An Item’s JOURNEYVendor shows coffee maker to JC Penney Buyer.Buyer orders the coffee maker.Coffee maker is “born” at the manufacturing plant.Coffee maker is shippedCoffee maker goes through customs.Coffee maker takes train/truck to manufacturer’s distribution center.Coffee maker is trucked to JC Penney stores.Coffee maker is unpacked.AdvertisedCoffee maker is selected by customer and purchased.Coffee maker is happily brewing in its new home.Distribution TerminologyIndirect movement – 70%DC Objectives - WholesalerFunctions of DCInput – Receiving FunctionThroughput – Storage/Repl.Throughput – Order SelectionOutput - ShippingPricing Distribution CostsSystem Generated (66%)Activity Based CostingSlide 24Slide 25Slide 26Other Sources (34%)Slide 28An Item’s JOURNEYHow a coffee maker gets to a customer…..HED 460Vendor shows coffee maker to JC Penney Buyer.HED 460Buyer orders the coffee maker.HED 460Coffee maker is “born” at the manufacturing plant.HED 460Coffee maker is shippedHED 460Coffee maker goes through customs.Customs InspectorHED 460Coffee maker takes train/truck to manufacturer’s distribution center.(Within the next year, they’ll go to JC Penney’s Store Support Centers.)HED 460Coffee maker is trucked to JC Penney stores.HED 460Coffee maker is unpacked.HED 460AdvertisedHED 460Coffee maker is selected by customer and purchased.HED 460Coffee maker is happily brewing in its new home.HED 460Distribution 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 themHED 460Indirect movement – 70%From manufacturers to wholesalersTraffic or inbound logisticsAir, rail, water, truckFrom wholesalers to retailersTransportation or outbound logisticsTruckHED 460DC Objectives - Wholesaler Maximize cubic capacityReduce # times pallets/cases are handledSafe working environmentFacilitate inbound and outbound logisticsMinimize costsHED 460Functions of DCReceiving - InputStorage and Replenishment - ThroughputOrder Selection – ThroughputShipping - OutputHED 460Input – Receiving FunctionLoad checked for conformity to bill of lading (basis for damage claims)UnloadingMove to staging areaBar codes attached/storage areaHED 460Throughput – Storage/Repl.Goods assigned to active or passive inventoryLayoutsCommodity groupingCase movementCase cube Numbering to identify location in DCHED 460Throughput – 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 460Output - 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 selectionHED 460Pricing Distribution CostsSystem Generated Revenue (66%)Other Sources of Revenue (34%)HED 460System Generated (66%)Markups (68% of the 66%)Must cover costs and contribute to profitActivity Based Costing (ABC)HED 460Activity 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 costsHED 460Activity Based CostingAttaches costs to products and services based on activities performed to produce, distribute, support those products/servicesHED 460Activity Based CostingActivitiesAcquisitionHandlingStorageDeliveryMore complex than cost accounting but benefits are worth itHED 460System 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 DCHED 460Other 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 anotherHED 460Other Sources (34%)Inside MarginPromo money (35%)Offered by manufacturer - not passed to retailerSlotting allowances (12%)Payment for space on retail shelvesSalvage