Important components of physical distribution of products are: 1. Order Processing 2. Transportation 3. Warehousing 4. Inventory Control!
Physical distribution is an important element of marketing mix; it involves physical handling and movement of goods from the place of production to the place of consumption.
It is concerned with the availability of the right quantity of goods to the customers at the right time and right place through the channels of distribution.
It consists of the following activities or components:
1. Order Processing:
It refers to placing order by the customer to the manufacturer via channel members. Accurate and speedy processing of order is essential to ensure timely delivery of goods to the customer in correct quantity/specifications.
2. Transportation:
It refers to the mode of carrying goods and raw material from the place where they are produced to the place where they are to be sold. It is the most important element of physical distribution of goods. It also adds value to the good by ensuring their availability at the right place and right time.
3. Warehousing:
There is a time gap between the production and the consumption of goods, thus it becomes essential to store them. For example, seasonal products like wheat, rice, coolers etc. It creates time utility in the products.
For products like agricultural products which require long-time storage, warehouses are located near production sites, while the products which are perishable such as fruits, vegetables etc. or the products which are heavy and hard to ship are stored in the warehouses located near the market.
4. Inventory Control:
Inventory refers to the level of stock to be maintained. If a company maintains a high level of inventory, higher will be the level of service to customers but along with this the cost of maintaining the inventory will also be high because lot of capital would be tied up in the stock. Therefore, a firm is required to maintain a balance between customer satisfaction and level of inventory.
Following are the factors which help in determining inventory level:
(a) Firm’s Policy towards customer service:
If policy of a firm is to offer higher level of service to its customers, it needs to keep high level of inventory.
(b) Degree of accuracy of the sales forecasts:
The high level of inventory can be minimized if sales forecasts are accurate.
(c) Responsiveness of the distribution system:
If a firm is in a position to provide quick supply of goods in case of additional demand it will maintain low level of inventory. However, if it takes time to supply goods, it will maintain a high level of inventory.
(d) Cost of Inventory:
Cost of warehouse, tied up capital, manufacturing cost etc. are included in cost of inventory. If this cost is high, low level of inventory is maintained and vice versa.