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Physical distribution organization and information systems development: their status among American business firms.

The physical distribution function of a firm is a complex process. It consists of all the activities involved in the flow of goods from the raw material supplier to the final consumer and incorporates the major activity centres of purchasing, warehousing, transportation, order processing, and inventory control. The goal of a firm's distribution operation is to ensure that established customer service levels are achieved at a minimum total cost.

The degree to which a firm can achieve a balance between some objective service level and its total distribution costs depends, in part, on the type of organizational structure it has to manage its distribution operation and the extent and type of information that is made available for decision making. Yet, "the subjects of organization, administration and control are among the most elusive of physical distribution topics because relatively little has been written about them in comparison with other areas"[1].

Since the late 1950s, American business firms have gradually come to realize the importance of physical distribution in their own operations. Many have reshaped their management structures to control more effectively the physical distribution function. They have also improved physical distribution information systems, so that the appropriate routine and exception reports dealing with the individual components of the firm's physical distribution operation would be available as needed.

Organization of the physical distribution function has taken on many different forms in the last 12 years. Each company has its own individual organizational structure, developed to meet its specific needs. So, too, with the system providing physical distribution information flows. Some firms have very elaborate systems with their own distinct reports, while others report physical distribution information along with other marketing and sales data.

Because of the variety in the development of these two areas, it has become difficult to assess their current stares. As a result, a number of questions remain unanswered:

(1) What is the current state of the art in the development of physical distribution management structures and information systems among American firms?

(2) What forms have physical distribution management structures taken on?

(3) What problems and improvements have US firms experienced in reorganizing for physical distribution?

(4) To what extent are companies involved in the development of formal physical distribution information systems?

(5) Are these systems serving the needs of distribution decision makers?

(6) What problems have been encountered by US firms in establishing their physical distribution information systems?

To provide answers to these questions a study was conducted to investigate the present structure of physical distribution organization and information flows among US business firms.

Research design

The data presented below were gathered through the use of a mail questionnaire. A sample of 100 shippers was judgementally selected from the registrants at the 1971 NCPDM meeting. Thirty-five firms responded to the survey. Table I presents the size distribution of the respondents.
Table I.
Size distribution of the 35 survey respondents

Number of physical distribution     Number of
management employees               respondents

Under 10                                 8
10-29                                   10
30 and over
Not indicated                            1
Total                                   35

Research findings

Physical distribution organization

The study revealed that 55 per cent of the respondents have had formal physical distribution organizational structures for more than five years. The data in Table II illustrate that a majority of those firms which employ more than 30 people at the supervisory level or above in their physical distribution operation have extensive histories of formal organizational development. Sixty-seven per cent of those firms with a supervisory staff of 30 or more have had formal physical distribution organizations for five years or more. In contrast, of those companies with less than ten employees at the supervisory level, only 33 per cent had been formally organized for more than five years.
Table II.
Years of formal organizational development (%)

Size of distribution      Three or       Three to       Five or
supervisory staff        less years     four years    more years

Under 10                     50             17            33
10-29                        30             20            50
30 and over                   6             27            67
Total                        22             23            55

In the research the participating firms were asked to describe their individual physical distribution organizational structures. The responses were categorized into two groups - line and line-staff combination structures. The data in Table III reveal that 57 per cent of the respondents have established physical distribution line organizations, while only 29 per cent have line-staff combinations. When analysed by the number of the supervisory staff employed by each firm, 50 per cent of those firms with 30 or more physical distribution managers utilized a straight line organization. In contrast, 50 per cent of the firms with under ten physical distribution managers utilized a line-staff combination structure.
Table III.
Physical distribution organizational patterns (%)

Size of distribution                                No
supervisory staff        Line     Line staff    response

Under 10                  38          50           12
10-29                     50          10           10
30 and over               50          31           19
Total                     57          29           13

Problems encountered in organization

The developments of physical distribution organization structures among US firms was not an easy task. Many problems arose that made it difficult to establish functional and viable physical distribution management structures within many firms. The data in Table IV indicate that the most serious problem encountered by companies was the breakdown in communication among the operating departments after the new organizational plan was instituted. Thirty-four per cent of the responding companies indicated that this was their most serious problem. Coupled with this was the lack of interdepartmental cooperation encountered during the reorganization phase. Twenty-six per cent of the firms in the sample ranked this as the second most serious problem experienced by them.
Table IV.
Problems encountered in development of physical distribution
organizational structure (%)

                                               No          Some
                                          improvement   improvement

Employee communication                         34           46
Interdepartmental co-operation                 26           51
Defining departmental responsibilities         17           49
Resistance to change                           11           49
Availability of qualified personnel             6           54

                                             Greatly         No
                                            improved     response

Employee communication                          6           14
Interdepartmental co-operation                  9           14
Defining departmental responsibilities         20           14
Resistance to change                           26           14
Availability of qualified personnel            26           14

The research revealed that defining departmental responsibility was a chronic problem encountered by US firms in the evolvement of their physical distribution organizational structures. One director of distribution queried in the study stated that: "Defining the functional role and responsibilities of the departments within our new physical distribution group was a ticklish affair. Many of the older employees were averse to the reorganization and refused to co-operate. They felt that their place and position in the company was being threatened". The data in Table IV indicate that 17 per cent of the responding firms regarded this as a serious problem.

