Activity Based Costing in Logistics

Transcription

1 Activity Bsed Costing in Logistics Z. Bokor Deprtment of Trnsrt Economics, Budpest University of Technology nd Economics, H-1111 Budpest, Bertln L. u. 2. e-mil: Abstrct: Activity bsed costing is widely used method to reshpe the trditionl ccounting systems into mngement informtion systems providing relible guidnce for decision mkers. The currently pplied logistics costing procedures cn lso be further developed by using this methodology. Doing so clcultion distortions preventing the exct costbenefit evlution of logistics or supply chins nd their comnents cn be reduced significntly. The pper ims to identify the relted problems nd prose solution for logistics costing by dopting the ctivity bsed pproch. The corresnding bsic mthemticl formuls re elborted, too. As the recommendtions re derived from theoreticl int of view, dditionl prcticl vlidtions of the model re intended to be developed in the ner future. Keywords: logistics controlling, ctivity bsed costing 1. Problem identifiction The efficient nd effective controlling of logistics services or supply chins needs sound informtion bse suprting opertive s well s strtegic mngement decisions (e.g., resource lloction, outsourcing vs. insourcing, etc.). This informtion bse cn be creted by using up-to-dte cost nd performnce clcultion methods being ble to deliver relible inputs to profitbility ssessments. Current prctices pplied in the cse of logistics cost clcultions often prefer using verge vlues of ggregted costs. Indirect cost items re llocted to the different product or service units on n rbitrry bsis. Ignoring cuse nd effect reltionships in cost lloction, however, cn led to distorted informtion: so profit or loss genertors in the supply chin my not be identified properly [3]. The tsk is to find methodology, which is ble to overcome the problems mentioned. A ssible solution cn be the inclusion of technology principles into logistics cost clcultion mechnisms. Thus cost lloction cn be relised in more exct wy by tking into ccount cuse nd effect reltions between ctivities within business processes. 229

2 The centrl elements of dedicted exmintions will be the logistics or supply chins consisting of different kinds of logistics tsks. These tsks re performed by logistics ctivities. If we re ble to mesure the cost nd performnce efficiency even in ctivity levels the relibility of logistics cost nd benefit nlyses cn be improved significntly. It will mke it ssible to prevent using generlised verge vlues not tking into ccount the different chrcteristics of ech service chin. Nevertheless, verge vlues cnnot be bsolutely eliminted but they re used in lower ggregtion levels (see lter). It llows for much smller incorrectness thn relying on no cuse-effect cost lloctions. 2. The principles of the prosed logistics cost clcultion model Activity bsed logistics costing (ABC) uses the principle of including technology process performnces into cost clcultions to mke them more exct. The key elements of the methodology re logistics ctivities, which enbles the suprt of not only opertive resource lloction decisions but lso business process reengineering (BPR) of supply chins [6]. Extending logistics functions to n entire supply chin requires rther process oriented mngement int of view nd ABC corresnds to its criteri in contrst with the trditionl opertive logistics controlling (dopted from the mnufcturing industry). Resources direct Production costs of logistics services/functions indirect Other logistics relted costs direct cost lloction indirect cost ssignment bsed on resource consumption Primry logistics ctivities ctivity cost ssignment bsed on performnce consumption ggregted collection Secondry ctivities generl costs Profit objects vlue chins of products/services gross mrgins Profit ] revenues Figure 1. The ctivity bsed costing model dpted to logistics 230

3 Most of the reserch rticles deling with ctivity bsed costing hve their focus on mnufcturing opertions, lthough this pproch cn be pplicble cross the spectrum of other compny functions like logistics [7]. The dpttion of ABC hd been crried out in Hungrin trnsrt economics prctice first in the cse of the ril trnsrt sector [2]. This model cn be improved by tking into ccount the specifictions of logistics service chins. Figure 1 illustrtes the mechnism of ABC dpted to logistics. It is lso inevitble to define the necessry mthemticl or logicl formuls so tht the model cn be implemented in prctice, too. The following summrises the essence nd clcultion procedures of logistics ABC bsed on the outcomes of reserch work iming to elborte consistent methodologicl frmework [1]. 3. The mthemticl logic of ctivity bsed logistics costing First the logistics relted cost items need to be identified nd collected (from the generl ledger). Then they re to be differentited s follows: C = C p + C g C p production cost of logistics services or functions, C g generl logistics cost. C d direct logistics cost, C id indirect logistics cost. C = C + C p d id, (1), (2) This cost differentition needs to introduce the concept of profit objects. They re products or services gining revenues nd t the sme time consuming different resources so they re bering costs. Here one cn distinguish between compnies where logistics is the core ctivity (logistics service providers) nd where logistics is bckground function (e.g., in mnufcturing industry or FMCG sector). In the former profit objects re complex logistics services or their chins. They re fully exmined by logistics cost clcultions. In the ltter profit objects re different kinds of not logistics products or services. Here logistics controlling covers only certin prt of cost clcultions so complete cost nd benefit nlyses cn be relised in connection with other res e.g., mnufcturing, sles, mrketing, etc. only. Production costs cn be relted to profit objects in direct (direct logistics costs) or indirect wy (indirect logistics costs). The ltter ones re the monetised vlues of resource consumption of so clled primry ctivities producing logistics services or functions. The generl costs reflect the resource consumption of so clled secondry ctivities e.g., PR, HR, finnce, generl mngement which re in the bckground 231

