physical distribution management overview

CHAPTER 1

PHYSICAL DISTRIBUTION MANAGEMENT:AN OVERVIEW

OBJECTIVES

• i-To utilize the available human and material resources to the maximum extent at industry/regional/national level

• ii-To minimize the in fructuous expenditure of resource and infrastructure facilities are provided on a liberal scale

• iiiExploit those areas of industrial development which have hitherto been considered inaccessible,making availability of new methods and resources

Important Logistic requirement of modern Industrial Enterprise

• i-Sufficient Land for an Industrial Plant ,considering future expansion,residence for workers staff/Executives

• ii-Enough availability of Water for Industrial Plant as well for Workers/Staff during initial and regular phases.

• Iii-Sufficient Electric supply during construction/operation stage as well as maintenance of the plant,colony and supporting staff population.

Important Logistic requirement of modern industrial

enterprise(contd.)• ivFull movement and storage infrastructure for• a-Construction Equipment,Machinery and

Materials• bMain Plant machinery /equipment• cRaw materials,spare parts and maintenance

equipment.• dFinished Products and by products• eMovement of Personnel

Important Logistic requirement of Modern Industrial

enterprise(contd.)• vCommunication Links by

telephone,telex,teleprinter etc for the supply of equipments/raw materials and distribution of finished products.

• vi-Streamlined government and financial institutional procedure for speedy issuances of various licenses.

• vii-Maintenance of Law and order.• viii-Sufficient supply of Labor,technical/non-

technical staff,skilled /unskilled,managerial/supervisory staff

MANAGEMENT A DEFINATION

• The term Management implies as a function or a process with an objective of to get things done and includes the sub functions of planning,organizing,staffing,coordinating,

• controlling,budgeting,reviewing etc.It is also viewed as a process of motivating others to work and influencing others or exercising authority over others in order to achieve objectives.

IMPORTANT OF LOGISTICS MANAGEMENT

• Logistic management is a field of management which primarily deals with the coordination of resources in an organization.these resources may be in the form of men,money,materials,machines and time and requires most efficient use of existing organization resources.many projects in developing countries do not succeed due to lack of attention in coordination logistic function.As such there are delays in completion of projects.

IMPORTANT OF LOGISTIC MANAGEMENT(CONTD.)

• Logistic management involves the co-ordination of many functions of the procurement of raw material,their handling and storage,the handling and storage of finished products and distribution.The problem becomes increasingly complex as the volume of business grows and distance between the procurement center,production center and market consumption of a product increases.

IMPORTANCE OF LOGISTIC MANAGEMENT(contd.)

• As the economy of a country develops ,there is increasing geographical specialization of the means of production and hence there is a need for better logistics management following the increasing temporal and spatial separation of production and market centers.It is imperative that greater attention is paid to logistic aspect of management.

IMPORTANCE OF LOGISTIC MANAGEMENT(contd.)

• Logistic management approach is a systematic approach.It is neither production oriented nor market oriented.Logistic management would investigate a problem and resolve the conflict on the basis of costs and benefits to the organization as a whole.

• Logistic management does away with the ambiguity in the definition of the responsibilities of individuals,units and departments in an organization.

BUSINESS LOGISTICS-PHYSICAL DISTRIBUTION

• Physical distribution management is specifically concerned with the flow of goods through the economic system.In the business firm,the logistician is concerned with the inbound movement of goods to supply the production processes of the firm.In this setting,the firm is the customer and anticipates a certain level of distribution services from the suppliers.The firm is a supplier of finished/semi-finished goods and the Logistician must provide a level of distribution service to the firm,s Customers.

TOUR OF MATERIAL

• i-Transportation-Transportation is an essential /important component of physical distribution and the expenditure is also a very significant component of physical distribution.

• ii-Inventory control-The total costs on inventory must be minimized in order to control the total costs,and maintains a minimal inventory level consistent with the needs of production and sales.

TOUR OF MATERIAL(contd.)

• iii-Packaging-It is essential that latest techniques and materials of packaging be known and used.The physical distribution has to work with sales and manufacturing departments in order to develop and use proper packaging and packaging material so as to make it cheap and yet carry it safely enough to the customer without damage.