Improvements as a result of organization. Organization of any segment of a firm's operation, especially physical distribution, has as its objective the improved performance of the overall operation. The study revealed that many major improvements came about in the physical distribution operations of US firms as a result of their establishing formal physical distribution management structures. The findings in Table V point out that 57 per cent of the responding firms noticed a marked improvement in the co-operation of their personnel after they established a physical distribution organizational structure. Another improvement was in the area of transportation scheduling. Fifty-one per cent of the firms in the sample noticed a significant improvement in the area. Also 49 per cent of the companies noticed that the maintenance and management of their field warehouse stock levels was greatly improved.
Table V.
Improvements in physical distribution operation (%)

                                            No            Some
                                        improvement   improvement

Departmental co-operation                    -             23
Transportation scheduling                    -             26
Maintenance of FWH stock levels              -             20
Order processing time                        8             26
Back-order status control                    6             29
Warehouse item selections                    3             31
Stock-out level maintenance                 69             37

                                          Greatly          No
                                         improved       response

Departmental co-operation                   57             20
Transportation scheduling                   51             23
Maintenance of FWH stock levels             49             31
Order processing time                       46             20
Back-order status control                   40              5
Warehouse item selections                   37             29
Stock-out level maintenance                 37             26

Significant operational improvements were also detected in the processing of customer orders; back-order status control; and warehouse site selection. From 36 to 60 per cent of the sample experienced a significant improvement in each of these areas.

Physical distribution information systems

The research results with respect to the questions on the information systems aspect of physical distribution organization are presented below. The size of the physical distribution activity, as measured by the number of "managers", appears to be as important a factor in the development of information systems as in organizational structure. The answers to most of the questions reflect some impact of the size of the physical distribution activity.

The results of the question regarding the recency of information system revision are presented below in Table VI. The data reflect the least impact of size but do show the tremendous rate of change in information systems. Over 80 per cent of the responding firms had undergone a "major" revision of their information system within the past two years.
Table VI.
The recency of major revision of firms' information systems (%)

                                  Years since
PD management                      revision
personnel          Less than 1      1 to 2       3 or more

Under 10                25            50            25
11-29                   30            60            10
30 and over             38            44            18

Consistent with the high degree of recency in revision of their information system are the data concerning the extent to which information systems are mechanized. Table VII, which presents the data on the degree of mechanization, indicates also the impact of size. There is a strong tendency for the larger firms to be much more highly mechanized than the smaller ones.
Table VII.
Degree of mechanization of information systems by number
of physical distribution managers employed (%)

personnel               0      1-20      21-40     41-60     61-80

Under 10               12        38        12        12        25
10-19                            10                  20        30
30 and over                       6         6        23        52

Punch cards (%)
Under 10               50        25        25
10-19                  80        10                  10
30 and over            64        30         6

Manual (%)
Under 10                         25                  38
10-19                  10        60        10        20
30 and over            12        41        23        18

personnel            81-100     Total (%)

Under 10                        100
10-19                  40       100
30 and over            18       100

Punch cards (%)
Under 10                        100
10-19                           100
30 and over                     100

Manual (%)
Under 10               38       100
10-19                           100
30 and over             6       100

Table VIII indicates the extent of physical distribution management involvement developing the information system.
Table VIII.
Extent of physical distribution management involvement in
developing the firm's information system (%)

                                                            Not at
PD management    Continually    Consulted    Consulted       all
personnel        involved      frequently   occasionally   involved

Under 10            50             50            -            -
10-29               60             40            -            -
30 and over         60             18            6           16

The data, which reflect little bias from the size of the firm, indicate a very heavy involvement on the part of physical distribution management in the developing of the information system.

According to the data (see Table IX) most present information systems meet the physical distribution decision-maker's needs reasonably well. The larger the firm, in general, the better the information system meets informational needs.
Table IX.
The degree to which the present information system meets
decision-maker's needs (%)

PD management      Extremely     Fairly     additional
personnel            well         well      information    Not well

Under 10               -           62           25           13
10-29                 20           60           20            -
30 and over           31           31           38            -

Reflecting the same point as the data presented above, the results of the question regarding unnecessary information in the information system indicate the lesser degree of development of information systems in smaller firms (see Table X). However, as the data indicate, about half the respondents reported receiving data they considered unnecessary.
Table X.
The information systems' content of unnecessary information (%)

PD management         Do you receive unnecessary information?
personnel                    Yes                 No

Under 10                     75                  25
10-29                        40                  50
30 and over                  50                  50

