Value-based Enterprise Logistics Cost Management Mode

Transcription

1 Value-based Enterprise Logistics Cost Management Mode WANG Bo 1, LI Xiran 1. School of Economics and Management, Heilongiang Institute of Science and Technology, P.R. China, The pilot college, Beiing University of Technology, P.R. China, Abstract:Based on the analysis of the research progress and problems of logistics cost management both at home and abroad, the Value-based enterprise logistics cost management framework is established, and the E-A total factors logistics costs and enterprise value computing model is proposed. Keywords: Value, Logistics cost management, Enterprise strategy, Eonomic value added (EVA) 1 Introduction As the third source of profits, logistics plays the vital role in enterprise core competitiveness improvement, and therefore attracts increasing concerns from Chinese enterprises. The logistics cost management is the key to developing enterprise logistics business, and creating new profit growth sectors. The logistics cost management theories and practice are advanced in the western countries of Europe, USA, and Japan, where the logistics cost theories of dark continent (Peter Drucker, 196), iceberg and the third source of profits (Professor Nishizawa Osamu of Waseda University, Japan), and trade-off were proposed sequentially. Since management master Peter Drucker first proposed that the enterprise logistics management is a virgin land uncultivated yet, the enterprise micro logistics cost accounting and management optimization have been so far as the key topics in the highly developed countries in the logistics research and practice of USA and Japan. Chinese logistics cost management research and practice lags relatively behind. When the logistics management was early introduced into China, research focuses were laid on the macro logistics cost management and micro logistics cost accounting methods. In recent years, based on the experience drawn and summarized from the western countries, relatively extensive researches are undertaken in Chinese theory circle and practice circle, including the concept definition of enterprise logistics costs, logistics cost forming mechanism and the components, accounting logistics costs by employing activity-based cost (ABC) method, the value chain analysis of logistics costs, integration between the strategy and logistics cost management, and the logistics cost management in the supply chain perspective. However, due to the relative lag of Chinese logistics industry development and the existing difficulty in implementation of logistics cost management, these research and practice are not in-depth, with many problems, which show as follows: (1) The researches are diversified in arguments, which fail yet to form a uniform framework of Chinese logistics cost management and accounting; () Most subects of the researches fall only within the cost perspective, unable to integrate organically logistics costs and the performance evaluation, and unable to reflect the drivers of logistics costs to enterprise value creation, which makes the logistics cost management fail to play the essential role in the management decision-making and the value creation obective realization; (3) Not in light of the contemporary supply chain environment, the integrated enterprise value system is ignored in the logistics cost management; (4) The research on the logistics costs virtually rest on the level of tactics, which fails to relate closely the cost management to the enterprise strategic obectives, and to make in-depth research on the logistics cost management from the strategic perspective for the enterprise competitive demand; (5) In the components of the logistics costs, only resource-consumed costs are taken into consideration, while the resource-occupied costs (i.e. capital costs) are ignored. The non-total cost factor accounting leads to the inaccurate cost data, unable to reflecting real value creation and damage transactions. 483

2 Based on the problems above, and from the perspective of the enterprise value increasing, the brand-new enterprise logistics cost management mode is established herein, expecting to provide an advanced blueprint and scheme more close to the management practice for Chinese enterprise logistics cost management. Value-based Enterprise Logistics Cost Management Framework A structure diagram (Shown Fig.1) herein illustrates the value-based logistics cost management framework: value increasing is the logistics cost management obective, oriented by the enterprise strategy, the two-dimension space and time framework consisting of the supply chain and time series is the management scope, ABC and EVA methods are integrated, activity-based total factors logistics costs and enterprise value computing model is established, ABC method and costs budgeting are integrated, and activity-based budgets are prepared, which all provide standards and methods to the logistics cost control. Fig.1 The framework diagram of Value-based logistics cost management (1) Value increasing is the obective. The lower cost priority is not the orientation of the enterprise logistics cost management, while seeking and creating enterprise value is the starting point and the end result. The logistics cost management obective is always locked on the value increasing in each step of the supply chain, realizing value added through the logistics cost management, and creating maximal value for enterprises. () Enterprise strategy is the guideline. Modern logistics cost management has exceeded the traditional logistics cost scope of control or saving, with obvious strategic trend as follows. On one hand, logistics is not taken as the assistant content for operational activities, but as maor component of the enterprise operation strategy, and the logistics cost management plays the strategic role in the enterprise management. On the other hand, the logistics cost management is related to the enterprise competitive strategy. It means that based on the thorough analysis on the enterprise external environment and 484

