Topic > Value Chain Case Study at O ​​& M - 729

Cost-plus ties all the importance of profit to the price of the product rather than the service provided. So, in the case of O&M, they had to give up their profits to transport bulky but cheap products and could only make money by transporting expensive products. To avoid the high distribution costs due to the transportation of expensive items, the customer may tend to purchase them directly from the manufacturer instead of from distributors. This leads to lost profits for distributors because now only inexpensive orders are left to handle. The premium price allows customers to purchase the lowest possible quantity and replenish it as often as necessary without additional costs. While they seem more convenient, time and resources are actually wasted by hospitals placing more frequent orders instead of managing their current inventory more effectively. For manufacturers, on the other hand, cost-plus pricing attracts customers (hospitals) to purchase directly from them, but this will lead to inaccurate demand data flow.