Refers to how an organisation fulfils the orders they have received. A significant and often increasing cost is that of keeping products on the move through channels of distribution to the final consumer.

The DISTRIBUTION PLAN focuses on the set of decisions "relating to the processes which are concerned with the flow of supplies, components, products and services between sources of supply, the producer, intermediaries, and end-user." (Wilson and Gilligan, 1997)

• It also determines volume and the scale of order filling, this is a major influence
• Customer satisfaction here is important and is linked to repeat purchase, and thus the interrelated marketing mix elements (product, price, place, promotion, process, physical evidence, people)
• Two major areas: CHANNEL MANAGEMENT

• Embraces analysis, planning, organising and controlling of an organisation's channel of distribution. Demanding now due to the global competition and: 
• An increasing emphasis on the development of channel strategy
• The emergence of new retailing concepts
• The increasing importance of channel power
• Growth partnerships and strategic alliances
• The development of direct marketing
• Enhanced distribution productivity

** Rosenbloom (1995) identified 6 major areas in channel management:

1 Formulating the channel strategy

2 Designing the channel structure

3 Selecting the channel members

4 Motivating the channel members

5 Co-ordinating channel strategy with the marketing mix

6 Evaluating channel member performance

• Consists of a number of activities, which are essential to linking marketing, manufacturing and administration. It includes the folowing:
• Order processing
• Inventory management
• Warehousing
• Materials handling
• Traffic management
• Transport facilities
• Packaging
• Customer services (for example credit control)
• Depot/warehouse location

 The costs of the above, represents a major parts of the total marketing outlay. It as been suggested that logistics is 11% of gross domestic product and employees around 20% of the workforce

 Logistic costs by sector as percentage of sales (European study, 1995)

• Smaller companies operate at a cost disadvantage compared with larger competitors
• This situation is more noticeable among industrial companies rather than retailers and wholesalers, since factors such as the product range and the type of outlets will have a significant impact on the results
• Porter's (1985) VALUE CHAIN model can be used to assess operating costs associated with activities. One of the 5 primary identified activities is outward bound logistics another is inbound logistics. Therefore a better logistic programme can produced competitive advantage
• Managers are keen to keep distribution costs low. The higher the level of customer service the higher will be the level of PDM. 

• This perspective as been growing strength in recent years. Cost reductions can be made if a supply chain perspective is adopted as opposed to a perspective which fails to "recognise a series of customer-supply relationships which can be managed to mutual advantage" (Wilson & Gilligan, 1997)

 Blenel and Blender (1980)

• Suggest three distribution missions:
• The first mission of service is to protect the company's customer base
• The second mission is to enhance the product's saleability
• The third mission, from a marketing prospective, is to generate profit

Christopher (1979), defined the level of service as "...a system organised to provide a continuing link between the time that the order is placed and the goods are received with the object of satisfying customer needs on a long-term basis"

 Common elements of customer service from a logistic viewpoint

• speed of response (time taken to deliver from receipt of order)
• consistency and reliability of delivery
• stock availability
• order size constraints
• convenience of ordering systems
• flexibility of delivery times
• invoicing procedures and reliability
• claims and complaints procedures
• order status information system
• condition of goods on delivery
• service

 (This is a difficult problem, with the two conflicting issues of keeping costs low, but the service offered is a major source of competitive advantage)

 Doyle (1994) distribution planning approach

• Involves a number of steps:

1. Identify the dimensions of service which customers value
2. Weight the service dimensions by their relative importance
3. Obtain customers' evaluations of the enterprise and its competitors along the dimensions specified in (2)
4. Estimate the effect on revenue of changes in the level of service
5. Estimate the costs of providing different service levels

 Inventory Management

Should aim to facilitate the manufacturing-distribution-marketing cycle at minimum cost for a given level of service.

