Physical Distribution and Logistics

Introduction to Physical Distribution and Logistics

• Critical to have product available in right place and time
• Place is a marketing element involving goods transfer from production to consumption
• Place Mix decisions involve the market and channel of distribution
• Place Mix includes Channels of Distribution and Physical Movement of Goods
• Delivery of value satisfaction requires proper pricing, selling, and physical movement
• Economists call this "creation of place and time utilities"
• Physical distribution functions ensure order fulfillment for channel members/end-customers
• Channel management concerns how firms organize marketplace pathways
• Physical distribution is also known as "marketing or business logistics"
• Logistics originates from military use, referring to troop/equipment supply
• In marketing, logistics has broader meaning than physical distribution.

Meaning of Physical Distribution and Logistics

• Involves flow of goods to final consumers, including transportation, warehousing, and inventory management
• Activities associated with supplying finished products
• Philip Kotler's definition: planning, implementing, & controlling physical flow of materials & final goods from origin to meet customer needs at a profit

Definitions of Physical Distribution

• Wendell M. Smith: Physical distribution is the science of Business Logistics, delivering the right product amount to meet demand; it's a key link between manufacturing and demand creation
• W.J. Stanton: it involves management of physical flow of products as well as establishment and operation of flow system
• Cundiff and Still: Includes actual movement and storage of goods after production and before consumption
• Mc Carthy: Includes actual handling and moving of goods within firms and along channel systems

Key Aspects of Physical Distribution

• Includes science of logistics
• Is a central connector between manufacturing and demand creation
• Encompasses management of flow of commodity and arrangement simultaneous to distribution channel within firm
• It's related to receipt of proposed and manufactured commodities, collection, material handling, storage, transportation, packaging, inventory control, etc.

Physical Distribution Management

• Defined as planning, implementing, and controlling efficient storage and movement of goods from origin to consumption
• Core element of supply chain management
• Involves managing all aspects of product/service flow
• Purpose includes organizing the movement and storage of finished goods to the customer

Objectives of Physical Distribution

• Many firms aim to get right goods to right place, at right time, and at lowest cost
• No system can simultaneously maximize customer service and minimize distribution cost
• Maximizing customer satisfaction requires premium transportation, large inventory, and multiple warehouses, increasing total cost
• Using cheap transport, low inventory, and few warehouses minimizes customer service, potentially leading to lower total cost
• Aims: get right product, at right place/time/quantity, to right customer at lower cost; attain customer satisfaction; maximize profit; coordinate distribution activities; better service at lower prices; increase profit margin.

Importance of Physical Distribution

• Companies emphasize physical distribution increasingly
• Enables companies to strengthen competitive position by improving customer satisfaction and/or reducing costs

Significance of Physical Distribution

• Improves customer service, impacting customer service standards and their satisfaction
• Requires fair prices, acceptable product quality, and dependable deliveries
• Its dimensions involve availability, timeliness, and quality
• Reduces total distribution costs, which can represent two-thirds of a company's logistics costs
• Takes a total cost approach, viewing physical distribution as a system
• Achieves reduction in cycle time
• Creates time and place utility, which is achieved through storage and transportation
• Stabilizes prices through management of warehousing and transportation
• Stabilized prices are achieved for both industrial firms and industries
• Allows sellers to balance supply and demand
• Improvement in information technology improves distribution efficiency
• Manages variety of products
• Helps managing ordering, shipping, stocking

Evolution of Logistics Management

• Boosts market share
• Logistics began with Greek generals like Alexander the Great planning army procurement
• Alexander the Great used local resources for supplies instead of waiting for supplies from Macedonia
• Logistics has always been a war issue, with kingdoms and generals planning logistics winning wars
• World War II highlighted the importance of logistics
• Before the 1950s, the practice of LM was rare in business
• Logistical Management practices changed after the 1950s
• Factors such as use/development of computers affected change
• Economic volatility meant cost reduction
• Business logistics development has 3 eras which are pre-1950, 1950-1970, and 1970 and beyond

Pre-1950 Logistics

• Field was in dormant state
• No philosophy guided field
• Management in businesses didn't incorporate key logistics activities
• Transportation was under production control
• Inventories were responsibility of marketing, accounting, and/or production
• Order processing was accounting or sales responsibility, causing conflicting objectives/responsibility for logistics activities

