Uni

t1:
Int
roduct
iont
oPhy
sical
Dist
ri
but
ion

1.
1INTRODUCTI
ON
I
n or
dert
o hav
e a cl
earunder
standi
ng aboutwhatt
he phy
sicaldi
str
ibut
ion
managementi
s,i
t'
svi
talt
ohav
eacl
earunder
standi
ngaboutwhatpr
oduct
sand
ser
vicesmeansi
nrel
ati
onwi
thi
tscl
assi
fi
cat
ions.
Pr
oductcanbebr
oadl
ycl
assi
fi
edont
hebasi
sof
1.Dur
abi
l
ity
2.Tangi
bil
i
ty
3.Use

1.BasedonDur
abi
l
ity:
a.Non-
dur
abl
epr
oduct
sar
egoodst
hatar
enor
mal
l
yconsumedqui
ckl
yand
usedononeoraf
ewusageoccasi
ons,
suchasbeer
,soapandf
oodpr
oduct
s.
b.Dur
abl
epr
oduct
sar
epr
oduct
susedov
eranext
endedper
iodoft
imeand
nor
mal
l
ysur
viv
eformanyy
ear
s.Exampl
esar
eref
ri
ger
ator
s,car
sandf
urni
tur
e.
2.BasedonTangi
bil
i
ty:
a.I
ntangi
blePr
oduct(
Ser
vice)
:ar
ethosepr
oduct
sthatcannotbet
ouched,
seen,
fel
tet
c.Ser
vicesar
eint
angi
ble,
insepar
abl
e,v
ari
abl
e,andper
ishabl
e.So
asar
esul
ttheynor
mal
l
yrequi
remor
equal
i
tycont
rol
,suppl
i
ercr
edi
bil
i
ty,and
adapt
abi
l
ity
.e.
g.r
epai
rs,
prof
essi
onal
ser
vices
b.Tangi
blePr
oduct
s(goods)
:ar
ethosepr
oduct
sthatcanbeseen,t
ouched,
f
eltet
c.E.
g.Ref
ri
ger
ator
,Car
,St
ereo
3.Pr
oductcl
assi
fi
cat
ionsbasedonBasedonUSE
A.Consumerpr s:Consumerpr
oduct oduct
sar
ethoseboughtbyf
inalconsumer
sfor
per
sonal
consumpt
ion.
Usual
l
ycl
assi
fi
edbasedonconsumershoppi
nghabi
ts.
Consumer pr
oduct
sincl
ude conv
eni
ence pr
oduct
s,shoppi
ng pr
oduct
s,
speci
alt
ypr
oduct
sandunsoughtpr
oduct
s.
Thesepr
oduct
sdi
ff
eri
nthewayconsumer
sbuyt
hem,sot
heydi
ff
eri
nhow

1
 t
heyar
emar
ket
ed.
a.Conv
eni
encepr
oduct
s
Boughtf
requent
ly,i
mmedi
atel
yand wi
th a mi
nimum ofcompar
ison and
buy
ingef
for
t.
Pl
acedi
nmanyl
ocat
ionst
oit
seasy&r
eadi
l
yav
ail
abi
l
ity
Thesepr
oduct
sincl
udemostgr
ocer
yit
ems,l
i
kecandy
,sal
t,kol
o,cooki
es,
det
ergent
s,col
ddr
inkset
c.
b.Shoppi
ngpr
oduct
s
BoughtLessf
requent
ly.
Consumer
sspendconsi
der
abl
eti
meandef
for
tgat
her
ingi
nfor
mat
ionand
compar
ingal
ter
nat
ivebr
ands.car
eful
l
yonsui
tabi
l
ity
,qual
i
ty,
pri
ceandst
yle.
Thesepr
oduct
sar
efoundi
nFewerout
let
sbutpr
ovi
dedeepersal
essuppor
tto
gi
vecust
omer
sinf
ormat
ionand adv
icet
o hel
pthem i
nthei
rcompar
ison
ef
for
ts.
Shoppi
nggoodsi
ncl
udef
urni
tur
e,el
ect
roni
cs,
andappl
i
ance.
c.Speci
alt
ypr
oduct
s
Goodswi
thuni
quechar
act
eri
sti
csorbr
andi
dent
if
icat
ion.
Si
gni
fi
cantgr
oupofbuy
ersar
ewi
l
li
ngt
omakeaspeci
alpur
chaseef
for
t.
Buy
ersnor
mal
l
ydonotcompar
especi
alt
ygoods.
Exampl
e speci
fi
c br
and of f
ancy pr
oduct
s,l
uxur
y car
s,pr
ofessi
onal
phot
ogr
aphi
cequi
pment
.
d.Unsoughtpr
oduct
s
Goodswhi
char
eknownordoesn'
tknowbyconsumerbutdoesnotnor
mal
l
y
t
hinkofbuy
ing.
New i
nnov
ati
onsar
eunsoughtgoodsunt
ilt
heconsumerbecomesawar
eof
t
hem t
hroughadv
ert
isi
ng.
Requi
real
otofadv
ert
isi
ng,
per
sonal
sel
l
ingandot
hermar
ket
ingef
for
ts.
Exampl
eli
kel
i
fei
nsur
ance,
prev
ent
ivecarmai
ntenance,
cemet
erypl
ots
Goodunsoughtf
oronemar
ketcanbesoughtf
oranot
hermar
ket
.
B.I
ndust
ri
alpr
oduct
sIndust
ri
alpr
oduct
sar
ethoseboughtf
orf
urt
herpr
ocessi
ngor
f
orusei
nconduct
ingabusi
ness.

2
 Thedi
sti
nct
ionbet
weenaconsumerpr
oductandani
ndust
ri
alpr
oducti
s
basedont
hepur
posef
orwhi
cht
hepr
oducti
spur
chased.
I
faconsumerbuy
sal
awnmowerf
orhomeuse,
thel
awnmoweri
saconsumer
pr
oduct
.Ift
hesameconsumerbuy
sthesamel
awnmowerf
orusei
na
l
andscapi
ngbusi
ness,
thel
awnmoweri
sani
ndust
ri
alpr
oduct
.
Ther
ear
ethr
eegr
oupsofi
ndust
ri
alpr :mat
oduct eri
alsandpar
ts,capi
tali
tems
andsuppl
i
esandser
vices
a.Mat
eri
alsandpar
tsar
eindust
ri
algoodst
hatbecomeapar
toft
hebuy
er’
s
pr
oduct
,thr
oughf
urt
herpr
ocessi
ngorascomponent
s.
b.Capi
tali
temsar
eindust
ri
alpr
oduct
sthathel
pint
hebuy
ers’pr
oduct
ionor
oper
ati
ons.Theyi
ncl
udei
nst
all
ati
onsandaccessor
yequi
pment
s.
c.Suppl
i
esandser
vicesar
eindust
ri
alpr
oduct
sthatdonotent
ert
hef
ini
shed
pr
oductatal
l
.

I
nor
dert
odel
i
verv
aluesat
isf
act
iont
otar
getconsumer
siti
snotonl
ysuf
fi
cientt
o
pr
oper
lypr
icet
hepr
oductandsel
litbuti
tisal
sonecessar
ytophy
sical
l
ymov
eitt
o
t
hepl
aceofconsumpt
ionatt
het
imer
equi
redbyconsumer
s.Economi
stsr
efert
o
t
hisf
unct
ionast
he"
creat
ionofpl
aceandt
imeut
il
it
ies"
.Unl
esst
hisf
unct
ioni
s
per
for
med,apr
oductf
ail
stof
ulf
il
lit
smi
ssi
onnotwi
thst
andi
ngmet
icul
ouspl
anni
ng
ofpr
oductandot
hermar
ket
ingi
nput
s. I
nmar
ket
ing,t
hef
unct
ionsi
nvol
vedi
n
phy
sical
l
ymov
ingpr
oduct
sar
ecol
l
ect
ivel
yref
err
edt
oas"
phy
sical
dist
ri
but
ion.
"

 Phy
sicaldi
str
ibut
ioni
sal
sor
efer
redt
oas"
mar
ket
ingorbusi
nessl
ogi
sti
cs"i
n
busi
nessl
i
ter
atur
e.
Thet
erml
ogi
sti
csi
sbor
rowedf
rom t
hemi
l
itar
yter
minol
ogywher
eiti
susedt
o
descr
ibet
hepr
ocessoft
ranspor
ti
ngandsuppl
yi
ngt
roopsandequi
pmentsoast
o
hav
esuf
fi
cientst
rengt
htomeetmi
l
itar
ydemands.
I
nmar
ket
ing,howev
er,t
het
erml
ogi
sti
cshasabr
oaderconnot
ati
onr
elat
ivet
o
phy
sicaldi
str
ibut
ion.I
nthef
oll
owi
ngt
opi
cthemeani
ngofphy
sicaldi
str
ibut
ionand
l
ogi
sti
cswi
l
lbedi
scussed.

