As discussed earlier, supply chain management starts from the supplier of raw materials, then conversion at factory into finished products, storage at warehouses, and finally, supply to distribution channels to meet the demand of end-user for a finished product at an acceptable cost and service level. Physical distribution starts in a forward movement of goods from the company’s production facility to end-user, and supply chain management starts before physical distribution. According to Stern, El-Ansari, and Coughlan, “The term logistics management and supply chain management are widely used to describe the flow of goods and services and related information from the point of origin to the point of consumption,” Some authors view logistics as the transporting, sorting, and handling of goods to match target customers’ needs with a company’s marketing mix – within individual companies and along a channel of distribution. Thus, logistics represents the value chain of a company, the starting point is the procurement and at the end of the chain is the customer. Logistics management includes both materials management and physical distribution. More and more companies are realising the importance of managing the entire supply chain rather than just transportation and warehousing decisions alone. The focus of managing supply chain is on removing inefficiencies and hurdles in meeting customer demand at the time when it occurs.
Physical distribution of organisation starts at the factory and ends with the customer. Supply Chain Management (SCM), is a broader concept, which starts before physical distribution and involves procuring the right inputs, converting them efficiently into finished products and despatching them to the final customers. A company works through a value network that includes suppliers, its supplier’s supplier, its immediate customers and their end customers. Market logistics involves planning the infrastructure to meet demand, then implementing and controlling the physical flows of materials and final goods from point of origin to the customer points, while generating a surplus.
Meeting Customer Service Requirements: Marketing strategy aims at satisfying customers’ needs and wants. Physical distribution is invisible to most consumers. They pay attention to it only when something goes wrong and it may be too late for the company to cheer them. It is not unusual in India, particularly for service providers failing to meet customer service delivery expectations.
Physical distribution systems must meet the factory needs towards supply chain and the customers. First of all it is necessary to find out what are customers requirements and what competitors are providing. Customers want timely delivery, efficient order processing, willing suppliers to meet emergency needs, progress report, proper handling of products, post purchase services, prompt replacement of defective goods, and warranties. Customers’ inventory requirements affect the expected level of physical distribution service. The company must determine the relative importance of these aspects. Paying attention to customer needs and preferences is necessary for increasing sales and getting repeat orders. For example, an auto manufacturer with a low inventory of replacement parts requires fast, dependable supply from suppliers of component parts. Repair service facility and time for car buyers is very important. Anne G. Perkins found that even when the demand for products is unpredictable, suppliers must be prepared to respond fast to inventory needs. Under these situations, distribution costs may be a minor consideration compared to the importance of service, dependability, and timeliness.
Most customers are concerned with speedy and dependable delivery of what they want and don’t care how a product moves from a manufacturer to the point of delivery from where they acquire it.
Minimising Total Distribution Costs: Companies strive to minimise their distribution costs associated with order processing, inventory management, materials handling, warehousing, and transportation. However, decreasing costs in one area often increases them in another. The company has to develop an economical system without compromising the minimum guaranteed service delivery level and to achieve this trade-offs between service level and costs becomes unavoidable. Taking a systems approach to distribution, the focus from lowering costs of individual activities shifts to minimising overall distribution costs. Adoption of total cost approach requires analysing costs associated with distribution alternatives, such as comparing inventory levels against warehousing costs, materials cost against expenses involved with various modes of transportation, and all distribution costs against customer service requirements. Lowest overall distribution system cost should be compatible with company’s stated minimum expected level of customer service objectives. This requires trade-offs costs because higher costs in one area of distribution system may be necessary to obtain lower costs in another. In many cases accounting procedures, asking customers to rank their preference and employing statistical procedures, and computer simulations are used to determine total costs.
Curtailing Time-Cycle: Time-cycle refers to the time it takes to complete a process. It is an important objective of physical distribution to reduce time-cycle to reduce costs and increase customer service. Many businesses such as overnight delivery companies, and major news media strive to slash time-cycle to gain competitive advantage. For example, FedEx overnight delivery service conducts research and employs new techniques and procedures to be the fastest overnight delivery service. FedEx offers its customers package-tracking software so that they can track the progress of their package. In such situations, speed is important than costs.