Meaning and Definition of Physical Distribution
Physical distribution is a crucial element of marketing mix. Marketers must use distribution with other elements of marketing mix so as to generate a profitable product.
Physical distribution is a component of logistics process. Market logistics or logistics involves the strategic procurement, storage as well as movement of raw materials, part and finished goods through the producing firm and it’s distribution channels so as to achieve cost-effective order fulfillment and maximize the present and future profitability.
Several activities are involved in logistics like packaging, information addition, material handling, transportation, inventory, and warehousing.
Needs of customers as well as supply chain are fulfilled by distribution systems. It is necessary to develop an effective physical distribution so as to plan a successful marketing strategy. It helps in reducing cost and improving customer satisfaction.
Effective physical distribution system here refers to a system providing the desired level of customer service at minimum cost, It involves integrating all the essential activities for storage and movement of goods.
According to William J. Stanton___ “Physical distribution involves the management of the physical flow of products and the establishment and operation of flow system”
According to American Management Association___ “Physical distribution means moving of finished products from one end of a production line to customers’’.
The factory of the organization is the starting point of physical distribution. Different warehouse and transportation carriers are selected to deliver the goods at desired locations at the desired time with minimal cost.
Objectives of Physical Distribution
- Meeting Standards of Customers Service: In physical distribution availability, timeliness, and accuracy are important dimensions of customer service. Companies set customer service standards based on one, or a combination, of these dimensions. Availability refers to the percentage of orders that can be filled from a company’s existing inventory.
- Reducing Total Distribution Costs: Although, physical distribution managers try to minimize the costs associated with order processing, inventory management, materials handling, warehousing, and transportation. A total-cost approach to physical distribution enables managers to view physical distribution as a system rather than a collection of unrelated activities. This approach shifts the emphasis from lowering the separate costs of individual activities to minimize overall distribution costs.
- Reducing Cycle Time: Another important goal of physical distribution involves reducing cycle time, the time needed to complete a process. Doing so can reduce costs and /or increase customer service. Many companies, particularly overnight delivery firms, major news media, and publishers of books of current interest, are using cycle time reduction to gain a competitive advantage.
Importance of Physical Distribution
- Facilitates Product Planning: As distribution system decided the level and nature of storage and transportation of organizational products, it is crucial to undertake distribution decisions at the time of product planning. Thus, it facilities product planning.
- Helps in Maintaining Inventory: An efficient distribution system enables the smooth flow of goods through the organization. Therefore, it helps in maintaining the appropriate size of inventory in the organization.
- Reducing Cost of Distribution: Due to the exact analysis of storage and transportation costs within a distribution system, it is possible to minimize the cost of distribution in an organization. This leaves customer service as well as customer satisfaction unaffected.
- Facilitates Better Customer Service: As distribution system is focused towards providing customers the services in the most convincing manner, it improve the level of customer service. Service like installation, repair, and sale of spare parts offer greater customer service.
- Improves the Sales Volume: With the help of different innovative inventory techniques, distribution system improves the sales volume of the organization. It helps both the manufacturers and the consumers. Manufacturers distribute a large number of inventories on low distribution costs, whereas, the consumers start stocking less due to the assured supply of goods.
- Facilitates Stabilisation of Prices: Through effective warehousing and transportation, the distribution system is able to regulate the flow of goods in the market. Therefore, it helps in maintaining a balance between demand and supply and thus, facilitates price stabilization in the market. A good distribution system is able to move goods from place of excess to place of shortage. In this way, it maintains the similar price for a product at two different places.
- Economies of Large-Scale Production: An efficient distribution system leads to the large-scale production of goods within an organization. It also helps in delivering production benefits to a large number of customers.
- Source of Employment: For any organization, the distribution function is as important as production, A number of employment opportunities are offered by the distribution system. Different roles like salesmen, marketing managers, advertisers, traders, etc., are offered by distribution systems of different organizations. Distribution department alone acquires 25 percent of the total employment opportunities available in modern times.