Table of Contents
What is Physical Distribution?
Physical distribution management is to administer economic activities that impact the flow of finished goods between points of production and consumption. Physical distribution components occupy a unique role in the organization. Physical distribution forms a pivotal part of the marketing task.
It is physical distribution that confers place-utility and time-utility to a product by making it available to the user at the right place and at the right time thereby it maximizes the chance to sell the product and strengthen the organization’s competitive position.
If any product made in any place could be consumed entirely at the very place of production and at the very time of production, there would be no need for physical distribution of that product. But such products are very rare.
In practice, almost every product gets consumed at places and times that are different from those of their manufacturer. When production locations and markets are distanced, physical distribution becomes more crucial.
In some cases, production locations are totally dictated by considerations like proximity to sources of raw material. As a result, the points of production might be far away from the markets for the product.
In some cases, huge production capacities get established at a given location on consideration of technology and economies of scale. In all such cases, the product has to be marketed over an extended territory; it has to be transported over long distances, stored for a considerable length of time, and sold.
Objectives of Physical Distribution
The success of an efficient and effective physical distribution system relies on the integration of effort. The overall physical distribution objectives are listed below:
- Attain customer satisfaction
- Profit maximization
- Getting the right product, at the right place, at the right time, in the right quantity, at the right customer at the lower cost.
- Proper coordination of distribution activities.
Customer service objectives must be defined up-front, based on the physical distribution needs of customers. Generally, customers’ physical distribution needs consist of such things as:
- On-time delivery
- Willingness to meet customers’ emergent requirements
- Careful handling of merchandise
- Willingness to take back defective merchandise and re-supply quickly.
These needs can be translated into specific customer services objectives or standards, such as:
- To deliver at least 95% of orders within 3-days of order receipt
- To fill orders with 100% accuracy
- To answer customers’ questions about order status within 30 minutes
- To ensure damage to merchandise in transit is not greater than 1%
- To turn around damaged merchandise within 24 hours.
Physical Distribution Activities
The physical distribution of an organization requires coordinating efforts of various activities so as to achieve the objectives of physical distribution. Physical Distribution Management (PDM) is concerned with the flow of goods from the receipt of an order until the goods are delivered to the customer.
In addition to transportation, PDM involves close liaison with production planning, purchasing, order processing, material control, and warehousing.
All these areas must be managed so that they interact efficiently with each other to provide the level of service that the customer demands and at a cost that the company can afford.
PDM is concerned with ensuring that the individual efforts that go to make up the distributive function are optimized so that a common objective is realized. This is called the ‘systems approach to distribution management and a major feature of PDM is that these functions be integrated.