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Thread: Distribution / Logistic Budgeted Cost Using 3PL

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    Default Distribution / Logistic Budgeted Cost Using 3PL

    Logistics / Distribution cost on average accounts for 3%-5% of the selling price of a products.This again varies by region . For an organization to set its selling price accurately , it is the responsibility of the Supply Chain Dept. to determine the value added cost of a products if a company engage a 3PL . Irrespective of types of industries or products this cost is normally divided into two category .

    1. Logistic Cost for Domestic Sales
    2. Logistic Cost for Export Sales .

    The idea of bringing up this area is because alot of companies are outsourcing this activities and as such we need to have a good knowledge on how the cost is calculated . Would like to hear from members who have the experienced and expertise in calculating such cost . Maybe we start by naming the key component cost that is required for this calculation .

    Rgds.

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    Site Owner & Gold Sponsor Rob O'Byrne's Avatar
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    Default Re: Distribution / Logistic Budgeted Cost Using 3PL

    Neo,

    You raise an interesting point.

    My comments would be as follows:

    Logistics cost as a percentage of sales needs to be used carefully, as the value/sale price of products varies so much. For example with Building products, it could be as high as 15%

    In terms of the sequence of the decision process, I think it would be rare for Logistics costs to actually determine the selling price. It might be the case that COGS gives an indication of potential sale price but often this will be dictated by what the market will bear, or how competitive products are priced.

    But you quite rightly point out, that the decision to outsource may be very heavily dependent on the cost differential with the in house option.

    An interesting debate.

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    Default Re: Distribution / Logistic Budgeted Cost Using 3PL

    Quote Originally Posted by Rob O'Byrne View Post
    Neo,

    You raise an interesting point.

    My comments would be as follows:

    Logistics cost as a percentage of sales needs to be used carefully, as the value/sale price of products varies so much. For example with Building products, it could be as high as 15%

    In terms of the sequence of the decision process, I think it would be rare for Logistics costs to actually determine the selling price. It might be the case that COGS gives an indication of potential sale price but often this will be dictated by what the market will bear, or how competitive products are priced.

    But you quite rightly point out, that the decision to outsource may be very heavily dependent on the cost differential with the in house option.

    An interesting debate.
    Rob ,

    Thanks for the comments . Totally agree that building materials logistics cost will be much higher because of the weights and size . But then again COGS or Cost of goods sold only capture the direct cost as logistic cost is indirect or part of selling and administrative cost . In my opinion , we can only determine the selling price only after we know the COGS and the Selling & Adm expenses . Only then we can mark up the margin to get the selling price . In another aspect or to stay competitive we need to know our cost structure in order to control cost .

    Rgds

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    Default Re: Distribution / Logistic Budgeted Cost Using 3PL

    Quote Originally Posted by Neo View Post
    Rob ,

    Thanks for the comments . Totally agree that building materials logistics cost will be much higher because of the weights and size . But then again COGS or Cost of goods sold only capture the direct cost as logistic cost is indirect or part of selling and administrative cost . In my opinion , we can only determine the selling price only after we know the COGS and the Selling & Adm expenses . Only then we can mark up the margin to get the selling price . In another aspect or to stay competitive we need to know our cost structure in order to control cost .

    Rgds
    Hi Neo,

    As a importing distributor, our COGS is based on DDP cost (landed duty paid), which is CIF cost + import duty + GST. Cost is based on goods at the distribution point, not FOB. When you start to consider transportation cost and 3PL value-added services such as container deconsolidation, put-away, pick-and-pack, kitting, storage, etc. It also becomes more difficult to assign freight costs to a unit of item because your cost would be different each time if it arrived in a different transport mode (sea/air) using different carrier service (LCL/FCL/TL/LTL) and involved foreign exchange (CNY-AUD). In reality we cannot charge customers differently each time because we have variable cost components in the product. This is why we need to have sufficient margin to cover any cost fluctuations.

    By the sounds of your initial question, it appears you are with an exporting manufacturer, where selling price is commonly cost-plus or cost of materials + direct labor + overhead + margin % and usually based on BOM.

    However costing and pricing are two different disciplines. The only thing certain is selling price should always be greater than cost in order for a company to be in business no matter where you are in the chain---exporting manufacturer, importing distirbutor or retailer.

    Selling prices at wholesale and retail are often driven by market factors and can even be customer-specific but rarely have a strong correlation to manufacturing costs. Wholesale prices are usually a percentage of the RRP/MSRP (backward pricing).

    The following examples show the non-correlation between manufacturing cost and market pricing (RRP/MSRP):

    • A $300 4x6 digital photo frame (w/ a very low-cost CPU embedded) vs. a $250 19" LCD monitor
    • A $70 silk scarf or tie vs. a meter of silk fabric (costing USD3.00 per meter plus CNY5.00 to make)


    In my opinion, pricing is just as complex as costing. In the apparel industry many distributors sell the same to different types of customers at different prices and may offer quantity discounts. For example, an independent mom-and-pop store usually pays more than a national retailer for the same item (price discrimination). Many big retailers would also require their suppliers to guarantee a certain sell-thru rate with their products or they need to pay (or share) the cost of markdown with the retailer because they have the bargaining power to dictate the terms and costs.

