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Lecture notes, cheat sheets
Logistics. Costs in logistics (lecture notes)
Directory / Lecture notes, cheat sheets Table of contents (expand) LECTURE No. 8. Costs in logistics 1. Logistic costs: concept and essence Logistics costs cannot always be accounted for in their pure form; their components cannot be considered independently of each other. They are reflected in various accounting documents. Separate elements of financial processes and logistics processes cover both material and financial processes and lead to certain costs. These costs (arising in business practice) are not always understood as costs in their pure form. By influencing the overall results of production, they affect its financial performance. Let us highlight the following groups of economic events, which are reflected in financial indicators and are connected by logistics processes. 1. The use of labor, materials, tools, as well as external (in relation to production) services that are interconnected with the use of logistics processes. 2. Production costs included in added value and being elements of operating costs or a component of profit: 1) taxes on real estate and vehicles; 2) costs for nature management; 3) the cost of freezing capital. 3. Reduction of production assets as a result of ineffectiveness of logistics processes considered in a contractual manner, for example, for the supply of goods of inadequate quality, untimely deliveries, etc.: 1) losses due to inadequate product quality caused by imperfections in the promotion process; 2) losses due to aging of inventories (natural loss, partial or complete loss of consumer qualities of a product); 3) lost profits due to imperfect logistics processes, for example, lack of stocks of materials in demand. The components of logistics costs and financial indicators of logistics processes are reflected differently both in accounting and in the balance sheet of profits and losses of an enterprise and have different economic content. In the balance of the enterprise, the main groups of monetary profits and losses are distinguished. 1. Logistics costs, which are reflected in industrial cost accounting with the necessary additional accounting and analytical work to identify them. 2. Force majeure costs - refer to the criteria that determine the monetary performance of production. 3. Lost profit - is not reflected in the balance sheet of the enterprise. The area of logistics costs is interpreted quite flexibly. Its scope depends on the objectives of grouping and collecting cost information. The practical approach to the calculation and analysis of logistics costs should be as simple as possible and tied to accepted accounting, costing and balance sheet principles. Theoretically, it is necessary to have the most complete and comprehensive interpretation of the tasks, reflecting the essence of the problem and making it possible to obtain a comprehensive assessment of it. Within the framework of the applied accounting system, from a practical point of view, this may be difficult or even impossible. Determining logistics costs for each specific case must take into account the practical component, which does not always correspond to the theoretical models presented in the specialized literature. In the model approach, logistics costs are divided into costs of product promotion and inventory costs. Promotion and inventory are the main areas of operation of logistics processes. They turn out to be cost bearers. Promotion and inventory costs consist of costs for both material and information processes. In a broad sense, logistics costs look like a financial expression of the use of labor, means and tools, monetary costs and the negative consequences of force majeure events that arose during the promotion of material assets (resources, materials, goods) within an enterprise and between enterprises, as well as maintaining stocks. These costs are considered as a component of the costs of production activities or its balance, provided that they are associated with the processes of promoting and maintaining inventories, regardless of their place in the system of balance of income and production costs. This balance does not take into account more efficient investment of capital. Until now, the problems of logistics costs have not been sufficiently considered in the domestic economic literature. For the first time, this problem was thoroughly studied in the works of foreign authors. However, inventory costs have previously been studied extensively and comprehensively. In many cases they went beyond reserves in the literal sense of the term. Some of these costs, especially the costs of moving materials at the time of purchase, include costs of transportation and input activities. Logistics costs in the model approach can be divided into costs for the movement of materials and costs for their inventories. Promotion and inventory are considered the main components of the functioning of logistics processes. They are the main cost part. The costs of promoting materials and their inventories consist of costs for material and information processes. 2. Classification of logistics costs Logistic costs are classified according to various criteria. 1. According to the main aspects of the flow: costs at the time of the procurement process, costs at the production stage, costs at the distribution stage. 2. Classification according to the place where costs arise, functional management departments, which in turn are divided into supply, sales and transport departments; and traffic related divisions, which are divided into warehousing and transportation divisions. 3. For the main components of logistics processes: the costs of physical promotion of materials, inventories and information processes. 