2Content Where does value come from How can logistics costs be presentedActivity-based costingA balanced measurement portfolioSupply chain operations reference model
3Where does value come from Key issues1How can shareholder value be defined?2What is economic value added, and how does it help in this definition?
4Where does value come from Business objectivesBusiness objectiveProfitMarket shareShareholder valueSocial value
5Where does value come from Concepts about shareholder valueComparable investmentROI (Return on investment)SalesCostsWorking capital（营运资本）Cash and debtors（借方，债务人）Creditors（贷方，债权人）Fixed assets
6Inventory＋Cash and Debtors－Creditors＋Fixed assets Sales revenue－CostsInventory＋Cash and Debtors－Creditors＋Fixed assetsROI＝Sales revenueCosts－ProfitCapital employedInventoryCash and debtors＋CreditorsFixed assetsReturn on capital employedWorking capital÷
7Where does value come from ROIProfitability = Profit / Sales×Asset utilization = Sales / Employed investmentROI is underpinned by two main drivers:Increased profitabilityIncreased asset utilization
8Where does value come from ROI and its key driversLevel 1Level 2Level 3Level 4ROINet ProfitSalesProduction costs / SalesPay costs / salesMaterials / SalesSelling costs / SalesPay costs / SalesAdministration costs / SalesTotal assetsFixed assets / SalesProperty / SalesPlant / SalesVehicle / SalesCurrent assets / SalesInventory / SalesDebtors / SalesCash / Sales
9Where does value come from Key time-related ratiosAverage inventory turnoverAverage settlement period for debtorsAverage settlement period for creditors
10Case study: The Wal-Mart effect In 1987, Wal-Mart had a market share of just 9 percent but was 40 percent more productive than its competitors as measured by real sales per employee.By 1995, it commanded a market share of 27 percent and had widened its productivity edge to 48 percent.Competitors began to adopt Wal-Mart’s innovations in earnest in the mid-1990s.From 1995 to 1999, Wal-Mart improved its own productivity by an additional 22 percent.
11Case study: The Wal-Mart effect Managerial innovationWal-Mart’s productivity edge stems from managerial innovations that improve the efficiency of stores. Employees who have been cross-trained, for instance, can function effectively in more than one department at a time.Information technology investmentsWal-Mart was among the first retailers to use computers to track inventory (1969), just as it was one of the first to adopt bar codes (1980), EDI for better coordination with suppliers (1985), and wireless scanning guns (late 1980s). These investments, which allowed Wal-Mart to reduce its inventory significantly and to reap savings, boosted its capital productivity and labor productivity.
12Content Where does value come from How can logistics costs be presentedActivity-based costingA balanced measurement portfolioSupply chain operations reference model
13How can logistics costs be represented Key issues1What are the various ways of cutting up the total cost ‘cake’?2What are the relative merits of each?
14How can logistics costs be represented Problems with traditional cost accounting as related to logistics (Christopher, 1998)The true costs of servicing different customer types, channels and market segments are poorly understood.Costs are captured at too high at a level of aggregation.Costing is functionally oriented at the expense of output.The emphasis on full cost allocation to products ignores customer costs
15How can logistics costs be represented Three ways to cost cube
16How can logistics costs be represented Fixed / Variable costsVolume of activityFixed costVolume of activityVariable cost
17How can logistics costs be represented Fixed / Variable costsVolume of activityCost or revenueSales revenueVariable costFixed costTotal costBreak-even point
18How can logistics costs be represented Fixed / Variable costsCost or revenueVolume of activityFixed costHigh variable costTotal costSales revenueBreak-even pointCost or revenueVolume of activityFixed costLow variable costTotal costSales revenueBreak-even point
19How can logistics costs be represented Direct / Indirect costsDirect costsDirect laborDirect materialsWhether the cost can be directly allocated to a given productIndirect costs (overheads)Managing director’s salaryRent ratesAdministration expenditure
20How can logistics costs be represented Direct / Indirect costsDPP (Direct product profitability) methodGross sales for product groupLess product-specific discounts and rebatesNet sales by productLess direct costs of productGross product contributionLess product-based marketing expensesProduct-specific direct sales support costsLess product-specific direct transportation costsLess product-attributable overheadsDirect product profitabilitySourcing costsOperations supportFixed-assets financingWarehousing and distributionInventory financingOrder, invoice and collection processing
21How can logistics costs be represented Engineered / Discretionary costsExampleEngineered costspreventionInput-output relationshipQuality costappraisalInternal and external failureDiscretionary costs
22Content Where does value come from How can logistics costs be presentedActivity-based costingA balanced measurement portfolioSupply chain operations reference model
23Activity-based costing Key issues1What are the shortcomings of traditional cost accounting from a logistics point of view?2How can costs be allocated to processes so that better decisions can be made?
24Activity-based costing Today’s businesses are working in an increasingly complex environment.Use of Advanced TechnologyProduct Life CycleProduct ComplexityChannels of DistributionQuality RequirementsProduct Diversity
25Criticisms of Traditional Cost Allocation Activity-based costingCriticisms of Traditional Cost AllocationAssumes all cost is volume-relatedDepartmental focus, not process focusFocus on costs incurred, not cause of costs
26Activity-based costing Conventional CostingTotal Cost = Material + Labour+ OverheadsOverheads are allocated to the products on volume based measures e.g. labour hours, machine hours, units producedWill this not distort the costing in the new environment?ABC provides an Alternative.
27Activity-based costing Allocation of indirect costs based on causal activitiesABC PurposeResults in better allocationDoes not provide “true” cost
28Activity-based costing Traditional allocation methodActivity-based allocation methodCostsProductsCostsActivitiesProductsFirst stageSecond stage
29Activity-based costing When is ABC Most Useful?High OverheadsProduct Diversity or Multiple ProductsCustomer DiversityService Diversity
30Activity-based costing ExampleProduction lineABCDTotalMachine hours8,00032,000No. of changeovers5030155100Equal allocation250,0001000,000Allocation by activity500,000300,000150,00050,000Difference-100,000-200,000
31Activity-based costing Cost time profile (CTP)deliveryloadingsortprocessingstoragetransport
32Content Where does value come from How can logistics costs be presentedActivity-based costingA balanced measurement portfolioSupply chain operations reference model