Logistics is the art of management of physical distribution involving actual movement of products from factory premises to depots and to these intermediaries. 'Logistics' was a military term referring to a complete system of moving, supplying and quartering troops. This channel operation also includes storage of products.Physical Distribution System involves distribution of products and through channel members. The channel members include intermediates i.e. middle-men - C&S Agents, C&F Agent, Stockists, Wholesalers, Retailer etc. they help in actual exchange process. These members are located at different points throughout the country.
For better management of Physical Distribution System, it is classified as:
1. Activities
2. Distribution Cost & Control.
3. Distribution Strategy
1. Activities
There are several activities involved in Physical Distribution. So it can be narrated as:
1.1 Finished Product inventory at Factory godown
1.2 Order processing, Allotment and Inventory Management.
1.3 Transportation
1.4 Excise Clearance and other statutory provisions.
Finished Product Inventory at Factory Godown: After manufacturing, finished products are transferred to factory godown for storage and transportation. The products are stored systematically in godown - product wise & batch wise, so as to take out the product in smooth manner & also to maintain FIFO (First in first out). It is essential to maintain inventory is systematic manner, since pharmaceuticals are dated products. Storage conditions are also required to maintain the products potency. In other way this is the first part of physical distribution system, where finished product inventory is managed at factory godown.
Order Processing, Allotment & Inventory Management:
The orders are being received from different depots, stockists, institutions, branches etc. In normal course all the depots, C&F agents, superstockists, branches, etc. send their expected requirement to H.O. in advance. The Orders are placed on the basis of market demand to H.O. where-as the firm has a product-wises, region-wise and monthwise target. All the orders are processed and compared with the target for deviation, if any. Then allotment is made form the existing stock, keeping in mind inventory at H.O. & all branches / Depots level. It is planned very carefully to avoid sale-loss & also to avoid excess inventory at any one of the depot. Since sales are made through each depot through sales of different products, so there must be an optimum inventory at each depot. There should be minimum order cycle time. Since cost is involved in each transaction, so for maintaining cost effective operating, there should be an Economic order Quantity (EOQ). EOQ is planned and EOQ is calculated for each product.
Transportation: This is the method by which products are transferred from manufacturing place to the selling point. The cost, safety, reliability, time & dependency are the main factors in selection of mode of transportation.
The freight involved in transportation generally depends on type of products, weight, distance, packet, volume, number of transshipment, density of traffic etc.
Excise & Other Statutory Clearance: Excise duty is to be paid as per the provision of Central excise tariff, before release of goods from factory godown. State excise is to be given for alcohol and narcotic products. Hence all excise formalities are to be completed before transportation i.e. price list approval and submission of documents and related papers etc. All excise clearance is to be strictly obtained. Further the entire related statutory requirement i.e. provisions of Drugs & Cosmetics Rules, DPCO'95 and others are to be followed strictly.
2. Distribution Cost & Control
The pharmaceutical market is very much competitive, where the substitutes are available at selling point. At the same time there is always increase in cost-input and squeeze in profit of pharmaceutical products, in such circumstances, it will be major gain, if distribution-cost is controlled and is reduced while maintaining the required service levels. Hence it becomes imperative for Distribution Manager to do distribution analysis and control. Also it is necessary to consider all elements minutely. The under mentioned elements can be considered as important cost-factor in distribution:
1. Transportation Cost
2. Inventory carrying cost
3. Material handling 'cost
4 Administrative costs.
Transportation Costs: It includes freight, insurance and local delivery cost. There is no readymade formula for transportation cost-control and for optimum transport system. So by adopting suitable process as per need of the company, transport system is developed for its operation in cost effective manner, keeping time factor in mind. Freight depends on no. Of transshipments, distance, volume, density of traffic etc. Accordingly transportation cost is to be evaluated on seeing the involvement of time and urgency of order. As indicated earlier, the saving of freight, by timely transportation of products from factory to selling point is directly related to profit of firm. Hence, transportation cost is vital component in controlling cost.
Inventory Carrying Cost (ICC): Quick turnover / rotation of Working Capital earns more and more profit to firm. At the same time, holding of products for a long time as inventory, causes blockage of Working Capital. In clear terms, the carrying of finished products (from the date of manufacture up to the date of billing) involves hidden cost to the firm in addition to the chances of expiry and obsolescence. This hidden cost is directly related to profit of firm. Hence for better cost-control, it is imperative to minimize the ICC by proper planning of transportation, its mode, frequency, quick delivery and quick turnover.
Material Handling Cost: There is a sizeable amount of cost involved in material handling (handling in and handling out). For the purpose of cost control, it is categorized as stated below:
- Labour cost in picking, packing, re-conditioning, repacking, loading and unloading.
- Cost of material handling equipment
- Goods damage in handling.
So this cost has to be controlled and minimized by preventing repeat of work and other factors.
Administrative Cost: There are hidden expenses at office level involved in physical distribution. So it is imperative to control the associated expenses, which helps in controlling as well as saving distribution cost. Besides office expenses, it covers communication-cost related to distribution, storage, transportation, order processing, inventory control and planning.
3. Distribution Strategy
It is very much essential to draw strategy to get the success in any work. Accordingly, distribution strategy is to be chalked out and controlled for physical distribution of products. Many of the manufacturers feel distribution cost as an extra burden, and they do arbitrary cost reduction in transportation, which affects sales of products and some of the manufacturers do transportation arbitrary putting heavy cost burden on product inadvertently. So it is better to do operating efficiency with cost and customer service involved in distribution.
The pharmaceuticals require special storage conditions, so the effective and quicker means of transportations saves storage time and ICC. So distribution strategy are drawn for safe and quicker transfer of products through any of means indicated above considering cost-effectiveness, time factor and urgency of order. The firm has to deal with a number of products at different depot, hence strategies are drawn for optimum inventory at each points, so as to prevent sale-loss as well as to avoid high inventory at any point. For institution-sale the products are to be delivered within scheduled time to prevent sale loss, penalty and blacklisting.
In a nutshell, it is concluded that physical distribution system is an important part of place i.e. one of the marketing-mix of pharmaceutical marketing. In modern marketing concept where customer satisfaction is the main motive, it can be done by better and effective 'Place' service in the competitive pharmaceutical market. At the same time it is necessary to include strategy for place in formulation of marketing strategies covering physical distribution since it is directly related to sales of products and linked to generation of profit for the firm.