4 from the int of view of logistics performnce genertion. The dividing line between primry nd secondry ctivities is compny specific, nd cnnot be definitely generlised. The secondry ctivities nd their costs re rrely nlysed in detils in the frme of ABC they re generlly the objects of dedicted exmintions. Direct logistics cost items cn be llocted to profit objects in one step nd no dditionl performnce mesurement is needed. Such cost elements could be e.g., the infrstructure user chrges in the cse of trnsrt tsk. Nevertheless, the resources cusing indirect costs (e.g., of dissition, opertive dministrtion, mintennce) re consumed by multiple profit objects so the cost intensity of single object cnnot be investigted in simple mnner. ABC concentrtes on these indirect cost items s it tries to llocte them to profit objects bsed on cuse-effect reltionships. Indirect logistics costs re first ssigned to primry ctivities nd business-technology processes constituting of them (like trnsrt, loding, wrehousing, providing informtion, etc.) bsed on the resource consumption of ech ctivity. It cn be solved minly by direct cost ccounting to ctivities s the different input resources like workforce, mchinery, nd infrstructure elements re ssigned to ctivities (if ssible). However, even here estimtion techniques my be necessry when the rtio of direct ctivity costs is low. Thus indirect logistics costs re collected on primry ctivities. Another tsk is to find n pproprite performnce indictor e.g., number of hndled pieces, opertion time, number of orders, vehicle km, etc. for ech ctivity. The indictors will be mesurble. Activity costs re then to be differentited into vrible nd fix prts ccording to their reltions to performnce intensity: C = C + C C totl cost of primry logistics ctivity, C v vrible ctivity cost, C f fix ctivity cost. v f, (3) A fix cost item cn be for exmple the simple time bsed deprecition while vrible one could be the piece wge rte. The integrtion of technology principles into cost clcultion is relised here s the so-clled intern price (verge vrible cost) of the ctivity nd cn be counted here: C c = P v, (4) c intern price (verge vrible cost) of the primry logistics ctivity, P performnce of the primry logistics ctivity. 232

5 For exmple, if we mesure the performnce of dissition ctivity by the number of directions the intern price is mesured in EUR/direction. The intern prices concentrting on vrible costs reflects cuse nd effect reltions better s only performnce dependent items re sted up into profit object clcultion (see lter). Fixed cost elements re not neglected but they re tken into ccount during the higher levels of mrgin clcultion only (similr to generl logistics cost items). Ech profit object uses different ctivities nd their performnces to produce dded vlue. For exmple logistics service chin of certin piece of goods (s profit object) my mke use of performnces of different dissition s well s physicl processes. If it is ssible to elborte the performnce vlues consumed by profit objects driving over (vrible) ctivity costs to profit objects cn be crried out s follows (by using lso intern prices): = C + C production cost of the profit object; C x d x y c y P i y y, (5) i rte (intensity) of performnce consumption of the profit object t certin ctivity: where: P i = P, (6) P performnce consumed by the profit object t certin ctivity. Index x go through the direct cost items relted to the profit object while index y goes through the ctivities tking prt in its vlue chin. Using the clcultion method described before the prime cost of complex logistics service (chin) or the logistics relted prt of the prime cost of certin product/service cn be elborted in n exct wy. Of course n imrtnt precondition of it is to relise nd operte comprehensive performnce mesurement regime being ble to exploit technology knowledge, too. In cse of compnies offering complex logistics services (so their key ctivity re is logistics = logistics service providers) the mrgins of profit objects cn lso be counted by including revenues. Mrgins show how revenues cn cover production costs. The first level mrgin (or gross mrgin) is clculted s follows: MI MI gross mrgin of the profit object, R revenue of the profit object. = R C, (7) 233

