Logistics and Supply Chain Management Quiz

Logistics and Supply Chain Management: Key Considerations for Global Organizations

• Location decisions can impact after-tax free cash flow due to different tax regimes, property tax, excise duty, and customs regulations.
• The value of a business is determined by the net present value of free cash flow, which can be affected by strategies such as increasing revenues or reducing risk.
• Integrated logistics and distribution management face challenges due to the lack of appropriate cost information and the need to manage the total distribution activity as a complete system.
• Total cost analysis involves understanding the various cost elements involved in the order processing cycle and identifying the change in costs brought about by logistics decisions.
• Inventory holding costs include the cost of capital, comprising the cost of debt and equity, and the weighted cost of capital is usually used to reflect this.
• Logistics costing should mirror the materials flow and enable separate cost and revenue analyses by customer type, market segment, or distribution channel.
• Defining the desired outputs of the logistics system and identifying the costs associated with providing those outputs is crucial for effective logistics and supply chain management.
• The concept of 'mission' in logistics and supply chain management refers to a set of customer service goals achieved within a specific product/market context, cutting across traditional company lines.
• Successful achievement of defined mission goals involves inputs from various functional areas and activity centers within the firm.
• Logistics management aims to integrate resources across a pipeline extending from suppliers to final customers, with the objective of assessing costs and performance of that pipeline flow.
• The adoption of an integrated approach to logistics and distribution management has proved difficult for many companies due to the lack of appropriate cost information and the need to manage the total distribution activity as a complete system.
• Total logistics costs can be influenced by the addition or removal of a depot from the system, and total cost analysis is crucial for identifying the change in costs brought about by logistics decisions.

Costing and Profitability Analysis in Logistics and Supply Chain Management

• Effective costing system aims to determine total systems cost of meeting mission objectives and the costs of various inputs involved
• Mission costing is the reverse of traditional techniques, where functional budget is determined by the demands of the missions it serves
• Customer profitability analysis involves identifying avoidable costs and incremental revenue to accurately measure customer profitability
• Customer profitability matrix categorizes customers based on their net sales value and cost-to-serve
• Different strategies are proposed for customer categories including Build, Danger zone, Cost engineer, and Protect
• Direct product profitability (DPP) attempts to identify all costs attached to a product or order as it moves through the distribution channel
• Understanding DPP is important for suppliers as their ability to be a low-cost supplier is influenced by the costs incurred in the logistics system
• Table 3.3 describes the steps to be followed in moving from a crude gross margin measure to a more precise DPP
• Four stages in the implementation of an effective mission costing process are defined: defining customer service elements, identifying factors leading to variations in service, identifying specific resources used to support customer segments, and attributing activity costs by customer type or segment
• The basic purpose of logistics cost analysis is to provide managers with reliable information for better resource allocation to meet customer service requirements in the most cost-effective manner