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Polytechnic University of the Philippines
College of Business
Department of Human Resource Development Management
Written Report in Marketing
NATURE OF DISTRIBUTION
and
RETAILING
Submitted by:
Ayana Mae R. Gacusana
Submitted to:
Prof. Gina Lim
Physical Distribution Management
All the activities that should be done to flow the raw materials and other materials to production
place and to make the produced goods available according to the needs of the consumer's lace
and time at reasonable price is called physical distribution management. Through physical
distribution function time and lace utility can be created in the product and ownership utilities
can also be created. This includes transportation, warehousing, inventory management and order
processing.
The Distribution Process
The operation has been developed & refined over the last 5 years to provide an outstanding
'boutique' distribution service. It is designed to offer a quality service for businesses wanting to
promote themselves cheaply and effectively. Delivery is carried out by reliable, mature &
supervised adults, not children and is never delivered hidden in newspapers nor are competitive
leaflets delivered together. Distribution volumes are flexible to suit with no minimum quantity!!!
What we can't do ... is control the weather, influence the response of a poorly printed or badly
worded flyer or prevent competitor activity. One leaflet delivered to us advertising a brand new
restaurant but had no address on it, another had the wrong date for an opening night and a take
away delivery menu without a phone number.
The distribution process begins when a supplier receives an order from a customer. The customer
is not too concerned with the design of the supplier’s distributive system, nor in any supply
problems. In practical terms, the customer is only concerned with the efficiency of the supplier’s
distribution. That is, the likelihood of receiving goods at the time requested. Lead-time is the
period of time that elapses between the placing of an order and receipt of the goods. This can
vary according to the type of product and the type of market and industry being considered.
Lead-time in the shipbuilding industry can be measured in fractions or multiples of years, whilst
in the retail sector, days and hours are common measures. Customers make production plans
based on the lead-time agreed when the order was placed. Customers now expect that the
quotation will be adhered to and a late delivery is no longer acceptable in most purchasing
situations.
A. Order processing
As a component of the physical distribution system is responsible for receiving, recording, filling
and assembling orders for shipment. Management has to pay a special attention to this activity as
it has direct impact on the customer service standards.
On the receipt of supply order form a customer, a seller assembles the products and dispatches
the same to the buyer. Many firms have established a separate department to discharge physical
distribution activities efficiently.
Order processing is the first of the four stages in the logistical process. The efficiency of order
processing has a direct effect on lead times. Orders are received from the sales team through the
sales department. Many companies establish regular supply routes that remain relatively stable
over a period of time providing that the supplier performs satisfactorily. Very often contracts are
drawn up and repeat orders (forming part of the initial contract) are made at regular intervals
during the contract period. Taken to its logical conclusion this effectively does away with
ordering and leads to what is called ‘partnership sourcing’. This is an agreement between the
buyer and seller to supply a particular product or commodity as an when required without the
necessity of negotiating a new contract every time an order is placed.
Order-processing systems should function quickly and accurately. Other departments in the
company need to know as quickly as possible that an order has been placed and the customer
must have rapid confirmation of the order’s receipt and the precise delivery time. Even before
products are manufactured and sold the level of office efficiency is a major contributor to a
company’s image. Incorrect ‘paperwork’ and slow reactions by the sales office are often an
unrecognised source of ill-will between buyers and sellers. When buyers review their suppliers,
efficiency of order processing is an important factor in their evaluation.
A good computer system for order processing allows stock levels and delivery schedules to be
automatically updated so management can rapidly obtain an accurate view of the sales position.
Accuracy is an important objective of order processing as are procedures that are designed to
shorten the order processing cycle.
B. Inventory
Inventory management refers to the efficient control over the stock of goods stored in the
warehouse for the purpose of meeting customer demands in time. In order to keep minimum
inventory cost, a firm has to go for an optimum inventory which requires an accurate sales
forecast. Number of techniques have been developed which help firms in deciding the volume of
inventory.
Inventory, or stock management, is a critical area of PDM because stock levels have a direct
effect on levels of service and customer satisfaction. The optimum stock level is a function of the
type of market in which the company operates. Few companies can say that they never run out of
stock, but if stock-outs happen regularly then market share will be lost to more efficient
competitors. Techniques for determining optimum stock levels are illustrated later in this
chapter. The key lies in ascertaining the re-order point. Carrying stock at levels below the re-
order point might ultimately mean a stock-out, whereas too high stock levels are unnecessary and
expensive to maintain. The stock/cost dilemma is clearly illustrated by the systems approach to
PDM that is dealt with later.
Stocks represent opportunity costs that occur because of constant competition for the
company’s limited resources. If the company’s marketing strategy requires that high stock levels
be maintained, this should be justified by a profit contribution that will exceed the extra stock
carrying costs. Sometimes a company may be obliged to support high stock levels because the
lead-times prevalent in a given market are particularly short. In such a case, the company must
seek to reduce costs in other areas of the PDM ‘mix’.
C. Warehousing
A warehouse is a place. Here, surplus goods can be kept safely for future use. Modern
warehouses are equipped with latest equipments and facilities for the safety of goods from theft,
sun, moisture, rats etc. Warehousing has removed the obstacle of time in the smooth flow of
trade. It helps in storage of goods until they are demanded for further use or sale. It has proved to
be a boon to the manufacturers and trades by helping them to store and accumulate goods.
