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
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HED 460
Pricing Distribution Costs
System Generated Revenue (66%)
Other Sources of Revenue (34%)
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System Generated (66%)
Markups (68% of the 66%) Must cover costs and contribute to profit
Activity Based Costing (ABC)
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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