Physical Distribution – Its Nature and Operation
Seddom (1959) summarized the nature and operation of today’s physical distribution this way. We live in an instant society. We use to like in world where it was acceptable to send a package railway express. It would get there in a week today. Now everybody wants to get the package tomorrow morning. Distribution ensures those consumers obtain a product and when and where they want them. It involves the actual movement of products to the ultimate consumers.
Distribution provide time and place utility. It reduces the distance between buyer and seller. The distribution system involved intermediaries such as retailers wholesalers, distributions and agents.
Transportation is one of the services intermediaries provide.
According to Kotler (1988) physical distribution management is the term describing the integration of two or more activities for the purpose of planning, implementing and controlling the efficient grow of raw materials in a process of inventory and finished goods from point of origin to point of consumption.
The activities may include, but are not limited to customer service, demand – forecasting, distribution communications, inventory control, materials Grashot (1978) defined distribution as an integrated set of activities that deal with management the movement of produces. Planning an effective physical distribution system use a significant election point in developing an over all strategy.
A firm that places the right goods in the right market place, at the right time, in the right quantity and with the right support services is able to sell more than competitors who fail to accomplish these goals. A firm that keeps a how inventory will require the fastest and most dependable physical distribution service.
The physical distribution cost may be a minor consideration when compare with service. Physical distribution for most firms account for 10 to 20% of the retail price. Of these costs, about one-third is related to inventory holding and two-thirds go for movement of products. Physical distribution costs vary by industry. For instance in the food industry, physical distribution account for 33% of the retail price, such cost average closer to 16% of the retail price for wood products and textiles.
Management must take many transportation decisions during the production, storage and delivery stages of operation. The choice of a transportation mode on the basis of costs, speed, reliability, capability, security and accessibility.
Stanton (1978) on his research said that American business management are placing more emphasis on physical distribution because it constitutes substantial cost factor in many industries. Physical distribution is the new major frontier for cost cutting cost savings in physical distribution can have considerable leverage effect on profits.
Stanton further stated that physical distribution in marketing is essentially a problem in logistic. An army cannot afford to place one of its units in a position where these are guns but no ammunition or trucks but no petrol.
In the same vain, a business firm is in a weak position when it has order but no goods to supply. Physical distribution is the management of the physical flow of product and the development and operation of efficient flow system.
Still on Stanton’s contribution, marketers should apply the total cost approach tot eh management of physical distribution. A firm has alternative method of physical handling and distributing it’s products. The management should try to optimize the cost-profit relationship of these various choices after analyzing the total cost of physical distribution on rather than considering separately the cost of shipping, storage, or handling. Open management look a the cost of only one aspect of physical distribution and try to minimize it’s single cost. The strategic use of business logistics, may enable a firm to strengthen its market position by providing more customer satisfaction and by reducing total operating cost.
Finally, Ifezue (1990) said that the importance of transportation function has greatly increase nowadays for example; shoes made in Brazil find their market all over Nigeria and Africa as a whole. Similarly, the organization of petroleum exporting countries (OPEC) found their market all over the United States of America and Europe. Ifezue further highlighted that “as the distance between the producer and the consumer increases, the importance of the transportation function expands such that it make up a significant part of the total cost of marketing.
MODULES FOR PRICE
Price is the money value of a product, which is usually the sum of the production cost and profit margin of the product, it performs many functions directly and indirectly. It can be understood by buyers as the measure of the product quality or quantity. It also determines the economic and social class for which product is made. It can be used to appeals quickly to price conscious buyers. It can influence company decisions greatly such as whether to engage in a price (competitive primary) to price the product on a prestigious position in the market or to follow the established price trend. All these have shown that pricing is an obvious factors in selecting the competitive posture a company would take.
The decision on fixing prices is that of the company convened alone.
However, infixing prices, companies will wish to know at what level competitors have set their company’s pricing decision will certainly be influenced by competition. In circumstance which the products are going to be distributed through intermediaries like wholesalers and retailers, the price level at which the intermediaries will accept. The intermediaries are to offer the product for sale tot eh next stage in the distribution channel and to the ultimate user.
THE PRICE DECISION
According to (Kotler and Amstrong 1986), stated the decision in pricing and they are as follows: –
Pricing is the marketing function which involves dividing the mark-up profits to be added to the production costs to fix the money value; the buyer will pay for the product or service.
The broad strategy of the company will determine the level at which prices of it’s product will be fixed. In making decision on pricing, management will have to take the following conditions into consideration.
- The Nature of the Product: Is it can industrial or consumer product, if a consumer goods, is it a consumer durable or non-durable, is it a perishable or has it a long life span.
- The Importance of the Product: is it in essentially inevitable product of luxury or a (low involvement) stapled food.
- The Market for which the product is intended: Is it for the industrial or consumer market? Is it for the working class. The privileged class, young people, the youth age or the age? If an industrial product, is for primary or secondary product market?
The form of production received in manufacturer stage of the production will determine the production method which will in turn determine the resources input and the resulting price. Primary or product goods are priced relatively low while finished or consumer goods are priced relatively higher than primary goods. Products price will be based it produced by pricing method as in t he case of agricultural produce.
- Economic of Scale achievable: Can the many factor of price product at it’s distribution enjoy the advantage of these production and mass market.
If both or either of these conditions are achievable, there will be a price reduction which will attract sales, advantage to the company and savings to the buyer. The plant capacity has to be considered for process production goods, lower plant capacity many lead to the decision of higher quality and higher price.
- Cost of Distribution: Mobility of a product adds to its perfect competitive opportunities and can bring the price lower in pricing consideration, regarding distribution include: is the product mobile, if it is mobile, is it a bulky or in unwontedly package. Can it be easily conveyed form place to place, can the bulk be broken to present it is in various sizes to satisfy different categories of gears.
- The Product Quality: A market oriented pricing approach would attempt to start with what value potential buyers put on the product.
This can be ascertained through market testing to arrow what potential buyers think that the point is worth.
- Competition: The company must consider the activities of competitors during price setting decisions.
- The Break-even volume: The suppliers must give adequate consideration to the break-even volume. The break-even volume can be calculated using the following formular:
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This article was extracted from a Project Research Work/Material Topic
“THE IMPACT OF TRANSPORTATION COST ON CONSUMERS RETAIL GOODS PRICES.
(A CASE STUDY OF GARRIKI MARKET, ENUGU SOUTH LOCAL GOVERNMENT ENUGU STATE).”
Click Here To get the full Project Research Work/Material