4. By type of costs: for material costs, which consist of funds for depreciation, use of material, fuel and resources and funds for third-party material services, and intangible costs, consisting of costs for payment for work performed, intangible services, from the cost of using third-party capital , cash payments in the form of taxes and payments, as well as other unplanned costs that are reflected in the monetary indicators of production. 5. According to economic content: the cost of consumed production factors, the cost of pure products, costs covering the financial result, and lost profits. The main structural aspects of the classification of logistics costs (by types of costs, by stages of promotion and place of occurrence of costs, by the main components of logistics processes) are interconnected. 3. Inventory costs Regardless of the classification, logistics costs in the consolidated balance sheet take part in the formation of the costs of operating an enterprise and the financial results of its activities. Therefore, a necessary condition for their reduction is knowledge of the structure, level and factors that determine logistics costs. An integral component of economic processes are costs that are involved in all phases of production and, thanks to incoming and outgoing flows, are constantly updated. This update leads to the need to highlight the phenomena of inventory formation and storage at the enterprise. The formation of inventories consists of their actual accumulation in the proper areas of the enterprise, namely: inventories in supply industry warehouses, unfinished products at various stages of the production process and at intermediate storage points, finished products in distribution warehouses, goods in distribution warehouses. 4. Product quality costs Maintaining inventories results in costs arising from both their physical storage and the freezing of specific funds in inventories, which for this reason cannot be used for other purposes and therefore will not bring profit. The physicochemical properties of stocks change during storage due to the duration of storage, as well as due to storage conditions. Sometimes changes cause partial or complete loss of the consumer value of the stock; they can cause material damage to production. The depletion or lack of reserves in the right place and at the right time, during the formation and maintenance of reserves, accompanied by the natural formation of costs, has a negative impact on the economy of enterprises. These negative consequences can be called stock-out costs. The essence and scope of costs are associated with the main operations with inventories, i.e. their formation, maintenance, etc. Inventory costs can be divided into the costs of creating inventories, the costs of maintaining inventories, and the costs of running out of inventories. In order to highlight the most important components, inventory costs are classified in great detail. Inventory costs consist of the costs of actually building inventories and the costs of information processes directly related to the acquisition of materials. These are the costs of promoting material and information flows at the procurement stage. When an enterprise is aimed at the consumer, the main share of costs incurred due to the delivery of raw materials, materials and products falls on the supplier. This affects the costs and distribution of the enterprise and is a common occurrence in balanced markets, when efforts are made to improve sales and the enterprise uses a marketing strategy aimed at the recipient customer. The costs of information processes (for the maintenance of supply and sales services) mainly represent the costs of stockpiling. Their allocation to this group of costs depends on the internal conditions of the enterprise, the scale and significance of these costs for the economy of the enterprise. Inventory costs may vary in nature in terms of variability. Purchase costs are directly proportional to the size of the purchases themselves, especially if these sizes are presented in physical units. The costs of information processes and the maintenance of purchasing departments remain approximately stable. Procurement costs, especially transportation costs, are sometimes passed on to suppliers. Inventory carrying costs are divided into costs associated with raising capital to finance inventory, costs incurred in carrying inventory, and inventory aging costs. The main part of an enterprise's logistics costs are the costs of maintaining inventories. The factors and economic nature of this group of costs are varied. The cost of raising capital to finance inventory reflects the opportunity income that could have been earned if it had not been locked up in inventory. Own capital and third-party capital are attracted to finance the enterprise's reserves. The level of attraction of third-party capital depends on the interest rate that the enterprise pays to the lender. This type of cost is included in the balance sheet of the enterprise. Costs arising from the use of equity capital are not shown on the balance sheet. But this does not mean that they should not be taken into account when calculating the efficiency of capital that is used to finance the operation of the enterprise. The interest rate on invested capital can be a measure of such costs, since in the absence of own funds it is necessary to use a bank loan. This rate serves as a measure of the efficiency of third party capital used to finance inventory. The cost of raising some capital to finance inventory is variable. As a result of a whole range of measures aimed at rationally forming the level and structure of inventories, it is possible to minimize the cost of raising capital. Storage costs are an important element of the cost of maintaining inventories. They are interconnected with warehouse functions. You can determine the main functions of any warehouse: storage of inventories, acceptance of inventories into the warehouse, their placement and issue. To implement the first of these functions, certain warehouse areas and volumes, as well as warehouse equipment, are needed. Inventory storage time can be used to carry out additional activities, such as conservation, labeling or picking. 