Most respondents indicated they were reasonably well satisfied with their present information system. As indicated in Table XI, the only areas of serious concern are the timeliness of information and the flexibility of the system.
Table XI.
More problems with respect to information systems (%)

                                   Degree of seriousness
                                               Not a      No
                         Serious     Minor   problem   response

Computer breakdown         14         31        49         6
Improper information       11         54        29         6
Too much information        -         34        60         6
Lack of                     3         37        54         6
  co-operation among
  system users
Information too late       31         46        17         6
System cannot react        31         43        30         6
  quickly enough

Most respondents credit the most recent improvements in the information system with aiding, if not directly resulting in, improvements in physical distribution operations. Given the degree of involvement of physical distribution management in the revision of the system, this is not a surprise. Table XII presents the areas and degree of improvement reported. The only areas in which significant numbers of respondents indicated no improvement were order-processing time, transportation scheduling, and site location.
Table XII.
Areas and degree of improvement in physical distribution operations
resulting from revision of information system (%)

                                              No       improvement
Problem area                             improvement     improved

Stockout levels                                6            37
Backorder status                               9            31
Co-operation among PD activities               6            34
Order processing time                         20            23
Transportation scheduling                     23            26
Maintenance of field stock levels              9            29
Warehouse site location                       26            31
Inter-departmental co-operation                3            40

Problem area                               improved    No response

Stockout levels                               40           17
Backorder status                              43           17
Co-operation among PD activities              40           20
Order processing time                         37           20
Transportation scheduling                     31           20
Maintenance of field stock levels             40           22
Warehouse site location                       17           26
Inter-departmental co-operation               34           23


The development of physical distribution organizational structure among US business firms has evolved over a period of years; and the organizational patterns vary from company to company according to the size of the physical distribution managerial staff (Table III). Also, the inculcation of the physical distribution concept among US manufacturing firms was not an easy task. Numerous problems arose to thwart the organizational efforts of distribution managers to coalesce the diverse elements in their companies to streamline their respective distribution operations. Communication breakdown, lack of departmental co-operation, and difficulty in defining job responsibilities were some of the serious problems encountered by the distribution managers of American manufacturing firms (Table IV).

But, despite the difficulties, many improvements resulted after the proper physical distribution organizational structures were established. Improved co-operation among departmental personnel, better management of plant and field warehouse, stock levels, and more efficient mode scheduling were some of the significant improvements (Table V) that American companies realized.

Several interesting conclusions can also be drawn about the development and success of information systems for physical distribution decision making based on the data presented in Tables VI to XII. The most important conclusion is that there is a direct relationship between the size of the physical distribution operation and the development of supporting information systems. The degree of mechanization (Table VII), the degree to which the system meets the decision-maker's needs (Table IX), and the content of unnecessary information (Table X) are all indicative of this trend.

Also of interest are the data concerning the content of the information systems. Table VIII indicates the high degree of involvement of a physical distribution manager in the development of the firm's information system. The data show a high level of satisfaction with the information systems, perhaps resulting from the involvement of physical distribution managers in system development. Yet, there still appears to be an excessive amount of unnecessary or improper information (Tables X and XI), although this is not reported as a significant problem (Table XI), and over 20 per cent of the managers responding indicated the need for additional information. This would seem to indicate changing information requirements or the inability to define properly the information needed.

Finally, the improvements in the information system are credited with significant operating improvements in many areas. The greatest improvements were reported in inventory control areas such as stockout, back-order status and field stock levels. Three areas, order processing time, transportation scheduling, and warehouse site location, showed little improvement. Such a result could be because the problems were not considered in revising the information system but it is more likely that the areas had been studied and improved in previous revisions.

Physical distribution organization and information system development among US manufacturing firms is still in a period of transition. The physical distribution organization and information system structures found to be predominant among the sample firms are not final, but rather represent only intermediate steps in a constant effort on the part of American companies to achieve maximum efficiencies from their respective physical distribution operation.

The research has shown that many problems have arisen because of the move towards the formalization of physical distribution management as an integral part of a firm's management organization and a recognition of the need to gather data so that the appropriate physical distribution decision could be made and implemented. Some of these problems were serious and difficult to overcome. But the resultant effect of their solution generated many improvements for US companies. The research showed that decreased order processing times, more efficient inventory management, improved facility location, and a better interdepartmental co-operation were some of the tangible benefits American firms devised in establishing their physical distribution management structures and information systems. As one of the respondents stated: "Organizing the physical distribution operation in our company will improve not only our short-run profit performance, but ensure our long-term growth".


[1.] Bowersox, DJ., LaLonde, B.J. and Smykay, E.W., Readings in Physical Distribution Management, Macmillan, New York, NY, 1969, p. 274.
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Author:Lancioni, Richard; Grashof, John
Publication:International Journal of Physical Distribution & Logistics Management
Date:May 1, 1997
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