Steelcraft Ltd. makes costly machines. Keeping a large stock of machines lets it serve its buyers quickly, but a lot of its capital gets tied up in the stock.
Which component of physical distribution requires Steelcraft Ltd. to strike a balance between this cost and customer satisfaction?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Inventory control
Option (1) Inventory control — Correct. Inventory control is about deciding the level of stock. A higher stock gives better service to customers, but a lot of capital gets tied up in it. So the firm must balance this cost against customer satisfaction. The decision matters most where the per unit cost is high, as with costly machines.
Option (2) Warehousing — Incorrect. Warehousing means storing and assorting goods. Its balance is between the cost of warehousing and the level of customer service, through the number of warehouses.
Option (3) Order processing — Incorrect. Order processing is the accurate and speedy handling of customers’ orders, so that goods reach them on time and in the right quantity.
Option (4) Transportation — Incorrect. Transportation is the means of carrying goods from the point of production to the point of sale.
NCERT (2026-27 Edition): “3. Warehousing: … 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 minimising 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.” |