5. Warehousing costs The storage process introduces some costs. Classification of costs by warehouse functions: costs of warehousing and costs of actions (manipulation) associated with promotion. Handling costs can further be classified as the costs of physically moving materials through a plant. This demonstrates the close connection between the costs of physical movement of materials and the costs of maintaining inventories and especially with the costs of intra-production transportation and storage. Storage costs are classified by type: the use of components of important means used in warehouses; depreciation of materials, fuel and energy for the implementation of warehouse functions; wages with appropriate accruals; payment for third party services; other cash payments. With rational use of warehouse potential, storage costs can be reduced. This result can also be achieved by increasing labor productivity through mechanization and automation of warehouse operations and the implementation of a number of other activities. Storage costs are relatively constant. Manipulation costs depend on the intensity of warehouse work. For each specific situation they can be variable. Total storage costs are assumed to be constant. As a relatively constant component, storage costs can be used to optimize inventory levels. Inventory aging costs combine another major group of inventory holding costs. Events may occur at an enterprise as a result of which existing reserves become unsuitable for their intended use: achievements of technical progress, as a result of which new products and technologies arise, variability in demand. In these cases we are talking about economic (moral) aging of stocks. Causes negative economic consequences in the form of costs from inventory aging, a decrease or loss of consumer value of products (regardless of what exactly causes inventory aging). Market demand for a given enterprise's products has a particularly significant impact on costs. The main reasons that can negatively affect sales volumes are considered to be variability in demand, shortcomings in forecasting its scale and structures, and incorrect assessments of competitiveness. By carefully studying the market situation, as well as taking into account the scale and structure of demand, the direction of development of technological progress, etc., it is possible to reduce the costs of aging inventories. To protect against the risk of high costs from aging inventory, you need to use a set of appropriate marketing activities. Stock-out costs are the lost profits that a business could have earned if it had the right inventory in the right place at the right time. Absence entails disruptions in the rhythm of production and the occurrence of unplanned costs. The lack of profit for both industrial and commercial enterprises results in the inability to fully satisfy the demand of recipients. Costs due to inventory depletion can be reduced by improving the management of logistics processes, obtaining additional information to forecast demand for products and goods, forecasting demand for raw materials and materials in the volumes of each enterprise. Costs due to depletion of inventories are indicators of incomplete planning of business processes, poor quality assessments of demand, and unsatisfactory management of the promotion of material flows in the enterprise. Such deficiencies can cause inventory aging costs. These two phenomena (aging and depletion of reserves) are considered negative, but they cannot be completely eliminated. This conclusion is determined both by the objectively existing shortcomings of modern management systems and by various events that are difficult to foresee, the economic consequences of which are difficult to assess and which are often impossible to prevent. 6. Transportation costs As a set of actions aimed at moving material assets in space and time using characteristic technical means, transportation is a component of the technical infrastructure of logistics. The systemic perception of logistics processes requires a comprehensive consideration, which does not exclude autonomous operating conditions in the transport sector. Let's consider the functioning of transport infrastructure from the point of view of minimizing costs for the uninterrupted promotion of material assets. Reducing transportation costs depends on choosing the most economical mode of transport, certain vehicles, optimizing routes and duration of transportation. An important component of logistics costs is transportation costs. These costs for large-scale cargo shipments can amount to up to half of the total logistics costs. The costs of physically moving materials arise primarily in the internal and external transport management departments. These costs are relatively constant and sometimes variable. These include the costs of fuel use and external transport services, which are directly proportional to the volume of these services. Author: Mishina L.A. << Back: Inventory logistics (The essence and content of logistics inventories. Functions and classification of inventories. Optimization and regulation of material inventories. Systems and methods of inventory management. Justification of the required amount of inventories of a trading enterprise. Inventory management) >> Forward: Distributive logistics (Goals, objectives and functions of distribution logistics. Channels of distribution of goods. Logistic intermediaries of distribution. Rules of distribution logistics. Systems of distribution of goods. Planning of distribution of goods. Organization of the distribution system. Channels of goods distribution)
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