hence all round improvements are required in
transportation,handling and storing.thus becoming
a critical element of total operation.

Business Logistics(contd.)
• 4-The complexity in the management of
Personnel
• #-The management of Personnel for every element
of production require specialized skills,talent and
competence.Applicable for BusinessPhysical
distribution as well.
• #-More technical skills and greaterrational
decision making skills are called for.
• #-Computers are used extensively .past experience
is no longer valid,because change in the total
operating conditions.as also various factors
beyond the capabilities of a single individual.

Current model of provision of
goodsservices
• Manager oriented model
• i-The chief Manager first determines the resources
available with the organization.
• ii-He determines based on his judgment as also of
lower level managers,the quality,type quantum
and location etc of goods services which can be
provided to Customer.
• iii-The constraints of organization are considered
more important than the demand of the customer.
• iv-The management never considers that with
slight change customer can be serviced better.

Current model of provision of
goodsservices(contd.)
• v-This type of package service,devised keeping in
view primarily the material and monetary
constraints of the organizationChief Manager is
offered to Customer as fait-accompli without any
choice.
• vi-More and more time and effort are spent or
justified the rejections and are often ill conceived.

Deficiencies of Manager oriented
model
• i-Brings satisfaction to the Manager himself.
• ii-The Manager perceives that he has full authority
over Customer.
• iii-He may be genuinely,although erroneously
,satisfied that he providing the goods and services
with high degree of efficiency and effectiveness.
• iv-The customer in this process is least satisfied
and has to accept whatever is offered.

Principal of need of maximum
satisfaction to Customer
• As per this model,the Chief Manager undertakes
following action
• i-He determines the level and quality of
goodsservices as required by Customer.
• ii-Even if customer have extreme diverse
characteristics,a common denominator with a
certain commonly accepted level is determined
• iii-Thereafter resources available with the
organization are assessed

Principal of need of maximum
satisfaction to Customer(contd.)
• iv-The organizations roles and regulations are
directed towards meeting customer requirements.
• v-If required available resources are re-organized
in order to meet Customer
requirements.Additional fee can also be levied.
• vi-Periodically feedback is obtained from
Customer on satisfaction level.
• vii-If required quality and level of services are
improved based on feedback from Customer.

Main features of Customer-
oriented approach
• i-Orientation towards Customer is based on
positive attitude.
• ii-The satisfaction of the needs of Customer
triggers higher sales of the product as also
other products.
• iii-If the product gives satisfaction to
customer,He may come back for repeat
purchase and recommend to others.

Main features of Customer
oriented approach(contd.)
• iv-The customer is the starting as well as the end
point of determining the required level of lead
time,service and satisfaction.
• v-Better service to Customer need not cost more
and organization,s resources can be better utilized
in meeting customer expectations.
• vi-Though quality of service is dependent on the
Product characteristics and after sales service ,the
Customer is also interested in the qualitative
behavior of the personnel,rendering the service.

Main features of Customer
• v-Specifies of better service desired by a customer
are
• #-Lead time-should be short,dependable and
consistent.
• #-Dependability-The customer should be
confident that organization will not fail to supply
of goods or render services at the right time and
place.
• #-Communication-The Customer likes to know
in case of non-deliveries in order o ensure his own
planning.

Main features of customer
• vi-A customer desires a guaranteed
qualityquantity of goodsservices from
dealerssuppliers,who in turn need a guaranteed
quality of goodsservices from the manufacturer.
• vii-It is necessary to ensure satisfaction to the
distributor,agent,dealer,retailer and customer.only
monetary benefit may not serve.
• viii-Standards of desired level of customer service
have to be developed for planning,manufacturing
and controlling the physical distribution in an
organization.

Main features of customer
• ix-The total cost of physical distribution
function has to betaken into account for
determining customer service level
requiring design of Physical distribution
function to be integrated one.innovations
have to be introduced as and when the
possibility occur.

Total Cost Approach
• i-The cost of distribution involving all the the
move store activities of the product may be 60%
of the total cost.
• ii-The cost of distribution should take into account
not only on the cost incurred on moving the
product over different channels of distribution ut
also on other activities.
• iii-These activities have become inevitable with
the modern,customer oriented marketing
approach.

Total Cost Approach(contd.)
• A reduction in costs of distribution in one or more
areas by itself may not give desired results unless
other costs are also required to be controlled.These
include
• i-Inventory costs-these are the costs which are
locked up in inventory of
goods,insurance,occupation of
space,pilferage,losses,damage etc.The total cost of
inventory of any product amounts to almost 10 to
30 % of the average level of inventory in the
pipelinestock.

• ii-Warehousing costs -The warehousing of raw
materials steps up the cost of their supply or of the
cost of distribution of finished product.
• Aiming at zero stock out or zero loss of
production levels , it becomes essential to have
adequate warehousing capacity and involves
higher fixed and operating costs of warehousing.In
order to improve customer service ,it becomes
necessary to increase number of
warehouses,which results into decrease in the cost
of transport.As such management has to arrive at
the optimum number of warehouses.

Total Cost approach(contd.)
• iii-ProductionSupply costs-Production
costs decrease with increase in volume of
production.if the same product is made at
several plants,various other costs such as
cost of transportation,transit
times,warehouses and inventory costs have
to be considered.proper analysis has to be
made of their effect on total cost of
distribution.

