case - activity based costing in supply chains · 2016. 4. 5. · • base principle: cost...

Case - Activity Based Costing in Supply Chains

April 18th, 2013

Supply Chain Innovations 2013, Antwerp

Presentation by Mohamed Lasgaa

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Multidisciplinary Team

47 years Consultancy

Logistics

Construction Management & Engineering

Supply Chain Management

Supply Chain Strategy > Implementation

Transition Support

3

The Customer

• Business model: Multi Level Marketing

• No retail or store channel, but sales via networks

• Gross sales: $ 3.0 billion (2012)

• Sales network: 9.5 million distributors in ca. 90 Countries

CUSTOMER PROFILE

• Distribution activities back as core business (Back-sourcing )

• Centralization, which countries?

• Servicing a new customer type (distributor)

• Business Case - payback within 3 years

• New pricing setup

VOICE OF THE CUSTOMER

4

Forever Living’s Supply Chains PREVIOUSLY

Main challenges

• Direct shipments: no inventory point(s) between factories and country DC’s.

• Product labeling for bigger countries

• Poor demand FCST

• Long lead times

• Very low flexibility

• High inventory levels in the SC-network

• High SC-costs of CoGS

Americas EMEA APAC

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Forever Living’s Supply Chains TODAY (IN PROGRESS)

Setup new Legal Entity (Forever Direct EU) to serve EMEA region

• Decoupling country DC’s from the factories

• Setup Outsourced EMEA-DC to replen country DC’s

• Fine distribution remains in the countries

• Improved visibility & demand FCST

• Reducing lead times

• Reducing stock levels

• Increasing flexibility

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Forever Living’s Supply Chains NEAR FUTURE (IN PROGRESS)

• Back-sourcing of bulk Replen

• Centralization of fine distribution activities with postponement manufacturing (country specific labeling)

Setup new:

• EMEA DC

• Processes

• Logistic & IT-systems

• Organization

• Cost Pricing Model

Supply Chains Savings:

• OPEX (14%)

• Working Capital (32%)

• Cost transparency

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Cost Pricing Model in Logistics APPLYING ACTIVITY BASED COSTING & ACTIVITY BASED MANAGEMENT

• ABC was mainly used by production companies, today also by service providing companies (i.e. Banking & Insurance, LSPs, …).

• Base principle: cost allocation of indirect costs to activities.

• Activity Based Management is Cost Management based on ABC-info for:

Cost (re)allocation

Cost reduction program

Improving product/customer profitability

Sensitivity analyses to simulate cost impact

Explaining cost implications (i.e. rush order)

Benchmarking of similar customer profiles: advice on best practices to reduce their own cost.

• Main concerns/focus areas are: Allocation of fixed/indirect costs (i.e. Mngt)

Customer changes impacting other customers

Data availability: access to and transparency of info

Level of complexity: Keep it simple

Resources

Direct Cost

Indirect Cost

Activity

Cost Drivers

Tariffs

Products

Services

Activities

Resources

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Cost Pricing Model in Logistics