TOUR OF MATERIAL(contd.)

• iv-Warehousing-The optimal location of a warehouse /s having regard to minimal transportation costs,customer service,level of inventories and company warehouse versus public warehouses are the issues to be decided.

• v-Material handling-The benefits of material handling are not only confined to the manufacturer but to the consignee as well.Along with marketing department c,the movement of goods can be arranged so as to avoid damage.

TOUR OF MATERIAL (contd.)

• vi-Location analysis-The plant location decision must be arrived considering various factors such as market area,existing transportation facilities/rates, and warehousing.

• vii-Order processing-Order processing is closely related to sales and production and the physical distribution department has to be careful about the need of interdepartmental coordination.credit check,paper processing,retrieval from warehouse,assembling and packing,dispatch by transporter ,Inventory levels and its information to production planning are the important functions.

Production &Marketing interface vs. physical distribution

• Production activities• i-Production scheduling• ii-quality control• Production-Physical Distribution interface• iPlant location & Design• iiPurchasing• iiiProduct scheduling

Production & Marketing interface vs. Physical distribution

(contd.)• Physical distribution activities• itransportation• iiMaterial handling• Marketing activities • iiiInventory control• iMarket research• iiPromotion• iii--Pricing

Production & Marketing interface vs. physical distribution(contd.)

• Marketing-Physical Distribution interface

• i-Fixing Customer service levels• iiOrder processing• iiiPackaging• ivFixing channels of distribution.

Neglect of Physical Distribution function

• In India,the subject of physical distribution management has been neglected by Industry,business and Government , with consequent heavy losses in Production,the occurrence of scarcities and distortions in the distribution of goods and services,delays in Project schedules and uneven distribution of goods and services.

Neglect of physical distribution function(contd.)

• Examples• i-For projects requiring substantial

investments ,a serious and detailed study of the storage and distribution of the Product is required.Project execution takes several years since through study of market areas and directions of movement are not considered.

Neglect of physical distribution function(contd.)

• ii-The top executive of a Firm are unable to forecast accurately the future destinations of the finished products and movement of raw materials from the supply centers to the processing center.

• iii-Only technical/economic feasibility reports of project identify the sources of raw materials.Their movement/storage are rarely planned at the time of construction of the project.

Neglect of Physical distribution function(contd.)

• iv-The delay in moving Construction material/Machinery, raw materials usually delays the commissioning of the project.A better physical distribution in advance avoids these delays and ensures smooth running of the Plant.

• v-Lack of attention to the movement of intermediate products such as effluents,slag etc damage the environment and loss of production.This leads to pollution of rivers and open land and thus are losses to Society.

Neglect of Physical Distribution function(contd.)

• vi-Requirement of Spares/other maintenance material is normally overlooked at the commissioning stage.

• vii-The relative location of a Plant,the Suppliers depots and the Customer market largely determine the transit time for raw material's,Spare parts and finished products.Transit time concept is generally paid much less attention.

Neglect of physical Distribution function(contd.)

• ix-Existing bottlenecks in Transportation are generally ignored.this ignorance affects planning for production schedule,Inventories,Warehousing,Order processing.

• x-Serious traffic jams and Security requirements /Procedures are no considered.

• xi-Shortages,Delays and deficiencies are

Customer service- Oriented approach

• Past• 1-Manufacturer is the king.• 2-Shortages/deficits are part of the operation.• 3-Manufacturer decides what is to be

produced,how much and when.• 4-In sellers market Manufacturer does not worry

about selling.• 5-There is general scarcity of goods

Customer Service-Oriented approach(contd.)

• 6-Whatever the manufacturer produces gets sold/has to be sold.

• 7-The Manufacturer does not have to worry about Customer demand.

• 8-Customer is always indebted to Manufacturer.• 9-This has been general condition in developing

countries as regards to Consumer products,Consumer durables,Industrial products


• Now• 1-Economy takes an upswing.• 2-Additional manufacturing facilities and

additional mobilization of resources.• 3-More goods and Services are produced.• 4-Customer can choose from amongst the

various goods and services.


