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Logis costing

Logis costing






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    Logis costing Logis costing Presentation Transcript

    • Logistics Costing Meaning ABC Mission based costing Total Cost anaysis
    • 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
      • Logistical cost analysis
      • Conventional Approach
      • Focus on function
      • Conventionally costs of logistical functions are apportioned
      • Impact of decisions at function level on the system is not considered
      • Cost information tends to get hidden [pushed under the carpet] out of fear that it may highlight functional weakness
      • Cost in no man’s land is never owned
      • Cost cutting is fragmented so doesn’t reduce system cost
      • Customer dissatisfaction, competitive edge is lost by the organization
      • Total cost approach
      • Modern approach to logistical costing
      • Focus on reduction of cost of output of the system [product delivery to customer]
      • Provides competitive edge to the company
      • Includes costs like inventory, warehousing, production, distribution, transportation, packaging and customer service costs.
      • Reveals several trade off points in the system & further areas of improvement
      • Transportation - Inventory
      • Warehousing – Customer service
      • FTL/LTL and cost of transportation
      • FTL/LTL and cost of inventory
      • Mission based costing
      • [ budgeting approach ] in logistics
      • Output focused costing
      • Mission goals and costs are set
      • Functional inputs are worked out to meet the system deliverables
    • Activity Based Costing All logistical activities involved in product delivery are identified and resource consumption is calculated
      • Activity Based Costing
      • Fixing resource consumption to logistical activities of a customer’s order
      • Two main concerns of ABC are cost identification and time cost frame .
      • Cost identification
      • Logistical activities in delivering an order are identified starting from procurement
      • Costs generated in performing these activities are collected from logistical environment and (Resource consumption) are fixed to the activities
    • 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
      • 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
      • Time cost frame
      • Locating the cost element from the right time span
      • Obstacles
      • Traditional accounting practices like balance sheet and profit & loss account
      • Lack of importance to logistical costing
      • Grouping of costs for allocation under arbitrary heads
      • 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
      • Raw materials that are purchased in huge bulk [imported materials in ship]
      • How are these obstacles overcome?
      • Modern measurement methods which reconcile cost and service are employed
      • Just-in-time procurement provides a good solution as it compresses the process by crashing down lead-times