Explain the major activities involved in the physical distribution of products.

Once the good are produced, packaged, promoted, branded and priced they must be made available to the consumers. That is, they must be moved from the place where they are produced to the place where they would be consumed. This physical movement of products from the place of production to the place of consumption is known as physical distribution of products. It involves the following four major activities.

(a) Processing of Order: Processing of order and delivery of goods is the most important component of buyer-seller relationship. Processing of order comprises of a number of a steps such as placement of order, transmission of the order by the intermediaries to the manufacturer, maintenance of inventory as per the requirement, delivery of goods, etc. All such processes take time. Physical distribution system should be such that it should ensure speedy and proper order processing. Generally, there exists a direct relationship between speed and accuracy of order processing and customer satisfaction. Fast and accurate order processing provides a consumer greater satisfaction. Thus, a proper system of order processing is of vital importance.

(b) Transportation of Products: Transportation of products refers to the physical movement of goods from the place where they are manufactured to the place where they are consumed. The potential consumers of a product are spread across a large geographical area. To make the goods physically available to them, they must be transported from the place of production to the place of consumption. Unless the products are physically transported and made available at the place of consumption, sale cannot take place.

(c) Warehousing: Generally, there is a time lag between the act of production and the act of sale or consumption. This implies that the goods must be properly stored and assorted before the actual sale takes place. This process of storing and assorting the products is known as warehousing. Proper warehousing ensures efficiency in delivery and sale of products which in turn results in greater customer satisfaction. For example, through warehousing a company can maintain stock of products and ensure timely delivery of goods as and when required. However, maintaining warehouses involves its own cost. Thus, a company must weigh the relative benefits and costs associated with warehousing and maintain a balance between the two as per the requirement.

(d) Maintenance of Inventory: Inventory implies maintaining a stock of products. The firms maintain inventory so as to ensure timely supply of products. Inventory shares a direct relation with customer service. Maintenance of higher inventory helps a firm in ensuring timely delivery of goods to the customers and thereby, improve customer service. However, maintenance of inventory involves a cost as a huge amount of capital remains tied up in the stock unless it is sold. Thus, the firms must strike a balance between customer service and cost. A firms’ decision to maintain inventory is based on several factors such as how well the distribution system responds to the orders and the deliveries, cost involved in holding the inventory, firms’ objectives, etc. An appropriate inventory must be decided by the firm keeping in consideration the various costs and benefits involved.

Physical distribution covers all the activities required to physically move goods from manufacturers to the customers. Important activities involved in the physical distribution include transportation, warehousing, material handling and inventory control.

1. Order processing: In a typical buyer-seller relationship, order placement is the first step. Products flow from the manufacturers to customers via channel members while orders flow from customers to manufacturers. Therefore, a good speedy and accurate system of order processing becomes a necessity. 

2. Transportation: Transportation is the means of carrying goods and raw materials from the point of production to the point of sale. It is one of the major elements in the physical distribution of goods. It is important because unless the goods are physically made available, the sale can not be completed. 

3. Warehousing: Warehousing refers to the act of storing and assorting products in order to create time utility in them. The basic purpose of warehousing activities is to arrange placement of goods and provide facilities to store them. The need for warehousing arises because there may be a difference between the time a product is produced and the time it is required for consumption. Generally, the efficiency of a firm in serving its customers will depend on, where these warehouses are located and where these are to be delivered.

4. Inventory Control: A very important decision to be made in respect of inventory is deciding about the level of inventory. Higher the level of inventory, higher will be the level of service to customers but the cost of carrying the inventory will also be high because a lot of capital would be tied up in the stock. The decision regarding level of inventory involves prediction about the demand for the product. A correct estimate of the demand helps to hold inventory and cost level down to a minimum. 

The major factors determining inventory levels include the following.

(a) Firm’s policy regarding the level of customer service. Higher the level of service, greater will be the need to keep more inventories. 

(b) Degree of accuracy of the sales forecast: In case more accurate estimates are available, the need for keeping a very high level of Inventory can be minimized. 

(c) Responsiveness of the distribution system i.e., ability of the system to transmit inventory needs back to the factory and get products to the market. 

(d) Cost of inventory, which includes holding costs, such as cost of warehousing, tied up capital, etc and the manufacturing cost.