1 Logistics Overview Logistics Overview 2 Concept Of

1 Logistics Overview

Logistics Overview 2 Concept Of Total Cost Analysis Logistics & Bottom Line

Logistics Overview 3 Concept Of Total Cost Analysis

Logistics Overview 4 Total Cost Analysis § Impacts – Direct & Indirect § Decisions in one area lead to unforeseen changes in the other § Examples • • Minimum Order Value – Customer Ordering Patterns – Additional Costs Production Schedule Changes – Improve Production Efficiency – Fluctuations Finished Stock Availability – Customer Service

Logistics Overview 5 Total Cost Analysis Cost of Processing Orders § Costs involved in different functional areas – difficult to put together § Conventional accounting systems lack effectiveness to identify these costs § Example: Stages in Order to Collection Cycle Order placement & communication – Order Entry – Credit Check – Documentation – Order Picking – Delivery – Invoicing & Collection

Logistics Overview 6 Total Cost Analysis Cost of Processing Orders Like a stone thrown into a pond, the effects of specific policies spread beyond their immediate area of impact.

Logistics Overview 7 Total Cost Analysis Cost of Processing Orders § Costs should be viewed in incremental terms – change in total costs caused by the change in system Example: § Addition of extra warehouse • Transportation • Inventory Investment • Communications

Logistics Overview 8 Total Cost Analysis Cost of Processing Orders It is the incremental cost difference between the two options that is the relevant accounting information for decision making

Logistics Overview 9 Total Cost Analysis Cost of Processing Orders Cost of holding inventory § § § Largest cost element Managers unaware of all costs involved 25% P. A. of Book Value of Inventory

Logistics Overview 10 Total Cost Analysis Cost of Processing Orders Cost of holding inventory § § § § Cost Of Capital – Debt & Equity – Weighted Average Storage And Handling Obsolescence Damage And Deterioration Pilferage/Shrinkage Insurance Management Costs

Logistics Overview 11 Logistics & Bottom Line

Logistics Overview 12 Logistics & Bottom Line § Bottom Line – The Driving Force • Limiting Factor – Short Term Focus • Investment in Brands • R & D • Capacity § Cash Flow § Resource Utilization – Fixed & Working Capital • Improve Productivity of Capital - Make the ‘Assets Sweat’

Logistics Overview 13 Logistics & Bottom Line § Improved Productivity of Capital ROI = Profit ----------Capital Employed Profit -----Sales X Sales ------------Capital Employed

Logistics Overview 14 Logistics & Bottom Line § Improved Productivity of Capital • • • Example: Retailers Small net margins & high productivity of capital Limited inventory High sales per square foot Leased premises as opposed to owned

Logistics Overview 15 Logistics & Bottom Line ROI can be improved by increasing the margins or higher capital turnover or both

Logistics Overview 16 Logistics & Balance Sheet

Logistics Overview 17 Logistics & Balance Sheet Cash & Receivables § Component of Current Assets § Examples: • • • Shorter order time Order completion rate – Invoice not raised Invoice Accuracy

Logistics Overview 18 Logistics & Balance Sheet Inventories § 50% of current assets tied up in inventory § All inventory – Raw materials – Bought in components- work in progress – finished goods § Company policies on inventory levels & stock locations § Monitoring & managing them § Strategies – minimize the need

Logistics Overview 19 Logistics & Balance Sheet Property, Plant & Equipment § Substantial part of total capital employed – Assumed owned § Material handling equipment, vehicles, equipment involved in storage § Warehouses § Outsourcing physical distribution

Logistics Overview 20 Logistics & Balance Sheet Question – Is it the most effective way to deploy assets ? ?

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