The concept behind physical distribution is the achievement of the optimum (lowest) system cost consistent with customer service objectives of the firm. If the activities in the physical distribution system are viewed separately without consideration of their interdependence the final cost of distribution may be higher than the lowest possible cost (optimum cost) and the quality of service may be adversely affected. Additional variables and costs that are interdependent and must be included in the total physical distribution decision heighten the distribution problems confronting the international marketer. As the international firm broadens the scope of its operations the additional variables and costs become more crucial in their effect on the efficiency of distribution system.
One of major benefits of the European Union’s unification is the elimination of transportation barriers among member countries. Instead of approaching Europe on a country by country basis, a centralized logistics network plan is developed. The trend in Europe is toward plan Europe distributor centers. Studies indicate that companies operating in Europe may be able to cut 20 warehousing locations to 3 and maintain the same level of customer service. A German white goods manufacture was able to reduce its European warehouses from 39 to 10 as well as improve its distribution and enhance customer service. By cutting the number of warehouses, it reduced total distribution and warehousing costs, brought downs staff numbers, held fewer items of stock, provided greater access to regional markets, made better use of transport networks, and improved service to customers all with a 21 percent reduction of total logistics costs.
Benefits of a physical distribution system
A system of physical distribution offers more benefits than cost advantages. An effective physical distribution system can result in optimal inventory levels and, in multi plant operations optimal production capacity, both of which can maximize the use of working capital. In making plant location decisions a company with a physical distribution system can readily assess operating costs of alternative locations to serve various markets.
A physical distribution system may also result in better (more dependable) delivery service to the market, when production occurs at different locations; companies are able to determine quickly the most economical source for a particular customer. As companies expand into multinational markets and source thee markets form multinational production facilities, they are increasingly confronted with cost variables that make it imperative the employ a total system approach to the management of the distribution process to achieve efficient operations. Finally, a physical distribution can render the natural obstruction created by geography less economically critical for the multinational marketer. Getting the product to market can mean multiple transportation models, such as canal boat in China, pedal power in Vietnam and speed trains in Japan or Europe.
Export Shipping and Warehousing
Whenever and however title to goods is transferred those goods must be transported. Shipping goods to another country presents some important differences from shipping to a domestic site. The goods can be out of the shipper’s control for longer periods of time than in domestic distribution more shipping and collections documents are required packing must be suitable, and shipping insurance coverage is necessarily more extensive. The task is to match each order of goods to the shipping meds best suited for swift, safe, and economical delivery. Ocean shipping airfreight air express and parcel post are all possibilities. Ocean shipping is usually the least expensive and most frequently used method for heavy bulk shipment. For certain categories of goods, air freight can be the most economical and certainly the speediest.
Shipping costs are an important factor in a product’s price in export marketing, and the transportation mode just is selected in terms of the total impact on cost. One estimate is that logistics account for between 19 and 23 percent of the total cost of a finished product self internationally One of the important innovations in ocean shipping in reducing or controlling the high cost of transportation is use of containerization.