Physical distribution

The essentials

Physical distribution covers all the activities needed to move goods from manufacturers to customers, so that they are available at the right place, at the right time and in the right quantity. It has two main aspects: the channels of distribution (the people and firms through whom goods pass) and the physical movement of goods.

Key points

• Components of physical distribution: order processing, transportation, warehousing (storage) and inventory control.
• Channels of distribution: a zero-level or direct channel (manufacturer to customer, for example through company outlets, mail order or the internet); a one-level channel (manufacturer to retailer to customer); a two-level channel (manufacturer to wholesaler to retailer to customer), the most common for consumer goods; and a three-level channel (manufacturer to agent to wholesaler to retailer to customer).
• Factors affecting choice of channel: product-related factors (perishable, technical or high-value products need short channels; standardised, low-value products use longer channels; industrial products often use short channels), company characteristics (financial strength and the degree of control wanted), competitive factors (channels used by competitors), market factors (size of the market, geographical concentration, quantity purchased) and environmental factors (such as economic conditions and legal constraints).
• Middlemen help by providing services such as storage, financing, assortment, risk bearing and information.

Exam tips

• Perishable items such as fresh milk usually need short channels.
• A firm that wants strong control over how its product is sold may choose a direct channel.

Common mistakes

• Thinking all products should go through the longest channel. The choice depends on the product, market and company.
• Treating warehousing as part of promotion. It is a component of physical distribution.