Page 2 - Lesson Note 6

late or in wrong quantity or specifications. This would result in customer dissatisfaction, with the danger

of loss of business and goodwill.

2. Transportation: Transportation is the means of carrying goods and raw materials from the point of
production to the point of sale. It is one of the major elements in the physical distribution of goods. It is

important because unless the goods are physically made available, the sale cannot be completed.

3. Warehousing: Warehousing refers to the act of storing and assorting products in order to create time

utility in them. The basic purpose of warehousing activities is to arrange placement of goods and provide
facilities to store them. The need for warehousing arises because there may be difference between the

time a product is produced and the time it is required for consumption.

Generally the efficiency of a firm in serving its customers will depend on where these warehouses are
located and where are these to be delivered. Generally larger the number of warehouses a firm has,

lesser would be the time taken in serving customers at different locations but greater would be the cost
of warehousing and vice versa.

Thus the firm has to strike a balance between the cost of warehousing and the level of customer service.

For products requiring long-term storage (such as agricultural products) the warehouses are located
near production sites. This helps in minimizing the charges on transportation of the goods. On the other
hand, the products which are bulky and hard to ship (machinery, automobiles) as well as perishable

products (bakery, meat, vegetables) are kept at different locations near the market.

4. Inventory Control: Linked to warehousing decisions are the inventory decisions which hold key to
success for many manufacturers, especially those where the per unit cost is high. A very important

decision in respect of inventory is deciding about the level of inventory. Higher the level of inventory,
higher will be the level of service to customers but the cost of carrying the inventory will also be high

because lot of capital would be tied up in the stock.

Thus, a balance is to be maintained in respect of the cost and customer satisfaction. With advancements
in computers and information technology the need for keeping higher inventory is reducing and the new

concept of Justin-Time-Inventory decision is becoming popular in an increasing number of companies.

The decision regarding level of inventory involves prediction about the demand for the product. A
correct estimate of the demand helps to hold inventory and cost level down to a minimum. This not only