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Detailed cost modelling: a case study in warehouse logistics

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Original languageEnglish
Pages (from-to)184-200
JournalInternational Journal of Physical Distribution and Logistics Management
Volume37
Issue number3
DOIs
Publication statusPublished - 2007
Publication typeA1 Journal article-refereed

Abstract

The need for cost efficiency has made it necessary to monitor costs in detail within the logistics environment. This challenges traditional methods and assumptions concerning cost accounting. Due to the wide variety of products with different characteristics and needs, duration drivers may be more accurate than transaction drivers in assigning the costs of logistics activities. An automatic data collection system provides support to cost accounting with accurate time data and low measuring costs. If time drives costs in logistics, the key question for accounting should be what drives time. The main objective of this paper is to examine the applicability of alternative drivers for assigning activities to products. Methods are introduced for analysing large amounts of automatically collected data in order to understand the effects of product‐related variation on activity costs. The study is based on a project aiming to develop an accounting system for an electronics wholesaler. Data were collected and analysed for one case activity, and the effects of different variables on activity duration were examined. The study also considers the effects of enhanced data on the accuracy of accounting and the practical applicability of these analytical methods. The information collected provides excellent opportunities for profound analysis of the activities. The accuracy of different activity‐cost drivers was examined by comparing a set of variables with the actual durations measured. It was noted that no single variable could give sufficient estimations for the costs of the case activity. A model with multiple variables was able to differentiate between batches of products of varying difficulty, though duration was found to be a superior driver for the case activity. This study clearly demonstrates that in certain environments it is possible to significantly increase the accuracy of accounting by measuring the actual durations. In addition, collecting more data with more variables would enable a much deeper understanding of the cost behaviour of an activity and products.

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