What is Physical Distribution and Why It is Important in eCommerce

In a time when supply chain and logistics are changing rapidly, physical distribution remains a near-constant factor. Physical distribution manages the flow of merchandise in the supply chain. Hence, it gravely impacts the logistical performance of any eCommerce business.

This article introduces the concept of physical distribution and its role in the supply chain of an eCommerce company. 

Overview of Physical Distribution

Physical distribution in logistics refers to the movement of goods and materials from the point of origin to the destination. It can denote two stages:-

• The flow of raw materials and assembled goods from the supplier or the factory of the production center to warehouses.
• The movement of finished products from a fulfillment center or warehouse to the end customer.

The end goal of the distribution is to supply the product in optimal time, incurring the least cost and heightening customer satisfaction. In the case of eCommerce fulfillment, the product passes through a warehouse, distribution hubs, or fulfillment centers to the delivery location.

A Granular View of Systems Comprising Physical Distribution 

Physical distribution is like an arterial network panning across a country (and even the globe) with various central points like distribution centers. The physical distribution network of a company will determine the speed and cost of delivering a product. In this section, we describe the systems that comprise the process of physical distribution.

1) Order Processing for Order Accuracy and Verification

This is the first stage where retailers receive customer orders. Order processing specifies information like the product customers wish to buy, the shipping method they choose, and the location of the delivery. As such, it gives a clear indication of where the shipment needs to be and how fast. 

Once the order is placed, the merchant contacts the warehouse or fulfillment center to prepare the shipment. The right SKU is picked and packed according to the brand’s standards. It is then labeled and dispatched with the right carrier partner. 

In many cases, the shipment leaves the primary warehouse and makes stops at various transit points. It can be shipped by air or rail and taken to another location, maybe a transfer center before it reaches the customer. 

2) Material Handling and Transportation

Physical distribution begins at the initial stages of the supply chain, i.e., from the materials handling state. This process refers to the coordination of the movement, storage, and management of different types of goods.

They are raw materials, assembled parts, semi-automated components, and finished products sourced from suppliers or manufacturers.

In a supply chain, materials can either move within a logistics center, like production facilities and warehouses, but also between different facilities.

It involves production planning and resource allocation between manufacturing centers, warehouses, and transportation terminals. These series of activities broadly fall under the jurisdiction of physical distribution. 

3) Warehouse Management and Fulfillment Services

Warehouses and fulfillment centers, alongside distribution centers and hubs, are the central locations where physical distribution is carried. These storehouses brim with logistical activities like order consolidation and act as control towers for managing inbound and outbound logistics. 

Warehouses, therefore, are critical centerpieces in all physical distribution processes. A warehouse is tasked with storing inventory and cargo in a way that can be efficiently picked and ensure effective packaging. It also regulates the storage of bulk shipments and cargo. 

Apart from efficiently storing it, warehouses and, more specifically, fulfillment centers play a pivotal role in dispatching orders. This means they take charge of picking, packing, kitting, labeling, and shipping orders for eCommerce brands. They supervise and control all the activities before a product is handed over to a carrier for final delivery. 

In this way, warehouses and fulfillment centers can be said to propel the physical distribution of goods necessary for eCommerce order fulfillment. 

4) Inventory Control and Stock Keeping

Much like order management, inventory control, and stock keeping directly correlate to the effectiveness of a physical distribution system. Inventory tracking, stock replenishment, and order procurement constitute inventory control. 

Moreover, in a physical distribution chain, a product moves from one point to another, so it is absolutely critical to keep track of inventory flow at each stage. This can help ensure inventory levels are always optimal and rule out stockout possibilities, especially for eCommerce businesses. 

For companies following assemble-to-order and manufacturing-to-stock strategies, inventory management is an absolute must to avoid dead stocks or longer lead times. 

Forecasting inventory is a way to avoid depletion and low stock situations; brands can prepare to place production orders ahead of demand arrival. Therefore, inventory management is a vital area of physical distribution.

5) Shipping and Last-mile Delivery 

The last mile delivery is the most sensitive component of any eCommerce logistics chain. In this stage, the customer's order is shipped and travels a distance to arrive at the customer’s doorstep. It is this step in the physical distribution network that strongly impacts the brand-customer relationship.

An eCommerce merchant has to decide on the shipping carriers, the shipping methods, and the dispatch mode. Once finalized, the physical distribution of the product can take place. It is the last mile logistics that often affect the cost of shipping a brand incurs. It also determines the delivery fees they charge from the customer. 

While many carriers like FedEx and UPS offer tracking updates, taking recourse with shipping software can also help. The latter can help regulate physical distribution, particularly in the last mile, by sending milestone-based tracking orders, automatically selecting carriers, giving discounts, etc.

6) Customer service for issue resolution 

A less thought-of area in physical distribution is customer service. This is because customer service does not coordinate shipping routes, shipment dispatch, or inventory control. However, they still form the bridge between a brand and a customer. As such, they are the primary source of contact in cases of late deliveries, shipping delays, lost shipments, or product returns.

It can be said that customer service acts like the frontend of any application, where users interact with the backend, i.e., warehouse management or courier companies. They are entrusted with resolving customer issues promptly, recovering shipping delays, and handling returns or exchanges. 

The Value of Physical Distribution for eCommerce Businesses

1) Cost reduction 

While eCommerce customers expect expedited shipping, in most cases, it results in heavy expenses for brands. This can result from faster fulfillment charges, carrier rates, and labor costs. However, if strategically planned physical distribution, brands can reduce this cost. 