• 5-Customer choice is exercised in respect of quality as well as quantity and at desired time.

• 6-The Buyer,s market prevails because there is a surplus availability of goods and services.

Requirements in changed market conditions

• 1-With the change in market condition,the manufacturer,s goals have also changed.

• 2-The Firm has now to determine the Customer,s needs.

• 3-Manufacturer has to device ways and means of satisfying customer.

• 4-While doing so ,he has to meet the desired level of Profit.

• 5-Hence a Firm can ill afford to neglect the Customer wants.

• 6-Firms must ascertain and introduce certain standards of service and ensure customer

Factors which influenced role of Business Logistics.

• 1-The development of Mass Communication media

• #-The manufacturer directly\indirectly deals with Customer

• #-Thus manufacturer becomes conscious of the need of customer as regard to Product requirement\availability

• #-Thus the customer cultivates a selective demand and discriminates between various brand names on the basis of quality,service level etc.

Factors which influenced role of Business Logistics(contd.)

• 2-Alternate mode of Transport• #-This has facilitated more reliable transportation

of goods.• #-Depends on factors such as

speed,safety,simplicity,cost etc.• #-Hence Goods have to be made available in

desired form\at desired place\desired time.• #-Hence manufacturer attempts to satisfy

customer by selecting right mode of transport,so that he can tackle rival manufacturer.

Factors which influenced role of Business Logistics.(contd.)

• 3-Rise in standard of living• #-Economy is developing at a rapid space.• #-Rise in the standard\quality of living of masses

co0vering market of wider areas.• #-Consumption of goods\services increases.• #-A small increase in per capita income brings a

substantial increase in volumes.• #-Hence all round improvements are required in

transportation,handling and storing.thus becoming a critical element of total operation.

Factors which influenced role of Business Logistics(contd.)

• 4-The complexity in the management of Personnel

• #-The management of Personnel for every element of production require specialized skills,talent and competence.Applicable for Business\Physical distribution as well.

• #-More technical skills and greater\rational decision making skills are called for.

• #-Computers are used extensively .past experience is no longer valid,because change in the total operating conditions.as also various factors beyond the capabilities of a single individual.

Current model of provision of goods\services

• Manager oriented model• i-The chief Manager first determines the resources

available with the organization.• ii-He determines based on his judgment as also of

lower level managers,the quality,type quantum and location etc of goods \services which can be provided to Customer.

• iii-The constraints of organization are considered more important than the demand of the customer.

• iv-The management never considers that with slight change customer can be serviced better.

Current model of provision of goods\services(contd.)

• v-This type of package service,devised keeping in view primarily the material and monetary constraints of the organization\Chief Manager is offered to Customer as fait-accompli without any choice.

• vi-More and more time and effort are spent or justified the rejections and are often ill conceived.

Deficiencies of Manager oriented model

• i-Brings satisfaction to the Manager himself.• ii-The Manager perceives that he has full authority

over Customer.• iii-He may be genuinely,although erroneously

,satisfied that he providing the goods and services with high degree of efficiency and effectiveness.

• iv-The customer in this process is least satisfied and has to accept whatever is offered.

Principal of need of maximum satisfaction to Customer

• As per this model,the Chief Manager undertakes following action

• i-He determines the level and quality of goods\services as required by Customer.

• ii-Even if customer have extreme diverse characteristics,a common denominator with a certain commonly accepted level is determined

• iii-Thereafter resources available with the organization are assessed

Principal of need of maximum satisfaction to Customer(contd.)

• iv-The organizations roles and regulations are directed towards meeting customer requirements.

• v-If required available resources are re-organized in order to meet Customer requirements.Additional fee can also be levied.

• vi-Periodically feedback is obtained from Customer on satisfaction level.

• vii-If required quality and level of services are improved based on feedback from Customer.

Main features of Customer-oriented approach

• i-Orientation towards Customer is based on positive attitude.

• ii-The satisfaction of the needs of Customer triggers higher sales of the product as also other products.

