Logistics and Supply Chain Management, 6th Edition

Direct product profitability

An application of logistics cost analysis that has gained widespread acceptance, particularly in the retail industry, is a technique known as direct product profitability (DPP). In essence it is somewhat analogous to customer profitability analysis in that it attempts to identify all the costs that attach to a product or an order as it moves through the distribution channel.

The idea behind DPP is that in many transactions the customer will incur costs other than the immediate purchase price of the product. Often this is termed the total cost of ownership. Sometimes these costs will be hidden and often they can be substantial – certainly big enough to reduce or even eliminate net profit on a particular item.

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