1) Logistic Cost
Logistic is the vital element in economic flow, any changing happens in logistic parts will mostly affects the overall of the business. Logistic always being view as the process of planning, implementing and controlling the flow and storage of goods, and any related information from the point of origin until the end user. Based on some journal, they mentions that some production companies will easily neglected the logistic cost even they know how important it was towards their company performances (Bokor, 2012). This is because of they cannot differentiate or identified what kind of cost they need to calculate, logistic providing intangible goods which is immediate utility and not storable. So commonly companies use conventional method on their financial calculation which only involving tangible goods, and unable to combined with logistic services which is intangible and limited value (T. Gudehus, 2009). In facts, there are so many methods to calculate the logistic cost, and it will help cut the cost and increasing the effectiveness and efficient of company performance.
Logistic cost is the cost involved before, during and after in any related logistic service activity. The components of logistic cost are transportation, warehousing, capital tied up in transportation and warehousing, packaging, insurance, obsoleteness and wastage, and logistic administration (Hansen & Hovi, 2010). Transportation is a main component of logistic cost, and there is some research mentioned that about 55% from the logistic cost is transportation. Obviously, transportation will be the main component in logistic cost, since logistic is all about delivering, distributing and procurement that always involving transportation in the logistic activities.
On the first paragraph, we have go through the definition of logistic. What about the supply chain? Is there any differ between logistic and supply chain? Supply chain is beginning with the procurement and ends with the finished goods and received by end user. It included both physical and information flows and all parties in the circle of supply chain are connected. Meanwhile supply chain management (SCM) is the planning and management of all activities in sourcing, procurement, all logistic activities, coordination and collaboration with channel partners. In simply words, SCM Is integrates supply and demand management within and across companies. Logistic and supply chain is two different things but it connecting with each other. Logistic is a part of supply chain which means in supply chain there are logistic activities.
In logistics there are 3 parts, inbound, in-house and outbound. Inbound is the movement of the product or raw material enter the business to being produce as the new product. So usually, the companies try to hold the raw material as few as possible to prevent wastage and ensure the raw material were supply on the right time, good quality and at the lowest cost. Next, outbound is the movement of finished product to other firm or final customer. There are two concepts which are storage and transportation. Storage part uses warehousing to keep all finished goods in safe and accessible. The transportation part is moving the finished goods to the end user. The last part is in-house. In-house is sometimes view as inbound, but it only related within the premise customer's storage and the production facilities, which means only focus in the firm region.
2) Logistic Costing Tools
Logistic costing tools is the relevant cost involved in logistic activities that measure the money flow in and out from the firms, calculating the logistic activities cost is quiet difficult because its intangible and need specific method to know how much cost by logistic activities contribute into business performance. The logistic cost is start counting from the supplier and then manufacturer or the firm itself until end user.
We divide it to three parts which are in upstream or inbound, intra-firm, and downstream or outbound. In the part of inbound, there are 6 costing tools, which are cost estimation, cost to serve, cost transparency, open books costing, value chain analysis, and total cost ownership. Then, in the part of intra- firm, there are 6 costing tools, namely standard costing, activity based costing, activity based management, balance scorecard, economic value added, and kaizen costing. Lastly, in the part of outbound, there are 6 costing tools, which are cost transparency, customer profitability analysis, inter-organizational costing, life cycle costing, and landed costing. Even though there are so many costing tools in every part, but not all were counts or calculated. Certain company will only choose two or three costing tools in every part into their financial report.
Logistic costing tools are essential to the business growth, when the companies have complete data of logistic cost they can support and plan for funding. If the companies know how much the actual expenditure that have been made, they will able to forecast and do a budget for next business activities, and surplus amount can use for other essential things. Next importance of logistic costing tools is to better design, plan and manage the system. After they knew the costing, they know what parts need to be upgrade, and know to fix the unwanted events or system, because not all logistic system were suitable with the nature of business of the companies. Lastly, logistic costing will provide a clear understanding of the source of funding for the logistic activities. A logistic costing exercise will provide the stakeholder with a clear understanding and aware of the different function of logistic that use different resources. It also provide clearer definition of the resources that had being used to perform logistic activities, what kind of resources, how many amount, and what volume of goods are being distributed for the whole year or in a month.
