Pricing and documentation play important roles in supply chain management. Pricing affects customer demand and supply chain responsiveness. It can be used to match supply and demand through strategies like revenue management. Lack of coordination in the supply chain can result in the bullwhip effect of demand amplification. Proper documentation is essential for smooth movement of goods through the supply chain and facilitates international trade by providing key shipment information.

1. ǁ• PVPSIT •ǁ Logistics and Supply Chain Mgt. (LSCM) – U5
ǁ• Dept. of ME •ǁ chkishore@pvpsiddhartha.ac.in >>> 7382219990
UNIT-V: Pricing Product and Documentation: Pricing - Revenue
Management Lack of coordination and Bullwhip Effect - Impact of lack of
coordination - Documentation - functions and types.
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❖ Pricing is a factor that gears up profits in supply chain through an appropriate match
of supply and demand. Revenue management can be defined as the application of pricing
to increase the profit produced from a limited supply of supply chain assets.
❖ Role of Pricing in the supply chain:
➢ Pricing is the process by which a firm decides how much to charge customers for its
goods and services.
➢ Pricing affects the customer segments that choose to buy the product, as well as influencing
the customer’s expectations. This directly affects the supply chain in terms of the level of
responsiveness required as well as the demand profile that the supply chain attempts to serve.
➢ Pricing is also a lever that can be used to match supply and demand, especially when the
supply chain is not very flexible.
➢ All pricing decisions should be made with the objective of increasing firm profits. This
requires an understanding of the cost structure of performing a supply chain activity and the
value this activity brings to the supply chain.
➢ For example, Costco, a membership-based wholesaler in the United States, has a policy that
prices are kept steady but low. The steady prices ensure that demand stays relatively stable.
The Costco supply chain exploits the relative stability of demand to be efficient.
➢ In contrast, some manufacturing and transportation firms use pricing that varies with the
response time desired by the customer. Through their pricing, these firms are targeting a
broader set of customers, some of whom need responsiveness while others need efficiency. In
this case, it becomes important for these firms to structure a supply chain that can meet the
two divergent needs.
➢ Amazon uses a menu of shipping options and prices to identify customers who value
responsiveness and those who value low cost. This identification allows the company to
serve both effectively.
❖ Components of Pricing Decisions:
The key components of pricing decisions that affect supply chain performance:
➢ Pricing and economies of scale: Most supply chain activities display economies of scale.
Changeovers make small production runs more expensive per unit than large production runs.
Loading and unloading costs make it cheaper to deliver a truckload to one location than to
four. In each case, the provider of the supply chain activity must decide how to price it
appropriately to reflect these economies of scale. A commonly used approach is to offer
quantity discounts.
➢ Everyday low Pricing (EDLP) vs. High–Low Pricing: A firm such as Costco practices
EDLP at its warehouse stores, keeping prices steady over time. Costco will go to the extent of
not offering any discount on damaged books to ensure its EDLP strategy.

2. ǁ• PVPSIT •ǁ Logistics and Supply Chain Mgt. (LSCM) – U5
ǁ• Dept. of ME •ǁ chkishore@pvpsiddhartha.ac.in >>> 7382219990
In contrast,
most
supermarkets
practice high–
low pricing
and offer steep
discounts on a
subset of their
product every
week. The
Costco pricing
strategy results
in relatively stable demand.
The high–low pricing
strategy results in a peak
during the discount week,
often followed by a steep drop
in demand during the
following weeks. The two
pricing strategies lead to
different demand profiles that
the supply chain must serve.
➢ Fixed Price versus Menu Pricing: A firm must decide whether it will charge a fixed price
for its supply chain activities or have a menu with prices that vary with some other attribute,
such as the response time or location of delivery. If marginal supply chain costs or the value
to the customer vary significantly along some attribute, it is often effective to have a pricing
menu. We have already discussed Amazon as an example of a firm offering a menu that is
somewhat consistent with the cost of providing the particular supply chain service. An
example of when the pricing menu is somewhat inconsistent, which often allow customers to
have their order shipped to them or to be picked up in person. A customer pays an additional
shipping fee for home delivery, but pays nothing for a personal pickup. The pick, pack, and
deliver cost at the warehouse, however, is higher in the case of a personal pickup compared
with home delivery. The pricing policy thus can lead to customer behavior that has a negative
impact on profits.
❖ Pricing-related Metrics: Pricing directly affects revenues but can also affect production
costs and inventories, depending on its impact on consumer demand. A manager should track
the following pricing-related metrics. With menu pricing, each metric should be tracked
separately for each segment in the menu:
• Profit margin measures profit as a percentage of revenue. A firm needs to examine a
wide variety of profit margin metrics to optimize its pricing, including dimensions such
as type of margin (gross, net, and so on), scope, customer type, and others.
• Days sales outstanding measures the average time between when a sale is made and
when the cash is collected.

