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An Item’s JOURNEY. How a coffee maker gets to a customer…. 1. Vendor shows coffee maker to JC Penney Buyer. 2. Buyer orders the coffee maker. 3. Coffee maker is “born” at the manufacturing plant. 4. Coffee maker is shipped. 5. Coffee maker goes through customs. Customs Inspector. 6.
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An Item’s JOURNEY How a coffee maker gets to a customer…..
1 Vendor shows coffee maker to JC Penney Buyer. HED 460
2 Buyer orders the coffee maker. HED 460
3 Coffee maker is “born” at the manufacturing plant. HED 460
4 Coffee maker is shipped HED 460
5 Coffee maker goes through customs. Customs Inspector HED 460
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
7 Coffee maker is trucked to JC Penney stores. HED 460
8 Coffee maker is unpacked. HED 460
9 Advertised HED 460
10 Coffee maker is selected by customer and purchased. HED 460
11 Coffee maker is happily brewing in its new home. HED 460
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
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
DC Objectives - Wholesaler • Maximize cubic capacity • Reduce # times pallets/cases are handled • Safe working environment • Facilitate inbound and outbound logistics • Minimize costs HED 460
Functions of DC • Receiving - Input • Storage and Replenishment - Throughput • Order Selection – Throughput • Shipping - Output HED 460
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
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
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
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
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 HED 460
Activity Based Costing • Attaches costs to products and services based on activities performed to produce, distribute, support those products/services HED 460
Activity Based Costing • Activities • Acquisition • Handling • Storage • Delivery • More complex than cost accounting but benefits are worth it HED 460
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%) • 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 (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