Determine the transportation-level costs. Also, include any additional warehouse space used for out of stock items, which are often stored so your company can reuse them later for parts. Companies focus on logistics because they essentially add costs to the production of materials, while the cheapest options may decrease the production performance of a company. Determine the service-level costs by subtracting the actual number of products sold without return from the total units ordered. Measuring logistics costs and performance Logistics and the bottom line 83 Logistics and shareholder value 88 Logistics cost analysis 95 The concept of total cost analysis 96 Principles of logistics costing 99 Customer profitability analysis 103 Direct product profitability 109 Cost drivers and activity-based costing 111 81 Chapter 3 As an example, if you had 5500 units ordered, but were only able to fulfill 4800 orders, you can calculate 5500 - 4800 = 700 lost sales. Include the land costs, building costs, utilities, payroll and special costs if your products require special storage conditions, such as cooling. Logistics costs include all costs beyond the basic production costs for a unit. 7 Figure 13-1 Raising the Performance Bar 8 Overview of Performance Measurement1. She has experience teaching developmental writing, freshman composition, and freshman composition and research. Measuring logistics costs and performance regularly can help your company improve its bottom line and overall product performance. For a limited time, find answers and explanations to over 1.2 million textbook exercises for FREE! Course Hero is not sponsored or endorsed by any college or university. Present warehouse costs in terms of a pure cash value, or represent them as a percentage of your total sales by dividing your warehouse costs by your total revenue from sales. Copyright 2020 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. Reviewed by: Jayne Thompson, LL.B., LL.M. Get step-by-step explanations, verified by experts. Include the space costs, utilities, labor costs and special arrangements for your products, such as cooling necessities. Metrics drive behavior --- what you measure is what you get. Focus on product cost rather than customer costs. Include all transportations costs in this equation, such as payroll for transportation staff, fuel use, insurance costs and maintenance costs. 4 Measuring logistics costs and performance Logistics and the bottom line Logistics and shareholder value Logistics cost analysis The concept of total cost analysis Understanding the cost-to-serve Customer profitability analysis … - Selection from Logistics & Supply Chain … Cerasis: Logistics Cost Reduction: 6 Focuses to Create More Profit, Brightpearl: Understanding Landed Costs & The Profit Margin Formula, Cerasis: Transportation Accounting: How Understanding Transportation and Freight Costs Leads to Strategic Thinking and More Profitable Business.

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