3. ǁ• PVPSIT •ǁ Logistics and Supply Chain Mgt. (LSCM) – U5
ǁ• Dept. of ME •ǁ chkishore@pvpsiddhartha.ac.in >>> 7382219990
• Incremental fixed cost per order measures the incremental costs that are independent of
the size of the order. These include changeover costs at a manufacturing plant or order
processing or transportation costs that are incurred independent of shipment size at a
mailorder firm.
• Incremental variable cost per unit measures the incremental costs that vary with the size
of the order. These include picking costs at a mail-order firm or variable production costs
at a manufacturing plant.
• Average sale price measures the average price at which a supply chain activity was
performed in a given period. The average should be obtained by weighting the price with
the quantity sold at that price.
• Average order size measures the average quantity per order. The average sale price, order
size, incremental fixed cost per order, and incremental variable cost per unit help
estimate the contribution from performing the supply chain activity.
• Range of sale price measures the maximum and the minimum of sale price per unit over
a specified time horizon.
• Range of periodic sales measures the maximum and minimum of the quantity sold per
period (day/week/month) during a specified time horizon. The goal is to understand any
correlation between sales and price and any potential opportunity to shift sales by
changing price over time.
❖ Pricing and Revenue Management (RM) in SCM:
➢ Pricing is a factor that gears up profits in supply chain through an appropriate match of
supply and demand. Revenue management can be defined as the application of pricing to
increase the profit produced from a limited supply of supply chain assets.
➢ Ideas from revenue management recommend that a company should first use pricing to
maintain balance between the supply and demand and should think of further investing or
eliminating assets only after the balance is maintained.
➢ Thus, we can further define revenue management as the application of differential pricing on
the basis of customer segment, time of use and product or capacity availability to increment
supply chain surplus.
➢ Revenue management plays a major role in supply chain and has a share of credit in the
profitability of supply chain when one or more of the following conditions exist :
• The product value differs in different market segments.
• The product is highly perishable or product tends to be defective.
• Demand has seasonal and other peaks.
• The product is sold both in bulk and the spot market.
❖ Lack of supply chain coordination:
➢ The lack of coordination between different members of the supply chain hurts product
availability and results in more stockouts. This increases the likelihood that retailers will
run out of stock, and as a result, the supply chain will lose sales.

4. ǁ• PVPSIT •ǁ Logistics and Supply Chain Mgt. (LSCM) – U5
ǁ• Dept. of ME •ǁ chkishore@pvpsiddhartha.ac.in >>> 7382219990
➢ It provides a true view of your supply chain performance compared with similar operations
➢ It helps you identify and set realistic but stretching objectives
➢ Benchmarking can be used to set a baseline for continuous improvement
➢ You can identify metrics to suit your specific improvement requirements
➢ Benchmarking can help the business best practices for adoption
➢ It also highlights gaps separating your operational performance from that of best-in-class supply
chains.
❖ Benchmarking process:
8 Steps of the benchmarking process
1. Select a subject to benchmark: What to benchmark is just as important as how to
benchmark it. Executives and other senior management should be involved in deciding
which processes are critical to the company’s success.
2. Decide which organizations or companies you want to benchmark: Determine if you
are going to benchmark processes within your own company, a competitor, or a company
outside of your industry.
3. Document your current processes: Map out your current processes so you can identify
areas that need improvement and more easily compare against the chosen organization.
4. Collect and analyze data: This step is important—but it can prove difficult when you
are trying to gather data from a competitor because a lot of that information may be
confidential.
5. Measure your performance against the data you’ve collected: Look at the data
you’ve collected side by side with the metrics you gathered from your analysis of your
own processes.
6. Create a plan: Create a plan to implement agreed-on changes that you have identified as
being the best to close performance gaps. Implementation requires total buy-in from the
top down.
7. Implement the changes: Closely monitor the changes and employee performance. If
new processes are not running smoothly as expected, identify areas that need to be
tweaked.
8. Repeat the process: After successfully implementing a new process, it’s time to find
other ways to improve. The benchmarking process is one of continual improvement and
iteration. Review the new processes you’ve implemented and see if there are any
changes that need to be made.
❖ Bullwhip effect:
➢ The bullwhip effect is a phenomenon that represents the instabilities and fluctuations in
product and supplier orders throughout various stages of the supply chain. In other
words, growing or waning customer demand directly impacts a business’ inventory.
➢ Businesses often attempt to forecast demand, buildup what they believe to be the proper
amount of raw materials and resources needed in order to meet customer demand in an
efficient and timely manner.
➢ When moving up the supply chain from consumer demand to raw material suppliers,
variations can often be amplified, causing issues with time, cost and inventory in supply
chain management.