The costs that can be associated with inventories, which are too large, are:

• loss of return on the capital tied up in excess stocks
• risks from obsolescence
• storage costs
• handling costs
• clerical costs
• insurance premiums

 Costs can also be too low and costs associated with these are:

• the profit element in foregone sales
• foregone purchase discounts
• loss of customer goodwill
• increased unit costs of purchasing and transportation
• extra costs of uneconomic production runs

 In formulating an inventory policy for finished goods, management must take into account at least the following points: 

• the perishhability of the goods
• the demand pattern (i.e. sales requirements)
• the length of the product/order cycle
• storage facilities (including capacity)
• carrying costs
• capital requirements
• the risks due to possible shortages/price increases/price reduction/technological obsolescence/change in tastes/theft

There are two major questions that need to be addressed:

1. How much to order
2. When to order 

• Over the last 10 years there as been a major development in JUST-IN-TIME (JIT) approaches to inventory management.
• JIT objective is for incoming supplies to arrive at the point when they are needed, be that a factory, warehouse or retail outlet
• "The underlying principle is that, if delivery is dependable, inventory levels can be reduced substantially with enormous savings in cost". Problems may arise is delivery orders are not met. Recent statistics suggest that only 37.2% of orders are delivered as promised
• It is not possible in a supply chain context to plan for JIT if more than 60% of deliveries are later than the agreed date
• JIT is one example, but is manufacturing orientated, others are market-focused which must react to changes and uncertainties in market demand

• Quick response (QR), closely matched to consumer buying patterns, to provide merchandise supply. Retail sales need to be regularly monitored
• Continuous replenishment (CR), create a supply chain arrangement which is flexible and efficient, replenished by means of daily transmission
• Profile replenishment (PR), manufactures given the right to anticipate future requirements based on the overall knowledge (profile looks at the combination of items) 
• "One thing these time-based strategies all have in common is the co-ordination of logistics throughout the supply chain in order that the channel partner which can perform appropriate responsibilities most efficiently is in a position to do so" (Wilson and Gilligan, 1997)

PDM planners need to specify:

• the minimum size of order
• conditions of sale and purchase
• the system to be used to process orders
• the time taken to process orders

 To some extent the above are interrelated, since the time taken to process an order will depend on the order processing system in use, which then determines the cots of order processing, which in turn, dictates the minimum size of order which can be economically handled

 EPOS (electonoic point of sales) systems can help to reveal this interrelated notion. Such a system link sales ordering systems with automated stock control and stock reordering systems. This as been developed by EFTPOS (electronic fund transfer at point of sale), which simultaneously debits the buyer's bank account

 Brittain (1988), give the major benefits of EPOS to retailers:

Hard benefits:

• up to 15% increase in checkout (point of sale) productivity
• labour savings in not having to individually price items
• reduced 'miss-rings' at the checkout (therefore faster process)
• easier price changing

• more management information on customer flows, line sales over time periods, merchandising/promotional effectiveness
• better stock management/control

 Warehousing

• Attention needs to be paid to achieving cost-effective results through efficient utilisation of labour and equipment in this area:
• Space utilisation
• Labour utilisation
• Equipment utilisation

• The overall aim should be a high level of utilisation of both vehicles and drivers. Three issues warrant particular attention:
• Terminal Time
• Running Time
• Delivery Time

D = T + FW + VW + S

D is total distribution costs

T is total transportation costs

FW is fixed warehousing costs

VW is variable warehousing costs (including inventory costs)

S is cost of lost sales due to stock-outs or delivery delays

Each alternative system should be evaluated using the above equation before the best one (on economic grounds) can be selected

• Channel management is concerned with developing a channel strategy, designing its structure and selecting channel members
• Logistics planning includes consideration of service levels in terms, which reflect the revealed preferences of customers. In developing this will consist of a physical distribution network
• Both will involve strategic decisions of a crucial nature, since they can make or break long-term customer relationships through the level of customer service which they can afford
• There are clear opportunities for gaining advantages over competitors, all other factors can be let down if the product is not available in the right quantities, of the right quality, in the right place, at the right time, in the right form and with the right packaging
• "Distribution can be seen to either take away from or add value to other elements in the marketing mix" (Wilson and Gilligan, 1997)