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Components of Physical Distribution

Last Updated : 06 Apr, 2023
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Place/Physical Distribution

It is essential to make the product or service available to the customer at the right place and at the right time, then only the customer would be able to purchase the product or service. Place is an element of marketing and is a process of transferring goods from the place of production to the place of consumption. Therefore, Place Mix is an important decision and is related to the physical distribution of the goods and services to the customers. The decisions under place mix include deciding the market for distribution, the channel of distribution, etc. Hence, the place mix consists of Channels of Distribution and Physical Movement of Goods. The two different channels of distribution are direct channel and indirect channel. And the components of physical distribution include order processing, transportation, warehousing, and inventory. 

Components of Physical Distribution

The process of physical movement of goods involves the following four managerial decisions:

1. Order Processing 

The time and steps involved between receipt of an order from customer and delivery of goods is known as order processing. 

  • A customer always ants prompt, punctual, safe and reliable delivery services. If the processing of order is delayed, then consumer may lose interest and switch over to competitors’ products which are available in the market. 
  • So, in order to enhance customer’s satisfaction, a good distribution system should be used, which provides for accurate and speedy processing of orders.
  • Marketers are now using a computer system which is an information technology-based system of order processing to speed up the order handling process.

2. Transportation

The movement of goods from one place to another is known as transportation.

  • It is one of the most important elements of physical distribution as it adds value to the products by making them available at the required place. For example, Dry fruits are transported from Afghanistan to other parts of the world.
  • Different modes of transportation like airways, railways, waterways, pipelines, etc., are used to transport goods from one place to another. 
  • Different modes are compared on the basis of cost, speed, capacity, availability, etc., and then the best mode is selected.

3. Warehousing

The process of holding and preserving goods till they are delivered to the buyers is known as warehousing.

  • Warehousing is needed when there is a time gap between the production and consumption of goods. This time gap is bridged by warehousing and time utility is created. 
  • When production is seasonal and consumption is continuous(agricultural goods), or production is continuous but consumption is seasonal (AC and cooler), then the need for storage arises.
  • For products requiring long storage, warehouses are located near production sites, and for bulky and perishable, warehouses are located near the market.  
  • The efficiency of the firms in serving their customers is directly affected by warehousing. For example, if the number of warehouses is more, then better services are provided to customers, as less time is required to serve customers at different locations.
  • A firm has to maintain a balance between the cost of warehousing and the level of customer service as warehousing involves cost of storing goods.                             

4. Inventory Control

Inventory includes maintenance of stock of goods held for distribution. The process of deciding about the level of inventory comes under Inventory Control.

  • A higher inventory level ensures better service to customers, but it also increases the cost of carrying inventory, as a lot of capital is blocked in the form of stock. 
  • If there is a shortage of inventory, then it may lead to loss of customers to competitors’ products. Therefore, inventory control requires maintenance of inventory at an ideal level in order to maintain a balance between cost and customer satisfaction.
  • Marketers are now using concepts like Just-in-Time Inventory (JIT) or correct forecast about the product to reduce the need of maintaining a high level of inventory.

Factors determining Inventory Level 

The factors determining the level of inventory are as follows:

1. Policy on level of Customer Service: The firm must keep large stock if the firm’s policy is to offer a higher level of customer service. Customers are satisfied when there is no delay in supply of goods.

2. Accuracy in Sales Forecasts: If accurate forecasts are available, then firms can manage with less stock. But if accurate forecasts are not available, then large stock has to be maintained by the firms to meet unexpected demand.

3. Responsiveness of Distribution System: The need for inventory will be low if a firm can meet additional demand for products in less time, whereas large stock will be required if the firm takes more time in responding to additional demands.

4. Cost of Inventory: Cost of storage, investment in capital, etc., are included in cost of inventory. If the cost of inventory is high, then less stock is maintained by the firm, whereas if the cost of inventory is less, then higher inventory can be maintained by the firm.

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