Total Cost of Distribution
Total Cost of Distribution : The sum total of all the costs incurred in the distribution of goods. The total cost of distribution includes such items as transportation charges, inventory carrying costs, warehousing expenses, packaging, insurance, product obsolescence and pilferage. Today's growing use of automated information systems enables a company to identify each element of cost more accurately and more quickly than ever before. The rise of new concepts of distribution management in which the selection of a freight transport mode sometimes does not hinge upon direct freight charges alone, but on the total cost of distribution, along with service requirements of marketing and sales. Air freight's speed facilitates a more rapid turnover of inventory. This means a more rapid return on inventory investment, the elimination or drastic reduction of warehousing costs, the elimination of the risk of product obsolescence and the avoidance of such cost items as inventory taxes. Packaging costs are lower because of the protection afforded by the aircraft and, increasingly, because of the use of containers. The lower incidence of damage and pilferage in air freight, as compared with surface modes, reduces insurance costs. Usually, but not always, the freight charges via air from point A to point B may be higher than via surface; but savings on the other elements in the total cost of distribution often result in a net saving via air. See: TRADEOFFS
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