physical distribution decision areas

Amity Business School

1

Amity Business SchoolMBA Class of 2010, Semester II

Distribution & Logistics Management

Ms.Vandana Gupta


Physical Distribution decision areas

• Locating Warehouses

• Number of warehouses• Types of warehouses• Materials Handling Equipments• Mode of Transportation• Routing


• Size of shipments

• Inventory Levels• protective Packaging


Broadly, all the above mentioned areas can be grouped into four categories:

1. Order Processing

2. Inventory Control System

3. Warehousing

4. Transportation


Order Processing

• It includes the activities of receiving, recording, filling and assembling the orders for shipment.

• An order cycle is the period between the time of the placement of an order by the customer to the time of the arrival of the goods at his destination.

The cycle is made up of the transmission of the order, document processing in the department and shipment of the goods.


Customer places An order

Inventory onHand checked

ProductionScheduled

Goods packaged,Sorted, tagged

And sent toLocal warehouse

Goods stored until enough

orders areplaced

Orders shipped to individualcustomers

Supplier ReceivesAnd enters

order

Sufficient goodsIn stock

Insufficient goodsIn stock

Physical Distribution activities involved in a typical order cycle


The following information is vital for accurate and timely order fulfillment:

• Order number, delivery date and address• Product name and number, quantity and unit price of

product• Customer number, address and industry branch• Sales and sales territory• Means of transport, freight costs• Special instructions, where necessary


INVENTORY CONTROL SYSTEM

• The main objective in maintaining any inventory is to meet market demands i.e. to make sales and fulfill

customers orders.


Basic elements of the Inventory Control System:

a) Ordering Cost

b) Inventory Carrying Cost

c) Cost of stock outs.


Ordering Cost

• This is the total ordering expenses for the ordering or purchasing department

• This cost includes:1. Cost of staff posted for ordering of goods

2. Inspection cost of incoming materials


3. Expenses incurred on transportation of goods purchased

4. Cost of stationary, typing, postage, telephone charges etc


Carrying Cost

• This is the total cost of all the expenses involved in maintaining inventory.

• Such expenses include:

1. The cost of capital invested in inventories. An interest will be paid on the amount of capital locked up in inventories

2. The loss of material due to deterioration and obsolescence.


• Cost of spoilage in handling the materials

• Insurance cost

• Cost of storage which could have been used for other purposes (Opportunity cost)

physical distribution decision areas

Business

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ordering cost

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ordering

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cost

goods

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