OUTLINE Introduction to physical distiribution Channels of distributions Physical Distribution Activities Transportation Costs Warehousing Role in Physical Distribution A sophisticated physical distribution method: Milk Run

P HYSICAL DISTRIBUTION 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.

P HYSICAL DISTRIBUTION

C HANNELS OF DISTRIBUTION 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.

P HYSICAL DISTRIBUTION

T HE WAY OF MATERIAL 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.

R EVERSE LOGISTICS SupplierCustomer Returned Goods Information

R EVERSE LOGISTICS 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.

R EVERSE LOGISTICS 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final customers Damaged or defective products Inventories that result from over-forecast demand Seasonal Inventories Out of date Inventories Remanufacturing and refurbishment of products.

P HYSICAL DISTRIBUTION ACTIVITIES Transportation Distribution inventory Warehouses Materials handling Protective packaging Order processing

P HYSICAL DISTRIBUTION ACTIVITIES 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.

P HYSICAL DISTRIBUTION ACTIVITIES 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.

T OTAL DISTRIBUTION 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.

T OTAL DISTRIBUTION 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 Total $1200 $1100

T RANSPORTATION 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.

T RANSPORTATION 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.

C OMPARISON 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.

C OMPARISON 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.

C OMPARISON 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.

C OMPARISON 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.

C OMPARISON 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.

T RANSPORTATION 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

T RANSPORTATION 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.

T RANSPORTATION 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:

W AREHOUSING TYPES IN PHYSICAL DISTRIBUTION Plant Warehouses Regional Warehouses Local Warehouses Wholesalers Public Warehouses

W AREHOUSING SERVICES 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.

R OLE 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

R OLE OF WAREHOUSES

PACKAGING 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

A S A DISTRIBUTION METHOD : MILK 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.

A S A DISTRIBUTION METHOD : MILK 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.

A S A DISTRIBUTION METHOD : MILK RUN

Üretim Sonrası - Milk Run (Boş Kasa/Palet) Yan Sanayii (Tedarikçi) Ana Sanayii (Fabrika) Tedarikçi Üretim öncesi - Milk Run (Yedek Parça)

A S A DISTRIBUTION METHOD : MILK 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.