The notion of FOB pricing is getting a lot of attention, and I think I know why.
First, large distributors are pushing suppliers to clarify their logistics costs. Several major distributors are working hard to understand the activities and costs associated with moving finished product from plants to the distributors’ warehouses, with a goal of taking over much of this activity. These distributors and their suppliers are exploring whether “FOB plus Freight” pricing is the best way to separate product costs from logistics costs.
Second, most distributors are seeking opportunities to pick up product at manufacturers’ plants and Distribution Centers. Manufacturers with bracketed delivered price lists (the vast majority) generally offer pickup allowances to these customers. And debates over the fairness of CPU Allowances and pricing policies for pickups have been around since the invention of the #10 can. Again, manufacturers wonder if there might be a better way.
Finally, volatility in fuel prices has left manufacturers scrambling to recover their freight costs. What was the best way? Fuel surcharges? A general price increase? A change to “FOB plus Freight” price structure?
Thinking through all of the ramifications of the manufacturer’s price structure decision is enough to make your head spin. But I sat down and organized my understanding on a big table, which addresses all of the combinations of: