CHAPTER 8

1. CHAPTER 8 PHYSICAL DISTRIBUTION MANAGEMENT STRATEGY

2. Important Topics of This Chapter • The Nature of Physical Distribution and Supply Chain Management. • Traffic Management and its Functions. • Customer Service in Physical Distribution. • Warehousing and Inventory Control.

3. Physical Distribution • Physical distribution: • The process of planning, implementing, and controlling efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer's requirements. • The importance of physical distribution: • Physical distribution cost can represent 20% or more of the selling price of a product. • It is an integrated part of the entire company system: • Problems in other areas impact distribution and vice versa. • From customer’s perspective, supplier’s physical distribution function gets the right products to them, at the right place, at the right time. These are basic customer rights (along with right price and right condition).

4. Logistics Management • Logistics involves more than physical distribution. In the science of logistics, the flow of materials is efficiently managed inbound-through and outbound of an organization. • Two primary product flows: • Physical supply (materials management): • Flows that provide raw materials, components, and supplies to the production process. • Physical distribution management: • Flows that deliver the completed product to customers and channel intermediaries.

5. Supplier Customer Materials management Physical distributionmanagement Manufacturer Logistics Management

6. Study Area Map Supply chain management (a series of connectedlogistics flows) Logisticsmanagement Materials managementPhysical distribution Incoming transportation Traffic management Receiving Shipping Purchasing Customer service Incoming warehousing Finished goods Inventory control

7. SupplyChain Management • Supply chain management: An integrated philosophy to manage the multidirectional flow of materials and information through an entire channel, from the first raw material supplier to the ultimate user of the finished product.

8. Functions of Traffic Management • Mode and carrier selection • Routing • Claims processing • Operation of private transportation

9. Many of the imported goods you purchase were shipped in 20-foot or 40-foot steel containers

10. Large cranes loaded the containers on a ship. (Image courtesy of the Port ofCharleston)

11. Larger container ships can hold 4,000 to 6,000 containers. (Imagecourtesy of Maersk Sealand)

12. After unloading from the ship, the containers can be loaded onto a flatbed rail car for additional intermodal shipping. (Imagecourtesyof CSX Corp.)

13. Alternatively, a container can be attached to a set of wheels for motor transport (as an 18-wheeler trailer).

14. Inter-modal container motor carrier (Image courtesy of Maersk Sealand)

15. Rail freight carrier Barge/river freight carrier (Image courtesy of CSX Corp.)

16. Air freight carrier Pipeline Containerstack train Jumbo jet air freight

17. Major Advantages by Transportation Mode • Rail • Mass movement of goods • Low unit cost of movement • Dependability • Long-haul moving • Wide coverage to major markets and suppliers • Many auxiliary services (i.e., switching) • Transfer of goods to other carriers • Specialized equipment • Water • Very low unit cost of movement • Movement of low-unit-value commodities • Long-haul movement • Mass movement of bulk commodities • Motor • Speed of delivery • Diversity of equipment • Flexibility • Frequency of movement • Transfer of goods to other carriers • Convenient to both shipper and receiver (continued)

18. Major Advantages by Transportation Mode • Air • Frequent service to major markets • Large capability • Overnight service • Most rapid speed of any carrier • Pipeline • Lowest unit cost of movement • Mass movement of liquid or gas products • Long-haul moving • Large capacity • Most dependable mode • Inter-modal • Cost savings • Lower loss and damage claims due to containerization • Service extended to more shippers and receivers • Reduced handling and storage costs

19. Controllable Elements in a Logistics System • Customer service • Logistics communications • Warehousing • Packaging • Production planning • Order processing • Transportation • Inventory control • Materials Handling • Plant and warehouse location

20. Major Categories of Service Complaints • Warehousing and packaging • Merchandise delivered late • Problem with containers in packaging plants • Special promotion merchandise not specified in delivery • Errors in warehouse release forms • Incorrect types and quantities of merchandise shipped • Papers not mailed promptly to headquarters • Field warehouse delivered damaged merchandise • Traffic and transportation • Damaged merchandise • Carrier did not meet standard transit time • Merchandise delivered prior to date promised • Carrier failed to follow customer routing • Carrier did not comply with specific instructions • Errors present on bill of lading • Condition or type of transport equipment not satisfactory (continued)

21. Major Categories of Service Complaints • Inventory control • Stock-outs • Contaminated products received • Product identification errors • Poor merchandise shipped • Sales order service • Delayed shipments • Invoice, sales coding, or brokerage errors • Special instructions ignored • No notification of late shipments

23. Inventory Control • Carrying cost • Ordering cost • Total cost • EOQ level • JIT Inventory: • Small lot size. • Frequent deliveries • Exact quantities. • Precise arrival time. • Near perfect quality