Pricing Distribution CostsSystem Generated (66%)Activity Based CostingSlide 4Slide 5Slide 6Other Sources (34%)Slide 8Slide 9Slide 10Cross Docking (ECR initiative)Cross Docking ProductsCross Docking RequirementsCross Docking - ASN’sCross DockingIn Class #5Direct Store DeliveryDSD Product CharacteristicsSlide 19Slide 20ProblemDirect Store Delivery ResultsHED 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 (<1%)HED 460System Generated (66%)Markups (68%)Cash Discounts (27%)Backhaul Revenue (5%)HED 460Other Sources (34%)Inside MarginForward Buying (44%)Promo money (35%)Slotting allowances (12%)Diverting (9%)Salvage (<1%)HED 460Cross 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 customersHED 460Cross Docking ProductsShort replenishment lead timesStrong demandPredictable volumeCases on palletsHED 460Cross Docking RequirementsPartner with supply chain membersConfidence in product quality and availabilityTechnologyPersonnel, equipment, facilitiesHED 460Cross 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 unpackingHED 460Cross 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 foodsHED 460In 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’ namesHED 460Direct Store DeliveryBack door traffic at store25% of grocery products never see a warehouseHED 460DSD 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 unitsHED 460DSD Product CharacteristicsDemand variabilityFrequent promotionsFrequent serviceLower value densityFragility - chipsWeight – beer, soft drinksHED 460DSD 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 equipmentHED 460ProblemHow can you have a low GM but high profit and sales?COGS must be highExpenses must be minimizedEmphasis on contribution marginHED 460Direct Store Delivery ResultsMore cash flow8 days of inventory held with 30 day payment TurnsContribution DollarsGMROIHigh % of