• iii-If the product gives satisfaction to customer,He may come back for repeat purchase and recommend to others.

Main features of Customer oriented approach(contd.)

• iv-The customer is the starting as well as the end point of determining the required level of lead time,service and satisfaction.

• v-Better service to Customer need not cost more and organization,s resources can be better utilized in meeting customer expectations.

• vi-Though quality of service is dependent on the Product characteristics and after sales service ,the Customer is also interested in the qualitative behavior of the personnel,rendering the service.

Main features of Customer oriented approach(contd.)

• v-Specifies of better service desired by a customer are

• #-Lead time-should be short,dependable and consistent.

• #-Dependability-The customer should be confident that organization will not fail to supply of goods or render services at the right time and place.

• #-Communication-The Customer likes to know in case of non-deliveries in order o ensure his own planning.

Main features of customer oriented approach(contd.)

• vi-A customer desires a guaranteed quality\quantity of goods\services from dealers\suppliers,who in turn need a guaranteed quality of goods\services from the manufacturer.

• vii-It is necessary to ensure satisfaction to the distributor,agent,dealer,retailer and customer.only monetary benefit may not serve.

• viii-Standards of desired level of customer service have to be developed for planning,manufacturing and controlling the physical distribution in an organization.

Main features of customer oriented approach(contd.)

• ix-The total cost of physical distribution function has to betaken into account for determining customer service level requiring design of Physical distribution function to be integrated one.innovations have to be introduced as and when the possibility occur.

Total Cost Approach

• i-The cost of distribution involving all the the move store activities of the product may be 60% of the total cost.

• ii-The cost of distribution should take into account not only on the cost incurred on moving the product over different channels of distribution utalso on other activities.

• iii-These activities have become inevitable with the modern,customer oriented marketing approach.

Total Cost Approach(contd.)

• A reduction in costs of distribution in one or more areas by itself may not give desired results unless other costs are also required to be controlled.These include

• i-Inventory costs-these are the costs which are locked up in inventory of goods,insurance,occupation of space,pilferage,losses,damage etc.The total cost of inventory of any product amounts to almost 10 to 30 % of the average level of inventory in the pipeline\stock.


• ii-Warehousing costs -The warehousing of raw materials steps up the cost of their supply or of the cost of distribution of finished product.

• Aiming at zero stock out or zero loss of production levels , it becomes essential to have adequate warehousing capacity and involves higher fixed and operating costs of warehousing.In order to improve customer service ,it becomes necessary to increase number of warehouses,which results into decrease in the cost of transport.As such management has to arrive at the optimum number of warehouses.

Total Cost approach(contd.)

• iii-Production\Supply costs-Production costs decrease with increase in volume of production.if the same product is made at several plants,various other costs such as cost of transportation,transit times,warehouses and inventory costs have to be considered.proper analysis has to be made of their effect on total cost of distribution.


• iv-Channel of Distribution costs-A critical assessment of the channels of of distribution calls for examination of the use of or creation of adequate facilities for storage at the Plant or in field warehouses or with the Distributor or Stockist.

• This will necessitate a total systems approach in selection of channels of distribution.


• v-Communication and Data processing costs-An effective distribution system requires continuous monitoring of order pricing,Inventory control,accounts receivable,dispatches etc.

• An increased number of distribution points though improves Customer service but involves higher costs.As such optimal number of distribution points which will keep the distribution costs to a minimum and improving customer service ,will e desirable.


• vi-Transportation costs-The cost of transport varies generally with speed with which the goods are transported.This also affects Transit inventory.As such beside speed and inventory,cost of packaging is also to be considered,while selecting particular mode of transport and carrier.


• vii-Material handling costs-A suitable material handling system should be designed to reduce the cost of material handling to a minimum.a total cost approach would require a consideration of of not only the material handling system but other relevant factors affecting the cost of transport,customer satisfaction,inventory etc.


• viii-Packaging costs-Decision on packaging are affected by mode of transport and material handling equipment.a total cost approach would make it necessary for us to select a packaging version which takes into account other distribution factors

• ix-Customer service costs-All factors which affect customer service and volume of sales have to be taken into consideration to evaluate the total cost of distribution.

