As stated earlier the task of Logistics or physical distribution is very crucial and challenging. When the marketing operations are spread over in the large area, having vast geographical distances, the company has to take a number of important decisions for the efficient, effective, smooth, and economical flow of goods from centres of production to centres of consumption.
Logistics or Physical Distribution Decisions in Marketing
The management of physical distribution is very crucial in marketing.
The firm has to take some important decisions in this regard. The firm has to take the following important decisions:
- Determination of distribution hub.
- Inventory Control System.
- Material Handling System.
- Procedure to Process Orders.
- Route Planning and Transportation Decisions.
The details of these decisions are under:
1. Determination of Distribution Hub
Distribution hub may be described as those centres, where the firm stores a large quantity of its product mix. Distribution hub caters the supply of a firm’s products at various selling points.
If the market potential or size of the market is small the firm’s setup single distribution hub for two or more market segments.
In the beginning, centralised distribution Centre may be set up but with the expansion of the market, decentralized distribution centres may be set up.
Warehouses may be constructed by the company or can be taken on rental basis for the storage of products.
The firm should give proper attention to the inner layout of the warehouses, in order to take full advantage of the available floor space. The management should select distribution hub very carefully.
The company has to pay a heavy price, in the case of wrong selection of distribution hub, because the setting of these centres is capital intensive. Shifting from one place to another is costly and time-consuming.
The following “Four Cs” formula may care useful in the setting of distribution hub.
The distribution hub should be established in such a manner, so the distribution cost may be reduced.
The price of land, construction cost and other overheads should also be taken into consideration. Cost-effective Centres should be given preference.
Those places should be given preference, having Road, rail, sea and air connectivity with maximum selling points.
By better connectivity, the firm will be able to improve its maximum market coverage.
Distribution hub should be established in such a manner, so the firm can effectively control its marketing of operations.
For getting success cooperation of middleman or channel members is important.
These Centres should be set up in such a way, so channel members can supply their orders at the right time.
2. Inventory Control System
Next Important logistics or physical distribution decision is about inventory control system. At the specified distribution hubs, the firm stores its goods and products.
It is very important to decide that in which quantities the different products should be stored in different distribution hubs.
The firm has to take the decision regarding the minimum level of inventory of different products, which will be kept at every time.
Following factors play their important role in the determination of composition and quantities of different products at distribution hubs:
1. Service Standard
Service standard indicates that what proportion of orders received from the customers should be sent from existing stock at distribution hubs.
If the management decided to keep a high service standard, then it has to store greater quantities of different products.
2. Usage Rate
Usage rate is the frequency of buying of company’s products by the customers.
If the customers buy products in small quantities, with short term intervals then the firm has to keep large stocks at distribution points.
3. Order Lead Time
Order lead time is the time period gap of getting the product from production Centre, after giving the order in this regard.
Thus, it is a time gap between order and getting supply from production Centre.
Lesser the order Lead time means lesser requirements of strokes at the distribution hub. More order Lead time will require most stock at the distribution hub.
Inventory level is also related to costs involved at different Quantum. It should be calculated well, that at different inventory levels what will be the composition of costs, such as fixed costs, variable costs, insurance premium, transportation costs, cost of the order, and depreciation rate.
This is because inventory represents a sizeable investment. The impact of “just in time” technique should also be calculated. The inventory level may be reduced substantially by using this technique.
On the basis of usage rate, the goods may be supplied from centres of production to distribution centres by using fast Modes of transport.
3. Material Handling System
The material handling system is an important part of Logistics or physical distribution decisions.
It involves the handling of goods or products from a production centre or plant to warehouses of distribution Hubs and warehouses to the places of loading for the transportation to consumption centres.
The objectives of the material handling system should be quick movement of products, efficient and effective services to customers and middleman, effective check on damages to Products lying in the warehouse and in the process of transportation
Material handling system should prevent irrelevant movement of inventories and facilitate quick and smooth dispatch of goods to the middleman.
Material handling system may be broadly classified into the following three types:
1. Manual Handling
Manual material handling system involves the use of man and animal power for the movement of handling of goods.
2. Mechanised Handling
Under the mechanized material handling system, power-driven machines and equipment are used by trained technical staff for the movement or handling of goods or products.
These machines and equipment include lights stacks, side loaders, wall cranes, falk lift trucks etc.
3. Automatic Handling
Automatic material handling is fully computer-guided system operated by the central control room.
As per instructions of the computer the goods or material is handled by automatic machines. This system of material handling requires a huge investment of capital.
4. Procedure to Process Orders
Another important decision regarding Logistics or physical distribution is to decide the procedure to process orders from a middleman or channel members.
Process of Orders can be made smooth and fast if required information is handy with decision-making authority. These of information are:
- Balance stock of product at the distribution hub.
- Stock position at the middle man.
- The present demand for the product in the different markets of the firm.
- Due position of payments of middlemen.
- Past record of the middleman.
Computerized system to process the orders may be very helpful. The company may link its computer network with its channel members.
Channel members can instal suitable software, so whenever, the stock is at an alarming level, the online order may be given to the distribution hub of the company.
Distribution hub after receiving order can send required goods by prompt Processing of order.
The marketing company can build up a good image by fast processing of Orders and prompt deliveries to middlemen and can get their full cooperation.
5. Route Planning and Transportation Decisions
The marketing company should do enough homework to identify the shortest and effective route from the distribution hub to various selling points. Effective route planning can save enormous transportation cost.
The routes selected should cover maximum places to minimise distribution cost.
A marketing company may use its own distribution fleet or may use the services of public carriers.
Choice of middlemen and market situation should also be taken into consideration while selecting the route and mode of transportation.
Thus, now we know the Important Logistics or Physical Distribution Decisions in Marketing.