5. ǁ• PVPSIT •ǁ Logistics and Supply Chain Mgt. (LSCM) – U5
ǁ• Dept. of ME •ǁ chkishore@pvpsiddhartha.ac.in >>> 7382219990
➢ Causes for the bullwhip effect:
• Variables associated with lead-time—such as delays in manufacturing, shipping
and transmitting information throughout the supply chain—all influence the bullwhip
effect.
• Other important causes include human behavior and management. Additionally,
decisions made by those who oversee the supply chain at various stages will also
directly influence the bullwhip effect.
• These managers control different aspects of the supply stage—ranging from customer
service to shipping—and each one actively works on a daily basis to mitigate risk,
forecast trends in demand, and maximize profits.
• Sometimes, these managers can accidently make decisions that negatively affect
other leaders in the chain.
• Supply chain errors that contribute to the bullwhip phenomenon include lack of
communication and coordination, batch ordering, price fluctuations, overreaction to
backlogs, errors in forecasting, inflated orders, and product promotions.
➢ Impact of the bullwhip effect:
• The bullwhip effect impacts the supply chain on many levels—all of which can
prove costly to the company.
• Businesses work hard to forecast demand in order to maintain a manageable and
useful inventory, but unfortunately, the variables that cause the bullwhip effect can
lead businesses to have either an excess or lack of inventory.
• Both of these are harmful for different reasons. Exaggerated orders based on
misguided forecasts result in inadequate inventories.
• Depending on the product, an excess of inventory could prove costly to the company,
and if consumer demand does not increase it could result in wasted resources.
• On the other hand, not having sufficient inventory can lead to poor customer relations
due to unfulfilled orders and unavailable products.
• Overall these mistakes could be expensive for businesses.
➢ How to prevent the bullwhip effect: Businesses looking to amend the bullwhip effect
can tighten the supply chain and minimize error.
• The first step for businesses is to familiarize themselves with the bullwhip effect, its
causes, and how it affects their overall costs. Forecasting demand is essential to
supply chain management and businesses can best forecast product demands through
the timely synthesis of information. This involves reducing the time for receiving
projected and actual customer demand.
• Secondly, the managers should also work to understand demand patterns throughout
all stages of the supply chain by sharing information and collaborating with other
managers of different chain stages.
• Other methods for preventing the bullwhip effect include reducing the sizes of
orders, consistently offering good product prices as a way to avoid surges resulting
from promotional discounts, improving customer service, and eliminating causes for
customer order cancellations to ensure smooth ordering patterns.
• The bullwhip effect results in the potential loss of financial and physical resources.
Managers who understand the bullwhip effect will be better able to forecast demands
and make efficient supply chain.

