Activity-Based Costing (ABC)
Capture. Calculate. Improve.
It is perfectly fine if your production manager is satisfied with technically sound processes and your logistics manager with on-time order fulfillment. But one person is still missing: your controller.
Be honest: do you really know your process costs? Especially in logistics – which is often hidden within overhead cost allocations – many manufacturing companies are sitting on significant untapped potential.
► Process costs as a lever for profitability
- Process cost accounting makes it possible to assign a monetary value to all individual processes along the value chain and allocate them to orders based on actual causation.
- As a tool for improving profitability, process costs are a powerful lever – especially in environments with a high share of labor costs.
► What industry can learn from service providers
- Modern logistics service providers – as well as companies in discount retail – are far ahead of industrial firms in this respect. As service providers, they are accustomed to thinking in logistics-related costs and pricing them economically on a project-by-project basis.
- Thanks to standardized handling and cost evaluation of all logistics and service processes, effort per customer can be calculated precisely and billed individually.
- While traditional cost accounting systems often fail to distinguish between individual cost centers, process cost accounting delivers not only clear figures and facts – but also transparency down to “name and address.”
Introducing process cost accounting is not rocket science. LogistikPlan’s planning projects regularly include a dedicated module for process cost accounting – because only on this basis can planning alternatives be evaluated in a sound and reliable manner.
► Our approach to implementing process cost accounting
- Define main processes per cost center and break them down into activity-based sub-processes (e.g. packing small units, packing large units).
- Determine the time required per activity, sub-process, or process chain (statistically or empirically, e.g. using REFA or MTM time studies); assign sub-processes to variable (volume-driven) and fixed (volume-independent) costs.
- Identify cost drivers (especially in labor-intensive processes, e.g. based on size or weight of stored goods) and derive optimization measures.
- Define cost rates per resource and add further cost types (e.g. vehicle costs, packaging material costs, license or service fees).
- Scale activity volumes per sub-process or process chain to total process costs and include surcharges (e.g. for special functions or load fluctuations).
- Integrate the cost structure into the company’s pricing model (e.g. unit prices, transaction prices, daily rates).
► Results at a glance:
- Transparency: shedding light on hidden overhead costs
- Clarity: cost allocation based on true causation
- Efficiency: focus on key cost drivers in process optimization