Total Cost Approach-Conclusions

• i-The real impact of distribution costs on profits is much higher than perceived.

• ii-Many of these costs are nobody,s responsibility because of compartmentalization of the management function.

• iii-Costs incurred in these are do not respond to cost cutting methods because of fragmented approach to analysis.requires comprehensive integrated approach taking into consideration all relevant factors.

Total Cost Approach-Conclusions (contd.)

• iv-The effect of high distribution costs should not be restricted to high level,across the board analysis A right approach by management would tap the real potential.

• v-Before applying total cost approach,it is essential to examine various costs associated with distribution function.by studying the total system in depth before taking decisions.

Total Cost Approach-Conclusions(contd.)

• vi-Normally Firms keep data for production and finance decisions.hence it becomes difficult to separate and identify the physical distribution costs,which is an essential requirement for assessing distribution costs.Even these data,s which are necessary for analyzing are kept confidential.

• vii-To make accounting easier ,various costs are added as administrative heads.To analyze the problem,it is essential to have these data available

Steps required to identify distribution costs

• i-Separate and identify distribution costs element wise.

• ii-accounting centers will need to be developed to help identify\analyze distribution costs.

• iii-Analyze the the results of the changes in the performance.

Steps required to identify distribution costs(contd.)

• iv-Some of the changes which may become necessary after application of total cost approach-examples

• a-Company,s distribution pattern may be changed by making appropriate shifts in Production\warehouse loads.

• b-Shifting of some equipments at nominal cost• c-savings may be achieved by persuading

Customer to change mode of transport.• d-Add additional warehouse capacity to ensure

better customer service and also add profits.

Steps required to identify distribution costs(contd.)

• v-The various suggestions as given,may be acted upon only after an across-the-board analysis and with the active involvement of Top management.

• vi-The top management must be prepared to undertake such time consuming study.

• vii-The study so made must outline the profit goal expected from the various alternatives and convince the management to implement the changes with determination.

Neglect Of Physical Distribution function

• i-Low level of professional management duo to lack of management development.

• ii-Evan with high level of development in other areas ,the development of Physical Distribution subject has been delayed.

• iii-Top managers have focused on manufacturing and finance issues with little attention on Physical Distribution.


• iv-Physical distribution costs are usually hidden,requiring higher order management skills,which are normally are lacking.

• v-In India,due to localized nature of business,physical distribution function has not developed and has remain rather obscure.The operations of organizations are relatively at low-level,problems are of minor nature and do not call for specialized skills.


• vi-Even in large scale organizations,physical distribution function has not received adequate attention,because the bottlenecks in operation,giving rise to shortages\scarcities has not been appreciated.Even there is a lack of awareness.

• vii-Accounting methods have not been developed to evaluate \advise management on the cost of such shortages\scarcities.


• viii-Manufacturers intentionally create artificial shortages in order to sell premium goods at premium.

• ix-Because of low development of the economic system,alternate modes of operations are not available to organizations.


• x-Because of low level of development ,not many alternatives are known to management nor they are able to work with new experiments.

• xi-Even Managers do not feel the urge to develop alternate methods ,since with existing operations,they are able to generate enough profits.


• xii-In most organizations,the costs are distributed rather than computed and allocated accurately.As such few individuals are able to asses the real costs and are unable to make rational decisions.

• xiii-Due to low level of knowledge ,the intricate inter-relationship which exist between the variables involved in Physical distribution are generally understood.


• xiv-In general there is a lack of a system approach to problems,because the managers focus on individual subject rather than on more difficult approach,leading to neglect of interfaces,thereby avoiding development of smooth systems.

• xv-individuals focus attention on individual performances and have not realized importance of time and ensure completing a given task within a specified time.

“Like” us on Facebook: http://www.facebook.com/welearnindia p // /

“Follow” us on Twitter:http://twitter com/WeLearnIndiahttp://twitter.com/WeLearnIndia

Watch informative videos on Youtube: http://www.youtube.com/WelingkarDLP

physical distribution management overview

Education