The company’s location is influenced and determined by customers’ needs and preferences. The paper will describe and analyze the plant logistic system and its relations with customer wants and problems. Designing physical distribution systems to meet market needs is a dynamic problem, for continuous changes in markets, products, and processes bring about new physical distribution techniques and patterns. For a pant, competition, and pressures to reduce costs are also stimuli. Demand characteristics are directly related to physical distribution systems. Where demand is widely variable, then distribution facilities are usually concentrated in fewer locales. Where demand is continuous and rather consistent, as is the case for some food products, distribution facilities can be decentralized (Crammer and Wegfahrt 2006). A highly variable demand makes it difficult to design effective physical distribution systems and control costs, while a stable demand permits it. In between these extremes, where demand patterns can be discerned through analysis, as with seasonal products, reasonable distributions systems may be approximated. Product characteristics help to determine the optimal design and type of physical distribution system. The ability of products such as luxury items to absorb costs is particularly important. High-value items, if heavily stocked, mean a heavy inventory investment and hence increased costs. Their storage is often minimized. For them, transportation is a modest amount of the total price (Christopher, 2005). Physical distribution systems are geared to the optimization of the system as a whole rather than any part of it.
Customers determine the logistics and management strategies of a plant demanding cheap and high-quality products. The channel functions, concentration, and dispersion are related to the homogeneity and heterogeneity of supply, and the appropriate sorting process must be provided. Successive channel stages attempt to overcome any discrepancy between product assortment and market requirements. Customer requirements of one or two units are at variance with supplier requirements of mass production. To plan, direct, and coordinate physical distribution activities, it is desirable to group them all within a single department. This is usually achieved in retailing and wholesaling under the operations department. Manufacturing generally lacks such coordination (Crammer and Wegfahrt 2006).
In contrast to old models of logistics, in contemporary ones, the value characteristics of products are also considered (Crammer and Wegfahrt 2006). Crammer and Wegfahrt (2006) call this process “proximity”: they state that valuable items can bear these costs more easily than can low-value items such as lumber and coal. Variations in product lines and such features as packaging, color, size, style, and variety place a heavy burden on the distribution system. Now more products have to be handled with lower volume per item and higher costs of storage, inventory, and handling. Transportation and handling costs, distant locations, and time are barriers to the development of markets. Through physical distribution, costs are reduced and time and geographic barriers are hurdled, thereby enabling companies to cultivate additional markets profitably. Logistical costs have forced firms to withdraw from previously served markets. The standard of customer services offered is determined by the consideration of both customers and competitors. The services offered by major competitors establish a general standard. Nevertheless, management must also think of the particular impact of service variations on customer response and profitability as a guide in considering alternative physical distribution strategies. For example, a manufacturer may decentralize processing plants to bring them close to customers where items are low in cost and price and have relatively high handling and transportation costs, as has been done with breweries. But if customers will accept longer delivery times without shifting their business to competitors, then more efficient use might be made of centralized processing facilities, and less efficient ones could be closed (Crammer and Wegfahrt 2006).
Decentralization of plant distribution tends to be the practice in companies with the following operating characteristics: a large number of small shipments are made, production facilities are decentralized and widespread markets exist, the products transported and stored are heterogeneous and shipments cannot be consolidated, and different geographic areas require different services. The elements of a physical distribution system include market segments, manufacturing, distribution to wholesaling and retailing points, and transportation and storage links. The systems design is affected by the predictability of product flows through the system, the distances between points, and the bulk of commodities. In essence, the same elements affecting such marketing areas as advertising, personal selling, and products affect physical distribution decisions (Murphy and Wood 2005).
In sum, plant location, competition, markets, transportation facilities, service requirements, the location and size of customers, product characteristics, distribution requirements, inventory forces, and production requirements establish constraints for physical distribution systems. While demand-creating forces attempt to generate sales and cultivate markets, physical distribution is concerned with developing the supporting logistical system that will move and locate products to permit the most profitable exploitation of markets. Distribution facilities are often clustered by market potentials. But markets are variable, unevenly distributed, and separated from a company in space and time. For example, decentralized distribution points can serve large markets profitably. Smaller markets may be serviced by direct shipments. Accurate estimates of demand are critical in designing distribution systems, for they help to establish the feasibility of capital expenditures on plant and warehouse additions, which in turn shapes the distribution network.
References
- Christopher, M. (2005). Logistics & Supply Chain Management: creating value-adding networks. FT Press; 3 edition.
- Crammer, L. J. & Wegfahrt, A. M., (2006). Ranked #9 Proximity to Major Markets. Area Development Site and Facility Planning; Easton, 41(5).
- Murphy, P. R. Wood, D. (2005). Contemporary Logistics. Prentice Hall; 9 edition.