1.
2MEANI
NGOFPHYSI
CALDI
STRI
BUTI
ONANDLOGI
STI
CS

3
  Acompr
ehensi
vedef
ini
ti
onofphy
sicaldi
str
ibut
ionact
ivi
ti
es,cal
l
edbusi
ness
l
ogi
sti
cs,i
ncl
udest
heco-
ordi
nat
ionoft
hei
nboundandoutboundact
ivi
ti
es,
anemphasi
soncost
-ef
fect
ivef
lows,
andcust
omerser
vice.
 Phy
sicaldi
str
ibut
ionmanagement(
Out
bound)
isor
gani
zi
ngt
hemov
ementand
st
orageoff
ini
shedgoodst
othecust
omer
.Thi
str
adi
ti
onalmar
ket
ingv
iewof
phy
sicaldi
str
ibut
ionmanagementl
ooksatonl
ytheout
boundf
lowoff
ini
shed
pr
oduct
sfr
om t
hemanuf
act
urert
othecust
omer
.Itf
ail
stoconsi
deract
ivi
ti
es
i
nvol
vi
ngt
hei
nboundf
lowofr
awmat
eri
alsandpar
tst
hatof
tenhav
eagr
eat
i
mpactont
hesuccessoft
hemar
ket
ingpr
ogr
am.
 Logi
sti
cs management(
Inbound)whi
ch i
nvol
ves t
he coor
dinat
ion oft
he
mov
ementandst
ori
ngofr
awmat
eri
als,
par
ts,
andf
ini
shedgoodst
oachi
evea
gi
venser
vicel
evel
whi
l
emi
nimi
zi
ngt
het
otal
logi
sti
cscostoft
heact
ivi
ti
es.
 Thi
sconcepti
ncl
udesbot
hphy
sicalsuppl
yandphy
sicaldi
str
ibut
iont
hati
s
bot
hinboundandout
boundact
ivi
ti
es.Onpr
act
icall
evel
,ther
eisnoconsi
stent
useofphy
sicaldi
str
ibut
ionandl
ogi
sti
cst
ermsgener
all
y,andmanypeopl
e
uset
hem l
oosel
y.
 Bot
hter
ms-
phy
sicaldi
str
ibut
ionandl
ogi
sti
csar
eusedi
nter
changeabl
yint
his
cour
semat
eri
al.

Fi
gur
e1showst
her
elat
ionofphy
sicalsuppl
y,phy
sicaldi
str
ibut
ion,andl
ogi
sti
cst
o
t
heoper
ati
onofamanuf
act
uri
ngf
ir
m.Thi
schar
tshowshow t
hef
ir
mrecei
vesi
ts
phy
sicalsuppl
yint
hef
orm ofr
aw mat
eri
alsandpar
tsf
rom i
tssuppl
i
ers,conv
ert
s
t
hesemat
eri
alsandpar
tsi
nit
spl
ant
,andt
henpr
ovi
desphy
sicaldi
str
ibut
iont
othe
f
ini
shedpr
oduct
stoi
tscust
omer
s.
 Theconcept
sofphy
sicalsuppl
y,phy
sicaldi
str
ibut
ion,
andl
ogi
sti
csal
soappl
y
t
ononmanuf
act
uri
ngf
ir
ms,suchasr
etai
l
ersandwhol
esal
ers,f
orwhi
cht
he
i
nbound act
ivi
ti
esi
ncl
udet
hef
ini
shed goodst
hatar
esol
dto cust
omer
s
wi
thoutphy
sical
modi
fi
cat
ion.

LOGI
STI
CS

4
 PHYSI
CALSUPPLY PHYSICAL
DI
STRI
BUTION

I
nboundf
lowofraw Out
boundfl
owof
mat
eri
als f
ini
shedpr
oduct
s

SUPPLI
ER FI
RM CUSTOMER

Fi
gur
e1:Rel
ati
onofphysi
caldi
str
ibut
ionandl
ogi
sti
cst
oamanuf
act
uri
ngf
ir
m's
oper
ati
on

1.
3NATUREOFPHYSI
CALDI
STRI
BUTI
ON

Phy
sical
dist
ri
but
ion
 I
nvol
vespl
anni
ng,
impl
ement
ingandcont
rol
l
ingt
hephy
sicalf
lowofmat
eri
als
andf
ini
shedgoodsf
rom poi
ntsofor
igi
ntopoi
ntsofuset
omeetcust
omer
needsatpr
ofi
t.
 I
tisbasi
cal
l
ya di
str
ibut
ion act
ivi
tyofphy
sicali
tems.Thebestphy
sical
di
str
ibut
ionmet
hodsgi
veust
hel
owestcost
.

The t
radi
ti
onaldi
str
ibut
ion sy
stem st
art
sfr
om pl
ant
s.I
temphasi
s on how t
o
di
str
ibut
efr
om pl
ant
s.Themoder
nphy
sicaldi
str
ibut
ionsy
stem,whi
chi
sknownas
mar
ket
ingl
ogi
sti
csst
art
sfr
om mar
ketpl
ace,t
hent
ofact
oryt
osat
isf
ycust
omer
s.
Thus,t
hemar
ket
ingl
ogi
sti
csmanager
'st
aski
stocoor
dinat
ethewhol
echannelof
phy
sicaldi
str
ibut
ionsy
stem,t
hati
s,t
heact
ivi
ti
esofsuppl
i
ers,pur
chasi
ngagent
s,
channel
member
sandcust
omer
s.

1.
4THEI
MPORTANCEOFPHYSI
CALDI
STRI
BUTI
ON

Phy
sical di
str
ibut
ion r
efer
s t
o t
he act
ivi
ti
es – or
der pr
ocessi
ng,i
nvent
ory
management
,mat
eri
alshandl
i
ng,war
ehousi
ng,andt
ranspor
tat
ions–usedt
omov
e
pr
oduct
sfr
om pr
oducer
stoconsumer
sandot
herenduser
s.Pl
anni
nganef
fi
cient

5
phy
sicaldi
str
ibut
ionsy
stem i
scr
uci
alt
odev
elopi
nganef
fect
ivemar
ket
ingst
rat
egy
.
Compani
est
hathav
ether
ightgoodsi
nther
ightpl
ace,att
her
ightt
ime,i
nther
ight
quant
it
y,andwi
tht
her
ightsuppor
tser
vicesar
eabl
etosel
lmor
ethancompet
it
ors
t
hatdonot
.Phy
sicaldi
str
ibut
ioni
sani
mpor
tantel
ementi
namar
ket
ingst
rat
egy
becausei
tcandecr
easecost
sandi
ncr
easecust
omersat
isf
act
ion.Speedofdel
i
ver
y,
ser
vice,
anddependabi
l
ityar
eof
tenasi
mpor
tantt
ocust
omer
sascost
s.

Phy
sicaldi
str
ibut
iondeal
swi
thphy
sicalmov
ementandi
nvent
oryhol
ding(
stor
ing
andt
racki
ngi
nvent
oryunt
ili
tisneeded)bot
hwi
thi
nandamongmar
ket
ingchannel
member
s.Of
ten,onechannelmembermanagesphy
sicaldi
str
ibut
ionf
oral
lchannel
member
sinv
olv
edi
nex
changes.I
nfact
,ther
eisat
rendt
owar
dcent
ral
i
zat
ion,wi
th
onemar
ket
ingchannel
memberoft
heent
ir
echai
n.

Phy
sicaldi
str
ibut
ionsy
stemsmustmeett
heneedsoft
hesuppl
ychai
naswel
las
cust
omer
s.A const
ruct
ionequi
pmentdeal
erwi
thal
ow i
nvent
oryofr
epl
acement
par
tsr
equi
resf
ast
,dependabl
eser
vicef
rom componentsuppl
i
erswheni
tneeds
par
tsnoti
nst
ock.Ev
enwhent
hedemandf
orpr
oduct
sisunpr
edi
ctabl
e,suppl
i
ers
mustbeabl
etor
espondqui
ckl
ytoi
nvent
oryneeds.I
nsuchcases,t
hedi
str
ibut
ion
cost
smaybeami
norconsi
der
ati
onwhencompar
edwi
thser
vice,dependabi
l
ity
,and
t
imel
i
ness.

Compani
esar
epl
aci
nggr
eat
eremphasi
sonphy
sicaldi
str
ibut
ionorl
ogi
sti
csf
or
v
ari
ousr
easons.Fol
l
owi
ngar
esomeoft
her
easons.

i
) Cust
omerser
vice:sat
isf
act
ionbecomest
hecor
nerst
oneofmar
ket
ingst
rat
egy
i
n manybusi
nessand di
str
ibut
ion an i
mpor
tantcust
omerser
viceel
ement
.
Di
str
ibut
ioni
spot
entt
oolev
ent
oat
tractcust
omer
sbyr
educi
ngcostandby
gi
vi
ngbet
terser
vice.
i
i
)Physi
caldi
str
ibut
ion:i
s a maj
orcostel
ementf
ormostcompani
es.Poor
phy
sical
dist
ri
but
ionmakest
hecompanyunabl
etosur
viv
e.
i
i
i)Theexpl
osi
oni
npr
oductvar
iet
y:hascr
eat
edaneedf
ori
mpr
ovedphy
sical
di
str
ibut
ionmanagement
.Or
der
ing,
shi
ppi
ng,
stocki
ngandcont
rol
l
ingofv
ari
ety

6
 ofpr
oduct
sgi
veachal
l
enget
ophy
sical
dist
ri
but
ion.
i
v)I
mpr
ovementi
ninf
ormat
iont
echnol
ogy:hascr
eat
edoppor
tuni
ti
esf
ormaj
or
gai
nindi
str
ibut
ionef
fi
ciency
.Exampl
e,useofcomput
ers.

