Archive for March, 2010

CPV – Cost, Price, Value

March 10, 2010

The terms of Costs, Price and Value are not interchangeable. They relate to three separate, definded concepts. Although each of theses three items has an independent meaning, there is still a certain amount of connection between them. Let´s have a look on an example, to show some definitions:

A young man goes to a furniture shop, because he is looking for a new chair for his renovated new flat. A green chair with a flexible armrest is priced for 100 €. Because the chair is comfortable and he likes the green colour, he decides to buy it.

In general terms a price is the result of an exchange or transaction that takes place between two parties and refers to what must be given up by one party (i.e., young man) in order to obtain something offered by another party (i.e., furniture shop)

At home he realizes, that the chair is mainly made of plastics. He thinks about how much the manufacturerers costs could be??

In general terms the costs are the prime costs of a product, such as material costs, direct labour and any other indirect considered costs like overheads. The price by contrast consists of the costs and the manufacturerers and the retailers profit. (costs + profit = price)

One evening the young man is on his way home from an exhausting soccer game. As he arrives at the bus station, he has to wait a lot of minutes for the bus. Normally he waits for the bus standing, but this time he is really glad to sit down on the bench. The importance or in other words the value of the bus stations benches has changed in case of his changed conditions.

In general terms the value always depends on the customers needs. It is not static but flexible and could change in case of changing conditions. (a glass of cold water in the desert normally has a higher value, than in the cold winter season)

Why did the trade change since the 1950´s?

March 8, 2010

The world trade today is about 80 times bigger than in the year 1950.  Extraordinary the trade has grown even way more than the world´s output, called GDP. GDP stands for Gross Domestic Product and includes the total value of all Goods and Services produced in an Economy.

What are the reasons for this longterm upward trend?

In my opinion there are many little reasons for this trend, which have together as a whole a big influence to this fact. To become an easier overview, the little reasons can be categorized into 3 main groups:

  • Lower costs for transportation and trade
  • Higher incomes of each person
  • Companies productivity is improving steadily

Lower costs for transportation and trade: There are many points, which had influence to the costs for transportation and trade.  For example Unit Loads like standard sized boxes, pallets or containers made it much easier and faster handling them at the harbour or to load and reload the ships.  Another thing is technical improvement of ships, lorries and airplanes. Over the years their capacity has been rising and technical improvement made them faster. New supply routes at the sea like the Panama Canal or interurban with better infrastructre also had a big effect to lower the transportation costs.  (time = money = success)

Higher incomes of each person: Economic stability makes the people spending their money more easily. At least if the economy is healthy and growing, there will be a smaller unemployment rate. The people will earn more money, and so they have more money to spend. Besides that another trend is that if people have money, they spend it on more expensive and exclusive goods. That´s why the boom in emerging economies like India, China and Russia and the concluding rising demand had a big influence on the increase of trade.

Companies productivity is improving steadily: New logistic concepts like JIT (Just In Time) and JIS (Just In Sequence), as well as the automatization made the productions much more efficient and as a result cheaper. If companies can increase their production, the product price is tending to fall as a result of the higher output. The lower price makes it possible to sell the products in further locations. The money safed by producing, could now be spend on transportation which has an influence on trading goods.

How did trade change over the years?

March 8, 2010

Besides the fact the number of trade has been steadily growing, the form of trade did change over the past years. There are 4 supplements, how trade changed:

Products: In earlier day´s product design was less important than nowadays. In the foreground was functionality and long life functionality. Today products are not only design for good looking and to attract attention, but also to make transporting and trading more easily. For example instead of cylindric bottles, there are more and more rectangular ones. At least it makes them easier to handle and it uses less space, because of tighter packaging on a pallet.

Markets: The markets changed from local trading to international product and service exchange. Especially the emerging economies like the BRIC states (Brazil, Russia, India, China) had a huge economical boost in the present years. They did not only export more goods than ever, they importet many goods because of their rising income. Finally there´s a word discribing the fact many local goods are now sold all over the world: Cocacolization

Infrastructure: bigger, faster, better – these are the catchwords, which made an enormous change to trade and transportation. Not only bigger and faster load carriers led to another level of trading, but also better sophisticated streets, railway systems and container handling facilities. This aspects caused saver, faster and at least easier trading and transporting.

Operation Mangament Techniques: In the past the main aim of transport and trade was, to bring loads from A to B in a secure way without any damages to the products. Today this is normally taken for granted. Much more important is to place the traded goods in the right time and in the right amount to the customer. To cope with this challenge, there are many mathematical analysing techniques. With those techniques it is possible to determine the best routes and the best amount of goods.

This is the beginning

March 8, 2010

Hello Logistic Fans,

I will try to collect and collaborate information about Logistic at this Blog!