A logistic costing tool is needed in calculation logistic activities because all the activities that have been done are difficult to calculate. For example, selling activities can be calculated the cost by knowing how many goods had been sold, and how many capital to produce the goods, it was visible and tangible. However a logistic activity is intangible and unpredictable. We cannot easily assume when the container that contain with our goods was safely arrived is counted as gaining more profit, we also need to consider either the container were full or half full and how we can calculated the cost just view from that point. In the last, the companies really need these costing tools to accurately measure the relevant cost from logistic activities.
At every stage of supply chain, inbound, intra-firm and outbound, each of that stage have significant costing tools that been used in the companies. In the inbound or upstream stage, from 6 costing tools, I am choosing value chain analysis as the most significant costing tools of several companies.
From the view of Michael Porter, value chain is a set of activities that operating to give a value to the product or services. In term of logistic, value chain analysis is how the primary activities in the firm connect to the support activities and build a value to the every partners involve in logistic chain, such as supplier, manufacturer and end user. Logistic value chain appear in the relationship of logistic activities, from inbound to outbound(Zhou, 2013). At every value chain analysis, there are two activities involved which are primary activities or the basic activities and support activities or added activities in the firm. In the view of logistic field, the primary activities will be transportation, procurement, warehousing and more. Meanwhile the support activities are e-commerce, sharing delivery information, collection payment and so on. If the value chain analysis were practicing in the companies it will sustain the relationship between suppliers and end user.
Everything will have the pro and cons, same goes to this costing tools. Value chain analysis can create competitive advantages. The better the service we provide the more trustful and loyal customer and supplier towards our firm. Value chain analysis also can be a tool to comparing the business model with the competitors and give clearer understanding of business strength and weaknesses. However, the expertise in handling value chain analysis is very few, so more training and education that will rise the cost need to expand. Value chain analysis will be in greater performance if all information needed is available, but sometimes the business information system is unstructured and hard to get the information for value chain analysis.
One of the companies that use value chain analysis is IKEA. IKEA is commonly used for a role model to other logistician and supply chain parts. IKEA primary activities included inbound logistic, operation, outbound logistic, marketing and service. At primary activities, IKEA do procurement, stored the product, distributed the product, advertised the firm by attractive ways and give best services to their customers such as online and telephone customer service, available refund and more. Meanwhile, IKEA support activities are well infrastructure, human resource management, and technology development.
At intra-firm stages, the significant costing tools is activity based costing (ABC). ABC is a cost accounting concept based on the firm that product or services require to perform activities and that activities incur costs. In ABC, it is designed that any cost indirectly to a product flow into activities that make them important cost. In term of manufacturing industry, ABC system is easily adapt because the main activity is tangible which means is easy to count and can forecast how many output need to be produces. However, for logistic companies, they adapting in different ways but still in similar purpose of ABC which is to allocate some amount to the activities.
Before practicing this costing tool, logistic firm need to identify the main activity, whether warehousing, transportation or others, then collecting the data of the company and the activities perform by its staff, observed the staff and identified the time spent for each of activities they perform. After the information complete, they can starts calculate in ABC system. For example, the main activity is warehousing. ABC system not focusing of any relating cost with warehouse ownership such as rent but more focus on the level of activity perform in the warehouse. With ABC costing tools we will analyze which is the space occupied per consignor in the warehouse, so in this way the empty location will not be allocated to consignor.
Last part is outbound. In outbound the significant tools is customer profitability analysis (CPA). Customer profitability analysis is to calculate the amount of profit from our customers. Simply words, how much loses of the firm if one customer shift to competitor's product or service? From this question we can conclude that customer bring prosperous to the companies. Generally, every firm only measure their profit based on the products that they had sold but not based on customer analysis. In term of logistic service provider, commonly they always confronted the customer rather than the products, so this cosing tools is really suitable with this type of firm. In CPA, the firm need to know the revenue and cost for specific customer, and if the customer net contribution is in positive, the company still in better performance. For example, company X should know which customer is willing to pay more for better quality service and how to shift nonprofit customer to the profitability customer.
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