Status: OK Scenario: 12/04/2013

Investment phase: 1 Line-haul SHARED

Indirect FTE Occupation: 2013 Final-Mile DIRECT

Year and Quarter: 2013 Q4

Date:Version: 4.6, 23-11-2012OK

CAPEX Orders

Parameters

FTE

OPEX

Transport CostD

rivers

Tariffs

Volumes

Productivity

Inbound Outbound VAS

Margin & Interest

P&L

Forecast

Bulk OF

Main Menu

SNAPSHOT ACTIVITY BASED COSTING MODEL






CAPEX Orders

Parameters

FTE

OPEX

Transport CostD

rivers

Tariffs

Volumes

Productivity


Margin & Interest

P&L

Forecast

Bulk OF

Main Menu

9

Cost Pricing Model in Logistics SNAPSHOT ACTIVITY BASED COSTING MODEL






CAPEX Orders

Parameters

FTE

OPEX

Transport CostD

rivers

Tariffs

Volumes

Productivity


Margin & Interest

P&L

Forecast

Bulk OF

Main Menu






CAPEX Orders

Parameters

FTE

OPEX

Transport CostD

rivers

Tariffs

Volumes

Productivity


Margin & Interest

P&L

Forecast

Bulk OF

Main Menu

10







CAPEX Orders

Parameters

FTE

OPEX

Transport CostD

rivers

Tariffs

Volumes

Productivity


Margin & Interest

P&L

Forecast

Bulk OF

Main Menu






CAPEX Orders

Parameters

FTE

OPEX

Transport Cost

Drivers

Tariffs

Volumes

Productivity


Margin & Interest

P&L

Forecast

Bulk OF

Main Menu






CAPEX Orders

Parameters

FTE

OPEX

Transport CostD

rivers

Tariffs

Volumes

Productivity


Margin & Interest

P&L

Forecast

Bulk OF

Main Menu

11







CAPEX Orders

Parameters

FTE

OPEX

Transport CostD

rivers

Tariffs

Volumes

Productivity


Margin & Interest

P&L

Forecast

Bulk OF

Main Menu






CAPEX Orders

Parameters

FTE

OPEX

Transport Cost

Drivers

Tariffs

Volumes

Productivity


Margin & Interest

P&L

Forecast

Bulk OF

Main Menu

Cost sort Cost type Costs Cost Driver

Rent office 68.571€ Direct labor costs

Rent warehouse (bulk) 720.000€ Cases Outbound (Bulk)

Rent warehouse (OF) 342.857€ Cases Outbound (OF)

Rent warehouse (VAS) 68.571€ Eaches (Labeling+Kitting)

1.200.000€

MHE Lease costs 100.000€ Cases Outbound (Total)

100.000€

Indirect 2.066.500€ Direct labor costs

Direct 2.106.187€

4.172.687€

Equipment 462.948€

IT - Hardware 154.672€

IT- Software 324.692€

Tenant Improvement 116.000€

Start-up / Project Management 150.145€

Others 41.704€

1.250.161€

Outbound pallets 52.995€ Cases Outbound (Total)

Shipping cartons 954.513€ Parcels Outbound (OF)

Product labels 1.016.434€ Parcels Outbound (OF)

Shipping labels 30.089€ Parcels Outbound (OF)

A4-Docs (packing list & invoice) 40.199€ Parcels Outbound (OF)

2.094.230€

Inbound Documents 240.000€ Cases Outbound (Total)

Inbound Freight 260.000€ Cases Outbound (Total)

Outbound Bulk 2.303.507€

Outbound OF (Line-Haul & Last mile) 8.914.286€

Transparix license 63.978€ Parcels Outbound (OF)

11.781.771€

Conveyor (3.6% including spare parts) 88.000€ Orderlines (OF)

VAS labeling machines 3.570€ Eaches Labeled (Labeling)

IT - Hardware 21.771€ Orderlines (Total)

IT - Software 32.469€ Orderlines (Total)

Scanners 2.000€ Orderlines (Total)

Building 125.000€ Cases Outbound (Total)272.810€

HRM 85.277€ Direct labor costs

Energy 90.000€ Direct labor costs

ICT 61.505€ Direct labor costs

Supplies 20.253€ Direct labor costs

Insurance 121.307€ Direct labor costs

Others 144.825€ Direct labor costs

Holding costs -€ Cases Outbound (Total)

523.167€

Total 21.394.827€

Building

OPEX

Others

Wages

Depreciation

Logistic Consumables

Maintenance

Transport & Documentation

6%

0%

20%

6%

10%

55%

1%

2%

OPEX by cost sort

Building

MHE

Wages

Depreciation

Logistic Consumables

Transport & Documentation

Maintenance

Others

45%

13%1%

35%

6%

OPEX by cost driver

Direct labor costs

Cases Outbound (Total)

Eaches (Labeling+Kitting)

Parcels Outbound (OF)

Cases Outbound (OF)

Mohamed Lasgaa

Senior Consultant

SCM & Logistics

[email protected]

www.linkedin.com/in/mohamedlasgaa

www.groenewout.com

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THANK YOU VERY MUCH FOR YOUR ATTENTION

C O N S U L T I N G , E N G I N E E R I N G & O P T I M I Z A T I O N I N L O G I S T I C S N E T W O R K S