An Item’s JOURNEY

1. An Item’s JOURNEY How a coffee maker gets to a customer…..

2. 1 Vendor shows coffee maker to JC Penney Buyer. HED 460

3. 2 Buyer orders the coffee maker. HED 460

4. 3 Coffee maker is “born” at the manufacturing plant. HED 460

5. 4 Coffee maker is shipped HED 460

6. 5 Coffee maker goes through customs. Customs Inspector HED 460

7. 6 Coffee maker takes train/truck to manufacturer’s distribution center. (Within the next year, they’ll go to JC Penney’s Store Support Centers.) HED 460

8. 7 Coffee maker is trucked to JC Penney stores. HED 460

9. 8 Coffee maker is unpacked. HED 460

10. 9 Advertised HED 460

11. 10 Coffee maker is selected by customer and purchased. HED 460

12. 11 Coffee maker is happily brewing in its new home. HED 460

13. Distribution Terminology • Spatial discrepancy • Need distribution to get products from production site to where retailers are located • Temporal discrepancy • Timing of when products are produced and when retailers need them HED 460

14. Indirect movement – 70% • From manufacturers to wholesalers • Traffic or inbound logistics • Air, rail, water, truck • From wholesalers to retailers • Transportation or outbound logistics • Truck HED 460

15. DC Objectives - Wholesaler • Maximize cubic capacity • Reduce # times pallets/cases are handled • Safe working environment • Facilitate inbound and outbound logistics • Minimize costs HED 460

16. Functions of DC • Receiving - Input • Storage and Replenishment - Throughput • Order Selection – Throughput • Shipping - Output HED 460

17. Input – Receiving Function • Load checked for conformity to bill of lading (basis for damage claims) • Unloading • Move to staging area • Bar codes attached/storage area HED 460

18. Throughput – Storage/Repl. • Goods assigned to active or passive inventory • Layouts • Commodity grouping • Case movement • Case cube • Numbering to identify location in DC HED 460

19. Throughput – Order Selection • Most labor intensive step • Full pallet or full case quantities • Orders placed within DC order cycle time • Goods are picked • Goods are “unitized” HED 460

20. Output - Shipping • External logistical activities • Scheduling shipping • Specification of DC dock area or door • Shipment accuracy – random • Select type of truck/trailer • How trailer is loaded • Dispatch and route selection HED 460

21. Pricing Distribution Costs • System Generated Revenue (66%) • Other Sources of Revenue (34%) HED 460

22. System Generated (66%) • Markups (68% of the 66%) • Must cover costs and contribute to profit • Activity Based Costing (ABC) HED 460

23. 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 HED 460

24. Activity Based Costing • Attaches costs to products and services based on activities performed to produce, distribute, support those products/services HED 460

25. Activity Based Costing • Activities • Acquisition • Handling • Storage • Delivery • More complex than cost accounting but benefits are worth it HED 460

26. 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 HED 460

27. 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 HED 460

28. 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%) HED 460