1. The Nature and Scope of Physical Distribution
Chapter 22.1 Lecture Notes

2. Physical distribution
Physical distribution takes place when a company decides upon the channels of distribution to get their products to the consumer

3. Physical distribution
Physical Distribution – comprises all the activities that help to ensure that the right amount of product is delivered to the right place at the right time. (Also known as logistics)

4. Logistics
Involves order processing, transporting, storing, stock handling, and inventory control
Involves moving products quickly with minimal handling to reduce costs ands maximize customer satisfaction

5. Logistics
Businesses continually strive to make physical distribution as efficient and cost effective as possible. (PHYSICAL distribution is the third largest expense for most businesses)

6. Transportation
Transportation – is the marketing function of moving products from a seller to a buyer.
Five major transportation Forms:
Motor carriers
Railroads
Waterways
Pipelines
Air carriers

7. Motor Carriers Trucking – most frequently used form of transportation
Intracity shipping is almost exclusively done by trucking. Most trucking is done intracity – within a city
Only 26% of intercity (between cities) is done by trucking

8. Motor Carriers
Trucking is regulated within states (intrastate) by state agencies; interstate (between states) trucking is regulated by the Interstate Commerce Commission – now regulated by the Department of Transportation Surface Transportation Board.

9. Motor Carriers
Types of Carriers
For-hire carriers
Private carriers

10. For hire carriers Include common and contract carriers
Common Carriers – provide transportation services to any business in its operating area for a fee.
Contract Carriers – provide the equipment that delivers for specific routes, according to agreements between the carrier and the shipper. Can provide services for a one time or continuing basis. Advantage to businesses no investment in trucking equipment

11. Private carriers
Private - Transport goods for an individual business (Meijer) Companies that own and operate their own transportation equipment. Very costly for businesses to own their own fleet (some lease equipment)
Advantage to businesses- they maintain total control over equipment, maintenance, availability routes, delivery times, and handling procedures.

12. Using both Private and For Hire
Why?
Local delivery verse delivery beyond local area

13. Exempt Carriers
Commonly used to haul ;agricultural products are free from direct regulation of rates and operating procedures (rates which are usually lower then contract carriers)

14. Advantages and Disadvantages of Truck Transportation
Convenience – pick up and deliver door-to-door to any geographic location
Reduce packaging costs – less protective packaging
Rapid delivery of large amounts of goods – reduces need for large inventories
Disadvantages
Time delays due to traffic
Size and weight restrictions

15. Rail Transportation
38% of all intercity transportation of ton-mile freight (the movement of a ton of freight one mile)
Important because they move heavy and bulky freight such a s corn, coal, steel, and chemicals

16. Rail Transportation
Fishy back – shipping loaded truck trailers over water on barges and ships
Piggyback services - carrying loaded trucks overland on railroad flatcars.

17. Rail Transportation - Pricing and Delivery Services
Carload – the minimum number of pounds of freight needed to fill a box car
Package (or pool) allows several shippers who are sending their items to a common destination to combine their items to fill an entire carload.

18. Rail Transportation - Pricing and Delivery Services
Diversion-in-transit – service that allows the redirection of carloads already en route (example a better price found – redirecting to new buyer while shipment is in route)
Processing-in-transit – permits shippers to have products processed, repackaged, and assembled while in transit to their final destination.

19. Advantages and Disadvantages of Rail Transportation
Ship relatively low costs by handling large quantities
Seldom effected by weather or traffic
Disadvanatages
– lack of flexibility can not reach as many destinations as trucks can

20. Water Transportation
One of the oldest methods of transporting merchandise, US water transportation is regulated by the United Maritime Commission.