1.
5THELOGI
STI
CALMI
SSI
ON

Thel
ogi
sti
cal
missi
onofanent
erpr
isei
s
 t
o dev
elop a sy
stem t
hatmeet
s obj
ect
ives att
he l
owestpossi
ble bi
rr
expendi
tur
e.
 Thel
ogi
sti
calsy
stem i
spr
imar
il
yconcer
nedwi
thsuppor
tofmanuf
act
uri
ng
and mar
ket
ing oper
ati
ons.Att
he pol
i
cyl
evel
,the cr
it
icalquest
ion i
sto
det
ermi
net
heassoci
atedcostofl
ogi
sti
caloper
ati
ons.Thus,t
hepl
anni
ngof
l
ogi
sti
csi
nvol
vest
wopol
i
cyconsi
der
ati
ons:(
1)ser
viceper
for
mance,and(
2)
t
otal
costexpendi
tur
e.

Thel
ogi
sti
calper
for
mancei
smeasur
edwi
thr
espectt
oav
ail
abi
l
ity
,capabi
l
ity
,and
qual
i
ty.Av
ail
abi
l
ityconcer
nst
hesy
stem'
scapaci
tyt
oconsi
stent
lysat
isf
ymat
eri
alor
pr
oductr
equi
rement
s.Assuch,av
ail
abi
l
itydeal
swi
thi
nvent
oryl
evel
.Asagener
al
r
ule,t
hel
owert
hef
requenceofpl
annedst
ockout
s,t
hegr
eat
ert
hei
nvest
menti
n
av
eragei
nvent
ory
.

Capabi
l
ityofl
ogi
sti
calper
for
mancer
efer
stot
heel
apsedt
imef
rom r
ecei
ptofan
or
dert
oinv
ent
orydel
i
ver
y.Per
for
mancecapabi
l
ityconsi
stsoft
hespeedofdel
i
ver
y
and consi
stency
.Nat
ural
l
y,al
lfi
rms desi
ret
o pr
ovi
de cust
omer
sfastdel
i
ver
y.
Howev
er,r
api
ddel
i
ver
yisofl
i
ttl
eval
ueunl
essi
tisconsi
stent
lyachi
eved.I
tmay
hi
nderaf
ir
mtopr
omi
seseconddaydel
i
ver
yifi
nact
ualper
for
mancet
hest
andar
dis
achi
evedonl
yasmal
lper
cent
ageoft
het
ime.Anent
erpr
iseont
her
ecei
vi
ngendofa
l
ogi
sti
cal
syst
em t
ypi
cal
l
yval
uesconsi
stencyov
erspeedofser
vice.

Per
for
mancequal
i
tyr
elat
est
ohowwel
ltheov
eral
llogi
sti
calt
aski
scompl
etedwi
th
r
espectt
odamage,
cor
rectt
ypei
tems,
andr
esol
uti
onofunexpect
edpr
obl
ems.Ther
e

7
i
snopoi
nti
nspeedydel
i
ver
yofadamagedpr
oduct
.

Qual
i
tyr
elat
est
othemai
ntenanceofl
ower
rorr
atesandar
espect
edt
rackr
ecor
dfor
r
esol
vi
ngpr
obl
ems.Per
for
mancest
andar
dsshoul
dbeest
abl
i
shedonasel
ect
ive
basi
s.Somepr
oduct
sar
emor
ecr
it
icalt
hanot
her
sbecauseoft
hei
rimpor
tancet
o
t
hepur
chaserandt
hei
rpr
ofi
tabi
l
ity
.

Thel
eveloft
otalcosthasadi
rectr
elat
ionshi
ptot
hecust
omerser
vicepol
i
cy.The
si
mul
taneousat
tai
nmentofhi
ghav
ail
abi
l
ity
,capabi
l
ity
,andqual
i
tyi
sexpensi
ve.The
hi
ghereachoft
heseaspect
soft
otalper
for
mance,t
hegr
eat
ert
hecostofl
ogi
sti
cal
oper
ati
ons.

Themi
ssi
onoft
hel
ogi
sti
ciani
stogett
her
ightgoodsorser
vicest
other
ightpl
ace,
att
her
ightt
ime,
andi
nthedesi
redcondi
ti
onatt
hel
owestpossi
blecost
.

1.
6THEPHYSI
CALDI
STRI
BUTI
ONOBJECTI
VE

TasksofPhy
sical
Dist
ri
but
ion

Phy
sicaldi
str
ibut
ionr
efer
stot
heact
ualphy
sicalf
low ofpr
oduct
s. I
ncont
rast
,
phy
sicaldi
str
ibut
ionmanagementi
sthedev
elopmentandoper
ati
onofpr
ocesses
r
esul
ti
ngi
ntheef
fect
iveandef
fi
cientphy
sical
flowofpr
oduct
s.
An ef
fect
ive phy
sicaldi
str
ibut
ion sy
stem i
s bui
l
tar
ound f
ivei
nter
dependent
subsy
stems:i
nvent
oryl
ocat
ion and war
ehousi
ng,mat
eri
als handl
i
ng,i
nvent
ory
cont
rol
,or
derpr
ocessi
ngandt
ranspor
tat
ion.Eachmustbecar
eful
l
ycoor
dinat
edwi
th
t
heot
her
s.
Theact
ivi
ti
escompr
isi
ngphy
sical
dist
ri
but
ionar
e:-
1.I
nvent
oryl
ocat
ionandwar
ehousi
ng
2.Mat
eri
alshandl
i
ng
3.I
nvent
orycont
rol
4.Or
derpr
ocessi
ng
5.Tr
anspor
tat
ion
Adeci
sionr
egar
dinganyoneoft
heseact
ivi
ti
esaf
fect
sal
ltheot
her
s.Locat
ionofa

8
war
ehousei
nfl
uencest
hesel
ect
ionoft
ranspor
tat
ionmet
hodsandcar
ri
ers. The
choi
ceofacar
ri
eri
nfl
uencest
heopt
imum si
zeofshi
pment
.
1.I
nvent
oryLocat
ionandWar
ehousi
ng
Thenameoft
hegamei
nphy
sicaldi
str
ibut
ioni
sinv
ent
orymanagement
. One
i
mpor
tantconsi
der
ati
oni
swar
ehousi
ng,whi
chembr
acesar
angeoff
unct
ions,such
asassembl
i
ng,
div
idi
ng(
bul
k-br
eaki
ng)
,andst
ori
ngpr
oduct
sandpr
epar
ingt
hem f
or
r
eshi
ppi
ng. Managementmustal
so consi
dert
he number
,si
ze,l
ocat
ion,and
t
ranspor
tat
ionofi
nvent
ori
es. Thesef
ourar
easar
eint
err
elat
ed.Thenumberand
l
ocat
ionsofi
nvent
orysi
tes,f
orexampl
e,i
nfl
uencei
nvent
orysi
ze,andt
ranspor
tat
ion
met
hods.

2.Mat
eri
alsHandl
i
ng

Sel
ect
ing t
he pr
oper equi
pmentt
o phy
sical
l
y handl
e pr
oduct
s,i
ncl
udi
ng t
he
war
ehouse bui
l
ding i
tsel
f,i
sthe mat
eri
als handl
i
ng subsy
stems of phy
sical
di
str
ibut
ionmanagement
.
Equi
pmentt
hati
swel
lmat
chedt
othet
askcanmi
nimi
zel
ossesf
rom br
eakage,
spoi
l
age,andt
hef
t.Ef
fi
cientequi
pmentcanr
educehandl
i
ngcost
saswel
last
ime
r
equi
redf
orhandl
i
ng.Cont
ainer
izat
ioni
sacar
go-
handl
i
ngsy
stem t
hathasbecome
st
andar
d pr
act
ice i
n phy
sicaldi
str
ibut
ion. Cont
ainer
izat
ion mi
nimi
zes phy
sical
handl
i
ngt
her
ebyr
educi
ngdamage,l
esseni
ngt
her
iskoft
hef
t,andal
l
owi
ngf
ormor
e
ef
fi
cientt
ranspor
tat
ion.
3.I
nvent
oryCont
rol
Mai
ntai
ningcont
rolov
ert
hesi
zeandcomposi
ti
on,ofi
nvent
ori
es,whi
chr
epr
esenta
si
zabl
einv
est
mentf
ormostcompani
es,i
sessent
ialt
oanyphy
sicaldi
str
ibut
ion
sy
stem.Thegoal
ofi
nvent
orycont
rol
ist
ofi
l
lcust
omer
s'or
derpr
ompt
ly,
compl
etel
y,
andaccur
atel
ywhi
l
emi
nimi
zi
ngbot
hthei
nvest
mentandf
luct
uat
ionsi
ninv
ent
ori
es.
4.Or
derPr
ocessi
ng
St
il
lanot
herpar
toft
hephy
sicaldi
str
ibut
ionsy
stem i
sasetofpr
ocedur
esf
or
r
ecei
vi
ng,
handl
i
ng,
andf
il
li
ngor
der
s.
Theor
derpr
ocessi
ngsubsy
stem shoul
dincl
udepr
ovi
sionf
orbi
l
li
ng,gr
ant
ingcr
edi
t,
pr
epar
ingi
nvoi
ces,andcol
l
ect
ingpast
-dueaccount
s.Consumeri
l
lwi
l
lresul
tsi
fa
companymakesmi
stakesori
ssl
ow i
nfi
l
li
ngor
der
s.That
'
swhymor
eandmor
e

