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PRINCIPLES OF MARKETINGDISTRIBUTION—CHAPTER 27
Physical Distribution
Example
Jeans manufacturers use a large quantity of denim fabric
A combination of ship, train, and truck bring the denim from factory in India to the U.S.
Trucks carry the finished jeans to the retail stores
Activities of Physical Distribution
Definition: The physical movement of goods in the distribution channel
Needed to move raw materials to factoriesFinished goods from factories to
warehousesFinished goods from warehouses to retail
storesExamples: Pepsi truck, Frito-Lay truckAka Logistics—a general term for the
handling of details of any complex activity
Physical Distribution Steps
Order processing*Transporting goods*Storing goods in warehouses*Stock handlingInventory control*Covered in this slide show
Components of Physical Distribution
1—Products to be shipped Raw materials Manufactured goods used to make other
manufactured goods Finished goods from warehouses to retailer Freight, cargo, items, and goods describe all types of
products Merchandise refers to finished consumer goods A group of products may be shipped to fill an order or
shipment
Components of Physical Distribution
2—Channel Members The businesses that need to distribute their products Usually own the products they distribute Aka suppliers because they supply products to the next
step in the supply chain Aka vendors because they vend(sell) products to the
next step in the supply chainSuppliers are responsible for making sure that
their products are shipped in the most efficient, economical way; they may have their own transportation vehicles; others hire transportation
Transportation Companies
Transportation is the process of physically moving products from buyer to seller Trucks Trains Planes Ships
The process of transporting products is often referred to as shipping, even when ships are not involved
Own the vehicles and provide the service of transportation
Aka carriers
Warehouses
Definition: a building for storing large quantities of products
Products in a warehouse are said to be in inventory; often called inventory
Usually the products are waiting to be moved to the right PLACE at the right time
Transported from warehouse to the next segment of the supply chain
Trucks Planes
Advantages Can deliver door to door Flexible to deliver at a
specific place and time Can be modified to carry
a specific type of cargoDisadvantages
Traffic may cause delays Bad weather Maintenance problems
Advantages Speed Often used for high-value,
low-weight items Perishable goods Saves on inventory costs
Disadvantages Most expensive mode Bad weather may cause delays Usually requires another
mode of transportation from the airport
Modes of Transportation
Ships
Advantages Large quantities of goods can be moved great distances at a
low per item cost The U.S. has huge ports where imports arrive Can be modified to suit cargo (i.e. tankers) Barges can towed or pushed
Disadvantages Ship delivery is very slow Delivered to a port and then transported by another mode Security programs are used to eliminate import fraud and
terrorismAka freighters haul large containers (8 ft X 8 ft X 40
ft) of products which is easier than many small boxes
Pipelines
Carry large amounts of liquid or gas products to their destinations through tubes
Products move slowly but continuouslySafe from damage or theftNot subject to delivery delaysLimited number of products that can be carriedBuilding a pipeline is expensive, but costs to
operate are smallLeaks do not often occur; but can cause great
environmental damage
Distribution of Services and Ideas
Services “Transported” by individuals, through their
performance of the serviceIdeas
Carried by media to their target market Radio stations, television channels. Internet Web sites,
newspapers, magazines, outdoor billboards, and other types of communication
Target market is aka audience
The Distribution Process
Buyer contacts supplierThe two will negotiate the terms of sale
Definition: the conditions governing the sale Includes: discounts, transportation arrangements,
date of delivery, who pays for the transportation costs, when payment is due and other specific conditions of the sale
Purchase Order (PO)—a document authorizing the purchase and delivery of certain goods at specific prices and times
The Distribution Process, con’t.
