It is the common practice to focus on inventory and transportation as the two main network design factors, which are sufficiently broad to include activity and functional cost relationships.
In terms of inventory, total cost includes all expenses related to inventory carrying cost and customer ordering. Inventory carrying cost includes all taxes, storage; capital, insurance and obsolescence .The cost of ordering includes the full expense of inventory control, order preparation, communications, update activities and managerial supervision.
The total cost of transportation includes for – hire transport expenses and accessories charges plus costs related to the hazards incurred with the various modes, legal forms of transport, and associated administrative expenses.
The basic logic for focusing on transportation and inventory, as key factors are that they represent the spatial and temporal dimensions of logistical operations. Transportation deals with the geographical (spatial) dimensions of logistical operations by positioning the product where the customer wants to purchase. Inventory involves the rate at which capital assets are used (temporal) to meet customer requirements by having product available when the customer wants to purchase.
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