Physical DistributionMarketing Co-Op

What is Physical Distribution?

The key link between a business and its customers – also known as logistics

Logistics – the process of physically delivering goods to customers

Comprises ALL activities that help to ensure the right amount of a product is delivered to the right place at the right time

Distribution Careers

Supply Chain and Distribution Opportunities at Target

Inventory• Inventory – All the goods shipped

and stored by a business before it is sold

Distribution Activities o Ordering Processing – placing and

organizing product orderso Transporting - moving goods from sellers

to buyerso Storing - holding the goods while they

await transporto Stock Handling - shipping, receiving, and

checking goodso Inventory Control – controlling and

cataloging merchandise while in storage

It can be Costly!!

• Physical Distribution is

the 3rd largest expense

for most businesses

• Surpassed only by the

cost of material and

labor

Types of Transportation Systems

TruckingRailroadsMarine ShippingPipelinesAir Cargo

Services

87.1%

5.6%

1.3% 1.9%

4%

Distribution Breakdown

TrucksRailroadsMarinePipelineAir

TruckingTypes of CarriersCommon Carriers – Provide

transportation services to any business for a fee– Accounts for 1/3 of all motor freight

Ex: UPS, Fed ExContract Carriers – for-hire carriers

that provide equipment and drivers for specific routes between the carrier and the shipper

Ex: Estes, Pitt Ohio

How UPS Works

Trucking

Types of Carriers

Private carriers – transport goods for an individual business- Businesses can lease equipment or own their own fleet

Trucking

• Mostly commonly used mode

of transportation

• Carry high value products that

are expensive or impossible to

keep in inventory

Ex: Produce

Trucking

Intermodal Transportation – combines two or more transportation modes to maximize the advantages of each

Interstate Transportation – when distribution crosses over state lines

RailroadsMost useful for delivering bulky freight

Coal Chemicals

Grain Lumber

SteelFarm Equipment

Shippers pay a lower rate if they fill an entire

boxcar

Carload – the minimum number of pounds of

freight needed to fill a boxcar

Railroad Transporting

Advantages

• Very low cost • Use 50-70% less

energy than trucking

• Seldom slowed or stopped by bad weather

Disadvantages

• Lacks flexibility• Can only be

delivered to stations along designated rail lines

• Require another form of transportation to get goods to storage location

Marine ShippingBarges and container ships transport

merchandise around the world

Regulated by The United States Maritime Commission

Marine Transporting

Advantages• Cheapest form

of transportation

Disadvantages• Slowest form of

transportation• Require another

form of transportation to get goods to storage location

• It is affected by bad weather and seasonal conditions

Pipelines

Advantages • Best safety record

among all major transportation systems

• Suffer minimal damage or theft

• Are not affected by bad weather

Disadvantages• High initial investment,

but lower operational costs

• Products move slowly

Most commonly used to transport oil and natural gas

The risk of a pipeline leak are low, but if one does occur, the damage to the environment can be extensive

Air Cargo Service

Advantages• The speediest form of

transport• Reduces inventory

expenses and storage costs

Disadvantages• Most costly form of

transport (twice as costly as motor transport)

• Can easily be delayed by bad weather and mechanical issues

Represents less than 1% of the total freight shipped

Mostly used for high-value, low-weight, time-sensitive items – like overnight mail

Transportation Service Companies

• U.S. Postal Service– Ships small packages by parcel post

or first class mail– For an extra fee, packages can be

insured against loss or damage

• Bus Package Carriers (Greyhound)– Provide transportation service for

packages under 100 pounds– Provide same-day or next-day

service to cities and towns along scheduled route

– Cost – based on weight of package and distance traveled

Transportation Service Companies

• Express Delivery Service– Specialize in delivering small, lightweight

packages and high priority mail (less than 150 pounds)

– Rates based on speed of delivery, size and weight of package, type of delivery required

• Freight Forwarders– Private companies that combine less-than-

truckload shipments and deliver them to the destination

– Combining multiple shipments helps to reduce rates for shippers

SHIPPING TERMSF.O.B. (free on board) destination

o the title of ownership remains with the seller until the goods reach destination

F.O.B. shipping pointo the buyer pays the shipping costs and is

responsible for losses

F.O.B. factory freight prepaido seller pays shipping chargeso goods become the property of the buyer at the factory

F.O.B. destination charges reversedo merchandise becomes the buyer’s only when goods

are receivedo buyer pays for shipping charges