Fall+2011+M412+Class4

Fall+2011+M412+Class4 - M412 Physical Distribution and...

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M412 Physical Distribution and Logistics Management Prof. Mark Frohlich mfrohlic@iupui.edu Office BS 4042
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Today’s Class Chapter 2 – Role of Logistics in Supply Chains Chapter 3 - Global Dimensions of Supply Chains Globalization and Outsourcing NAFTA and China No class next Monday – Labor Day
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Return on Investments 10.0% Total assets $4,000,000 Sales $5,000,000 Divided by Profit margin 8% Asset turnover rate 1.25 Multiply Cash $300,000 Account receivable $300,000 Inventories $500,000 Assets Labor $700,000 Materials $2,300,000 Overhead $800,000 Operating cost elements What if we decrease materials cost by 5%? (or $115,000) Sales $5,000,000 Net income $400,000 Divided by Fixed assets $2,900,000 Current assets $1,100,000 Plus Other costs $800,000 Sales $5,000,000 Cost of Goods Sold $3,800,000 Minus Plus Significant Financial Impact of Logistics on Return on Investment (ROI) (mentioned on page 52)
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The Impact on ROI of Reducing Materials Costs vs. Increasing Sales If the same profit increase were to be generated by increasing sales, what sales increase would be required? At the existing 8% profit margin, the following calculation provides the answer… Profit increase = new sales X .08 $115,000 = new sales X .08 new sales = $1,437,500
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The Impact on ROI of Reducing Materials Costs vs. Increasing Sales therefore…. . ($1,437,500 / $5,000,000) X 100 = 28.8% or a sales increase of 28.8% is required to match the profit increase generated by a 5% reduction in materials cost Whichever strategy a company decides to do – logistics is likely going to play a big role in it!
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Product Relationships to Logistics
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Logistics is an area of management that has four sub- disciplines: business, military, service, and event. Logistics adds place, time, and quantity utilities to
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Fall+2011+M412+Class4 - M412 Physical Distribution and...

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