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

HED 460 Vendor shows coffee maker to JC Penney Buyer.

HED 460 Buyer orders the coffee maker.

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

HED 460 Coffee maker is shipped

HED 460 Coffee maker goes through customs. Customs Inspector

HED 460 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 Coffee maker is trucked to JC Penney stores.

HED 460 Coffee maker is unpacked.

HED 460 Advertised

HED 460 Coffee maker is selected by customer and purchased.

HED 460 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%)