Assigment SCM

1. Subject: Supply Chain Management
Assignment No: 2
Instructor: Dr. Fatima Gillani
Submitted by: Muhammad Khizer Farooq
Roll no: 05, EMBA (2019)
Institute of Business & Administration
UET Lahore

2. Question 1: Describe briefly about understanding of Activity Based Costing
in Logistics?
ABC is costing approach is to identify different activities in an
organization which explains allocation of the costing against each activity to
determine activity-based cost driver. This approach of activity-based costing
system as compared to conventional based costing system emphasize more on
indirect as well as direct costing.
ABC systems pull out all indirect costs of Products / Services and applies
those costs equally using one appropriate cost driver such as machine. Logistics
operations are aligned together to create value for all stake holders who are
involved in system through provision of supplying Right quantity of Material,
Right Time, at Right Place, and in Right Price.
Thus, in order to meet customer expectations at the lowest total cost, It is
highly crucial to analyse costing of logistics / supply chain activities inside
Organization. The costs that the companies incur depend on the decisions
which are taken about the realization methods of their logistics activities. Data
recording cost analysis system thus in place to support companies to identify
the best collaboration methods, to leverage economic competitiveness.
ABC introduction to Logistics can be subdivided in below operating
phases -

3. Question # 2: Describe briefly about the understanding of Cost Drivers in
Activity Based Costing-ABC?
To accurately identify logistics cost, it is necessary to have break up
of the processes down into activities, creating a map of the logistics
activities for the company.
An analysis of the resources consumed in each activity will identify
inefficiencies caused by poor logistics activities planning that generate an
excessive consumption of the resources. To define for each activity the
utilization of resources, ABC uses the concept of resource driver. For a
specific activity the resource driver is simply a factor that causes or
influences costs. Once the resources for the activities have been imputed,
it is necessary to identify the factors that generate the demand for that
activity from each cost object. The activity drivers measure the frequency
and intensity of activity arising from each cost object. Through ABC for
each activity, it is possible to identify at least one activity driver. Some
costs may have numerous drivers, but only the most relevant should be
used. The selection of cost driver is an important phase because it
influences the level of accuracy of the final object cost assessment. The
most relevant drivers can often be determined by questioning those
employees who are most familiar with the activity to indicate which factor
causes an increase or decrease in the time and effort they spend on the
activity. The cost drivers should have direct relationship with the amount
of effort required by the activity. A cost driver is usually expressed on a
cost per unit basis. To assess the total cost of an activity for an individual
cost object, the ABC multiplies the usage amount of a cost driver in
performing that activity by the unit cost of the driver.
Allocating resources directly to activities and specific cost objects
that utilize those activities are the most important phases of the ABC
system. Through the identification of the costs sustained for each
operation, connected to specific cost objects, it is possible to value the
cost differential between customers, products, market segments or
distribution channels. The ability to trace the costs to specific cost objects
has immeasurable benefits in corporate decision-making roles. To face

4. up to important management decisions, it could be necessary to
determine the costs sustained from all of the companies in the supply
chain to fully understand the logistics activities and the variations that
these costs undergone in relation to changes in the collaboration
relationship.