Discuss how a seller's cost influences a customer's profit and how a seller's service impacts a customer's revenue

Answer 1

If the cost of a seller's logistics service allows a customer to make more profit from the seller's product, the customer should be willing to buy more products from the seller. For example, a manufacturer is able to deliver its product to the buyer's retail store for $0.25 less per case than the competitor can deliver its product to the same store. By keeping the price constant at the shelf, the buyer can realize an additional $0.25 per case profit. Similarly, a manufacturer's logistics service level will have an impact on the retailer's revenues. For example, the same manufacturer in the previous example has an in-stock rate at the buyer's store of 98 percent, compared to 90 percent for the competition. This higher in-stock service level allows the buyer to realize higher revenues from the higher product availability. So, transaction cost and revenue highlight the need to emphasize the impacts of logistics cost and service on supply chain profits and revenues.