First, they can make use of distribution metrics to strategically locate their inventory near major urban centers like distribution hubs. Second, they can improvise their carrier network to access the best economical delivery methods like flat rate shipping. Third, they can use roadways and railways that are less exorbitant than air freight. 

2) Fast Shipping Time

Since physical distribution is the trajectory that a shipment follows to reach a customer, it has a direct bearing on shipping time and costs. Almost 9 out of 10 online customers expect eCommerce brands to offer fast shipping, they can even pay extra for same-day delivery. 

A brand can successfully thrive in the slippery slope that is customer expectations if it optimizes the physical distribution strategy. Brands focusing on hyperlocal or same-day deliveries must find an economical way of shipping goods. It also has to be within the expected time frame of the customer.

It can adopt strategies like splitting inventory in different distribution centers, mapping routes with the least traffic congestion, and fulfilling orders fast. 

3) Lean Supply Chain

In a lean supply chain, every element, from production to delivery, is restructured to promote maximum efficiency with the least wastage. Transportation and packaging in logistics are two areas that have a lot of wastage alongside raising the carbon footprint of a company. 

As such, companies can resort to eco-friendly packaging like recycled boxes and shipping products in one box to reduce packaging waste. Similarly, they can use carriers that are carbon neutral or promote carbon offsetting, like Asendia or DHL, to lessen their environmental impact.

4) Customer Satisfaction 

Companies can gain customer satisfaction and loyalty by planning the best shipping routes, delivery methods, and time. Both of these are central factors determining customer retention and repeat purchase.  

Customer satisfaction is thus dependent on on-time delivery records of a brand and timely order tracking alerts. eCommerce brands can make use of multi-carrier shipping software to regulate tracking notifications.

They can also promote branded tracking and automate carrier selection with efficient delivery history to further optimize the last mile delivery process.

5) Lead Time Management 

In logistics terms, lead time is the time required to fulfill a customer’s order, from the moment it is received by a brand till the minute of delivery. Physical distribution governs the amount of time an order takes to be fulfilled, shipped, and delivered to the end customer. It especially impacts the lead time of time-sensitive goods.  

Take, for example, perishables like fresh produce.  The physical distribution network of an FMCG firm will determine the time required to bring the produce from the farm to the cold storage or dark store. With an efficient distribution system and shipping method, the product can be delivered to the customer on time without the risk of spoilage. 

Lead time management is thus an elementary function of physical distribution. To improve lead time, the business can optimize its physical distribution network by roping in local suppliers, selecting fast carriers, and using multimodal transport.

The Determinants of an Effective Physical Distribution System

Managing a physical distribution network requires the involvement of many business functions like manufacturing, warehousing, and transportation. Here we specify six determinants of an effective physical distribution system that eCommerce brands can leverage: 

1) Distribution Channels 

Distribution channels or logistics centers are primarily facilities that are adept in storing and managing the flow of materials. These channels operate on three levels. 

They handle materials sourced from suppliers in large warehouses or distribution centers. Along these lines, they manage the movement of goods between two or more logistics centers. Moreover, they store inventory and complete order fulfillment by packing and shipping the order with a carrier. 

Though there are many variants of distribution channels, the most common ones include 3PL-led fulfillment centers, warehouses, distribution centers, and hubs. A business can choose any of these solutions to manage same-day or two-day order fulfillment, bulk or split shipments, order consolidation, and kitting. 

2) Market Considerations and Customer Demand 

A physical distribution system isn’t isolated from considerations like the locations of the logistics centers and the availability of industrial markets. A distribution channel has to appraise the availability of feasible roadways and railways and connectivity with metropolises etc. 

Along these lines, producers and retailers have to examine customer demand and purchase behavior to localize and distribute their inventory. 

3) Shipping Methods and Delivery Times

Shipping method is a considerable factor in any eCommerce business. The delivery method they choose has a direct impact on their bottom line and determines customer satisfaction with delivery. As such, brands must carefully consider if they should provide expedited shipping like same-day deliveries or economical options like four-day deliveries. 

4) Partnering with 3PLs and 4PLs

Many brands choose to outsource their inventory management and fulfillment processes to third-party logistics providers (3PLs). These agents have expertise in warehousing, transportation, picking and packing, and returns management.

Assigning aspects of physical distribution to 3PLs can help businesses streamline and optimize their fulfillment and shipment dispatch process. They can also rely on 3PLs to replenish inventory and distribute it amongst their many fulfillment centers.

Conclusion

Every business, whether in retail or eCommerce, has its physical distribution network. A physical distribution channel controls the flow of resources and goods in the supply chain. With the right logistics facilities, freight forwarders, and last-mile delivery partners, retailers can fulfill on-time and in-full deliveries each time. Therefore, businesses should pay extra attention to creating a robust physical distribution network.

FAQs

1) What is the difference between physical distribution and logistics?

Logistics is the overall process of planning and managing the inventory, warehousing, transportation, and shipping of products. But, physical distribution concentrates only on transporting goods  from one place to another. In this way, distribution becomes a part of a larger logistical structure.

2) What makes up a Physical Distribution System?

Physical distribution involves order processing, shipment handling, and transportation from a warehouse to customer destination. If we break down its components further, physical distribution would involve sorting and categorization of products in warehouses, arranging for carriers, distributing inventory and finally last-mile deliveries.