GLOBAL PURCHASING & MATERIALS HANDLING

CHAPTER VIII

PHYSİCAL DİSTRİBUTİON

OUTLİNE

Introduction to physical distiribution

Channels of distributions

Physical Distribution Activities

Transportation Costs

Warehousing Role in Physical Distribution

A sophisticated physical distribution method: Milk Run

PHYSİCAL DİSTRİBUTİON

The activities associated with the movement of material,

usually finished goods or service parts, from the

manufacturer to the customer”

Physical Supply is the movement and storage of goods

from supplier to manufacturing.

Physical Distribution is the movement and storage of

finished goods from the end of the production to the

customer.

PHYSİCAL DİSTRİBUTİON

CHANNELS OF DİSTRİBUTİON

Company may deliver directly to the customer.

Company uses other companies or individuals to deliver

goods.(Intermediaries)

Wholesalers, agents, transportation companies,

warehousers are example for intermediaries.

The Transaction Channel: Negotiating,

selling,contract.intangible

The Distribution Channel:Movement of goods.tangible.

PHYSİCAL DİSTRİBUTİON

THE WAY OF MATERİAL MOVEMENT

The channels of distribution being used.

The type of market. Geographic Dispersion

Number of Customers

The characteristics of Product: Weight, density, fragility.

The type of transportation avaibility.

REVERSE LOGİSTİCS

Supplier Customer

Returned Goods

Information

REVERSE LOGİSTİCS

A complete supply chain dedicated to the reverse flow

of products or materials for the purpose of returns,

repair , remanufacture, and or recycling. (Publishing

industry, automative industry)

Asset Recovery: Return of actual products.

Green Logistics: Sorting and movement of

enviromentally sensitive materials.

REVERSE LOGİSTİCS

Goods are returned for reasons;

Quality Demands by the final customers

Damaged or defective products

Inventories that result from over-forecast demand

Seasonal Inventories

Out of date Inventories

Remanufacturing and refurbishment of products.

PHYSİCAL DİSTRİBUTİON ACTİVİTİES

Transportation

Distribution inventory

Warehouses

Materials handling

Protective packaging

Order processing

PHYSİCAL DİSTRİBUTİON ACTİVİTİES

Transportation: Add place value to the product moved. It

is the single highest cost in distribution, accounting for

from 30% to 60% of the total distribution cost.

Distribution Inventory: All finished goods inventory at any

point in the distribution system. It includes 25%-30% cost

of total distribution cost.It adds time value to the product.

Warehouses: Making decisions, layout plans, method of

receiving, storing goods.

PHYSİCAL DİSTRİBUTİON ACTİVİTİES

Materials Handling: The movement of goods inside the

distribution center. There is a trade-off between capital

and labor costs.

Protective Packaging: Goods moving in a distribution

system must be protected and identified by means of

packaging. Standartization in packaging.

Order Processing and Communication: It is a time

element in whole process and the most important part of

customer service.

TOTAL DİSTRİBUTİON COST

The aim of distribution system is to provide the

customer service at the least total system cost.

Changes in one activity will affect other activities, total

system cost and customer service.

Management must treat the system as a whole and

understand the relationships among them.

TOTAL DİSTRİBUTİON COST A company normally ships a product by rail. Transport by rail

costs $200, and the transit time is 10 days. However, the can

be moved by air at a cost of $1000 and it will take one day to

deliver. The cost of inventory in transit is $100 per day. What

are the costs involved in the decision?

Rail Air

Transportation Cost $ 200 $1000

Inventory Carrying Cost 1000 100

Total $1200 $1100

TRANSPORTATİON MODES Rail

Road

Air

Water

Pipeline

The cost or service characteristic of each mode determine

which mode is appropriate for the goods to be moved. Trucks

are best suited to moving of smal quantities in a wide market

and bulk cargo is moved by water way or rail-way.

TRANSPORTATİON COSTS Fixed Costs: The costs that do not change with the volume

moved : buildings, equipment, trucks.

Variable Costs: The costs that changes with the volume

moved: Maintenance, labor cost, fuel.

COMPARİSON OF MODES Rail-way: It provides its own ways, terminals and vehicles

thus they need a large capital investment. Most of the total

cost of a railway is fixed cost.

We need high traffic on railways to absorb high fixed cost.

Flexible

Cheaper than road service when carrying bulk goods.

