1. Logistics Overview

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

3. Concept Of Total Cost Analysis
Logistics Overview
Concept Of Total Cost Analysis

4. Logistics Overview 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

5. Cost of Processing Orders
Logistics Overview
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

6. Total Cost Analysis Cost of Processing Orders
Logistics Overview
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.

7. Cost of Processing Orders
Logistics Overview
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

8. Total Cost Analysis Cost of Processing Orders
Logistics Overview
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

9. Cost of Processing Orders
Logistics Overview
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

10. Cost of Processing Orders
Logistics Overview
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

11. Logistics & Bottom Line
Logistics Overview
Logistics & Bottom Line

12. Logistics & Bottom Line
Logistics Overview
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’

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

14. Logistics & Bottom Line
Logistics Overview
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

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

16. Logistics & Balance Sheet
Logistics Overview
Logistics & Balance Sheet

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

18. Logistics & Balance Sheet
Logistics Overview
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

19. Logistics & Balance Sheet
Logistics Overview
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

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