The physical distribution function can represent from 10 to 35 percent of a product’s cost, depending on the
product and the type of operation, i.e., manufacturing, wholesale or retail. Yet they rarely receive the atten-
tion that costs of this magnitude deserve. The primary reason is that in most companies the various elements
that make up the total distribution costs are incurred in many different parts of the organization. Very few
companies prepare a summary of their total distribution costs regardless of where they are incurred.
The major elements that make up the total are:
Freight transportation expenses.
Warehouse occupancy expenses, e.g., rent, utilities, facility maintenance facility insurance.
Warehouse operating expenses, e.g., labor, depreciation (or rental) on material handling equipment
and vehicles, picking and packing expenses.
Record keeping expenses, e.g., order entry, picking list preparation, delivery documentation, and
inventory status reporting.
Personal property insurance and taxes on inventory and equipment.
Interest on funds invested in inventory, and warehouse facilities and equipment.
Pertinent information to be obtained on each of these elements is described below.
Physical Distribution Organization - Form 14-01
Form 14-01, when completed, will provide the organization chart for the physical distribution activities.
And Compensation Levels Of Key Distribution Personnel - Forms 14-02 And 14-03
WHAT TO LOOK FOR
Are the key functions being managed by experienced professional personnel?
Are the compensation levels competitive?
WHAT TO LOOK FOR
The most important characteristics to look for are: to whom does the distribution organization
report and the degree of fragmentation of the distribution responsibilities.
If the overall responsibility for the distribution function is placed too low in the entity’s organ-
ization, or if the responsibilities are fragmented among several departments, the chances of
having an efficient distribution operation are low.
DUE DILIGENCE HANDBOOK 14-01