Logistics Management

Report in Logistic cost

Logistics costs are all the expenses incurred moving product- from sourcing raw
materials to delivering customer orders and every step in between. Logistics costs
throughout the retail supply chain are paid to manufacturers, trucking companies, third
-party logistics service providers, shipping carriers, freight boxers and a variety of
vendors. Transportation costs are one of the largest buckets within the supply chain and
include getting your inventory from the manufacturer to your warehouse and then to
your customers.

Transport Costs

includes freight charger by land, sea and air. Depending of the country, in
quantity and quality, the features of the ways of transmitting the cargo needs to be
analyzed.

Warehouse Costs

Although the trends are focused on avoiding storage, is probably to have

situation that require to store delays in loading or unloading.

Administration Costs

This component of costs includes the expenditure of the documentation required

for both, the export and import of the product, and includes: invoices, shipping
documents, forms for statement, permits or licenses and certificates among others.
Inventory Costs

Includes the opportunity cost of the material in stock: packages and packaging.
the estimate cost of package and packaging variers depending on the requirements of
each type of product, the mode of transport to be used and the destination market.

Limitations of Current Financial Reports

It is designed to report aggregate effects based on items of expenses rather than

activities and fails to assign operations responsibility. It considers only standard costs to
control costs and provides historical records of firm’s operations. It mainly focuses on
difference between actual and standard costs for control purpose.

Activity Based Costing (ABC)

Is a costing method that assigns overhead and indirect costs to related products
and services. This accounting method of costing recognizes the relationship between
costs, overhead activities, and manufactured products, assigning indirect costs to
products less arbitrarily than traditional costing methods. However, some indirect costs,
such as management and office staff salaries, are difficult to assign to a product.

Problems in Implementation of ABC

The lack of adequate and activity wise detailed cost data has prevented logistics
management from achieving its objective of maximizing profitability by best utilization of
available alternative resources. Accurate activity wise cost data is essential for
successful implementation of integrated logistics management concept using total cost
analysis. Understanding of correct cost trade-off amongst various logistics component is
essential for selecting the best available alternative for decision making. Inability to
measure and manage costs leads to missed opportunities and expensive mistakes in
business decisions.
Mission Costing

An effective logistical costing system must seek to determine the total system
cost of meeting desired logistics objectives or mission and the cost of various inputs
involved in meeting these outputs. Functional budget is determined by the demands of
the mission it serves

Basic Principles of Mission Costing

The system should be capable of identifying the cost of each activity involved in
providing the customer service at the market place. It should be capable of showing
separate cost and revenue analysis by customer type/ market segment or distribution
channel. To implement these principle it is necessary to define the desired outputs of
logistics system in terms of revenues/ profitability/ tangible benefits and identify the
costs associated with those outputs.

There are four stages of mission costing first is defining customer service
segment. Second is identifying the factors those produce variations in the cost of
service. Third is identifying specific resources used for supporting customer
segments. And lastly, attribute activity cost by customer type or segment using
principle of avoidability.

the real impact of logistics cost on profit is much higher than management usually
perceive, they do not take in to account the real cost of lost sales. (present and future)
Many costs are in the gray area due to overlapping of certain activities performed by
many departments of an organization. Only integrated approach takes into account all
the activities and their respective costs responsible to achieve corporate objective.
Therefore, the information on various costs should be available and examined
thoroughly for proper decision making. Unfortunately, separate information on cost of
individual activities is not maintained under present accounting/ financial systems.