3 internal conditions, in the light of the overall view, and through the logistics strategy mix selection and analysis on the basis of the integrated enterprise competitive strategy, the logistics cost control is characterized by strategy, long-term, and adaptability to environment. Therefore, the issue of matching to the integrated enterprise competitive strategy must be taken into consideration. (3) The two dimension space and time framework consisting of the supply chain and time series is the management scope. From the perspective of the space dimension, logistics is the client demand-oriented flowing process of goods, services, and related information from the supplying place to the receiving place in the supply chain operation. Due to the cross-boundary and open characteristics of the logistics management operation, the total logistics costs deriving from a series of mutually related logistics activities are distributed not only among different departments inside the enterprise, but also among different partners outside the enterprise. It is the enterprise logistics cost management that will control the total logistics costs under the condition of reasonable determining the service level and client demand in the total supply chain. As for an enterprise, the logistics cost control does not seek for the lowest partial costs in some section, but for the optimal total costs and comprehensive benefits in the total supply chain. From the perspective of the time dimension, the enterprise logistics runs through the whole process firstly from the materials supply, then goods production, and finally to the delivery to customers. The logistics cost management is an activity-based cost management involving the whole process from the pre-event cost budget control in the framework of the enterprise strategy, amid-event Real-time cost control, to the post-event cost analysis and performance evaluation, which necessitates the overall work in the levels of strategy, tactics, and activities. (4) ABC and EVA methods are integrated, and Activity-based total factors logistics cost and value computing model is established. The logistics system consists of several subsystems, meanwhile each subsystem consists of several activities. The activities and subsystems are mutually related, interacted, and independent as well. Therefore, the cost management of the enterprise logistics system should be deepen into the activity level: one is that activities run through the total process of the time series dimension of the cost management; the other is that the activity management is employed to optimize the supply chain. Then based on that, ABC method and EVA are integrated, and the E-A total factors (operation cost factors and capital cost factors) logistics cost and value computing model is established, uniforming the enterprise cost accounting to the obective of the enterprise value creation. (5) ABC method and cost budget are integrated, and activity-based budget is made, providing the standard and methods for the logistics cost control. In order to make the cost budget standard more scientific, reasonable, and precise, the budgeting is based on the activities, leading the management to pay focus on activities and the resource consumed by the activities, not the cost itself, and control the logistics cost accrued. 3 E-A Logistics Cost and Enterprise Value Computing Model 3.1 Integrated Cost computing Framework Integrated cost computing (i.e. computing the total factors costs) involves two phase cost distribution process (shown in Fig.): in the first phase, operation resource costs and capital resource costs are traced back and allocated to each activity, direct costs are traced back to products through fictitious activities, and indirect costs are allocated to corresponding activities; in the second phase, the costs in the activity cost pools are allocated to cost obects. Because of the same property of direct costs of the operation and capital resources and the unit-level costs of ABC method, the fictitious activities are added into the path from direct resource costs to cost obects, so as to uniform the consumed resource distribution into two phases, facilitating the modeling and computing. 485

