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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

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pricing distribution costs
Pricing Distribution Costs
  • System Generated Revenue (66%)
  • Other Sources of Revenue (34%)

HED 460

system generated 66
System Generated (66%)
  • Markups (68% of the 66%)
    • Must cover costs and contribute to profit
    • Activity Based Costing (ABC)

HED 460

activity based costing
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

activity based costing1
Activity Based Costing
  • Attaches costs to products and services based on activities performed to produce, distribute, support those products/services

HED 460

activity based costing2
Activity Based Costing
  • Activities
    • Acquisition
    • Handling
    • Storage
    • Delivery
  • More complex than cost accounting but benefits are worth it

HED 460

system generated 661
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

other sources 34
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

other sources 341
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

system generated 662
System Generated (66%)
  • Markups (68%)
  • Cash Discounts (27%)
  • Backhaul Revenue (5%)

HED 460

other sources 342
Other Sources (34%)
  • Inside Margin
    • Forward Buying (44%)
    • Promo money (35%)
    • Slotting allowances (12%)
    • Diverting (9%)
    • Salvage (<1%)

HED 460

cross docking ecr initiative
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

HED 460

cross docking products
Cross Docking Products
  • Short replenishment lead times
  • Strong demand
  • Predictable volume
  • Cases on pallets

HED 460

cross docking requirements
Cross Docking Requirements
  • Partner with supply chain members
  • Confidence in product quality and availability
  • Technology
  • Personnel, equipment, facilities

HED 460

cross docking asn s
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

HED 460

cross docking
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

HED 460

in class 5
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

HED 460

direct store delivery
Direct Store Delivery
  • Back door traffic at store
  • 25% of grocery products never see a warehouse

HED 460

dsd product characteristics
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

HED 460

dsd product characteristics1
DSD Product Characteristics
  • Demand variability
    • Frequent promotions
    • Frequent service
  • Lower value density
    • Fragility - chips
    • Weight – beer, soft drinks

HED 460

dsd product characteristics2
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

HED 460

problem
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

HED 460

direct store delivery results
Direct Store Delivery Results
  • More cash flow
    • 8 days of inventory held with 30 day payment
  • Turns
  • Contribution Dollars
  • GMROI
  • High % of in-stock

HED 460

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