9
compani
eshav
etur
nedt
ocomput
erst
oexecut
emostoft
hei
ror
derpr
ocessi
ng
act
ivi
ti
es.
5.Tr
anspor
tat
ion
A maj
orf
unct
ion oft
he phy
sicaldi
str
ibut
ion sy
stem i
n many compani
es i
s
t
ranspor
tat
ion-shi
ppi
ngpr
oduct
stocust
omer
s.
Tooof
ten,acompanyat
tempt
stomi
nimi
zet
hecostofonl
yoneaspectofphy
sical
di
str
ibut
ion-t
ranspor
tat
ion.Forexampl
e,managementmi
ghtbeupsetbyt
hehi
gh
costofai
rf
rei
ght
. Butt
hehi
ghercost
sofai
rf
rei
ghtmaybemor
ethanof
fsetby
sav
ingsf
rom
1.Loweri
nvent
orycost
s
2.Lessi
nsur
anceandi
nter
estcost
s
3.Lowercr
ati
ngcost
sand
4.Fewerl
i
stsal
esduet
ooutofst
ockcondi
ti
ons.
Ther
efor
e,t
hepoi
nti
snott
hatai
rf
rei
ghti
sthebestmet
hodoft
ranspor
tat
ion.Rat
her
t
hekeypoi
nti
sthatphy
sicaldi
str
ibut
ionshoul
dbev
iewedast
otalpr
ocess,wi
thal
l
t
her
elat
edcost
sbei
nganal
yzed.Managementmustdeci
deonbot
hthemodeof
t
ranspor
tat
ionandt
hepar
ti
cul
arcar
ri
ers.

3.
6St
rat
egi
cuseofPhy
sical
Dist
ri
but
ion
Thest
rat
egi
cuseofphy
sicaldi
str
ibut
ionmayenabl
eacompanyt
ost
rengt
heni
ts
compet
ingposi
ti
onbypr
ovi
dingmor
ecust
omersat
isf
act
ionand/
orbyr
educt
ion
oper
ati
ngcost
s.

Themanagementofphy
sicaldi
str
ibut
ioncanal
soaf
fectaf
ir
msmar
ket
ingmi
x
par
ti
cul
arl
ypr
oductpl
anni
ng,pr
ici
ng,anddi
str
ibut
ionchannel
s.Eachoppor
tuni
tyi
s
descr
ibedbel
ow.

a)I
mpr
ovecust
omerservi
ce
A wel
l-run l
ogi
sti
cssy
stem can i
mpr
ovet
heser
viceaf
ir
m pr
ovi
desi
ts
cust
omer
swhet
hert
heyar
emi
ddl
emenorul
ti
mat
euser
s.
Toensur
erel
i
abl
ecust
omerser
vice,managementshoul
dsetst
andar
dsof
per
for
mancef
oreachsubsy
stem ofphy
sical
dist
ri
but
ion.
b)Reducedi
str
ibut
ioncost
s

10
 Many av
enues t
o costr
educt
ions may be opened by ef
fect
ive phy
sical
di
str
ibut
ionmanagement
.Forexampl
e,el
i
minat
ingunneededwar
ehouseswi
l
l
l
owercost
s.Consol
i
dat
ingst
ocksatf
ewerl
ocat
ionsmayr
educei
nvent
ori
es
andt
hei
rat
tendantcar
ryi
ngcost
sandcapi
tal
inv
est
ment
.
c)Cr
eat
eti
meandpl
aceut
il
it
ies
St
orage,whi
chi
sapar
tofwar
ehousi
ng,cr
eat
est
imeut
il
it
y. St
oragei
s
essent
ialt
ocor
recti
mbal
ancesi
nthet
imi
ngofpr
oduct
ionandconsumpt
ion.
Tr
anspor
tat
ionaddsv
aluet
opr
oduct
sbycr
eat
ingpl
aceut
il
it
y.
d)St
abi
l
izepr
ices:
-
Car
efulmanagementofwar
ehousi
ngandt
ranspor
tat
ioncanhel
pst
abi
l
izepr
ices
f
orani
ndi
vi
dual
fir
m orf
oranent
ir
eindust
ry.I
fmar
keti
stempor
ari
l
ygl
utt
edwi
th
apr
oduct
,sel
l
erscanst
orei
tunt
ilsuppl
yanddemandcondi
ti
onsar
ebet
ter
bal
anced.

Fr
om t
hev
iewpoi
ntofl
ogi
sti
calsy
stem desi
gnandadmi
nist
rat
ion,af
ir
m must
est
abl
i
sh obj
ect
ives and cont
rolsev
eraldi
ff
erentoper
ati
onalar
eas.Formost
compani
es,t
hemai
nobj
ect
ivesofphy
sicaldi
str
ibut
ionar
edecr
easi
ngcost
sand
t
ransi
tti
mewhi
l
eincr
easi
ngcust
omerser
vice.I
nthef
oll
owi
ngpar
agr
aphst
heset
wo
mai
nobj
ect
iveswi
l
lbedi
scussed.

a)Meet
ingCust
omerSer
viceSt
andar
ds
Al
lor
gani
zat
ionsst
ri
vet
o sat
isf
ycust
omerneedsand want
sthr
ough a setof
act
ivi
ti
esknowncol
l
ect
ivel
yascust
omerser
vice.
 Thel
evelandqual
i
tyofser
vicet
hataf
ir
m'smanagementai
mst
opr
ovi
def
or
i
tscust
omer
scompr
iset
heor
gani
zat
ion'
scust
omerser
vicest
andar
ds.Many
compani
escl
aimt
hatcust
omerser
vicei
sthei
rtoppr
ior
it
y,andcl
ear
ly,
wit
hout
cust
omer
sther
ewoul
dbenosal
esorpr
ofi
ts-
ser
vicemayt
her
efor
ebeas
i
mpor
tanti
nat
tract
ingcust
omer
sandbui
l
dingsal
es,asar
ethecostand
qual
i
tyoft
heor
gani
zat
ionspr
oduct
.
 Cust
omer
srequi
reav
ari
etyofser
vices.Att
hemostbasi
clev
el,
theyneedf
air
pr
ices,accept
abl
epr
oductqual
i
ty,anddependabl
edel
i
ver
ies.I
nthephy
sical

11
 di
str
ibut
ionar
ea,av
ail
abi
l
ity
,ti
mel
i
ness,andqual
i
tyar
eimpor
tantdi
mensi
ons
ofcust
omerser
viceandf
requent
lydet
ermi
newhet
hercust
omer
sar
esat
isf
ied
wi
thasuppl
i
er.
 Cust
omer
sseeki
ngahi
gherl
evelofcust
omerser
vicemayal
sowantsi
zabl
e
i
nvent
ori
es,ef
fi
ci
entor
derpr
ocessi
ng,av
ail
abi
l
ityofemer
gencyshi
pment
s,
pr
ogr
essr
epor
ts,post
-sal
eser
vices,pr
omptr
epl
acementofdef
ect
ivei
tems,
andwar
rant
ies.
 Cust
omer
s'i
nvent
oryr
equi
rement
sinf
luencet
heexpect
edl
evelofphy
sical
di
str
ibut
ionser
vice.

Manycompani
esguar
ant
eeser
viceper
for
mancet
owi
n
 cust
omer
s-ser
vicesar
epr
ovi
dedmostef
fect
ivel
ywhenser
vicest
andar
dsar
e
dev
elopedandst
atedi
nmeasur
abl
eter
ms.

b) Reduci
ngTot
alDi
str
ibut
ionCost
s
Al
thoughphy
sical
dist
ri
but
ionmanager
str
ytomi
nimi
zet
hecost
s
 associ
atedwi
thor
derpr
ocessi
ng,
inv
ent
orymanagement
,mat
eri
alshandl
i
ng,
war
ehousi
ng,andt
ranspor
tat
ion,decr
easi
ngcost
sinonear
eaof
tenr
aises
t
hem i
n anot
herbecause phy
sicaldi
str
ibut
ion cost
sint
eractof
ten i
n an
i
nver
seway
.
 The t
otalcostappr
oach i
nvol
ves anal
yzi
ng t
he cost
s ofal
ldi
str
ibut
ion
al
ter
nat
ives,
event
hoseconsi
der
edt
ooi
mpr
act
ical
orexpense.
 Tot
alcostanal
ysesandwei
ghi
nvent
oryl
evel
sagai
nstwar
ehousi
ngexpenses,
mat
eri
alscost
sagai
nstv
ari
ousmodesoft
ranspor
tat
ion,andal
ldi
str
ibut
ion
cost
sagai
nstcust
omerser
vicest
andar
ds.I
nmanycases,
 Account
ingpr
ocedur
esandst
ati
sti
calmet
hodsar
eusedt
ofi
gur
etot
alcost
s.
Wher
e hundr
eds ofcombi
nat
ions ofdi
str
ibut
ion v
ari
abl
es ar
e possi
ble,
comput
ersi
mul
ati
onsar
ehel
pful
.

Di
str
ibut
ionmanager
smustbesensi
ti
vet
othei
ssueofcostt
rade-
off
s.Hi
ghercost
s
i
nonef
unct
ionar
eaofadi
str
ibut
ionsy
stem maybenecessar
ytoachi
evel
ower
cost
sinanot
her
.

