Physical Distribution.....Shahid chavakkad

Department of Marketing & Decision Sciences

Part 5 – Distribution

Wholesaling and Physical Distribution


WholesalingWholesaling

- Wholesaling is the sale, and all activities directly related to the sale, of goods and services to businesses and other organizations for

1. resale,

2. use in producing other goods or services, or

3. operating an organization

- Thus wholesaling includes sales by any firm to any customer except an ultimate consumer who is buying for personal, nonbusiness use


Wholesaling - Economic JustificationWholesaling - Economic Justification

- Most manufacturers are small and specialized: Therefore they do not have the capital to maintain a sales force to contact the many retailers or final users that are or could be their customers

- Even for large manufacturers some products or lines generate such a small volume of sales that it would not be cost-effective to establish a sales force to sell them

- At the other end of the distribution channel, most retailers and final users buy in small quantities and have limited knowledge of the market and sources of supply

- Thus there is often a gap between the seller and the buyer

- A wholesaler can fill this gap by providing services of value to manufacturers and/or retailers


The Economy of Transactions in WholesalingThe Economy of Transactions in Wholesaling


Types of Wholesaling MiddlemanTypes of Wholesaling Middleman

- Merchant wholesaler

- Agent wholesaling middleman

- Manufacturer’s sales facility


Physical Distribution - Nature and ImportancePhysical Distribution - Nature and Importance

- Physical distribution: Moving tangible products through distribution channels

- Physical distribution (or logistics) consists of all activities involved in moving the right amount of the right products to the right place at the right time

- In the past years, the surge of e-commerce has underscored the importance of physical distribution the challenge relates to fulfillment, which entails having the merchandise that is ordered by a customer in stock and then packing and shipping it in an efficient, timely manner


Physical Distribution - Supply Chain ManagementPhysical Distribution - Supply Chain Management

- SCM represents a total system perspective of distribution, combining distribution channels and physical distribution

- The core of SCM is coordinated logistics

- With SCM individual logistics activities are brought together in a unified way - more and more, the Internet is being used to allow supply chain members to monitor (real time) key factors such as the status of orders and inventory levels

- Integral to effective SCM is the total cost concept: A company should determine the set of activities that produces the best relationship between costs and profits for the entire physical distribution system

- The key point is that physical distribution should be viewed as a total system, with all related costs being analyzed

- As part of SCM, some companies are contracting out, or outsourcing, all or part their physical distribution function


Tasks in Physical Distribution ManagementTasks in Physical Distribution Management

- Physical distribution refers to the actual physical flow of products

- In contrast, physical distribution management is the development and operation of processes resulting in the effective and efficient physical flow of products

- Effective physical distribution management requires careful attention to five interrelated activities:

1. Order processing

2. Inventory control

3. Inventory location and warehousing

4. Materials handling

5. Transportation



1. Order Processing

- The starting point in a physical distribution system is order processing, which is a set of procedures for receiving, handling, and filling orders promptly and accurately

- Electronic data interchange (EDI):

- Between customer and supplier orders, invoices, and other business functions are transmitted by computer

- Originally, EDI required a direct computer link between supplier and customer, now it is being conducted via the Internet

- EDI can trim the cost of order processing significantly, which in turn may reduce purchase prices



2. Inventory Control

- The goal of inventory control is to satisfy the order-fulfillment expectations of customers while minimizing both the investment and fluctuations in inventories

- Just-in-Time:

- JIT combines inventory control, purchasing, and production scheduling

- Applying JIT, a firm buys in small quantities that arrive just in time for production and then it produces in quantities just in time for sale



2. Inventory Control (continued)

- Just-in-Time:

- …

- Benefits of JIT are:

- Dramatic cost savings

- Shortened and more flexible and reliable production and delivery schedules

- Quick responses to quality problems

- Market-Response Systems:

- The central promise is that those who intend to consume a product should activate a process to produce and deliver replacement items

- In this way, a product is pulled through a channel on the basis of demand



3. Inventory Location and Warehousing

- Management must make critical decisions about the size, location, and transportation of inventories

- These areas are interrelated, often in complex ways

- One key consideration in managing inventories is warehousing, which embraces a range of functions, such as assembling, dividing, and storing products and preparing them for reshipping



4. Materials Handling

- Selecting the proper equipment to physically handle products, including the warehouse building itself, is the materials handling subsystem of physical distribution management

- Equipment that is well matched to the task can minimize losses from breakage, spoilage, and theft

- Efficient equipment can reduce handling costs as well as time required for handling



5. Transportation

- Management must decide on both the mode of transportation and the particular carriers

- The leading modes of transportation are railroads, trucks, pipelines, water vessels, and airplanes

- Using two or more modes of transportation to move freight is termed intermodal transportation; this approach is intended to seize the advantages of multiple forms of transportation

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Physical Distribution.....Shahid chavakkad