Abstract
Firms are constantly improving their activities in order to become more competitive. With the diffusion of international competition and easier access to global markets, effective logistic and inventory management strategies become essential to all players. In this sense, there is a clear tradeoff between inventory costs and service level. A common strategy to address this issue is to locate distribution centers (DC) near key markets. However, the decision to build new DCs must be supported by clear and convincing analysis. In this context, this paper reports the use of cost-volume-profit analysis to assess the viability of establishing a new DC by a real company that manufactures radiopharmaceutical products. The researchers collected and analysed detailed financial information from the company and compared the current scenario with potential future scenarios using the cost-volume-profit technique. Next, expected firm profitability is compared for two scenarios: with and without the new DC.
Highlights
The main objective of the logistic function is to provide a firm’s customers with the right product, at the right place and right time, according to pre-determined conditions (Ballou, 1999)
The firm has a commercial office in São Paulo, which is responsible for approximately 25% of the total sales revenues
Most revenues come from products: the firm has a portfolio of nine products, but 73% of the overall revenues come from a single product
Summary
The main objective of the logistic function is to provide a firm’s customers with the right product, at the right place and right time, according to pre-determined conditions (Ballou, 1999). In this context, a few key logistic activities are considered strategic, especially in a country of continental dimensions as Brazil. A common approach to address this tradeoff is to build distribution centers (DC) close to key markets in order to improve the service level perceived by the customer, reduce lead time and logistic costs, increase market share, and, eventually, facilitate entry in new markets and achieve higher competitiveness levels (Hill, 2003)
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