Final answer:
Increasing inventory costs do not necessarily require an increase in transportation costs. Efficiency and cost-effective location choices can help decrease transportation costs to maintain profitability.
Reduced operational costs, such as lower gasoline prices, can lead to growth opportunities by allowing a company to expand its service area.
Step-by-step explanation:
If inventory costs increase, the decision to increase or decrease transportation costs is not directly correlated and depends on several factors.
For instance, if shipping finished goods over congested street networks leads to higher costs, locating operations near uncrowded freeways or where rail or water transport is accessible can decrease transportation costs. Efficiency in transportation is crucial to maintaining or even boosting profits against rising inventory costs.
Similarly, consider a messenger company with gasoline as a substantial expense. If gasoline prices fall, transportation costs lower,
and the company can afford to expand its service area and potentially increase its supply. Consequently, reducing operational costs can lead to higher profits and growth opportunities. Therefore, if inventory costs rise, companies should explore ways to optimize and potentially reduce transportation costs to maintain profitability rather than simply increasing them.