4 Fictitious activities Operation resource Direct resource Indirect resource 3. E-A Logistics Cost and Enterprise Value Computing Model Assume an enterprise produces n products (or services) within a period of time, consumes s resources and p capitals, and m activities (including fictitious activities) in all are involved in the whole activity chain. Let the output of the product i is Q i(i=1,,, n), the sales amount of the product i is S i (i=1,,,n), the amount of activity units of the activity consumed by the product i is q i(=1,,, m), the costs of the resource k consumed by the activity is V k(k=1,,, s), the amount of the capital l consumed by the activity is W l( l=1,,, p), and the total of the activity drivers of the activity is A, then: The activity driver distribution ratio of the activity : s p R = V k + W l W ACC / A k= 1 l= 1 The total cost of the product i: m m s p Ci = qi R = qi V k + W l WACC / A = 1 = 1 k= 1 l= 1 The unit cost of the product i: m p s ci = qi V k + W l WACC / A / Qi = 1 k= 1 l= 1 The value realized of product I : EVAi = Si Ci Where if the proportion of m activities consumed by n products is easily acquirable, the model facilitate the computing in the form of matrix, shown in Formula 5, 6, and 7. Product total costs: C= AE C1 a11 a1 L a1 m e1 + e 1 C a1 a L a m e+ e = M M M M M Cn an 1 an L anm em + e m Where the matrix A= ( a ) m n denotes the proportion of m activities consumed by n products, i Cost obects Activities Fig. The flow chart of E-A integrated logistics cost model a i denotes the proportion of the activity consumed by the product i, and the operation resource expense consumed by the activity, n i= 1 Direct capital Indirect capital (1) (4) (3) () (5) ai = 1; Capital resource e denotes e denotes the capital resource expense 486

5 consumed by the activity, and the column matrix E= [ e + e e + e e + e ] 1 1 L denotes the sum matrix of the operation resource and the capital resource expense consumed by m activities. Unit product cost: c1 C1 / Q1 c C / Q = M M cn Cn / Qn Value realized by product (product EVA): EVA1 S1 C1 EVA S C =. M M M EVAn Sn Cn 4 Conclusions m (6) (7) m T Enterprise value maximization is the orientation of the enterprise obective function with foresights, complexity, and substantiality, which is turning to be a global criteria to evaluate enterprises. It is the baton of all the enterprise businesses, and therefore enterprise logistics cost management is also subect to the obective. Hence, the value-based enterprise logistics cost management mode is established herein, with following main conclusions: (1) The enterprise logistics cost management obective is value increasing, which defines the orientation of the logistics cost management; () Modern enterprise logistics cost management must step out of the only cost perspective, and integrate itself into the total process of strategy management, which requires the management schemes not only adaptive to the integrated strategy, but also defined clearly the key factors to facilitate strategic obective realization. The organic integration of the logistics cost management and the enterprise strategy is important to ensure the enterprise long-term value added realization; (3) The logistics cost management must extend vertically to the supply chain, and horizontally to the total time series, to carry out the all-round and total process system management. In this way, it is possible to identify the value added activities, eliminate non-value added activities, optimize the logistics process, control logistics costs, and realize the value maximization of logistics activities; (4) The advanced methods of ABC, EVA, and Master budget management, are integrated and applied to the logistics cost management, so as to deepen management to the activity level, provide cost control standards and methods, accurately compute logistics costs, and correctly reflect the value added derived from the logistics management. References [1] Richard L. Dawe.A case study of advanced supply chain strategy: the evolving role of the totalservice provider in the e-business era. [] Deng Fengxiang. Modern logistics cost management: the third profit source to remove logistics iceberg. Beiing: Economic Management Press, 003:18(in Chinese) [3] Fu Tingting. ABC-based coal enterprise cost management system. Journal of Shandong University of Science and Technology, 006: 3~5(in Chinese) [4] Sun Chaoyuan. Enterprise logistics costs and services. Beiing: Science Press, 005:~3(in 487

6 Chinese) [5] Michael Porter. Trans. Chen Xiaoyue. Competitive strategy. Beiing: Huaxia Press, 1997:133~ 139(in Chinese) [6] He Zhenggang, Shuai Bin, Zhang Yang. Research on service criterions of logistics Enterprises. Soft Science, 004,5:93~95(in Chinese) [7] Ding Junfa. Chinese Logistics Academic Frontier Report( ).Beiing: China Materials Press, 007,11:39~47(in Chinese) 488