MyCIMA

Activity based costing for logistics companies

Replies : 2
Keywords: networking

Currently I have been engaged to the project with logistics services provider. The project goal is to develop costing methodology for that type of the company. I found that activity based costing methodology is more appropriate in this case but I didn't find any examples of logistics companies (3rd party logistics) that have already implemented ABC.

I would like to discuss your experience with ABC implementation for 3PL companies.

Thank you.

Making it easy is key

When I worked in logistics a while back we found that the key was to keep it simple. To make things relatively simple, we calculated the cost of moving 1 tonne* of freight 1 kilometre by road (FTKs), rail, sea and air.  This allowed us to make direct comparisons of cost and choose suitable methods of transportation for virtually any load.

By choosing this standard cost as a start point we were able to think through what activities we needed.  For example, packaging; if we sent a consignment by air it could only be packaged in a certain way, but if it was going by sea there was more flexibility.  This led to developing ways to cost the preparation of loads and allowed us to take it into consideration for the overall cost.

You will also want to consider full cost v marginal cost.  Where this helps is when you have a choice of using your own assets or hiring in someone.  We hit this issue when looking at road v rail.  The full cost of 1 FTK by rail was considerably higher than by road.  However, when you removed the fixed cost from the rail contract (which used our own wagons) it became much cheaper.

I know my reply doesn't quite answer your question, but I hope it's useful anyway.

* be careful when talking tons/tonnes as the are "long" and "short" tons (imperial) and "tonnes" (metric).  None of them are exactly the same. If you're interested, see this:  http://en.wikipedia.org/wiki/Ton

Stnd costing

Alistair,

Thank you very much for your reply. I'm also interested to make the costing as simple as possible and I will think about applicability of standard costing.