Distribution cost

Distribution cost encompasses the expenses involved in the process of moving products from the point at which they are produced to the point at which they are consumed. Such an expense is necessary in operating a business. Medium to large businesses, in particular, do not usually sell their goods instantly and in the same location as where they were produced. After a product has been manufactured, it may pass through an intermediary, such as a wholesaler, before it moves to a retailer’s location and eventually, to the end user.

Since wholesalers purchase goods from manufacturers in bulk, they usually have to store these in warehouses while older stocks are allowed to move first. The storage of goods carries with it its own set of expenses, which also depends on the type of product. Perishable goods may need to be stored in specific conditions or temperatures, for example.

Another activity which contributes to distribution cost is the shipment of goods. Shipping methods are dependent on the kind of product, as well. This may also be determined by the location of the market for the specific product.

Distribution costs are not completely shouldered by the manufacturer or distributor. These usually factor into the price of the product. The entity which shoulders the direct cost may impose a higher price for the product in order to recoup the expense. This price gets passed on from one intermediary to the next, if there are any. The consumer thus shoulders a substantial percentage of such costs.

Distribution cost is also known as distribution expense.

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