Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e
- Distribution Customer
Service and Logistics
Text © The McGraw−Hill
Companies, 2002Distribution Customer Service and Logistics 353- When would a producer or middleman find it desirable
to use a public warehouse rather than a private ware-
house? Illustrate, using a specific product or situation. - Discuss the distribution center concept. Is this likely
to eliminate the storing function of conventional
wholesalers? Is it applicable to all products? If not,
cite several examples.
18. Clearly differentiate between a warehouse and a dis-
tribution center. Explain how a specific product
would be handled differently by each.
19. If a retailer operates only from a website and
ships all orders by UPS, is it freed from the logistics
issues that face traditional retailers? Explain your
thinking.
Suggested Cases- Morgan Company 26. Rainbow Packers, Inc.
Computer-Aided Problem12.Total Distribution Cost
Proto Company has been producing various items
made of plastic. It recently added a line of plain plastic
cards that other firms (such as banks and retail stores)
will imprint to produce credit cards. Proto offers its cus-
tomers the plastic cards in different colors, but they all
sell for $40 per box of 1,000. Tom Phillips, Proto’s prod-
uct manager for this line, is considering two possible
physical distribution systems. He estimates that if Proto
uses airfreight, transportation costs will be $7.50 a box,
and its cost of carrying inventory will be 5 percent of to-
tal annual sales dollars. Alternatively, Proto could ship
by rail for $2 a box. But rail transport will require rent-
ing space at four regional warehouses—at $26,000 a year
each. Inventory carrying cost with this system will be 10
percent of total annual sales dollars. Phillips prepared a
spreadsheet to compare the cost of the two alternative
physical distribution systems.a. If Proto Company expects to sell 20,000 boxes a
year, what are the total physical distribution costs for
each of the systems?
b. If Phillips can negotiate cheaper warehouse space for
the rail option so that each warehouse costs only
$20,000 per year, which physical distribution system
has the lowest overall cost?
c. Proto’s finance manager predicts that interest rates are
likely to be lower during the next marketing plan year
and suggests that Tom Phillips use inventory carrying
costs of 4 percent for airfreight and 7.5 percent for
railroads (with warehouse cost at $20,000 each). If
interest rates are in fact lower, which alternative
would you suggest? Why?
For additional questions related to this problem, see
Exercise 12-3 in the Learning Aid for Use with Basic Mar-
keting,14th edition.