Physical Distribution

Posted in Operations and Supply Chain Terms, Total Reads: 1771

Definition: Physical Distribution

Physical distribution is defined as the group of activities that deals with the supply of finished product from the finished product to the end consumers. The distribution channel includes both the wholesale and retail channels. It also includes several critical decision making areas like customer service, materials, inventory, packaging of the finished product, order processing and fulfilment, logistics, etc.

It accounts for almost half to the marketing budget of the firm. Importance of physical distribution for a firm depends on the type of product and level of customer satisfaction desired.


The key functions which are a part of the physical distribution process are:

• Customer Service: The main function of Customer Service personnel is to set a standard for customer satisfaction that must be ensured while delivering a product to the consumers and then ensuring that this standard is maintained. For example, a firm manufacturing mattresses may have approach wherein it must deliver the product to the 75% of its customers within 48 hours. Moreover, it may keep an additional standard of meeting 95% customer satisfaction in 72 hours.

• Order Processing: Order processing is a very crucial function to the firm as it deals with taking orders from the customers efficiently and its efficiency is directly concerned with customer satisfaction. If order processing is done efficiently, other costs in the supply chain like transportation and logistics costs, inventory carrying costs, etc. can be minimized.

• Inventory Control: Inventory Control plays a major role in the distribution function of a firm. Costs include inventory carrying costs, depreciation and fall in the demand for products, etc. Different types of inventory control systems are first in first out (FIFO), flow through systems, etc.

• Transportation and Logistics: This function deals with the procurement of the raw materials from the suppliers and final delivery of the finished products to the end consumers. The mode of transport used may depend on the type of product (whether is it fragile or not) and also on the urgency of the order for the consumer.

• Packaging: Packaging function is concerned with the type of packaging used for the product depending on the type of product and degree of protection required for thee product.



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