What Is Physical Distribution -Process And Importance Of Distribution

Today, the majority of people are doing online shopping rather than offline shopping, so the e-commerce business is booming day in and day out. The COVID-19 pandemic has played a key role in the growth of e-commerce businesses in India. Most of the businesses sell their products online. However, receiving orders from customers is not the only thing that is required to run the business for a long time in the online world. The main goal of an e-commerce business should be to make the end customers happy.

This is where the importance of physical distribution comes in. It involves moving goods from the company’s warehouse distribution center to the end user. Efficient physical distribution will increase customer satisfaction and will reduce the operating costs of a Company.

The Indian e-commerce market was valued at $70 billion in 2023. It is expected to surpass $100 billion by the year 2029. The global e-commerce sales were around 5.8 trillion US dollars in 2023. They are anticipated to be 8 trillion dollars by 2027.

What Is Physical Distribution?

Physical distribution is an important component of supply chain and logistics management. Physical distribution means moving finished goods from manufacturers or suppliers to customers.

The main aim of physical distribution is to provide products in the right quantities and proper conditions at the right place. Efficient physical distribution will reduce logistics and warehousing costs, speed up delivery time, and increase customer satisfaction.

Physical distribution includes various activities like warehouse storage, inventory management, transportation, pick and pack, labeling, and order processing.

Types Of Physical Distribution

There are 8 Types of Distribution we cover in this guide. Each type of distribution is chosen based on factors like the nature of the product, target market, and business strategy. Here are the main types of physical distribution:

Direct Distribution:

Direct distribution means the manufacturer delivers products straight to the consumer without using mediators. Businesses with large-scale operations often use this method, such as manufacturers who can handle their own deliveries. It’s also popular with e-commerce companies that ship directly to customers from their ecommerce warehouses.

Indirect Distribution:

It means that products go through other businesses, such as wholesalers, retailers, or agents, before they reach the customer. In this indirect physical distribution process, the goods pass through several steps, starting from the manufacturer and moving to different mediators before finally being sold to the consumer. This method is very common in industries like FMCG (Fast Moving Consumer Goods) and retail, where products need to be available in many places.

Intensive Distribution:

The manufacturer aims to place products in as many outlets as possible. It suits mass-produced goods like beverages, toiletries, and packaged foods.

Exclusive Distribution:

Products are distributed through a limited number of outlets. This is typically used for luxury or high-end goods like branded clothing, cars, or premium electronics.

Selective Distribution:

A middle ground between intensive and exclusive distribution, where products are available through selected retailers. It works well for products that require a specific buying experience, such as electronics or appliances.

Third-Party Logistics (3PL):

Companies outsource their distribution needs to third party logistics providers who handle ecommerce fulfillment, warehousing and transportation. It’s commonly used in industries that require large-scale distribution, like e-commerce and manufacturing.

Multichannel Distribution:

Products are distributed through various channels, such as physical stores, online B2B platforms, or direct sales. This approach offers greater flexibility and convenience for customers.

Reverse Distribution:

Involves the returns management of goods from the customer to the manufacturer, often used in recycling, repairs, or product recalls. It’s crucial for handling returns in e-commerce and industries like electronics.

Key Components of Physical Distribution

1. Transportation

Transportation companies play a vital role in the physical distribution of products. They have to move goods from one place to another. Various modes of transportation exist, such as air, road, or rail. The choice of mode depends on factors such as cost, distance, and more.

Here are different transportation service methods used in physical distribution.

• Road: Most e-commerce and B2B businesses use trucks and bikes to transport their goods and products. Trucks can carry large and small cargo to different locations in a country, and bikes are helpful for same-day doorstep deliveries. They are cost-effective options when choosing a transportation method. The best thing is that they can deliver the manufactured or finished goods quickly to the customer’s doorstep.
• Intermodal: Intermodal shipping methods involve transporting goods and products by rail and road. Overall transportation costs are lower in intermodal compared to single transportation modes.
• Air Freight: It is a costly mode of transportation. Small business owners only utilize air mode while transporting perishable or valuable goods.
• Ocean Freight: It involves the movement of goods through the sea. Most importers and exporters worldwide utilize this method for goods transportation.

2. Warehousing

Warehousing involves storing goods until a customer orders them. Warehouses can be of numerous types: B2B Warehouse, private warehouse, public warehouse, and bonded warehouse.

Products are stored efficiently before they are delivered to retailers or customers’ doorsteps. If the warehousing is properly managed, it can speed up the physical distribution process, adversely affecting E-commerce business growth.