6 The second level ggregted mrgin constitutes of the summrised gross mrgins of cost objects debited with the summrised fix costs of primry ctivities: MII = w MI w MII the second level, ggregted mrgin of profit objects. z C f z, (8) Index w goes through ll profit objects while index z goes through ll primry ctivities. Finlly, we will come to the logistics service compny s/provider s profit if the second level mrgin is debited with the generl logistics costs: PR = MII C g PR totl profit of the logistics service compny/provider. 4. Prcticl usefulness of the model, (9) The costing model described contributes to (t lest prtly) eliminting the shortcomings of trditionl logistics ccounting systems by including dditionl technology informtion. Their inputs nd outputs, however, re the sme: detiled cost/revenue dt nd ggregted profit dt. The rel dded vlue of the methodology cn be identified if we look t the detils: the use of performnce dt mkes it ssible to evlute the effectiveness of elementry (not ggregted) logistics profit objects s well s tht of elementry logistics performnce genertors (ctivities) in more precise nd trnsprent wy. One cn find out wht logistics products/services relise profits or hve negtive mrgins. It will turn out wht logistics performnce genertors (ctivities) hve reltively high resource consumption in comprison to their ctul performnce levels: it my be resonble to rtionlise or even outsource them, etc. According to business surveys the use of ctivity bsed costing pplied to logistics is often explined by the need to enhnce ccurcy nd relibility of cost or profitbility informtion needed in short term executive decision mking. Furthermore the exct preprtion of strtegic BPR decisions my induce developing effective logistics cost nd performnce mngement solutions, too. In the first phse of implementtion generlly nrrow scle pilot project concentrting on the min cost drivers nd performnce genertors is lunched. Decisions on the wider use re set fter evluting the first results: if the pilot project is successful the implementtion towrds more sophisticted system will strt. The necessry level of sophistiction is determined through the rtio of indirect costs of logistics functions: if considerble prt of exmined cost items cn be regrded s indirect it will be worth investing in building up more detiled logistics ABC [5]. Activity bsed costing cn be used to suprt supply chin integrtion nd mngement, too. Modelling tools cn be provided for supply chins in different industries where 234

7 well-prmeterised ABC model clcultes the consequences of chnging ctivities or integrting certin functions. Nevertheless it is often concluded tht pplying ccounting mesures re imrtnt but it my not be sufficient for the success of supply chin mngement [4]. The Hungrin prctice of logistics cost nd performnce mngement is in the initil phse only. It mens tht the pplictions concentrte on monitoring nd influencing technology performnces rther thn on lso using this informtion for (detiled) cost clcultions. Minly inventory nd wrehousing re the logistics functions, which hve IT suprted mngement informtion systems. These systems hve the tsks to mke mteril flows more trnsprent nd to rtionlise inventory nd ordering processes. The methods often used re the following: rtfolio nlysis of inventory, monitoring of mteril hndling nd optimistion of purchsing schemes [3]. 5. Conclusions As summry of the study we cn conclude tht the inclusion of technology performnce dt into logistics cost clcultion procedures expnds the scope of trditionl ccounting pproches. The results will be more relible (but not bsolutely) so tht mngers resnsible for opertive resource lloction or strtegic process development issues cn mke better, well informed decisions. Activity bsed costing hs good future outlook in the logistics sector, s it is suitble tool to enhnce the business visibility nd controllbility throughout the entire supply chin. The elborted model, however, needs further verifiction. The Hungrin logistics mrket offers n excellent environment for this s logistics controlling pplictions re still in its initil phses (see bove). So the uthor intends to vlidte his theoreticl reserch results for the cse of concrete logistics service chins. Logistics service providers s well s compnies coming from mnufcturing or trding industries will be exmined to test the relevnce of the ABC model. After hving brod picture of the current prctices nd their problems it is expected tht no single solution pplicble for ll mrket ctors exists but the bsic principles nd mthemticl formuls cn probbly be widely used fter the necessry customistions. References [1] Bokor, Z.: Improving Logistics Cost Clcultion by Using Controlling Tools, Yerbook of Logistics, Z. Szegedi ed., Hungrin Assocition of Logistics, Budpest (2006) pp (in Hungrin) [2] Bokor, Z.: Applying ctivity bsed costing in ril trnsrt. Review of Trnsrt Science, Vol. 52 No. 12 (2002) pp (in Hungrin) [3] Bokor, Z.: Suprting Logistics Decisions by Using Cost nd Performnce Mngement Tools, Periodic Polytechnic ser. Trnsrttion Engineering Vol. 36 No. 1-2 (2008) pp. 1-7 [4] Dekker, H. C., Goor, A. R. V.: Supply Chin Mngement nd Mngement Accounting: A Cse Study of Activity-Bsed Costing, Interntionl Journl of Logistics, Vol. 3 No. 1 (2000), pp

8 [5] L Londe, B. J., Pohlen, T. L.: Survey of Activity-Bsed Costing Applictions within Business Logistics, Study, The Ohio Stte University, Columbus, (1998) [6] L Londe, B. J. Pohlen, T. L.: Implementing Activity-Bsed Costing (ABC) in Logistics, Journl of Business Logistics, Vol. 15 No. 2 (1994) pp [7] Pirttil, T., Hutniemi, P.: Activity-Bsed Costing nd Distribution Logistics Mngement, Interntionl Journl of Production Economics, Vol. 41 No. 1-3 (1995) pp