Logis costing

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Logis costing

  1. 1. Logistics Costing Meaning ABC Mission based costing Total Cost anaysis
  2. 2. Logistical costing An important activity of Logistics Management to reduce logistical costs to improve performance Methods of logistical costing Traditional costing method & total cost method Types of modern costing methods Mission based costing and activity based costing
  3. 3. <ul><li>Logistical cost analysis </li></ul><ul><li>Conventional Approach </li></ul><ul><li>Focus on function </li></ul><ul><li>Conventionally costs of logistical functions are apportioned </li></ul><ul><li>Impact of decisions at function level on the system is not considered </li></ul><ul><li>Cost information tends to get hidden [pushed under the carpet] out of fear that it may highlight functional weakness </li></ul><ul><li>Cost in no man’s land is never owned </li></ul>
  4. 4. <ul><li>Cost cutting is fragmented so doesn’t reduce system cost </li></ul><ul><li>Customer dissatisfaction, competitive edge is lost by the organization </li></ul>
  5. 5. <ul><li>Total cost approach </li></ul><ul><li>Modern approach to logistical costing </li></ul><ul><li>Focus on reduction of cost of output of the system [product delivery to customer] </li></ul><ul><li>Provides competitive edge to the company </li></ul><ul><li>Includes costs like inventory, warehousing, production, distribution, transportation, packaging and customer service costs. </li></ul><ul><li>Reveals several trade off points in the system & further areas of improvement </li></ul><ul><li>Transportation - Inventory </li></ul><ul><li>Warehousing – Customer service </li></ul><ul><li>FTL/LTL and cost of transportation </li></ul><ul><li>FTL/LTL and cost of inventory </li></ul>
  6. 6. <ul><li>Mission based costing </li></ul><ul><li>[ budgeting approach ] in logistics </li></ul><ul><li>Output focused costing </li></ul><ul><li>Mission goals and costs are set </li></ul><ul><li>Functional inputs are worked out to meet the system deliverables </li></ul>
  7. 7.
  8. 8. Activity Based Costing All logistical activities involved in product delivery are identified and resource consumption is calculated
  9. 9. <ul><li>Activity Based Costing </li></ul><ul><li>Fixing resource consumption to logistical activities of a customer’s order </li></ul><ul><li>Two main concerns of ABC are cost identification and time cost frame . </li></ul><ul><li>Cost identification </li></ul><ul><li>Logistical activities in delivering an order are identified starting from procurement </li></ul><ul><li>Costs generated in performing these activities are collected from logistical environment and (Resource consumption) are fixed to the activities </li></ul>
  10. 10. Types of costs Direct costs, indirect costs and overhead costs. Direct or operational costs: Transportation, material handling, warehousing and some aspects of order processing and inventory – can be allocated to a customer’s order Indirect costs: indirect costs are cost of capital resources of logistics – allocation is difficult, generally discretionary
  11. 11. <ul><li>Overhead costs: an organization’s spending centrally. The benefits are availed by all entities in the organization - allocation is difficult and generally left out in modern costing methods </li></ul><ul><li>Time cost frame </li></ul><ul><li>Locating the cost element from the right time span </li></ul><ul><li>Obstacles </li></ul><ul><li>Traditional accounting practices like balance sheet and profit & loss account </li></ul><ul><li>Lack of importance to logistical costing </li></ul>
  12. 12. <ul><li>Grouping of costs for allocation under arbitrary heads </li></ul><ul><li>Raw material purchase and all inbound activities are far removed from the time of product delivery, such activities are performed even before particular order is procured </li></ul><ul><li>Raw materials that are purchased in huge bulk [imported materials in ship] </li></ul>
  13. 13. <ul><li>How are these obstacles overcome? </li></ul><ul><li>Modern measurement methods which reconcile cost and service are employed </li></ul><ul><li>Just-in-time procurement provides a good solution as it compresses the process by crashing down lead-times </li></ul>

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