Physical distribution system involves movement of final goods from the producer to the consumers. Main objective of the physical distribution is to move goods at right time to the right place.
1. Improve customer service: An efficient system will help to improve customer service by quick availability of product at the convenient locations for the customers.
2. Create time and place utility: Efficient system helps to create time utility by making the product available whenever required. It creates place utility by making products available at nearby stores.
3. Reduce distribution cost: cost involves transportation cost, inventory cost, warehousing cost, packaging costs etc. So managers aim at reducing the total cost of .
4. Generating additional sales: By providing better services to the customers aims to generate additional sales. Appropriate system can help to increase the sales volume of products or services.
5. Price stabilization: Smooth flow of product in the market can help to stabilize the prices of the product.
Explain the major components of system.
The major components of system are:
Order Processing: After receiving the order, company starts processing the order to meet it as soon as possible. It involves
– Receiving the order
Order is processed to perform the functions as soon as possible and avoidance of mistake. Even a small mistake may result in heavy losses. So first step involves processing of order.
Warehousing: Goods are stored in bulk in the warehouses. Products are assorted here and transported further. Bulk quantities are divided into smaller quantities here.
Large scale firms own their own warehouses whereas small scale firms depend on public warehouses.
Warehouses can be located on the basis of product type, transportation cost, market proximity, rent, labour, taxes, competition etc.
Warehouses can be a general merchandise warehouse, speciality warehouse, refrigerated warehouse, bonded warehouses, bulk storage warehouses.
Inventory control: Management of stock by the company or wholesaler or retailer. It is to balance the customer needs and cost of holding the stock. New concept of Just-in-time has been introduced. It is minimizing inventory, having efficient system that fills stock before stock out condition arises. Factors that determine the inventory levels are:
– Cost of holding stock
– Level of customer services provided by the firm.
– Accuracy of Sales forecast.
– Efficiency of system.
Transportation: Goods are transported from one place to another. It can be through
Roadways are preferred for short distant places; it can provide door-to-door delivery of products. It is classified into
– Private carriers
– Public carriers