1950-1970 Logistics Period

• Was period of growth for theory and practice of logistics
• New management thinking was incorporated
• Marketing was established
• Management and marketing scholars had criticisms
• Key conditions included development in field of logistics
• Key conditions: shifts in consumer demand/attitudes, cost pressure on industry, advancement of computer technology, military logistic experience
• Population moved from rural areas
• Volume movements began and this shifted distribution
• Cost of distribution increased from metro areas
• Inventory-carrying costs became higher with consumer demand
• Retailers began carrying inventories
• WWII encouraged interest in logistics
• Recessionary periods were a product of cost pressure on industry
• Companies sought to improve economic productivity

Costs of Logistics

• Have been challenged
• A cost that has been challenged as a percent of sales
• Raw materials are passed through sell price, and a cost of 50 percent of sales is seen

Advancement of Computer Technology

• Means logistics issues have become more complex
• Computer made entry in mid 1950s
• Mathematical modeling occurred
• Linear programming meant value was given to logisticians
• Logistics issues became more manageable

Military Logistics

• Includes procuring, storing and inventory requirements
• Management philosophies crystallized which resulted in universities offering courses

Post 1970s

• Described to be a field of management research
• Basic principles were developed
• Firms realized the benefits
• Led to integrated logistics
• Integration means ties production occurs and logistics grow
• Economic philosophy began to shift
• There was demand stimulation to supply management

Factors for Integrating Physical Distribution

• Interdependence must occur
• Control for each similar operation
• There must be balance in manufacturing and marketing
• Complexity and innovative should create innovative approach
• Logistics manages products from material to discarding
• Objective of logistics is to make inventories available
• Logistics distributes materials and products in channels

Definition of Logistics

• It is the art/science of management
• Includes technical activities
• Fierce competition forces focus
• Telecommunication has grown in supply chains
• The supply change which is also known as the logistics network is consisted of factories, outlets, and raw materials

Logistics Management

• Factors in every facility that effect cost
• Conforms product to customers
• Efficiently encompasses many levels
• Serves as a boundary function
• Resources should be focused
• Internal and external factors matter

Logistics Management (Defined)

• Manages storage of goods, services, and all information between origin and customer -Conforms to customer requirements
• It is the management of all facilitate movement
• Encompasses of the coordination of supply and demand in the creation

Roles in Logistics

• Management of product
• Role in market channel

Importance of Logistics

• It refers to efficient storage
• Value business logistics to the consumer
• Materials/information are provided
• There is a competitive advantages
• A process should be able to fulfill customer needs
• Shipments should be fast and accurate
• Internet makes many things possible
• Business relations should be good
• The production needs the materials

Logistical System Components

• Includes value and inventory

Facility Structure

• Directly impacts service capability to costs
• Facilities in the network represent firms
• Network has an effect for efficiency
• Superior location is important for an advantage

Order Processing

• Needed for logistical operations
• Computerized systems can handle customer requirements
• Order information is on a real time basis
• Customers requirements are important
• The order provides all information
• Logistics are as good as processing

Transportation

• Moves inventory

Ways to attain Transportation

• Through private fleet
• Through specialty
• Engage point service

From Viewpoint

• Cost of transport is important
• Speed is the rate
• Consistency is variations

Balances Maintained

• Cost and service quality must align
• Inventory links to facility.

Logistics Management Requires

• Coordination with movement
• To have finished goods
• Achieves given level
• Minimized activities
• Activities should be non-manufacturing
• Management needs to coordinate

Michael Porter Activities

• There are five
• Relates to the distribution firm

Inbound

• Associate to moving and receiving inputs to product
• Material handling should occur
• There needs to be schedule

Operations

• Activities associated with inputs
• Transforming of testing is important
• Activity is associated

Outbound

• The storage occurs
• Handling is scheduled

Marketing and Sales

• Provide means
• Such as advertisement

Service

• Maintains the value

10 Logistic Principles

• Should be linked with corporation
• Organization is comprehensive
• Levels require more coordination

Power of Information

• Should be taken
• Departments are viewed
• They have potential
• Markets are helpful
• Advantedges occur

Human Resources

• Should be emphasized
• Excellence should flourish
• Be standard practices
• Managers should exist for plans

Strategic Alliances Should Occur

• Partnerships are needed

Financial Performance

• Functions are meant to use cost

Optimal Levels Should Be Targeted

• One is a main element of a strategy

Details Should Be Managed

• Best should managed the issues

Consolidate Logistical Volume

• Dynamic softwares make it real
• Can consolidate

Mesure and React To Performance

• Companies need to measure
• Those with the operating should exist