pricing distribution costs
DESCRIPTION
Pricing Distribution Costs. System Generated Revenue (66%) Other Sources of Revenue (34%). System Generated (66%). Markups (68% of the 66%) Must cover costs and contribute to profit Activity Based Costing (ABC). Activity Based Costing. Alternative way to allocate overhead - PowerPoint PPT PresentationTRANSCRIPT
HED 460
Pricing Distribution Costs
System Generated Revenue (66%)
Other Sources of Revenue (34%)
HED 460
System Generated (66%)
Markups (68% of the 66%) Must cover costs and contribute to profit
Activity Based Costing (ABC)
HED 460
Activity Based Costing Alternative way to allocate
overhead Formerly labor costs were highest costs
Now, materials costs are highest Tries to turn indirect costs into
direct costs
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Activity Based Costing
Attaches costs to products and services based on activities performed to produce, distribute, support those products/services
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Activity Based Costing Activities
Acquisition Handling Storage Delivery
More complex than cost accounting but benefits are worth it
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System Generated (66%) Cash discounts (27%)
Reduction to price for early payment Backhaul revenue (5%)
Avoids truck returning empty after delivery
Pick up merchandise at a manufacturer on the way back to DC
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Other Sources (34%) Inside Margin (revenue generated by
some activity other than distributing products Forward buying (44% of the 34%)
Buy more than needed at discount price
Diverting (9%) Buy product on “deal” in one region and resell at profit in another
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Other Sources (34%) Inside Margin
Promo money (35%) Offered by manufacturer - not passed to retailer
Slotting allowances (12%) Payment for space on retail shelves
Salvage (<1%)
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System Generated (66%)
Markups (68%) Cash Discounts (27%) Backhaul Revenue (5%)
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Other Sources (34%)
Inside Margin Forward Buying (44%) Promo money (35%) Slotting allowances (12%) Diverting (9%) Salvage (<1%)
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Cross Docking (ECR initiative)
Sending goods directly to the retailer by bypassing storage
Benefits Reduces distribution costs
Storing, picking Improves efficiency
>inventory turn, < carrying costs, faster flow to customers
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Cross Docking Products
Short replenishment lead times
Strong demand Predictable volume Cases on pallets
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Cross Docking Requirements
Partner with supply chain members
Confidence in product quality and availability
Technology Personnel, equipment, facilities
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Cross Docking - ASN’s Electronic bill of lading (invoice) Eliminates retailers opening
cartons and inventorying 85-95% department store
merchandise comes with ASN Helps plan staff to help with
unpacking
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Cross Docking 15-30% products are now cross-docked
Save 5-20% in handling costs U.S. is behind Europe Tesco and Sainsbury even cross dock fresh foods
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In Class #5
View video tape Discuss terms from reading or video that are still confusing
What are three key “learnings” from the video?
Group members’ names
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Direct Store Delivery
Back door traffic at store 25% of grocery products never see a warehouse
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DSD Product Characteristics
Shelf life Bread/pastry/salty snacks/beer 30-70 days DSD vs 390 days for warehoused category
Higher SKU velocity 12 units/store/week vs 9 units
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DSD Product Characteristics
Demand variability Frequent promotions Frequent service
Lower value density Fragility - chips Weight – beer, soft drinks
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DSD Product Characteristics
Lower value density (cont.) $27/cu. Ft. (dsd) vs $100/cu. Ft. Price divided by space High cost as a % sales
Merchandising difficulty Special equipment
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Problem
How can you have a low GM but high profit and sales? COGS must be high Expenses must be minimized Emphasis on contribution margin
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Direct Store Delivery Results
More cash flow 8 days of inventory held with 30 day payment
Turns Contribution Dollars GMROI High % of in-stock