Physical Distribution & Logistics

•The process of getting goods to customers has traditionally been called physical distribution. Managers choose a set of warehouses (stocking points) & transportation carriers that will deliver goods to the destination in the desired time at the lowest total cost.

•Physical distribution has been expanded to a broader concept of supply chain management, which starts earlier than physical distribution: procure the right inputs –effective conversion to finished products—dispatch to final destination.

•Supply chain views markets as only destination point. More effective would be to view the target markets requirement first, then design supply chain backward. This view is that of market logistics.

The Council of Logistics Management defines logistics as:Logistics is the process of planning, implementing, and controlling efficient cost effective flow & storage of raw materials, in-process inventory, finished goods & related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements.

Logistics describes the entire process of materials and products moving into, through and out of the company. It involves the integration of transportation, inventory, warehousing, materials handling, packaging & information technology.In India logistics cost is estimated around 13% of GDP as against 9% in the US. Cost of market logistics can be as high as 30 to 40% of the product’s cost.

Functional Areas of LogisticsThere are seven important functional areas of logistics.

Transportation (Road, Rail or

Air) (3)

Information Technology (2)

Network Design (1)

Logistics for Customer

Satisfaction

Inventory and Storage (4)

Packaging and Re-packaging

(7)

Materials Handling, Loading,

and Unloading (6)

Warehousing (Pvt./Public)

(5)

Network Design

Manufacturing plants, warehouses, material handling,

distribution and after-sale services are typical logistics

facilities. Network design is one of the prime responsibility of

logistical management. It is required to determine the

number and location of all types of facilities required to

perform the logistics task. The selection of a superior

locational network can be the first step towards competitive

advantage. Logistical efficiency directly depends on the

proper design of network and infrastructure.

Information TechnologyTwo major areas that depend on information are: Sales Forecasting: It is done to estimate the future requirements of logistics. It helps inventory management to satisfy anticipated customer requirements. Order Management: Customer’s order is very important in logistics. Logistics services are required for external and internal customers. Today, companies try to shorten order-to-remittance cycle. GE operates an information system that checks credit standing upon receipt of order & checks availability. System issues order to ship, invoices, updates inventory, sends production order for new stock & relays the message back to the sales rep. that the customer’s order is on its way- all in less than 15 seconds.

TransportationIt helps in positioning inventory geographically. There are three forms of transport, i.e., private carriage, contract carriage and public carriage. Shipper can choose from rail, road, air, waterway & pipeline & consider criteria as speed, frequency, dependability, capability, capability, availability, traceability & cost.

These are two fundamental factors to transportation performance: Cost SpeedBalancing of speed and cost is necessary.

Transportation system in an organisation should be:

Efficient

Economic

Reliable

Meeting customer needs in a timely manner

Experienced

Capable of meeting emergencies, special needs.

Modes of TransportationThe following modes of transportation are used keeping in mind the goods and places where they are to be sent and the volume of goods:1. Railways2. Road Transportation 3. Air Transportation4. Sea Transportation (Marine)5. Inland Waterways6. Ropeways7. Postal 8. Courier9. Hand carts, Thelas, Rehres, Cycle Rickshaws,Bullock carts.

InventoryInventory levels represents a major market logistics decision. Sales people would like to carry enough stock to meet customer requirement immediately- this may not be cost effective. Inventory cost increases at an increasing rate when customer service level approaches 100%.Inventory decision making involves : 1. When to order? & 2. How much to order?There is a need to balance the order processing cost & the inventory carrying cost. Inventory carrying costs include storage charges, cost of capital, taxes & insurance, depreciation & obsolescence. Carrying costs can run as high as 30% of the inventory value.EOQ is Economic order quantity is the quantity for which orders are placed when stock reaches the re-order level. EOQ is the quantity which is most economic to order.

EOQ

EOQ=√{(2RC/H)}, where:R=Total annual requirement,C=Cost of processing the orderH=Holding cost.

800

600

400

200

Total Cost

Inventory Carrying Cost

Ordering Cost

E O Q

250 500 750

(Units per order)

(Co

st R

s.)

WarehousingEvery company has to store finished goods until it is sold, because production & consumption cycles hardly match. It has to decide on number & location of storage facilities. Warehouses provide a key link in the physical distribution chain and, like other stages of distribution, they are being closely scrutinized by today’s marketing managers. The location, size and capabilities of warehouses can profoundly affect a company’s ability to satisfy its customers and deliver products and services profitably.A warehouse is a location with proper facilities where shipments are received from a factory or production centre, broken down, reassembled, and shipped to the customers as per their orders ,” It is also defined as:“a building in which goods are stored, bonded or displayed for sale.”

Purposes of a Good Warehouse

Storage

Breaking bulk

Consolidation

Unitisation

There are two types of warehouses (i) private warehouses (ii) public warehouses.

1.Public warehouse: These are those which can be used by the public at large. They are constructed by government agencies and corporate houses to meet the needs of a particular type of goods. Businessmen can rent out the space which they need from the warehouse owners, who keep the goods stocked properly at the required temperature and deliver back the goods when they are demanded by the owner of the goods.

2.

Private warehouse: These facilities are created by individuals or companies to meet their requirements. If they have extra space available, they let it out to others also. Many private warehouses are quite modern, systematic, strategically located in areas where goods are safe from the safety point of view.Classification of warehouse:

1.General warehouse

2. Bonded warehouse

3. Cold storages

4. Warehouses meant for agricultural goods

5. Buffer storage warehouses

6. Import-export warehouses.