The warehousing and distribution costs in a household disposable product manufacturing company

Abstract

The physical distribution department of a company performs two basic functions: (a) Storage of goods (b) Transportation and delivery of goods The objective of the physical distribution function is to improve customer service. To control physical distribution and warehousing costs, some framework for control has to be set up. This control measure must be used as a yardstick for comparison:- The Budget. After predicting future demand, the budget is set up, which is a plan expressed in quantitative terms. However, the budget should be flexible to allow for unanticipated changes, but instead of changing the budget, a forecast is implemented. In this way, the forecast is an extention of the budget. Apart from planning and control, the budget also performs co-ordinating, communicating and motivating functions. The absolute commitment of managemen~to a budget and forecast is essential. To predict and control costs, a knowledge of cost behaviour patterns as well as a knowledge of factors influencing distribution costs is essential. The storage sub-function of distribution consists mainly of inventory control and management. Accurate forecasting of inventory levels assist in achieving a satisfactory customer service record. Also coupled to this is that too high inventory levels will result in increases in carrying costs and loss of interest, while too low inventory levels affect customer service. Inventory control can be achieved by applying various techniques such as the ABC method of inventory classification or the comparative analysis techniques.

As the objective of physical distribution is customer service, management would want to know to what extent this objective has been achieved. The efficiency measurement of physical distribution can basically be done in two ways: (a) Measurement in terms of cost (b) Measurement in terms of customer service The first measurement does not relate to the distribution objective, but rather to the corporate objective, which is profit maximisation. Using this method, distribution is expressed as a percentage of sales. The conclusion was that very few distribution cost items are direct variable. The result will be that the higher the sales value, the lower the distribution cost percentage will be. The second method is comparing the number of units delivered for a period, to the number of units that should have been delivered and expressing this as a percentage. If the assumptions are followed constantly to enable comparisons to previous periods, this method is the best indicator of distribution efficiency. One factor that could influence the measuring of distribution efficiency, is the product life cycle concept. Classification of distribution costs is essential for control and cost analysis. Due to the nature of distribution costs (mostly semi-variable and fixed) and the fact that these costs are mainly joint costs, it is difficult to find a realistic and acceptable basis for the allocation of distribution costs to various segments of the business (product lines or customers). This resulted in the adoption of the contribution approach and only costs that can be traced to a segment are allocated. Other costs remain unallocated. Control of distribution costs can be achieved by applying the concept

of the responsibility accounting system. This accounting and reporting system is an accounting system designed to control costs by directly relating the reporting of these costs to the individuals in the company's organisation who are responsible for their control. It emphasises the controlling of operations and costs and not the accounting and bookkeeping aspects. The main conclusion to be drawn from this study is that a good distribution system without the same quality of management will never meet its objective.