Chapter 22 - Physical Distribution

5 types of public warehouses

1) bulk storage - keep products only in bulk form (oil, chemicals) 2) cold storage for perishables 3) commodity - for agricultural products (tobacco, cotton, grain) 4) general merchandise that don't require special handling 5) household goods for personal property, household articles and furniture. (i.e. our storage unit @ Public Storage)

3 factors that affect transportation costs

1) distance between the source and the destination 2) the means of transportation 3) the size and quantity of the product to be shipped.

Exports

1/6 of total manufacturing and agricultural output (16% of everything made or grown is shipped to other countries).

railroads

15% of all freight transport. Typically used for long distance & less expensive than air. Delivery speed is comparable to trucks over long distances and faster than waterway. Deregulation & introduction of larger capacity freight cars have created opportunities in areas previously dominated by motor carriers. Excellent for heavy and bulky freight such as coal, steel, lumber & grain. Specialized rail cars like refrigerated cars, ramped cars for automobiles, tankers for combustible or hazardous materials. Low cost because it carriers large quantities (low per unit cost) & require 50-70% less energy than a motor carrier & seldom stopped or slowed by bad weather making it one of the safest modes. Biggest disadvantage is lack of flexibility with delivery locations - designated stations along rail lines.

Benjamin Franklin

1st Postmaster General appointed in 1775

air cargo services

Less than 1% of shipped freight & regulated by the Federal Aviation Administration (FAA) but companies set their own rates. Good for high value, low weight, time critical items (overnight mail, emergency parts, instruments, medicines, etc.) Adv/Disadv: quick delivery time which reduces inventory exp. & storage costs. But most expensive form (2X trucking rates), subject to mechanical breakdowns & weather delays, terrorism, etc.

transportation service companies

US Postal Service, express delivery services, bus package carriers, freight forwarders

distribution center

a warehouse designed to speed delivery of goods and minimize storage costs with the main focus on sorting and moving products, not on storage. Planned around markets rather than transportation requirements and cut costs by reducing the # of warehouses and eliminating excessive inventory. They include retail distribution centers or order fulfillment centers. A typical center may employ an unloader to unload trucks and break down pallets, a receiver, a hauler to receive pallets from the receiving dock to the storage racks, a put away driver to load the product into racks with a forklift, a replenishment driver to pull product from the racks with a forklift and prepare it for the order filler, an order filler to locate the ordered product and move it to a designated location, and a loader to wrap the pallets and load the trucks.

means of transportation

air, water, land - affects the form of packing materials and the size & frequency of shipments. Sending larger shipments less frequently can decrease transportation costs - but consider the cost of maintaining extra inventory. Careful planning & scheduling can help save transportation costs.

physical distribution

aka logistics; it links a business and its customers. It comprises activities for delivering the right amount of product to the right place at the right time. It's a key link between a business and its customers and ensures that products reach final customers by using a network of distributors, warehouses, and retailers. It involves order processing, transportation, storage, stock handling, packaging, as well as inventory control of materials and products and even customer service. It starts with the purchase of a product, makes up 20-25% of the value of a product, and represents the 3rd largest expense for most businesses (after material and labor). It needs to be coordinated with other business functions such as purchasing, finance, production, packaging, and promotion.

Trucking

aka motor carriers and most frequent mode of transportation. Ideal for short distances and higher valued products that are expensive to keep in inventory, products with a limited shelf life (produce, meat, dairy), and lightweight shipments over moderate distances. Used for all intracity and 26% of intercity freight traffic. More expensive than water or rail but convenience of rapid door-to-door deliveries which reduces the need for businesses to carry large inventories between shipments. Disadvantages: susceptible to delays due to traffic, road conditions, and severe weather. Also subject to size and weather restrictions, which can vary from state to state, making interstate travel difficult in some situations.

marine shipping

barges & container ships that carry their loads in either 20-40' standardized truck-size containers. Adv: low cost. Disadv: slowest form of transport, buyers located far from port city must use a 2nd form of transport, affected by bad weather and seasonal conditions (i.e. Great Lakes closed in winter).

intermodal transportation

combines 2 or more transportation modes to maximize the advantages of each. Piggyback service: involves carrying loaded truck trailers over land by rail and trucks. Fishyback service: shipping loaded truck trailers over water on ships/barges and then truck.

