A customer is served by: (1) identifying an existing or potential need of the customer, giving concrete expression and shape to the need through advertising, designing the product and pricing it; (2) manufacturing the product; and (3) making the product available to the customer at the right place and time, by a proper arrangement of the movements and local storages of the product. Physical Distribution Management function (also called Logistics) is concerned with item. In some cases, it also includes the movement of raw materials from the supply source to the manufacturing facility.
PDM is the function that helps in a big way, to provide the time and place utility to the customer. Thus, marketing functions and PDM function are closely related to one another. PDM has to provide the desired level of product availability to the customer at lowest cost. In fact, PDM is efficient management of materials, their movement. storage and control outside the manufacturing plant which activity concerns the marketing objectives of meeting customer demand.
The major job elements or decisions made in PDM are:
1. Optimal location and arrangement of fixed storage facilities such as the warehouses, depots, or supply centers so as to provide the customer/s with the desired product/s. Typical questions to be answered are: How many depots/supply centers? Of what sizes? Where should they be located?
2. How should different customers be supplied from the different depots/supply centers?
3. Inventory Control Systems and policies in these depots/ supply centers.
4. Optimal management of the transport/ shipment of the product/s. Typical questions to be asked are:
Which mode of transport?
* Railways? Truck? Air? Water?
* What quantity and mix if the above?
* Which routes to be chosen for the shipment?
* What is to the frequency of transport?
* What packaging to use in order to prevent damage during transportation?
All above decisions are to be taken so that the desired level of service to the customers is provided at the lowest total cost. The expression for the total cost of a distribution system may be written as:
TDC = TFC + TVC + SFC + SVC + IC + PC
TDC: Total distribution cost
TFC: Fixed costs of transportation
TVC: Variable costs of transportation
SFC: Fixed costs of supply centers
SVC: Variable costs of supply centers
IC: Inventory related costs
PC: Packaging costs
PDM function has to be viewed in its totality. For instance, if speedy transport is used at higher costs, one may be able to manage with less number of distribution points or depots. If the transport is slow, then one would need more number of depots. If transport is fast, the lead times are small, and consequently the inventory carrying costs are low. In short each component of PDM interacts with another.
However, in what follows, analytical techniques will be presented independently for the following major areas of PDM:
1. Warehouse/Distribution center location
2. Allocation of warehouse capacities to customers’ demands
3. Vehicle route scheduling
Once again it may be emphasized that all the components of Physical Distribution System interact with another. As long as the reader is aware of this, the independent presentation of the above mentioned areas of decision making in PDM will help in understanding the implications of each one of them thoroughly.
Optimal Location of Warehouse:
There are analytical methods available for deciding upon warehouse location, with the objective of minimizing cost. This ‘cost’ depends upon the distance between the warehouse and the customers (being supplied by the warehouse) as also in the frequency or the number of loads carried to the customers. The warehouse location problems could be modeled an analogue to a situation where a number of strings are tied to a number of rings and different weights are attached to the strings. These are all placed on a table in which a number of holes are drilled and strings passed through these holes. The holes correspond to customers; location and the weights correspond to the number of loads carried to the customers (or the weight age given to each customer). Due to different weights the ring will experience pulls in different directions and will stabilize at one point. This is the point of minimum potential energy which is analogous to optimal depot location.