12
Al
though managementsomet
imesov
erl
ookst
hei
mpor
tance oft
hese act
ivi
ti
es,
ef
fi
cientor
derpr
ocessi
ngf
aci
l
iti
espr
oduct
sfl
ow.
 Comput
eri
zed or
derpr
ocessi
ng pr
ovi
des a dat
abase f
oral
lsuppl
ychai
n
member
stoi
ncr
easet
hei
rpr
oduct
ivi
ty.
 When car
ri
ed outqui
ckl
yand accur
atel
y,or
derpr
ocessi
ng cont
ri
but
est
o
cust
omersat
isf
act
ion,
decr
easedcost
sandcy
clet
ime,
andi
ncr
easedpr
ofi
ts.

Or
derhandl
i
ngi
nvol
vessev
eral
tasks.
 Onceanor
deri
sent
ered,i
tist
ransmi
tt
edt
othewar
ehouse,wher
epr
oduct
av
ail
abi
l
ityi
sver
if
ied,andt
othecr
edi
tdepar
tment
,wher
epr
ices,t
erms,and
cust
omer
'scr
edi
trat
ingar
echecked.
 I
fthe cr
edi
tdepar
tmentappr
oves t
he pur
chase,war
ehouse per
sonnel
(
somet
imesassi
stedbyaut
omat
edequi
pment
)pi
ckandassembl
etheor
der
.
I
fther
equest
edpr
oducti
snoti
nst
ock,apr
oduct
ionor
deri
ssentt
othe
f
act
oryort
hecust
omeri
sof
fer
edasubst
it
ute.
 Or
derpr
ocessi
ngcanbemanualorel
ect
roni
c,dependi
ngonwhi
chmet
hod
pr
ovi
des t
he gr
eat
est speed and accur
acy wi
thi
n cost l
i
mit
s.Manual
pr
ocessi
ngsuf
fi
cesf
orsmal
lvol
umeor
der
sandi
smor
efl
exi
blei
nspeci
al
si
tuat
ions.
 El
ect
roni
cdat
aint
erchange(
EDI
)int
egr
atesor
derpr
ocessi
ngwi
thpr
oduct
ion,
i
nvent
ory
,account
ing,
andt
ranspor
tat
ion.
 EDIi
sani
nfor
mat
ionsy
stem f
ort
hesuppl
ychai
nthatl
i
nksmar
ket
ingchannel
member
sandf
aci
l
itat
ingagenci
est
oget
her
.

1.
7EVOLUTI
ONOFLOGI
STI
CSMANAGEMENT

 Logi
sti
csact
ivi
ti
esar
eamongt
hemostper
suasi
veofal
lhumanact
ivi
ti
esand
i
nvol
vemov
ementandst
orageofgoodsf
ort
hepur
poseofachi
evi
ngt
he
desi
redobj
ect
ivesofmaki
ngt
her
ightt
ypesofgoodsav
ail
abl
eatt
her
ight
t
imeandatt
her
ightpl
ace.
 Logi
sti
csmanagementi
samanager
ialr
esponsi
bil
i
tyt
odesi
gnandadmi
nist
er

13
 asy
stem t
ocont
rolt
hef
lowsofr
aw mat
eri
als,wor
k-i
n-pr
ocessandf
ini
shed
goodsi
nvent
oryt
omeett
hest
rat
egi
cobj
ect
ivesoft
heent
erpr
ise.
 Thegoalofl
ogi
sti
csi
stoachi
eveapr
e-det
ermi
nedmanuf
act
uri
ngsuppor
t
andmar
ket
ingatt
hel
owestpossi
blecost
.
 Theev
olut
ionofl
ogi
sti
csmanagementcanbeseeni
nfi
vedi
ff
erentst
agesor
phasesasf
oll
ows:

a)Phase1:
(1956-
1965)
I
nthi
sphase,
int
egr
atedl
ogi
sti
csconceptbegant
ocr
yst
all
i
zet
hrough
- dev
elopmentoft
otal
costanal
ysi
s
- t
heappl
i
cat
ionofsy
stem appr
oach
- i
ncr
easedconcer
nforcust
omerser
vices
- r
evi
sedat
tent
iont
omar
ket
ingchannel
s

b)Phase2:
(1966-
1970)
Thi
sper
iodr
epr
esent
edat
imedur
ingwhi
chabasi
cconceptofl
ogi
sti
cswast
est
ed.
I
nthi
sper
iodwi
thi
nsmal
lfi
rms,t
hei
nit
ialat
tent
ionwasgi
vent
oei
therphy
sical
di
str
ibut
ionorpur
chasi
ng.

Phy
sicaldi
str
ibut
ion was dev
eloped t
o suppor
tmar
ket
ing.Howev
er,f
ew f
ir
ms
si
mul
taneousl
yundert
ookchange i
n bot
h phy
sicaldi
str
ibut
ion and pur
chasi
ng
pr
act
iceandt
hisper
iodi
scal
l
edat
imef
orr
elev
ancy
.

c)Phase3:
(1971-
1979)
Thi
sper
iodi
scal
l
edaper
iodofchangi
ngpr
ior
it
ies.
 Thi
sti
mewasaper
iodofpr
olongeduncer
tai
ntyi
nal
ldi
mensi
onsofbusi
ness
duet
otheener
gycr
isi
sandecol
ogi
calconcer
ns.Pr
ior
it
ieschangedf
rom
ser
vingdemandt
omai
ntai
ningsuppl
i
ert
oov
ercomesuppl
i
esf
ail
uret
hathad
af
fect
edt
hisper
iod.
 Ther
efor
e,t
her
ewasar
api
dadopt
ionofmat
eri
alsmanagement
.
 Phy
sicaldi
str
ibut
ionmanagementt
hatwasor
igi
nal
l
ydev
elopedwer
eshi
ft
ed
t
o suppor
tmar
ket
ing concept
.Just
-i
n-Ti
me (
JIT)conceptand l
ong t
erm

14
 cont
ract
ual
agr
eementemer
ged.
 Thi
sper
iodr
esul
tedi
nthei
nst
it
uti
onal
i
zat
ionofl
ogi
sti
cswi
thi
ntheor
igi
nal
st
ruct
ure.

d)Phase4:
(1980-
1985)
 I
nthi
sper
iod,t
her
ewasachangei
nthear
eaofpol
i
tical
,technol
ogi
caland
communi
cat
ional
.

e)Phase5:
(1986upt
omost
)
 St
rat
egi
cmanagementconcepti
semphasi
zed.
 I
ntegr
atedl
ogi
sti
cmanagementi
sessent
ial
fort
hef
oll
owi
ngr
easons;
i
. Becuseoft
hei
nter
dependencebet
weenal
ll
ogi
sti
cal
oper
ati
ons.
i
i
. A nar
row orr
est
ri
ctedappr
oachcr
eat
esapot
ent
ialf
orady
sfunct
ional
i
nter
face(
conf
li
cti
nter
est
s)amongdi
ff
erentpar
ti
es.
i
i
i. Cont
rol
requi
rement
sforeachoper
ati
on.
i
v. Ani
ncr
easi
ngawar
enessofi
ntegr
atedl
ogi
sti
csmanagementt
hatmany
t
rade-
off
s exi
st bet
ween manuf
act
uri
ng economi
es and mar
ket
ing
r
equi
rement
scanber
econci
l
edbyawel
l
-desi
gnedl
ogi
sti
cal
syst
em.
v
. Thecompl
exi
tyofcont
empor
aryl
ogi
sti
csr
equi
rei
nnov
ati
onalsol
uti
ons
andt
hechal
l
engef
orcompany
'snowi
stodev
elopnewwayofsat
isf
ying
l
ogi
sti
cal
requi
rement
s.

1.
8LOGI
STI
CS'
PLACEI
NTHEFI
RM

 Toseet
her
elat
ionshi
pbet
weenphy
sicaldi
str
ibut
ionandot
herf
unct
ional
ar
eas,
iti
sbet
tert
oper
cei
vef
ir
stf
rom t
hel
ogi
sti
csper
spect
ive.
 I
nor
dert
ooper
atet
hel
ogi
sti
csf
unct
ionsi
namor
emeani
ngf
ulway
s,i
tis
i
mpor
tantt
oseei
t'
sfunct
ionssepar
atel
yfr
om manuf
act
uri
ngandmar
ket
ing.
 Logi
sti
csoccupi
esast
rat
egi
cor
gani
zat
ionalposi
ti
onbet
weenpr
oduct
ionand
mar
ket
ing.Becauseoft
his,and becausei
tisnotpossi
blet
o di
vi
det
he
act
ivi
ti
esoft
hef
ir
m wi
thoutsomeov
erl
apofr
esponsi
bil
i
tyf
oratl
eastsome
oft
heact
ivi
ti
es,
int
erf
aceact
ivi
ti
esar
ecr
eat
ed.Thesear
eact
ivi
ti
est
hatmust

15
 bej
oint
lymanagedbyt
woormor
efunct
ionalar
eas.Thel
ogi
sti
cianmustdeal
wi
tht
hese"
bet
weenpr
oduct
ionandmar
ket
ing"ar
eas.

Sampl
epr
imar
yandi
nter
faceact
ivi
ti
esofpr
oduct
ion,mar
ket
ingandl
ogi
sti
csar
e
pr
esent
edasf
oll
ows.

