Question

The total cost approach considers physical distribution costs that might otherwise be ignored, including?

1) Transportation costs
2) Inventory carrying costs
3) Order processing costs
4) All of the above

Answer 1

The total cost approach includes transportation, inventory carrying, and order processing costs, aimed at optimizing the distribution system by considering every aspect of the supply chain.

Step-by-step explanation:

The total cost approach to physical distribution means considering all related costs that contribute to the delivery of products to customers, rather than just looking at individual components of the distribution system in isolation. In particular, the total cost approach includes 1) Transportation costs, such as those incurred when shipping goods over congested networks which can reduce profits and increase expenses. It also consists of 2) Inventory carrying costs, accounting for the storage and management of stock. 3) Order processing costs are also a crucial part of the total cost approach, covering the administrative expenses related to handling orders.

Efficient transportation routes and access to various modes of transportation, like rail or water transport, can significantly enhance cost-effectiveness. The strategy behind the total cost approach is to optimize the distribution system for efficiency, which may involve strategic placement of production facilities, and minimizing costs while maximizing customer service levels. It takes a holistic view of the supply chain to ensure all costs, including those that could be easily overlooked, are taken into account.