For the electrical wire and cable distributor, it makes abundant economic sense to incur high shipping costs because much lower inventory-holding costs result Further, both of those costs are borne by the same channel member: the distributor itself. The optimal allocation of channel flow activities and costs is not so easy when different channel members perform the two flows. Imagine that our wire and cable distributor were to bear the inventory-holding cost, but another intermediary (say, a Broker ) were to bear the shipping costs to the end-user. In this case, without close coordination and cooperation between the channel members, the distributor likely would benefit from lower warehousing costs at the expense of the broker, who would have to bear higher shipping costs. Even though the entire channel system might benefit from this method of inventory holding and shipping, the optimal solution (involving high shipping costs but low inventory-holding costs) is unlikely to occur unless the distributor and broker make an explicit arrangement to share the total costs and benefits fairly.
For the electrical wire and cable distributor, it makes abundant economic sense to incur high shipping costs because much lower inventory-holding costs result Further, both of those costs are borne by the same channel member: the distributor itself. The optimal allocation of channel flow activities and costs is not so easy when different channel members perform the two flows. Imagine that our wire and cable distributor were to bear the inventory-holding cost, but another intermediary (say, a Broker ) were to bear the shipping costs to the end-user. In this case, without close coordination and cooperation between the channel members, the distributor likely would benefit from lower warehousing costs at the expense of the broker, who would have to bear higher shipping costs. Even though the entire channel system might benefit from this method of inventory holding and shipping, the optimal solution (involving high shipping costs but low inventory-holding costs) is unlikely to occur unless the distributor and broker make an explicit arrangement to share the total costs and benefits fairly.
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