Activity-based performance management at strategic logistical alliance

Abstract

In the era of competitive global environment and technology-based organisations, managers are pressured to find ways to maintain their competitive advantage. Management has the responsibility to maintain their competitive advantage whilst maintaining the profitability of the organisation. This responsibility includes decisions regarding the retention of profitable customers, and the minimisation of costs to improve profitability of services. The analysis of cost and profitability of individual services and customers represents a critical issue with which Strategic Logistical Alliance (SLA) should be concerned SLA has proved to be a market leader within the logistics services market whilst maintaining profitability in most of its core business functions, with the exception of the warehousing and distribution function. The reasons for a lack of profitability in the warehousing and distribution function are inadequate planning, controlling and decision-making within these functions. The main reasons for these problems are incorrect cost allocations, the non-reflection of the true cost of activities, unprofitable pricing and the lack of effective performance management. 'The primary objective of this study is to analyse the existing cost allocation system, the cost management system and the performance management system of SLA, focusing on the warehousing and distribution functions. The study addresses the shortcomings of the existing system and recommends activity-based performance management as a possible solution. To achieve this primary objective, a number of secondary objectives were relevant. The research was conducted at SLA in Gauteng. The research comprised a literature study and an empirical survey using structured interviews to obtain information from relevant staff and managers. 'The empirical study was further extended by obtaining permission from top management to gather information by observation of activities and processes carried out by staff in the warehouse and distribution function. For management of SLA to achieve their goal of becoming a profitable leading third-party logistical service provider, a combination of tools should be used, which include activity-based costing, cost management and performance management. Activity-based performance management will enable management to gain useful information for decision-making to achieve their goal.