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 mans land is never owned
3

 Cost cutting is fragmented so doesnt reduce system cost Customer dissatisfaction, competitive edge is lost by the organization

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

transportation Ware housing Mission A Mission B Mission C

15 5 5 1 =Rs. 25/-

Customer service goals [QCD] At market type A Customer service goals [QCD] At market type B

1 =Rs. 100/45 35 20 1 =Rs. 30/10 10 10

Customer service goals [QCD] At market type C

70

50

35

Rs.155/-

Functional Inputs to Logistical Management

Activity based costing analytical Focus :- individual activities reactive

Mission based costing Planning oriented Focus :-whole mission proactive

Total cost approach Modern approach to logistical costing Focus on reduction of cost of output of the system [product delivery to customer] Main objective is minimization of total logistic cost. Provides competitive edge to the company Includes costs like inventory, warehousing, production, distribution, transportation, packaging and customer service costs.

Main factors :-Inventory and Transportation

Transportation represents the geographical aspect of logistics, it positions or places the product in strategic locations from where it can be easily accessible for the customer to purchase. Inventory creation represents the rate at which organizations assets such as plant and machinery , technology , manpower etc are utilized in creating products needed by customers.

Cost element (a) Inventory related costs Inventory carrying cost storage Working capital supervision insurance Obsolescence & replacement Ordering costs: Communication Order processing Updating activities Managerial supervision (b) Transportation related cost Vehicles charges packaging Loading & unloading taxes Damages or losses

customer

order

product

Value added service

10