    The following cost model is one I developed for the company after having worked in the apparel/fashion industry for a number of years, from sourcing to manufacturing to distribution to retail. It also applies to soft goods in FMCG and durables. It has a comprehensive set of cost components that spans the entire supply chain. Not all are relevant to your business; many companies don't need to pay sourcing commission if they buy directly from factories. Many large retailers either use an outside buying agent or set up their own sourcing office in the country of origin. Export quota only matters if you sell to the EU or US. Export VAT rebate is another incentive provided to export-oriented businesses by a government like China. Nowadays in China, export VAT rebate has become part of the exporter's margin.

    I think you can develop a stage cost model similar to this one for any industry sector, which can be used to optimize the total acquisition cost of multiple items in one or more FCL shipment rather than unit cost of a single item. A distributor or retailer would probably find such model more useful than a China factory selling FOB. Optimization becomes important when you have multiple SKUs and vendors to deal with and if you source products globally. Such a model can also be used for simulation if your company has adopted a multi-country sourcing strategy (sorry I didn't include columns such as currency code and UoM for each item).

    Parent Cost Component No. No. Description
    FOB BOM Bill of materials
    FOB CMT Cut, make and trim costs
    FOB FRT-IN Inland freight cost
    FOB Q Export quota
    FOB REB Export VAT rebate
    FOB QA QA inspection
    FOB LAB Lab tests
    FOB SRC Sourcing commission
    CIF FOB FOB cost
    CIF FRT-INT International freight
    CIF INS Insurance cost
    DDP CIF CIF cost
    DDP DUTY Import duty
    DDP GST GST on CIF plus import duty
    DDP FEE-AGT Customs clearance and other charges
    3PL DSF Deconsolidation (destuffing)
    3PL RCV Put-away (receiving)
    3PL SRT Unpack-and-sort
    3PL LBL-RRP Floor-ready labeling
    3PL STR Storage
    3PL PNP Pick-and-pack
    3PL LBL-SHP SSCC labeling
    3PL CTN Packaging
    3PL DIS Dispatch
    WSP DDP Landed cost
    WSP 3PL Distribution cost
    WSP MRG-WSP Gross margin (wholesale)
    WSP FRT-DOM Delivery cost
    WSP FUL Fuel surcharge
    WSP SAL Sales commission
    RRP WSP Wholesale price
    RRP MRG-RRP Gross margin (retail)

    Scott

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    Default Re: Distribution / Logistic Budgeted Cost Using 3PL

    Hi Friend,

    I cannot agree.Especially in China.You know there are more and more small forwarders companies builded,but RMB is raising,Export drawback is lower and lower,and some government laws that make it more and more difficult for exporter in China.That means they have to try some way to save their cost,How can they save?They want to save through logistics management.
    they will also need to supply chain management.

    The problem is in China,Many people say they are providing SCM service but only say but do nothing,coz they donot have advanced techlonigy and navegate system. That is why now more and more supply chain companies entering China? At the same time,it seems not so good in China,But it will be a trend. How can you get used to China suitation is the key point.

    Thanks + Regards

    Brooke
    Last edited by Starbucks Junkie; 21 July 08 at 09:19. Reason: Removed personal details

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    Default Re: Distribution / Logistic Budgeted Cost Using 3PL

    Well sometimes there are value added logistics so i think it must be also included in the costing in order to budget it clearly. In 3pl there are many services that is provided and you need to know them in order to know how can you budget your logistics distribution. Of course 3pl is a third-party service, it encompasses anything that is involved in logistics and management.


    Regards,
    Emelia I.
    BR International Value Added Logistics

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    Default Re: Distribution / Logistic Budgeted Cost Using 3PL

    A growing number of businesses and organizations are outsourcing their logistics to third party logistics providers (also called 3PL or TPL) to save time and money. 3PL companies typically offer warehousing, transportation and integrated operation services that can be tailored to the customers` needs based on market conditions. These services often go beyond logistics and include value-added services that are integral to the supply chain.

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    Default Re: Distribution / Logistic Budgeted Cost Using 3PL

    Well, some of the time there is esteem included coordinations so I think it must be likewise incorporated into the coating with a specific end goal to spending it obviously. In 3pl there are many administrations that is given and you have to know them to know how might you spending plan your coordinations circulation. Obviously 3pl is an outsider administration, it envelops anything that is included in coordinations and administration.

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    Default Re: Distribution / Logistic Budgeted Cost Using 3PL

    Business today is searching for a solitary source answer for oversee warehousing and appropriation. Requirements on income and floor-space imply that few have the privilege to back and keep surplus stock close by. Finding the upbeat medium is a test that sees many battles to strike a harmony between tying-up excessively trade out stock and fulfilling the client off the rack. What's more, it just deteriorates when your business sources items from a substantial number of various sources, regularly scattered around the nation, if not the world. Co-coordinating your providers to watch conveyance windows which suit your business is troublesome if certainly feasible.

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    Default Re: Distribution / Logistic Budgeted Cost Using 3PL

    Thanks to a Very good information
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