Today, most warehouse logistics providers utilize advanced technology like warehouse management systems to increase the monitoring capability of various operations held inside the warehouse.

3. Inventory Management

Inventory management means the availability of the right amount of goods inside the warehouse to meet customer demands. Before a few years, inventory was managed manually. The staff used to count the goods manually or maintain them through paper. However, it involved errors and consumed much time and effort. But now technology has advanced. The latest warehouse and inventory management systems reduce errors and save time and effort. It reduced the problem of overstocking and understocking.

4. Order Processing

Efficient order processing is required for quick delivery of goods to customers. It involves activities like packaging, labeling, shipping and logistics of goods.

5. Material Handling

It involves activities associated with moving goods inside the warehouse or transporting goods. Today, most warehouse solution providers use forklifts or conveyors to move goods from one place to another inside the warehouse.

6. Logistics Management Systems

Now, various software applications can manage the entire physical distribution process. It provides real-time data about inventory, warehouse fulfillment, and many other things.

Process Of Physical Distribution

The process involves different steps. Each step aims to move products efficiently from the businesses location to the customer’s doorstep. Below, we list various methods of physical distribution.

1. Warehousing: In this process, 3PL warehouses receive the inventory from the manufacturer. The products and goods are inspected and stored inside the warehouse. It is stored carefully and picked from its location when needed.
2. Inventory management: In this process, logistics service providers need to manage the inventory. The inventory management helps to determine the quantity of goods in the warehouse storage.
3. Order Processing: The process begins when a customer places an order. The warehousing company sends an acknowledgment to the customer regarding the order details. This assure the customer that the order has been received and processed.
4. Delivery: This is the final and one of the most important processes in physical distribution. Companies have to make sure timely deliveries. A delivery delay can harm a company’s reputation. When products don’t arrive on time, customers may become frustrated, leading to negative reviews or a loss of trust. Shipping companies make sure timely delivery, which is essential for maintaining customer satisfaction and building a positive brand reputation.
5. Returns: Returns management, also called reverse logistics, is the most complicated and costly process in distribution. If the customer is not happy with the product, they can request a return. In this case, the 3PL company is responsible for picking up the item from the customer. After that, they check the product to make sure it’s in good condition. If everything looks fine, they put it back into the warehouse stock.

Importance Of Physical Distribution In Retail And B2B Industries

• Fast delivery of goods and products is vital in retail industries. Customers want their products delivered on time, and delays can lead to negative reviews and dissatisfaction. Timely delivery is even more critical in the B2B sector. Delays in receiving products or materials can disrupt production and adversely affect the supply chain.
• Efficient physical distribution can reduce transportation costs and storage costs in retail industries. Bulk shipping in B2B industries will also reduce transportation costs.
• Overstocking can increase storage costs, while understocking can adversely affect customers. Proper physical distribution ensures that there are no overstocking and understocking problems in retail industries. Proper inventory management is even crucial in B2B industries. It ensures products are available when required and allows the supply chain to run smoothly.

Challenges In Physical Distribution Management

1. Delivery Delays: A few unpredictable factors like bad weather or traffic can cause problems delivering products to customers at the right time.
2. Supply Chain Disruptions: Disruptions like natural disasters can prevent the flow of goods from one place to another.
3. Usage Of New Technology: Using new technologies like automotive is quite costly.
4. Inventory Management Problem: It’s quite hard to keep the exact amount of stock customers require. Little high or low stocks can cause loss for the Company.

AAJ Supply Chain Management is the Best Choice For Physical Distribution

AAJ Supply Chain Management provides end-to-end logistics operations, such as warehousing, B2B transportation, and door to door delivery.

We use advanced technology, such as Warehouse management systems, real-time tracking, and inventory management systems, which prevent issues like overstocking and understocking and optimize supply chain operations.

AAJ has an extensive distribution center network all over India, which allows the Company’s products to reach its customers without any hassle. AAJ has warehouse in Delhi, Mumbai, Bangalore, Chennai, Kolkatta, and many more. We have a team of logistics experts who manage different aspects of physical distribution services and ensure timely product delivery to the customer.

Conclusion

Physical distribution is one of the most important components of the supply chain. It has various stages, like warehousing, transportation management, inventory management, order processing, and last-mile delivery. Each stage is quite essential for running the supply chain smoothly. Every step should ensure that the products reach their destination smoothly, timely, and cost-effectively. Efficient physical distribution reduces costs and effectively manages a business’s inventories.