6. ǁ• PVPSIT •ǁ Logistics and Supply Chain Mgt. (LSCM) – U5
ǁ• Dept. of ME •ǁ chkishore@pvpsiddhartha.ac.in >>> 7382219990
❖ Documentation: Documentation in the context of logistics refers to the various
papers attached or pertaining to goods requiring transportation and/or transfer of ownership.
This includes, but is not limited to, documents such as bills of lading, commercial invoices,
packing lists, and insurance certificates.
➢ The purpose of documentation is to provide information about the shipment, facilitate
the smooth movement of goods through the supply chain, and protect the interests of all
parties involved.
➢ In addition to being an important part of the logistics process, documentation also plays a
crucial role in international trade.
➢ Pros of documentation in the context of logistics:
• Allows for the smooth movement of goods through the supply chain.
• Protects the interests of all parties involved.
• Facilitates international trade.
• Can help avoid delays, fines, and other problems associated with incorrect or missing
information.
➢ Accurate and complete documentation is essential for ensuring that goods clear customs
smoothly and promptly. Furthermore, proper documentation can help avoid delays, fines,
and other problems associated with incorrect or missing information.
➢ Documentation - A Control Mechanism of Supply Chain Logistics :
(Functions of Documentation OR Importance of Documentation)
• Supply chain operations and network extend beyond domestic boundaries and global
boundaries of all countries. A logistical exercise originates at the buyers end and
involves multiple agencies including buyer, seller, freight forwarder, transporters at
various juncture, shipping lines, airlines, various governmental agencies, customs
departments at various locations and financial institutions like banks to complete the
entire supply chain cycle.
• Documentation becomes important not only for the physical logistics operations
involving multiple agencies engaged in the entire chain, the financial, trading and
accounting processes of the both buyer and seller organizations and partner banks.
• Accounting practices of the organizations require detailed documentation as per
bookkeeping practices and norms. Finally, goods and services are recognized and
identified at every stage only with the set of authenticated documentation showing
ownership based on which the customs allow them to be exported or imported into or out
of the country.
• Therefore the entire supply chain transaction involves set of standardized documentation
from buyer and seller.
• Today software applications have built in standardized documentation templates and
modules in their offerings that reduce the amount of time and effort involved in
preparing documentation.
• A supply chain manager needs to be aware of the complete set of documentation
requirement along with the various aspects to be able to design processes and
documentation control mechanisms. Errors in documentation will lead to financial
damage, delays in delivery and performance that is what every manager aims to avoid.

7. ǁ• PVPSIT •ǁ Logistics and Supply Chain Mgt. (LSCM) – U5
ǁ• Dept. of ME •ǁ chkishore@pvpsiddhartha.ac.in >>> 7382219990
➢ List of the fundamental documents and their functions that enables the global supply
chain to exit (Types of Documents):
1. Pro Forma Invoice: A pro forma invoice is a preliminary bill of sale sent to buyers in
advance of a shipment or delivery of goods.
2. Commercial Invoice: A commercial invoice includes the complete details of the sales
transaction between vendor and buyer, including the shipping terms. It is the official proof of
sale.
3. Packing List: A packing list is a shipping document containing an itemized detailed list of
the cargo, including weight, dimensions, safety measures, and packaging type. The courier
company may use it to create the bill of lading.
4. Bill of Lading (BOL): A bill of lading (BOL) is the official contract between the shipper or
owner of goods and the freight carrier. It is the document used to confirm receipt of goods for
shipment.
5. Certificate of Analysis (Certificate of Inspection): Most of the times, the buyer wants to be
assured that the purchased goods meet the necessary standards. The seller provides this
certificate himself or via an inspection agency to satisfy their customers.
6. Insurance Certificate: An Insurance Certificate is issued by an insurance company and
certifies that the exporter has purchased an insurance policy for the shipment of goods.
7. Certificate of Origin: A Certificate of Origin (C/O) is a document declares the country of
origin for manufactured goods, usually certified by the consulate or chamber of commerce.
8. Export License: This is an official document issued by governments. This document serves
as a license to ship certain items and in certain quantities.
OOOOO # *** # OOOOO
LSCM Questions_ UNIT5:
1. Explain the role of pricing in SCM. (CO5)
2. What are the key components of pricing decisions regarding SCM. (CO5)
3. Explain how the Pricing influences Revenue Management (RM) are in SCM. (CO5)
4. How the lack of supply chain coordination impacts the business? (CO5)
5. What do you meant by Bullwhip effect? How it impacts SCM and what are the
preventive measures? (CO5)
6. Define Documentation in the context of logistics. What are its functions? (CO5)
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ǁ• Dept. of ME •ǁ chkishore@pvpsiddhartha.ac.in >>> 7382219990