September 11, 2017
How a CPG brand gets its product to buyers and on to retail shelves is an integral part of the cost equation. Decisions made around delivery can make the difference between costly transportation and healthy margins.
There are two popular scenarios for delivery:
- Retailers will pick up the product, using their own fleet or purchased transportation and provide Customer Pick-Up (CPU) Pricing
- The brand will handle their own transportation into the receiver/retailer and charge a slightly higher Delivered Price
Unfortunately, the optimal strategy isn’t always obvious.
Many CPG companies assume that letting retailers manage the process will be the best choice because it is seemingly less work and pricing is more predictable. This is often true and the optimal way to go.
However, when a brand manages their own transportation it can equate to:
- Immediate operational savings
- More control
- A sizable increase in product margin
How can you tell what strategy is best suited for your business?
|CPU vs. Delivered Pricing: What's Best for Your Transportation Strategy and Spend
Download the white paper to learn more about this important decision and how food and beverage transportation professionals can determine the best strategy for their operations.
Looking at Cost Calculations
Evaluating CPU and Delivered pricing is an exercise that should be visited often and adjusted based on market and volume factors.
To start, manufacturers should calculate the price delta between CPU and Delivered.
NOTE – Cost equation and calculation examples included in the white paper, CPU vs. Delivered, available here.
By multiplying this price difference by both transportation costs and amount of product sold, shippers can see their opportunity cost.
If opportunity cost is positive, this means managing transportation, rather than handing over to retailers, will cost less for the brand to execute and lead to larger margins.
If opportunity cost is negative, CPU is likely the best choice, and cheaper for the brand overall.
Looking at Operational Impacts
As you can imagine, the above cost calculation doesn’t include outside variables – such as overall control, convenience, or consolidation – and can’t be relied upon as the sole factor in this strategic transportation decision.
Even when CPU is less expensive, giving control to retailers can indirectly impact a brand’s operations and production schedules. Retailers control appointment times and can send their vehicles whenever is most convenient and cost-efficient for them, not the CPG manufacturer.
NOTE – Examples of impacts included in the white paper, CPU vs. Delivered, available here.
Additionally, initial CPU vs. Delivered pricing calculations don’t include the potential for consolidated orders. When a brand has more freight volume under their control, and customer or receiver locations that are close in proximity, consolidating orders can help dramatically reduce freight spend.
NOTE – Examples of how consolidation is positively related to CPU vs. Delivered are included in Zipline Logistics’ white paper, available here.
Interested in running a CPU vs. Delivered analysis? Zipline Logistics is experienced with helping both emerging and established brands navigate the decision of CPU vs. Delivered pricing.
Call our team today at 614-458-1144 or contact us via email for more information.