The process of delivering the product to the customer is termed as distribution. Distribution management consists of two major tasks: physical distribution and management of distribution channels. Physical distribution can be defined as the process of reaching the product to the consumers. It encompasses all the activities involved in the physical flow of products from producers to consumers.

It is physical distribution that provides place-utility and time-utility to a product. In other words, it is physical distribution that makes the product available at the right place and at the right time, thereby maximizing the company's chance to sell the product and strengthen its competitive position. If a product could be consumed at the place and time of production, there would be no need for distribution. Such products are rare.

Almost every product gets consumed far away - both in time and space - from its point of manufacture. They have to be carried, stored and distributed. In the case of some products, the location of the production points is totally dictated by production considerations, like proximity to a port or to the source of raw material. In such cases, the production point may be far away from the market.

Distribution aids the process of demand generation. It is distribution that largely determines the customer service level. Through this, distribution serves as an effective tool for building up of clientele/ market. And conversely, inefficient distribution leads to loss of customers and markets.

Distribution is very important area for cost savings. Over the years, in most businesses, distribution costs have grown into a sizeable chunk of the total costs and now rank second among all cost elements, next only to the material costs.