Chapter 22 Physical Distribution Transportation Systems and Services

Chapter 22 Physical Distribution

Transportation Systems and Services 22. 1 • After finishing this section you will know: – The nature and scope of physical distribution – How transportation systems are used to move products – The different kinds of transportation services

The Nature and Scope of Physical Distribution • Physical distribution- comprises all the activities that help to ensure that the right amount of product is delivered to the right place at the right time • Logistics- synonym for physical distribution

The Nature and Scope of Physical Distribution • 1. 2. 3. 4. 5. Physical distribution involves the following: Order processing Transporting Storing Stock handling Inventory control of materials and products

Order Processing • The purchase of a product initiates the movement of products through a physical distribution system

Physical Distribution • Types of Transportation • Transportation- moving products from a seller to a buyer

Trucking Transportation • Common carriers- provide transportation services to any business in its operation area for a fee • Receives a “certificate of convenience and necessity” from the state and federal governments

Trucking Transportation • Must publish its freight rates to prevent discrimination against shippers • Rates can change in different geographic areas • Usually used for less than full truck loads

Contract Carriers • Contract carriers- for-hire carriers that provide equipment and drivers for specific routes according to agreements between the carrier and the shipper

Contract Carriers • Can provide service on a one-time or a continuing basis • Negotiate fees with each customer • Fees can differ from one agreement to another

Private Carriers • Private carriers- transport goods for an individual business • Equipment can be owned or leased to meet the specific needs of the business • Allows a business to maintain total control over equipment, maintenance, availability, routes, delivery times, and handling procedures

Exempt Carriers • Exempt carriers- commonly carries agricultural products • Free from direct regulation of rates and operating procedures

Advantages and Disadvantages of Truck Transportation • Advantages • Can pick up products from a manufacturer, wholesaler, or retailer from their door • Less protective packaging is required which reduces costs • Rapid deliveries of large amounts of goods

Advantages and Disadvantages of Truck Transportation • • • Disadvantages Possible delays due to traffic Equipment breakdowns Traffic accidents Subject to size and weight restrictions imposed by states

Rail Transportation • Ton-mile the movement of one ton of freight one mile • Used to move heavy bulky freight such as coal, steel, and lumber

Pricing and Delivery Services • Piggyback service- carrying loaded truck trailers over land on railroad flat cars • Fishyback service- shipping loaded truck trailers over water on ships and barges • Combine the advantages of truck transportation with the lower costs of rail and water

Pricing and Delivery Services • Carload- the minimum number of pounds of freight needed to fill a boxcar • Less than a car load- a shipment that falls short of minimum weight • Higher rates are charged for not meeting the minimum weight

Pricing and Delivery Services • Package- allows shippers who are sending their items to a common destination to combine their goods to fill an entire carload • Diversion-in-transit- allows the redirection of carloads already en route • Processing-in-transit- permits shippers to have products processed, repackaged, and assembled while in transit

Advantages and Disadvantages of Rail Transportation • • Advantages Low costs Handle large amounts of goods Seldom slowed or stopped by bad weather

Advantages and Disadvantages of Rail Transportation • Disadvantages • Lack of flexibility • Cannot reach as many places as motor carriers

Water Transportation • One of the oldest methods of transporting merchandise • Internal shipping- from one port to another on connecting rivers and lakes • Intracoastal shipping- between ports along the Atlantic or Pacific coasts or from one coast to another • International waterways- oceans and rivers that connect continents and countries

Advantages and Disadvantages of Water Transportation • Advantage • The cheapest form of freight transportation • Disadvantages • Slowest form of transportation • Buyers located far from port cities must have goods unloaded and transported to their location • Bad weather greatly affects water transportation

Pipelines • Normally owned by the company • Private carriers • Used to transport natural gas

Advantages and Disadvantages of Pipeline Transportation • • Advantages Operational costs are small Risk of leakage is small Best safety record of all forms of transportation • Disadvantage • Construction requires a high initial investment

Air Transportation • Less than 1% of the total ton-miles of freight shipped • Most costly form of distribution • Speed creates savings in lower inventory

Transportation Service Companies • U. S. Postal Service • Ships small packages by parcel post for fourth-class mail • Priority mail- marketed as a quick, convenient, reliable, and costeffective way to deliver important correspondence within a 2 -3 day period

Transportation Service Companies • Express Carriers • Express carriers- specialize in delivering small, lightweight packages and high-priority mail • Examples include: Federal Express, UPS

Transportation Service Companies • Bus Package Carriers • Bus package carriers- provide transportation services for packages weighing less than 100 pounds • Example: Greyhound

Transportation Service Companies • Freight Forwarders • Freight forwarders- private companies that combine less-than carload or less-than truckload shipments from several businesses and deliver them to their destinations

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Inventory Storage 22. 2 • After finishing this section, you will know: – The concept and function of inventory storage – The types of warehouses – How distribution planning works for international markets

The Storage of Goods • Storage- the marketing function of holding goods until they are sold • Each business member in a channel of distribution needs to store its products until orders are received from customers • Storing goods adds time and place utility to the products

Private Warehouses • Private warehouses- a facility designed to meet the specific needs of its owner • Producers, wholesalers, or retailers have the option of owning their own private warehouse • Valuable if a company moves a large volume of products • Costly to build and maintain

Public Warehouses • Public warehouses- offer storage and handling facilities to individuals or companies

Public Warehouses • Public warehouses fall into 5 categories: 1. Commodity warehouses- used for agricultural products 2. Bulk storage warehouses- keep products only in bulk form, such as oil 3. Cold storage warehouses- store perishables such as fruit, vegetables, or frozen products

Public Warehouses 4. Household goods warehouseshandle personal property storage 5. General merchandise warehouses store any item that does not require specialized handling

Distribution Centers • Distribution center- a warehouse designed to speed delivery of goods and to minimize storage costs • Main focus is on moving products, not storing them • Planned around markets, not transportation requirements

Distribution Centers • Cut costs by reducing the number of warehouses used • Consolidate large orders from many sources and redistribute them as separate orders for individual accounts

Bonded Warehouses • Bonded warehouses- either public or private store products that require payment of a federal tax • Imported or domestic products cannot be removed until the required federal tax is paid

Distribution Planning for International Markets • Selling products to foreign markets requires more planning than domestic markets • U. S. export laws along with the foreign country’s import laws must be followed • Some countries have laws about how products may be transported • Businesses must understand other countries’ physical transportation systems

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