PRODUCTI
ON
Sampl
eact
ivi
ti
es
- Qual
i
tycont
rol
- Det
ail
edpl
antl
oadi
ng
- I
n-pl
antmat
eri
alshandl
i
ng
- Equi
pmentmai
ntenance
MARKETI
NG
Sampl
eact
ivi
ti
es
- Pr
omot
ion
- Mar
ketr
esear
ch
- Pr
oductmi
x
- Sal
esf
orcemanagement
LOGI
STI
CS
Sampl
eact
ivi
ti
es
- Tr
anspor
tat
ion
- I
nvent
orymai
ntenance
- Or
derpr
ocessi
ng
- War
ehousi
ng
- Mat
eri
alshandl
i
ng
PRODUCTI
ON-
LOGI
STI
CSI
NTERFACE
- Pr
oductschedul
i
ng
- Pl
antl
ocat
ion
- Pur
chasi
ng
MARKETI
NG-
LOGI
STI
CSI
NTERFACE
- Cust
omerser
vicest
andar
ds

16
 - Pr
ici
ng
- Packagi
ng
- Ret
ail
locat
ion

 Thepr
imar
yresponsi
bil
i
tyofmar
ket
ingi
stogener
ater
evenuef
ort
hef
ir
m.
Thi
sisdonet
hroughv
ari
ouspr
omot
ionalmeans(
adv
ert
isi
ng,pr
icei
ncent
ive,
et
c),
productof
fer
ings,
andmar
ketr
esear
ch.
 Pr
oduct
ioni
smai
nlyconcer
nedwi
tht
hef
ormat
ionoft
hepr
oductorser
vice
and t
hecont
rolofi
tsout
goi
ng qual
i
tywhi
l
emi
nimi
zi
ng t
heuni
tcostof
f
ormat
ion.Toachi
evet
his,
 Pr
oduct
ionhast
her
esponsi
bil
i
ty;
 Forpr
oduct
ionsy
stem st
aff
ing,
 Capaci
typl
anni
ng
 Qual
i
tycont
rol
andpr
ocessschedul
i
ng.
 Becausel
ogi
sti
cshast
her
esponsi
bil
i
t orpr
yf oductmovementandst
orage,
t
hent
ranspor
tat
ion,
invent
orymai
ntenance,
orderpr
ocessi
ng,
war
ehousi
ng,
mat
eri
alshandl
i
ngshoul
dbeofpr
imeconcer
n.
 Act
ivi
ti
essuchaspr
ici
ngorpackagi
ngshoul
dbej
oint
lymanagedbyl
ogi
sti
cs
andmar
ket
ing.
 Pr
ici
nghasbot
hageogr
aphi
calandcompet
it
ivecomponent
s.Pur
chasi
ngand
pr
oductschedul
i
ngar
eexampl
esofi
nter
faceact
ivi
ti
esbet
weenl
ogi
sti
csand
pr
oduct
ion.
 Pr
oduct
ionmustacqui
regoodsatanaccept
abl
ecostandqual
i
tywher
eas
l
ogi
sti
csi
sconcer
nedwi
tht
hel
ocat
ionofsour
cesofsuppl
yandt
het
imi
ngof
t
hesesuppl
i
es.Pur
chasi
ngmakest
hesedeci
sions.Pr
oductschedul
i
ngi
sa
si
mil
aract
ivi
ty.Pr
oduct
ion i
sint
erest
ed i
nthe sequence and l
engt
h of
pr
oduct
ionr
unst
hatcanbemade,wher
easl
ogi
sti
csi
sagai
nconcer
nedwi
th
t
imi
ngandl
ocat
ionofpr
oduct
ion.Tr
adi
ti
onaladmi
nist
rat
ivear
rangement
s
gr
oupact
ivi
ti
esundersev
eralf
unct
ionalt
it
les,t
husr
equi
ri
ngcr
oss-
funct
ional
coor
dinat
ionf
oranumberofi
mpor
tantl
ogi
sti
csact
ivi
ti
es.

17
1.
9⁶SUMMARY

- Logi
sti
csmanagementi
ncl
udesbot
hphy
sicalsuppl
yandphy
sicaldi
str
ibut
ion.
Phy
sicalsuppl
yref
erst
othose act
ivi
ti
esi
nvol
vi
ng t
he i
nbound f
low ofr
aw
mat
eri
alsandpar
ts.Phy
sicaldi
str
ibut
ioni
sthatpar
tofl
ogi
sti
cs,
whi
chdeal
swi
th
out
boundf
lowoff
ini
shedpr
oduct
s.

- Phy
sicaldi
str
ibut
ioni
sbasi
cal
l
yadi
str
ibut
ionact
ivi
tyofphy
sicali
tems.Thebest
phy
sicaldi
str
ibut
ionsy
stem gi
vesust
hel
owestcost
.Thet
radi
ti
onphy
sical
di
str
ibut
ionsy
stem st
art
sfr
om pl
ant
s,andemphasesonhow t
odi
str
ibut
efr
om
pl
ant
s.Themoder
nphy
sicaldi
str
ibut
ionsy
stem,ot
her
wiseknownasmar
ket
ing
l
ogi
sti
cs,
star
tsf
rom t
hemar
ketpl
ace,
thent
ofact
oryt
osat
isf
ycust
omer
s.

- Phy
sicaldi
str
ibut
ioni
sani
mpor
tantel
ementi
namar
ket
ingst
rat
egybecausei
t
can decr
ease cost
s and i
ncr
ease cust
omer sat
isf
act
ion. Consequent
ly,
compani
esar
epl
aci
nggr
eat
eremphasi
sonphy
sical
dist
ri
but
ion.

- The l
ogi
sti
calmi
ssi
on ofan ent
erpr
ise i
sto dev
elop a sy
stem t
hatmeet
s
obj
ect
ivesatt
hel
owestpossi
blecost
.Manycompani
esst
atet
hei
rphy
sical
di
str
ibut
ionobj
ect
iveasget
ti
ngt
her
ightgoods,
tot
her
ightpl
ace,
att
her
ightt
ime
andt
othel
eastcost
.Howev
erandunf
ort
unat
ely
,nophy
sicaldi
str
ibut
ionsy
stem
cansi
mul
taneousl
ymaxi
mizecust
omerser
viceandmi
nimi
zedi
str
ibut
ioncost
.
So,gi
vent
hev
ari
ousphy
sicaldi
str
ibut
ionact
ivi
ti
es,st
rongt
radeof
fdeci
sion
mustbemadeonat
otal
syst
em basi
s.

- Theev
olut
ionofphy
sicaldi
str
ibut
ioni
nvol
vesf
ivest
agesorphases.Eachphase
i
schar
act
eri
zedbyi
tsownt
ypi
calf
eat
ures.Thel
astphasewhi
chi
ssai
dtobe
moder
n,emphasi
zest
rat
egi
cmanagementconcept
.

- Logi
sti
csoccupi
esst
rat
egi
cor
gani
zat
ionalposi
ti
on.Thi
sissobecausel
ogi
sti
cs
shar
esomej
ointr
esponsi
bil
i
tywi
thbot
hpr
oduct
ionandmar
ket
ing.I
not
her
wor
ds,t
her
e ar
e pr
oduct
ion l
ogi
sti
cs and mar
ket
ing l
ogi
sti
cs act
ivi
ti
es.
Pr
oduct
ionl
ogi
sti
csact
ivi
ti
esar
ethoseact
ivi
ti
es,
whi
chmustbej
oint
lymanaged

18
 bybot
h pr
oduct
ion and l
ogi
sti
cs.These act
ivi
ti
es i
ncl
ude pur
chasi
ng,pl
ant
l
ocat
ionandpr
oductschedul
i
ng.Mar
ket
ing-
logi
sti
csact
ivi
ti
esar
eact
ivi
ti
eswhi
ch
shoul
dbemanagedbymar
ket
ingandl
ogi
sti
cs.Packagi
ng,cust
omerser
vice,
pr
ici
ngandr
etai
ll
ocat
ionar
eexampl
esofmar
ket
ingl
ogi
sti
csact
ivi
ti
es.

Uni
t2:
managementofphy
sical
dist
ri
but
ion
2.
1INTRODUCTI
ON

The managementofphy
sicaldi
str
ibut
ion pr
ovi
des an exci
ti
ng oppor
tuni
tyf
or
i
mpr
ovi
ngcust
omerser
vicesandr
educi
ngcost
s.Formanyent
erpr
ises,t
hephy
sical
di
str
ibut
ion f
unct
ion of
ten det
ermi
nes how wel
lchannel
s per
for
m t
o sat
isf
y
cust
omer
sthr
oughpr
oductav
ail
abi
l
ity
.
Ef
fi
cientdi
str
ibut
ioncani
ncr
easepr
ofi
tabi
l
itybyi
ncr
easi
ngsal
esandr
educi
ngcost
s.
Thei
mpactt
hatphysi
caldi
str
ibut
ionmanagementcanhaveonpr
ofi
tsi
sincr
easi
ng
r
ecogni
zed i
n compani
es wher
e maj
orbenef
it
s ar
e obt
ained by managi
ng an
i
ntegr
atedsyst
em ofact
ivi
ti
esf
orsat
isf
yingcust
omer
satef
fi
cientcostl
evel
s.

