LOGISTICS MANAGEMENT

PLANNING, COSTING AND

PRICING
TOPICS

 THE LOGISTICS PLAN

 SOME ELEMENTS OF COSTING
 PRICING
COSTING
 PUBLIC ACCOUNTING PRACTICES
 ACTIVITY BASED COSTING
– Direct and
– Indirect expenses
PRICING
 F.O.B
 Delivered Pricing
 Single Price Zone
 Multiple Zone Pricing
 Basing Point Pricing
 Quantity Discounts
ELEMENTS OF THE
LOGISTICS PLAN
 The Strategic Plan define the
Relative Positioning of Logistics
among the firm’s core competencies
 The Nature of the Operating Plan:
Performance goals, System
Modification, Budgeting
Logistic Plan
 Deploy and monitors the resources
necessary to achieve the logistics mission.
 Establishment of clearly defined strategic
goals and acknowledge commitment to
continuous improvement.
 Focuses on operational direction and
control of logistical activities and processes.
 Elect to outsource specific logistics activities.
The Nature of Logistical Plan

Logistical System Modification

–A comprehensive logistical system reengineering effort typically spans
a number of consecutive operating plans and requires specific
implementation of selected parts of the overall long-range strategic
plan.

Performance Goal
–The development of target performance goals is typically based on a
combination of strategic plans, forecasts, and managerial input
regarding future business activities.

Budgeting
–A rationalization process in the sense that management authorizes
resource expenditure that support desired performance.
Budgeting
Four basic types of budget are used in
logistical controllership:

 Fixed-DollarBudgeting
 Flexible Budgeting
 Zero –Level Budgeting
 Capital Budgeting
 Fixed-Dollar Budgeting

→Fixed dollar budget is an estimate of functional

cost accounts for an anticipated logistical activity.

Flexible Budgeting

→A flexible budget offers a way to accommodate

unexpected increases or decreases in volume during
an operating period.
 Zero-Level Budgeting

→Zero level or target budgeting is usually used to

facilitate operational control in two forms.

Capital Budgeting

→Capital budgeting specifies the amount and

timing of significant investments for logistics
resources.
Costing
 Logisticscost form an important part
of the overall cost structure in any
organization. focus needs to be on
renegotiating freight and shipping
rates, reduction of overall freight
cost and streamlining operations.
Public Accounting Practice
Two main financial reports of a business enterprise

Balance Sheet
∂ Summarize assets and liabilities and to
indicate the net worth of ownership.

P&L
∂ Reflects the revenues and cost associated
with specific operations over a specified period
of time.
Logistics Activity-Based Costing
∂ Activity-Based Costing (ABC) is a costing model that identifies activities in an
organization and assigns the cost of each activity resource to products and services
according to the actual consumption by each in order to generate the actual cost of
products and services for the purpose of elimination of unprofitable and lowering
prices of overpriced ones. In a business organization, the ABC methodology assigns
an organization's resource costs through activities to the products and services
provided to its customers.
Typical logistics costs can be categorized under two
headings:

-Direct cost

-Indirect Cost
Direct Cost
∂ are those expenses specifically caused by the
performance of a logistics work.

Indirect Cost
∂ represent the expenses of doing business that
are not readily identified with a particular grant,
contract, project function or activity, but are
necessary for the general operation of the
organization and the conduct of activities it
performs.
Outsourcing
‘‘Outsourcing’’ is sending work traditionally
handled inside a company or firm to an outside
contractor for performance. A company or firm
may have any number of reasons for
outsourcing, but the most common are:

(3)convenience, e.g., the outsourcing contractor is able to perform

on a schedule that meets the company’s needs;
(4)financial, e.g., the outsourcing contractor is able to perform the
volume of work at better rates, or saves money for expenses; or
(5)problem solving, e.g., the outsourcing contractor is able to
accommodate special needs that would otherwise require an
infrastructure commitment if the company performed the service
itself.
Pricing
 The terms and conditions of pricing
determine which party has
responsibility for performing
logistics activities.
 Freight On Board / Free On Board

∂ The seller indicates the price at point of origin

and agrees to tender a shipment for transportation
loading, but assumes no further responsibility.

Delivered Pricing

∂ The seller offers the price that includes

transportation of the product to the buyer.
Single Zone Pricing

∂ Buyers pay a single price regardless of

where are they allocated.

Multiple Zone Pricing

∂ the practice of multiple zone pricing
establishes different prices for specific
geographic areas.
 Basing Point Pricing

∂ The most complicated and controversial form of delivered

pricing is the use of a base point system in which the final
delivered price is determined by the product’s list price plus
transportation cost from a designated basing point, usually
the manufacturing location. this designated point is used for
computing the delivered price regardless of the whether or
not the shipment actually originates from the base location.

Quantity Discount
∂ are generally offered by a firm as an inducement to
increase order size or overall volume of business. To be
nondiscriminatory, an identical discount structure must be
available to all buyers.
Thank You!