The relationship between logistic and physical distribution

Physical Distribution Management (Transportation)

the relationship between logistic and physical distribution

Effective management of physical distribution and logistics has a substantial . of the business logistics system and its relationship to marketing strategy, we. Logistics includes a significant flow of information, which contrasts the physical movement of goods pervasive in distribution. Developing. logistic is the process of planning controlling and implementation of storage goods from the starting points and Collaborative physical distribution See More .

The sheer volume and variety of goods enormously complicated their distribution and storage. A wholesaler of breakfast cereals, for instance, no longer handled a few cereal brands, but dozens of them, and with the proliferation of supermarkets, was confronted with the problem of greater demand and continuous product turnover. The cost of distribution escalated as well, further adding to the complexity of distribution. A seminal article on physical distribution "New Strategies to Move Goods"appearing in a September issue of Business Week, for the first time fostered an awareness of PD as a separate category of business.

This eventually generated textbooks on physical distribution management, as well as courses in business schools. For the first time, PD, as well as cost control, became central concerns of upper management.

By this time, computers had slowly entered the realm of PD, at least in the United States. It was not until the s, however, that computers were fully utilized. Their effect over time was to integrate the hitherto disparate categories of PD—transportation, storage, inventory, and distribution—into closely related activities. Currently, computerization is performing the major functions of physical distribution management, from long-range strategic planning to day-to-day logistics, inventory, and market forecasting.

The best of these systems are tightly integrated with inventory and other logistics systems, and may even be linked to customers' systems, as is the case with efficient consumer response ECR systems.

ECR systems, which some have criticized as being to narrowly focused, attempt to maximize distribution efficiency by delivering inventory on a just-in-time basis. Advanced distribution systems may employ satellite tracking and routing of trucks, electronically tagged pallets or cargo containers, and elaborate data monitoring and storage capabilities.

the relationship between logistic and physical distribution

Data collected from these activities are used to identify weak spots in the chain and benchmark improvements. Often upstart companies, and even some large ones as well, rely on third-party distributors for at least some of their physical distribution, and hence there is an entire industry of third-party logistics services. These and other outsourcing services received a great deal of attention during the s, as manufacturing companies sought to eliminate peripheral activities when they could do so at cost savings.

Smaller companies, on the other hand, frequently lack the expertise or resources to perform their own distribution. Nonetheless, some distribution analysts criticize the outsourcing movement because the net cost savings may be less than anticipated and the quality of the logistics service may be hard for the manufacturer to control. Up to now, PDM has been concerned with the movement of physical objects. If management is going to continue to look for cost savings it has to look elsewhere.

Lancaster3 suggests that distribution and stockholding costs can add 25 per cent to direct materials costs. Unsurprisingly, in the search for further cost efficiencies in companies, physical distribution and logistics have figured highly. It has become increasingly clear that not only is there substantial potential for improving efficiency and reaping cost savings, but more importantly for the marketer, this area offers substantial potential for developing sustainable competitive advantage.

the relationship between logistic and physical distribution

Part of the explanation for neglecting research in this area lies in the fact that conventionally individual elements of physical distribution and logistics have been dealt with in a fragmented manner, with separate parts of the business incurring what appeared to be relatively small costs of distribution.

Some of the major costs of physical distribution have accelerated. A major element of cost is transport, which is increasingly expensive as road, sea and air networks have become increasingly congested. Similarly, increases in fuel prices have contributed to increased transportation costs. The emergence of a total systems logistics view of distribution is based on analogies and ideas drawn from the military.

It became recognized that effective distribution depended on logistics, or an integrated approach to elements which help move products and services to the right place, in the right quantity and at the right time. Such systems thinking is an essential component of modern logistical management. Systems thinking applied to distribution has proved a powerful impetus to the importance of this area. Alongside the development of the total systems approach to distribution has gone the development of more sophisticated and powerful tools of analysis.

The notion of interrelationships in the total system of distribution makes the problems of managing it difficult and complex. Developments in modelling, allied to more powerful computer power, have enabled this complexity to be managed.

We now have the tools to handle logistics through IT. The main reason for the growth in importance and interest in physical distribution and logistics is the fact that the logistics system offers substantial potential for achieving a competitive edge and winning and keeping customers.

Particularly in industrial markets, where products may be relatively undifferentiated and margins are slender, companies find they can gain a competitive edge by using their logistical system to improve customer service levels and this might be critical in terms of customer choice.

Because of this, identifying appropriate levels and types of customer service to be achieved by the logistics management system is a key aspect of planning in this area. Developments and trends in manufacturing and purchasing have heightened the importance attached to the service elements of the logistics systems of suppliers.

This was discussed in Chapter 2 when we considered organizational buyer behaviour. With modern continuous flow and large batch manufacturing systems a stock-out situation of a minor and inexpensive component may incur substantial costs in down time.

These developments in manufacturing and purchasing are so important that they need to be considered in more detail. Perspectives on what constitutes an effective production process in a company have undergone considerable changes, which have been as a result of increased competition and more demanding customers.

One of the major implications of these factors has been the recognition that production needs to be built around flexibility, while at the same time achieving cost efficiencies and consistent quality of output.

Lancaster4 suggests this flexibility of the production process is essential because: Bolwijn and Kumpe suggested that this new production was part of an overall change in world manufacturing during the s.

Ch 11 Physical distribution and it's components

They describe a number of manufacturing developments over the past 40 years. The first stage of development was based on the notion of the efficient firm where cost and price was all important. The emphasis was on producing competitively priced products on a mass-production scale. As a result of increasing competition, the end of the s saw the need for the quality firm which was the next development in the evolution of production and where quality specifications were strictly applied in the manufacturing process.

The third development was the transition to the flexible firm. This phase involved a distinct change in the production process with flow production and small batch runs of a wide assortment of products operated by teams of multi-skilled employees.

What is the relationship between logistics, warehousing and distribution? - Specialties

As the term implies, in the context of manufacturing and purchasing, JIT is based on a company securing supplies of raw materials and components needed for the manufacturing process at the precise point in time when they are required to enter this process. An inventory control system which delivers input to its production or distribution site only at the rate and time it is needed.

Thus it reduces inventories whether it is used within the firm or as a mechanism regulating the flow of products between adjacent firms in the distribution system channel.

The JIT approach contrasts with the more conventional approach to stockholding delivery and manufacturing which was based essentially on the just in case principle.

Oliver8 provides a comparison between Just in Case and Just in Time approaches.

the relationship between logistic and physical distribution

In the context of logistics, successful servicing of customers using a JIT system fundamentally alters the design and operation of the logistical process. For example, to be successful needs precise synchronization from supplier right through to production units to retailers to consumers. In turn, this synchronization requires a complete exchange of information, so the supplier is fully aware of raw material deliveries and the need for component deliveries to manufacturers.

Physical distribution and logistics Marketing Management

Manufacturers need to know that they will receive deliveries at the right time. Lynch,9 using the Dell case analogy, has shown how JIT systems require close contact between suppliers and customers.

Increasingly, this contact and the exchanges of information involved utilize computer linkages. Working through retailers in this way and ascribing more importance to firm orders, means the company can respond closely to customer needs and changes in the market. A study by Frazier et al. The result of these factors is that effective supply and the logistical systems on which this is based — logistics — are now key factors in supplier choice in industrial markets.

Over a 2-year period, 50 per cent of purchasing managers stopped using a supplier because of slow or inconsistent service. They investigated what happens if a rush order is not acted upon by the supplier and found that after one such inaction 42 per cent of purchasing managers would change suppliers. If this problem persisted, 54 per cent would change suppliers.