Maj
oract
ivi
ti
est
hatar
enor
mal
l
ygr
oupedt
oget
heri
nani
ntegr
atedappr
oacht
o
phy
sicaldi
str
ibut
ionmanagementar
etr
anspor
tat
ion,i
nvent
ory
,war
ehousi
ngand
or
derpr
ocessi
ng.Each act
ivi
tywi
thi
ts manyspeci
fi
cfunct
ions r
epr
esent
s an
i
mpor
tantmanagementt
ask,anddeci
sionsabouti
tmustbeco-
ordi
nat
edwi
thal
l
ot
herdi
str
ibut
iondeci
si
ons.

2.
2PHYSI
CALDI
STRI
BUTI
ONACTI
VITI
ES

2.
2.1Pr
imar
yAct
ivi
ti
es
Theseact
ivi
ti
esar
eofpr
imar
yimpor
tancei
nachi
evi
ngcostandser
viceobj
ect
iveof
l
ogi
sti
cs.Tr
anspor
tat
ion,i
nvent
orymai
ntenanceandor
derpr
ocessi
ngar
epr
imar
y
l
ogi
sti
csact
ivi
ti
es.Theseact
ivi
ti
esar
econsi
der
edpr
imar
ytoef
fect
ivemanagement
ofl
ogi
sti
csbecauset
heyei
thercont
ri
but
emostt
othet
otalcostofl
ogi
sti
csort
hey
ar
eessent
ial
toef
fect
ivecoor
dinat
ionandcompl
eti
onoft
hel
ogi
sti
ctask.

19
TRANSPORTATI
ON
Formostf
ir
ms,
transpor
tat
ioni
sthemosti
mpor
tantl
ogi
sti
csact
ivi
tysi
mpl
ybecause
i
tabsor
bs,onav
erage,appr
oxi
mat
elyone-
thi
rdt
otwo-
thi
rdofl
ogi
sti
cscost
s.I
tis
essent
ial
,becausenomoder
nfi
rm canoper
atewi
thoutpr
ovi
dingf
ort
hemov
ement
ofi
tsr
awmat
eri
alsand/
orf
ini
shedpr
oduct
sinsomeway
.
Thi
sessent
ialnat
urei
sal
way
sunder
scor
edbyf
inanci
alst
rai
nspl
acedonmany
f
ir
mswhenf
rei
ghtcosti
ncr
easesf
oroneorot
herr
easons.

"
Transpor
tat
ion"r
efer
stot
hev
ari
ousmet
hodsf
ormov
inggoods.Tr
anspor
tat
ion
choi
cewi
l
laf
fectt
hepr
ici
ngofpr
oduct
s,ont
imedel
i
ver
yper
for
manceandt
he
condi
ti
onofgoodswhent
heyar
ri
ve,al
lofwhi
chwi
l
laf
fectcust
omersat
isf
act
ion.
Managementoft
ranspor
tat
ionact
ivi
tyi
nvol
vest
hemaki
ngofchoi
cesr
egar
dingt
he
met
hodofshi
pment
,ther
out
ings,
andt
heut
il
izat
ionofv
ehi
clecapaci
ty.

ModesofTr
anspor
tat
ion
Thev
ari
ousmodesoft
ranspor
tat
ioni
ncl
udeRai
l
,Tr
uck,Ai
r,Pi
pel
i
ne,andWat
er.I
n
t
hesubsequentpar
agr
aphst
hesedi
ff
erentmodesoft
ranspor
tat
ionwi
l
lbedi
scussed.

i
) Rai
l
Rai
l
roadsar
eoneoft
hemostcost
-ef
fect
ivemodesf
orshi
ppi
ngcar
loadquant
it
iesof
bul
kpr
oduct
s–coal
,sand,mi
ner
als,f
arm andf
orest
spr
oduct
s–ov
erl
ongl
and
di
stances.Ther
atecost
sforshi
ppi
ngmer
chandi
zear
equi
etcompl
ex.Thel
owest
r
ate comes f
rom shi
ppi
ng car
load r
athert
han l
ess t
han car
load quant
it
ies.
Manuf
act
urer
swi
l
lat
temptt
ocombi
neshi
pment
stocommondi
stancest
otake
adv
ant
ageofl
owercar
loadr
ates.

i
i
) Tr
uck/
Highway
s–Al
soKnownasMot
orCar
ri
ers
Mot
orcar
ri
ersaccountf
oral
argepor
ti
onofi
ntr
aci
ty(
wit
hinci
ti
es)asopposedi
nter
ci
tyt
ranspor
tat
ion.Theyar
ehi
ghl
yfl
exi
blei
nthei
rrout
ing and t
imeschedul
es.
Regar
dingcostt
heyar
ecompet
it
ivewi
thr
ailshi
pmentandt
heyusual
l
yof
ferf
ast
er
ser
vice.

i
i
i)Wat
er

20
Asubst
ant
ialamountofgoodsmov
ebyshi
psandbar
gesoncoast
alandi
nland
wat
erway
s.Wat
ert
ranspor
tat
ioni
sver
ylowi
ncostf
orshi
ppi
ngbul
ky,
lowv
alue,
non
-
per
ishabl
epr
oduct
ssuchassand,coal
,gr
ain,oi
l
,andmet
all
i
cor
es.Ont
heot
her
hand,wat
ert
ranspor
tat
ioni
sthel
owestcostt
ranspor
tat
ionmodeandi
sdependent
oncl
i
mat
iccondi
ti
ons.

Themaj
orcapi
tali
nvest
mentawat
ermakesi
sint
ranspor
tequi
pment
,andt
osome
ext
ent
,int
ermi
nal
faci
l
iti
es.Wat
erway
sandhar
bor
sar
epubl
i
clyownedandoper
ated.
Ter
minalcost
sincl
udet
hehar
borf
eesast
hecar
ri
erent
ersaseapor
t,andt
hecost
s
ofl
oadi
ngandunl
oadi
ngcar
go.Loadi
ng–unl
oadi
ngt
imesar
epar
ti
cul
arl
ysl
owf
or
wat
ercar
ri
ers,and hi
gh t
ermi
nalcostar
e al
mostpr
ohi
bit
ivef
oral
lbutbul
k
commodi
ti
esf
orwhi
ch mer
chandi
zed mat
eri
al-
handl
i
ng equi
pmentcan beused
ef
fect
ivel
y.

i
v)Pi
pel
i
ne
Pi
pel
i
nesar
easpeci
ali
zedmeansofshi
ppi
ngpet
rol
eum,coal
,andchemi
cal
sfr
om
sour
cest
o mar
ket
s.Pi
pel
i
neshi
pmentofpet
rol
eum i
slessexpensi
vet
hanr
ail
shi
pment
sal
thoughmor
eexpensi
vet
hanwat
erwayshi
pment
.Mostpi
pel
i
nesar
e
usedbyt
hei
rowner
stoshi
pthei
rownpr
oduct
,al
thought
heyar
etechni
cal
l
yav
ail
abl
e
f
orusebyashi
pper
.

v)Ai
r
Ai
rcar
ri
erst
ranspor
tsmal
lper
cent
ageoft
henat
ion'
sgoodsbutar
ebecomi
ngmor
e
i
mpor
tantasat
ranspor
tat
ionmode.Al
thoughai
rf
rei
ghtr
atesar
econsi
der
abl
yhi
gher
t
hanr
ailort
ruckf
rei
ghtr
ates,ai
rfr
eighti
sidealwher
espeedi
sessent
ialand/
or
di
stantmar
ket
s hav
eto be r
eached.Among t
he mostf
requent
lyai
rfr
eight
ed
pr
oduct
sar
eper
ishabl
e(e.
g.,t
echni
cali
nst
rument
s,j
ewel
ry)
.Compani
esf
indt
hat
ai
rf
rei
ghtr
educest
hei
rrequi
redi
nvent
oryl
evel
s,numberofwar
ehouses,
andcost
sof
packagi
ng.

Thef
oll
owi
ngt
abl
esummar
izesadv
ant
agesanddi
sadv
ant
agesoft
hef
ivemodesof
t
ranspor
tat
ionav
ail
abl
e.

21
Mode Rel
ati
veAdv
ant
age Rel
ati
veDi
sadv
ant
ages
Rai
l - Ful
lcapaci
ty - Some r
eli
abi
l
ity
, damage
- Ext
ensi
ver
out
es pr
obl
ems
- Lowcost - Notal
way
s compl
ete pi
ckup
anddel
i
ver
y
- Somet
imessl
ow
Tr
uck - Compl
ete pi
ckup and - Si
zeandwei
ghtr
est
ri
cti
ons
del
i
ver
y - Hi
ghercost
- Ext
ensi
ver
out
es - Mor
eweat
hersensi
ti
ve
- Fai
rl
yfast
Ai
r - Fast - Hi
ghcost
- Lowdamage - Li
mit
edcapabi
l
ity
- Fr
equentdepar
tur
e
Pi
pel
i
ne - Lowcost - Li
mit
edr
out
es(
accessi
bil
i
ty)
- Ver
yrel
i
abl
e - Sl
ow
Wat
er - Lowcost - Sl
ow
- Hugecapaci
ti
es - Li
mit
edr
out
esandschedul
es
- Mor
eweat
hersensi
ti
ve

Cr
it
eriaForSel
ect
ingTr
anspor
tat
ionModes
Marketer
s sel
ecta tr
anspor
tat
ion mode based on cost
,speed,dependabi
l
ity
,
f
lex
ibi
l
ity
,accessi
bil
i
tyandf
requency
.

