CHAPTER ONE

INTRODUCTION

1.1        Background of the Study

The economy of any nation depends to a great extent on the production and distribution of finished goods and services with physical distribution as the pivot of the operations. Over the years, physical distribution has been widely discussed in marketing literature by academics, professionals, and other agents of marketing including manufacturing firms and products distribution agencies, especially on factors related to costs of distributions of products. Physical distribution costs could have significant financial burden that may impact on the profit of manufacturing firms and by implications on the economy of a nation such as Nigeria.

There have been different estimates suggested as annual expenditure on physical distribution, for example, in United States it was put at one trillion US dollars (US$1.oot) and about 10% of the Gross Domestic Product (GDP), and World wide, it was put at approximately two trillion US dollars (US$2.oot), and an equivalent of 10-15% of sales in individual firms, (Fahrewald, 1998:45, Quinn, 1997:54). However, earlier studies had put the expenditure at 13% of every sales dollar and in the United Kingdom it was ₤35 billion, or 32.5% of the GDP, (Dalrymple et, al. 1981:5; Oresman et al., l974:61; Christopher, l981:5, citing Childerley, 1980). The recent studies put physical distribution expenditure at 15-60% and 10-35% respectively of the ultimate price of any product, (Stapleton 1998:247, Eztel et al., 2001:466).

Physical distribution has been found to contribute to a nation’s export performance with timely deliveries and a possible reduction of between 10-20% in total corporate costs through effective productivity improvement programmes, (Christopher, 1981:5, citing Council of British Council of Chamber of Commerce (CBCC) in Europe, and National Council of Physical Distribution Management (NCPDM) in USA respectively). Physical distribution could as well translate to effective demand management and impact positively on shareholders value as a significant measure of corporate performance, (Bigness, (1995:A1, A9). Thus, it could be inferred that the significance of physical distribution at macro level of the national economy and at micro level of the manufacturing firms has a direct impact on the development and growth of a nation.

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Nigeria is yet to recognize the strategic importance of physical distribution in the economic life of the nation, considering the poor infrastructure and negative attitudes towards establishment of an enabling environment. Nwokoye (2006:186) argues that development planners encourage commodity supplies in the economy, especially massive importation, but lack investments in logistics system for effective physical distribution. The various port congestions demonstrate lack of requisite physical distribution facilities and others that adversely affected the economy. This contributed to the imposition of the Structural Adjustment Programme (SAP) in 1980.

1.1.1 Concepts of Physical Distribution Management

Essentially, no product is considered sold until it is moved from the manufacturing centers or production lines to the locations of the final consumers. The physical distribution components are the transportation, Warehousing, Inventory control, order processing and information management, materials handling, packaging and customer services. Physical distribution has been described with varieties of terminologies including Logistics, business Logistics, Management, procurement and supply, product flow, Marketing Logistics, Supply chain Management, (Rushton et al., 2005:4). A further argument however, was that there is realistically no ‘true’ name or ‘true’ definition that should be pedantically applied, because products differ, companies differ and systems differ. Physical distribution is a reflection of the various activities associated with materials planning and movements in industries, public and private places and organizations.

In the same vein, physical distribution has been described with locations and flows such as up stream and down stream, in bound and out bound , input and output , with respect to movements into and out of locations. Table 1.1 is a list of countries and the logistics costs as percentage of their Gross Domestic Product (GDP) as an important or significant factor of Physical Distribution or Logistics to the economy of a nation.

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Table 1.1 Logistics costs As Percentage of GDP for key countries.

North America

GDP ($M)

Logistics ($M)

GDP%

Canada

585,105

70,191

12.00