Together, Harter and O'Reilly try to coordinate transporting, storing, and product handling activities to minimize cost while still achieving the customer service level their customers and intermediaries want. This usually requires that United keep an inventory of most of its products on hand, but demand for its products is fairly consistent over time so inventory is easy to manage.

Harter has identified four options for physical distribution systems she could use to reach two of her key wholesalers, Ralston Supply and Ricotta Tool Co. The total cost for each option--and the distribution service levels that can be achieved--are as follows:
Main feature of system Total Cost Distribution Service Level 1. Airfreight $1,000,000 95% 2. Inland Waterways 300,000 60% 3. Trucks 500,000 70% 4. Rail & Regional 650,000 80% wharehouses
Ralston Supply expects a very high level (90 percent) of distribution customer service. Ricotta Tool Co. is willing to settle for a 70 percent customer service level, even if that means some products will occasionally be out of stock, if it gets products at a lower price.
For its large retail hardware customers (like Home Depot), United regularly ships smaller orders directly to individual stores or in some cases to the retail chain's warehouses. Cross-country shipments usually go by rail while regional shipments usually go by truck.

1.United Tools is considering building a new private warehouse for its tools. Which of the following are benefits of private warehouses?
A) Low unit storing cost, if volume is high.
B) Very flexible if storage needs expand or contract in the future.
C) Low fixed investment.
D) All of these are benefits of private warehouses.
2.Which physical distribution system should Harter choose for Ricotta Tool Co.?
A) Airfreight.
B) Inland waterways.
C) Truck.
D) Rail and warehouse.
E) Cannot be determined without more information.
3.As marketing manager, United's Terry Harter should realize that:
A) transporting costs may limit her choice of target markets.
B) a supply chain can only consist of one distribution channel.
C) the lowest cost distribution system is the best alternative.
D) none of these alternatives is correct.
4.United's shipments to international markets often rely on containerization. The likely reason for this is that
A) the tools are shipped by airfreight.
B) it makes it easier to move shipments between different transportation modes.
C) containerization is very useful for small, frequent shipments.
D) containerization allows a firm to carry less inventory.
E) all of these are benefits of containerization.
5.It appears that United Tools:
A) is implementing the physical distribution concept.
B) works to provide just-in-time delivery to both of its wholesalers.
C) needs to buy its own fleet of trucks.
D) uses the distribution system with the lowest transportation cost.
E) all of these alternatives are logical.
6.To help in managing excess inventory, United Tools would most likely use:
A) a private warehouse.
B) a public warehouse.
C) piggyback mode.
D) a distribution center.
E) all of these would help in managing excess inventory.
7.United ships to the regional distribution centers of one of the retail hardware chains that it serves. The main advantage of the distribution centers for the retailer is likely to be that they
A) can store a larger inventory than traditional warehouses.
B) eliminate the need for electronic communications between the distribution centers and the individual stores.
C) speed the flow of tools from the factory to the stores.
D) none of these is an advantage of distribution centers.
8.Which physical distribution system is best suited for Ralston Supply?
A) Airfreight.
B) Inland waterways.
C) Truck.
D) Rail and warehouse.
E) Cannot be determined without more information.
9.When United Tools considers its total inventory cost, which of the following would NOT be included?
A) Costs of damage to products while in inventory.
B) Costs of inventory becoming obsolete.
C) Cost of a storage facility.
D) Cost of capital invested in the inventory.
E) All of these should be included in total inventory cost.
10.One of United's biggest customer has placed a very large, heavy order. Its warehouse is in a location served by all transport modes, and the customer has directed United to ship the order by the mode with the lowest transport costs. In this situation, United will probably ship the tools by
A) Airfreight
B) Trucks
C) Waterways
D) Railroads