Lm slide chapter 4

HO CHI MINH CITY UNIVERSITY OF TRANSPORT CHAPTER 4: LOGISTICS COSTS LEARNING OBJECTIVES After completing this Chapter, students should be able to: ü Explain the Logistics cost components ü Illustrate the factors that affect Logistics cost ü Discuss the basic solutions to reduce the Logistics cost TS Lê Phúc Hòa, Ths Nguyễn Thị Bảo Khánh CHAPTER OUTLINE 4.1 Logistics cost components 4.2 Factors affecting Logistics costs TS Lê Phúc Hòa, ThS Nguyễn Thị Bảo Khánh REFERENCE LIST [1]-Alan Harrison and Remko van Hoek (2008), Logistics Management and Strategy, Nxb FT Prentice Hall – Chapter [4]-Douglas M.lambert James R.Stock,Lisa M Ellram, Fundamentals of Logistics Management, Mc grow Hall,1998 – Chapter [10]-Đặng Đình Hào, Trần Văn Bảo, Phạm Cảnh Huy, Đặng Thị Thúy Hằng (2018), Giáo trình Quản trị logistics, Nxb Tài Chính – Chapter [12]-Trường đại học Kinh tế Tp HCM (2012), Quản trị hậu cần, Nxb Đại học kinh tế quốc dân – Chapter Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 4.1 LOGISTICS COST COMPONENTS Clog = C1 + C2 + C3 + C4 + C5 + C6 + C1: Customer service costs + C2: Administrative costs + C3: Order processing and information costs + C4: Warehousing costs + C5: Transportation costs + C6: Inventory costs a- Opportunity cost of inventory capital b- Inventory carrying cost c- Loading/unloading cost inside the warehouse d- Inventory risk costs Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh -C4: Warehousing costs C4 = q.t.g +Cxd+q.k.g -t : storage time -g : the average storage cost per unit/day -k: the rate of loss or damage when goods are in stock -g: the value of inventory units -Cxd : handling cost -C5: Transportation costs account for 1/3 to 2/3 of total logistics costs -C6a: Opportunity cost of capital for inventory C6a= q.k.[(1+r)t-1] -q: the inventory for a shipment -k capital required per unit of products -t storage time -r interest rate payable on loan Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 4.2 FACTORS AFFECTING LOGISTICS COST 4.2.1- Order cycle factor Figure 4.2 Relationship between order cycle and inventory Units of inventory Order cycle (days) Source: Coyle (2003) Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh E X A M P L E Let’s take an example… + A customer is using 20 units of product/ day + Order cycle time (OCT) is 10 days + Customer’s average inventory during order cycle time is 100 units (200/2) + If OCT is reduced to days g average inventory will be 60 units If the supplier improves customer services by shortening the OCT g less inventory for customers g less inventory cost glower the logistics cost Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 4.2.2- Inventory factor Figure 4.3 Relationship between cost of lost sales and inventory cost Logistics cost TC (Total cost) IC(Inventory cost) COLS (Cost of lost sales) Units of inventory Source: Coyle (2003) Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 4.2.3- Transportation factor Figure 4.4 Relationship between cost of lost sales and transportation cost Logistics cost TC (Total Cost) TrC (Transportation Cost) COLS (Cost of Lost Sales) Improved transportation service Source: Coyle (2003) Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 10 4.2.4- Inventory level versus transportation cost Figure 4.5 Relationship between inventory cost and transportation cost Logistics cost TC(Total Cost) IC (Inventory Cost) TrC(Transportation Cost) Units of inventory Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 11 4.2.5- Product weight density Figure 4.6 Relationship between cost of lost sales and transportation cost Logistics cost TrC (Transportation cost) IC (Inventory cost) WC(warehousing cost) Weight density of product Source: Coyle (2003) Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 12 4.2.6- Value of product Figure 4.7 Relationship between product value and logistics cost Logistics cost IC-Inventory cost (including storage)+WC TrC-Transport cost PC-Packing cost Value of product Source: Coyle (2003) Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 13 4.2.7- Susceptibility to Loss and Damage Figure 4.8 Relationship between product susceptibility to Loss and Damage and logistics cost Logistics cost PC- Packing Cost TrC-Transport Cost WC-Warehousing Cost Susceptibility to loss and damage Source: Coyle (2003) Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 14 4.2.8- Distance factor Let’s have a look at the example below…! (Currency: million VND) ITC=0.7 ITC=0.4 A PC= 8.5 OTC=0.8 OTC=2.5 M ITC=0.5 B PC= 7,0 ITC=0.6 No Cost of product A Cost of product B Difference (A-B) ITC=0.4+0.5= 0.9 ITC=0,7+0,6=1,3 -0,4 OTC=0,8 OTC=2,5 -1,7 TTC=0,9+0,8=1,7 TTC= 1,3+2,5=3,8 -2,1 PC=8,5 PC=7,0 +1,5 ATC=1,7+8,5=10,2 ATC=3,8+7,0=10,8 -0,6 Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 15 Figure 4.9 Logistics and Spatial Relations from attachment (Source: Center for Supply Chain research, Penn State University) Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 16 4.2.9- Logistics service Figure 4.9 Relationship between Logistics cost and logistics service Logistics Cost C2 C1 S1 Logistics Service S2 (Source: UNESCAP-2002) Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 17 Figure 4.10 The Direction of Improvement in Logistics systems Logistics Cost A B C1 C2 S1 Logistics Service (Source: UNESCAP-2002) Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 18 ... solutions to reduce the Logistics cost TS Lê Phúc Hòa, Ths Nguyễn Thị Bảo Khánh CHAPTER OUTLINE 4. 1 Logistics cost components 4. 2 Factors affecting Logistics costs TS Lê Phúc Hòa, ThS Nguyễn Thị Bảo... and Strategy, Nxb FT Prentice Hall – Chapter [4] -Douglas M.lambert James R.Stock,Lisa M Ellram, Fundamentals of Logistics Management, Mc grow Hall,1998 – Chapter [10]-Đặng Đình Hào, Trần Văn... logistics, Nxb Tài Chính – Chapter [12]-Trường đại học Kinh tế Tp HCM (2012), Quản trị hậu cần, Nxb Đại học kinh tế quốc dân – Chapter Dr Le Phuc Hoa, MSc Nguyen Thi Bao Khanh 4. 1 LOGISTICS COST COMPONENTS