Meaning of Physical Distribution

Physical Distribution (PD) refers to the set of activities concerned with efficient movement of finished goods from the end of operation management to the consumer. It takes place between numerous wholesaling and retail channels and includes such important decision areas as customer service, inventory control, material handling, protective packaging, order processing, transportation and warehousing.

Physical Distribution is part of a larger process called distribution which includes wholesale and retail marketing as well as physical movement of products. By storing goods in convenient locations for shipment to wholesalers and retailers and by creating faster and reliable means of moving the goods, business owners can help assure continued success in a rapidly changing competitive global market. The importance of physical distribution is also based on its relevance to customers‟ satisfaction. Physical distribution can be viewed as a system of components linked together for the efficient movement of products. Business can ask the following questions in addressing these components.

  1. Customer service

What level of customer service should be provided?

  1. Order processing

How should the orders be handled?

  1. Inventory control

How much inventory should be maintained at each location?

  1. Transportation

How will the products be shipped?

  1. Warehousing

Where will be the goods located, how many warehouse should be utilized?

  1. Material handling

How can efficient methods be developed for handling goods in factory and transport terminals? These components are interrelated in way that decisions made in one area affects the relative efficiency of another. Viewing physical distribution from a systems perspective can be the key providing a defined level of customer services at the lowest possible costs.



Customer service

Customer service is precisely defined standards of customers‟ satisfaction which business owner intends to provide for its customers. Physical distribution system is normally set up to reach the customer satisfaction at the lowest possible cost. In today’s technologically fast paced world, firm always involve the use of specialized software that allow the owner to track inventory while simultaneously analyzing all the modes and transportation means available to determine fastest and cost effective way to deliver goods in time.

Order processing

Order processing is another physical distribution function because it directly affects the ability to meet customer service standard defined by the owner. If the order processing system is sufficient the owner can avoid the cost of premium transportation or high inventory levels. Order processing varies by industry but often consist of four major activities;

  • Credit check
  • Recording of the sales such as crediting a sales representative commission account.
  • Making the appropriate account entries and locating the item.
  • Shipping and adjusting inventory records.

Technological innovations such increase used of Universal Product Code are contributing greater efficiency in order processing. Backwards system gives business the ability to route customer orders efficiently and reduce the need for manual handling.

Inventory control

It is a major component of physical distribution system. Inventory costs include funds invested in inventory, depreciation, possible obsolescence of the goods. Inventory control analysts have developed a number of ways which can help business control inventory effectively.


It is the movement of goods from one point to another. Transportation costs vary by modes.


A storage warehouse holds products for moderate to long term period in an attempt to balance supply and demand for producers and purchasers. They are most often used by business whose product supply and demand are seasonal. On the other hand, a distribution warehouse assembles and distributes products easily keeping them on move as much as possible.

Material handling

As a component of physical distribution, material handling comprise of all the activities associated with moving products within a production facility, warehouse and transportation terminals.

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