Page 208 - DMGT551_RETAIL_BUSINESS_ENVIRONMENT

Unit 11: Physical Distribution and Inventory Management

physical flow of materials, final goods and related information from points of origin to points Notes
of consumption to meet customer requirements for earning profit. Traditionally, physical
distribution aimed at directing the flow of goods from the producer to consumer at a minimum
cost. But modern marketers have reversed the idea and adopted market logistics thinking. It
starts with the buyers and works backwards to the producer. Logistics seek solution to the
problems of both outbound distribution (moving products from producer to consumers) and
inbound distribution (moving products and materials from suppliers to the producer). Thus, the
logistics management coordinates the whole-channel physical distribution system which
involves the activities of suppliers, purchasing agents, marketers, channel members, and
customers. This is accomplish through forecasting information systems, purchasing, production
planning, order processing, inventory, warehousing, and transportation planning.
Today firms are giving greater emphasis on logistics for a number of reasons. First, efficient
distribution through effective logistics contributes in earning customer service and satisfaction
which is the prime goal of many firms. Better distribution attracts new customers; poor
distribution brings in the opposite results. Second, logistics is a major cost element for most
firms. So, they always try to keep it at a minimum level through .sound distribution system.
Raising the level of physical distribution efficiency can result in cost savings for both the firm
and its customers. Third tremendous expansion in product variety has increased the need and
importance of improved logistics management. Ordering, shipping, stocking, and controlling a
wide variety of products offers a big logistics challenge.

Finally, advancement in information technology is being utilized for gaining distribution
efficiency. The increased use of computers, point-of-sale scanners, uniform product codes, satellite
tracking, electronic data interchange, and electronic funds transfer has enabled firms to build
more efficient systems for order processing, inventory control and handling, and transportation
routing and scheduling.

11.2 Inventory Management

Inventory refers to the goods stocked for future use. Every retail chain has its own warehouse to
stock the merchandise to be used when the existing stock replenishes. The retailer keeps a track
of the stocked goods and makes sure there is surplus inventory to avoid being "out of stock".
Such a process is called as inventory management.

Why Inventory Management?

Gone are the days when customers had limited options for shopping. In the current scenario, if
a customer does not find the desired merchandise at one retail shop, he has a second brand to
rely on. A retailer can't afford to loose even a single customer. It is really important for the
retailer to retain his existing customers as well as attract potential buyers. The retailer must
ensure that every customer leaves his store with a smile. Unavailability of merchandise, empty
shelves leave a negative impression on the customers and they are reluctant to visit the store in
near future. Inventory management prevents such a situation.
One must understand that the products need some time to reach the store from the supplier's
unit. The retailer must have sufficient stock to offer to the customers during the "lead time".
Managing inventory also helps the retailer during situations beyond control like transport
strikes, curfews etc. The retailer has ample stock as a result of judicious inventory management
even at the time of crisis.

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