21. Internal and Intracostal Waterways
Internal shipping (In land) – shipping from one port to another on connecting rivers and lakes (Great Lakes)
Intracoastal – shipping of goods between ports along the Atlantic or Pacific coasts or one coast to the other

22. International Waterways
International Waterways - are the oceans and rivers that connect continents and countries. Example Shipping US wheat across the Atlantic through the Indian Ocean to its final destination
Most all overseas freight is done by ships or barges because of the low cost

23. Advantages and disadvantages of Water Transportation
low cost – ships and barges are the lowest form of freight transportation
Disadvantages
Slowest form of freight transportation not good for perishable items
Inconvenient for business not located near major waterways, adds an additional step of loading ships off railways or motor carriers (Trucks)
Increases costs: May take away the initial cost advantage
Weather can also affect waterway shipping (Great Lakes in the winter)

24. Pipelines Pipelines Considered private carriers
Used most often to transport natural gas and oil
Normally owned by the companies using them
Has the best safety record of all the forms of transportation
Used to move over 20% of the ton-miles of freight transported in the United States

25. Advantages and Disadvantages of Pipeline Transportation
Advantage – low operating costs and very safe to operate verses other forms of transportation.
Disadvantage – High initial investment cost in construction

26. Air Transportation
Accounts for the smallest percentage of total ton-miles of freight shipped
Freight shipped is categorized by high value and low weight.

27. Advantages and Disadvantages of Air Transportation
Fastest form of freight transportation
Reduces inventory expense
Disadvantage
Most costly of all forms of transportation

28. Transportation Service Companies
Transportation Service Companies – handle small and medium-size packages.
US Postal Service – Ship small packages by parcel post or forth class mail. Mail weight 16oz (1 pound) to 70 pounds is shipped parcel post.

29. Transportation Service Companies
US Postal Service – Ship small packages by parcel post or forth class mail. Mail weight 16oz (1 pound) to 70 pounds is shipped parcel post.
Priority mail – marketed as a faster cost efficient manner of shipping usually delivers in a two-three day period however not as costly as overnight.

30. Transportation Service Companies
Express Carriers – specialize in delivering small, lightweight packages and high priority mail usually weighing less than 150 pounds. UPS, FedEx, DHL
Bus Package Carriers – provide transportation services foe packages weighing less than 100 pounds (Greyhound) can provide next day service to cities and towns along their routes

31. Transportation Service Companies
Freight Forwarders – private companies that combine less-than carload or less-than truckload shipments from several different companies and deliver them to their destinations.
Accumulate several small shipments until they have enough to hire a truck and ship them.

32. Physical Distribution
The Storage of Goods

33. Storage The marketing function of holding goods until they are sold
The amount of goods is called an inventory
Each member of the channel of distribution needs to store its products until orders are received from customers

34. Reasons for storage Production outpaced consumption
Products such as agricultural goods are only available certain times of the year

35. Reasons for storage Stabilize the price of the product
Stored at convenient locations for rapid delivery

36. Reasons for storage
Storage of goods ads time and place utility to goods
Products should be available when and where consumers want them
Disadvantage -Storing products ties up capital that could be used as investment

37. Private Warehouse
A facility designed to meet the specific needs of its owner
Valuable for companies that ,over a large volume of products

38. Private Warehouse Costly to build and maintain
Consider using when there is a significant amount of products to move and the cost is cheaper than using a public warehouse.

39. Public Warehouse
Offers storage and handling facilities to individuals or companies
Provide services such as – space, shipment consolidation, receiving, unloading, inspecting, reshipping, order filling, and terminal operating services
Advantage – low volume businesses or seasonal production

40. Five Types of public warehouses
Commodity warehouses – use primarily for agricultural products, such as tobacco, or grain
Bulk Storage warehouses – keeps products only in bulk form such as chemicals and oil
Household goods warehouse – personal property storage
Cold Storage warehouse – stores perishables
General Merchandise – any items that do not require special handling

41. Distribution Centers
A warehouse designed to speed delivery of goods and to minimize storage costs
Main focus is to move products not to store them (cross docking)

42. Distribution Centers
Planned around markets not transportation requirements (Wal-Mart in coldwater serves MI)
Cut costs by reducing the number of warehouses and cutting excessive inventory

43. Distribution Centers Used in process-in-transit
Consolidate and redistribute products

44. Bonded Warehouse
public or private, store products that require payment of a federal tax
Imported or domestic products cannot be removed until the required tax is paid

45. Distribution Planning for International Markets
Business must follow domestic and foreign trade laws
Must consider because many products are assembled from parts made in many different countries

46. Distribution Planning for International Markets
Must understand other countries (infrastructure) roads and transportation facilities
Reliability of a countries channels of distribution
A countries retail establishments