Physical Distribution in Economics

Introduction

In order to operate successfully businesses, need to move products, raw materials, and goods between factories, warehouses, and distribution centers. They also need to move or send finished products to the markets. These movements are broadly called physical distribution in economic terms. Physical distribution involves various channels, including wholesale and eCommerce, and contains components, such as inventory, customer service, materials, order processing, and transportation.

Benefits of Physical Distribution

Physical distribution plays an important role in modern business practices. Some of the important benefits of physical distribution include the following −

Cost Cutting

Physical distribution may help to reduce costs palpably. Some areas in which businesses can reduce costs are −

• Inventory − Physical distribution helps in managing inventory and meeting market demands efficiently. This may result in saving money on storage as no extra inventory is needed to store products.

• Warehousing − Efficient physical distribution leads to reduce warehousing costs as no storage is required for additional items. This can save enough money for businesses that deal in physical products.

• Transportation − A properly managed physical distribution system leads to improvement and speeding up the shipping process. Therefore, no extra money is needed for transporting the goods.

Sales Increase

By efficiently managing customer expectations and hereby customer service, efficient physical distribution can lead to shipping products faster and more cost-efficiently. That is why companies prefer localization.

By having storage facilities near the markets, companies can meet customer demands very quickly while successfully competing in a global market. It is also notable that having regional suppliers and distributors also helps companies in cutting costs while increasing sales substantially.

Faster Shipping

Another big benefit of having an effective physical distribution system is faster shipping of products. As businesses can receive products within a short span of time after an order is placed for products, it helps them to monetize from quicker availability of products and selling them when the demand is high.

For making shipments faster, physical distribution companies usually have storage facilities in various locations in a country. So, the retailers can avail and manage to get products from the nearest storehouse when they demand it. This also leads to saving time and resources for all the parties involved in the physical distribution process. It is also a major reason why companies want to invest in physical distribution channels.

Price Stabilization

Efficient physical distribution processes also help in keeping prices stable as they help mitigate the spike in prices when the demand is high and supplies are low. By resorting to physical distribution that is well-managed, businesses can get access to new products quickly which stops prices to go beyond limits during the peak season of sales of particular products.

For example, when the demand for particular items goes up during the festival times, efficient physical distribution helps keep the prices stable by meeting higher demands. Without efficient distribution, the prices of items would go high as supplies will be affected during peak sales seasons.

Components of Physical Distribution

There are six components of a physical distribution system which are the following −

Controlling Inventory

Effective inventory control means avoiding both overstocking and understocking the inventory levels.

• While overstocking leads to excessive and unnecessary storage costs, understocking may lead to missed opportunities and loss of sales. Therefore, an effective inventory control mechanism will keep inventory levels at optimum margins while also meeting customers' needs.

• Businesses that have a long lead time may resort to higher levels of safety stock while those with a short lead may have lower levels of safety stock. By using historical data, demand forecasting, and using statistical methods, safety levels for businesses and products can be calculated.

• Tracking inventory levels is an important aspect of every business and this must be done to keep inventory levels at a desired state when the safety levels have been determined.

• Inventory needs to be replenished at regular intervals depending on the levels of stock available both by manufacturers and retailers who order goods from suppliers. Therefore, it is notable that businesses must plan ahead to avoid disruptions in the supply chain.

Customer Service

Customer service is a very important aspect of the growth and profitability of businesses. Good experiences help make customers loyal, and this may go a long way in making businesses remain profitable for the long term. Successful businesses usually stick to very high standards of customer service that guide physical distribution operations.

Some examples of customer service include faster delivery, immediate response to customer queries, and numerous shopping options for customers. These options usually dictate the physical distribution strategies a company will use. For example, in order to process faster delivery, a company may invest in last-mile delivery logistics to meet orders in time.

Order Processing

Order processing is an activity that consists of order taking and delivery.

• Fulfillment of order processing involves offering reliability to the customer and keeping accuracy intact.

• The main aim of order processing is to keep the customer satisfied.

• It has been noted that nearly one-third of the population do not order from the same company from which they do not get fast delivery.

• Order processing comprises picking, sorting, tracking, invoicing, and shipping.

Transportation

Transportation is another important component of physical distribution. The modes of transportation include the following −

• Railways − Long-distance transportation is better managed by railways as it is cheaper.

• Road − Transporting goods by vehicles and trucks is the most efficient way of transporting goods.

• Airlines − Airlines are a bit costlier but the quickest mode of transportation.

• Shipping − Shipping is the largest mode of transportation which includes more than 80% of the total transportation in the world.

Warehousing

Warehousing is done by traditional warehouse storage or by third-party logistics.

• In traditional storage, there is a central location where products are stored, packed, and shipped.

• In the case of third-party logistics, the warehouses are owned by third parties. Nowadays, most companies rely on Third-party logistics as it has certain benefits.

Package and Material handling

This is the last part of physical distribution. Packaging and handling may be done manually or by using various tools. Machines like cranes, conveyor belts, and forklifts may be used to maneuver handling. The idea is to transport goods without damaging them and ship them in a safe and secure manner to the orderer.

Conclusion

It is impossible for businesses nowadays to ignore the importance of physical distribution. It is the backbone of all marketing systems and without it, businesses may face problems in running businesses efficiently. That is why it is so important a part of modern economy and marketing.

FAQs

Qns 1. What is meant by physical distribution? Discuss briefly.

Ans. In order to operate successfully businesses need to move products, raw materials, and goods between factories, warehouses, and distribution centers. They also need to move or send finished products to the markets. These movements are broadly called physical distribution in economic terms.

Qns 2. Write any three benefits of physical distribution.

Ans. Three benefits of physical distribution are −

• Increased sales

• Faster shipping

• Reduced costs

Qns 3. What are three examples of the components of physical distribution?

Ans. Three components of physical distribution are −

• Inventory control

• Transportation

• Warehousing