Activity Based Costs

18th August 2010

Activity based costs provides the customer with a detailed picture of the key processes required in their manufacturing process. Each different activity required within the production logistics is isolated and a cost is placed upon the actions.

For instance, the delivery of a pallet of product to a particular area in plant from another area on site. For every action required, the resources and equipment are evaluated for synergy, and a measureable cost is placed upon this action with KPI’s to guarantee a ‘like-for- like’ or better service delivery.

More flexible pick’n’mix approach which is easy to measure
The key benefit is that automotive manufacturers can select which processes they want to outsource. These ‘outsourced’ activities are easy to measure; effectiveness of the ‘on-site’ logistics company can be directly compared against their known costs and KPI’s, to ensure the transfer of operations, are measurably more effective and lower cost.

Specific price not average estimated costs
Using an activity based cost process the automotive manufacturer can calculate precise costs in relation to an associated volume build, rather than an average cost associated with a directly employed workforce and materials handling equipment.

Costs of activities outsourced can be turned on or off like a tap
The key differentiator between an automotive manufacturer using outsourced production logistics on an activity based cost contract and directly employing their own people is the ability to react fast to orders, either increasing or decreasing without the worry of employment responsibilities. They are buying an outcome; a service which, if required, can be turned off within the shortest timescale.

A more detailed picture results in better planning
When every aspect of production logistics is isolated and related to car build volume, the automotive manufacturer can determine costs much more accurately when planning or seeking to change production processes.

Activity based costs encourages partnership and transparency
With visibility of all processes and detailed costs, the automotive manufacturer is able to continually review all aspects of production and is free to change their mind and ‘take back’ operations which have been refined. This means the 3pl must continually seek out synergies and develop cost savings and improved efficiency. This can only be truly achieved with complete partnership working.

Same perspective and goals
The 3pl providing the services must see the business with the same perspective and goals as the automotive manufacturer rather than as an independent profit centre serving its own aims. This is ONLY achieved through adopting the culture of the manufacturer, and embracing the partnership.

Here’s how the 360 onsite logistics audit and assessment works!

Put us to the test, what have you got to lose?

Contact us for a FREE ‘on site' logistics audit – carried out under a non disclosure agreement - our findings will be reported in full confidence and will provide a detailed analysis of where savings and improvements can be made.

_{There’s only one condition - you must be UK based and be operating in the automotive sector, with a head count of around 25 - 30 or more operating in logistics roles.}