Cost
:Mar
ket
erscompar
eal
ter
nat
ivet
ranspor
tat
ionmodest
odet
ermi
newhet
her
benef
it
sfr
om amor
eexpensi
vemodear
ewor
thhi
ghercost
.Whenspeedi
sless
i
mpor
tantmar
ket
erspr
eferl
owercost
s.
Speed:I
tismeasur
ed byt
het
otalt
imeacar
ri
erhaspossessi
onofgoods;
i
ncl
udi
ng t
het
imer
equi
red t
o pi
ckup and del
i
ver
y,handl
i
ng and mov
ement
bet
weenpoi
ntsofor
igi
nanddest
inat
ion.
Dependabi
l
ity:Dependabi
l
ityofa t
ranspor
tat
ion mode i
s det
ermi
ned byt
he

22
 consi
stencyofser
vicepr
ovi
ded.Mar
ket
ersmustbeabl
etocountoncar
ri
erst
o
del
i
vergoods on t
ime and i
n an accept
abl
e condi
ti
on.Al
ong wi
th speed,
dependabi
l
ityaf
fect
samar
ket
er'
sinv
ent
orycost
s,i
ncl
udi
ng sal
esl
ostwhen
mer
chandi
sei
snotav
ail
abl
e.
LoadFl
exi
bil
i
ty:I
tist
hedegr
eet
owhi
chat
ranspor
tat
ionmodecanpr
ovi
de
appr
opr
iat
eequi
pmentandcondi
ti
onsf
ormov
ingspeci
fi
cki
ndofgoodsandcan
beadopt
edf
ormov
ingot
herpr
oduct
s.Manypr
oduct
smustbeshi
ppedunder
cont
rol
l
ed humi
dit
y.Ot
herpr
oduct
ssuchasl
i
qui
dsorgasesr
equi
respeci
al
equi
pmentorf
aci
l
iti
esf
orshi
pment
.
Accessi
bil
i
ty:Acar
ri
er'
sabi
l
ityt
omov
egoodsov
eraspeci
fi
crout
eornet
wor
k
(
rai
ll
ines,
wat
erway
s,ort
ruckr
oads)i
sit
saccessi
bil
i
ty.
Fr
equency:I
tis how of
ten a company can send shi
pment
s by speci
fi
c
t
ranspor
tat
ionmode.Whenusi
ngpi
pel
i
nesshi
pment
scanbecont
inuous.

I
nchoosi
ngat
ranspor
tat
ionmodef
orapar
ti
cul
arpr
oduct
,shi
pper
sconsi
dersuch
cr
it
eri
aasspeed,f
requency
.Ift
hegoali
slow cost
,thenwat
erandpi
pel
i
nesar
e
pr
imecont
ender
s.Tr
ucksst
andhi
ghonmostoft
hecr
it
eri
a,andt
hisaccount
sfor
t
hei
rgr
owi
ngshar
e.

Shi
pper
sar
eincr
easi
ngl
ycombi
ningt
woormor
etr
anspor
tat
ionmodes,t
hankst
o
cont
ainer
izat
ion.Cont
ainer
izat
ionconsi
stsofput
ti
ngt
hegoodsi
nboxesort
rai
l
ers
t
hatar
eeasyt
otr
ansf
erbet
weent
wot
ranspor
tat
ionmodes.PI
GGYBACKdescr
ibes
t
heuseofr
ailandt
rucks;FI
SHYBACK,wat
erandt
rucks;TRI
ANSHI
P,wat
erandr
ail
;
andAI
R TRUCK,ai
randt
rucks.Eachcoor
dinat
edmodeoft
ranspor
tat
ionof
fer
s
speci
fi
cadv
ant
agest
otheshi
pper
.Forexampl
e,pi
ggy
backi
scheapert
hant
rucki
ng
al
oneandy
etpr
ovi
desf
lexi
bil
i
tyandconv
eni
ence.

I
nchoosi
ngt
ranspor
tat
ionmodes,
shi
pper
scandeci
debet
weenpr
ivat
e,cont
ractand
commoncar
ri
ers.I
ftheshi
pperownsi
tsownt
ruckorai
rfl
eet
,theshi
pperbecomesa
pr
ivat
e car
ri
er. A cont
ract car
ri
er i
s an i
ndependent or
gani
zat
ion sel
l
ing
t
ranspor
tat
ionser
vicet
oot
her
sonacont
ractbasi
s.A commoncar
ri
erpr
ovi
des
ser
vicesbet
weenpr
edet
ermi
nedpoi
ntsonaschedul
ebasi
sandi
sav
ail
abl
etoal
l

23
shi
pper
satst
andar
drat
es.

Tr
anspor
tat
iondeci
si
onsmustconsi
dert
hecompl
ext
radeof
fsbet
weenv
ari
ous
t
ranspor
tat
ionmodesandt
hei
rimpl
i
cat
ionsf
orot
herdi
str
ibut
ionel
ement
ssuchas
war
ehousi
ngandi
nvent
ory
.Ast
her
elat
ivecost
sofdi
ff
erentt
ranspor
tat
ionmodes
changeov
ert
ime,
compani
esneedt
oreanal
yzet
hei
ropt
ionsi
nthesear
chf
oropt
imal
phy
sical
dist
ri
but
ionar
rangement
s.

Ev
aluat
ingMode/Car
ri
erPer
formance
Among the cr
it
eri
at hatare of
ten used i
n measur
ing and cont
rol
l
ing car
ri
er
per
for
mancear
espeedofser
vice,
sizeofor
dershi
pped,
ont
imedel
i
ver
y,t
ransi
tti
me
v
ari
abi
l
ityanddamage.I
naddi
ti
ont
oday
-to-
dayev
aluat
ionoft
ranspor
tat
ionser
vices,
aper
iodi
caudi
tisneededi
npl
anni
ng,
impl
ement
ing,
andcont
rol
l
ingat
ranspor
tat
ion
sy
stem. A t
ranspor
tat
ion sy
stem audi
tis a compr
ehensi
ve ev
aluat
ion of
t
ranspor
tat
ion'
sobj
ect
ives,oper
ati
ons,andper
for
mance.I
tisusef
uli
nident
if
ying
per
for
mance st
andar
ds,i
n measur
ing cost and ser
vice component
s,and i
n
dev
elopi
ng pr
ocedur
es f
ormanagi
ng t
he t
ranspor
tat
ion net
wor
k.Char
act
eri
sti
cs
r
elat
ed t
othedi
str
ibut
ion oft
hepr
oduct
,cust
omer
'sser
vicer
equi
rement
s,and
geogr
aphi
cconsi
der
ati
onsshoul
dbei
dent
if
iedandassessed.

Next
,tr
anspor
tat
ionsmodalal
ter
nat
ives,i
ncl
udi
ngi
ntermodalcombi
nat
ions(
truck
pl
usr
ail
),shoul
dbeexami
ned.Thi
sisf
oll
owedbyconsi
der
ati
onoft
her
elat
ionshi
pof
t
ranspor
tat
iont
ophy
sicaldi
str
ibut
ion.Fi
nal
l
y,speci
fi
ccar
ri
ersar
eev
aluat
ed.The
f
requencyoft
ranspor
tat
ionsy
stem ev
aluat
ionandt
hesel
ect
ionofcr
it
eri
aforsuch
ev
aluat
ionshoul
dbedet
ermi
nedaspar
toft
hesy
stem audi
t.

24
I
NVENTORYMAI
NTENANCE
I
nvent
oryr
efer
stoast
ockofi
temskepti
nthest
oret
hati
smeantf
orf
utur
euse.I
tis
usual
l
ynotpossi
bleorpr
act
icalt
opr
ovi
dei
nst
antpr
oduct
ionori
nst
antdel
i
ver
yto
cust
omer
s.I
n or
der t
o achi
evear
easonabl
e degr
ee of pr
oductav
ail
abi
l
ity
,
i
nvent
ori
esneedt
obemai
ntai
nedasbuf
fer
sbet
weensuppl
yanddemand.The
ext
ensi
veuseofi
nvent
ori
esr
esul
tsi
nthef
actt
hat
,ont
heav
erage,t
heyaccountf
or
appr
oxi
mat
ely one-
thi
rd t
o t
wo-
thi
rds of l
ogi
sti
cs cost
s, maki
ng i
nvent
ory
mai
ntenanceakeyl
ogi
sti
csact
ivi
ty.

Wher
east
ranspor
tat
ionadds"
place"v
aluet
oapr
oduct
,inv
ent
ori
esadd"
ti
me"v
alue.
I
nor
dert
ocr
eat
ethi
sti
mev
alue,i
nvent
ori
esar
epl
acedcl
oset
ocust
omer
sorcl
ose
t
omanuf
act
uri
ngpoi
nts.Theof
tenl
argenumberofsuchst
ocki
ngpoi
ntsandt
he
hi
ghcost
sforcar
ryi
ngt
hepr
oduct
sinst
orage,t
ypi
cal
l
y25t
o30per
centoft
he
pr
oduct
s'v
aluepery
ear
,requi
recl
osemanagement
.Themanagementofi
nvent
ori
es
i
nvol
veskeepi
ngst
ockl
evel
sasl
owaspossi
blewhi
l
epr
ovi
dingt
hedesi
redl
evelof
st
ockav
ail
abi
l
ityf
orcust
omer
s.