For Hire Carriers: contract or common

customers don't need transportation equipment but they offer less flexibility for rush deliveries, rush shipments, and special pick-ups or handling.

contract carriers

for hire trucking companies that provide equipment and drivers for specific routes, according to agreements between the carrier and the shipper. It can be a one time or continuing basis. Fee agreements are negotiated with each customer and usually transport goods for more than 1 business. They can legally charge different rates to each customer but they must file their contracts with the appropriate state or federal regulatory agency.

types of carriers

for hire: contract or common or private: exempt

less-than-truckload carriers

form of common carrier that provide shipments in which freight from multiple shippers are consolidated into a single truckload. Carriers can change their rates or geographical areas as long as they match their published rates. 1/3 of all motor freight is common carriers.

DHL

largest company specializing in international express shipping

commodity storage

makes certain agricultural commodities such as corn, wheat, and soybeans available year-round & ensures that their price remains relatively stable.

storage

marketing function of holding goods until they are sold in warehouses or distribution centers until orders are received. Adds time and place utility to products: must be available for customers when and where they want them. Costs include space, equipment, and personnel

carload

minimum # of pounds of freight needed to fill a boxcar established for different classifications of goods. Once a shipment reaches the min. weight, the shipper pays the lower rate, regardless of physical size of the shipment.

ton-mile

movement of one ton (2,000 lbs.) of freight for one mile.

international waterways

oceans, seas, and rivers that connect continents and countries that use container ships & barges to move freight

U.S. Postal Service

primary source for shipping small packages by parcel post or first-class mail (up to 70 lbs. and < combined 130"). Largest civilian ground fleet with 212,000 vehicles. Parcels an be insured, paid COD, next day delivery, international locations, etc.

freight forwarders

private companies that combine less than carload or less than truckload shipments from several businesses and deliver them to their destinations. They gather shipments into larger lots and then hire a carrier to move them, usually at reduced rates. By combining shipments, they often obtain truckload or carload rates to decrease shipping costs.

types of warehouses

private warehouse, public warehouse, distribution center, bonded warehouse

bus package carriers

provide same day or next day package delivery service to businesses along their scheduled routes at reasonable rates.

bonded warehouse

public or private warehouses that store products that require payment of a federal tax.

state & federal transportation agencies

regulate motor carriers used for interstate commerce (between states), # of hours motor carrier operators can drive without stopping, and the length of rest periods. Regulate fuel taxes, safety issues, and rates charged within a state.

inland shipping

shipping from one port to another on connecting rivers and lakes. i.e. St. Lawrence Seaway, the Great Lakes, and the Mississippi & Ohio Rivers

intracoastal shipping

shipping of goods on inland and coastal waterways between ports along the same coast.

Express Delivery Services

specialize in delivering small, lightweight packages, envelopes, and high priority mail < 150 lbs. FedEx, DHL, UPS, etc. offer door-to-door services by airplane, truck, bus, or train. Rates based on size, speed, weight, distance, and type of service (usually 2-3 days).

public warehouse

storage and handling facility that rent storage space to anyone that will pay for its use. May also provide additional services: shipment consolidation, receiving, unloading, inspecting, reshipping, order filling, and truck terminal operation services.

private warehouse

storage facility designed to meet the specific needs of its owner: temperature-controlled, offices, etc. Expensive so only viable if a large amt. of merchandise needs to be stored.

inventory

the amount of goods stored

Transportation

the marketing function of moving a product from the place where it is made to the place where it is sold. Can be up to 8% of a company's sales revenue.

exempt carriers

trucking companies that are free (exempt) from direct regulation of rates and operating procedures which allows their rates to be lower than common carriers. i.e. local transportation firms if some cases or agricultural products

common carriers

trucking companies that provide transportation services to any business in their operating area for a fee. They must treat all customers equally.

private carriers

trucking companies that transport goods for an individual business who may own or lease transportation equipment. Often their primary business is NOT transportation.

5 major transportation systems

trucks (69%), railroads (15%), waterways (6%), pipelines (10%), and air carriers (<1%)

pipelines

usually owned by the company using them, so considered private carriers. 2.6 million in the U.S. are used to transport natural gas and oil moving from oil fields to refineries, etc. Then refined products are trucked to destination (i.e. gas station). Adv/Disadv: High initial investment, but low operational costs. Best safety record. Products move slowly by continuously w/ minimal product damage or theft. Not subject to delay bc of bad weather. Risk of leaks are low but can be very damaging to environment.

FedEx

world's largest civil fleet: 654 aircraft, 300,000 employees, 1,900 service centers, 220 countries, 10.5 million shipments daily.