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.