The PO has a number that identifies the orderPO becomes a sales contract between the buyer and
seller Contract is a legal written agreement
Both the seller and the buyer sign the contract and both keep a copy
When a supplier receives the PO, they sign to validate the contract
The supplier sends confirmation back to the ordering company that the order has been received and will be filled
The buyer agrees by means of the PO to pay the agreed-upon price for the goods
Order Processing
Definition: receiving and filling orders Once the PO is received, pick tickets are created Pick ticket—a list of the items requested for one order
Includes a description of the item, its location in the warehouse, and the bar code
Orders are picked by the warehouse staff Bar codes are scanned on each item into the computer for inventory control
Picked items are moved to the packing area Forklifts or conveyor belts move the items Finished orders are packed for shipping, sealed, and labeled with
the shipping address When the products are received at the buyers location, receiving
employees scan the bar codes to verify the contents of cartons Inventories are automatically updated, and the needed goods can
be immediately unpacked and used
Computerized Order Processing
Computer linkages enable automated order processing with a regular supplier
Buyer’s computer keeps track of the number of goods in inventory
When inventory goes below a certain number, the computer sends a message to the supplying company’s computer
Supplier’s computer notifies the warehouse to pick, pack, and send the goods
Distribution Plans
Physical distribution is the third largest expense for most businesses involved with goods (only materials and labor are larger)
Definition: a plan for moving goods in the best way Considers costs, timing, delivery details, and other factors like
types of transportation Warehousing and transportation specialists know the best ways
to maximize the flow of goods They are good at negotiating with transportation
Calculations of shipping costs are made with the ton-mile Definition: the movement of one ton of goods one mile This must be balanced with the speed of receiving the goods
International Distribution
Increasing for several reasons Fewer global trade barriers such as tariffs and quotas Internet makes worldwide business easier to transact Parts for many products are made in other countries
Makes planning more complicated U.S. and foreign import and export laws must be followed Regulations may differ in each country Language barriers must be overcome Negotiations may be delicate in different cultures Distances are must larger Foreign destinations may have limited transportation options
Many parts of the world have no refrigeration, and dirt roads
Streamlining Distribution
Managers are looking to make distribution more cost-effective Definition: the benefits outweigh the expense Combine modes of transportation economically
Rail, air and highway used based on the locations of the beginning and end of the channel
Fill Transportation Vehicles Economies of scale—reductions in the cost per item as a result of
producing or transporting large numbers of items at one time Producing and shipping large numbers of items in a load, lowers
the cost of shipping each item Combine shipments by consolidated shipping
Putting the orders of two or more companies in a truckload, train car, or shipping container
Each company lowers its transportation costs
Streamlining Distribution, con’t.
Keep track of shipments Satellite shipment tracking—dispatchers at the shipping office
know exactly where the trucks are at all times. Receiving companies know exactly when their shipments will
arrive Warehouse employees stay busy with other tasks until a truck
is pulling into the unloading dockHire outside experts
Outsourcing—hiring an outside company to do specific work Outside experts can save a company money as they can get
deliveries faster and more accurate The company can have fewer workers and no transportation
vehicles
Streamlining Distribution, con’t.
Keep warehouses efficient Computerized tracking equipment can mean smaller
warehouses and more efficient inventory Bar codes, advanced scanners and specialized
computer systems, promotes almost full automation Received goods can be electronically identified,
sorted, routed, and shipped in an uninterrupted flow
Channel Management and Physical Distribution
Choose the right shipping mode considering cost, perishability of goods, transportation time, and security
Warehouse storage—build or leaseInventory Control—limit large quantities of inventory
in storage to increase profits and save money Includes: identifying purchase amounts, tracking inventory,
handling damaged inventory, and using inventory control systems
Risk—redesign the supply chain, understand foreign trade issues, implement computerized inventory control systems
Ethical Considerations in Channel Management
Channel member relationships should not restrict competition among companies at the same supply-chain level
Makers of a certain product should not unite to set wholesale prices for the product because it restricts competition
Retailers of a certain product cannot unite to sell the product for the same price
The Federal Trade Commission Web site has more information about legal and ethical issues