Physical distribution: What is it and why is it important

Physical distribution is no longer just about moving goods, but moving smarter.

Retailers and brands face tighter delivery expectations, rising transportation costs, and a growing demand for supply chain agility. For distribution managers and operations teams, it's the most fragile—and most critical—link in the supply chain.

This logistics optimization guide walks you through every component of physical distribution, from warehousing to order processing. Learn how to identify gaps, optimize performance, and get products into customers’ hands faster and more cost-effectively than ever before.

What Is Physical Distribution?

Physical distribution in supply chain management deals with the series of actions that move final products from production to the consumer. The channels involved include warehousing, inventory control, order processing, materials handling, transportation, and customer service.

Physical distribution and the ability to get a product to a consumer quickly and economically have a direct impact on customer satisfaction.

By storing goods in convenient locations and by creating fast, reliable means of moving those goods, brands can assure continued success in a rapidly changing, competitive global market.

What Are the Components of Physical Distribution?

Physical distribution is a supply chain forecasting and management term best viewed as a system of distribution channels linked together for the efficient movement of products. These components are interrelated, meaning decisions made in one area affect the relative efficiency of others.

Customer Service

Customer service in supply chain management refers to the precisely defined standard of customer satisfaction that a business provides to its customers. Once a standard is set (e.g., 60% of all shipments delivered to customers within 48 hours of ordering), a physical distribution system is then set up to reach that goal at the lowest possible cost.

Transportation

Shipping is one of the biggest expenses for retailers, sometimes costing up to 12–13% of total revenue.

In some industries, like electronics, brands spend as much as $10 per order just to get products out the door. And overall, shipping can account for 25–40% of a company’s total distribution costs.

That’s a huge chunk of the budget, especially when delivery companies raise their rates every year.

Fortunately, businesses can manage some of this cost by choosing the right mix of transportation modes. Depending on the shipment size, value, urgency, and destination, a retailer might rely on any combination of the following:

• Truckload: The favored shipping method for most enterprises in North America is trucking. Carrying primarily manufactured products (as opposed to bulk materials), trucks offer fast, frequent, and economic delivery to more destinations in the country than any other logistics option. Trucks are particularly useful for short-distance shipments, and they offer relatively fast, consistent service for both large and small shipments.

• Less-Than-Truckload (LTL): LTL refers to the transport of freight that does not require the entire space of a full truckload. Because each truck contains shipments from multiple clients going to similar locations, it often takes longer for LTL freight to arrive.

• Intermodal: Small business owners often take advantage of intermodal shipping arrangements that utilize a combination of rail and truck transportation for specific segments of the transport. Overall costs are often significantly lower under this arrangement than with single-mode transport.

• Air Freight: Due to the relatively high transportation cost of air freight, businesses typically use air only for the movement of valuable or highly perishable products. Brands can sometimes offset the high cost of air transportation with reduced inventory-holding costs and the increased business that may accompany faster customer service.

• Parcel: Package delivery or parcel delivery is the transport of shipping containers, parcels, or high-value mail as single shipments. This service is provided by most postal systems, express mail, private courier companies, and less-than-truckload shipping carriers.

• Ocean Freight: The transport of goods by sea via shipping containers. Ocean freight is the most common mode of transport used by importers and exporters in the country and around the world.

Warehousing

The warehousing component of physical distribution refers to the process of receiving inbound shipments, storing merchandise, breaking down bulk materials, and delivering to the customer.

Warehouse distribution centers generally keep goods for longer periods, whereas fulfillment centers operate as central distribution locations for quick shipments of the finished product to customers and retail locations.

Order Processing

Order processing is a physical distribution function that directly affects the ability of a retailer to meet the customer service standards defined by the owner. Assuming the order processing system is efficient, the owner can avoid the costs of premium transportation or high inventory levels.

Order processing methods often vary from industry to industry, but the basic idea is to deliver the order as the customer expects, in the way they expect it, and when they expect it to be there.

Thus, accuracy plays a vital role in successful order processing, as do procedures that minimize the order processing cycle.

Inventory Control

Inventory control is a major component of any physical distribution system. Inventory control is used to keep inventories in a desired state while continuing to adequately supply customers. Costs include funds invested in inventory, depreciation, and possible obsolescence of the goods.

"Flowspace is our partner in omnichannel growth. It’s easy and efficient to manage orders and inventory for all channels, with visibility and and fulfillment operations centralized in one place." - Hector Omoigui, Senior Operations Manager, Reel Paper

Materials Handling

Another important component of a physical distribution system is material handling.

Material handling comprises all of the activities associated with moving products within a production facility, warehouse, and transportation terminals. In the case of chain retailers, raw materials and finished goods are shipped from a common warehouse to various store locations.

Why Is Physical Distribution Important and How Flowspace Helps

Physical distribution is a critical final step in getting products to customers.

That’s why many businesses turn to a trusted partner like Flowspace—to ensure every shipment is handled with care and precision.

Contact our team today to try our inventory management and fulfillment software that streamlines physical distribution, and better accommodates fluctuating supply and demand throughout peak seasons and volatile market conditions.

Request more information to see how Flowspace can help you with your business agility.