QUANTIFYING MARKETING TRADE–OFFS IN PHYSICAL DISTRIBUTION POLICY DECISIONS

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Abstract
The physical distribution management process involves dual, but conflicting objectives: (1) the minimization of system costs and (2) the maximization of service levels. Most physical distribution research focuses on cost minimization and treats service levels as constraints. This paper, however, highlights the service aspect of distribution. It reports an experiment with purchasing agents designed to test three alternative approaches for evaluating customers' (dollar) trade‐offs between service levels received and cost. Two of the approaches indirectly derive trade‐off values; the other approach relies on directly reported trade‐off information. In this experiment all three of the approaches were quite accurate in modeling customers' preferences for different physical distribution mixes, but the indirect procedures were more accurate than the direct approach.

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