Therefore, railways can move large volumes of bulky goods

over long distances.

COMPARİSON OF MODES Road-way:

Trucks do not provide their own way but they pay a fee to the

government as license, tolls and taxes.

Vehicle cost is smaller than vehicle costs for the other modes.

Door-to-door service is very flexible for either supplier or

purchaser.

This mode is used for small volume goods to many delivery

locations.

COMPARİSON OF MODES Air-way:

Uses government provided terminals and air traffic control

systems.

High variable costs for fuel and operating costs.

The main advantage is speed of service on the other hand it is

the most expensive mode.

Used for high value, low weight goods over long distances.

COMPARİSON OF MODES Water-way:

Nature provides ways, canals are government controlled.

Carrier pays for use of terminals.

Carriers own the ships.

Unit operating cost is very low.

Slow and not very flexible.

It is used for low value bulk cargo over long distances.

COMPARİSON OF MODES Pipelines:

Pipelines are the modes of transportation in that they move

only gas, oil on a widespread basis.

They have very high capital costs.

It is not so flexible.

TRANSPORTATİON COST ELEMENTS Line Haul Costs:

Fuel ,Labor, Depreciation are in this group of cost.

It is approximately the same per mile whether full or empty. LHC = Total Line-Haul Cost

Distance Travelled

TRANSPORTATİON COST ELEMENTS Pick up and Delivery Costs:

Pick up costs depend more on time rather than distnace

travelling.

Making several shipments at one time or consolidation of

cargo will reduce the costs.

Terminal Handling Costs:

Cost depends on how many times the shipment must be

handled.

TRANSPORTATİON COST ELEMENTS Pick up and Delivery Costs:

Pick up costs depend more on time rather than distnace

travelling.

Making several shipments at one time or consolidation of

cargo will reduce the costs.

Terminal Handling Costs:

Cost depends on how many times the shipment must be

handled.

Billing and Collecting Costs:

WAREHOUSİNG TYPES İN PHYSİCAL DİSTRİBUTİON

Plant WarehousesRegional WarehousesLocal WarehousesWholesalersPublic Warehouses

WAREHOUSİNG SERVİCES General Warehouse:

Goods are stored for long periods, the aim is to protect goods

until they are needed. There is minimal handling and

movement.

Distribution Warehouse:

It has dynamic purpose of movement.

Goods are received in large volumes.

Goods are sorted and consolidated into customer orders.

ROLE OF WAREHOUSES Transportation Consolidation:

Consolidating small shipments into large shipments reduces the

transportation costs.

Milk – Run

Product Mixing:

Avoids many small LTL shipments.

Customers want a mix of products often from different

manufacturers or locations.

The distribution center can assemble many small items into one

shipment

ROLE OF WAREHOUSES

PACKAGİNG Identifies the product.

Contains and protects the product.

Contribute to physical distribution efficieny.

Unitization: The consolidation of several units into large units

for fewer handlings.

Container

AS A DİSTRİBUTİON METHOD:MİLK RUN The phrase "milk run" originates in American culture, with

the distribution of milk bottles by the milkman. On his daily

route, the milkman simultaneously distributes the full bottles

and collects the empty bottles. After the completion of round

trip, he returned with the empties back to the starting point.

On the round trips are either goods collected from several

suppliers and transported to one customer, or goods

collected from one supplier an transported to several

customers.

AS A DİSTRİBUTİON METHOD:MİLK RUN It is the combination of shipments from multiple vendors in

close geographic proximity into one shipment received by the

customer, normally done for a defined route on a recurring

basis.

AS A DİSTRİBUTİON METHOD:MİLK RUN

AS A DİSTRİBUTİON METHOD:MİLK RUN

Üretim Sonrası - Milk Run

(Boş Kasa/Palet)

Yan Sanayii (Tedarikçi) Yan Sanayii

(Tedarikçi)

Ana Sanayii

(Fabrika)Tedarikçi

Üretim öncesi - Milk Run

(Yedek Parça)

AS A DİSTRİBUTİON METHOD:MİLK RUN(ADVANTAGES) Fast inventory turnover

Less inventory and inventory area equipment

Easier inventory recording and monitoring

Speed and flexibility

Effcient Control on the subsidiary industries for the main industry

Creating economics of scale for subsidiary industry and efficient

consolidation possibility.

Ability to provide common services to different users in subsidiary

industry and productivity increase.