The "calculate total cost period" statement sounds neat, but is not that neatly
defined in reality.
Virtually no business examines the cost of the minutes taken by the stocking
clerk to walk from the counter to the inventory racks to obtain a specific
part. Instead, an estimate or average of how many parts can be pulled in an
hour divided by the average hourly cost of employing a clerk is used.
generating an average cost per part pulled. Even more complex would be a clerk
obtaining two parts. Then does the time taken to walk from the counter to the
first parts bin count against the first part, or should it be equally divided
between the two parts? What about the walking time from the first parts bin
to the second parts bin? Far to complex a problem for a company to determine
"total cost period".
It isn't even that simple to calculate out the cost of the part itself. Do you
use FIFO, LIFO, what? Each technique is valid, but it produces a different
cost of the part itself. How about parts suppliers, more then one with
different costs to you? Even more complexity.
Flat shipping charges are a means of simplifying shipping costs. The time it
takes for a clerk to gather the parts, box the parts, weigh the box, select the
shipper, determine the shipping zone, calculate the final shipping costs, add
that to the invoice, and generate the final bill to the customer... That all
costs the company money, and is prone to errors (ever actually weigh a box
where you paid by weight?). Some companies list weight of the goods in the
catalog (it's not the actual weight btw), and bill flat rate shipping on the
catalog weights. A bit more complex since it adds another column of numbers to
be totaled, but no less arbitrary then the shipping by dollar value method.
Though it can make a customer feel better.
I see from your words that you believe business people don't know anything
about business, and that a company could never have customers if it charges
more than its competition, but you're wrong. Look around you. Gas stations
charge more then their competition right across the street from them, and have
customers lined up to pay them more for their gasoline which is no better then
the station a few feet away, where they could be saving a buck or two on each
fill up. People still pay hundreds, even thousands, of dollars for the
privilege of using Microsoft when there are free software packages that are
every bit as good, to even superior than Microsoft software. Betamax was an
superior recording technique compared to VHS, surpassing it in quality and
costing less. Betamax is gone, while VHS lives on. Customers wanted to pay
more for the lower performing VHS.
Perhaps long distance phone carriers are the best example of all.
Providing a superior product at a competitive price is in no way shape or form
inherently a successful business venture. If only it were though.
>>> "Michael D. Porter" <mporter@zianet.com> 05/09 5:45 AM >>>
Sorry to assume, but spoken like an MBA. Most players in any competitive
market calculate total cost. Period.
Provide a superior product at
competitive price, and pass on actual costs of shipment, and one can't
go wrong.
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