• iv-Channel of Distribution costs-A critical
assessment of the channels of of distribution calls
for examination of the use of or creation of
adequate facilities for storage at the Plant or in
field warehouses or with the Distributor or
Stockist.
• This will necessitate a total systems approach in
selection of channels of distribution.

• v-Communication and Data processing costs-
An effective distribution system requires
continuous monitoring of order pricing,Inventory
control,accounts receivable,dispatches etc.
• An increased number of distribution points though
improves Customer service but involves higher
costs.As such optimal number of distribution
points which will keep the distribution costs to a
minimum and improving customer service ,will e
desirable.

• vi-Transportation costs-The cost of
transport varies generally with speed with
which the goods are transported.This also
affects Transit inventory.As such beside
speed and inventory,cost of packaging is
also to be considered,while selecting
particular mode of transport and carrier.

• vii-Material handling costs-A suitable
material handling system should be
designed to reduce the cost of material
handling to a minimum.a total cost
approach would require a consideration of
of not only the material handling system but
other relevant factors affecting the cost of
transport,customer satisfaction,inventory
etc.

• viii-Packaging costs-Decision on packaging are
affected by mode of transport and material
handling equipment.a total cost approach would
make it necessary for us to select a packaging
version which takes into account other distribution
factors
• ix-Customer service costs-All factors which
affect customer service and volume of sales have
to be taken into consideration to evaluate the total
cost of distribution.

Total Cost Approach-
Conclusions
• i-The real impact of distribution costs on profits is
much higher than perceived.
• ii-Many of these costs are nobody,s responsibility
because of compartmentalization of the
management function.
• iii-Costs incurred in these are do not respond to
cost cutting methods because of fragmented
approach to analysis.requires comprehensive
integrated approach taking into consideration all
relevant factors.

Conclusions (contd.)
• iv-The effect of high distribution costs should not
be restricted to high level,across the board analysis
A right approach by management would tap the
real potential.
• v-Before applying total cost approach,it is
essential to examine various costs associated with
distribution function.by studying the total system
in depth before taking decisions.

Conclusions(contd.)
• vi-Normally Firms keep data for production and
finance decisions.hence it becomes difficult to
separate and identify the physical distribution
costs,which is an essential requirement for
assessing distribution costs.Even these data,s
which are necessary for analyzing are kept
confidential.
• vii-To make accounting easier ,various costs are
added as administrative heads.To analyze the
problem,it is essential to have these data available

Steps required to identify
distribution costs
• i-Separate and identify distribution costs
element wise.
• ii-accounting centers will need to be
developed to help identifyanalyze
distribution costs.
• iii-Analyze the the results of the changes in
the performance.

distribution costs(contd.)
• iv-Some of the changes which may become
necessary after application of total cost approach-
examples
• a-Company,s distribution pattern may be changed
by making appropriate shifts in
Productionwarehouse loads.
• b-Shifting of some equipments at nominal cost
• c-savings may be achieved by persuading
Customer to change mode of transport.
• d-Add additional warehouse capacity to ensure
better customer service and also add profits.

distribution costs(contd.)
• v-The various suggestions as given,may be acted
upon only after an across-the-board analysis and
with the active involvement of Top management.
• vi-The top management must be prepared to
undertake such time consuming study.
• vii-The study so made must outline the profit goal
expected from the various alternatives and
convince the management to implement the
changes with determination.

Neglect Of Physical Distribution
function
• i-Low level of professional management
duo to lack of management development.
• ii-Evan with high level of development in
other areas ,the development of Physical
Distribution subject has been delayed.
• iii-Top managers have focused on
manufacturing and finance issues with little
attention on Physical Distribution.

function(contd.)
• iv-Physical distribution costs are usually
hidden,requiring higher order management
skills,which are normally are lacking.
• v-In India,due to localized nature of
business,physical distribution function has not
developed and has remain rather obscure.The
operations of organizations are relatively at low-
level,problems are of minor nature and do not call
for specialized skills.

function(contd.)
• vi-Even in large scale organizations,physical
distribution function has not received adequate
attention,because the bottlenecks in
operation,giving rise to shortagesscarcities has
not been appreciated.Even there is a lack of
awareness.
• vii-Accounting methods have not been developed
to evaluate advise management on the cost of
such shortagesscarcities.

function(contd.)
• viii-Manufacturers intentionally create
artificial shortages in order to sell premium
goods at premium.
• ix-Because of low development of the
economic system,alternate modes of
operations are not available to
organizations.

function(contd.)
• x-Because of low level of development ,not
many alternatives are known to
management nor they are able to work with
new experiments.
• xi-Even Managers do not feel the urge to
develop alternate methods ,since with
existing operations,they are able to generate
enough profits.

function(contd.)
• xii-In most organizations,the costs are distributed
rather than computed and allocated accurately.As
such few individuals are able to asses the real
costs and are unable to make rational decisions.
• xiii-Due to low level of knowledge ,the intricate
inter-relationship which exist between the
variables involved in Physical distribution are
generally understood.

function(contd.)
• xiv-In general there is a lack of a system approach
to problems,because the managers focus on
individual subject rather than on more difficult
approach,leading to neglect of interfaces,thereby
avoiding development of smooth systems.
• xv-individuals focus attention on individual
performances and have not realized importance of
time and ensure completing a given task within a
specified time.

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