CHAPTER 8

PHYSICAL DISTRIBUTION MANAGEMENT STRATEGY

Important Topics of This Chapter

The Nature of Physical Distribution and Supply Chain Management.Traffic Management and its Functions.Customer Service in Physical Distribution.Warehousing and Inventory Control.

Physical DistributionPhysical distribution:

The process of planning, implementing, and controlling efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer's requirements.

The importance of physical distribution:Physical distribution cost can represent 20% or more of the selling price of a product. It is an integrated part of the entire company system:

Problems in other areas impact distribution and vice versa.

From customer’s perspective, supplier’s physical distribution function gets the right products to them, at the right place, at the right time. These are basic customer rights (along with right price and right condition).

Logistics ManagementLogistics involves more than physical distribution. In the science of logistics, the flow of materials is efficiently managed inbound-through and outbound of an organization.Two primary product flows:

Physical supply (materials management): Flows that provide raw materials, components, and supplies to the production process.

Physical distribution management: Flows that deliver the completed product to customers and channel intermediaries.

Supplier

Manufacturer Customer

Materials manageme

nt

Physical distribution

management

Logistics Management

Study Area Map

Supply chain management (a series of connected logistics flows)

Logistics management

Materials management Physical distribution

Incoming transportation Traffic managementReceiving ShippingPurchasing Customer serviceIncoming warehousing Finished goodsInventory control

Supply chain management: An integrated philosophy to manage the multidirectional flow of materials and information through an entire channel, from the first raw material supplier to the ultimate user of the finished product.

Supply Chain Management

Functions of Traffic Management

Mode and carrier selectionRoutingClaims processingOperation of private transportation

Many of the imported goods you purchase were shipped in 20-foot or

40-foot steel containers

Large cranes loaded the containers on a ship.

(Image courtesy of the Port of Charleston))

Larger container ships can hold 4,000 to 6,000 containers.

(Image courtesy of Maersk Sealand)

After unloading from the ship, the containers can be loaded onto a flatbed

rail car for additional intermodal shipping.

(Image courtesy of CSX Corp.)

Alternatively, a container can be attached to a set of wheels for

motor transport (as an 18-wheeler trailer).

Inter-modal container motor carrier

(Image courtesy of Maersk Sealand)

Rail freight carrier Barge/river freight carrier

(Image courtesy of CSX Corp.)

PipelineAir freight carrier

Container stack train Jumbo jet air freight

Major Advantages by Transportation Mode

MotorSpeed of deliveryDiversity of equipmentFlexibilityFrequency of movementTransfer of goods to other carriersConvenient to both shipper and receiver

RailMass movement of goodsLow unit cost of movementDependabilityLong-haul movingWide coverage to major markets and suppliersMany auxiliary services (i.e., switching) Transfer of goods to other carriersSpecialized equipment

WaterVery low unit cost of movementMovement of low-unit-value commoditiesLong-haul movementMass movement of bulk commodities

(continued)

PipelineLowest unit cost of movementMass movement of liquid or gas productsLong-haul movingLarge capacityMost dependable mode

AirFrequent service to major marketsLarge capabilityOvernight serviceMost rapid speed of any carrier

Inter-modalCost savings

Lower loss and damage claims due to containerization

Service extended to more shippers and receivers

Reduced handling and storage costs

Major Advantages by Transportation Mode

Controllable Elements in a Logistics System

Customer serviceLogistics communicationsWarehousingPackagingProduction planningOrder processingTransportationInventory controlMaterials HandlingPlant and warehouse location

Major Categories of Service Complaints

Traffic and transportation

Damaged merchandiseCarrier did not meet standard transit timeMerchandise delivered prior to date promisedCarrier failed to follow customer routingCarrier did not comply with specific instructionsErrors present on bill of ladingCondition or type of transport equipment not satisfactory

Warehousing and packagingMerchandise delivered lateProblem with containers in packaging plantsSpecial promotion merchandise not specified in deliveryErrors in warehouse release formsIncorrect types and quantities of merchandise shippedPapers not mailed promptly to headquartersField warehouse delivered damaged merchandise

(continued)

Inventory control

Stock-outsContaminated products receivedProduct identification errorsPoor merchandise shipped

Sales order service

Delayed shipmentsInvoice, sales coding, or brokerage errorsSpecial instructions ignoredNo notification of late shipments

Major Categories of Service Complaints

Inventory ControlCarrying costOrdering costTotal costEOQ levelJIT Inventory:

Small lot size.Frequent deliveriesExact quantities.Precise arrival time.Near perfect quality