STUDENT CORNER - 241

Total Logistics Cost

Unless you know the total logistics cost of your business, it is rather impossible to arrive at an exact pricing that will guarantee you some profit, necessary to stay in business; that is, sustainable profit cannot be neglected at any cost. Low logistics cost without compromise on quality will enhance production and product performance as well. Here comes efficiency in a big way; efficiency in understanding market dynamics which includes primarily consumer behavior and customer satisfaction level with the performance of your product, among other things.

Logistics cost is comprehensive and all-inclusive; for example, apart from the cost of raw materials, the cost involved in transport and storing in a updated warehouse and distribution cost – any money spent on any commercial activity comes and must come under logistics cost ;  then only we will be able to arrive at the exact profit level.

There are certain steps that must be taken to arrive at the total cost of logistics; the steps are practically useful.

Of course, to lay hand on the profit, you must know how much you have spent, invested in the production and ancillary commercial activities such as labour, establishment , transportation, other minor services and warehouse cost; in other words, you must take into account both the fixed cost and variable cost to know the exact investment made.

When your products are sold, they bring money; it is called Revenue through Sales. Unless your product is sold and turned into your  cash, business cannot continue.  First, therefore, you arrive at the Sales Revenue; that is, the money you get when your products are sold. This is the very first step in calculating logistics cost. Suppose you get a sum of thousand rupees through sale of your all products. This sale –generated money is not your whole profit. You have spent money and produced your product. Say, you have spent a sum of Rs 700 to produce your products. Then, you have to subtract the money spent on producing the products from the total sale money; that is RS 1000.  The remaining money is what is called gross profit. Gross profit is not the final profit you get; net profit is the final profit you gain from the business.

We will see the difference between  Gross and Net profit in our next session.