Special packaging may be required for certain products to reach from one location to another. Warehouses also incur lot of costs in themselves which add to the cost of distribution. Storing the products temporarily in warehouses as inventory accumulates costs in terms of handling, ordering, maintenance and transportation costs. from manufacturer to warehouse 1 and then warehouse 2 then to the customer.
These can be incurred multiple times before reaching end customers e.g. It includes the expenses in transportation and transfer of goods through various channels like Air, Rail, Road, Water etc. These are the most important type of costs incurred during distribution. Varieties of costs are included in this and are not only limited to freight expenses.
If this cost is ignored, high costs in distribution can lead to heavy losses and product damage as well. This is part of the business but it is very important to know and assess these costs so as to optimize them so that the product can reach in a best possible state and the least possible cost.Ĭompanies track the distribution costs including the inventory costs to make sure that the business is optimized for revenue and profit. Without incurring a distribution cost, the goods won't move through the supply chain. Eventually it reaches the location or channel where the end customer needs it. A product may be manufactured in a different city, country or even continent in the modern world. Most of the time the manufacturing is done far from the demand and end users.
#Expense meaning free#
A product cannot reach the end customer directly from the manufacturer's location free of cost.
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