by Distribution costs are bound to go up not only with increase in the volume of sales but also with the efforts towards achieving higher market share through better coverage and penetration into new markets. Complete elimination of distribution cost is not possible.
(a) How far is the distribution channels-mix adequate to enable the company to improve upon its market share?
(b) Whether the total cost of distribution is kept to the minimum.
As regards the minimizing the cost of distribution the following aspects are to carefully consider:
(i) The major elements of distribution cost, are transportation, warehousing including storage insurance, material handling, credit and collection, finance and administration (invoicing, data processing) and interest on inventory carried at different selling points.
(ii) Distribution costs may be classified as fixed (Salaries of distribution staff, warehouse rent), semi-variable (travelling of staff, stationary and telephone charges) and variable packaging, insurance, transportation, interest on inventories. Budgets and norms should be established for each such major item of expense, under each category, and actual figures watched regularly may be on monthly basis.
(iii) Use of material handling equipment in warehousing, mechanized invoicing system, inventory control methods will help in cost reduction.
(iv) The overall distribution systems should be subjected to a thorough and objective review at regular intervals. This review will show up the resources of inefficiencies. Any significant change in the mode of distribution should be subjected to a detailed financial evaluation by cost benefit analysis.
(v) Optimum Channels of distribution—Many alternative channels are available and the choice made will greatly affect distribution costs and efficiency. Moreover as a firm’s output grows, it is necessary to reconsider what channels can provide more efficient distribution and to revamp the structure of discounts and commissions.
(vi) Adopt profit and loss system for branches, individual salesman, product departments.
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