Warehouses may be classified on the basis of the company stored and the ownership.
a. On the basis of commodity stored: There are various types of public warehouses. They
are classified according to the kind of commodity they store and the particular service
required in connection with such stocking. They are:
i. Special Commodity Warehouses – a warehouse that is used to store products
that require unique types of facilities, such as grain (elevator), liquid (tank), and
tobacco (barn).
ii. Public Warehouses – is essentially space that can be leased to solve short-term
distribution needs. Retailers that operate their own private warehouses may
occasionally seek additional storage space if their facilities have reached capacity
or if they are making a special, large purchase of products. For example, retailers
may order extra merchandise to prepare for in-store sales or order a large volume
of a product that is offered at a low promotional price by a supplier.
iii. Cold Storage Warehouses – is a refrigerated or deep-freeze storage facility for
perishable goods such as fruits, vegetables, meats, beverages, and tobacco. It
maintains a controlled interior temperature as low as -25°C to prevent rotting,
sprouting, insect damage, and other forms of degradation. While storage in a cold
environment is often necessary for logistical reasons, cold storage also enables
seasonal agricultural products to be distributed to retailers across a much longer
season or possibly year-round. The temperature in a cold storage warehouse
depends on the type of product stored there. These facilities require very
effective insulation and an uninterrupted power supply.
b. On the basis of ownership: According to ownership basis, ware houses are classified as:
i. Private Warehouse – this type of warehouse belongs to the owner of goods,
usually a wholesaler, who stored his goods. There in order to supply to retailers in
future. Goods are produced in large quantities in anticipation of future demand
and for the unknown customers. The ultimate wholesaler finds it necessary to
purchases goods in advance in large bulk and to store them for future supply.
ii. Cooperative Warehouse – these warehouses are owned, managed and controlled
by co-operative societies. They provide warehousing facilities at the most
economical rates to the members of their society.
iii. Public Warehouses – is operated in. accordance with the law for the purpose of
storing goods for other people at profit. Sometimes a large arrives in part when it
is not convenient for the importer to take in into his custody. During such periods
these goods have to be stored somewhere. Similarly, even in trade they have to be
stored between the time they are made and the time they are required for use. A
public warehouse provides facilities for storing all such goods. It thus renders
many useful services to the trade. It enables smaller sellers to carry regional
stocks. This factor is very important in competitive markets.
iv. Bonded Warehouses – is one which is licensed to accept imported goods for
storage before payment of customs duties. By storing his goods in a bonded
warehouse the importer gains some control without paying the duty. The goods in
bonded warehouses are under the strict supervision of customs officers and before
the owner can interfere with them, previous permission is necessary.
v. Government Warehouses – these warehouses are owned, managed and
controlled by central or state governments or public corporations or local
authorities. Both government and private enterprises may use these warehouses to
store their goods. Central Warehousing Corporation of India, State Warehousing
Corporation and Food Corporation of India are examples of agencies maintaining
government warehouses.
To summarise, factors that must be considered in the warehouse equation are:
Location of customers;
Size of orders;
Frequency of deliveries;
Lead times.
D. Transportation
Transportation usually represents the greatest distribution cost. It is usually easy to calculate
because it can be related directly to weight or numbers of units. Costs must be carefully
controlled through the mode of transport selected amongst alternatives, and these must be
constantly reviewed.
The patterns of retailing that have developed, and the pressure caused by low stock holding and
short lead times, have made road transport indispensable. When the volume of goods being
transported reaches a certain level some companies purchase their own vehicles, rather than use
the services of haulage contractors. However, some large retail chains like Marks and Spencer,
Tesco and Sainsbury’s have now entrusted all their warehousing and transport to specialist
logistics companies as mentioned earlier.
For some types of goods, transport by rail still has advantages. When lead-time is a less critical
element of marketing effort, or when lowering transport costs is a major objective, this mode of
transport becomes viable. Similarly, when goods are hazardous or bulky in relation to value, and
produced in large volumes then rail transport is advantageous. Rail transport is also suitable for
light goods that require speedy delivery (e.g. letter and parcel post).
Except where goods are highly perishable or valuable in relation to their weight, air transport is
not usually an attractive transport alternative for distribution within the UK where distances are
relatively short in aviation terms. For long-distance overseas routes it is popular. Here, it has the
advantage of quick delivery compared to sea transport, and without the cost of bulky and
expensive packaging needed for sea transportation, as well as higher insurance costs.
Exporting poses particular transportation problems and challenges. The need for the exporter’s
services needs to be such that the customer is scarcely aware that the goods purchased have been
imported. Therefore, above all, export transportation must be reliable.
The chosen transportation mode should adequately protect goods from damage in transit (a factor
just mentioned makes air freight popular over longer routes as less packaging is needed than for
long sea voyages). Not only do damaged goods erode profits, but frequent claims increase
insurance premiums and inconvenience customers, endangering future business.
According to Marshal, "The transport industries which undertake nothing more than more
movement of persons and things from one place to another have continued one of the most
important activities of men in every state of advanced civilization."
a. Railway Transport – they are the main carriers of goods. They are specially suited for
handling heavy bulky items, over long distances at low costs. Grain, coal, wool, stones,
sand, etc are transported by railroads at a relatively low cost. However, in Nepal, it is not
used as we don't have railway.
b. Road Transport – road infrastructure are large consumers of space with the lowest level
of physical constraints among transportation modes. However, physiographical
constraints are significant in road construction with substantial additional costs to
overcome features such as rivers or rugged terrain. Road transportation has an average
operational flexibility as vehicles can serve several purposes but are rarely able to move
outside roads.
c. Water Transport – has been broadly divided into two types. They are inland water
transport, and water transport. Water transport is very old. It is the cheapest mode of
transportation. Rail and road transports require special tracks and surfaces before they
can be used. A large amount of money is needed in their operation. But canals, rivers, and
oceans have their natural. So, Surface they are very cheap. Water transport has
considerably developed internal and external trade of the country.
d. Air transport – is the most expensive mode of transportation and is therefore mostly
used for; goods of high units value, perishable goods and emergency shipments to fill
important orders that could not be filled out of inventory. The civil aviation is the most
modern mode of transportation.