M.Com. / The per capita consumption of fresh milk, a product of one of the primary production sectors in the developing economy of South Africa, namely agriculture, has declined from 61,1 kg in October 1962 to 32,0 kg in September 1983. During the period July 1973 to June 1984, the total volume of fresh milksold has declined by approximately 4 percent. A major contributing factor in this regard is the 26 percent decrease in the share of the door-to-door delivery operation during the same period. In addition, cost spirals, inflation and price regulation had a significant impact on the profit margin of the door-to-door delivery operation. These factors necessitate a review of alternatives which will improve the economy of the delivery operation whilst maintaining an acceptable level of customer service. In order to optimise the interrelationship between cost and customer service, important managerial and operational aspects of the existing door-to-door delivery . operation have been identified. Suggestions in this regard are based on the most widely acceptable theories in physical distribution, as well as consumer preferences which have been obtained by means of a questjonnaire distributed to a representative sample of the East Rand population. It was found that irrespective of the method which may be considered to economise the door-to-door delivery operation, the application of the physical distribution concept, in terms of organisational structure and cost accounting, will enhance the effectiveness and influence the success of implementation. It was found that physical distribution functions, and specifically order placing and processing, storage, despatch, returns, transport and production forecasting should be allocated to the distribution department. Due to the interrelationships that exist within and between the above functions which form part of the physical distribution system, the application of the total cost approach is necessary. The present method and procedure of traditional cost accounting and cost allocation are insufficient when evaluating the possible effect of implementing measures which may result in improved economy on the door-to-door delivery operation. In studying available literature, it was determined that alternatives which may economise the delivery operation, can be categorised as follows: -Methods to increase volumes, and -methods to reduce costs. Volumes can be increased by increasing the number of households to which fresh milk is delivered from door to door. However, consumers consider security of money and delivered product (24,1 percent), reliability of the delivery service (21,5 percent) and inconvenient times of delivery (22,9 percent) as the three most important reasons for not making use of the service. Convenience (41,7 percent) and price aspects (24,7 percent) have been found the two most important factors why consumers obtain fresh milk by means of the door-to-door delivery operation. Of the total number of consumers who normally buy their fresh milk requirements from cafes and supermarkets, approximately 52 percent indicated that they will make use of the delivery service provided reliability and more convenient times of delivery are ensured. It was found that by introducing a wider product range, packaging sizes will not have a significant impact on the volumes per point of sale as fresh orange (50,9 percent) and guava juice (27,8 percent) is preferred in one litre glass bottles. The above products are at present obtainable from the door-to-door delivery service. With regard to methods that may reduce physical distribution costs, 70,7 percent of the consumers indicated they will discontinue the delivery service if products were to be delivered at central points only. It was found that delivery vehicles are utilised for 6,7 hours (36 percent) per day and significant savings in fixed vehicle costs (35 percent) can be achieved by introducing two vehicle shifts (re-scheduling). Of the total number of consumers who normally obtain fresh milk by means of the door-to-door delivery operation, 91,8 percent indicated they will continue with the service even if delivery is only effected in the late afternoon.